Due to the rise of globalization, many organizations have been forced to find better ways to use resources and improve performance in order to adapt to the changing global environment and gain a competitive advantage. However, some organizations have resorted to unethical and illegal practices in their desperation to do so.
One example is Wells Fargo, one of the four largest banks in the United States, which was involved in a scandal involving counterfeit accounts that was first exposed in 2016. The bank had apparently been opening fake accounts in some clients' names without their knowledge or consent.
More recently, on March 13, 2023, the South African government announced an investigation into the popular Chinese online clothing store Shein. The investigation was prompted by complaints from the Southern African Clothing and Textile Workers Union and the National Clothing Retail Federation of South Africa, who alleged that the store was evading import tariffs by importing clothes in small packages to reduce import duties.
Taking into consideration the information mentioned above, the purpose of this article is to highlight the consequences of breaching import tariff regulations, using the case involving Shein and the South African government as a reference.
Different Opinions on Importing Small Packages
An article published on The Wall Street Journal's website on March 13, 2023, reported that Shein, through its spokesperson, denied the accusation of evading import tariffs and claimed to be committed to complying with the local laws and regulations of the markets it operates in. However, on March 19, 2023, City Press newspaper reported that François Fouché, a research fellow at the Gordon Institute of Business Science’s Centre for African Markets, viewed Shein's actions not as a loophole that promotes illegal activities but as a business model specifically designed to facilitate the importation of small packages. These conflicting opinions make the outcome of the case against such a powerful brand a matter of great interest.
Taking an ethical stance on social responsibility.
An organization's stance on social responsibility is heavily influenced by its ethics, which reflect how its managers and employees view the welfare of stakeholders and society. In the United Kingdom, Channel 4's documentary "Untold: Inside the Shein Machine" revealed unfair labor practices in Shein factories, where workers were required to work up to 18 hours a day and given only one day off per month, a clear violation of China's labor laws. This demonstrates Shein's lack of regard for ethics and social responsibility.
Organizations have a range of duties or obligations towards social responsibility, which can range from low to high. At the low end is an obstructionist approach, where organizations and their managers behave unethically and often illegally, while concealing their actions from other stakeholders and society. For example, a 2018 report by the South African Reserve Bank (SARB) provided evidence that the Venda Building Society (VBS), a South African bank, engaged in fraudulent activities. Its executive managers instructed employees to open accounts in the name of an organization or a person who had never deposited money, and then instructed them to credit the accounts with the amounts they chose. Clearly, the VBS bank's executive managers acted in an obstructionist manner when they engaged in these fraudulent activities. The bank eventually faced liquidity problems and was liquidated at the behest of the SARB.
Business practices that are unethical and illegal.
This article aims to highlight the negative outcomes that result from unethical and illegal business practices such as non-compliance with import laws. Such practices can lead to severe fines and penalties, mistrust, and damage to an organization's reputation, which can ultimately impact its financial stability. When an organization engages in such practices, it may result in employees feeling demotivated, causing a slowdown in production and a decline in sales, leading to a loss of profit.
On the other hand, when there is trust between stakeholders, they are more likely to collaborate efficiently and effectively, which improves an organization's performance. However, in cases such as Wells Fargo, where trust was broken between the board and former CEOs due to the organization's culture, it can lead to a forced resignation. Similarly, if Shein is found guilty by the South African government, it may investigate its executive managers for misconduct as their actions reflect the organization's values.
If an organization engages in unethical and illegal practices, it can significantly damage its reputation, resulting in shareholders' loss of confidence and reluctance to invest in the organization. This can lead to a decline in stock prices and sales. To regain its reputation, an organization may need to embark on costly rebranding and marketing campaigns, which can be particularly challenging for global brands such as Shein. Moreover, the organization may face a lawsuit that can be time-consuming and result in excessive fines and penalties, leading to a severe blow to its financial stability, as experienced by Wells Fargo.
Unethical and illegal business practices can have serious repercussions for a company, affecting not only their financial stability but also their stakeholders' trust. Wells Fargo Bank's restructuring is a prime example of this, with excessive fines and penalties incurred for repeatedly engaging in unethical and illegal activities.
Likewise, the recent revelations about Shein's unfair labor practices and alleged violations of import laws in South Africa could further damage the company's reputation and erode trust in the brand. By prioritizing competitive advantage over the well-being of stakeholders and society, Shein risks being seen as obstructive and unethical.
As a result, Shein's sales may suffer, leading to a decline in profits and the potential for the company to collapse or undergo restructuring in the long.
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