Effects of Globalisation - Advantage of Cheap Labour - Assignment Example

Effects of globalisation: Have they benefitted Chinese workers or the transnational companies are able to take advantage of cheap labour? Introduction Globalisation has numerous effects on many aspects, employment included, across the world. By definition, globalisation means many things to different people in different disciplines. For instance, globalisation could simply imply the increasing worldwide interconnectedness, but it can be argued that this definition fails to address the many issues that the concept touches on.1 One all-encompassing definition of globalisation as provided by the International Labour Organisation (ILO) is that globalisation is “a process of rapid economic integration between countries. It has been driven by the increasing liberalisation of international trade and foreign direct investment, and by freer capital flows”.2 It is further noted that the globalisation process is manifested through an increase in activities in areas such as international trade in services and goods, capital flows (foreign direct investment [FDI] as well as short-term flows), the role of multinational corporations, and the reorganisation of networks of production on an international level.3 International trade in services and goods, the role of multinational corporations (MNCs) and the reorganisation of networks of production on an international level are critical as noted in the definition above and are especially important issues since they affect many socioeconomic areas of the world – such as employment for instance, by having companies involved in international trade in services and goods. This means that such companies have to employ people in different parts of the world to act as agents and salespeople. Multinational corporations also have to employ people in different countries to carry out different activities such as production and/or marketing. More importantly, the reorganisation of networks of production on an international level means that many companies are relocating their manufacturing activities to countries that have opportunities to offer cheaper labour.4 With the relocation of manufacturing processes, there have been mixed views as to whether globalisation improves employment in developing countries and causes loss of jobs in the developed countries, from which the shifting of manufacturing emanates.5 One of the countries to which the world’s leading companies have relocated their manufacturing operations is China. In an article titled “China Makes, the World Takes”,6 James Fallows argues that “The factories where more than 100 million Chinese men and women toil, and from which cameras, clothes, and every other sort of ware flow out to the world, are to me the most startling and intense aspect of today’s China”.7 What is happening in China is ‘startling’ because on the one hand, the relocation of manufacturing to the country provides employment to millions of people. But on the other hand, the multinational companies involved in manufacturing processes can also take advantage of the cheap labour by only benefitting themselves while offering Chinese workers only a few benefits. Against a backdrop of the information above, the aim of this essay is to examine whether the impacts of globalisation have benefitted Chinese workers, or the MNCs that are involved in the relocation of labour are taking advantage the cheap labour that they are able to find. The focus of the essay will be on the employment practices of Apple, a US-headquartered company that has most of its manufacturing operations located in China. Brief background about Apple and its manufacturing operations in the United States and other countries Apple Inc. was incorporated in United States in 1977. The company manufactures and sells millions of mobile communication and media devices such as iPhones and iPads, personal computers, portable digital music players, and several other electronic devices.8 The company also manufactures and sells a wide array of computer-related services, software, networking solutions, accessories, as well as third-party digital applications and content.9 Apple started its manufacturing operations in the in San Francisco Bay Area, California.10 The company’s other initial production bases were in Colorado and Texas, all located in the US.11 Over time, Apple started expanding the scale of its operations. For instance, in 1981, the company opened a new plant in Singapore, which was used in the manufacturing of circuit boards.12 The company also increased the level of it manufacturing operations in the US. For instance, in 1983 it opened an automated plant in Fremont, California.13 Also, in 1991, Apple opened a large manufacturing facility in Fountain, Colorado to manufacture finished computer products as well as subassemblies.14 In 1994, the company announced plans to further expand its manufacturing capacity in Elk Grove by increasing the size of the facility for manufacturing logic boards.15 As noted by Prince and Plank16, things started changing in 1996 when Apple started experiencing increased losses and slumping sales. In its reorganisation strategy, the company moved the assembly of circuit boards from its Elk Grove site to Cork and Singapore. By 1997, the company had sold some of its assembly plants in Singapore to contract manufacturers. In 1999, Apple reduced its workforce at the Cork manufacturing facility from 1400 to 1000 and subcontracted some of its manufacturing operations to a company owned by LG Electronics. This was the signal that the firm was going to outsource most of its