The problem at hand is a case of moral dilemma v/s financial gains. The company continuing production processes “as is” will lead to emissions that might hamper employee safety. Confirming to current environmental standards entails heavy expenditure and a negative cash flow trend.
The options evolving from the case are to adopt an emission control standard (exhaust system or Recirculating filtration system) or continue operations as currently undertaken.
The options have been evaluated keeping the financial implications, politico-social effects and Corporate Social Responsibility of the company in mind. Based on the evaluation, installation of the recirculating ...view middle of the document...
Profitability on contracts is around 3% on general contracts and around 20% on “custom” contracts, which are hard to come by. The construction industry, one of the major consumers of Aluminium product, is facing a slow-down resulting in sales growth of only about 3% per year (Exhibit 1) for AWC. This low rate of growth is compounded by the fact that American companies will soon have access to the Canadian market under FTA. Recession and workforce attrition are major areas of current industry concern.
Environmental regulations governing the industry
The Canadian government has been raising the profile of environmental issues over time. In accordance, project “Green plan” has been launched by the Canadian government on December 11, 1991 (reference: 1), which constitutes a five-year comprehensive environmental action plan to guide federal environmental policy. A key undertaking of the project includes virtual elimination of the discharge of persistent toxic substances into the environment. In the past, 250 out of the 1000 companies charged for emission of harmful substances in the atmosphere have been prosecuted, with about 100 been charged a fine. The presence of numerous competitors in the same area results in a low possibility of persecution. The maximum possible penalty however entails to $ 500,000, which is significantly more than the cost of the devices available to combat emissions.
The company has been in existence for forty years without any employee heath complication related to inhalation of metal particles and metal oxides, a by-product of the welding process used. However, the company has scaled up the use of the welding unit due to the introduction of a new door design that offers a better value proposition than the competitor’s products. This product has the possibility of turning into a “star” for the company (reference: 2 BCG matrix) which would entail greater use of the welding line as well as increased production requirements.
Along with being technically competent, the company has always been strong with respect to employee welfare as part of their Corporate Social Responsibility. Due to this, there is high employee loyalty associated with AWC, shown by the lack of a union. However, the company has largely been ignorant towards the environmental effects of various production processes. There has been institutional oversight with respect to governmental regulations over the years as well.
Emission control systems
The emission systems currently available in the market are expensive and lead to negative cash flows in the future (exhibit 1). Investment in machinery at this point of time might lead to a shutdown of the company.
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AWC Inc. needs to take a decision on the need to adhere to existing local environmental policy.
1. Maintain status quo
2. Install emission control systems
2.1 Install an exhaust system (Cost: approximately...