Investigating the interconnections and ethics of global manufacturing
Increasing numbers of transnational corporations (TNCs) are attempting to run their overseas operations on a more ethical basis, sometimes even gaining FairTrade status. However, it is still the case that many labourers in lower-income countries (some of whom would be classed as school-age in the UK) remain poorly treated.
One important reason for this is that products ranging from laptops to trainers are rarely built by a single company working alone anymore. Instead, businesses all over the world collaborate in the assembly of consumer goods.
This article explains how this model of global trade works – and why, as a result of global production networks, it is very difficult for ethically-minded high-street shoppers to always be sure that they are making truly ethical purchases.
This article explores what is meant by the phrase ‘global production network’ and explains why it is an important unit of analysis for globalisation studies alongside single-firm case studies of TNCs. Special attention is paid to the ethics of globalisation and the treatment of factory workers. The case studies provided develop the important themes for A-level globalisation & development studies that were examined in “fast food farmers” (2009).
What are global production networks?
What are the ethics of global production networks?
A-level / International Baccalaureate HL activity
The phrase global production networks makes us think about the geography of the products we consume on a daily basis. We are used to thinking about how transnational corporations (TNCs) make products for markets by building new branch plant factories in countries where labour costs are low. For instance, the guitar maker Fender has built a factory in Mexico. Dyson (the vacuum cleaner manufacturer) has similarly established a low-cost base of operations in Malaysia.
However, this is only a small part of the global picture, for two reasons.
Many TNCs do not make the products they sell themselves. Instead, a TNC may out-source the work to another company which manufactures goods that carry the TNC brand but have not been worked on by people whose wages are paid directly by the TNC itself.
Even when goods such as TVs or laptops are assembled by the paid employees of a major TNC such as Samsung or Sony, the various parts that are bolted together may be sourced from a range of factories run under entirely separate ownership. In some very complicated cases, multiple ‘tiers’ of production can be identified (Figure 1).
The branded manufactured goods sold by many TNCs are really the product of an entire world of small companies all working together (the TNC’s actual role is to “run the show”, rather like the conductor of an orchestra). The following three examples all serve to outline the geography of some global production networks of interconnected firms:
Dell computer laptops In order to produce competitively-priced machines at prices of £300 or less, firms like Dell are forced to search for cheap suppliers of component parts such as the printed circuit board (PCB), DVD-drive, processor, memory amongst many more (in a Dell laptop there are around 20 major component parts, each of which may be produced by different companies located across several continents) The Guardian (21 April 2005)
Tesco clothes Cheap garments sold by supermarkets such as Tesco will require not just cotton or another fabric for their manufacture but also buttons, zippers, studs and other materials that all may be sourced from different suppliers. As one Tesco director has noted “even the production of a simple garment such as a T-shirt requires materials to pass through four to seven pairs of hands so the number of permutations in the supply chain is huge” (Financial Times, 15 September 2010).
The Mini car Another well-known example is the Mini car made in Oxford; it requires 2,500 parts, which are sourced by parent company BMW from firms not just within the European Union but also from further afield.
Any detailed geographical analysis of computer-related or other electric goods is likely to reveal a fragmented, dispersed and subcontracted geography of manufacturing. At the 2010 annual conference of the Royal Geographical Society (with Institute of British Geographers), Gale Reichart (University of Manchester) reported on the global production networks that support the assembly of branded Hewlett Packard computer equipment. Several tiers of production can be identified:
HP laptops are assembled for sale in Kunshan, China.
Manufacture of each laptop’s PCB (printed circuit board) is out-sourced to a company in Penang (Malaysia): this is called the 1st tier of out-sourcing.
The PCB in turn requires parts such as memory chips or a cooling fan. These can be sourced from other Malaysian factories and firms: this is called the 2nd tier of out-sourcing.
There are additional tiers, given that even the wire, screws and plastics that are used in the manufacture of each component part will need to be sourced separately.
