AT&T CONSUMER PRODUCTS

CASE STUDY

Submitted By:
Mohsin Mahmood-19977
Tyrone Dean-22928
Adrian Dsouza-22929
Saif ul Islam Rao-22976
Contents
Introduction:......................................................................................2
Executive Summary of the Case:.........................................................2
Problem Statement:...........................................................................3
Problem 1 Analysis:.........................................................................3
Conclusion:...................................................................................6
Problem 2 Analysis:.........................................................................7
Recommendations.............................................................................7
Conclusion:........................................................................................8
Introduction:
American Telegraph and Telephone (AT&T) is a telecommunication company, involved in a wide
range of businesses including basic long-distance services, special calling plans, and other
miscellaneous services offered to consumers and to business concerns. They offer
communication and networked computer systems as well as telemarketing services. The
company also sold and leased telephones and answering systems to consumers. AT&T
currently is one of the world’s largest telecommunication company, the largest provider of
mobile telephone services, and the largest provider of fixed telephone services in the United
States. In 2009 AT&T was ranked at number 1 as the world most admired company. AT&T’s
biggest achievement came with the help of NASA in 1962 when they placed first commercial
satellite in space.
AT&T’s traces its origin to Bell Telephone Company and is one of its subsidiaries. The company
was established in 1885, and was created to operate and expand the long distance telephone
networks in the US that were initially created by Alexander Graham Bell. In 1913 the
government established the Kingsbury Commitment where AT&T held a phone service
monopoly. This commitment was overturned in 1982 when AT&T and the U.S. Department of
Justice reached a settlement that called for the divestiture and restricted to provide only local
telephone services which resulted in AT&T‘s decline.

Executive Summary of the Case:

AT&T’s troubles began in 1983, when leasing charges were listed separately from services
charges on consumer bill. Consumers consequently realized the economic benefits of owing
their own phones. Retail telephone sales jumped high and so did the imports from Taiwan,
Hong Kong, Japan and Korea. After which AT&T had never even sold as much as a telephone
cord, plus AT&T’s telephones were never designed to be marketable. They quickly realized that
their “we make it, you take it” approach with regard to the telephone models resulted in
declining revenues and profit levels.
In 1984, Jim Bercaw, the vice president of manufacturing was assigned a task to develop a
global manufacturing plan. He decided to off-shore manufacturing operations in Asia, from
where came their major competitors. The first site decided was Singapore, because of it being
an English Speaking Country, lower compensation rates and clean government structure along
with other factors. The relocation to Singapore proved to be successful although it led to laying
off almost 500 workers and the decline of morale of workers in the US. This operation was
followed by a proposal for an offshore facility to Bangkok, Mexico and Thailand to meet their
growing answering machines manufacturing needs. Mr. Jim then decided to visit the
maquiladoras in plant operation in Mexico but he didn’t like what he saw. They employed
minors below 14 years of age, which was against both Mexican and US, and even through labor
cost were cheap but inflation, hazardous environmental condition, huge work force turnover,
corrupt Mexican government and bribery were some factors that they need to be considered.

Problem Statement:
There exist two main problems which they need to address regarding AT&T Consumer
Product’s plant relocation to go offshore
1. AT&T Consumer Product’s decision to relocate their plant manufacturing facility to
Singapore and Mexico and the logic behind the decisions.
2. Relocation can have impact on its US employees and what strategy they have used.

