Case Studies

Outsourcing Manufacturing to Developing Countries

Posted by WMM1942 on August 13, 2020 at 9:04am

Background

The development of new, more complex technologies continues at an accelerating pace. Many of these technologies have risks that have not been seen before or adequately assessed.  The risks these technologies incur are frequently exported to developing countries, which lack the infrastructure to support and implement these technologies safely. For manufacturers developing countries offer multinational corporations a competitive cost advantage compared to manufacturing in highly industrialized countries. Companies building plants in developing countries have the benefit of cheap labor and low operating costs. Health and safety regulations are often non-existent or at best inadequate to address the risks new technologies incur. There may be little incentive to promote environmental ethics, safety procedures and community investment. Even if regulations exist firms may find it economically advantageous to avoid compliance and pay penalties rather than to meet statutory safety or environmental requirements.

There have been numerous instances where plants established in developing countries have experienced workplace and community disasters that would be much less likely to have happened in industrialized nations. The 1984 catastrophe at the Union Carbide Plant in Bhopal, the capital city of Madhya Pradesh, in India is a prime example. Recently workers were trapped in manufacturing facilities with inadequate fire suppression or emergency exits as another example. Longer term health issues arise when workers are exposed to hazardous materials without adequate protective gear. Hazardous waste maybe introduced into communities without adequate treatment. The ethical responsibilities of multinational corporations and their senior management, engineers and scientists working for these organizations are frequently ignored.

Often there is a demonstrable difference in design, safety, operating and maintenance procedures when comparing plants in developing countries with similar plants in highly industrialized countries. Developing countries frequently lack community information and emergency response procedures to deal with large-scale disasters. The governments of developing countries may contribute to the risks if highly placed governmental officials are susceptible to corruption to overlook serious health and safety issues. 

The following fictitious scenario is based on a composite of real events.

Reduced Safety Standards In Design Specifications

Joe Martin is the Chief Design Engineer for a major multinational corporation. He leads a multidisciplinary team of engineers that have years of experience in the safe design of manufacturing plants in his home country, a highly industrialized nation. Joe and his team have been tasked with the design and startup of a new plant in Ethicana (a fictitious developing country). The plant will manufacture advanced solar cells and complete solar panels using a proprietary nanotechnology process that has never been used before. The decision to build the plant in Ethicana was primarily driven by the lengthy process to get approval by regulatory agencies in his home country. There has been very little research or data collected on the safe use of this new nanotechnology in manufacturing solar cells.

An important issue that Joe and his engineering team face is the design specifications set by management for the new plant have safety standards well below those for similar plants in his home country where the corporate headquarters is located. New computerized safety systems specified for use in his home country have not been incorporated into the design specifications for the new Ethicana plant to reduce costs. Joe’s team has been given a restricted list of approved low-cost instrumentation for the new plant that has a reputation of being unreliable.

Joe and his design team are very concerned. When Joe approaches senior management with his concerns he is sternly rebuffed and told that regulations in Ethicana do not require the same safety and environmental measures as those in his home country. Joe and his team feel very uncomfortable at the reduced design and safety standards for the new plant, but are keenly aware of management's negative reaction to their feelings. They feel compelled to design the plant to meet the specifications management provided. The plant is built accordingly.

 Starting up the plant.

Joe’s team immediately becomes aware that even existing safety standards are not being upheld. Nevertheless, the new plant is scheduled for startup.  Joe reports back to corporate headquarters that even though he has requested a safety inspection, the regulatory agencies of Ethicana have never inspected the plant and are not enforcing safety and environmental regulations. Joe requests permission from senior management to delay startup until safety inspections have been made. He is told to start up the plant immediately and that safety inspections will occur when local agencies can schedule time for a visit.

