Belinda Daniella Harjono
11023546
The Relationship between Firm’s Vertical Integration Level and Its
Involvement in Human Rights Violations
Date of Submission: January 27, 2017
Final Version of Thesis
Amsterdam Business School
MSc. in Business Administration – International Management Track
Supervisor: Dr. M. K. (Michelle) Westermann-Behaylo
Statement of Originality
This document is written by Belinda Daniella Harjono who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract
Out of several strategies that firms use in expanding their business in order to capture the highest possible profitability, a vertical integration strategy is one of the boldest strategies. In using this strategy, firms obtain benefits in another location with the lowest possible cost while still maintaining the high revenue. Little do they realize that somehow a strategy that is pushing cost to be the lowest possible leads to a situation in which some parties negatively affect another in the working environment. Involvement in a human rights violation is one of the possible actions that firms could do to benefit themselves without further considering the effect to their stakeholders. There is no IB literature that clearly connects how this integration strategy can possibly lead to firm’s involvement in human rights violation. Thus, this thesis gives contribution to managers, academics and all readers about the relationship between the level of firm’s vertical integration and its involvement in human right violations. This thesis is conducted using a qualitative multiple case study research design where the data is collected through Corporations and Human Rights Database (CHRD) and analyzed through a cross-case analysis. The findings suggest a linear relationship between firm’s level of vertical integration and its involvement in human rights violations. However, it is applied in most cases, but not in all cases.
Keywords: Vertical strategy, integration level, cost-cutting, human rights, violations.
Student: Belinda Daniella Harjono Student ID: 11023546
Supervisor: Dr. M. K. (Michelle) Westermann-Behaylo Second reader: dr. Lori DiVito
Date: January 27th 2017
Table of Contents Statement of Originality 2 Abstract 3 1. Introduction 5 2. Theoretical Foundation 8
2.1 Vertical Integration Concept: Definition, Stages and Level of Integration 8 2.2 Business and Human Rights Issues: The Stories of Human Rights Violations in a Company 14 2.3 Integrating Human Rights Violations with the Level of Vertical Integration’s Firm Strategy 16
3. Methodology 17
3.1 Qualitative Multiple Case Study Research Design 18
3.2 Selection of Firms 21
3.3 Data Collection 26
3.4 Data Analysis 26
4. Results 48
5. Discussion of the Findings 51
6. Conclusion 53
6.1 Research Limitations 54
6.2 Suggestions for Future Research 55
1. Introduction
When examining the profitability of a firm, one must consider how that firm respects all the stakeholders involved in the business – likewise the society and local communities in which the business is taking place (Carter & Rogers, 2008). It is well explained by William Halal in the article “Corporate Community: A Theory of the Firm Uniting Profitability and Responsibility” that modern stakeholders work with managers to improve their own benefits while also enhance corporate profitability. The article also stated that collaborating with stakeholder is the latest evolution of corporate governance that is now the key to creating economic wealth. However, the basic of today’s continuing conflict between profitability and responsibility is managers who do not seem to understand the unity of these two interests. Thus, to be in line with the stakeholders and societies, firms must take action to be socially responsible (Carter & Rogers, 2008). Unfortunately, in reality, there are still a lot number of firms that are not respecting its stakeholders’ rights, and are instead, involved in human rights violations – a condition where a firm victimizes employees or other possible stakeholders.
Before further discussing violations, a review about the notion of human rights itself is needed. Human rights are fundamental rights and privileges that reside indisputably in every person in the world, from birth until death. They apply leaving aside of who you are, where you are from, what is your status, what do you believe in, and how you desire to live your life. Compliance with human rights means securing that everyone is entitled to make these claims: I have these privileges, regardless of what you say or do, for the reason that I am a human being. To sum things up, a human rights claim is basically a moral claim, and it depends on moral values. It also has traits such as inalienable (you cannot fail them, because they are related to the very fact of human presence), indivisible (distinctive human rights are inherently related and cannot be viewed in solitude from each other), and universal (which means that they apply correspondingly to all people everywhere in the world with no time limit) (UNFPA, 2005). Thereupon, following the adoption of the Universal Declaration of
Human Rights drawn up by the United Nations Commission of Human Rights, regions of the world have established their own systems for protecting human rights.
The brief explanation of human rights clearly emphasizes the importance of human rights universally. This Master’s thesis is pointedly investigating human rights and its violations in the business field. In particular, this thesis has a purpose of observing the relationship between human rights violations and the level of firms’ vertical integration.
The vertical integration is a concept that explains how do many companies use a strategy in expanding their activities abroad to gain control over their industry’s value chain. Here, the company’s motives are to seek resources and efficiency through expanding into another production stage, rather than to seek markets through merging or acquiring the company in the same production stage, or usually called the horizontal integration. For example, a company is vertically integrating if it expands from manufacturing industry to retailing industry, whereas a company is horizontally integrating if it buys other firms in the same manufacturing industry. In seeking resources, vertically integrated firms can pursue a forward strategy where the manufacturing company engages in sales or after-sales industries, a backward strategy where the same manufacturing company starts making intermediate goods for itself, or a balanced strategy, which is simply a combination of forward and backward strategy (Jurevicius, 2013).
Chevron and ExxonMobil are two examples of many companies throughout the world that use the vertical integration strategy in expanding the business. Unfortunately, these two companies are known to be very poor in managing human rights in which they operate their business. Instead of keeping up their reputation, they were involved in human rights abuses in Nigeria, Myanmar and Indonesia. To be precise, in 1999, Chevron were sued by nine Nigerian plaintiffs for death in an incident where Nigerian military and police were paid by Chevron to use its helicopters and boats to torture and shot protestors and destroyed two
villages allegedly associated with opposition to Chevron’s oil activities in the desperately poor Niger delta (Paddock, 2008). Meanwhile in 2001, eleven Indonesian villagers filed suit against ExxonMobil alleging that the company was complicit in human rights abuses committed by Indonesian security forces in the province of Aceh. The plaintiffs allege that they suffered human rights violations, such as murder, torture and rape, at the hands of these security forces (Alfredson, 2001). Those were only two examples – in fact, there are still many cases of vertically integrated companies that violating human rights.
Consequently, when integrating human rights abuses with a resource-seeking motive of expansion, we will get to know to what extent the activity of seeking resources is conceivably affecting the likelihood of human rights violations in a corporation. The research question guiding this study is as follows.
How is the relationship between firm’s level of vertical integration and its involvement in human rights violations?