manufacturing operations. Globalisation and Apple’s relocation of its manufacturing operations Prince and Plank17 also note that in 2004, Apple closed its last US manufacturing plant in Elk Grove and laid off 235 full-time employees. At this point, the company had relocated most of its manufacturing operations from the US to plants located in China. Many of Apple’s operations had been taken over by a subcontractor known as Foxconn, which was now in charge of assembling products such as iPads and iPhones.18 The case of Apple shifting its production operations from the US to countries in Asia and specifically China is an illustration of the effects of globalisation. With the advent of globalisation, the boundaries of different countries have literally been broken and a single or rather more closely integrated global economy created.19 The result of this has been that international trade as well as investment has been increasing significantly since the mid-1970s.20 It has been argued that “globalisation has changed the direction of the production chain”.21 This is illustrated by the fact that whereas in the past the changeover from raw materials to finished products was from developing countries such as China to the advanced economies such as the US, at the present time, the geographic movement of raw materials and finished products is much more complicated.22 As such, work that was formerly relatively well-paying in the developed countries is transferred to the developing countries while some low-paid jobs remain in the developed countries.23 In essence, this means that companies located in different places across the world have to decide on which regions or places offer the best production sites in terms of such places having low production costs such as cheap labour. One of the effects of such changes has been the shifting of production to developing countries that are characterised by low costs of production.24 Such strategies have been embraced by many companies in the developed countries, Apple included, to deal with changes such as declining levels of profitability to high costs of production in the advanced economies.25 Such strategies have been embraced by many companies in the developed countries, Apple included, to deal with changes such as declining levels of profitability due to high costs of production in the advanced economies.26, 27 It is because of this reason that China has become what can be regarded as the manufacturing hub for the rest of the world.28 There are several reasons why Apple relocated its manufacturing operations to China. In an article in the Business Insider, Henry Blodget29 discusses some of the reasons for the shifting of Apple’s manufacturing operations to China. The first reason is that most of the components of the company’s devices such as iPads and iPhones are manufactured in China. Therefore, it makes sense to have all manufacturing and assembling functions located in one place to reduce logistical costs. Additionally, having manufacturing and assembling functions located in different countries would reduce flexibility or the ability to shift from one component manufacturer to another. Secondly, it is argued that China’s factories are bigger than those in the US. This is because of the availability of labour, with many workers living close to factories. Thirdly, as was noted above, China has a skilled workforce including engineers.30 These are the people required to carry out operations such as building complex devices. The fourth reason is that “China's workforce is much hungrier and more frugal than many of their counterparts in the United States.”31 What this means that there are more people in China looking for jobs and who are more likely to be comfortable with lower salaries compared to their counterparts in the US. In turn, this greatly reduces the costs of manufacturing different devices. For instance, “manufacturing an iPhone in the United States would cost about $65 more than manufacturing it in China, where it costs an estimated $8”.32 Effects of globalisation on Chinese workers and Apple Globalisation and the relocation of manufacturing to China by companies from developed countries have various effects of both the people employed by these companies and the companies themselves. As noted above, Apple has provided employment to many Chinese while being able to reduce its operating costs. The implications of the relationship between the company and the Chinese workers are explained in detail in the following subsections. Effects on Chinese workers: Apple’s employment practices in China By October 2011, Apple’s manufacturing plant in China, Foxconn, had employed more than 350,000 people.33 This shows one of the positive effects of globalisation – that relocation of manufacturing leads to the creation of employment in the areas to which manufacturing is shifted.34 The resultant employment may cause an increase in wages earned by workers in the region (in this case China), and this could have the potential impact of decreasing social inequality within the population.35 In addition to this, the other potential benefits that Chinese workers can get from their relationships with Apple include training and exposure to new technologies, which can lead to improvements in labour productivity and skills36. This can in turn enable the upgrading of the Chinese industry into a more value added output.37 Interestingly, one of the negative effects of globalisation as seen through the relocation of manufacturing operations to the developing countries like China is related to the employment that is created by the companies that outsource