A Case Study Report: Samsung's Ethical Issues and Labor Practices

This report presents a case study of Samsung, focusing on ethical issues related to its labor practices in China. The study highlights instances of underage workers, poor working conditions, and worker abuse within Samsung's manufacturing facilities and those of its suppliers. The report connects these issues to organizational behavior theories, providing a SWOT analysis to evaluate the situation. It examines Samsung's response, including public apologies and audits. Recommendations are offered, such as implementing robust human resource policies and balancing product demand with labor supply. The report concludes that adopting the correct action plan will ensure that Samsung can regain Customer Perceived Value and its brand image and reputation, emphasizing the importance of ethical business conduct in maintaining stakeholder trust and long-term success. This report is contributed by a student to be published on Desklib, a platform which provides all the necessary AI based study tools for students.

Running head: ORGANIZATIONAL BEHAVIOR
A Case Study Report of Samsung
Name of the Student:
Name of the University:
Author’s Note:

1ORGANIZATIONAL BEHAVIOR
Executive Summary
In this report, the ethical issues related to Samsung are discussed. Samsung has been found to be
involved in cases related to ethical issues in China, for instance, the workers that were hired in
the manufacturing facilities of China were reported to be below the working age. The workers of
manufacturing units of Samsung and its supplier in China were also physically and verbally
abused. The report relates the unethical labor practices of Samsung in China with theories,
methodologies and literature of Organizational behavior. A SWOT analysis is provided to
analyze the issues of the ethical case of Samsung. The case has been analyzed and the steps that
Samsung has adopted to resolve the ethical issues are highlighted in the report. Samsung
presented a public apology and organized audit for its manufacturing facilities in China. It can be
recommended that Samsung should devise proper human resource policy for its Chinese labor
market and the organization should balance its demand for products with supply of labor in
China so that the workers do not work overtime. It can be concluded that adopting the correct
action plan will ensure that Samsung can regain Customer Perceived Value and its brand image
and reputation.

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Contents
Executive Summary.........................................................................................................................1
Introduction......................................................................................................................................3
Discussion........................................................................................................................................4
The Ethical Issues of Samsung....................................................................................................4
SWOT Analysis for Samsung Case.............................................................................................5
Connections to Theoretical and Empirical Research...................................................................6
Analysis and Evaluation...............................................................................................................8
Reaction of Samsung towards Ethical failure..............................................................................9
Recommendations..........................................................................................................................10
Action Plans...............................................................................................................................10
Conclusion.....................................................................................................................................11
Evaluation of Consequences......................................................................................................11
Reference List................................................................................................................................13

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Introduction
Samsung is the South Korean business conglomerate headquartered in Samsung Town,
Seoul. Lee Byung-chul founded the organization in the year 1938. Samsung group has
diversified business units and have ventured in sectors like food processing, insurance, retail and
securities and textiles. Samsung ventured into electronic industry in the late 1960s and has
globalized its operations since then in various countries across the globe (samsung.com/in/
2017). The main source of income for Samsung has been from mobile phone and semi-
conductors. Any business organization should abide by certain business ethics like following
strict policies and practices to avoid potentially controversial issues which can adversely affect
the interests of the stakeholders of business organization and can tarnish the reputation of the
business in the long run. Some examples of such controversial issues are related to corporate
governance, labor exploitation, insider trading, bribery, discrimination, and issues related to
Corporate Social Responsibilities of the business organization. In this era of globalization, the
business environment has become highly competitive and volatile (Robbins and Judge 2013). A
business organization focuses on continuous growth and innovation to achieve high performance
and to sustain high competition of the marketplace. However, the sole purpose of business
organization should not only focus on creating value for shareholders and concentrate on
profitability, but to also focus on creating long term value for its stakeholders. The stakeholders
of a business include the government, suppliers, shareholders and investors, society, employees
and customers. Samsung Electronics got involved in controversies related to exploitation of
young workers in China.

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Discussion
1. The Ethical Issues of Samsung
One of the largest smart-phone maker and mobile phone manufacturers of the world,
Samsung Electronics got involved in ethical issues recently. Organizations like Samsung
outsource their manufacturing facilities in developing countries like China to cut labor- cost.
Globalization has provided with the necessary law and infrastructure for this type of outsourcing
activities which are conducted by many global organizations across the world. Thus, the
employees working in developing nations play a crucial role in ensuring that the global
organizations like Samsung can maintain a strong, robust and continuous flow of the supply
chain activities. The workforce in the manufacturing division of global organizations like
Samsung is an important stakeholder of business. The workforce in developing nations like
China often comprises of young workers who are forced to work overtime for a meager amount
of money which enables organizations like Samsung to achieve cost advantage. Incorporating
ethical practices are of paramount importance for an organization (Ford and Richardson 2013).
Chinese activist Li Quang established a New York based organization called the China Labor
Watchdog in 2000. This organization investigated six Samsung-owned manufacturing plants and
two manufacturing facilities owned by suppliers of Samsung. Eight plants in China were
investigated which produced mobile phones, printers, home appliances, mobile displays, DVD
players, TV components and media players. The staffs of the manufacturing plants in China
included more than 24,000 workers. During the investigation it was found that the young
workers were not allowed to sit during shift timings and were subjected to poor work conditions.
Samsung Electronics was accused of exploiting young workers in China. These employees of
Samsung were physically and verbally abused and they were forced to work for more than 100

