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. 

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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?

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Comments

  • ssbtfatema October 31, 2020 at 8:08am
    1) From the above case study we can say that the knowledge and skills are needed to implement sophisticated, appropriate and workable solutions to the complex global problems facing the world today is to avoid any kind of accident. In the above we saw that 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.

    2) A good communication should establish between authority and the workers. In the above case when 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. They didn't even care and listen the problems. They didn't give importance to the safety measures which was one of the main problem here.
    C) 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. In every industrial sector there should be healthy environment for workers and the authority should listen the problems of the worker and give them importance. There should not any place for the corrupted and selfish system who only think about their gain.
  • ssbtneha October 31, 2020 at 7:00am
    The principle partners on account of redistributing are the administration and non-government collections of the agricultural nations. In this day and age re-appropriating emphatically addresses the developing joblessness in agricultural countries and in a way is likewise settling the networks and social orders to a degree, it is additionally profiting the partnerships by reducing expenses, and expanding their benefits and item quality. It is likewise negatively affecting the workers. The workers are not given legitimate working conditions; frequently they work for a long time and get lower compensation particularly in the assembling area. For this situation of the non-industrial nation of Ethicana the comparative situation is noticeable from the above contextual investigation as the security measures were undermined and the main ideal objective was the creation. The partners for this situation are the legislature of Ethicana, Joe Martin and his group, the representatives and laborers of the plant, the organizations that were related with the plant.
    1. The administration must be prevalent, the undertaking must be dealt with by somebody of involvement and significant information, prior to utilizing any new innovation earlier information about the innovation, focal points and impediments, constraints must be known so it tends to be additionally passed on to the representatives and laborers of that plant, the data stream ought to be straightforward.
    2. As found in the above contextual analysis the security norms were helpless consequently placing a ton of lives in danger if there should be an occurrence of any oddity. In this manner one of the primary need ought to be security measures, acceptable well being estimates directs an appropriate working condition for the representatives and laborers. The apparatuses associated with the plant must be checked and upkeep ought to be led at standard stretches, any issues acting like danger factors must not be disregarded and answered to the administration to which the administration must give prompt reaction.
    3. The encompassing network of any plant must have dynamic caution frameworks to flag at the approach of a peculiarity. From the above contextual analysis it was apparent that the higher specialists ignored any extent of progress as detailed by Joe Martin, and were centered uniquely in their benefits, and upon additional reports they supplanted Joe Martin with somebody less experienced. In this manner demonstrating their prevailing nature. This propensity must be eliminated, for smooth activities in any association or plant, there ought to be better coordination among the higher specialists, administrators, subordinates and different representatives, and there ought not be any space for articulation of strength that prompts an undesirable workplace.
    4. In my position the correct activities is build up the security estimates endorsed by Joe Martin, appropriate apparatuses must be given to the laborers, legitimate clinical help must be accessible for sure fire reaction on the off chance that any of the laborers gets harmed during their work ,an adaptable law requirement body that will draw in worldwide law in mechanical dangers, contaminations and will have involvement with managing global companies.
    • ssbt_biotechguy > ssbtneha October 31, 2020 at 3:23pm
      I would like to appreciate your noteworthy points but would like to know about your views regarding the hike in the initial cost if these measures are taken at first upon establishment of the company.
  • Ss_sm October 31, 2020 at 6:42am
    In my opinion Outsourcing occurs when a firm delegates an aspect of a business to another firm. This may be to a firm in another country. Outsourcing is a growing phenomenon among developing countries. There is controversy about whether outsourcing actually benefits developing countries.
    But some benefits include- 1. Creates Direct Foreign Investment. This boosts the rate of economic growth and can lead to improvements in infrastructure and confidence in the economy.
    2. Creates Employment. Outsourcing has provided a new arena of employment, especially for developing economies with good standards of English and skills.
    3. A benefit to balance of payments. (inflows of investment. This enables a developing economy to run a larger current account deficit and have a better standard of living.
    But there are some disadvantages also like- 1. Extra demand for workers may put upward pressure on wages in the long term.
    2.The exploitation of the local environment. Multinationals can move production to countries with weaker environmental standards.
    3.The exploitation of workers. This is a contentious issue. Workers may look to be exploited by western standards. But, conditions and wages may be the same or better than many domestic industries.
    It is true that nowadays to stand against a wrong thing is very tuff and it can cost loss of that persons job also.
    • According to me proper skilled employees are needed to combat the global problems having proper knwoldge experience and who does there work with honesty,also Cities need to go beyond providing innovative solutions – they also need to transform and modernize the way those solutions are developed .
    • As seen in the above case study the safety standards were poor thus putting a lot of lives at risk in case of any anomaly. Thus one of the main priority should be safety measures, good safety measures dictates a proper working condition for the employees and workers. The machineries involved in the plant must be monitored and maintenance should be conducted at regular intervals, any problems posing as risk factors must not be neglected and reported to the management to which the management must provide immediate response.
    • As seen in the above case study, one has to face a lot problem even to stand with truth, to follow ethical concerns . I feel there shoud be more strict protocols should be imparted to ensure employee safety and environment safety . as seen here , nepotism have also impacted this type of sectors too where an honest employee like JOE has been thrown away for standing fot the right and public and environment safety. So government should impart stricter rules considering these type of situations.
    Conclusion-
    In conclusion, choosing where to host your manufacturing operation is an important choice for all businesses. While many can succeed manufacturing products domestically, there are good reasons why outsourcing overseas is a viable and popular option.
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  • ssnikkirani October 31, 2020 at 4:37am
    In the past several years multinational companies based in developed countries have increasingly turned to developing countries to carry out their business activities.
    Companies generally decide to outsource the production of goods and services. If they think It can save them money and by doing so increase Company profits.
    The most frequently cited examples of this has to do with labour cost.company might Outsource or offshore to a country that has lower labour cost like India, China, Africa etc. Companies may also Outsource themselves the expense of training and hiring all in house employees or to scale their business.

