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Global production and local jobs:
new perspectives on enterprise networks, employment and local development policy | International Workshop (Geneva 9-10 March 1998) |
| Export Processing Zones: The Cutting Edge of Globalization |
1. Introduction
Export Processing Zones (EPZs) take a number of different forms, including the Special Economic Zones in China, free trade zones and free ports, but the essentials remain the same, namely -
- to attract investors by providing incentives
- usually in a dedicated zone or area
- to produce primarily for export.
The immediate objectives of the EPZ strategy are a combination of -
- employment creation
- expansion ofexports
- generation of foreign exchange
Zone-operating countries hope in the medium to long term to -
- develop specific regions
- promote strategic industries
- stimulatelocal industry
- transfer skill and technology.
2. Costs and Benefits
The costs and benefits of EPZs have generated a lot of debate. On the face of it, the substantial investment in EPZ infrastructure and incentives has generally succeeded in attracting investment that would not otherwise have materialised, and significant numbers of jobs have been created. The investment profile is a narrow one however, confined mainly to electronics, clothing and footwear, and the quality of investment has often been disappointing, most of it limited to simple processing activities using imported inputs and low skill, low wage labour. Because the incentive structure favours duty-free imports and exports very few backward or forward linkages to the local economy are made and there is little transfer of technology or expertise to local partners.
3. The Outlook for Zones
Investment zones or clusters have typically grown rapidly, peaked in investment and employment growth, and then declined. The best zones have managed to maintain a plateau of investment but enterprises inevitably introduce new technology which reduces the rate of employment growth. The worst case scenarios have seen zones empty out because of political and social instability or competition from more attractive destinations. In between the best and worst case scenarios are many uncertain zones whose futures are by no means secure. Some are caught in an awkward situation where they fear that they will lose investment if they do not extend the tax holidays and other incentives which attracted the investment in the first place. Others have large numbers of garment producers who are unlikely to stay once the Multi Fibre Arrangement expires in 2005.
All zones face the same dilemma, namely that the investment is based on the incentives on offer rather than on any inherent competitive attributes. If the zone is unable to develop those attributes, investment may flow out when the incentives expire or more generous incentives appear elsewhere. The attribute that most zones have relied upon is cheap and abundant labour, but that is a resource that is available in many different locations, and one which is increasingly discounted by investors who are looking for reliable human resources which can meet the speed, cost and quality criteria imposed by global competition.
Some zones have been able to offer investors a springboard into key markets, but changes in trade regimes can eliminate such advantages. The rise of Mexico as a production platform and the decline of the Caribbean region since the introduction of NAFTA is a case in point.
The most secure zones in a global economy will be those whose fundamental attraction is their ability to ensure highly efficient production, and to evolve and adapt to changes in global investment and trade patterns. Right now that means being able to provide the physical and human resources that enterprises require in order to respond more rapidly and cost effectively to global competition. The major innovations taking place in EPZs relate to labour relations and the development and management of human resources because governments, investors, and in some cases trade unions, realise that improving speed, cost and quality in production requires a qualitatively different labour relations environment and brand of human resource management. Investors are utilizing quick response, total quality management, constant improvement techniques to compete in the global economy, and they need zones conducive to those methods.
4. Export Processing Zones and Globalization
Export Processing Zones are the mechanism through which global production chains are elaborated, and their prospects are closely linked to the dynamics of global investment and trade. As production costs rose in developed market economies firms shifted the labour intensive parts of the production process offshore where EPZs provided an attractive base. Enterprises either set up their own plants or built up a network of sub-contractors, with whom they often work very closely in order to ensure that performance is satisfactory. Given the trend towards de-verticalization whereby major brands concentrate only on the design and marketing of their brand and sub-contract all the manufacturing activities we can expect to see even more production taking place in zones. Sporting goods brands like Nike and Reebok and women's clothing giant Liz Claiborne, amongst others, have demonstrated the efficacy of this approach. The recent announcement by Hanes that it will de-verticalize will not be the last in the clothing industry, and Compaq have chosen to adopt the same strategy by allowing Mitac to make Compaq computers.
