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The 21st century has been characterized by the major integration of economies and cultures in a process known as globalization. Businesses have been some of the major beneficiaries of this phenomenon. Rosenbloom and Larsen (2003, p.309) advance that as a result of globalization, “businesses from various parts of the world interacting and dealing with each other is expected to be the normal state of affairs for the majority of businesses”. A major phenomenal stemming from this has been the outsourcing of production and services by multinational companies (MNCs) to lower production costs.
This has been necessitated by the high production cost incurred in most industrialized countries. However, the conditions under which the production takes place in the outsourced plants has been called to question with allegations of poor pay and substandard working conditions for the workers being made frequently. Independent organizations and journalists have run investigations on the issue and the British Charity Action Aid has made the damning accusation that “cheap fashion comes at a human price”. This paper shall argue that the accusation made by Action Aid is greatly valid especially regarding the fashion industry.
In the past few decades, many MNCs have taken up various strategies to increase their profitability. Offshore outsourcing is one of these strategies which have been adopted by many companies in various industries including the fashion industry. Wladimir (2009, p.6) defines outsourcing as “developing a supply source which is located outside a plant, a factory or an office in charge of producing some final products or services”.
When these suppliers are located outside the country, then it is called offshore outsourcing. While there are instances of domestic outsourcing by MNCs, international outsourcing has proved to be a prevalent form of outsourcing in some industries. Research carried out by Grossman and Elhanan (2002) suggests that the reason for this is because overseas outsourcing results in even higher profits for the business as a result of the wage differences between countries. The fashion industry is especially fond of outsourcing since the industry heavily relies on human labour.
Another strategy whose usage has increased monumentally in recent times is Foreign Direct Investments which are the investment by foreign entities in a country have also increased. While historically the main motivation for FDI was to gain access to natural resources that were available in the host country or increase proximity to the market, this has changed. Shaukat and Wei (2005) reveal that in recent times, the motivations for FDI have been to exploit the available and abundant pool of labour in the host country. FDIs have been hugely successful due to the conducive environment provided by the host countries which benefit greatly from FDIs. Emerging economic giants such as China and India have used special tax privileges and economic investment incentives to attract foreign investors.
Reasons for Outsourcing
Most countries where outsourcing takes place have a favourable business environment for the MNCs. The companies, therefore, move there to exploit this economic climate which is created for them. The environment includes low taxes, security and availability of cheap labour. Part of the reason why developing nations encourage multinational companies to outsource in their countries is that this makes a positive contribution to their economy. The locals who are mostly from impoverished rural areas are eager to find jobs and are willing to put up with harsh working conditions and even unsafe environments to make their living. Cappuccio (2009, p.47) asserts that business owners in the developing countries are “keen to profit from the labour supply in return for minimum wages for the workers”.
The legal obligation of MNCs in foreign countries is normally very limited especially in instances where there is a separation of ownership. This is possible since as Wladimir (2009 p.17) reveals, a subcontractor is “a foreign company legally independent from the main contractor”. This scenario creates an arm’s-length relationship where the MNC is not held legally accountable for the misdeeds of its foreign subsidiaries. This is the case with companies in the fashion industries where the MNCs plead not guilty to any misdoings perpetrated by their foreign subcontractors.
Negative Effects of Outsourcing and Subcontracting
MNCs turn a blind eye to the conditions under which their subcontractors produce their goods. Melik (2010) reveals that the multinationals and big fashion names choose to ignore the reality of the subcontracting industry and they only spring into action when the reality of the working condition is made public by the media. This is even though they are well aware that their subcontractors are notorious for stemming from countries that have a proven record of human rights abuse and deprivation of political freedom for their people. This results in the workers in the subcontracted businesses having to bear with harsh conditions which sometimes result in diseases and even deaths as was the case in Turkey where workers died of silicosis as a result of exposure to harmful dust particles through hand sanding of fabrics; a process that had been banned in Europe (Cappuccio 2009, p.47).
The human cost associated with outsourcing is not only limited to the developing countries which provide cheap labour for the MNCs. Some western economies are also opposed to globalization due to the loss of jobs as a result of outsourcing to low-wage countries. Many companies have closed operations in the developed nations or cut down their staff as they redirect their operations to the low-wage countries. This has resulted in the laying off of many people hence depriving them of a livelihood.
A study by Thibault (2008)asserts that a division of labour undertaken on an international scale whereby MNCs from Western nations draw on developing countries workforces to manufacturing sportswear and equipment has increased the unemployment level in the West. A good example of this is Nike which has kept only 2,500 jobs in the US while the rest of the 75,000 jobs are in Asia where Nike subcontracts the production of shoes to the local enterprises (Wladimir 2009 p.17). All of this is against the backdrop of rising profits for the manufacturing companies as a result of the low cost of productions incurred.
