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A Trojan Horse called Offshore Research Essay Simone Zanacchi Zani .pdf



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Tuesday 27th January 2015

Research Essay

A Trojan Horse called Offshore
Outsourcing
Simone Zanacchi Zani
Student #: N90139127
@mail: zz.simone@yahoo.com.au

Tutor: Josie Gawron
Words: 1380

International trade is rooted in history. It has constantly increased until this century where it
acquired not only economic importance but also social and political significance. In the last
decades, a peculiar aspect of international trade has emerged: “outsourcing”. This term,
which refers to the activity where multinational companies decide to relocate their domestic
duties into offshore subcontracted companies with low production costs, has become an
highly popular activity for many businesses in developed countries. Owing to its
characteristics, it is affecting developed countries every day with economic benefits such as
affordable prices of products and services. Conversely developing countries benefit through
unique business opportunities. On the other hand, it seems that this is weakening the world
trade economic structure. A number of controversial issues have emerged including low
wages given to the labourers, exploitation and environmental damage in countries such as
Bangladesh, Cambodia, Vietnam, China and Indonesia. Although outsourcing seems to lead
to several benefits for both offshore subcontractors and investors, is not a good model to
follow yet. The governments and multinational companies involved in it have to review their
policies and conditions in order to rebalance the economic impact on the world trade
structure, respect human rights, grant equal opportunities and ensure environmental
sustainability.

As the world trade economic structure in the last decades has changed, moving toward
developing countries instead of improving the already developed ones, it has provided
opportunities for the poorer nations of the world as a way of creating competitiveness
worldwide rather than expanding the gap between them. According to Andreff (2009), the
introduction by multinational companies of establishing resources off-shore such as

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employment, specialisation and innovation might have not happened otherwise and in other
circumstances. Furthermore, multinational companies’ home countries have, due to
outsourcing, experienced several economic benefits. Indeed consumers can afford products
that are 10% to 30% cheaper than if they had been without this strategy (Mann, 2003).
Although there are undeniable advantages to consumers in developed countries, it does not
justify the policies adopted by many major companies, to achieve those benefits, which
often break two or more labour laws established by the International Labour Rights Forum
(ILRF) in 2013. The breaking of these laws has transformed factories into sweatshops. One
predominant broken law regards wages. Every day sweatshop workers work long hours but
are still not able to cope with basic needs and expenditures for them and their families on
such a low income (Shaw, Barry, Issa & Catley, 2013). In Bangladesh, Cambodia and Vietnam
three out of four garment workers do not earn enough to afford three full meals per day,
and as a result they have to work up to 15 or more hours to the detriment of their own
physical and mental health (ILRF, 2010). Many labourers are so exploited that they do not
protest for their rights because they are afraid to lose their job, or worse they do not even
know they have rights. Finally, even though many products are more affordable in developed
countries, due to the relocation of factories abroad, these nations are experiencing high
rates of unemployment. According to Nobel Prize laureate and economist Paul Samuelson
(2004), the companies involved in outsourcing relocate profits back to their home country
where administrators and investors are the greatest beneficiaries. As a consequence, all
sectors involved in any of manufacturing industry are impoverished and many workers lose
their jobs. Therefore, without the establishment of strict regulations and controls by the
United Nations, the world trade economic structure would be devastated by the

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deindustrialization of developed countries (Baldwin, 2006).

In terms of exploitation, it has been argued that sweatshop workers’ deplorable moral and
ethical conditions belong to the past. In recent decades, if firms have had confirmation of
work abuse, they have sent representatives or members of non-governmental organizations
(NGOs) to the factories to investigate and to set strict rules aimed to improve working
conditions. Research conducted by Gunther (2004) highlighted that MNCs such as Disney,
Gap, Timberland and Apple hired the NGO Verite to inspect their off-shore subcontracted
plants. During the investigations Viederman (2006) the executive director said that in order
to defend and encourage legal, safe and fair working conditions "Disney and the factories
absolutely took the issue seriously". Furthermore, Zwolinski (2007) has argued that those
factories, which he argues are incorrectly called “sweatshops”, are a vital resource for
developing countries to break out of poverty because they are the best opportunity
available. Indeed in factories such as those in Bangladesh, it can be seen that the wages are
between three and six times greater than the average worker.
Nevertheless, there is not enough evidence given by MNCs to prove that these sweatshop
conditions have improved. Obviously they want to maintain their credibility, and so they
tend to expose their continuous improvements in poorer countries in order to avoid and
hide the real facts. Indeed, several promises given by MNCs have not been kept. For
example, Apple computers moved its production to Pegatron industries after the accusation
of exploitation and the suicide of 12 workers at the subcontracted factory Foxconn.
Unfortunately, the situation did not improve but worsened, as Pegatron was accused by
NGOs such as Fair Labor Association and China Labor Watch of having breached 86 labor
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laws, including discrimination, employing minors and forcing pregnant women to work by
standing 12 hours per day (Neate, 2013). Supporting these accusations, Shaw et al (2013)
state that many of these negative aspects are not directly generated by MNCs. For instance,
in China and Indonesia, both repressive regimes, aim to increase their country’s
attractiveness to investors by citing low labor costs as an incentive. Moreover, although
sweatshops are the best possibilities in poor countries, Arnold and Bowie (2003) contend
that deciding among unsatisfactory choices is hardly offering opportunities but rather
applying unethical constrictions. Furthermore, until sweatshop owners and MNCs respect
the workers’ dignity, it is not possible to consider these industries as valid opportunities to
improve developing countries’ economy.