    Outsourcing of manufacturing Developing countries can be seen as a positive way to boost nation's economy. On the other hand can play a vital role in generating employment Specially in the country having a large youth population ready to be used as a great human resource.
    This is a very reason ,why we saw that after US -China trade war countries like India, Vietnam , Bangladesh tried to attract the company companies exiting China as an opportunity to Uplift uplift their economy.
    But in the process of attracting such companies, government in developing countries sometimes play with the labour laws , manufacturing standards , and ignore environmental impacts.
    And such ignorance by both companies and government in order to make profits, results into some disastrous catastrophe.
    History and present time has proven such negligence, starting from 1984 Bhopal gas tragedy, India , recent Beirut Explosions, Lebanon, Vizag styrene gas leak, India, Assam Oil leak explosions and many more are there to be noted. All this catastrophe would have been stopped from happening if there was proper inspection and environmental safety guidelines were followed.
    Over-dependence on technology for safety, cost cutting in implanting standard safety tools, negligence in recruiting manual safety to avoid excess cost all this contributes to the those catastrophes in my view.

    Possible ethical ways to counter such incidents :-

    • Develop safety culture: There’s a need to adopt proper safety measures following the best international standards. Three-tier measures are required, which involves
    • Passive safety measures like having a green belt of trees around the periphery of industries should be adopted;
    • Industries should pre-announce to the local people if they use hazardous chemicals;
    • Precautionary drills must be conducted by industries as a part of their CSR programs;
    • Plant Inspection: Proper plant inspection should be done even during the closure
    • A proper audit of all plants must take place as prevention is better than cure and in this case, it is life-saving.
    • Monitor the health of cattle by bringing in teams of veterinary doctors.
    • Fix Accountability: Maintenance of Hazardous Chemicals; Have strict legal actions and fix accountability after having a thorough investigation; State government should keep a check on the number of people living near hazardous industries and proper disaster planning must be adopted.

