Outsourcing labor to developing countries is increasingly becoming a cost-cutting strategy for most multinational companies. This trend stems from the low wage costs and less stringent labor regulations in most developing nations. However, these conditions have been the source of sweatshops – unprecedented exploitation of workers characterized by poor working conditions and meager wages. These circumstances are oppressive and unfair to workers because they threaten their health, safety, and chance to earn a decent livelihood. The Russel Athletic case is typical of companies perpetrating sweatshops. Its Honduran factory revealed significant labor violations against its workers, with the company responding inappropriately by firing its employees. This paper examines the Russel Athletic case to identify challenges of labor outsourcing and recommend alternatives to address and prevent sweatshops when multinationals outsource labor.
Diagnoses and Causes Analysis
Labor outsourcing to developing nations is a legitimate approach to minimizing high labor costs associated with developed countries like the U.S. However, multinational corporations exploit workers by leveraging developing nations’ inadequate and less strict labor laws. The root cause of these sweatshops is the immense cost-reduction done by companies competing for orders from larger corporations, including manufacturers and retailers. Thus, global competition has compelled multinational firms to outsource production (Luthans & Doh, 2018). Sweatshops often involve child labor, compulsory uncompensated overtime, and suppression of workers’ association rights, particularly regarding unionizing to champion their rights. The Russel Athletic case depicts sweatshops perpetuated by multinationals outsourcing labor in developing countries. The company’s labor outsourcing issue relates to its Honduran operations, which resulted in a significant scandal in 2009 due to the firing of more than 100 workers in 2007 to advocate for a union (Luthans & Doh, 2018). This decision sparked students to campaign against Russel Athletic. The company later accepted its mistakes. Although this action compelled Russel Athletic to reverse its decisions, the firm continued to breach worker rights in 2008 by frustrating union advocates and threatening to shut down its factory. Russel Athletic, at last, closed the factory in 2009 after striving against pressure from the factory union. Thus, unionization is a crucial strategy for companies outsourcing labor to developing nations to prevent sweatshop scandals. Multinationals should also follow labor regulations and audit their work conditions to unearth any loopholes in worker rights violations that can lead to sweatshops.
Development of Alternatives
Countries have implemented various strategies to deter, minimize, or eradicate sweatshops. These strategies range from unionization to external and self-monitoring, as discussed in the following subsections.
Unionization
Multinational corporations can deal with sweatshops by allowing and encouraging their workers to form or join labor unions. These unions entail an organization formed by workers in their respective industries to advocate for their rights, including fair remuneration and better working conditions (Preena, 2020). The workers can achieve these goals through collective bargaining. The workers should select representatives who will negotiate on their behalf with the multinational companies to create agreements that highlight the working conditions. Thus, labor unions embrace a democratic system whereby workers have a say in their working conditions. The workers make periodic contributions to the union to help run its affairs by advocating for their occupational well-being.
Labor unions can provide numerous benefits to reduce or eliminate sweatshops associated with outsourcing labor in developing nations. Unionization can help workers earn better wages in developing nations (Leigh & Chakalov, 2021). It can introduce other employment benefits for workers, including paid overtime and medical benefits. It champions improved working conditions through stronger laws for workers’ protection, including prohibiting child labor and ending long working hours (Leigh & Chakalov, 2021). Labor unions will also provide job security for workers. Multinational companies will only fire workers for competence reasons rather than for unreasonable issues, such as supporting unions in the Russel Athletic. Labor unions will create a chance to negotiate more regularly. Most unions work under an agreement that functions for a specified period subject to future renegotiations based on different factors, such as changing economic conditions, cost of living, and government regulations.
Unfortunately, labor unions have disadvantages as well. Union workers operate under the agreement between their union and the company, limiting their decisions. Workers must pay union fees from their wages to continue benefiting from the union. Some unions misappropriate funds by paying their leaders hefty salaries. Tensions between unions and companies can cause dissatisfaction and mistrust among workers. Most unions also support seniority-based career advancement, disadvantaging newer employees who may be qualified for promotions. Equally vital, unions in developing nations may not have a robust legal framework on which to rely to pursue their agenda.
Internal and External Monitoring
Multinational corporations outsourcing labor in developing economies can avoid sweatshops by monitoring their activities to ensure they provide safe and favorable working conditions. Companies can also allow nongovernmental organizations to evaluate their production activities using a code of conduct to ensure they are safe and conducive for workers. For instance, multinational corporations can allow the Worker Rights Consortium (WRC) to thoroughly assess their operations to identify worker rights violations and recommend strategies to improve working conditions to avoid sweatshops. The WRC is an autonomous labor rights monitoring organization aiming to protect workers’ rights in the U.S., especially among companies bearing higher institution (colleges and universities) logos.
Internal monitoring can offer significant advantages in reducing or avoiding sweatshops. Internal monitoring can be more efficient for the company, and workers will get these benefits. It can also be faster to use self-monitoring than external assessment because the company will prevent sweatshops sooner. However, self-evaluation may be ineffective when companies are unprepared or unwilling to participate. Companies may also overlook some workers’ rights.