In order to answer this research question, this thesis starts off with an overview of the relevant literature about the vertical integration concept – including its definition, stages, and levels of integration, the business and human rights concept – including the stories of human right violations that companies involve in, and the integration between these two concepts. Following the theoretical foundation, the methodology of this thesis will be discussed. This discussion includes the research philosophy behind this study, the selection of firms and cases, the collection of data, and the method used to analyze the data. This thesis uses a qualitative multiple case study research design. Data is collected through Corporations and Human Rights Database (CHRD) and analyzed in a mode of cross-case analysis. This thesis concludes with a summary of the key findings, the limitations of this study, and suggestions for future research.
2. Theoretical Foundation
2.1 Vertical Integration Concept: Definition, Stages and Level of Integration
The eclectic paradigm theory pointed out that there are fundamentally four main types of foreign-based multinational enterprise activity (Dunning, 2000). The first one is a motive that is designed to satisfy a particular foreign market by supplying goods and services – usually called as a market-seeking expansion. Under this expansion, the main internalization determinants driving the decision of MNE are the factors influencing the ability of MNE in exporting goods and services and the factors affecting the extent of appropriability of the results of a production process. In this case, MNEs invest in a foreign country to exploit the possibilities granted by markets of greater dimensions. Apart from searching and exploiting new markets, MNEs choose this strategy because they want to follow suppliers or customers that have built foreign production facilities and adapt goods or services to local needs. In recent times, it is also important to have a physical presence on the market to discourage potential competitors from occupying that market. Firms that expand using this strategy are known as horizontally integrated firms (Franco, Rentocchini & Marzetti, 2008).
On the other side, there are vertically integrated firms – which are firms that have resource-seeking and efficiency-resource-seeking as their motives to invest abroad. In the resource-resource-seeking strategy, firms focus on gaining access to natural resources, for example: minerals, agricultural products, and cheap labor. The main aim of the MNEs that are using this strategy is that of acquiring particular types of resources that are not available at home country (like natural resources or raw materials) or that are available at a lower cost (such as unskilled labor that is offered at a cheaper salary with respect to the home country). Meanwhile in the efficiency-seeking strategy, firms concentrate on promoting a more efficient division of labor or specialization of an existing portfolio of foreign and domestic assets by multinational enterprises. The efficiency-seeking strategy is considered to occur especially on two
occasions: in the first case firms take advantage of differences in the availability and costs of traditional factor endowments in different countries, while in the second one they take advantage of the economies of scale and scope and of differences in consumer tastes and supply capabilities (Franco, Rentocchini & Marzetti, 2008).
All these three expansion strategies are serving the primary objective of generating economic rents through the exploitation of some firm-specific assets. Those assets are usually technological assets that are generated through research and development investments, which are transferred by the headquarters of the MNE to the subsidiaries. For these reasons, asset-exploiting foreign direct investment was identified. Thus, the last motive is strategic asset seeking strategy. In this strategy, the purpose of the investment is that of acquiring and complement a new technological base rather than exploiting the existing assets (Franco, Rentocchini & Marzetti, 2008). In this thesis, the strategy of efficiency-seeking and resource-seeking, or usually called as the vertical integration strategy, is focused on.
Vertical integration is a way of increasing a firm’s value-added margins for a particular chain of processing from ultra-raw materials to ultimate consumers (Harrigan, 1985). It involves a variety of decisions concerning whether corporations, through their business units, should provide certain goods or services in-house or purchase them from outsiders instead. In many cases, a major reason why firms do vertical integration is to eliminate, or at least greatly reduce, the buying and selling costs incurred when separate companies own two stages of production and perhaps the physical handling costs as well. In this way, a firm should vertically integrate when costs of making the product inside the company are lower than the costs of buying that product in the market. Thus, a company that manufactures integrated circuits as well as finished products can operate with little or no sales force, advertising, sales promotion, or market research. Conversely, another producer selling to independent customers would need all these activities (Jurevicius, 2013).
Vertical integration may also be essential to assure sufficient supplies of critical materials. Specifically, this aspect of vertical integration has been a significant attraction of that strategy to the petroleum industry, both in its early days and more recently in the OPEC-dominated 1970s. Even when supplies of materials are certain, vertical integration may permit cost reductions through improved coordination of production and inventory scheduling between stages. Some argue that an in-house supplier can schedule production more efficiently when it has firm commitments from a ‘downstream’ manufacturing or distribution facility than when it deals with independent customers. Furthermore, in general, some claim that businesses that are vertically integrated are best equipped to innovate because they participate in many of the production and distribution activities in which change can occur. Also, it is observed that the more vertically integrated a business, the greater the financial and managerial resources required to enter and compete in it (Buzzell, 1983).
Most research concerning vertical integration has assumed that savings in the costs of transactions that integration accomplishes supersede autonomy needs of strategic business units (SBUs). Moreover, vertical integration is also defined as the degree to which a firm owns its upstream suppliers and its downstream buyers, typified by one firm engaged in different parts of production (for example: growing raw materials, manufacturing, transporting, marketing, and/or retailing). Integrated firms will transfer all of their relevant goods and services to adjacent, in-house business units. The number of steps in the chain of processing which a firm engages in – from ultra-raw materials to the final consumer – determines the number of stages of integration (Harrigan, 1985).
A firm’s corporate strategy objectives and its industry’s phase of development will most significantly influence decisions concerning the number of stages to be engaged in.
Source: Vertical Integration and Corporate Strategy (Harrigan, 1985)
The diagram above is a diagram that is explaining the dimensions that characterize vertical integration strategies. There are three types of firms in a vertically integrated strategy. These types are distinguished by its narrowness in a supply chain process.
Firm A is engaged in many stages of integrated activity but adds only one input per stage of processing (it is narrowly integrated). They transfer all of its outputs from stage 1 to stage 2 in-house and do not purchase any inputs from (nor sell any outputs to) outsiders. Firm A is fully integrated from stage 1 to stage 7 (Harrigan, 1985).
Firm B makes four inputs (a, b, c and d) at stages 3 and 5, respectively. Firm B purchases some 3c from (and sells some 5c to) outsiders. Firm B is more broadly integrated at stage 3 and 5 than at stage 2 and 6 (because it performs more activities there). They are engaged in many stages of integrated activity, but because the firm purchases some of its requirements from outsiders, its degree of integration for some activities is lower than firm A’s (Harrigan, 1985).
Meanwhile, firm C makes b at stage 3 and 2, and makes c at stage 5. Firm C is narrowly integrated and engaged in few stages of integrated activity. It purchases some 2b and 3b from (and sells some 5c to) outsiders, making it tapered integration (Harrigan, 1985).
