A Case Study of Ethical Issues at Gucci in Shenzhen, China


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A case study of ethical issue at Gucci in Shenzhen, China
Article in Asian Journal of Business Ethics · July 2012
DOI: 10.1007/s13520-012-0024-6
2 authors, including:
Robin Stanley Snell
Hang Seng University of Hong Kong
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A Case Study of Ethical Issues at Gucci in Shenzhen, China_1

A case study of ethical issue at Gucci in Shenzhen, China
Li Wang & Robin Stanley Snell
Received: 27 February 2012 / Accepted: 25 September 2012 / Published online: 9 October 2012
# Springer Science+Business Media Dordrecht 2012
Gucci is a multinational company with over 270 directly operated stores worldwide,
serving customers of elite goods, and generating billions of dollars revenue per year.
It has an iconic, even noble, luxury brand image in the Greater China region, where
its revenue increased by 35.6% in the first half of year 2011. Gucci has expressed its
intention to accelerate the process of opening stores on the Chinese mainland.
Recently, however, the company came under fire after five former employees from
its flagship store in Shenzhen revealed information online about inhumane working
conditions and labor mistreatment in the company. This paper focuses on events that
took place in a Gucci flagship store located in Shenzhen, China.
This paper has two main research objectives. The first is to analyze why labor
abuses (as exemplified in the Gucci case) are allowed to occur and persist in foreign-
invested firms that are located in the Peoples Republic of China (PRC). The second
is to develop a multi-stakeholder approach to preventing further abuses of this kind.
The next section provides a description of the case, focusing on the ethically
problematic labor management practices and arrangements and noting some legal
violations. We shall then present three propositions regarding why some foreign firms
operating in the PRC and host local governments ignore and/or tolerate labor abuses
of this kind. We follow this with a section in which we apply two different
approaches, traditional Confucian ethics on the one hand and modern labor rights
Asian J Bus Ethics (2013) 2:173183
DOI 10.1007/s13520-012-0024-6
L. Wang (*)
Lingnan University, 12D, Block B, Chong Yip Center, Whitty Street, Hong Kong Island, Hong Kong
e-mail: bestlillianwang@gmail.com
L. Wang
e-mail: liwang@ln.hk
R. S. Snell
Lingnan University, Room 209/3, 2/F, Simon and Eleanor Kwok Building, 8 Castle Peak Road,
Tuen Mun, Hong Kong
e-mail: robin@ln.edu.hk
A Case Study of Ethical Issues at Gucci in Shenzhen, China_2

theory on the other, to provide a robust ethical basis for stakeholders to argue from,
while taking action to persuade others that such malpractices are ethically unaccept-
able. Next, after identifying four stakeholders for the Gucci case, we suggest how
each of them may play a role in discontinuing and/or preventing future labor abuses.
We conclude with some further theoretical and managerial implications.
Case description
The employees complaints
On 8 October 2011, an open letter<A Public Letter to the Top Management
of Gucci from Former Employees who resigned collectively> was spread on the
Internet. This letter was written by five former employees of the Gucci Shenz-
hen Flagship Store. In the letter, they alleged that employees caught an occu-
pational disease, that there was one miscarriage attributable to excessive
working hours and that there was no compensation for these hardships. More-
over, they stated that there were excessive restrictions on employees behavior,
including the need to obtain permission before getting a drink or a snack, and
strict limitations on toilet time. They stated that, while the restrictions were
applied strictly to all frontline employees, including one who was pregnant,
they were not applied to the managers. The letter also claimed that the employ-
ees had to pay compensation for any product that was stolen or went missing,
even though these luxury products had already been insured. They also criti-
cized Guccis goods exchange policies which appeared to be arbitrary and
dependent on the managers mood. All in all, they accused Gucci of lacking
systematic and humane management and complained that their rights and
dignity were being violated.
Once revealed online, this report aroused widespread discussion among Internet
users. Further information emerged, suggesting that the case also involved falsifica-
tion of records about working hours, and the imposition of forced, unpaid overtime
work. Gucci implemented a system of working one full day, followed by a day off.
Officially, 1 days work was about 10 h. But the workers complained that, on their
working days, they were required to clock off at a certain time to establish a false
electronic record, and then continue their work, counting goods until two or three
oclock in the morning without compensation.
Some netizens labeled Gucci as a sweatshop. Many opined that the labor
management practices of some multinational companies and brand owners failed to
match their international status. Several days later, the Gucci headquarters in China
issued a statement, saying that Gucci does not and will not endorse or tolerate the
alleged malpractices. Gucci also stated that that the company had conducted thor-
ough investigations and had implemented a series of measures, including the replace-
ment of the store manager and assistant store manager. Meanwhile, the Human
Resources Bureau within the Legal Department of Shenzhens Luohu District said
they would further investigate the case. On 26 October 2011, Gucci and the former
employees eventually arrived at a settlement in conjunction with Shenzhen Federa-
tion of Trade Unions.
174 L. Wang, R.S. Snell
A Case Study of Ethical Issues at Gucci in Shenzhen, China_3

How Gucci used the labor dispatch system
Dispatch is a labor management model which separates recruitment from employ-
ment. Relationships under the dispatch system are portrayed in Fig. 1. The employee
leasing companies have labor contracts with the workers, and they send workers to
other companies in which these workers actually work. The labor contract relation-
ship exists between the employee leasing companies and the dispatched workers, but
the actual working relationship is between the workers and the companies in which
they work.
In this form of employment, the company which actually use these workers is
only responsible for paying wages, while other aspects, including social security and
dismissal compensation are passed on to the employee leasing company. The labor
dispatch arrangement serves to reduce the user companies costs and contractual
responsibilities for the employee. They can incur lower training costs and are not
required to make social security arrangements. Because of these features, this em-
ployment model is widely used in China. The Gucci stores in Shenzhen actually
adopted an even more complex dispatch system, involving at least three employee
leasing companies that were located in Shanghai.
Legal considerations
One legal consideration is that, although the labor dispatch system has been officially
adopted as way of arranging temporary employment only, Gucci used the system to
employ people for durations of more than 2 years. Another is that many of the Gucci
store employees are female and that pregnant employees legally enjoy special labor
protection. According to the Labor Contract Law, female workers during their
pregnancy should not participate in the states third-grade physical intensive work.
Such work is deemed not suitable for female workers; for female workers who are
more than 7 months pregnant, there should be no overtime work, and they should not
be required to join night shifts. Furthermore, it is a legal requirement that sufficient
rest periods should be arranged for such employees.
Agreement Service
Charge Paid
Insurance Cover
Labor Contract
User Company, where the
workers actually work
Employee Leasing

Fig. 1 Relationships under the dispatch system
Ethical issues at Gucci in Shenzhen, China 175
A Case Study of Ethical Issues at Gucci in Shenzhen, China_4

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