Beyond the Workplace: "Upstream" Business Practices and Labor Standards in the Global Electronics Industry

Despite decades of debate and efforts to improve global labor standards, multiple problems still persist. Whether arguing for a more active role for the state, persuading firms to adopt codes of conduct, improving monitoring and sanctioning processes or seeking a higher degree of commitment between supply chain actors, scholars still lack an adequate explanation for why labor problems do not show improvement. Existing theories, while they will help, are not sufficient to solve this issue because they are focused on the production side of markets—the result both of an intellectual and policy bias towards production and the tendency to look for solutions where problems occur. Using a case study of Hewlett-Packard’s (HP) supply chain, qualitative and quantitative data from field visits to plants in South East Asia and a unique dataset of HP’s code of conduct audits, we demonstrate that even under the most-likely conditions that favor previous theories of labor standards, code of conduct violations, in particular excess working hours, exhibit widespread persistence. Having explained this, we demonstrate that this persistence is the product of a set of policies and practices designed and implemented upstream by global buyers and their lead suppliers

Essays on volatility and the division of innovative labor

Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2013.Cataloged from PDF version of thesis.Includes bibliographical references.Economic liberalization has brought a widespread belief that strengthening supply-side institutions is not only a necessary condition but also a sufficient one for economic and technological development. Yet uneven growth in advanced economies and a tenacious 'middle-income' trap tests this view. This dissertation, composed of three essays, examines persistent challenges to social, technological and economic development. A key aspect of my approach is to understand whether states can control the environment in which local firms make decisions. In particular, I argue scholars have exhibited a significant bias towards the supply side of markets as sources of innovation and growth. I exploit this bias by examining cases in which the characteristics of global demand markets significantly shape firm strategies. The first essay, based on a five-year dataset of Hewlett-Packard's social audits along with extensive fieldwork in their global supply chain, identifies demand volatility as a significant cause of persistent labor standards violations in the global electronics industry, in contrast to the conventional wisdom. The second essay uses a critical case study of the Penang semiconductor cluster to examine the challenges late industrializers face when confronted with stalled technological upgrading in a world of horizontal production networks. In common with efforts to improve labor standards, the real obstacle to technological upgrading is demand volatility. I argue the case of Penang shows that it is volatility, not the search for low wages, which increasingly determines the international division of labor in emerging economies. The third essay uses a unique dataset of production firms founded with MIT-licensed technology to examine whether the U.S. captures the long-term benefits of its investments in technological innovation. Through interviews with senior managers and founders, it finds that the U.S. ecosystem provides fertile ground to start firms; yet when these firms need to take the significant leap into larger-scaled processes, both the need for additional capital as well as the search for production capabilities pulls many firms to move critical knowledge abroad. The three essays demonstrate that demand increasingly shapes global production and innovation architectures, not the opposite as is widely assumed.by Hiram M. Samel.Ph.D

Moral purpose, economic incentive and global trade : why new business models are needed

Thesis (S.M.)--Massachusetts Institute of Technology, Sloan School of Management, 2006.Includes bibliographical references (p. 134-139).Globalization has occurred in various forms over the past century, yet only recently has it become daily news. This evolving process has created numerous underlying tensions that are not well understood. While western society has tried to address these tensions, it has sometimes mishandled them. In this thesis, we examine one such area; the belief that globalization creates opportunities for significant labor exploitation and why it is necessary, in the absence of government regulation and enforcement, to set social codes for companies sourcing products in developing countries in order to prevent this mistreatment. The thesis examines whether these codes are actually effective in accomplishing their stated objective of improving social conditions and if not, what plan could better accomplish this goal. It is divided into five chapters; the first is a review of five central globalization trends that frame the social code discussion. The second and third chapters look at the negative publicity that exposed labor problems overseas and assesses whether any of the known global actors care enough to cure the problems. Starting with the historical development of multi-stakeholder initiatives (MSIs) set up as a response to these problems, we then examine the codes they promulgated.(cont.) In the fourth and fifth chapters, we discuss why the codes are less effective than desired. The analysis is focused on the alignment and misalignment of institutional and organizational incentives in three areas: business model design, supply-chain management, and capital-market development. While acknowledging the impressive social good accomplished by the MSI's, we argue that moral purpose by itself is difficult to impose across a wide range of institutions and cultures. Using more dynamic business models, companies and MSIs can create the right incentives to eliminate exploitive practices. Finally, we look at how creating such a virtuous cycle can have a profound positive impact on global trade and encourage governments to regulate. While modifying business models will prove daunting for many companies, there is ample economic justification to do so.by Hiram M. Samel.S.M

