Several Examples of Factories in Third World Countries - Essay Example

?Multinationals-Exploiting attributes of different locations Introduction The advent of globalization has catapulted many multinational companies to expand their businesses worldwide. Rising production costs has also played its part in these companies moving their factories to other third world countries where cheap labour is readily available. These multinational companies have often been accused of exploiting the work culture and social setup of the region. Source: Performance of American MNC’s, 2003, Multinational Corporations and the global economy Unsafe working conditions coupled with low wages that are not in tune with the International Labour Laws have meant that these companies are violating agreements made per the World Trade Organization. Foreign Direct Investment in many developing countries have stunted the growth of indigenous industries and also resulted in large scale exploitation of the resources of that particular region. Political Economy-cases and methods of multinational exploitation Multinational companies principally exploit the attributes of different locations either by following labour laws that do not reflect the current sentiment in the market or by monopolising the market in such a way that competition from the native country is slowly relegated. Unfair practices in cahoots with the government also result in large scale exploitation of natural resources. Some of the cases and theories of exploitation by multinationals have been discussed. 1. One case study of the garment industry from around the world is carried out to ascertain the working conditions of those employed in this industry. The industrial term for such factories are ‘sweatshops’ which employ workers at low wages and force them to work in unhygienic conditions for a long period of time. It is said that the garment industry in Central America employs 80% women between the age group of 14-26. At Doall, a Korean company operating in El Salvador that makes the famous LizWear and Liz Claiborne fashions; women are made to work from 6.50 am to 10.30 pm with two half hour breaks, one for lunch and the other for dinner. (VIDEA, 2000 ) In the rush hour months they have to work for 7 days week clocking roughly 90 hours. To prevent them from sleeping, the company also encourages them to take a ‘No Doze’ pill which is a highly unethical practice. For the first eight hours these workers are paid 60 cents an hour and 1.20 dollars per hour as overtime. To sum up a worker would be paid 8.40 dollars for an arduous 11 hour shift which is considered far below the minimum wage requirement. (VIDEA, 2000) The Liz Claiborne collection is, however, marketed as very modern, fashionable and sophisticated dress around the world. However if indications are to show the working conditions at the Doall factory in El Salvador is anything but sophisticated. Apart from low wages, the working conditions are pathetic. Air that is full of dust and lint cause breathing problems, skin rashes and other kind of allergies. Bathroom breaks are limited and workers are obligated to work overtime. Failure to adhere to these norms results in suspension or withholding of ‘attendance’ bonuses. Apart from these excesses, new workers are forced to take blood and pregnancy tests to prevent employing pregnant women. Women in the ironing and cleaning sections are forced to stand all day causing inflammation in the feet and working ambience is especially unpleasant with supervisors yelling at them for not being able to meet targets. (VIDEA, 2000) Employers know that any kind of trade unionism with the nature of work involved would cause severe problems for the company. Hence any kind of activity to that effect either by way of organization or by distributing trade union literature is considered subversive. Studies carried out by National Interfaith Committee for Worker Justice Workers in factories of Lavapant, Vaqueros and Cantabria indicate that workers were not paid overtime even though they had worked over 60 hours. This is in violation to the Mexican labour law which clearly states that maximum eight hours during the day, seven hours during night and that the first nine hours of overtime are to be paid at double the standard rates. Reports also show that child labour with pathetic wages was being employed in these factories. Statically tabulating the wages, it showed that while a worker in the third world country was paid 60 cents an hour, the same work fetched a person in Canada 9.77 dollars an hour and 10.06 dollars an hour for someone employed in the US. (VIDEA, 2000) For a Claiborne jacket that was sold around the world at 178 dollars, a worker in the Doall factory at El Salvador was paid 74 cents for the stitching the same. 2. The Fair Labor Association (FLA) and the Workers Rights Consortium (WRC) have argued that multinationals relocating their factories to cheaper countries should improve the working conditions and introduce a minimum wage for services rendered. (Brown, Deardorff and Stern, 2004) However, multinationals argue that in the present context access to cheap labour is the only way forward for sustainability. They argue that the wages paid in these third world companies must not be compared with the wages paid in US, UK or Germany because of their higher standards of living. The money paid in these poorer countries is well above the average wage being paid in the native country. Higher wages would mean lesser number of people employed and fewer opportunities for companies to expand their business. (Learner, 1999) The argument made is also that none of the people have been forcibly employed and the only reason why they work there is because of the lack of job opportunities elsewhere. 