In real life situation, firms adopt different vertical integration strategies which represent different degrees of risk aversion, desires of control, objectives for market-share, long-term profitability, and other leadership forms that enhance long-term wealth maximization. They adopt different strategies because of the reasons that they apply it within industries that differ in volatility, they have attained differing degrees of bargaining power with respect to upstream and downstream industries, and they possess dissimilar competitive needs. Those integration levels are:
Source: Vertical Integration and Corporate Strategy (1985)
Full Integration
Fully integrated firms are those firms who buy (or sell) all of their requirements for a particular material or service internally. They operate their plants to satisfy a large portion of input requirements or consume a large portion of their output internally, and are frequently market-share leaders for the materials in question. A full integration strategy is used when firms believe that they can protect proprietary processes adequately from competitive espionage by integrating. In this level of the integration strategy, components must be engineered carefully and manufactured to fit an assembly precisely – thus, firms desire to
Contracts Quasi-Integration Tapered Integration Full Integration
supervise all stages of quality control tightly. Also, interconnection gives integration cost advantages. Furthermore, this strategy works best when price competition is relatively acceptable for the firm, there are no significant diseconomies incurred, capacity expansions are not lumpy, and the firm enjoys cost advantages that offset any imbalance costs due to access to scarce resources. If the environment is a stable one, more internal integration can be undertaken successfully (Harrigan, 1985).
Tapered Integration
Tapered-integrated firms are those firms who rely upon outsiders for a portion of their requirements. They produce or distribute a portion of their requirements internally but purchase (or sell) the remainder through specialized suppliers or distributors. This strategy can be used whenever physical interconnection need not occur, and works best when firms can add substantial value to the materials they produce or distribute, raw materials are abundant, and underutilized capacity does not incur meaningful diseconomies. Although tapered integration offers the advantage of full utilization of firms’ capacity, firms may pay relative premiums for their outside supplies and services, or have low-priority customer status, depending upon their bargaining power (Harrigan, 1985).
Quasi-Integration
Quasi-integrated firms are firms who do not own 100 percent of the adjacent business units in question. However, these firms may consume (or distribute) all, some, or none of the outputs (or inputs) of the adjacent, quasi-integrated unit. This strategy is useful where risks from new technologies or capital requirements are quite high, and it offers the competitive scanning advantages of tapered integration for a lower ownership stake (Harrigan, 1985).
Contracting
Contracts require the careful drafting of documents delineating responsibilities but no internal integration. Because virtually every function that firms perform internally could also be
provided by outside suppliers, fabricators, wholesalers, and marketing representatives, knowledge of how to use this network could be crucial when the firm must disintegrate or go to the external market. Contracting is best used in highly volatile industries. If a firm possesses great bargaining power, it may write contracts wherein outsiders perform R&D, promotion, or other services for the firm at preferential prices (Harrigan, 1985).
2.2 Business and Human Rights Issues: The Stories of Human Rights Violations in a Company
Along with the concept of vertical integration, the human rights issue is a concept that is also being focused on in this thesis. Reviewing the concept of human rights and its connection to business world – business is basically defined as the major source of investment and job creation. Markets can be highly efficient means for allocating resources by constituting powerful forces capable of generating economic growth and reducing poverty. But, it works optimally only if markets are embedded within rules, customs and institutions. Thus, markets could pose the greatest risks to society when their power exceeds the institutional underpinnings that allow them to function smoothly and ensure their political sustainability (Ruggie, 2008).
Today, the root of problems in business and human rights issues lies in the governance gaps created by globalization that provide the permissive environment for wrongful acts by companies. On the downside, corporations today have been able to gain competitive advantage from the relative laxity of international law by producing or selling products within regimes that flout human rights in various ways. At the same time, they have also been able to claim that they are powerless to change local laws and that it is better that they continue to invest in such nations and bring economic investment than pull out altogether (Ruggie, 2008).
For these reasons, Townsend (2002) argued that the international community – that is led by the United Nations (UN) – needs to hold corporations more directly responsible for upholding and protecting human rights and force national governments to more directly monitor and prosecute human rights abuses committed by corporations registered within their domain (Farnsworth, 2010). Fueled by escalating reports of corporate human rights abuses, the UN Sub-Commission on the Promotion and Protection of Human Rights established a working group on business and human rights. This working group was tasked to make recommendations and proposals relating to the methods of work and activities of transnational corporations in order to promote the enjoyment of economic, social and cultural rights and the right to development, as well as of civil and political rights (Ruggie, 2007).
Although UN has done the best they can to provide the most sustainable business environment considering the rights of all stakeholders and prevent other corporate abuses from happening in the future, unfortunately, it still happens (Ruggie, 2007). Here, some real-life violation cases are provided. For example, the violations are done by the infamous Anglo American South Africa – or popularly called as AngloGold Ashanti – that is the subsidiary of Anglo American PLC. This company is highly controversial as they were involved in many cases of human rights abuses. For example, they were sued on behalf of former miners who contracted lung diseases when working at its operations, accused to destroy a citizen’s property in order to make way for the establishment of AngloGold Ashanti Tebereble Mine Rock Waste Dump, accused of taking the lands of farmers by force and not compensating them, and accused of demolishing properties (a church, a mosque and school buildings) to pave way for mining (Stoddard, Lakmidas, Baird & Barker, 2012).
Second, a company named Lonmin PLC based in South Africa also known to be one of the companies that have often been sued for being irresponsible. To be precise, they were accused of not investing in the local economy – specifically in a way that they failed to address the housing crisis of its employees and made little or no progress in its environmental impact. In
addition, Lonmin PLC was also accused of being involved in Marikana massacre, which resulted in forty-four people died and seventy-five people injured following one week of unauthorized strike action at Lonmin’s Marikana mine (Munusamy, 2015). Another example is a company that is based in Kenya, named Tiomin Resources Inc. This company planned a multi-billion project of titanium mine in southeast Kenya – leading to environmental damage and destructing effect for the lives of people. Farmers in the area even complained before the mining project was started, but the government kept on granting the permission for Tiomin (AFX, 2013).
2.3 Integrating Human Rights Violations with the Level of Vertical Integration’s Firm Strategy
In this section, some reasons why firms in the first place made a decision to be involved in human right violations will be firstly pointed out. Notably, corporations are driving down labor protection measures and employment standards due to the big wave of globalization. Globalization specifically increases the investment options for corporations; thus, many have relocated large parts of their business activities to other (often poorly regulated and lower tax) states in order to boost profits. Those corporations that invest in corrupt and/or undemocratic states are accused of undermining workers’ rights and colluding with regimes that systematically imprison, torture and kill opposition groups. Furthermore, the pursuit of a high effectiveness and profitability can possibly lead corporations to engage in inappropriate or illegal practices, including bribes and the pursuit of sales to the detriment of the health of consumers. Also, those corporations are accused of dangerous and environmentally damaging practices resulting from the cost-cutting strategy (Farnsworth, 2010).