The legal environment in which MNCs operate in their various operations differs significantly. While the companies are bound by a well established legal framework to support workers in the developed nations, this is not the case in the developing nations where the outsourcing is done. Most subcontracted companies especially in the fashion industry hail from county’s which do not have as good a legal framework to support the workers. These, therefore, leads to the exploitation of workers as can be demonstrated by the working conditions they have to bear and the excessive working hours, without any legal redress being afforded.
Countries like China forbid the formation of trade unions or other forms of organizations from which workers can collectively bargain (Rebecca& Ann, 2001). Grossman and Elhanan (2002) reveal that outsourcing may go to the level of finding a partner with which the firm can establish a bilateral relationship to produce products that suit the firm’s particular need (2). However, even when this relationship is governed by legally binding contracts, they do not assure that the business partners conduct their stipulated activities with the same care that the firm would if it were undertaking the activities on its own
Esbenshade (2004) asserts that the garment industry has traditionally relied on women and immigrants as the core of its labour force. By combining ideologies and sexism, the industry has been even more effective in exploiting disenfranchised third world women. The women who are employed are mostly old women with children or extremely young ones.
These groups are very vulnerable and the reason why the industry uses them is that it minimizes the cost of labour while minimizing protest by naturalizing divisions in pay. The women who work in the apparel industry have very limited economic options. Another vulnerable group exploited by the apparel industry is children. An increase in instances of child labour has been documented as a result of MNCs operating in developing nations. Edmond and Pavcnik (2004, p.1) explains that “market integration, by increasing labour demand, expands the earnings opportunities of children and thereby inevitably leads to more child labour.
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Attempts at reducing the Human Cost
Some MNCs have taken the effort of formulating codes of conduct for their overseas contractors. These codes stipulated standards that are to be followed regarding the general treatment of factory employees and the work conditions under which they would do their work. However, despite these measures, human right groups and other critics argue that these measures are minimalistic and there is no way or reaffirming that the subcontractors do adhere to them. Melik (2010) documents that most of the company’s only active when the realities on the ground are pointed out to them hence greatly undermining the notion that they have a genuine interest in the wellbeing of the sub-contracted workers.
International pressure has increased the minimum wage in developing nations. Research by Harrision and Scorse (2004) on the impact that interventions on labour markets in Indonesia by the US government and anti-sweatshop campaigns had on the labour market revealed that such moves resulted in a doubling of minimum wage as well as 25% increase in real wages for unskilled workers. These increases did not result in lower employment or shutting down of MNCs since the companies could shoulder higher costs without reducing employment.
Anti-sweatshop campaigns that began in the 1990s have also had a positive impact by bringing to the public’s attention the plight of the workers in the developing nations. For example, as a result of the anti-sweatshop campaign, the sportswear giant Reebok started issuing guarantees that its footballs were not made with child labour and also its subcontractors follow laws that outlawed the use of child and forced labour (Harrision & Scorse 2004, p.2).
Discussion and Conclusion
The World Trade Organization has been accused of not doing enough to counter sweatshops. Esbenshade (2004,43) states that the WTO agreements to date include no-trade sanctions tied to labour rights. While there have been numerous advocacies for a social clause to protect workers rights, the WTO undermines this by stating that labour standards, particularly in low-wage countries, would be used for protectionist purposes. As such, worker’s rights protection can only be defended by the International Labour Organization which lacks enforcement mechanisms.
The lack of a binding international labour standard by which international businesses can be held accountable has meant that most firms operate based on their standards in the global market. The profit motive by businesses in most cases takes precedence over the ethical considerations leading to condoning of poor work conditions in the outsourced plants. Cappuccio (2009) states that the way forward is for developed countries to demand a guarantee of a healthy and safe working environment for workers in all countries. This is the only means through which the safety and welfare of workers in developing countries can be guaranteed.
This paper set out to argue that the claim made by the British Charity Action Aid that “cheap fashion comes at a human price” is very valid. This paper has detailed that the main motivation for outsourcing is to exploit the lower costs of labour available in the developing and emerging economy countries. The costs in terms of human lives that result from this practice have been revealed and it has been seen that the fashion industry and other players put financial gains above human welfare. From this paper, it can be seen that international laws guaranteeing the safety of workers as well as the imposition of standards on subcontractors by MNCs can result in better conditions for workers, therefore, reducing the human price.
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