3. The Living wage of employee cannot be a fixed amount across nations mainly because the difference in standard of living across countries. However multinational companies are arriving at a minimum wage based only on the lower standard of living index. (Learner, 1999) This is not correct since there are other critically important factors that should be utilized in arriving at a minimum wage. Source: Labour and capital expenditure of American MNC’s, 2003, Multinational Corporations and the global economy The general health conditions, the extremes in climate which might tend to decrease productivity and the size of families should all be used in arriving at a minimum wage figure. 4. Most multinationals employing native labour does not encourage collective bargaining and the right to association or peaceful protest. Prior to joining, the employee is made to understand that any kind of association or protest activity will not be tolerated and would effect in immediate dismissal. Thus workers are not aware of their rights and are not able to argue for minimum wages per labour laws for fear of being dismissed. It does not recognise the right of a worker to strike and sometimes goes to the extent of shutting down plants at short notices without settling claims and pending dues. In some countries women are not encouraged to take up leadership positions thus stunting the growth of a section of society. (Siegel, Pyun and Cheon 2011) Thus, the management is able to keep a stranglehold on the workforce and argues that allowing a union to function will bring down the productivity. 5. Social accountability is also another important aspect on which multinationals are judged. They should act in a responsible manner in accordance with the law of the land and that acts committed by them should not in any way be harmful to the natural environment. Further it has also been argued that the profits from MNC’s are not always spent on improving the host economy either in infrastructure or in industry but only helps the home country. There have cases where patents and strict licensing policies have prevented host countries from becoming self reliable. 6. Medical research is another area where multinational medical companies are making a killing. It has been debated that the these companies are engaged in carrying out unethical and unauthorized human trials in many parts of Africa. 7. Uneven development results when in a highly impoverished society, a section of society enjoys a small uplift in their financial standing. This leads to class divides and fragments the society as a whole. (Batware, 2011) 8. Political Instability is another factor that is attributed to these multinationals. It is said that while most of these companies come from democratically elected countries, multinationals do no practise the same principles when operating in a third world country. This is because they fear that any kind of opposition to the existing government might have several financial impacts on their trade. Therefore any kind of democratic opposition is encouraged to be stamped out ruthlessly. (Ozoigbo and Chukuezi, 2011) In this exercise the multinationals silently lent moral and financial support to the host governments to act like a dictator. 9. Cultural degradation occurs when the multinational operating in a host country brings along with it a culture that is alien to the host country. Traditions are tampered with and new tastes and way of life is introduced into the culture which would be quite inappropriate to the host nation. Economic theory The previous section dealt with methods of how multinationals tends to exploit the attributes of a third world country by subverting guidelines enumerated by the International Labour Organization (ILO). Studies have proposed different economic theories that explain the reasons for the behavioural pattern of these companies. 1. Foreign direct investment by a multinational in host country is usually by two means. The tie-up would be catering to the host market thus expanding the market base of multinational or it would create a manufacturing hub in a third world country for the sole purpose of producing goods that would cater to the demands of the customer primarily at home or other developed countries. In the first instance why these companies go for FDI is because manufacturing it in the home country and selling it in these host countries has several issues related to transportation, trade barriers and quality. (Diacom, 2012) However, tie-up with major players in the host country ensures that it can expand its base while having to share only part of its profits with the host company. The FDI for export on the other hand is a trend by MNC’s to identify third world country with ample resources for it to exploit and create a manufacturing hub, training the local population with its advanced technology at a cheap wage rate and then sell it to developed countries at inflated prices. 