their production functions. Pressures to create local jobs, and international competition for the skilled labour that is available often put multinational companies in an influential position to negotiate management practices and labour standards that are inferior to those in the advanced economies.38 For instance, in many export processing zones in developing countries, the prevailing work conditions may even be inferior to the average work conditions in workplaces in the host country.39 Such instances can be related to the case of Apple’s manufacturing and assembly operations in China. Apple has widely been criticised for its poor employment practices in China or for allowing its products to be manufactured in factories with poor employment standards.40 Apple has tried to deny this, or partly accepted responsibility for the poor workplace environment that many of its workers in factories in China are subjected to, but the problem has been persistent. Many of the times, Apple insists that it enforces many rules that govern how employees should be treated.41 In 2010, the company announced that the audits that it had conducted indicated that child labour was being used at the Foxconn factory as well as other factories that manufacture various components for its devices.42 This was after 14 employees at Foxconn committed suicide within a period of one year.43 In spite of coming up with measures to deal with the poor workplace conditions in Apple-affiliated factories, cases of employees being mistreated persisted even after 2010. In 2012, The New York Times carried an article titled “In China, Human Costs Are Built Into an iPad”.44 This stemmed from an incident in which an explosion had occurred at Apple’s Foxconn factory in China and killed four people while injuring 18. The author of the article further noted that “the workers assembling iPhones, iPads and other devices often labour in harsh conditions, according to employees inside those plants, worker advocates and documents published by companies themselves.”45 The problems that people who work for Apple in China face range from difficult work environments to deadly safety problems such as the one that led to the explosion of at the Foxconn factory.46 It was further noted that workers work excessive overtime, sometimes doing seven days a week and reside in rooms that are crowded. Some employees indicated that because of the work environment, they are made to stand for long periods that their legs swell until they can barely walk.47 In addition, many cases of under-age workers being employed in factories owned by Apple have been reported. Moreover, Apple’s suppliers are accused of improperly disposing of hazardous waste and maintaining falsified records.48 Apple has also been criticised for giving low pay to its Chinese workers in the various factories that produce the company’s products.49 For instance, “some workers received less than minimum wage or had pay withheld as punishment”.50 To make the situation worse, workers in the factories that manufacture different components for Apple do not have power to protest through bodies such as workers’ unions since the law in China does not permit employees to form unions that are separate from the state-managed labour federation.51 If all the allegations and criticisms that have been made against Apple concerning the company’s employment practices are true, then it can be said that overall, the effects of globalisation through the relocation of manufacturing to China have had negative effects despite providing some benefits to Chinese workers. This is because in spite of creating opportunities for employment and hence sources of income, the jobs that companies such as Apple have created have not benefited the majority of Chinese workers, especially the poor people. Instead, people are made to work in dehumanising conditions, which have negative consequences and have resulted in extreme effects such as workers committing suicide. While Apple’s case appears to be a bad example of the effects of relocation of manufacturing to workers in developing countries, it is not an isolated case. There are many other companies which take advantage of the lax laws in developing countries to exploit local workers when they move their manufacturing operations to such countries. In fact, it has been argued that paying low wages, employing child labour and exploiting workers is a common concern in cases where multinational companies take their manufacturing operations to the developing countries.52 Another example of companies that are perceived not to adhere to good work practices is Nike, also a US-headquartered company. The company has been subject to criticism for paying low wages to its shoe factory workers in countries in Asia. Some of these factories are said to be characterised by sweatshop conditions,53 meaning that they have poor and unacceptable work conditions. The same can be said about Apple, which admitted in 2010 that sweatshop conditions existed in some of its factories or factories of its suppliers, and that not less than 55 out of the 102 plants had disregarded the requirement that workers should work not be at work for more than 60 hours a week.54 Nike’s critics also complained that whereas Nike offers shoes for sale at $100 or more, the company’s suppliers were giving their employees only a few dollars per day as wages. The same can be said about Apple, which offers its devices to the market at premium prices and is one of the most profitable companies,55 but as noted above, is criticised for violating workers’ labour rights by subjecting employees to unacceptable work