An important implication of the complexity of global production networks is the real difficulty faced by consumers who want re-assurance that they are spending their money on ethically-sourced goods. Where a global production network is composed of hundreds, or even thousands, of companies, how easy can it be to discover whether all of the hands that have helped shape a finished assembled product have been well-treated at their respective workplaces?
The nature of modern assembly industries means that many firms are linked together and become reliant upon one another for continuing profitability. The result? Global production networks with an interconnected and interdependent geography. Many human geographers believe it is important to investigate the business ethics of this type of production model.
The important question is: are ALL the connected firms in a network being consistent in relation to how they treat their employees and the conditions in which they work, or just SOME of them?
While the TNC whose brand appears on a manufactured item may be able to enforce ethical standards in its own factories (where the finished goods are assembled from their component parts for sale), what can be said about conditions in all of the many supplier factories?
Large TNCs like Nike have a code of conduct for their own employees (people who receive there pay cheque directly from Nike.) A code of conduct guarantees certain rights for employees and may cover legal areas such as:
Maximum number of hours an employee is required to work each week
The right to belong to a trade union or other employee organisation
Employee entitlement to benefits such as holidays or sick pay
Any right to compensation if an employee is sacked before a contract ends
Some TNCs may also provide schemes to provide health care for their employees and education for their employees’ children.
The content of any such code will vary from firm to firm and from territory to territory, reflecting the laws of different countries. However, some clauses – such as the banning of forced or child labour – are pretty much universal amongst the codes of conduct for all large and well-known TNCs, no matter where they have placed their overseas operations.
However there is the issue of whether standards are enforced within the supply chains that are providing goods and services for TNCs. In some cases, there is a significant variation in the terms and conditions provided for employees at different stages in the supply chain, which may not meet the codes of conduct that a TNC upholds for its own employees, and the big firms do not always monitor their own supply chains. For instance
Returning to the example of Hewlett Packard, (previously referenced to Gale Reichart (University of Manchester) who reported on the global production networks that support the assembly of branded Hewlett Packard computer equipment at the 2010 annual conference of the Royal Geographical Society (with Institute of British Geographers), it is the case that HP have imposed auditing requirements on their 1st tier of Malaysian suppliers (for instance, they ask to see daily health and safety reports for their main sub-contractors' factories). However, 2nd tier firms are entirely disconnected from these strict requirements and it is quite possible that unethical treatment of workers occurs further upstream along the supply chain.
Tesco made headlines in 2006 by banning the use of cotton from Uzbekistan in all of its items of clothing (following reports of child labour). However, it actually took them until 2008 to completely eliminate Uzbek cotton from all of the supply chains for all of the garments that Tesco buys. For instance, Tesco out-sources the production of shirts and trousers to many producers in countries like Bangladesh, Turkey and China (Financial Times, 15 September 2010). How easy do you think it is for Tesco to make ensure no Uzbek cotton is used as part of the production process in any of these places?
Over time, more consumers have sought re-assurance that the goods they buy are ethically sourced. Increasingly, branded product makers need to support the purchasing decisions of these ethical shoppers. What is clear, however, is that branded product makers will need to do much more to monitor their own supply chains in the future as shoppers begin to gain an improved understanding of the interconnected geography of global production networks.
Ethical shoppers are already wanting to see far greater transparency when they shop: they want to know much more about the manufacturing history of the objects that they buy. TNCs and large retailers know that the traceability of branded items is going to become a big issue in the years ahead. Technology can assist with traceability, making it one of several key solutions for improving working conditions in the out-sourcing factories that are the building blocks of global production networks.
What can be done to improve conditions in out-sourcing factories?
More can be done by TNCs and large retailers to spread ethical governance through their supply chains. Tesco has insisted that all its suppliers stop using Uzbek cotton. More firms could improve their external auditing procedures to make sure health and safety rules are adhered to by 2nd tier and even 3rd tier suppliers. However, this could be very costly (both carrying out the audit and paying higher prices for ethically-sourced goods and materials).