External monitoring can fill in for weaknesses of internal evaluation. It can offer a comprehensive examination of working conditions. It can offer recommendations based on best practices. External assessment can eliminate the agency effects between managers and owners by ensuring evaluations adhere to a holistic code of conduct (El Ghoul et al., 2018). However, external monitoring may also be unproductive since it relies on cooperation from workers. If a company threatens its workers with losing their jobs, they may be unwilling to cooperate, considering the high unemployment levels in developing countries.
Adopting Labor Standards of Home Countries
Alternatively, companies may implement strict labor regulations in their home nations in developing countries where they outsource labor. For instance, Russel Athletic can implement U.S. labor regulations in its factories in Honduras. This strategy would ensure workers’ rights are protected using strict labor regulations. It would also reduce or eradicate sweatshops in a company’s activities in developing nations. Adopting such standards will ensure the organization focuses on developing people as human beings. Happenings in various developing nations can support the adoption of labor regulations of mulit home countries. For instance, China is becoming more tolerant to individual freedoms (Luthans & Doh, 2018). Arab nations are also increasingly doing business that is in many attributes similar to the Western world (Luthans & Doh, 2018). Minimum pay, working hours, and equality can enhance worker satisfaction and improve company productivity.
However, it may not be feasible to adopt the labor standards of the home country due to different economic conditions. The cost of living is higher in developed countries than in developing nations, making the minimum wage rate nontransferable between the countries. It would also be difficult for companies to implement strict regulations to monitor their activities without government regulation. The sovereignty principle under international law stipulates that all states are equal and have powers to govern themselves as they deem fit. Accordingly, one country’s labor laws cannot be applied to amend violations using another nation’s legal system unless the country accepts it (Luthans & Doh, 2018).
Implementation of Alternatives
Based on the evaluation of options, unionization, as well as internal and external monitoring are highly plausible. Unionization has a proper legal framework based on government labor regulations. Labor unions are legally recognized in developing nations. Thus, they can significantly improve working conditions for outsourced workers in developing nations. Unions also work using collective bargaining agreements with companies. Such agreements can encourage companies to commit to implementing them. The resolutions are also subject to renegotiations, protecting workers’ rights in the future. Reevaluation by labor unions will also ensure workers’ working conditions become better in the future.
External and internal monitoring will also ensure multinational companies respect workers’ rights based on best practices. Adopting home standards may not accommodate local economic and political conditions in developing countries. The political environment reflects the cultural off countries and their political systems (Luthans & Doh, 2018). However, external and internal monitoring can account for country-specific socioeconomic conditions to help companies reduce or eliminate sweatshops. In particular, external monitoring will ensure the company does not become blind to its sweatshops, which can occur when relying on internal monitoring alone. Internal monitoring will ensure companies address sweatshops faster instead of waiting until external assessment occurs in the company.
Evaluation and Feedback
Labor unions have been an effective strategy for protecting workers’ rights. The formation of unions has a long history of reducing sweatshops. For instance, in 1911, Triangle Shirtwaist Company experienced a fire that prompted investigations into the organization’s working conditions (Luthans & Doh, 2018). Over a hundred workers died because of the fire. The successive organization of unions led to a considerable reduction of sweatshops in the company due to improved working conditions and backed by strict government labor regulations.
Internal and external monitoring are also effective approaches to reducing, avoiding, or eliminating sweatshops in developing countries. Monitoring will ensure companies do not ignore working conditions that could negatively impact their workers. This strategy has been implemented and produced positive outcomes. Companies self-monitor or allow independent organizations to evaluate adherence to labor regulations using a multinational company’s code of conduct or NGOs. An example is Nike which allows external monitoring of its activities to ensure compliance with labor regulations. This approach significantly reduced sweatshops in China and Vietnam (Locke et al., 2007).
Conclusion
The Russel Athletic case exemplifies how multinational organizations outsourcing cheap labor in developing nations capitalize on less stringent regulations to exploit workers in those countries. The successful stoppage of Russel Athletic’s sweatshops is a critical lesson for multinational corporations to do business with high regard for workers’ conditions. Companies outsourcing labor should assess the effect of their activities on workers and be more socially responsible in developing countries. Multinational firms should support union formation and allow external and internal monitoring to improve working conditions.
References
El Ghoul, S., Guedhami, O., Lennox, C. S., & Pittman, J. A. (2018). External versus internal monitoring: The importance of multiple large shareholders and families to auditor choice in Western European firms. SSRN Electronic Journal, 1–2. https://doi.org/10.2139/ssrn.1373808
Leigh, J. P., & Chakalov, B. (2021). Labor Unions and Health: A literature review of pathways and outcomes in the Workplace. Preventive Medicine Reports, 24, 1–7. https://doi.org/10.1016/j.pmedr.2021.101502
Locke, R. M., Qin, F., & Brause, A. (2007). Does monitoring improve labor standards? Lessons from Nike. SSRN Electronic Journal, 1–5. https://doi.org/10.2139/ssrn.916771
Luthans, F., & Doh, J. P. (2018). International Management: Culture, strategy, and behavior (10th ed.). McGraw-Hill Education.
Preena, R. (2020). ‘Are trade unions suitable for organizations in the 21st Century?’ SSRN Electronic Journal, 1–6. https://doi.org/10.2139/ssrn.3590774
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