From an environmental perspective, MNCs are providing and encouraging sustainability with
the United Nations’ (UN) projects (Quinlivan, 2000). It is in the contention of Birdsall and
Graham (2000) that more than 5.000 MNCs, have agreed to the international eco-legislation,
which was certified to be the driving force behind “green” technologies. Several programs,
such as environmental management, have been advanced by MNCs to establish a regulatory
code among industries as a way to elevate levels of social responsibility. The CEO of Dow
Chemical’s contends that: “investments that we make in pollution prevention can yield a
return, because money spent on “end-of-pipe” treatment is just another expense”. By the
end of 2002 almost 40.000 organizations have agreed to uphold these environmental
management systems. For instance, the “environmentally concerned” company 3M
implemented the Pollution Prevention Pays (3P), a program that reduced its total toxic
emissions by 88% between 1990 and 2001 (Rondinelli, 2004).

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Despite the laws and campaigns promoted throughout the world by Governments and
MCNs which have increased public support regarding the environment and sustainability,
many researchers claim that this has had, so far, little impact. As pointed out in the
Intergovernmental Panel on Climate Change (IPCC) (2014) report, rates of carbon dioxide
and various greenhouse gases emitted by developing countries increased as twice faster in
the last ten years than as they did in the prior 30 years. The major country involved in this
case is China, because it is relocating its pollution in poorer regions with low waste disposal
efficiency (Weber, Peters , Guan & Hubacek, 2008). As a result, China has several times
violated the International eco-legislation, and according to Falk and Wee (2014), this is
because a fine is paid, which is considerably cheaper than complying. Until alternative
energy technology are introduced in the manufacturing industry, the MNCs’ environmental
sustainability policies and legislation will continue to be ineffective.

In summary, offshore outsourcing activities have several benefits but also negatively affects
western countries economies with consequences for their labor force. Even though the
manufacturing workers in developing countries are experiencing an economic growth, the
avenue to break poverty is still full of social hurdles. Therefore, the governments and
multinational companies, throughout the world, should find practical and ethical solutions in
order to develop a world trade structure that is fair and balanced to all concerned.

6

References

Andreff, W. (2009). Outsourcing in the new strategy of multinational companies: foreign investment, international subcontracting and production relocation. Paper presented
at the Conference on International Outsourcing and the European Union: Impact on
the domestic market, scenarios and strategies, Madrid, Spain. Retrieved from
http://revistas.ucm.es/index.php/PADE/article/download/PADE0909110005A/2129
Accessed January 12, 2015
Arnold, D. G., & Bowie, N. E. (2003). Sweatshops and respect for persons. Business Ethics
Quarterly, 13, 609-624.
Baldwin, E. R. (2006). Globalisation: the great unbundling(s). Globalization Challenges for
Europe.
Birdsall, N., & Graham, C. (2000). New markets, new opportunities? economic and social
mobility in a changing world. (1st ed.) Washington D.C., USA: Brookings Institution
Press.
Falk, R., & Wee, J. (2014). China’s new environmental protection law: implications for overseas investors.
Gunther, M. (2004). Faith and fortune : how compassionate capitalism is transforming
American business. (1st ed.). New York, USA: Three Rivers Press.
Intergovernmental Panel on Climate Change. (2014). Annual report 2014. Retrieved from
http://www.ipcc.ch/pdf/assessmentreport/ar5/syr/SYR_AR5_LONGERREPORT_Corr2.pdf Accessed January 21, 2015

7

International Labour Rights Forum. (2010). Enemies of the nation or human rights
defenders? Fighting poverty wages in Bangladesh. Retrieved from
http://www.laborrights.org/sites/default/files/publications-andresources/enemiesofthenation.pdf Accessed January 15, 2015
Mann, C. (2003). Globalization of IT services and white collar jobs: The next wave of
productivity, International Policy Briefs. Institute of International Economics, Number
PB03-11.
Neate, R. (2013). Apple investigates new claims of China factory staff mistreatment. The
Guardian. Retrieved from
http://www.theguardian.com/technology/2013/jul/29/apple-investugates-claimschina-factory Accessed January 20, 2015
Quinlivan, G., & Davies, A. (2000). ETHICAL DEVELOPMENT AND THE SOCIAL IMPACT OF
GLOBALIZATION. International Journal on World Peace, 20(2), 39-66.
Rondinelli, A. (2004). Creating a vision for environmental responsibility in multinational
corporation: executive leadership organizational change. Journal of International
Business Education, 5(22), 6-10.
Samuelson, P. A. (2004). Where Ricardo and Mill rebut and confirm arguments of
mainstream economists supporting globalization. Journal of Economic Perspectives,
18(3), 135-146. doi: 10.1257/0895330042162403
Shaw, W. H., Barry, V. E., Theodora, I., & Catley, B. (2013). Moral issues in business. (2nd Asia
Pacific ed.). South Melbourne, Australia: Cengage Learning Australia.

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Viederman, D. (2006). How companies fight sweatshops: global brands are stepping in to
monitor working conditions at factories but producing real change isn't easy. CNN.
Retrieved from
http://money.cnn.com/2006/05/03/news/international/pluggedin_fortune/
Accessed January 20, 2015
Weber, L. C., Peters, P. G., Guan, D., & Hubacek, K. (2008). The contribution of Chinese
exports to climate change. Energy Policy, 36, 3572–3577.
doi:10.1016/j.enpol.2008.06.009
Zwolinski, M. (2007). Sweatshops, Choice, and Exploitation. Business Ethics Quarterly, 17(4),
689-727.

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