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BUSM4558WorkinaGlobalSocietyTopic2150319Student.pptxBUSM4559 Work in a Global Society
Topic 2 – Globalisation, Outsourcing and Offshoring
Last Week
Post War rise of democratic capitalism
Break up of settlement between capital and labour
Privatised Keynesianism
Rise of the market
Rising inequality
Political outcomes
Outcomes for workers, business and community
2
Why Should We Worry?
Shareholders Win Out Over Workers From Corporate Revenue Windfall
Objectives
Examine the corporation’s changing shape in the 20th and 21st century
Analyse the relationship between this and outsourcing and offshoring and the impact on work and jobs
Case study: Zara
Case study: Pyramid subcontracting in Singapore
The 20th Century Corporation
Davis (2013) argues that many of our problems the result of the collapse of the large corporation
Large corporation a 20th century phenomenon that had four functions
Production of goods and services
US 1930 top 200 corporations controlled 49% of corporate wealth
Employment
1970 10% US workers employed by 25 largest corporations
Social welfare
US corporations provided health and income security
Savings
Corporations provided pensions/superannuation
5
The 20th Century Corporation
Outcome was that in the US households were heavily dependent on the public corporation – other countries eg Australia, Britain less dependent
1960/70s mergers – corporations heavily diversified and large employers
1980s Wall St decided conglomerates undervalued and would be worth more if split up
Eg GE lost 25% of its 400,000 workforce between 1980-1985
Outcome – corporate economy less concentrated (Davis, 2013)
6
The 20th Century Corporation
1990s – further disaggregation of the corporation
Through disaggregation companies hope to reduce costs and risks and benefit from the ideas of their contractors or alliance partners
Outsourcing – the transfer of activities and processes previously conducted internally to an external party. It can be done both domestically and internationally (Hatonen and Eriksson, 2009)
Initially in 1980s done to reduce costs – usually domestically – managed through contracts – usually low level service work eg call centres
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The 20th Century Corporation
1990s strategic outsourcing – strategic functions outsourced – closer relationships built with vendors to take advantage of their skills, knowledge and competences
Off shoring – the transfer of activities across national borders either through offshoring or FDI
Initially in the US jobs such as textile and car manufacturing
2000s had become the norm - improved ICT means global access pool available to all companies (Hatonen and Eriksson, 2009)
China – manufacturing
India – IT
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The 20th Century Corporation
Companies, eg Apple, Ericsson, Sony sold their factories to concentrate on their “core competence” of design and brand management
Outcome is that the corporations owning the brand employ relatively few people
Growth of pension (superannuation) funds and retails investment has seen financial institutions become owners of corporations (financialisation or finance capitalism)
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The 21st Century Corporation
BlackRock has $3.5 trillion in assets under management and was the single largest shareholder of 20% of US corporations
These included Exxon Mobil, Chevron, AT&T, Verizon, JPMorgan Chase, Citigroup, GE and 800 others
Number of corporations reduced as mergers and acquisitions greater than initial public offerings
Many of the most powerful US corporations have disappeared or have stopped being American
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The 21st Century Corporation
Franchising – a business relationship grounded in a licensing agreement between two firms
Business format franchising is defined as a continuing relationship between two parties that provides a full set of services and in which one party, the franchisee, sells goods or services supplied by or approved by the other party, the franchisor
Reasons for franchising
Access to capital
Access to managerial talent
Access to local market knowledge
Economies of scale in promotion, production and coordination (Gillis and Castrogiovanni, 2012)
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What’s Happening to Work and Jobs?
Long term corporate employment largely obsolete
International division of labour
Outsourcing/offshoring
weakens labour’s bargaining power
Increases disparities in employment and working conditions (Fleck, 2009)
Outcomes
Precarious work eg casual work, short term contracts, seasonal and temporary work, subcontracting (week 4)
Uberisation (week 6)
Underpayment evidence from franchises and horticulture
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Social Costs
Increased inequality
Economies with small companies are more unequal
Decreased mobility
Job progression flat rather than linked to job ladders
Linked to rise of retail and decline of manufacturing
Uncertain employment
Pathways to employment increasingly obscure
Increasingly difficult to obtain jobs
Bleak finances
Student loans
Housing, retirement (Davis, 2013)
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Zara – A Case Study
International retailers key driver of globalisation of the clothing industry
Zara unusual in that it owns 17 manufacturing subsidiaries in Spain. Most fast fashion retailers do not own manufacturing facilities and network with suppliers located in partially industrialised countries
Zara assisted by low wages costs
Introduced 11,000 items annually
But supply lines for Zara’s production chain extend into many of these partially industrialised countries
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Manufacturing Specialisation
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Zara – A Case Study
But has outsourced some design to Japan, South Korea etc and manufacture to China, Turkey and Bangladesh
Products with greater fashion component manufactured in its own factories
But as more countries able to manufacture high quality clothes it is increasingly shifting production there
Evidence that Zara’s distinctiveness fading and it is moving towards the industry norm
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The Future
Reshoring – jobs being returned to US This has been brought about by
Customer dissatisfaction with offshored call centres
US wages declining
Long delivery times and shipping costs
Quality control
Physical separation of design and production workers
Intellectual property concerns (Levine, 2012)
Converge of countries – wealthy countries becoming less wealthy and poorer countries more wealthy?