    Conclusion:-

    Outsourcing is a complicated issue that tends to provoke strong reactions. Every things has it two sides in order to look at positive aspect we should not neglect negative and try to eliminate them. Rather than just looking after profits, we should more be looking towards sustainable development .

    Authorities must look at the safety aspects and take all precautionary measures beforehand . As a developing nation we should aims for a wider manufacturing base, it needs to strengthen its approach to public and occupational safety. Transparent oversight is not a hurdle to industrial growth. It advances sustainable development by eliminating terrible mistakes.
  • Wagesha231 October 31, 2020 at 4:04am
    In the recent times, both the industrially developing and developed nations are facing environmental and global problems. So, using sophisticated, appropriate and workable solutions to address those issues is very important.

    · We must have proper ethics and morality to accept and face the global issues.

    · Proper maintenance of safety and health of workers.

    · Enhancing the practicing of environmental ethics and making sure it doesn’t get infringed under the notion of manufacturing profit.

    · Proper presence of community input & emergency response procedure must be there to deal with any kind of hazard.

    · In countries like India, the NDMA guidelines must be upheld to mitigate any sort of hazard and similar kind of SOP, must be there for other developing countries too.

    According to me, the interdisciplinary approach will be much of a use in here, as everything will depend on the jurisdiction. It is pointless to except the authorities of developing countries to abide by the safety standards as they are concerned abоut economic growth and prosperity. Hence, in my opinion a collective conscience is required to address the issue and proper implementation of the labour laws and working condition of the labour must be there and it should be strengthened even further as labour force is the backbone of the economy.
    People with power have great network and good connection with the top ministers and bureaucrats and can get away with anything easily. But in order to protect our environment from the exploitation we have to be aware of saving the environment and how it has negative effects to their health now and in future. The government should find people who are willing to work and bring these company frauds in front of people. Regular and transparent environmental Impact assessment (EIA) must be carried out. NGOs related to environmental protection must remain active and keep an eye on such companies trying to exploit the environment for the motion of profiteering.
    The right thing to do in my opinion is to strengthen the ties between the union and state government thereby exhibiting the spirit of cooperative federalism wherein laws will be enacted and enforced such that every registered company has to abide to the safety standard no matter what.
  • ss_sruti October 31, 2020 at 2:45am
    In the above case study and its fictitious example, we can see both hope and despair. In a world where people only think of their own profit, there are still people like John and his team of engineers present who do think about other people’s welfare. Even though in no way is John related to the people with Ethicana, he still cares about how the plant will affect people living around it. That gives rise to hope- hope that there might still be some good left on this planet and we can improve current conditions with the help of such people. But that is where the despair comes in. Even though John and his team tried to work for the benefit of the people, they couldn’t really do much about it because their supervisors were amongst those who are only worried about their profit rather than worrying about not harming other people. The stakeholders, in this case, would be the companies that outsource their work to developing countries and the government of the latter party. Outsourcing to cut back costs is understandable but not at the expense of the lives of other people. Awareness needs to be spread both in the already developed countries (where the outsourced jobs come from) and the developing countries (where the jobs are outsourced). The same amount of safety measures need to be taken in both places, because after all, humans only will be working in both places, thus requiring the same sort of measures. Irrespective of the location, people working in these plants and for any such outsourced jobs should be properly trained for the same so that they can handle it well with the least amount of casualties (hopefully just accidental). People living around such plants and other possibly harmful places should also be educated of the effects the above plant may have on them so that at least they have the option either be prepared in case of any accidents or to relocate if they want so that in case of an unfortunate situation in the plant, people simply existing nearby are not heavily damaged.
  • sschloe October 31, 2020 at 2:41am
    In today's world, globalization is increasing at its peak. In this case study , the company only aimed at attaining the profits without taking any consideration of the ethics , safety measures . A company should act responsible towards the environment and humanity regardless of seeking profit and economic gains. A proper safety measures should be implemented in a way not to harm the workers and the environment. Only implementing a safety measures is not enough it must be strictly followed too. It is the moral duty of the company to look after ghe safety measures towards the environment and human and their rights.
    Skillfull, well trained and experienced employees must be hired so as to follow the norms properly and be pre planned about the project. Inexperienced workers may lead to malfunctioning of the equipments which may lead to hazardous effects towards the workers and environment. However, pre planning is very much important taking account of all the consequences, risks or problems it might face and how to overcome it. A proper communication between the higher post workers and the lower post should be there for the betterment of the company's future. There shouldn't be any communication gap as it may lead to misunderstanding and can indirectly affect an individual's moral values. There should be an inspection done in regular interval of time. In my opinion the first and foremost right thing to do is one must be pre planned to start a company. Safety measures should be implemented and followed by the company. Ethical values must be taken into consideration with experienced and educated workers being hired which can be beneficial for both environment and humanity.
  • SS_Attreya October 31, 2020 at 1:26am
    The main stakeholders in the case of outsourcing are the government and non-government bodies of the developing countries. In today’s world outsourcing positively addresses the growing unemployment in developing nations and in a way is also helping stabilize the communities and societies to an extent, it is also benefitting the corporations by cutting costs, and increasing their profits and product quality. It is also having a negative impact on the laborers. The laborers are not provided with proper working conditions; often they work for many hours and receive lower wages especially in the manufacturing sector. In this case of the developing country of Ethicana the similar scenario is visible from the above case study as the safety measures were compromised and the only prime target was the production. The stakeholders in this case are the government of Ethicana, Joe Martin and his team, the employees and workers of the plant, the companies that were associated with the plant.

