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Etch A Sketch Ethics case

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CLOSING CASE

ETCH$-$A$-$SKETCH ETHICS

The Ohio Art Company is perhaps best known as the producer of one of the top selling toys of all time, the

venerable Etch$-$A$-$Sketch. More than $100$ million of the familiar red rectangular drawing toys have been sold since

$1960$ when it was invented. The late $1990$s$,$ however, became a troubled time for the toy's maker. Confronted

with sluggish toy sales, the Ohio Art Company lost money for two years. In December $2000,$ it made the

strategic decision to outsource production of the Etch$-$A$-$Sketch toys to Kin Ki Industrial, a leading Chinese toy

maker, laying off $100$ U$.$S$.$ workers in the process.

The closure of the Etch$-$A$-$Sketch line was not unexpected among employees. The company had already moved

the production of other toy lines to China, and most employees knew it was just a matter of time before Etch$-$A$-$

Sketch went too. Still, the decision was a tough one for the company, which did most of its manufacturing in its

home base, the small Ohio town of Bryan $($population $8000).$ As William Killgallon, the CEO of the Ohio Art

Company, noted, the employees who made the product "were like family. It was a necessary financial decision

we saw coming for some time, and we did it gradually, product by product. But that doesn't mean it's emotionally

easy."

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In a small town such as Bryan, the cumulative effect of outsourcing to China has been significant. The tax base is

eroding from a loss of manufacturing and a population decline. The local paper is full of notices of home

foreclosures and auctions. According to former employees, the biggest hole in their lives after Etch$-$A$-$Sketch

moved came from the death of a community. For many workers, the company was their family, and now that

family was gone.

The rationale for the outsourcing was simple enough. Pressured to keep the cost of Etch$-$A$-$Sketch

under $$10$ by big retailers such as Walmart and Toys $"$R$"$ Us$,$ the Ohio Art Company had to get its costs down Or $50$ of $212$

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lose money. In this case, unionized workers making $$1500$ a month were replaced by Chinese factory workers

who made $$75$ a month. However, according to Killgallon, the main savings came not from lower wages, but

from lower overhead costs for plant, maintenance, electricity, and payroll, and the ability to get out from the

soaring costs of providing health benefits to U$.$S$.$ manufacturing employees.

The choice of Kin Ki as manufacturer for Etch$-$A$-$Sketch was easy$--$the company had been making pocket$-$sized

Etch$-$A$-$Sketch toys for nearly a decade and always delivered on cost$.$ To help Kin Ki$,$ the Ohio Art Company

shipped some of its best equipment to the company, and it continues to send crucial raw materials, such as

aluminum powder, which is hard to get in China.

The story would have ended there had it not been for an expos$$ in the New York Times in December $2003.$ The

Times reporter painted a dismal picture of working conditions at the Kin Ki factory that manufactured the Etch$-$A$-$

Sketch. According to official Kin Ki publications:

Workers at Kin Ki make a decent salary, rarely work nights or weekends, and often "hang out along the streets,

playing Ping Pong and watching TV$."$ They all have work contracts, pensions, and medical benefits. The factory

canteen offers tasty food. The dormitories are comfortable.

Not so$,$ according to Joseph Kahn, the Times reporter. He alleged that real$-$world Kin Ki employees, mostly

teenage migrants from internal Chinese provinces, work long hours for $40$ percent less than the company claims.

They are paid $24$ cents per hour, below the legal minimum wage of $33$ cents an hour in Shenzhen province

where Kin Ki is located. Most do not have pensions, medical benefits, or employment contracts. Production starts

at $7$:$30$ a$.$m$.$ and continues until $10$ p$.$m$.,$ with breaks only for lunch and dinner. Saturdays and Sundays are

treated as normal workdays. This translates into a work week of seven $12-$hour days, or $84$ hours a week, well

above the standard $40-$hour week set by authorities in Shenzhen. Local rules also allow for no more than $32$

hours qf overtime and stipulate that the employees must be paid $1\mathrm{.}5$ times the standard hourly wage, but Kin Ki's

overtime rate is just $1\mathrm{.}3$ times base pay. As for the "comfortable dormitories," the workers sleep head to toe in tiny rooms with windows that are covered

with chicken wire. To get into and out of the factories, which are surrounded by high walls, workers must enter

and leave through a guarded gate As for the tasty food, it is apparently a mix of boiled vegetables, beans, and

rice, with meat or fish served only twice a month.

The workers at Kin Ki have apparently become restless. They went on strike twice Case Discussion Questions

$1.$ Was it ethical of the Ohio Art Company to move production to China? What were the economic an