Connecting human right violations with vertical integration strategy, these two concepts are aligned with each other in such a way that vertical integration makes sense as a strategy because it allows a company to reduce costs across various parts of the production. On the
other hand, human rights violation occurs because of the globalization wave that drives firms to relocate their business parts in a country where they can save costs and therefore, undermining the right of workers and communities. Furthermore, the uncertainty that is resulted by globalization wave lead to more vertical integration. The basic argument is that an independent supplier will demand a reasonably complete long-term contract before committing to investments in an idiosyncratic asset (Balakrishnan & Wernerfelt, 1986).
There are four levels of vertical integration strategy that have been discussed in the previous section. Those levels are full integration, tapered integration, quasi-integration, and contracts. In each strategy level, firms do their expansion strategy in a slightly different way. The full integration strategy is the riskiest one, but also the boldest one, because if it is executed correctly, it offers the lowest possible unit costs where integration economies are substantial (Harrigan, 1985).
The theoretical foundation about how a high level of vertical integration can lead to high involvement in human rights is summarized below.
3. Methodology High level of vertical integration strategy Firm reduces variable cost as much as possible Firm justifies any possible means to push cost down Firm involves in environmentally damaging practice that harms stakeholders and neglects the importance of human rights High involvement in human right violations
This section will elaborate how the thesis uses the methodology in answering the research question. Specifically, this Master’s thesis will answer the research question of how is the level of vertical integration strategy affecting firm’s involvement in human rights abuses. The multiple-case research design adopted for this thesis will be discussed. The discussion includes the selection of firms.
In answering the research question, a cross-case analysis will be conducted based on eight firms with four different characteristics. In regard to the first characteristic, two firms with high level of vertical integration will be analyzed and observed to see their involvement in human rights abuses. Second, two firms with a lower level of vertical integration will be used and analyzed to see their involvement in human rights abuses. Moving on to the perspective of human right issues itself, two firms that have high involvement in corporate abuses are sought and analyzed. The point of analysis is the vertical integration level of these firms, and next, another two firms are going to be analyzed – but in this case, it should be the firms with low involvement in human right abuses. Therefore, it is going to be eight different firms in total. In the end, it will be concluded with a description of the data collection and the data analysis.
3.1 Qualitative Multiple Case Study Research Design
While quantitative research is most appropriate when the goal is to discover causal links between variables, qualitative research is useful when researchers aim to establish beliefs, perceptions, and/or motivations related to a particular phenomenon. Qualitative research is useful when one seeks to answer ‘how’ and ‘why’ research questions (Yin, 2013). Since this thesis focuses on observing how is the relationship between firm’s level of integration strategy and their involvement in human rights violation, qualitative research design is used.
In a qualitative research design, it is appropriate to use a method of experiment, history or case study. From the three options, the case study is the most appropriate in this thesis because it has no control over behavioral events and focuses on contemporary events – rather than histories that focus on historical events and experiment that has control over behavioral events. A case study is an in-depth exploration from multiple perspectives of complexity and uniqueness of the particular project, policy, institution, program or system in real life context (Simons, 2009). Also, the phenomenon is relatively an unexplored area because little is really known about the connection between vertically integrated firms and human rights abuses. Moreover, this thesis observes information and data through the eyes of the people being studied. In specific, this thesis tries to understand the world from the perspective of informants or media who brought news to the public, community group who reported a violation, Government who assisted in violation, and company who responded to violation through either apologizing it, justifying it or denying it.
Furthermore, this thesis uses an inductive qualitative research approach providing a rich understanding of the connection between two different concepts that are influencing each other in order to develop a theoretical framework and proposition as a result of the study. To safeguard external validity, multiple-case studies are used in this thesis to describe and unfold the knowledge concerning the likelihood of involvement in abuses and to provide a better grounded generalizable theory that emerged from various evidence.
Multiple case study approach has two strengths. Firstly, it allows for an in-depth description and analysis of decision-making processes and/or events (Yin, 2013). Secondly, using multiple cases strengthens the theoretical implications of the findings by triangulation of the evidence in observations (Eisenhardt, 1989). However, this approach also has weaknesses. For instance, the reproduction of evidence is often unsuccessful (Yin, 2013). Also, the intensive use of empirical evidence in multiple case studies leads to complexity and idiosyncratic theory, as researchers are unable to assess what the most important relationships
between variables are (Eisenhardt, 1989). Thus, to enhance the credibility, there are four quality criteria that must be considered. Those criteria are construct validity, internal validity, external validity and reliability (Gibbert et al., 2008).
First of all, construct validity is concerned with the measurement of the concepts of research (Yin, 2013). Triangulation has been advocated to improve the construct validity of a study by combining methods. This can mean using several kinds of methods or data. In this way, besides looking at published articles in news regarding the violations, an official company document analysis is also used to limit the use of subjective judgments, thus increasing the construct validity. Secondly, internal validity refers to the causal relationships between variables and results. Yin (2013) proposes ‘pattern matching’ as a measure to enhance the data analysis and thus the internal validity. Pattern matching is done by the comparison of empirically observed patterns with either theoretically predicted patterns or ones that are established in previous studies. In this thesis, patterns are theoretically predicted and identified across cases.
Next, the external validity – the extent to which the findings of a study are generalizable – is always problematic with multiple case studies. The primary reason is a small sample size. However, Eisenhardt (1989) argues that case studies can be used to develop theory. Although this thesis is not using statistical generalization, an analytical generalization is used to go from observations to theory. Furthermore, a cross-case analysis that is done in this thesis provides a good basis for analytical generalization. The last criterion is studied reliability, which is determined by the level of transparency and possibility of replicating the study. In this way, clear sources are provided in each case that is being analyzed. These complete sources are given by Business and Human Rights Resource Centre, an organization that works with everyone to advance human rights in business worldwide. They are tracking over six thousand companies around the world, and helping the vulnerable eradicate abuse.
3.2 Selection of Firms
In selecting firms, the researcher uses four characteristics as basis requirement. Two firms are selected for each of the characteristics. Those four characteristics are high level of integration, low level of integration, severe level of human right violation, and mild level of human right violation. Two firms with a full level of vertical integration are compared with two other firms with a lower level of vertical integration to see how are their level of human rights violation. On the other hand, two firms with the severe level of human right violations are compared with the other two firms with the more tolerable level of human right violations to see how are their level of vertical integration.
Firms with the full level of vertical integration:
Corporación Nacional del Cobre de Chile (CODELCO) (in Chile).
• CODELCO is a vertically integrated producer of refined copper in Basic Technological Circuit (BTC); thus, it has divisions dealing with individual stages of the technological process starting from ore extraction to cathode copper production.
