Ethical Dilemmas

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9
InternationalCarpet
Wholesalers
Background
Mr. James McHenry, abuyer for International Carpet Wholesalers, a large New York rug importer and
distributor, should have been delighted with his day's accomplishments in Rabat, Morocco. He had managed
in just twelve hours to come to a tentative agreement with a major Moroccan carpet manufacturer and
exporter, Mr. AbdelhadiHachad. Managing Director of SocieteMarocTapis (SOMARTA). The agreement,
although not yet finalized, provided for the importation of wool from McHenry's firm to SOMARTA in
exchange for the export of rugs toInternational Carpet Wholesalers in New York.
The agreement was highly satisfactory to both sides. Mr. Hachad was able to get the raw wool free of
import duty since the law allowed for "temporary import" of wool without tariffs providing it was used for
manufacturing rugs for export. Mr. Hachad was also pleased because Mr. McHenry had tentatively placed a
substantial order for a variety of handmade rugs to be produced over the next year.
Given the obvious success of his day's work, Mr. McHenry should have been pleased. But images of the
factory visit kept running through his mind, images of young women, some of whom couldn't have been
more than twelve years old, working four or five to a loom. Although the factory was clean, extremely well
lighted with daylight, and the girls did not seem unhappy, Mr. McHenry could not help but feel that some-
thing was wrong with children of this age working. He has said nothing about this matter to Mr. Hachad
but plans to discuss it with him tomorrow.
Dialogue
Mr. McHenry is meeting with Mr. Hachad in Mr. Hachad's office to finalize the agreement
discussed the day before.
Hachad Mr. McHenry, I had a long discussion with my brother last night. He is a co-owner of the
business, you know, and I'm pleased to tell you that we will be able to meet your demand. I
should tell you though, that since we'll have to increase our present production capacity a bit,
there will be some delay in sending the first shipments.
McHenry: How much of a delay?
Hachad: About ninety days. That's forty-five days longer than you originally specified.
McHenry: Could you send anything in forty-five days?
Hachad: Of course, but not in the quantity you asked for yesterday. Right now, our present capacity is
5,000 square meters a month; 4,000 square meters is already exported to Germany, and your
demand of 2,000 square meters a month in different sizes, shapes, and styles will necessitate not
only boosting production but also making some modification in manufacturing.
McHenry: Is that possible? Your factory looks like it's already working to capacity. I can't see how you'd
install more looms; they're already so close together.
Hachad: That's no problem. We can simply put more workers to a loom. Also, we do have another small
factory in Sale that can take up some of the slack. We also have another workshop where we
spin and dye the raw rug wool.

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McHenry: Well, I guess how you do it isn't really my business. I take your word that you'll figure it out.
By the way, I noticed that a lot of workers in your factory are young girls. Is that customary?
Hachad: Yes. All the factories employ young girls. Does that surprise you?
McHenry: Well, not really. When I bought carpets from Iran, it was much the same, but I don't remember
so many young girls.
Hachad: Do you know what the working age for apprentices was in Iran?
McHenry: Ibelieve it was fourteen.
Hachad: In Morocco, it's just twelve. Actually, though, those girls don't work for me. We have what's
called a maalemasystem here.
McHenry: What's that?
Hachad: Do you remember the older women who were supervising the work teams?
McHenry: Yes.
Hachad: Well, they are called maalema. The maalemaare experienced craftswomen, and they hire their
own crews. We only pay the maalema. Even the state factories have maalema. It's an old
tradition here, and one that works quite well. But now, back to business.
McHenry: Sure.
Hachad: About the wool, the question is, when can we begin receiving shipments? As I said yesterday,
we could use 80,000 to 100,000 kilos a month.
McHenry: Within forty-five days, providing I can get everything arranged with the Australian supplier
within a week or two.
Hachad: That soon?
McHenry: I think so.
Hachad: Well, the sooner we receive it the better. Until it arrives wewon't be able to discount the prices
as we talked about yesterday. We'll have to keep using the more expensive French wool.
McHenry: Right. I understand that.
Hachad: Regarding the wool and prices, my brother suggested that it might be to both of our advantages
to work out a barter agreement. In other words, we will deduct the price of the wool from our
finished rugs instead of making a separate transaction for the importing of wool and the
exporting of carpets.
McHenry: You mean we charge you nothing for the wool and in turn get a substantial break on the price.
Hachad: Exactly. In that way we both save on all the foreign exchange expenses.
McHenry: That's a possibility. The problem is we still have to use foreign exchange to pay for the wool
since it comes from Australia. I'd definitely have to run that one by my boss in NewYork.
Hachad: Well, think about it. How soon can you get an answer on that?
McHenry: Well, I sent her a fax last evening about the terms. She’ll get that today. I'll call her this evening
to see what I can do about the wool. If I call at 6:00 P.M., it will be 12:00 noon in New York. I
might be able to get an answer for you then.
Hachad: Great.
McHenry: If she agrees to the terms, I can get an agreement drawn once I'm back in New York. Within ten
days we should have it all wrapped up.