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hours of overtime every month. Samsung did not follow safety measures in manufacturing plants
and workers were not provided with protective clothing to handle risky activities in the
manufacturing plants. HEG electronics which was a supplier of Samsung was allegedly using
child labor. In China it is illegal to hire employees under the age of 16 but it is legal to hire
employees in the age bracket of 16 to 18 years. It has been revealed by China Labor Watch that
Samsung leveraged this legal advantage and hired workers under the age of 18 in majority of its
factories. It was alleged that the management of The SEHZ (Huizhou Samsung Electronics Co)
changed the name on the ID card of the young person and workers could enter factories with
fake identity cards. Similar allegations were made against SSKMT (Shenzhen Samsung Kejian
Mobile Telecommunication Technology). SEHZ had 10, 000 workers and Samsung had 90 %
stake in it. Samsung owned 60 % stake of SSKMT. Tianjin Intops and Tianjin Chaarmtech
Electronics were suppliers of Samsung who were alleged to pay workers so less that they were
forces to work overtime. Workers were paid meager amount of $206 or 1310 renminbi monthly.
It has been claimed that Samsung was well aware of the fact that underage workers of China
made use of fake identity cards to find employment opportunities. The workers in manufacturing
facilities of China had no medium or channel to express their grievances related to poor work
condition or to lodge any complain to the legal system(theguardian.com 2017).This highlights
major flaws in the entire hiring and supervision process in the manufacturing units of Samsung
in China.
2. SWOT Analysis for Samsung Case
Strength
 Samsung follows ethical practices and have been striving to create an organizational
culture that abides by ethical guidance.

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 Samsung is a global organization with a huge base of loyal customers which is clearly
projected in the increasing demand of its electronic products in the case
 Samsung has a talented pool of leaders and management team (samsung.com/in/ 2017).
Weakness
 Samsung has failed to analyze the demand factors in its value chain activities
 Demand is not balanced with labor supply
 The process and policies of Samsung related to supervision, recruitment, selection, pay
structure in China are flawed (theguardian.com 2017).
Opportunities
 The Chinese labor market provides huge opportunity for Samsung to hire labor at
reasonable rate to achieve cost advantage.
 The Chinese suppliers help Samsung build an undisrupted Supply Chain management
system
Threats
 The ethical issues can tarnish the reputation of the organization (Resick et al. 2013).
 The ethical issue of Samsung poses the threat to decrease the Customer Perceived Value
(CPV) which can lead to decrease in sales by potential customers, thus affecting the
profitability of the Company.
Connections to Theoretical and Empirical Research
The role of Organizational Analysis is of paramount importance to identify the shortfall
of business and to develop strategies to resolve the shortfalls. The environment of workplace, the

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personnel and operations of an organization and workplace development can be reviewed by
Organizational Analysis. Some of the models that can be adopted by a Company for
organizational analysis are SWOT Analysis, Organizational Network Analysis(ONA), Strategic
Triangle Model, McKinsey 7s Model, Cognitive and Meta Model(Foss, Husted and Michailova
2010). In the case of Samsung the management of the organization failed to adequately analysis
the demand and supply balance in its supply chain and value chain model. The increasing
demand of electronic products during product launch will require an increase supply of
manpower in manufacturing facilities of Samsung; this was clearly ignored by the management
of Samsung which led to poor working conditions and over-time work. Chiaburu et al. (2011),
states that organizational behaviour is the study of behaviour and personality traits of individuals
and groups within an organization like attitude, communications, understanding and pattern of
thoughts. The ethical crisis in Samsung occurred because the needs of the employees of
Samsung in manufacturing facilities of China were not in alignment with the human resource
strategies of the organization (Miner 2015). Samsung did not pay any heed to the pay structure
and working conditions of employees. Aktaş, Çiçek and Kıyak (2011), state that areas that affect
organizational effectiveness are organizational structure and design, talent management,
implementation and transformation of change, development of leadership and application of
smart technology to manage the human resources of an organization. In the Case of Samsung,
the ethical issue in Samsung clearly reflects that the organization did not make use of modern
technology to manage human resources and this led to inadequate organizational effectiveness.
The performance of an organization depends on the roles of managers and leaders of the
organization. Tsai (2011), illustrated that organizational culture, job satisfaction and leadership
behavior are related to each other. The organizational culture and leadership play a pivotal role in