17
Pyramid subcontracting
From British Columbia Law Institute, 2017
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Pyramid subcontracting in Singapore
Amanda Wise (2013) notes that many of Singapore’s foreign workers are employed under ‘pyramid subcontracting’ arrangements:
“Almost all foreign workers are thought to pay agents embedded in transnational broking chains to help them come to Singapore and to secure work for them (Lindquist et al., 2012). These fees can sometimes amount to a year’s salary, which is typically borrowed from money lenders or family and friends at home, to be paid back with interest. A large proportion are employed by labour hire firms – some large but many more consisting of one-man operations, quite often in ‘partnerships’ with the recruiting agent in the home country. These firms subcontract the workers to other organisations, who are in turn often in a subcontracting relationship with a firm further up the supply chain. There is a high degree of precarity in these arrangements, and each layer in the chain ‘skims’ dollars off the top of the worker’s salary. There is also a great deal of ambiguity around who exactly is the employer, responsible for payment of salary and for issues like emergency medical care” (437).
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Non-Resident Foreigners in Singapore
Singapore Government, 2017)
“This essentially means that majority of non-resident foreign workers in Singapore
are not here to compete with Singaporeans for high-paying professional
or managerial jobs. Rather they are here to help build our homes, keep
our roads clean, and make our lives just a little more comfortable”
(Singapore Government, 2017).
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What are the implications for Singapore’s foreign workers?
Agent fees (reduction is income)
Difficulties in knowing who is their employer
Often expected to perform work and jobs that they had not agreed to (e.g. construction, office work, cleaning, general labouring).
Insecurity of pay and working conditions
Occupational health and safety concerns
Threats of ‘repatriation’ and denigration
Despair and disempowerment.
21
What are the implications for employers?
Moral detachment:
“Singaporeans are frequently shocked at media exposés of foreign worker abuse, which often involve labourers on construction sites for high-end office buildings, glossy central business district (CBD) shopping centres or more recently the famous Marina Bay Sands Casino complex (Chan, 2011). These multi-million-dollar (sometimes billion) projects are built by major international developers who have legitimate contractual arrangements with subcontractors, yet the most appalling exploitation takes place under the radar, hidden under multilayered subcontracting arrangements. Such arrangements have the effect of detaching and morally distancing the high end (multinationals) from the bottom of the supply chain (precariously employed low-wage labourers)” (Wise, 2013: 442).
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Key Concepts and Essay Questions
Concepts
Outsourcing
Offshoring
Pyramid sub-contracting
Financialisation
Franchising
Questions
Are there alternatives to the corporation?
Are outsourcing and offshoring sustainable for corporations and society?
How has outsourcing and offshoring impacted on workers and employment?
Is franchising a sustainable business model?
References
Davis, G (2013) ‘After the Corporation’, Politics &Society, 41(2): 283-308.
Flecker, J (2009) ‘Outsourcing, Spatial Relocation and the Fragmentation of Employment’, Competition & Change, 13(3): 251-66.
Gillis, W and Castrogiovanni, G (2012) ‘The franchising business model: an entrepreneurial growth opportunity’, International Entrepreneurship and Management Journal, 8(1): 75-98.
Hatonen, J and Eriksson, T (2009) ’30+ years of research and practice of outsourcing - Exploring the past and anticipating the future’, Journal of International Business, 15: 142-55.
References
Levine, L (2012) ‘Offshoring (or Offshore Outsourcing) and Job Loss Among US Workers, Cornell University ILR School
Tokatli, N (2008) ‘Global Sourcing: insights from the global clothing industry – the case of Zara, a fast fashion retailer, Journal of Economic Geography, 8: 21-38.
Wise, A (2013) ‘Pyramid sub-contracting and moral detachment: Down-sourcing risk and responsibility in the management of transnational labour in Asia’, Economic and Labour Relations Review, 24(3): 433-55.
References
Wise, A (2013) ‘Pyramid sub-contracting and moral detachment: Down-sourcing risk and responsibility in the management of transnational labour in Asia’, Economic and Labour Relations Review, 24(3): 433-55.
