Today’s Economic Climate
In today’s economic climate, companies in other countries now have the ability to outsource and produce their product in a foreign country. Transportation costs have decreased over the years and for North American countries, manufacturing facilities are slowly disappearing as the cost of labor rises. Made in Bangladesh- The Fifth Estate is a documentary that discusses the dark realities of the factores owned and used by multinational companies in Bangladesh and takes a closer look at what cheap clothes really cost- lives. Multinational companies benefit the economy and consumers, but the effect of multinational firms in the world economy, positive and negative, should be further examined.
According to Matthew Slaughter, “Parent companies account for 71.6% of worldwide output (in terms of value added) of U.S. multinationals” (Slaughter, M. J. 2009). Due to the rising cost of labor many multinational firms have decided to outsource and decided to become low cost producers. In many countries such as the United States and Canada the cost of labor is high compared to countries like Bangladesh, who’s minimum wage is 24 cents per hour (Guerriero & Cashore 2013). In April 2014, The Rana Plaza caught on fire and 1100 people were killed. (Guerriero & Cashore 2013). I believe that companies such as Joe Fresh and Walmart should be held accountable for this incident because it is part of their responsibility to ensure that working conditions are safe in the factories that they choose to produce in regardless if they own the factory or not. Due to their lack of commitment to ensuring a safe and hazard-free work environment, many people unfortunately were injured and will continue to be injured if they continue to use unsafe and unregulated factories to produce their clothes. In order to solve this problem in Bangladesh, I believe that before a company decides to produce in a factory abroad or purchase a factory abroad, a thorough inspection should be made of the property and if the property does not pass this inspection, then money should be invested to fix conditions and maintain the factory.
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How it works
There are many benefits and disadvantages to multinational firms. When a firm outsources they are able to produce their goods more efficiently and cheaper than in the home country. This gives the opportunity for firms to provide a low price to consumers and produce a larger profit. Multinational firms help suppliers take advantage of economies of scale and give the firm the opportunity to focus on the high skilled activities in its value chain and outsource the low skilled activities, which is referred to as vertical integration (Appleyard & Field 2016). Overall, consumers and firms will benefit from offshoring. However, the disadvantages are that offshoring can take jobs away from domestic workers and can lead to firms exploiting smaller countries by taking advantage of their relaxed labor laws, as some countries allow child labor and do not have strict laws to protect workers.
In conclusion, I believe that multinational firm’s factories in foreign countries should be subject to United States’ safety standards. This will lead to factories being more safe and prevent multinational firms from taking advantage of child labor and unsafe factory conditions. I believe that multinational firms are good for the home country and for the foreign country, only if they are properly regulated and do not take advantage of the workers there. In addition, I believe that it is important for the multinational firm to pay 2-3x the wage in the foreign country so that it does not exploit the foreign workers. More laws should be put in place to make outsourcing more safe and beneficial to both countries.
- Guerriero, L., & Cashore, A. (Directors). (2013, October 11). Made in Bangladesh- The Fifth Estate [Video file]. Retrieved April 17, 2019.
- Appleyard, D., & Field, A. (2016). International Economics (9th ed.). McGraw Hill.
- Slaughter, M. J. (2009). How U.S. Multinational Companies Strengthen the U.S. Economy. Retrieved April 17, 2019, from https://www.uscib.org/docs/foundation_multinationals.pdf.”