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Exhibits
Exhibit 1: Fax from McHenry to Ms. Paula Feldman, President of International Carpet
Wholesalers
FEB 13, 1994
TO: P. FELDMAN
FM: J. McHENRY
RE: RUG AGREEMENT
MET TODAY WITH A. HACHAD, RABAT MANUFACTURER OF HANDMADE CARPETS.
HACHAD AGREES TO SUPPLY 2, 000 SQ. M. /MONTH. BREAKDOWN AS FOLLOWS:
1. 1,000 SQ.M./MTH MOYEN ATLAS (15/15*) @ 140 DH/SQ.M.;
2. 300 SQ.M./MTH RABAT (30/30) @ 300 DH;
3. 400 SQ. M. /MTH CHICHAOUA (30/30) @ 300 DH/SQ.M.;
4. 150 SQ .M./MTH PLAIN ( PLIED WOOL) 127 DH/SQ. M.;
5. 150 SQ. M. /MTH SIMPLE DESIGN (2-COLOR 15/15) @ 135 DH/SQ. M. ROUNDS
OR OVALS AT NO EXTRA COST.
ALL PRICES F 0 B
ALSO WORKED OUT AGREEMEMT FOR IMPORT OF AUSTRALIAN RAW WOOL FROM
HEATHERSTONE. HACHAD WILL TAKE 80,000-100,000 KILOS/MTH.
CAN YOU CONFIRM PER HEATHERSTONE?
RUG QUALITY IS HIGH. HACHAD WELL ESTABLISHED AND IS CURRENTLY DOING
BUSINESS WITH GERMANS.
PLEASE ADVISE ASAP
*15/15: fifteen horizontal knots and fifteen vertical knots per 10 square centimeters. The more
tightly packed (30/30, 40/40), the better the carpet.
8.0 DH (Dirham) = 1 U.S. dollar.
Exhibit 2: Telex from Feldman to McHenry
FEB 14, 1994
TO: J. McHENRY
FM: P. FELDMAN
RE: RUGS
AGREEMEMT SOUNDS BASICALLY OK, BUT PLAIN @ 127 DH/SQ.M. AND SIMPLE @ 135
DH/SQ.M.IS HIGH. ALSO NEED QUANTITY BREAKDOWN ROUNDS/OVALS.
HEATHERSTONE CAN 'T CONFIRM 80,000 KILOS/MTH. 50,000 KILOS/MTH MAX TILL
APR, THEN 80,000 KILOS: O.K.
WHAT IS ADVANTAGE OF EXPORTING WOOL? ARE PRICES FOR MOROCCAN OR
HEATHERSTONE WOOL?
CALL ME TOMORROW A.M. ALL BEST

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Exhibit 3: Portion of a Letter Sent by McHenry to His Wife
As I mentioned, Morocco is fascinating, and I have been quite successful arranging a deal here.
The problem, though, is that I feel terrible about it, and really don't know what to do. This
probably sounds like a contradiction, but I wish I could somehow undo what I've done. Why?
Because I realize that by getting these rugs at such a good price, I'm directly contributing to the
exploitation of children.
Janice, you should see this factory! Little girls, no older than ten oreleven, some maybe even
younger, are working forty-eight hours a week for 50 cents a day making these rugs. They sit
four or five to a loom, tying knots hour after hour. The owner doesn't even "see" them. The only
people he "employs" are their supervisors, older women called maalema. The maalema hire their
own crews and barely pay these kids.
I've tried to maintain an attitude that this is Morocco and this is the way it's done. At the same
time, it really bothers me knowing that I'm perpetuating this situation. From what I hear, most of
the factories are the same way, so Ijust can't go to another. Isuppose I could ignore it — I'm
supposed to be a businessman after all, not a humanitarian—but I can't. I'm even thinking of
telling Paula that I can't get a good deal, but that’snearly impossible since I've already faxed to
her the details.
As you can see, I'm in a quandary. The part of me that is a good businessman says that I should
get the best deal I can; the part of me that is a human being says that I should have nothing to
do with this exploitation. Of course, if I don't go through with this deal, I better start looking for
another job.
I‘ll let you know what happens. I’ll probably leave for Turkey next week.
Exhibit 4: Note Sent from McHenry to Hachad
HOTEL RABAT
Dear Mr. Hachad,
I just got a telex from my boss. She says that the wool import deal is going to be hard to arrange. Also,
she thinks your prices on plain and simple design (two-color) rugs are too high, so we'll have to do some
renegotiation. Please call me when you return from Tangier.
Sincerely,
James McHenry
Note on the Moroccan Carpet Industry
The Moroccan carpet industry has always occupied a position of importance in the nation's economy. Since
the early 1970s, however, exports have risen dramatically to make Morocco the number one exporter of rugs
in North Africa. With the increase in production, the character of the industry has changed from an activity
centered in small workshops and homes to one of medium-scale industrialization. This industrialization has
full government support: Wool may be imported duty freeaslong as it is used for making carpets for export;
export duty and taxes arealso waived.
A side effect of this move toward mass production is the employment, on a large scale, of children. Although
the legal age of employment is twelve, a study conducted in 1988 indicated that a great many of the children
working (one third of all employees) were that age. In addition, nearly half of the factories studied had a
workweek in excess of the legal 48-hour maximum. The children often worked under maalema, who were
paid on a piecework basis (15-30 DH per sq m). A square meter, depending on the complexity of the design
usually takes one to two days to produce. The children's wages averaged 2-4 DH per day.
The government is aware of the problem and is making efforts to correct it. A first step has been to increase
educational opportunities for girls. Factory inspection has also been increased. The problem, though, has been
compounded by the fact that more than half of the population of Morocco is under twenty. With such a young
population and with an insufficient number of schools, a ready labor supply is at hand at all times.