2. Foreign direct investment is also characterised by a huge amount of capital inflow into the developing economy. If capital and labour can be considered as inputs to calculating the capital stock value of producing a product in a host country, the Hechscher-Ohlin (HO) theory states as per the factor-price equalization (FPE) theorem this will not lead to increase in labour rates in the home country or the host country. (Brown et al, 2004) 3. Foreign direct investment is also characterised by technology transfer. In this type of FDI there might not be large capital investment but only a merger with a significant degree of technology transfer. The argument that improved technology improves the productivity of the worker and this should result in increase in wages; does not hold true. The company might be willing to increase the wages but in most some cases the economics does not always work out. This is because with an improved technology the quantity of production will have increased substantially leading to a drop in price of the product based on the simple theory of supply and demand. (Brown et al, 2004) Now to augment this demand more people would have to be employed which would mean that it would not be viable for a company to increase its wages. However there are several instances where severe lack of employment opportunities has lead to people trying to hold to the job even at meagre wages. 4. Fragmentation is another aspect of multinationals splitting up the production of a unit into several parts. The less critical parts are outsourced to a company elsewhere in a third world country and the unit manufactured at a fraction of the original cost. (Franklin, February 2010) Sometimes instead of outsourcing, the parent MNC begins a subsidiary in the host country and trains a small unit to work on that aspect of the product. This shows that all decisions of multinationals in the end are taken upon economic considerations because of the competition from cheap labour economies like China and India. 5. Monopoly is a trend by which multinational company with its superior technology is able to shut down an indigenous company which had low productivity. In the absence of competition and also because of its standing in the market, it as a sole player may be able to control wages and even bring it down. (Friedman, Gerlowski and Silberman, 1992) There have been cases where huge retail giants like Walmart have entered relatively new markets in developing countries and have managed to shut down small grocery stores mainly because of the wide discounts it is able to provide, number of options under one roof and a new shopping experience. However the impact of such giant retailers is not healthy in the long run as small traders see a bleak future and this kind of compartmentalisation brings a disparity into the social setup. 6. Price fixing is another manner in which multinationals engage in large scale exploitation. This happens mainly for products that have very few manufacturers in the world and these few players are able to fix the price based on a mutual understanding. (Brown et al, 2004) The coverage area of these companies being different, each player is designated a particular sector of the world region which enables it to sell products at mutually fixed prices at inflated costs. Conclusion Several multinational companies over the last decade have relocated their factories and businesses to third world countries. This to an extent has managed to open up the economy of these countries by generating employment and also creating foreign exchange. In the face of stiff competition from emerging economies like China the concern of the business houses to look for cheaper avenues of manufacturing is true and needs to be considered. There are several examples of factories in third world countries running as per the stated labour laws of the particular nation but the number of companies doing it otherwise far exceeds those doing it ethically. It is therefore imperative that a fine balance needs to be struck between these extremes since it ultimately boils down to the question of human dignity, basic rights of fair wages, ethical business practices and whether you as a company or a consumer would want to be associated with a product that has been manufactured at the cost of another’s misery. References List Batware B, 2011, The role of multinational corporations in the democratic republic of Congo, [online], Available at http:// www. acuns.org/wp-content/uploads/.../RoleofMultinationalCorporations.pdf, [Accessed on 19th November, 2012] Brown D, Deardorff A & Stern R, February 2004, The effects of multinational production on wages and working conditions in developing countries, Challenges to Globalization: Analyzing the Economics-University of Chicago Press, pp. 279-319. Diacom L, 2012, Business strategies of the multinational corporations, CES Working Papers IV (2) [online], Available at://www. www.cse.uaic.ro/WorkingPapers/articles/CESWP2012_IV2_DIA.pdf, [Accessed on 19th November, 2012] Franklin O, February 2010, Multinational corporations and regional strategy, [online], Available at http:// www. studenttheses.cbs.dk/bitstream/handle/10417/.../oscar_franklin.pdf, [Accessed on 19th November, 2012] Friedman J, Gerlowski D & Silberman J, 1992, What attracts foreign multinationals corporations? Evidence from branch plant location in the United states, Journal of Regional Science 32(2), p.p. 403-418. Ionescu R, 2003, Multinational Corporations and the global economy, [online], Available at http://www.idec.gr/.../IONESCU-OPREA, [Accessed on 12th November, 2012] Learner E, 1999, Effort, wages and the international division of labor, Journal of Political Economy 107, p.p. 1127-1162. Ozoigbo B & Chukuezi C, 2011, The impact of multinational corporations on the Nigerian economy, Journal of Social Sciences-vol 19 number 3, p.p. 380-385. Siegel J, Pyun L & Cheon BY, 2011, Multinational firms, labor market discrimination and the capture of competitive advantage by exploiting the social divide, Working Paper 11-011-Harvard Business School, [online], Available at http:// www. www.hbs.edu/faculty/Pages/download.aspx?name=11-011.pdf, [Accessed on 12th November, 2012] Victoria International Development Education Association (VIDEA), 2000, Sweatshops: clothes-the real cost of the clothes you buy, Global Citizens for a Global Era Vol 1, Issue 1, p.p. 1-10. Read More