 During startup, the operating technicians have reported the following problems to Joe and his team:

  1. Temperature and pressure gauges are unreliable and are frequently ignored.
  2. Process waste chemical volumes are exceeding the recommended capacity of the holding tank.
  3. The reserve waste storage tank is averaging 70% full and occasionally overflows.
  4. The refrigeration unit that keeps potentially explosive chemicals at low temperatures shuts down intermittently and requires manual restarting. 
  5. The gas scrubber, which is designed capture flammable gases escaping from the process, has been shut down due to an electrical problem. Escaping gases are being routed to the flare tower.
  6. The flare tower – which is designed to burn off flammable gases escaping from the scrubber -- has a defective automatic igniter. Periodically when the flame is blown out by high winds it does not re-ignite. An unknown quantity of unburned flammable gas containing nanoparticles escapes to the atmosphere until the flame is manually ignited.
  7. The water curtain -- which should capture any process gas containing nano-particles in the works area – lacks adequate volume. Process gas containing nano-particles escapes into the worker’s operating area.
  8. The warning system for the local community in the event of a plant emergency has never been tested and is not known whether it is operable.
  9. Recent nationalization policies of the Ethicana government have resulted in the premature replacement of members of Joe’s team of experienced engineers with less knowledgeable local citizens.  Due to training cutbacks, most replacement technicians at the plant are poorly trained, inexperienced and have little understanding of the manufacturing process. This has resulted in several accidents during operation exposing workers to hazardous materials including nano-particles whose long-term health effects are unknown.

Corporate Response to Safety Concerns

Joe reported his concerns to senior management at corporate headquarters and requested that the Ethicana plant operations be suspended until the faulty equipment, safety and operational issues are addressed. To make his point Joe tells senior management that this is a disaster waiting to happen and that if nothing is done he will be compelled to file a report with the Ethicana Worker Safety and Environmental Protection Agency. Senior management tells him to keep the plant in operation at all cost. He is told that ethics and morals have no role in operating a manufacturing facility profitably. 

Out of frustration Joe reported his immediate supervisor to the senior vice president for corporate operations regarding potential risks to persons living near the plant. He is told that there are no regulations in Ethicana requiring the communication of risks to the local population living near the plant. Nothing is done to inform the surrounding community of any potential risks.

Because Joe and many of his team lived in the local community during their assignment in Ethicana they are aware that there are no emergency response plans to cope with any events at the plant that could have a negative impact the local community. Joe knows that there is an inadequate supply of water and electricity which could affect the operation of safety equipment currently installed at the plant in the event of an emergency. 

Consequences

Joe is quietly replaced by a local citizen as the plant manager and transferred back to corporate headquarters. Joe receives a less than favorable performance evaluation from his supervisor for his work on the Ethicana project. The rest of Joe’s engineering team is replaced by local citizens and the team is transferred back to corporate headquarters. To add to Joe’s frustration, he finds out from an article in an Ethicana newspaper that the new Ethicana plant manager is the brother in law of the mayor of the city where the plant is located. The new plant manager's industrial experience is limited to vehicle maintenance for the city where the plant is located.

Responsibility of the Governments of Industrialized and Developing Nations

Currently, international law does not involve itself in industrial hazards, pollution or regulating multinational corporations in general.  Any disaster that results will be litigated in the country where the plant operates. The legal systems of most developing countries lack experience in dealing with multinational corporations or the consequences of a major disaster resulting from poorly designed and operated plants outsourced from highly industrialized countries. 

-----------------

As you read and analyze this case study, your reflective comments are requested on all of the following:

  • Who are the stakeholders, and how are they impacted both positively and negatively?
  • What knowledge and skills are needed to implement sophisticated, appropriate and workable solutions to the complex global problems facing the world today?
  • What interdisciplinary perspectives would help identify innovative and non-obvious solutions?
  • What insights can you articulate, based on your culture and other cultures with which you are familiar, to help understand your worldview and enable greater civic engagement?
  • What is your position on the right thing(s) to do?

    After you submit your comment, please view and evaluate the feedback to your response that is automatically provided on the screen

    Also, please take a moment to provide a comment on someone else's comment.
E-mail me when people leave their comments –
Follow

You need to be a member of The Ethical Engineer to add comments!