• The company appointed a special department responsible for maintenance and service of mining equipment in order to warrant the undisturbed production process – meaning that firms desire to supervise stages of quality control tightly (aligned with the characteristic of a full integration strategy).
• At present, this department produces the mining machines and equipment, mainly equipping its own plants, but part of its production is sold on the outside market, specifically to other South American copper producers.
• ConocoPhillips is an American multinational energy company that is also known as the world’s largest independent pure-play exploration and production company.
• ConocoPhillips adopts a pure vertically integrated structure: they are active along the entire supply chain from locating deposits, drilling and extracting crude oil, transporting it around the world, refining it into petroleum products such as petrol/gasoline, to distributing the fuel to company-owned retail stations, for sale to consumers.
• They are currently operating across 20 countries in the world with over 14,900 people work in a truly integrated way to find and produce oil and natural gas.
Firms with the lower level of vertical integration:
Bayerische Motoren Werke AG (BMW) (headquartered in Germany).
• BMW uses a tapered integration strategy (Besanko, Dranove, Shanley & Schaefer, 2013). • They use both in-house market research from its Corporate Center Development and
external market research from independent, specialized firms.
Dell Inc. (headquartered in the United States).
• Dell is an American privately owned multinational computer technology company based in Round Rock, Texas, the United States.
• Dell uses a quasi-integration strategy (Mason & Wong, 2006).
• Dell positions themselves in the downstream of the supply chain, acting as direct sales agents. They do not own any of the manufacturing operations for their branded computers but use customer information acquired through downstream integration to influence long-term relationships with upstream, disinlong-termediated suppliers (Mason & Wong, 2006).
o Dell has demonstrated the importance of minimized ownership through positioning, identifying the key value adding activities for ownership, and restricting ownership to this single supply chain stage.
Firms with the severe level of and high involvement in human right violations:
Anglo American PLC (as a parent company). Subsidiaries involved:
• AngloGold Ashanti Limited. In South Africa:
o The company is accused of affecting the health of miners who suffer from silicosis.
o A worker died at the TauTona mine.
o The company does not comply with health and safety regulations, and as a result in 2011 several workers died.
o The company is accused of not complying with safety regulations in 2008, as a result of which workers die.
o Workers died in 2007 as a result of the company not providing the safe working environment.
o The company is accused of polluting the Wonderfonteinspruit. o Two miners were killed in a rockfall in June 2002.
o Four mineworkers were killed and four others injured following a “seismic event” at Savuka mine.
In Ghana:
o The company is accused of being involved in the shooting of a 23 year-old man by a security guard.
o The company is accused of being involved in the shooting of Mr. Awudu Mohammed of Obuasi, and the father of Miss Sandra Sarpong.
o The company is accused of destroying the property of Mr. James Sarpong to make way for a waste dump.
o In 2006, the company used the services of the military to shoot farmers who were passing through company property. The military arbitrarily detained one of the farmers for 9 months.
o The company is accused of taking the lands of farmers by force in 2009, and not compensating them.
o The company is accused of polluting rivers and forests with a cyanide leakage; and raw sewage into streams and rivers in 2008.
• Anglo American South Africa Limited (in South Africa).
o The company is accused of affecting the health of miners who suffer from silicosis.
• Anglo American Platinum Limited (in South Africa).
o The police in South Africa fired rubber bullets, teargas and stun grenades in clashes with hundreds of striking Anglo American platinum mine workers who barricaded roads.
o A woman employee was reported to have been raped and murdered at AngloPlatinum’s Khomanani mine in Rustenburg.
o The company does not comply with health and safety regulations, and as a result in 2011 several workers died.
o The company is accused of polluting the environment.
o The company is accused of conducting resettlements of communities affecting their livelihoods and without consulting with communities.
o The company is accused of not complying with safety regulations in 2007, as a result of which workers died.
o The company is accused of not complying with safety regulations in 2008, as a result of which workers died.
o The company is accused of blacklisting workers, which prevents them from being employed by any other mine in the company or with contractors providing services to the company.
o In 2000, 34-year-old Mozambican José Mulungo Cossa died after an accident in a platinum mine near Rustenburg.
• AngloGold Ashanti (Ghanaian-Australian Goldfields) (in Ghana).
o The company is accused of forced eviction from Nkwantakrom, and not providing proper resettling of a community.
Gold Fields Limited (in South Africa).
• The company is accused of affecting the health of miners who suffer from silicosis. • The company does not comply with health and safety regulations, and as a result in 2011
several workers died.
• The company has the highest number of deaths in 2008, as a result of not complying with safety conditions.
• The company is accused of polluting the Wonderfonteinspruit.
• The company is accused of torturing workers, also accused of prejudice during the apartheid years, and keeping employees in dangerous walking conditions. Some workers died from exposure to uranium.
• The company is accused of causing health problems to workers caused from exposure to uranium.
Firms with a mild level of and low involvement in human right violations:
Cortec Mining Kenya (in Kenya).
• The company faced community opposition to explore deposits of rare earth minerals in Kwale County.
Hainan International Resources (in Malawi).
3.3 Data Collection
The qualitative data used in this study were collected using a database on the Internet. To be precise, data are gathered from Business and Human Rights Resource Centre. Business and Human Rights Resources Centre is the only non-profit organization drawing attention to the human rights impacts of over 5,100 companies, operating in over 180 countries. The website is relied on by businessmen, advocates, governments, investors and the Unites Nations. This organization exposes reality in a field, in which it is often dominated by rhetoric. Furthermore, their website is the only global business and human rights knowledge hub because they deliver up-to-date and comprehensive news in eight languages. To answer the central research question in this study, cases from eight selected firms (Corporación Nacional del Cobre de Chile, ConocoPhillips, Bayerische Motoren Werke AG, Dell Inc., Anglo American PLC, Gold Fields Limited, Cortec Mining Kenya, and Hainan International Resources) are sought in the Business and Human Rights Resource Centre from the year of 2014 to 2016. In this way, firms’ involvements in human rights issues are compared from one another.
3.4 Data Analysis
Are firms with higher level of vertical integration involved in a severe type of human rights abuses?
First of all, the first two firms with high level of integration are going to be analyzed. Those are Corporación Nacional del Cobre de Chile (CODELCO) that is based in Chile, and ConocoPhillips that is based in the United States. Here, the corporate abuses involved in these two firms will be exposed based on the Corporate Human Rights Database (CHRD). Due to
the huge number of stories and articles recorded in CHRD, the issues that are covered are only for the last three years (2014 until 2016).
Corporación Nacional del Cobre de Chile (CODELCO) is a Chilean state-owned copper mining company. They are headquartered in Santiago, the capital city of Chile. By the time this thesis is published, CODELCO is positioned as the largest copper producing company in the world where they produced 1.66 million tons of copper in 2007, 11 percent of the world total.