Production Goes Global, Compliance Stays Local: Private Regulation in the Global Electronics Industry

Concerns about poor working conditions in global supply chains have led to private initiatives that seek to regulate labor practices in developing countries. But how effective are these regulatory programs? We investigate the effects of transnational private regulation by studying Hewlett Packard’s (HP) supplier responsibility program. Using analysis of factory audit records, interviews with buyer and supplier management, and field research at production facilities across seven countries, we find that national context — not repeated audits, capability building, or supply chain power — is the most important predictor of workplace compliance. We then use field research to identify two local institutions that complement transnational private regulation: domestic regulatory authorities and civil society organizations. Although these findings imply limits to private regulation in institutionally poor settings, they also highlight opportunities for productive linkages between transnational actors and local state and society

The Third Globalization: Can Wealthy Nations Stay Rich in the Twenty-First Century?

Book review

Upgrading Under Volatility in a Global Economy

Upgrading has been a main policy focus of the development literature for the past two decades. The predominant model has firms with low capabilities moving up the value chain through learning in global production networks and support of robust local institutions. Time after time when upgrading efforts fail, the recommended solution is to pour in more resources: new investments, more subsidies and more training. Yet little has changed. Using a critical case study of the Penang semiconductor cluster, this paper proposes an alternative set of hypotheses about upgrading in emerging economies. The real challenge for upgrading is volatility. The problem is not that there are only firms with low capabilities, but rather there are plenty of firms with high capabilities. These firms, by leveraging local policy, have developed sophisticated capabilities to meet the increasingly volatile production demand of global industries, in this case electronics. Contrary to conventional wisdom, they do not compete away profits or solely rely on cheap labor. The challenge is that these firms -- the prime set of candidates to upgrade -- have become sufficiently successful in this specialty that under the present policy regime, they have no incentive to do otherwise. They have created a sustainable niche, but one with no upward pathway. Firms that upgrade take a different route, avoiding volatile markets altogether. The case of Penang shows that volatility increasingly determines the international division of labor in emerging economies, not the search for low wages

Looking in the Wrong Places?: Labor Standards and Upstream Business Practices in the Global Electronics Industry

Despite decades of debate and efforts to improve global labor standards, multiple problems still persist. Whether arguing for a more active role for the state, persuading firms to adopt codes of conduct, improving monitoring and sanctioning processes or seeking a higher degree of commitment between supply chain actors, scholars still lack an adequate explanation for why labor problems do not show improvement. Existing theories, while they will help, are not sufficient to solve this issue because they are focused on the production side of markets — the result both of an intellectual and policy bias towards production and the tendency to look for solutions where problems occur. Using a case study of Hewlett-Packard’s (HP) supply chain, qualitative and quantitative data from field visits to plants in South East Asia and a unique dataset of HP’s code of conduct audits, we demonstrate that even under the most-likely conditions that favor previous theories of labor standards, code of conduct violations, in particular excess working hours, exhibit widespread persistence. Having explained this, we demonstrate that this persistence is the product of a set of policies and practices designed and implemented upstream by global buyers and their lead supplier

Learning by Building: Complementary Assets and the Migration of Capabilities in US Innovative Firms

Given that the US excels in innovation and venture capital financing, how do young firms scale-up their operations and why do so many manufacturing firms have trouble growing? The authors look at high-tech spinoff companies from MIT in order to see the limitations even these privileged companies face. They identify a “learning by building” process through which firms use prototype manufacturing to develop commercial products. But, even these MIT spinoffs face an “inflection band” in which venture capital is insufficient to scale-up and other funding sources can be scarce, leading firms to move offshore. The authors suggest a public interest in finding ways to help firms scale production in the United States

Looking Behind the Label: Global Industries and the Conscientious Consumer Global Industries and the Conscientious Consumer

What does it mean when consumers “shop with a conscience” and choose products labeled as fair or sustainable? Does this translate into meaningful changes in global production processes? To what extent are voluntary standards implemented and enforced, and can they really govern global industries? Looking behind the Label presents an informative introduction to global production and ethical consumption, tracing the links between consumers' choices and the practices of multinational producers and retailers. Case studies of several types of products—wood and paper, food, apparel and footwear, and electronics—are used to reveal what lies behind voluntary rules and to critique predominant assumptions about ethical consumption as a form of political expression