Join The Ethical Engineer

Comments

    • green > ssbt.itssbasu October 30, 2020 at 4:30pm
      I agree about needing to have good morals in a business! If an organization wants to be successful and have good standing, they need to show considerations for others that may be affected by their work. I also agree that it would be wrong if Joe's company punished him for having good morals and bringing attention to issues that should be resolved. Issues that can harm others, if not solved, should always be resolved instead of ignored.
  • SsBTSreeya Paul October 30, 2020 at 12:40pm
    Now a days some companies are deciding to create new technology in the development countries. The rich countries fulfill their demands by outsourcing. This is partially because of the cheap labor cost and less regulated standards in the developing and other poor nations. Although this brings income to the country but at the cost of environment and health. The company along with local politicians often ignore the safety standards to cut the cost and fill in their pockets. Honest person like Joe are often sidelined and ignored. However I feel that professional experts must be hired and their opinions must be considered. Since they are the trained professionals, thus they have the insight of the working of such manufacturing plants. In the country itself we often come across many news about industries polluting the rives and causing damage to the ecology but the authority are hush hush about until the news is on television and they are forced to take action. People like joe must be encouraged who are honest with their work and should be rewarded instead of sacking them. This will encourage others as well to come forward for a better cause.
    • ssbt_biotechguy > SsBTSreeya Paul October 30, 2020 at 1:57pm
      This is a wonderful thought @ssBTSreeyaPaul but I would like to disagree on certain grounds, the initial costs upon setting up the industry really goes up if professionally trained persons are hired from the beginning, I feel like that they should be appointed but on some later stage when the company has made some profits to atleast hire them. Regarding the point of sustainability of the environment, initially there will be exploitation because to maintain safe conditions it takes a lot of remuneration. Once the industry is well settled it should always look into the matters of environmental concerns and opinions of the workers.
  • SsbtAditiPodder October 30, 2020 at 12:32pm
    Globalisation is a phenomenon that has been overly visible around the world within the last 20 years. There are five dimensions of globalisation, which corresponds with economics security technology and communication, environment or demographic and cultural. Globalisation means worldwide economic, political, technological and cultural integration, sharing of ideas, opinions and practises, greater freedom of movement and the diminution of natural borders. The concept of outsourcing is simple and straightforward that is nonpolitical business functions are passed on to the economies that have lowered labour market rates outsourcing has positively addressed the growing unemployment rate in developing nations and developed the labour forces of these countries for specific industries. Th these boots the rate of economic growth and can lead to improvements in infrastructures and confidence in the economy. Creates employment outsourcing has provided a new arena of employment, specially for developing Bing economics with good standards of English and skills. The disadvantages or problems of outsourcing includes understanding of languages , the firm may struggle if the outsourced firm is unreliable. Mosly, impact on reputations sometimes multinationals have been criticised for outsourcing production, such as call centres to countries outside the country where it does business.The things that we need to follow are —we need to be more careful ,proper knowledge is required ,emergency plans should be ready,Managements instructions must be followed ,government rules must be implemented
  • international.br October 30, 2020 at 12:08pm
    1: The main stakeholders in this case are:
    The shareholders/owners of the multinational company. Positive impacts: they have more profit due to the cheapness of everything related to production. Negative Impacts: If there is any bad consequence involving their company, their reputation will be worse, and they might have huge expenses to solve problems.
    All employees of the company (including Joe’s team). Positive impacts: They have a job to support their families and may grow in their careers. Negative impacts: if anything goes wrong, their names will be involved with that, they might have physical or/and mental damage, and they might struggle to find other jobs.
    The local community that surrounds the plant. Positive impacts: more jobs available and companies usually attract more people to the area, making it grow. Negative impacts: they might be directly or indirectly harmed by the company.
    The government that rules that area: Positive impacts: Their economy grows, attracting even more companies. Negative consequences: catastrophic incidents might deteriorate their international image and make their citizens angry.
    2: The world requires proactive, ethical, and self-assured professionals who have a great balance between hard and soft skills. A vast and diverse knowledge related to their industry to be able to technically find solutions to optimize products and processes. Fortunately, only technical knowledge is not enough for the market, professionals must know how to express themselves effectively, have a sense of leadership to conduct others, and know their rights and duties.