Issues Date
Workers’ rights weakened almost everywhere in the world in 2016, according to the International Trade Union Confederation.
(CODELCO is one of the thirty-four companies involved)
(http://www.ituc-csi.org/IMG/pdf/survey_ra_2016_fr.pdf,
http://www.ituc-csi.org/indice-csi-des-droits-dans-le?lang=en)
September 27th 2016
Chile: New CODELCO copper concentrate spill accident would have contaminated water source for Los Andes population.
(
http://www.noalamina.org/latinoamerica/chile/item/16135-operativo- en-los-andes-por-nuevo-derrame-de-cobre-de-codelco-en-el-rio-blanco)
August 29th 2016
Chile: National Protest for Open-pit Glacier Mining Bill for Threatening Access to Water. (Barrick Gold and CODELCO are accused in this allegation)
(http://olca.cl/articulo/nota.php?id=106394,
http://www.chilesustentable.net/necesitamos-todos-los-glaciares-protegidos/)
August 3rd 2016
Latin America: NGO report on the situation of attacks on communities by mining conflicts. (CODELCO is one of the twenty-three companies involved) ( https://www.business-humanrights.org/sites/default/files/documents/Conflictos%20Mineros %20en%20America%20Latina%20Extraccion%20Saqueo%20y%20A gresion%202015.pdf) June 23rd 2016
Chile: Water Loa defenders lodge legal action to prevent expansion of CODELCO mine tailings dam.
(
http://www.biobiochile.cl/noticias/2016/03/13/presentan-recurso-para-detener-ampliacion-de-relave-de-mina-radomiro-tomic.shtml)
March 14th 2016
Latin America: Analyst links decline in commodities’ prices with opportunity for local communities affected by mining. (CODELCO is one of the twelve mining companies alleged in this case)
(http://www.cipamericas.org/archives/17326)
November 4th 2015
Chile: Environmental Authorities call on CODELCO to clean up contaminated area for copper spill to prevent further damage by announcing rainfall.
(
http://www.conflictosmineros.net/noticias/9-chile/18251-zona-donde-
descarrilo-tren-con-concentrado-de-cobre-debe-limpiarse-antes-de-lluvias-anunciadas-para-el-martes)
Chile: Environmental Authorities investigate CODELCO for metal spill and order bay closure for pollution; includes company statements.
(
http://www.conflictosmineros.net/noticias/9-chile/18201-seremi-de-
salud-sumario-sanitario-a-codelco-por-derrame-de-concentrado-en-caleta-palito-y-decreta-cierra-de-bahia-de-chanaral)
September 28th
2015
Ecuador: Impact of copper mining in reserved areas on health and access to water to those in Argentina. (CODELCO and Empresa Nacional de Minería are involved in this case)
(
http://www.eldiario.es/desalambre/mineria-Intag-Ecuador-America-Latina_0_411909569.html)
July 27th 2015
Chile: Mining contract worker shot dead by police during strike against copper company CODELCO.
(
http://www.reuters.com/article/chile-mine-protests-idUSL1N1040ZF20150724)
July 27th 2015
Ecuador: ENAMI & CODELCO’s open-pit copper mine to start operating despite community’s concerns over possible environmental, human rights impact.
(
http://www.equaltimes.org/ecuador-s-20-year-old-mining?lang=en#.WD8rpZMrLv1)
January 15th 2015
Chile: Authorities announce oil spill investigation that puts livelihoods of the local population at risk.
(
http://www.publimetro.cl/nota/cronica/presidenta-bachelet-anuncia-
querella-contra-responsables-del-derrame-de-petroleo-en-quintero/xIQniD!xVrgLwvUl59k/)
October 6th 2014
According to the violations recorded in Business and Human Rights Resource Centre, twelve human rights violation issues are found from the year of 2014 until 2016 in CODELCO. There are various motives behind these violations. Some motives reveal the supporting evidence that this highly integrated firm justifies all possible means in order to cut costs and therefore, put firms in the action of violating human rights.
In an environmental violation in Chile, CODELCO puts livelihoods of the local population at risk by spilling oil throughout their production process (Shoe, 2014). Alex Muñoz, the executive director of environmental group Oceana, gave a statement in the media.
“There is a complicity between polluting companies and the different governments of the last decades that have sacrificed these areas to allow these companies to produce at a very low cost, saving what they should invest in protection of the environment. We have called it sacrificial areas in which has taken advantage of the poverty
situation of these communities to allow companies to be there in a much more polluting way than in other places.”
Source: President Bachelet announces complaint against those responsible for the oil spill in Quintero (Shoe, 2014).
The statement above indicates how CODELCO has done a cost-cutting strategy that is aligned with its full level of vertical integration. In addition to the environmental damage, CODELCO also puts livelihood at risk as their Open-pit Glacier Mining Bill in Chile seriously endangered glacial ecosystem. The glacial ecosystem is crucial because its functions are fundamental to the life cycle at the level of entire basins. CODELCO was also alleged to bring health damage to inhabitants because of their mine tailings dam’s expansion.
CODELCO’s actions in damaging the environment were getting worse by the incident of contamination in the Aconcagua River. The incident happened because spilled material did not reach the flow, and therefore, CODELCO was ordered to clean up the contaminated area for a copper spill to prevent further damage. Besides the copper spill, CODELCO was also accused of the metal spill. CODELCO once informed the public that a part of the infrastructure was released when it was being washed, but then the President of the Association Caleta Palito, Irene Cortes, made a statement.
“You can see in simple light the degree of pollution that brings the river. When talking with the representatives of CODELCO, they wanted to minimize the event by saying that it was only a pipe wash that transported concentrates, when we are clearly informed that it was a decoupling of the pipes that transport the concentrate to Potrerillos that poured into the Salado River east Concentrated leaving a tragic panorama for my people.”
Source: Seremi de Salud: Sumario sanitario a Codelco por derrame de concentrado en Caleta Palito y decreta cierra de bahia de Chanaral (7Dias, 2015).
Another evidence provides in the Chile incident where the police shot mining contract worker as he fought against CODELCO. CODELCO confirmed that increasing benefits for contract workers was not compatible with market conditions at that time. In fact, the copper price was at multi-year lows in 2015, which was dragged down by worries over demand in key buyer China. Therefore, this situation stimulates CODELCO to hardly push their cost as lowest as possible. To be added, CODELCO also suspended all operations at Salvador mine, which produced 54,000 tons or just less than one percent of company’s total copper output in the previous year (Cambero, Bronstein & Choy, 2015).
