The Freeplay Group - Changing the Rules?

Report from the Past

Home Base: Cape Town, South Africa
Original Publication Date: April 1999 (FC 23)
What's Up? A fast-growing company that has won acclaim for its commitment to employing disadvantaged workers announces major layoffs.

If we've learned anything during the brief history of Fast Company, it's that chronicling the ideas, companies, and people behind the new economy yields lots of surprises. But even we were surprised -- and, to be honest, a little puzzled -- by a decision that was recently announced by leaders of the Freeplay Group, a fast-growing maker of self-powered radios and lanterns, based in Cape Town, South Africa.

In 1999, we featured Freeplay in our annual Agenda issue, calling attention to the company's achievements in combining economic growth with social justice ("The Agenda," April 1999). Its products, we wrote, were not only becoming very fashionable among consumers in rich countries; they were also proving highly useful to people in the developing world. Meanwhile, the factories that built those products employed hundreds of South Africans who desperately needed a decent job or a second chance -- including people with disabilities and ex-convicts. Just last month, in our Agenda 2000 issue, we updated the Freeplay story, noting that last year the company had logged revenues ($50 million) that far exceeded the expectations of its business plan and that it was moving toward a public offering.

Which is why we were surprised as well as puzzled by an announcement that the company made just as that issue was being mailed to subscribers: Freeplay had laid off roughly half of the people who worked in its South African factories. In an interview with Fast Company, Rory Stear, CEO of Freeplay, talked about this turn of events.

Why did you make the layoffs?

In January 1999, demand for our products exploded. To keep up with that demand, we increased our capacity in South Africa, and we supplemented that production by assembling some of our products in China. But, just as we caught up with all of that demand, our growth slowed -- and that left us with excess inventory. We lost the luxury of being able to build out of South Africa at a constant rate. Given that it costs us $6 more per unit to produce in Cape Town than it does to produce in China, we had to cut back in South Africa. Continuing to produce out of Cape Town at previous levels would have cost us $9 million a year. For a company that hopes to bring in $60 million in total revenues next year, that kind of expense is just too high. That was the harsh business reality.

What's happening to the people whom you've laid off?

By using a recruiting consultant and by contacting other factories, we were able to find jobs for all 22 disabled workers. And we've offered additional skills training to the nondisabled workers. But our primary focus is on getting jobs back into our factories. We've struck a partnership with Per Scholas, a New York-based nonprofit organization. Per Scholas will be shipping old computers to our factories so that we can refurbish them and then donate them to South African schools. That will win back 40 jobs. We're also dedicating a full-time position to bringing in work from other companies that we can do in our Cape Town factories. We hope that within two years, we will be able to hire back all 197 of the people who were laid off.

But remember: We are first and foremost a business. We can be a socially responsible business only if we continue to be a sustainable business.

How does operating in China square with your goal of being a socially responsible business?

First, we are arranging for KPMG to do a social audit of Zindart Ltd., the company that we are working with in China. Zindart has also agreed to adopt a policy of hiring disabled workers, and we are discussing a program in which both companies would match every Freeplay product that we make with a contribution to support local social initiatives.

From our perspective, we've been consistent with our values and with our goal of making a difference in the communities in which we operate. What we've failed to do, in the short term, is to preserve South African jobs.

Contact Rory Stear by email (stearbpg@iafrica.com).

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