conditions. Effects on Apple: Has the company benefited from relocation of manufacturing? As was noted above, some of the reasons that motivate companies to relocate their manufacturing operations to other countries include availability of cheaper labour or low costs of labour and the presence of a skilled workforce.56 It was also noted that China offers cheaper labour and has a wide pool of skilled labour that includes engineers.57 Skilled labour is one of the intangible resources that companies want to be found close to their operations.58 That is, having intangible resources means a company being located close to centres that provide the know-how that the company requires. Companies take advantage of the availability of the qualified and ‘cheaper’ personnel at their production site.59 When workers with specialised training are required for production purposes (which is the case for Apple), firms get clear advantages from selecting locations that have people who already have the required know-how to manufacture different products efficiently.60 By manufacturing its devices in China, Apple is able to take advantage of the cheap labour in the country and therefore increase its profitability. For example, it was noted in this essay that the cost of manufacturing an iPhone in the US is approximately $65 more than the cost that that would be incurred in manufacturing the same phone in China, where the cost is about $8.61 By comparison, the cost of labour in the US is significantly higher than the cost in China. Specifically, in 2010, the average wage in the manufacturing industry in China was $2 while for the US, the mean wage was $34.75.62 What this means is that is by having the same iPhone factory in the US, Apple would increase its labour costs by $25 billion per year, which would significantly reduce the company’s profit of $14 billion that was attained in 2010.63 It is also argued that by locating its manufacturing plants in China, Apple is able to free up resources that it can then use to compensate highly paid engineers who are involved in the design work in the US.64 Based on this line of reasoning, it can be argued that globalisation has benefitted Apple in that because of the globalised world, the company has been able to find locations that give it an opportunity to reduce costs and thus increase its profits. Although multinational companies primarily aim to take advantage of the cheap and skilled labour in developing countries such as China when they outsource their manufacturing functions, they can also be accused of taking advantage of the seemingly lax employment laws that exist in such countries. Writing about this issue, Victoria Carty notes that “international decentralized subcontracting arrangements allow MNCs to constantly relocate production in the pursuit of lower wages and lax labour laws”.65 The same author argues that this leads to what can be referred to as a “race to the bottom” as well as the creation of sweatshop conditions.66, 67 As it has been discussed in this essay, companies such as Apple and Nike have been culprits of engaging in or allowing their production partners to promote sweatshop conditions in their places of work. In many cases, these companies or their affiliates violate even the existing laws by overworking them or denying them the minimum workplace requirements so as to increase profits. Apple for instance admitted that its Foxconn factory was subjecting workers to unacceptable conditions and said that it would rectify the situation. Despite the actions taken by Apple, some questions about the company remained unanswered. The first question is “which rules does Apple spend the most time and effort to develop and enforce?”68 This question arises because it can be argued that if cases of public criticism and events such as 14 employees committing suicide at Foxconn has not arisen, then probably the company may not have done anything to address workplace conditions in its plants in China. The second question regards the rules that the company considers to be most important – are these “the rules that protect the secrecy of its products, or the rules that protect the rights of the workers who make those products?”69 This question arises because when it comes to protecting the secrecy of its products, Apple has a raft of rules to ensure that no one can leak information about the company’s new products70. So strict are these rules that even though different groups of workers assemble different components, it is not easy to tell how the assortment of components will fit into the final product.71 Therefore, one can argue that the case of Apple not treating its Chinese workers fairly can be deliberate attempt by the company to avoid many of its responsibilities towards employees so as to further reduce labour costs. To illustrate that Apple or the company’s affiliates are taking advantage of their presence in China to further reduce labour costs unfairly, one needs to analyse the fact that the company and its partners have been deliberately involved in practices that dehumanise workers. The use of child labour and other concerns such as “excessive working hours, unpaid overtime, health and safety failings, and management interference in trade unions”72 are all indications that Apple and its partners in China may have had a well planned scheme that was intended to ensure that the costs of operations are kept as a low as possible provided that the unacceptable work conditions were not known to the public. This is supported by the claim that outsourcing alleviates an MNC’s responsibility for the working conditions in the host country.73 In this