The second company with a high level of vertical integration is ConocoPhillips. ConocoPhillips is an American multinational energy corporation with its headquarters located in the Energy Corridor district of Houston, Texas in the United States. ConocoPhillips is the world’s largest independent pure-play exploration and production company, and is also a Fortune 500 company. In their operations, ConocoPhillips focuses on exploring for, developing and producing oil and natural gas globally. In May 2012, ConocoPhillips separated into two independent publicly traded companies. The ‘upstream’ business – includes oil and gas exploration and production – remained with ConocoPhillips while the ‘downstream’ business – includes refined products manufacturing, transportation and marketing – was transferred to a newly created entity named Phillips 66.
From the environmental record perspective, ConocoPhillips became the first U.S. oil company to join the U.S. Climate Action Partnership, an alliance of big business and environmental groups on April 11, 2007. ConocoPhillips also announced that they would spend $150 million on the research and development of new energy sources and technologies. However, they left the U.S. Climate Action Partnership in February 2010. Thus, it makes sense that according to the Political Economy Research Institute, ConocoPhillips ranked 13th
among U.S. corporate producers of air pollutions. Below are issues that happened in ConocoPhillips from 2014 until 2016.
Issues Date
China: Fishermen from Shandong province to sue ConocoPhillips over impacts of 2011 oil spill on livelihood.
(http://www.globaltimes.cn/content/1026141.shtml)
December 28th 2016
Colombia: Civil society organizations denounce alleged abuses by ConocoPhillips for fracking in San Martín, Cesar.
( http://ccalcp.org/accion-urgente-y-peticion-prioritaria-por- intimidacion-hostigamientos-de-la-fuerza-publica-a-comunidades-que-se-oponen-a-proyecto-fracking-en-san-martin-cesar/, https://redjusticiaambientalcolombia.files.wordpress.com/2016/10/den uncia-violaciones-a-ddhh-san-marticc81n-9octubre.pdf, http://ccalcp.org/grave-situacion-derechos-humanos-san-martin-cesar/, http://www.elespectador.com/search/site/noticias%20judicial%20denu ncian%20falta%20de%20garantias%20protestar%20san%20martin%2 0cesar%20articulo%2066118, http://www.ens.org.co/)
Company response:
https://business-humanrights.org/sites/default/files/documents/Colombia_BHRRC_Res
ponse%20Letter%20-%2010.31.2016_SPANISH.pdf
November 1st 2016
Union of Concerned Scientists finds major fossil fuel companies fail to take climate accountability. Those companies are Arch Coal, BP, Chevron, ConocoPhillips, Consol Energy, ExxonMobil, Peabody Energy, and Shell.
(
http://www.ucsusa.org/global-warming/fight-misinformation/climate-
accountability-scorecard-ranking-major-fossil-fuel-companies#.WD8yz5MrLv1)
Company response:
https://business-humanrights.org/sites/default/files/documents/101416%20BHRRC%2 0ConocoPhillips-UCS%20Report.pdf
October 18th 2016
Colombia: Conflicts linked to land and natural resources persist despite peace agreement with FARC, says anthropologist.
(
https://reporterre.net/En-Colombie-la-paix-se-fait-au-detriment-de-la-population-rurale-et-de-la)
October 3rd 2016
Philippines: World’s largest carbon producers ordered to respond to complaint alleging human rights abuses from climate change.
(
https://www.theguardian.com/environment/2016/jul/27/worlds-largest-carbon-producers-face-landmark-human-rights-case)
July 29th 2016
Norway: Greenpeace criticizes the impact on global warming of the licensing of 13 oil companies in the Arctic.
( https://www.business-humanrights.org/fr/norv%C3%A8ge- greenpeace-critique-l%E2%80%99impact-sur-le- r%C3%A9chauffement-climatique-de-l%E2%80%99attribution-de- licences-%C3%A0-13-compagnies-p%C3%A9troli%C3%A8res-dans-l%E2%80%99arctique) May 20th 2016
Nigeria: NGO report alleges major gas leakages along Agip pipeline, demands lasting action from oil company.
(
https://www.business-humanrights.org/en/nigeria-ngo-report-alleges-
major-gas-leakage-along-agip-pipeline-demands-lasting-action-from-oil-company)
March 28th 2016
Indonesia: Unions calls on ConocoPhillips to prevent government reprisals against workers who occupied Anambas Islands airport.
(
https://www.business-humanrights.org/en/indonesia-unions-calls-on-
occupied-anambas-islands-airport)
According to the violations recorded in Business and Human Rights Resource Centre, eight human rights violation issues are found from the year of 2014 until 2016 in ConocoPhillips. A high level of vertical integration strategy can be seen in these cases where ConocoPhillips expands their business operations into different steps on the same production path in many locations. These operations are all owned by ConocoPhillips itself and in an aim to improve efficiency and reduce costs. However, in improving efficiency and reducing costs, ConocoPhillips imposes human rights. Most violations are the environmental violations, and the motives are various.
In Colombia, ConocoPhillips did a fracking process in San Martín, which is considered as an irregular exploration. The National Army, who represents ConocoPhillips, was intimidating villagers by bullied and threatened them. In fact, any protest will result in prison for two or more years. In this area, ConocoPhillips made a sign of “no activity related to unconventional reservoirs is authorized”, which was granted by the National Environmental Licensing Authority. Other than the irregular exploration, ConocoPhillips was also sued because of their exploitation activity in October 2016. This exploitation was inflating the productive matrix of Colombia, and had undeniably negative impacts on the environment. However, ConocoPhillips defended by stating that despite the negative environmental impact they brought to the country, the presence of guerrillas in some areas has paradoxically protected ecosystems by postponing the arrival of megaprojects development (Rowlands, 2016). Another environmentally damaging action can also be seen by the incident where they infringed the Greenpeace rules by looking for oil and natural gas in the Arctic, while the world leaders have pledged to keep the temperature rise below 1.5 degrees (AFP, 2016).
ConocoPhillips’ international operations were also known to be violating human rights, especially in Nigeria and Indonesia. In Nigeria, ConocoPhillips caused a major gas leakage
from an underwater gas pipeline beneath Taylor Creek at Kalaba, in the State of Bayelsa. Whereas in Indonesia, ConocoPhillips was involved in an issue where Indonesian union leaders called on to prevent counterstroke against workers who occupied the airport – which is owned by ConocoPhillips – on a remote gas-rich island named Anambas. Village and union leaders said that long-simmering disputes came to a head when ConocoPhillips contractor, PT. Supraco, terminated the contracts of the seventeen local workers early in 2015. Due to this situation, the Anambas Island villagers called the company to employ more local people and to introduce transparent CSR and a policy to unused waste materials. However, the company management refused to meet the labor delegation and denied the FKUI (Federation of Construction, Informal and General Workers) on site access to company employees (Moss, 2015).