    3: In my opinion, some interdisciplinary perspectives that would help identify innovative and non-obvious solutions could be a better stipulation and evaluation of the possible downsides resulted from the impact of companies in developing countries. This measurement should be tied to stricter decisions imposed by the leaders of companies and governments where those companies are. These measurements would soften some quantitative and qualitative problems that originated from these international business relationships.
    4: In my perspective, a greater civic engagement is only possible when people know their actions will be relevant and will make a difference. What usually works better for the public to be noticed when managers/leaders do not want to listen to them is to invest in “quality voice” or “quantity voice”. A “quality voice” for people is to have a representative that is somehow relevant for the issue and is powerful enough to reach the leaders. A “quantity voice” for the people is to gather as many people as possible is make as much “noise” as possible until they get noticed.
    5: The right to be done by the company and senior managers was: researched and collected more data on the safe use of this new nanotechnology in manufacturing solar cells; listen to Joe’s concerns and take actions to prevent any bad consequences that could be controlled; do what they knew it was right, even though the local laws did not require such standards; and stop making a decision thinking about short-term results, which would probably be not good for long-term results.
  • ssbtamityeroy October 30, 2020 at 12:02pm
    To implement sophisticated, appropriate and workable solutions to the complex global problems the developing countries that lack infrastructure and technologies should be more aware about the health and safety regulations. The proper environmental ethics should be followed.
    All the stakeholders took care about is money. In this case study the stakeholders were the government who allow for the multinational companies to set up their industries in their still- growing homeland. To increase the level of profit, the multinational companies always tried to reduce the cost of the production. To get the profit, the became careless also about the health of the people. To maintain the health of public, chemical exposures should be minimized. In this case study we found lack of morality, ethics, honesty and decency among the people.
  • Ssbt joyee October 30, 2020 at 11:56am
    1. Firstly reading about this case study it is very obvious that education about that particular area of expertise is importent and like the case study mentioned about inexperienced local citizens handling the plant , it can be risky as well as injurious for the workers as well. Secondly , if a plant is being built in a developing country, all possible safety measures should be taken in building and establishing it . Here , Joe amd his team were an experienced group of workers who knew the cons of the backward technology and cheap materials being used to make this plant which could have adverse health effects accompanied by life risking hazards not only to the workers working in the plant but also to the people living near the plant . Next , assigning the correct area of work to the correct people is important . Just because Joe was a concerned team leader who cared about people’s safety , he was replaced by the mayors brother in law whose expertise was limited to vehicle maintainace . The authorities also played a vital role in the establishment of the plant because being in charge of approval of all the descision made by Joe the authority should have upgraded the faulty machines and repaired all the faulty parts which could cause long term health effects to the inexperienced workers . Having nanoparticles expose in the atmosphere is not only triggering air pollution but can also result in long term effects in the human body. Not only did the authority risk people’s lives but they were also responsible for polluting the environment which could have been prevented with a few knowledgable and sophisticated skills.
  • Shalini P October 30, 2020 at 11:55am
    1) The knowledge and skills required for solving this complex global problems are - that there should be inspection of the plant in regular interval of time. Flaws should not be ignored. All the employees should be well trained and experienced as the life thousands are on their shoulder. Old and rusted material in the plant should be replaced with a new one. They should not release toxic wastes into the environment. The toxic wastes should be dumped safely far way from human.The local people should be educated properly about the functioning of the plant and how to save themselves in emergency situation.
    2) In any manufacturing unit, it is of prime importance to abide by the safety standards which need to be established and regularly updated by a monitoring body which is rarely present in the developing countries. The safety standards need to be followed to ensure the long term operation of any such unit and to also establish trust on ethical and moral grounds among the workers of the unit. The workers need to be well informed and trained regarding what is permitted and what is not at a workplace. To ensure proper disposal of the industrial waste, treatment units need to be set up to adhere to the maximum permissible pollutant levels and reduce the amount of industrial waste. The case also highlights the lack of interpersonal respect among employees at a workplace which often leads to important insights being ignored. Organisations need to seriously address this issue in order to promote effective communication at the workplace which can hugely benefit the employees at all levels.

