Term Paper: Ethical Audit of the Hershey Chocolate Company

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Globalization has impacted almost very aspect of organizational discourse. This is true even for organizations which once primarily operated in the United States. Access to cheaper labor has prompted intense competition between organizations, forcing many U.S. companies to seek better financial outcomes through outsourcing. Such is the case with Hershey. A recent report released by MarketWatch demonstrates that in the coming months, Hershey will begin downsizing in its Pennsylvania location, pushing more than 600 jobs overseas because of cheaper labor costs ("Food..., 45). While this is not the first global shift that the organization has made, it clearly elucidates the impact that globalization is having on the organization and its overall business practices.

With the realization that Hershey has been so notably impacted by the process of globalization there is a direct impetus to consider what specific changes have occurred as a result of this issue and the overall methods that Hershey has employed to address these notable changes. Using this as a basis for investigation, this research considers an ethical audit of the Hershey Chocolate Company. Specifically, this research examines how the organization's business practices have been shaped as a result of globalization. Through a careful review of the changes made in the organization, it will be possible to determine whether or not Hershey have been able to maintain high ethical standards in making this transition. Further, by examining the current situation at Hershey, it will be possible to demonstrate the complex array of issues involved in the process of adapting to a global business environment.

Current Operations at Hershey

Background and Overview of Hershey

In order to begin this investigation, it is first helpful to consider a broad overview of both the Hershey organization and its efforts to expand its operations into the international arena. A review of the organization's overall operations indicates that the Hershey Company is "engaged in the manufacturing, marketing, selling and distribution of various types of chocolate candy, sugar confectionary, refreshment and snack products and food and beverage enhancers..." ("Hershey..., 4). The company operates under 50 different brand names which are marketed in 50 different countries. Hershey is headquartered in Hershey, Pennsylvania and employs approximately 13,000 people. In terms of overall business operations and financial health, Hershey has performed quite well in recent years. In FY2006 the organization reported revenues of $4,944.2 million: an increase of 2.6% over FY2005. Additionally, the organization reported an operating profit of $992.6 million in FY2007, representing a 14.5% increase over FY2005 (4).

With respect to foreign operations, researchers report that the organization derives more than 10% of its net sales from foreign sales. Further, Hershey has strategically located many of its assets outside of the Untied States ("Hershey..., 8). Although this move was intended to improve the overall financial health of the organization, scholars argue that this unusual positioning may be a notable problem for the organization. "The company is subject to numerous risks and uncertainties relating to international sales and operations including: economic and environmental changes, supply constraints, demand changes, regulatory changes, tariffs, quotas, trade barriers, and other trade protection measures and import licensing requirements" (8). This situation further impedes the ability of the organization to engage in foreign operations as foreign restrictions on trade could make it difficult for the organization to remain competitive in this industry (8).

Current Foreign Activities

Based on the data provided above, it becomes quite evidence that Hershey has been actively involved in developing its foreign operations for a number of years. While it is not possible to cover all of the foreign operations of the organization in this investigation, it is feasible to consider some of the organization's most recent operations. Assessing these operations will facilitate a greater understanding of the specific strategy being employed by the organization to conduct business in the international arena.

A cursory overview of the current literature on Hershey in the international arena clearly indicates that the organization is pushing to expand its operations in the Asia-Pacific region. Of particular importance in this process is the development of specific partnerships with Indian chocolate companies. As a standalone company, Hershey faces notable challenges permeating this market; however with the help of a national chocolate company, Hershey is hoping to successfully enter this market in the coming months ("Company..., 70). Considering the specific challenges facing Hershey in India, scholars report that the overall Indian chocolate market is quite small. Further data shows that Indian's typically do not prefer chocolate:

Figures show that the Indian chocolate market was worth just $188.6 million in 2006, despite having a population of over one billion; this compares to the U.S. market value of $15.2 billion, where the population is just under 300 million. Furthermore, Indian consumers' sweet snack of choice is currently the traditional candy known as mithai, and, therefore, a significant marketing push would be required in order to persuade them to transfer their allegiance to chocolate (70).

Despite these complications however, Hershey believes that it can permeate the market and create a substantial source of revenue and profit for its organization.

The current decision of the Hershey Company to seek operations in India reflects an overall downward trend in the growth of the chocolate business in the United States. Even though Hershey has been able to grow its business in recent years, the pace of growth is slowing overall ("Hershey's...,). In an effort to spur growth in the organization, Hershey appears to have no other choice but to seek foreign operations that may prove profitable over the long-term ("Hershey's...). Thus, while the move to India may be fraught to considerable complications, the decision to make this change is clearly predicated upon a need to improve the overall financial position of the organization.

Although seeking new markets is one method that Hershey has employed to expand its business operations, scholars also report that the organization has relied heavily on outsourcing and offshoring to save money ("Hershey's..."). Specifically, on February 15, 2007 the organization developed a restructuring plan that would enable it to reduce its American workforce by 1,500 employees. The organization is making this change because it is building a new facility in Mexico, which it believes will save the organization a considerable amount of money over the long-term: "The company is planning to outsource its production as it builds a facility in Monterrey, Mexico. Hershey thinks that program will cost between $525 million to $575 million to implement over the next three years, but then the company also hopes to save around $170 million to $190 million annually by 2010" ("Hershey's...."). While the central focus of this move is to increase revenue, Hershey also contends that the costs savings garnered by the organization will enable it to further invest in its operations and expand its business over the long-term ("Hershey's...").

Clearly, the efforts undertaken by the Hershey organization to improve its business appear to be justified given the overall scope and context of the current market. At the present time, Hershey is facing notable financial challenges at it attempts to improve its overall market position and bolster sales. Although the changes made by the organization in this context appear to have notable merit, a critical review of what has been reported about Hershey's business practices in its overseas operations brings to light the overall ethical controversies that exist when U.S. organizations move their operations abroad in an effort to save money. Of particular interest with respect to the chocolate industry are the labor practices used by organizations such as Hershey in securing their raw materials and final products.

According to a review of business practices employed in the chocolate industry, organizations such as Hershey and Nestle have long acquired their coca supplies from developing nations in which child, slave labor is used to procure needed raw materials (Orr, 24). "The International Labour Organization, part of the UN, estimates 284,000 child laborers work on cocoa farms, most of them in one tiny country, Ivory Coast, source of almost half the world's cocoa. These are either involved in hazardous work, unprotected or unfree, or have been trafficked" (24). Once the coca is secured from these farms, researchers report that it is transferred to processing plants all over the globe where laborers are paid menial wages to make the company's final products (25). Although Hershey has not been directly implicated in utilizing slave and child labor, researchers do report that the organization is one of the largest purchasers of coca from Africa (25).

Evaluating the Organization's Operations

Based on the data provided above, it is evident that there are a host of ethical issues related to Hershey's foreign operations that must be addressed in completing an ethical audit for the organization. As such, it is pertinent to consider each of the ethical issues noted above. A review of these issues will facilitate a greater understanding of the challenges facing the organization. Further, a review of these issues will elucidate the complexity of ethics as they relate to both the organization and the… [END OF PREVIEW]

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