Low-cost country sourcing (cheap labor)

Low-cost country sourcing, also called cheap labor, refers to the business practice of intentionally manufacturing goods in areas with loose labor laws. This allows companies to pay their foreign workers less than domestic workers. It also allows companies to utilize factories with longer work schedules and less stringent safety standards.

Spending less money on labor allows companies to sell their products for less money. This tends to please consumers, who pay less for the product. It also allows companies to undercut competitors using higher-paid domestic laborers. However, many experts criticize this practice. They argue that sourcing cheap labor in foreign countries takes jobs away from domestic laborers, and encourages unethical business practices that might be illegal in the company's home country. Some products commonly manufactured with low-cost, country-sourced labor include textiles, clothing, furniture, electronic components, and toys.

Background

Labor has always been a part of the world's economy. As long as people have traded for goods, someone has worked to create those goods. Early farmers hired workers to help them manage larger farms, and crafters worked to create tools for sale. Businesses in capitalist societies have always sought to maximize their profits. This means selling their product for as high a price as people will pay, while keeping manufacturing costs as low as possible. For this reason, businesses commonly seek cheap sources of labor.

During some eras, slave labor was used to keep costs low. Plantation owners purchased large numbers of enslaved people and forced them to work long hours in harsh conditions without pay. This allowed the business owners to maximize their profits by avoiding having to pay workers. However, slavery was later outlawed, forcing business owners to pay their workers.

During the Industrial Revolution, business owners required large numbers of workers to man their factories. The invention of factories allowed business owners to hire unskilled labor. They then trained the laborers to accomplish a simple task on an assembly line. Factories during the Industrial Revolution often paid low wages and forced workers into unsafe conditions.

In many cases, factory owners employed children to work in their factories. Children were frequently paid less than 25 percent of an adult's wages, despite performing the same jobs as adults. Additionally, children were easier to control than adult workers. They were less likely than adults to question orders or to resist punishments. Children were also able to work in smaller spaces than adults, making them ideal for working in cramped conditions like mines. However, as the era progressed, people began to protest these working conditions. They began to fight against unsafe conditions for workers, and began to argue that forcing children to work was immoral. Eventually they succeeded, causing child labor to be declared illegal, and causing numerous regulations to be passed in favor of workers.

Overview

As time progressed, most developed nations passed numerous laws to protect workers. These laws forced businesses to provide safe working conditions and limit the number of hours employees would be required to work each week. Additionally, minimum-wage laws forced businesses to pay workers a living wage, drastically improving the lives of workers but cutting into the profit margins of business owners and corporations.

One of the most powerful tools workers had to negotiate with their employer was the union. Unions are organizations comprised of large numbers of workers who band together to increase their leverage against their employer. To do this, unions utilized a tool called collective bargaining, during which all the workers negotiated with the employer as a single group.

These changes made it harder for businesses to maximize their profits within developed nations. In order to combat this, they began to look elsewhere for sources of labor. Workers in many developing nations lacked the power of workers in places like the United States and Europe. Additionally, the difference between the currency values of developed nations and developing nations allowed corporations to spend less money.

Utilizing labor in developing nations allows companies to take advantage of looser or nonexistent labor laws. They can pay workers significantly lower rates than workers in developed nations. They can also allow more dangerous working environments and require employees to work longer hours. These workers often have little recourse against such powerful employers, and may have few economic opportunities outside foreign employers.

Companies taking advantage of cheaper foreign labor can make products for substantially less capital than companies paying for labor in developed nations. Because regulations on factories are looser, they may even be able to manufacture more product in a shorter time. The companies can then pass some of these savings onto the consumer, charging less per product than their competitors. This allows corporations that utilize foreign labor to undercut their competitors without necessarily losing quality. The competitors are forced to choose between competing at an economic disadvantage or using underpaid foreign labor.

Some economic experts are in favor of companies utilizing cheap foreign labor. They argue that foreign labor drives prices down, which is good for consumers. They also argue that it brings jobs to the areas in which factories are built, potentially helping local workers who might not otherwise be employed. However, many others criticize the practice. They argue that sending jobs to other countries takes employment opportunities away from domestic workers. This could potentially increase unemployment rates. Many experts also criticize the morality of companies intentionally seeking out areas with less restrictive labor laws and paying unfairly low wages.

Problems of quality assurance have also been reported with companies using low-cost country sourcing. To cut costs, some employees will use low-cost suppliers along with low-cost labor. This can create faulty products. In the automotive industry, several car manufacturers have been forced to recall millions of vehicles over problems such as defective airbags caused by utilizing low-cost suppliers. In the toy industry, Mattel, a leading producer of toys, was forced to recall millions of toys after it was reported that many contained lead paint and others had faulty magnets that could come loose and be swallowed by children. The revelation also created a widespread discussion on outsourced labor and the difference in standards between the US and other countries.

Companies tend to utilize low-cost, country-sourced labor for anything that involves manufacturing. Many commonly purchased goods, including clothing, furniture, and toys, are assembled with foreign labor. Even more complicated objects like automobiles, appliances, and cell phones are sometimes manufactured with low-cost, country-sourced labor.

Some of these objects require abundant raw materials to manufacture. Companies may choose countries that contain an abundance of raw materials, allowing them to purchase the materials at a reduced price. This saves the company money on labor, raw materials, and transporting those materials. Some nations commonly used for low-cost country sourcing include China, India, Vietnam, Cambodia, and Thailand. Many of the goods found in Western markets are manufactured in those countries.

Bibliography

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