    3) Employing an inexperienced person as the manager is a very unwise decision is what we have seen by the end. What could be done is that experienced, properly qualified professionals could be employed as the manager and supervisors, and local people could be involved in basic, simple helping hand works is what I believe. But the fact that Joe's supervisors never paid heed to his absolutely valid complaints, bur rather penalised and replaced him with some undeserving person is highly offending and unethical.

    4) The things that can be done are -
    a) We need to be more careful about the project.
    b) Safety must be the priority before starting a new project.
    c) Proper knowledge is required for the survey to take place.
    d) Emergency plans should be ready for any problems.
    e)Management's instructions must be followed.
    f) Government rules must be implemented.
  • ss_ShyYawn October 30, 2020 at 11:38am
    In today's globalisation, the most valuable skills and information people can know to find solutions to their dilemma are to have abilities such as proper time management, strong social skills, teamwork, critical thinking and the most important thing to carry out their job before schedule. Multinational companies: externalisation of manufacturing to developing countries, enable multinationals to raise their profit margin by using the low-wage / cost ratio in developed countries to tap into the large pool of low-skilled employees. Established and development Governments and the justice system should investigate the outsourcing operations for these multinationals and ensure that all legislation and safety requirements are complied with properly. Developing countries' labour market: Outsourcing has created many work opportunities in developing countries for the labour force. In exchange, this helps to minimise unemployment and increase GDP in developing countries. Unqualified or partially employed labourers, or less trained local residents of the developed world, who are to replace their skilled workers. Manufacturing facilities constructed in developed countries should implement management tools like ISO 9000, ISO 14001 and the like which comply with standardised international standards. As the case study has pointed out, the Ethicana rules, mean that the developing world, as the developed countries, does not need the same protection and environmental measures. Savings in running costs should be placed in place as a back seat and priority should be given to enforcing such required safety systems during the building of every facility, even though the facility is outsourced in the developed nations. In all organisations, both developed and emerging countries, the uniform international standards must be upheld, whether in product requirements, safety measures, facilities or workplace jobs. If the substitution of current foreign nationals is needed, the transition can be made seamlessly without a loss of the performance and all work without technical malfunctions or injuries can be continued safely. In developed nations which can accommodate multinational firms spanning foreign frontiers, an effective, stringent justice structure should be in place. The modification or replacement of that legislation should not be under the jurisdiction of development authorities or even developed nations. Rules and guidelines to be complied with by multinationals who outsource production to developed countries should be laid down. The centre of the policy structure for cultivating sufficiently trained staff are the comprehensive provision of high-quality training as the basis for potential training; a near match between skills production and the demands of industries and job markets; the willingness of personnel and employers to respond to technical and demand changes; and the anticipation and planning of future capability requirements. This strategy, when applied effectively, nurtures a virtuous cycle in which greater and better education and preparation stimulates creativity, investment, economic diversification, and growth, as well as social and career stability – thus producing a more active, skilled population. Trained workers will provide the production plant with higher productivity; improve income for the global corporation and indirectly allow the country to prosper. In exchange, a pool of more qualified talent will encourage other multinationals to spend their talent in the developed world, thus helping to achieve overall GDP growth in the country. That will promote expanded international investments; more global firms eager to outsource their jobs to the country to use their workforce's expertise. Ultimately, a country's potential success relies on the number of people working and their productivity at work. Furthermore, skills growth increases both the workforce's potential and its prospects, providing more space for innovation and job satisfaction.
  • SS K. Kanungo October 30, 2020 at 11:19am
    1. Outsourcing is basically a concept of exploiting the human resource at a lower market rate. The organizations from developed countries set up their plans in the developing nations and acquire resources and employment at a much lower expense than their home nation. Although, the developing country is benefitting from these organizations through increased employment opportunities, they often trade the lives of their own people for the sake of development. For instance, in this case study we saw how the local government of Ethicana didn't bother about conducting an inspection to ensure if all the safety measures are properly followed. And also how they were interested only in the monetary aspect of the whole deal and not the safety of the locals. One argument for this can be the appointment of the mayor's relative as the plant manager. The knowledge and skills that are needed for the solutions of this complex global problems are that there should be inspection of the plant in regular intervals of time. Mistakes should not be ignored. All the employees should be well trained groomed and experienced as the life thousands are on their shoulder. Old and rusted material in the plant should be replaced with a new one. They should not release toxic wastes into the environment. The toxic wastes should be dumped safely far way from human.The local people should be educated properly about the functioning of the plant and how to save themselves in emergency situation.
    2. All the members in staff should be given proper education about all the materials and their harmful effects. They should now how to handle it at the time of its misbehavior. The higher officials should always give a look in between proper time period to avoid inappropriate circumstance. There should be a backup plan for every possible happenings to control it. The health of the people working there and also living near should be the prior concern. All the workers should wear safety equipment while working in the plant. Workers should follow proper guidelines before entering the plant. Risk assessment. All the workers must be aware of the safety measures. They should be trained with emergency evacuation.
    3. The right thing to do before establishing a plant is :
    - proper plan should be made out with required safety standards
    - proper inspection should done
    - use of proper required instruments and not cut off good instruments because of cost.
    It is a natural procedure for human beings to invest where the revenue is maximum. Thus companies will forever depend on cheap labor from developing countries and in return these developing countries expect job opportunities.
This reply was deleted.