can you identify the main problem for this case study! i cant seem to understand what it is telling me. thanks
Addison Ventures
The auditor’s report arrived today and its contents were troubling to say the least. The
report was commissioned after some concerns were noted following a visit to check on
Addison Ventures’ joint venture operations in China.
Because of the low cost of labor, Addison Ventures decided it would be a good idea to
start operations in Shenyang, China, by forming a joint venture with a local company.
Chris, the Addison Ventures’ C.E.O, was hesitant at first because he had heard horror
stories about the labor conditions in some of the overseas-funded facilities. He felt that
these working conditions would not align with Addison’s core values and strongly
opposed the idea from the beginning.
Chris felt somewhat reassured, however, after initial forecasting figures showed that the
firm could afford to pay workers well above the minimum wage and still achieve
significant labor cost savings. Based on this information, Addison Ventures proceeded
with forming the joint venture, but under the strict condition that workers would be paid
above the minimum wage and would work a minimal amount of overtime.
Several months later, during his first tour of the new Chinese facilities, Chris noticed
working schedules that showed employees working up to fourteen hour days. Upon
arriving back in Canada, Chris immediately called upon a consulting firm that
specialized in ethical audits to investigate. Their findings were summarized in the
auditor’s report and confirmed his initial suspicions.
The auditing firm had obtained the company’s payroll records and at first glance it
seemed as though the firm was paying workers well above the minimum wage. But,
after an in-depth review, it was clear that workers only appeared to be earning this
amount because of creative payroll records. Workers received 350 yuan (approximately
US$42) per month. From that amount, the firm deducted a flat fee of 100 Yuan for food
and living expenses. These expenses were not optional. After deductions, workers
were still left with 250 Yuan which was above the minimum wage of 240 Yuan. The
problem was that the overtime was being added on before the deductions, so workers
were, in fact, making well below the minimum wage. Furthermore, the overtime was
found to be a significant amount, especially considering the repetitive tasks and work
area set-up. However, the overtime was much less compared to other similar firms in
the area.
Chris realized that these operations were much too profitable to give up, but if the
auditor’s report somehow leaked to the media, it would be a public relations nightmare.
Addison Ventures is renowned for its high ethical standards and belongs to a number of
associations that promote ethical behavior in business. This report could jeopardize its
status and turn off both potential investors and existing clients. On behalf of Addison
Ventures, Chris has hired you to address his current dilemma.