After analyzing human rights violations in CODELCO and ConocoPhillips, this study draws a conclusion that their human rights violations are considered as the severe ones. This is due to the reason that those violations gave negative impact to many people in the livelihood, especially those villagers and people who attempted to protest. Their exploration and exploitation activity also violated the environment heavily as they seriously endangered the glacial ecosystem and weather stability in the Arctic. Not mentioning that they also violated their workers in Colombia and Indonesia relating to their cost-cutting strategy.
Are firms with a lower level of vertical integration involved in the milder type of human rights abuses?
Next, the human rights issues from firms with a lower level of integration are going to be analyzed. Those firms are Bayerische Motoren Werke AG and Dell Inc. Bayerische Motoren Werke AG, headquartered in Germany, uses a tapered vertical integration strategy. While Dell Inc., headquartered in the United States, uses a quasi-vertical integration strategy.
The first company that is being analyzed is Bayerische Motoren Werke AG, or usually known as BMW. BMW is a Germany luxury vehicle, motorcycle and engine manufacturing company headquartered in Munch, Bavaria, Germany. As one of the best-selling luxury automakers in the world, BMW produces motorcars under the BMW Motorsport division and motorcycles under BMW Motorrad, and plug-in electric cars under the BMW I sub-brand and the “iPerformance” model designation within the regular BMW lineup. In 2010, BMW manufactured 1,481,253 four-wheeled vehicles and 112,271 motorcycles. In their manufacturing process, they have local assembly operation using complete knockdown components in Thailand, Russia, Egypt, Indonesia, Malaysia and India.
Issues Date
Germany: Companies pull advertising from rightwing US website Breitbart after criticism by social media campaign.
(http://bigstory.ap.org/9a67d99f7a144543b6907d959e18720e)
December 7th 2016 Amnesty International finds cobalt in electric car batteries are mined
using child labor; company responses included.
(
https://www.amnesty.org.uk/press-releases/electric-cars-running-child-labour)
Company response: (
https://www.business-humanrights.org/sites/default/files/documents/Amnesty%20Internation
al%20Company%20responses.pdf)
September 30th
2016
Paint used by car makers linked to illegal mines in India reliant on child labor and debt bondage, company responses included. (BMW, General Motor, Kuncai Group, PPG, Procter & Gamble and
Volkswagen are companies that are related in the issue)
(
https://www.theguardian.com/global-
development/2016/jul/28/vauxhall-bmw-car-firms-linked-child-labour-mica?CMP=Share_iOSApp_Other)
July 31st 2016
Religious Freedom & Business Foundation finds businesses can ease global religious tensions. (Airbus, BMW, Orange, Russian Railways and Total are companies that are related in the issue)
(
http://religiousfreedomandbusiness.org/2/post/2016/05/business-
contributions-to-interfaith-understanding-and-peace-can-help-unravel-many-political-and-economic-tensions.html)
May 16th 2016
USA: Consumers sue 10 carmakers over risks of carbon monoxide poisoning in keyless ignition cars.
(
https://www.theguardian.com/business/2015/aug/27/worlds-biggest-car-manufacturers-sued-over-deadly-keyless-ignitions)
August 27th 2015
According to the violations recorded in Business and Human Rights Resource Centre, five human rights violation issues are found from the year of 2014 until 2016 in BMW, most of
those are child labor issues. In BMW, it is found by Amnesty International that children as young as seven work in appalling conditions in artisanal mining areas, in which they are at risk of fatal accidents and serious lung disease, yet only earn as little as $1 a day. BMW sent detailed responses regarding this issue, but they failed to provide sufficient proof that they were meeting international standards applicable to mineral supply chains (Amnesty.org.uk, 2016). Here is a glimpse of their explanation.
“We have been investigating our cobalt supply chain since 2013 and is working with our suppliers to identify our smelters. Huayou Cobalt is not our supplier, and we had received assurances from battery manufacturer, Samsung SDI, that Huayou Cobalt is not part of our supply chain.”
Source: Electric cars: Running on child labor (Amnesty.org.uk, 2016)
Meanwhile according to Organization for Economic Co-operation and Development (OECD), companies that use cobalt mined in high-risk areas should identify their smelters or refiners, as well as disclose their own assessment of the adequacy of the smelter’s due diligence practices in identifying and addressing human rights risks and abuses (Amnesty.org.uk, 2016).
Furthermore, it is also found in India that children as young as ten work at mines for mica, a mineral that creates the shimmery car paint used on millions of vehicles around the world, including BMW. It was estimated that up to 20,000 children work in hundreds of small-scale mines in northern Jharkhand and southern Bihar. It was documented by a media called The Guardian that children aged 12 were mining mica underground in hazardous, leaking mineshafts, hammering glittering rock flakes from walls and carrying heavy loads through slippery tunnels. Those children were given no choice because their families were bonded to the mines by large debts owed to local moneylenders who charge up to 200% annual interest (Kelly & Bengtsen, 2016). Phil Bloomer, the executive director of Business and Human Rights Centre, speaks up about the exploitation of child labor.
“Nobody wants the curse of forced and child labor in their supply chains, but, with large-scale hidden production, it takes a lot more than a simple audit of your apparent ‘supplier’ to eliminate modern slavery from your supply chain. Too many companies are buying with one eye open to the price, and the other closed to the abuse.”
Source: Vauxhall and BMW among car firms linked to child labor over glittery mica point (Kelly, A. & Bengtsen, P., 2016)
This statement makes a lot of sense of why BMW involves in several cases of child labor in their production process.
Besides the exploitation of child labor, BMW was also involved in the risks of carbon monoxide poisoning in keyless ignition cars in 2015. Ten carmakers were claimed to have long known about the risks of keyless ignitions, yet deceived drivers by marketing their vehicles as safe. BMW was one of those carmakers and thus, got sued because they installed an inexpensive feature to automatically turn-off unattended engines. This feature caused thirteen deaths and many injuries (The Guardian, 2015).
The second company with lower level of vertical integration is Dell Inc. or usually stylized as DELL. DELL is an American privately owned multinational computer technology firm that is headquartered in Round Rock, Texas, United States. DELL develops, sells, repairs and supports computers and related products and services. DELL is one of the largest technological corporations in the world, employing more than 103,300 people worldwide. Initially, DELL was a pure hardware vendor, but with the acquisition in 2009 of Perot Systems – an information technology services provider based in Plano, Texas –, DELL entered the market for IT services. After that, DELL made additional acquisitions in storage and networking systems in order to expand its portfolio from offering computers to delivering complete solutions for enterprise customers.