case, Apple can argue that it is doing its level best to ensure that Chinese labour laws are adhered to, even though the conditions in the company’s factories in China are much lower compared to what the situation would be if the manufacturing plants were to be located in the United States. Overall, the negative effect of globalisation is that as MNCs move their manufacturing operations to low cost labour countries such as China, they tend to take advantage of the lax labour laws in such countries to push their costs of labour even low. This is achieved through various forms of abuse against workers, such as subjecting them to poor wages with no benefits, endangering workers’ safety and health, making them work in slave-conditions, and exploitation of vulnerable groups such as children, unskilled job seekers, the poor, the uneducated, and migrant workers.74 Conclusion From the discussion, it can be noted that globalisation has different impacts, especially with reference to the relocation of manufacturing from advanced economies to the developing countries as the world becomes more globalised. The effects include the gaining of employment and income earning opportunities by the people who work for the companies in question. Workers in the countries to which manufacturing is relocated also benefit from the training that is offered by their employers – the outsourcing MNCS. On the other hand, MNCs benefit by having access to cheaper and skilled labour, which is critical for ensuring that their operating costs such as labour costs are significantly reduced. The benefits of globalisation aside, this essay has dwelt to a large extent on the negative impacts of globalisation. It has been noted that in their efforts to reduce costs of labour, MNCs often take advantage of the situation in the developing countries to exploit workers or subject them to unacceptable work conditions. Notably, it has been discussed that Apple, which has outsourced most of its manufacturing operations to China, has been a subject of concern because of the manner in which employees in the production plants are treated. Cases such as use of under-age labour, subjecting employees to excessive working hours, not paying employees for working overtime, having poor health and safety measures and generally mistreating employees have been common in Apple’s factories in China. This has caused anxiety among many workers to the extent that some of them even committed suicide. Similar conditions were also noted for Nike, another company that has also relocated its manufacturing operations to China. Therefore, it can be argued that although relocation of manufacturing presents benefits such as employment and training to workers and reduced costs to MNCs, negative effects result from the environment that is created. Companies such as Apple seem to be more concerned about pushing their labour costs further down while ignoring their responsibilities towards their employees in the production plants. The situation has been made worse for Chinese workers by the seemingly lax labour laws that exist in China. References Books Aswathappa, K, International Business, (Tata McGraw-Hill Publishing Company Limited, 2008). Berghman, Jos, Social Protection, Globalised, (Leuven University Press, 2005). Brosnan, Peter, ‘The minimum wage in a global context’. In Jonathan Michie (ed). The Handbook of Globalisation, Second Edition (Edward Elgar Publishing, Inc., 2011) 215-229. Carty, Victoria, Wired and Mobilizing: Social Movements, New Technology, and Electoral Politics (Routledge, 2010). Cavusgil, S. Tamer, Gary Knight, John R. Riesenberger, Hussain G. Rammal & Elizabeth L. Rose, International Business: The New Realities, 2nd edition, (Pearson Australia, 2015). Chan, Chris King-Chi, The challenge of labour in China: Strikes and the changing labour regime in global factories, (Routledge, 2010). Dicken, Peter, Global Shift: Mapping the Changing Contours of the World Economy, 7th edition (The Guilford Press, 2015). Fallows, James, “China Makes, the World Takes”, in John Lechner Boli & Frank J (eds), The Globalization Reader (Wiley, 2014) 169-174. Hill, Charles W. L. & Gareth R. Jones, Strategic Management: An Integrated Approach, 10th edition, (South-Western Cengage learning, 2013). Jacob, Frank  & Gernot Strube, ‘Why Go Global? The Multinational Imperative’, in Eberhard Abele, Tobias Meyer, Ulrich Näher, Gernot Strube, Richard Sykes (eds), Global Production: A Handbook for Strategy and Implementation (Springer-Verlag, 2008) 2-33. Kiggundu, Moses N., Managing Globalization in Developing Countries and Transition Economies: Building Capacities for a Changing World (Praeger Publishers, 2002). Journal articles/Research papers Ghose, Ajit K., ‘Globalisation and Employment in Developing Countries’, (2008) 51(4), The Indian Journal of Labour Economics. Others Bilton, Richard, ‘Apple 'failing to protect Chinese factory workers’’, BBC News (online), 18 December 2014 . Blodget, Henry, ‘This Article Explains Why Apple Makes iPhones In China and Why the US is Screwed’, Business Insider (online) 22 January 2012 . Chen, Baizhu, ‘The Real Reason the U.S. Doesn't Make iPhones: We Wouldn't Want To’, Forbes (online) 25 January 2012 . Duhigg, Charles  & David Barboza, ‘In China, Human Costs Are Built Into an iPad’, The New York Times (online) 25 January 2012 . Garside, Juliette, ‘Apple's factories in China are breaking employment laws, audit finds’ The Guardian (online) 30 March 2012 . Prince, Marcelo & Willa Plank, ‘A short history of Apple’s manufacturing in the U.S.’, The Wall Street Journal (online) 6 December 2012 . Reuters, Apple Inc (AAPL.O), . Read More