    1. The management must be superior, the project must be handled by someone of experience and relevant knowledge, before using any new technology prior knowledge about the technology, advantages and disadvantages, limitations must be known so that it can be further conveyed to the employees and workers of that plant, the information flow should be transparent.

    2. As seen in the above case study the safety standards were poor thus putting a lot of lives at risk in case of any anomaly. Thus one of the main priority should be safety measures, good safety measures dictates a proper working condition for the employees and workers. The machineries involved in the plant must be monitored and maintenance should be conducted at regular intervals, any problems posing as risk factors must not be neglected and reported to the management to which the management must provide immediate response.

    3. The surrounding community of any plant must have active alarm systems to signal at the advent of an anomaly. From the above case study it was evident that the higher authorities neglected any scope of improvement as reported by Joe Martin, and were focused only in their gains, and upon further reports they replaced Joe Martin with someone less experienced. Thus showing their dominant nature. This habit must be removed, for smooth operations in any organization or plant, there should be better coordination among the higher authorities, managers, subordinates and other employees, and there should not be any room for expression of dominance that leads to an unhealthy work environment.

    4. In my position the right things to do would be to develop the safety measures prescribed by Joe Martin, proper gears must be provided to the workers, proper medical assistance must be available for immediate response in case any of the workers gets injured during their work ,a flexible law enforcement body that will engage international law in industrial hazards, pollutions and will have experience in dealing with multinational corporations.
  • SSrera October 31, 2020 at 1:00am
    1. In the case of Joe, when he brought out the actual problems that will be faced in the near future, he was outlooked and ignored by the higher authorities. Therefore, the right and workable solutions would have been awareness and preparedness among the locality. Providing them with all the safety measures and medical helplines. Also proper communication between the stakeholders for leading a one shared mission. Deep knowledge on the field worked on by giving out training and seminars frequently should be provided to all.
    2. A better communication would have lead to better actions. Interaction between the management and the higher authorities should be done. Willingness to listen and admit would have solved the issue also by keeping in mind the safety of the public and the nature.
    3. Keeping in mind the best interest of the public, I would have prevented such hazardous factories to be settled near the locality. This kind of factories should be established very far away from the locality. Proper safety awareness should be provided and in case such tragedies happen, better communication and transportation service should be prepared beforehand. Also the factory workers should be provided with all the safety gears.
    4. Things I would do would be the proper use of social media. I believe today is a world of social network, giving out information and awareness would bring greater change, as Joe should have done. Also by visiting in the villages nearby and giving seminars and awareness on the matter can be done.
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