New types of software are making it possible to track the details of where goods and their component parts have been made – and to make this information available to consumers. An online application called String is already available (you can see it in action at www.stringtogether.com) Greater external pressure for consumers could mean that full traceability becomes as important as the FairTrade label has already become for farm products. (Financial Times, 15 September 2010)
Internal pressure is mounting in many newly industrial countries (NICs) for labour reform. Demands for higher pay, Trade Union membership and other benefits have been made throughout Asia in 2010. In time it may be hoped that poor workplace practices die out if stricter national laws are put in place in countries where poorly regulated out-sourcing operations are currently found. During 2010, a wave of strikes hit Foxconn plants in Shanghai, China, resulting in wage increases of 65% being granted (employees now earn around $300 a month). Trade unions for electronics industries have recently been allowed in Malaysia for the first time. In Cambodia, the minimum wage was recently raised from $50 to $61 a month (but this is still a very low figure). (Guardian, 01 October 2010). Trade unions for electronics industries have recently been allowed in Malaysia for the first time. In Cambodia, the minimum wage for workers in the garment and fashion industry was recently raised from $50 to $61 a month, but this is still a very low figure, as the original demand was for a minimum wage equivalent to $93 per month, as studies indicated that this amount is the necessary minimum for a sole income earner to provide for a family of four (Labour behind the label)
Economics and ethics
How do global businesses reconcile their economic mission to maximise profits with the ethical imperative to treat workers fairly?
This theme is an important one for studies of globalisation undertaken by geographers (who are interested in understanding how people and environments are affected by economic processes).
Economic motives explain why TNCs often move parts of their businesses off-shore to poorer countries, where labour costs are far lower and labour laws may be less strict. When firms move to poorly regulated locations (where they can avoid expensive labour costs and other benefits such as safety equipment, health insurance or pensions rights), it reduces their operational costs and increases profits for shareholders – and profits are the very reason why these businesses exist in the first place.
But to what extent should firms also be expected to demonstrate “responsible” corporate behaviour through ethical treatment of their workforces (e.g. by paying higher wages or providing improved health conditions or benefits)? And if it is good business sense to seek out a cheap source of labour, why would businesses want to risk losing this low-cost advantage?
One answer is that it also makes good business sense to treat workers well. Large successful firms cannot operate independently of a wider society made up of the people who form their customer base. For businesses like Tesco to remain popular – and therefore profitable – it is becoming more and more important for them to be seen to be operating in moral and ethical ways, and to not be perceived as acting in a way that contradicts this. For this and other reasons, many large companies have made a commitment to uphold certain basic social principles when conducting operations or contracting work overseas – though there is still much further progress to be made to fully achieve this, critics say.
The poor countries where TNCs source goods and parts from also face a dilemma of their own - balancing the need to attract investment with the need to protect the welfare of their citizens. Working in small groups, use the following questions as a starting point for discussion:
If poverty levels are very high, should a government turn away foreign investment that brings jobs and some money if it may also result in the unethical treatment of workers, such as exploitatively low levels of pay?
If some governments in poor countries introduce stricter labour laws, foreign investors may go elsewhere. What can be done at an international level to support countries who try to introduce important measures such as a decent minimum wage – but who may threaten their own economic growth by doing so?
Firstly, read both preceding parts of this article. Then ask yourself the following questions:
Should TNCs be made accountable for the treatment of all workers in different tiers of their supply chains?
Is it fair to place the blame for unethical treatment of workers in poorly regulated places on foreign TNCs who are operating or out-sourcing there - or should the people governing and living in these countries shoulder more of the blame themselves for failing to make and enforce stricter rules?
What can consumers do to find out more about the working conditions that exist throughout global production networks?
Globalisation is a complex topic. Networks of actors – powerful TNCs, smaller sub-contractors, local and national politicians and other organisations such as String – are all working with or against one another to shape outcomes for exploited workers in poorer countries.
For really good marks, critical thinking and an understanding of complexities and controversies should feature in your answer to the following essay title:
An ‘unfair world’ is the inevitable consequence of globalisation. (15 marks)
Written by Dr Simon Oakes, a Geography Chief Examiner who teaches at Bancroft’s School, Essex
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