8ORGANIZATIONAL BEHAVIOR
directing the workplace attitude, behavior, interpersonal relationships and performance of an
organization. The presence of great leaders in an organization can affect the ethical practices of
an organization, the motivational level of the employees and their productivity. In the case of
Samsung, the failure related to violation of labor laws can be attributed to poor management of
Samsung. The strategies which the human resource management of Samsung adopted in the
hiring and supervision process in China were not in alignment with the broader vision and
mission statements of the organization. Thomas, Sargent and Hardy (2011), have suggested ways
to manage change and dynamic processes in an organization. The operations of an organization
are influenced by power, politics, conflicts and decision-making of the leaders. In the case of
Samsung, the managers failed to analyze a suitable human resource recruitment strategy for
employees of China in manufacturing plants to suffice the need of the increasing demand of
electronics products during product launches.
Analysis and Evaluation
Samsung is a global organization with a talented pool of leaders and the organization
already adopts a robust and ethical human resource policy for its workforce in developed
countries and corporate offices. These policies should not be restricted to educated employees
and should extend to the laborers who work in manufacturing facilities of Samsung in China.
The ethical issues in the case have evolved only because Samsung failed to implement a robust
human resource policy for the workers in China (Hassan et al. 2013). Pay structure was not
adequate for Chinese workers, the laborers were below legal working age and they were
subjected to physical and verbal abuse (Balliet and Van Lange 2013).Samsung should have
developed a strong measure for supervision and control of its manufacturing divisions in China
to ensure that labors are vested with hygienic working conditions (Pinder 2014). Samsung has

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failed to address the basic needs of workers like physiological and safety needs as suggested by
Maslow’s Hierarchy of needs. Neither the hygiene factors of work environment like motivation
from seniors, good work conditions nor adequate pay as suggested by Herzberg’s Dual Factor
theory were implemented by Samsung in manufacturing facilities in China(Cerasoli, Nicklin and
Ford 2014). The ethical issues of the case can also be attributed to failure of Samsung to
adequately manage the value chain activities, poor analysis of demand of goods and supply of
labor and an overall poor management structure, laws and regulations in China (Langley et al.
2013).
3. Reaction of Samsung towards Ethical failure
Samsung took relevant steps post-failure to prevent a reoccurrence and to recover the
organization’s stakeholders. Samsung acknowledged the crisis in violation of ethics immediately
and confessed that demands in production dramatically increased in recent years, which might be
the possible reason of poor working conditions in China. Samsung presented the opinion that the
organization reviews its manufacturing facilities frequently to check work conditions of workers
like overtime work. Samsung presented the view that demands sore high when production lines
are completed which leads to the launch of new products in the market, and this high-demand
might have led to poor work conditions for laborers of China(samsung.com/in/ 2017). However,
Samsung tried its best to protect its reputation in the marketplace which was tarnished due to the
allegations of labor exploitation in China. Samsung clearly mentioned that the organization
strictly practiced zero-tolerance towards hiring of children who are below the legal working age.
Samsung clearly stated that the organization will conduct audit to review the working conditions
of 250 Chinese companies that play an integral part of its supply chain. Samsung mentioned that

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it will terminate contract with the Chinese Companies if they were found guilty of abuse of labor
or violation of labor rules in China.
Recommendations
Action Plans
 It can be recommended that Samsung should adopt a robust human resource management
policy in developing countries for uneducated workers like it does for educated workers
in corporate offices.
 An immediate review of the case and audit in manufacturing plants of China should be
conducted by Samsung. The organization has a huge network of suppliers in China. The
manufacturing divisions of the suppliers should also be adequately reviewed by Samsung.
 The management of Samsung should devise an adequate pay structure for its workers of
China. When the basic needs of the workers are satisfied, their productivity will
automatically increase.
 Strict legal procedures should be applied to hire workers in China who are above the
legal working age. Samsung should implement strong system to supervise and monitor its
recruitment and selection process in China so that workers with forged identity cards are
readily identified.
 The monitoring and supervision process for factory workers of China should be reviewed
immediately. Workers were physically and verbally abused and were not allowed to sit
during working hours. Samsung should leverage and utilize its talented pool of leaders
and management to devise a human resource policy that will improve the working
conditions for employees in manufacturing units in China.

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 Samsung should terminate contracts with suppliers who violate the labor laws in China.
 Samsung should adopt modern software and tools to predict its demand of products
during launch and balance it adequately with the labor supply in China. Adopting a
centralized Supply chain Management System will resolve the issue of shortage of labor
in China leading to workers working overtime.
 Samsung should appoint supervisors in its manufacturing divisions who will be able to
motivate its factory workers so that productivity increases among laborers in China. A
strict control process neglecting hygiene factors at work will lead to unhappy and less
productive workers.
 Samsung should adopt principles like Total Quality Management (TQM) and Kaizen, the
Japanese process of continuous improvement to increase the productivity of workers in
manufacturing facilities of China.
 Samsung should apologize and address all its major stakeholders, public, government and
media regarding its ethical issues in China. A public apology will ensure that Samsung
will be able to regain the lost Customer Perceived Value due to the ethical case in China.
Conclusion
Evaluation of Consequences
It can be concluded that ethics are of prime importance for a business organization to
create value for its stakeholders. Samsung should adopt the action plans to ensure that the
organization does not get involved in any such ethical issues in future which can tarnish the
reputation of the organization. Modern customers always prefer to stay loyal to a Company who
abides by ethics, takes initiatives in activities related to Corporate Social Responsibility and is