Problem 1 Analysis:
In the first problem they relocate their manufacturing plant to Singapore because all their
major competitors came from Asia especially from Japan. They also decided to contract
remainder of its manufacturing to Asian Original Equipment Manufacturing (OMES). The logic
behind selecting this place as its offshore site was based on the following main factors:
 Singapore had a strategic position in lieu of its Asian neighbors and had an excellent
natural harbor.
 Singapore is an English Speaking Country as a result less gap between the
communications of labor forces while manufacturing.
 Economic development provided a one stop shop for the organizations who wanted to
do business there.
 The government was clean and free from corruption and bureaucracy.
The plan to move to Singapore was because they wanted to save 10,000 jobs in the AT&T
facilities by scarifying 500 jobs in the US operation. The relocation to Singapore was a good
move for them because it reduced Consumer Product’s labor cost up to 90% and factory
overhead cost up to 40%. Overall it saved their manufacturing cost up to 30% due to relocation
to Singapore even after taking into account tariffs and logistic costs.
From Operational point of View, the hourly compensation of production workers involved in
manufacturing in Singapore is only $2.67 based on this table but it doesn’t offer cheapest
compensation hourly rates as compared to other countries like Hong Kong that paid $2.40,
Thailand $1.40 and Malaysia $1.60. Even through Singapore does not offer lowest
compensation rates but relocating there involved other benefit that helps them to make this
decision. The government of Singapore is clean from corruption, bureaucracy and red tape so
they do not have to struggle in this regard. Such negative conditions are quite prevalent in
other developing countries and also Singapore has no history of religious and civil war events
like Malaysia. Furthermore, Singapore is an English speaking country that helps them to launch
the offshore plant according to their own Strategies, Mission and Vision like in the US. Even the
vice president Jim Bercaw stated that they didn’t want to build US factory in Singapore but
eventually wanted a plant run solely by Singaporean’s and because the labor force were able to
speak in English so it was easy to communicate Consumer Product’s business Passions and
Shared Values. They were able to provide all training material to Singapore labor force with
ease.
On the other hand, if AT&T moves to Mexico they will not enjoy the same success rate as
compared to Singapore. Even though the production cost of Mexico from the labor perspective
will go down because the compensation rate in Mexico is cheaper as compared to Singapore
which is 1.32$ as shown in exhibit 8 and average hourly compensation rate of maquiladora
workers is 0.80$ as shown in exhibit 11.
However, the labor cost will definitely decrease for AT&T Consumer Product but there are
other issues which can affect in their overall performance. The first is border regulations and
variances In Mexican and American laws which are both applied for maquiladoras and twin
plants in Mexico with US counterparts. Second for illegal employment of minors, this is
estimated 5 to 10 million children under 14 year of age being employed in maquiladoras. This is
an ethical issue that AT&T has to keep in mind. They would have to develop a check and
monitoring system to ensure non employment of children. This is itself quite a difficult and
exhausting task. It would also be hard to maintain a culture of integrity, sincerity, love and
respect in this environment where they constantly check and make sure there is no
employment of children as laborers. Third maquiladoras are hazardous and effected the
environment where they are located along with toxic waste polluting the drinking water for the
people.
Apart from the above factors, the Mexican government is known for corruption. Even if they
save cost from labor perspective, they would have to bear hidden fees and taxes or unwanted
expenses paid to government official as well as local government.
Keep all these considerations in mind, it would be impractical to set an offshore plant in Mexico
due to the ethical and moral issues to be faced by any foreign company. In contrast to
Singapore where there are hardly any setbacks except morale of employees in US. Thus, in
Mexico the cons of setting an offshore plant are greater than the pros.
According to Exhibit 13 of this case, the average cost per unit (labor costed at average
maquiladora rates) in Mexico amounts to $ 42.89, Malaysia at $ 45.37, and the US Greenfield
site at $ 48.09. Although Mexico is no doubt the cheapest, there will be other issues that may
create hurdles and bottlenecks for AT&T. Malaysia and the Greenfield site may be a bit more
expensive, but AT&T should consider exploring these two options first since they are likely to
ensure more ethical operations than Mexico in the long run.

Conclusion:
In the light of the above issues, AT&T Consumer Product’s plant relocation to Singapore was a
good move as it would not only lower costs but will also lead to improved international and
trade relations between the countries. But this is based solely from Operational Point of View
without taking into consideration this decisions impact on labor and work force in the US.
Mexico on the other hand is not so feasible because being notorious for corrupt government,
labor and border issues as well as would give rise to a great number of ethical and moral issues
for AT&T.
Problem 2 Analysis:
In 1985 AT&T laid off above 800 of their work force. At the time of layoff AT&T announced it
was shifting its manufacturing plant to Singapore and run operations offshore to cut their cost
and stay competitive in the industry. According to IBEW union (International Brotherhood of
Electrical Workers) AT&T did not discuss or negotiate the matter of moving offshore with them.
The measures adopted by AT&T to make good and counterbalance this process involved
offering the laid off workers Trade Readjustment Payments, the benefits outlined in their union
contracts and Enhanced Training Opportunity Programs to help its members prepare for life
after AT&T. The problem with this was it was simply reactive strategy and they did not take into
account their decisions impact on morale of labor and human resource. Many of the US
employees build their lives around this organization and have been loyal to AT&T for years.
AT&T consumer product implemented this decision without consulting their US workers. They
did not even discuss, brief or negotiate with the unions. Form an operational point of view, to
go offshore like Singapore reduced their manufacturing cost but decreased their worker’s
morale. At the same time operations in US remained a vital element of AT&T because there
exists a strong connection between operations and the morale of work force in every
organization.

Recommendations
No doubt the measures including offering different packages and retraining programs adopted
by AT&T to handle this situation were exemplary but they would not make up for the morale of
the workers retained in the US who worked in continuous fear of losing their jobs, if the
company ever decides on another offsite operation and also for the ethical and moral issues.
A few recommendations in this scenario would be:

 The first move of AT&T should have been to consider all options available in the US itself
including the Greenfield site in Texas. Feasibility reports, inviting proposals and go
through all options available in the US should have been conducted first before moving
offshore.
 One of AT&T’s major competitor was Matushita, a Japanese company whose strategy
was to offer products that compete with market leaders along with more functions at a
reasonable price. AT&T could have also considered replicating a kind a similar strategy
including quality and style of work in the US.
 Investments incurred to set up operations offshore could have also been injected
towards the improvement and development of existing manufacturing plants instead.
Work force could also have been developed after determining the right kind of training
required and provision of the same.
Conclusion:
To sum up, the decision to retain and consider options in their home state make more sense
than going offshore. Manufacturing and rendering services domestically and closer to end
consumers will not only lead to the reduction of number of costs but will also improve the
flow of communication between the masses. Apart from this AT&T did not act in
accordance with their Mission, Vision and Shared Values which involved Being The Best For
Their People when they decided to move offshore and laying off workers although there
were hardly any disadvantages of the Singaporean facility except for the issues of employee
morale experienced in the vicinity of US AT&T.