If this trend towards de-verticalization is extended then zone production will increasingly be of the full-package variety in which a major brand supplies design data and expects a subcontractor to deliver a finished product. The sub-contractor has to source the materials and components, manufacture the article and perform the necessary quality controls. If any of the time, cost or quality limits are not met the sub-contractor bears the cost and may lose future contracts to competitors.
All zones have to cope with the implications of globalization with its increasing competition for investment and intensified competition in global product markets. What are those implications?
- For governments it is harder to attract and retain investors, and to obtain a reasonable return on the investment required to operate zones.
- For investors it is necessary to produce quickly and cheaply without compromising quality, and to constantly improve on those levels.
- For trade unions it is a question of overcoming the obstacles to organizing in zones and then developing appropriate responses to the new forms of human resource management and organization of work spawned by globalization.
5. Benchmark Responses to Globalization
The implications of globalization mentioned above demand a response. EPZs are neither static nor monolithic entities. On the contrary, their diverse constituents are constantly reacting to and acting upon the forces of globalization. It is not accurate to portray zones as concentrations of anti-union sweatshops, and doing so obscures the innovations and trends unfolding in the zones which tell us a lot about the effects of globalization.
Government responses have been concentrated on labour law reforms designed to recognise basic trade union rights to organize and bargain collectively, and to provide mechanisms for preventing and resolving conflicts. Other initiatives concern human resource development, social security and social services such as housing and transport. The Philippines provide a good example of a country which has gone from a high level of industrial conflict in EPZs to tripartite representation on its Economic Zone Authority and collective bargaining in an increasing number of zone enterprises. Problems still exist in some areas where local political figures oppose trade unions but the progress overall has been impressive. Panama has introduced a new system of dispute resolution and the Dominican Republic, which took steps some years ago to ensure freedom of association in its zones has been tackling the problems of housing, transport and social security for zone workers. A number of governments have introduced additional support measures to promote human resource development, the introduction of new technology and higher value added activities. Sri Lanka allows training providers to qualify for the same incentives as other zone investors while Costa Rica agreed to provide training to ensure that Intel would have sufficient skilled workers. Mauritius has taken a number of important steps to reinvigorate zone production, including the promotion of IT and other new technologies.
Enterprises are having to find ways of working faster and lowering their costs at the same time, without impairing quality.
- Frequent changes in product specifications and shorter product life cycles force them to make changes in the organization of work which affect productivity and cost efficiency.
- They respond by intensifying work to the point where it becomes counterproductive and labour turnover, absenteeism, accidents and conflict make it impossible to meet the time and cost constraints of the global market.
- At this point zone enterprises often try to cope with these counterproductive features by introducing cash incentives for long service, regular attendance and high productivity.
- Some even set up quality circles or other consultative structures but these serve simply as top-down communication channels.
- With no real change in the approach to work these enterprises soon find themselves unable to satisfy the ever more stringent demands of their customers and markets.
Many zone enterprises are fighting this losing battle to meet higher standards by working harder, but the most competitive enterprises in each zone have realised that the trick is to work smarter. In the case of large multinationals constant improvement and human resource management techniques may be planned at headquarters level and implemented company wide, but many of the enterprises at zone level do not have such conscious strategies or capacities. For them the switch from working harder to working smarter is a far more haphazard and accidental one often forced upon themby crisis rather than by planning.
Typical of smart workplaces in EPZs are quality circles and teamwork. Teams vary in their degree of responsibility and authority and more work is required in this area to develop a rigorous set of criteria for assessing the real role that they play. Common functions include participation in the setting of production targets, collection and analysis of productivity data, and performance evaluation. Leading plants have teams which are self-directed and the role of supervisor has been abolished. Zone enterprises are not using teams as part of any quality of working life initiative nor to expand industrial democracy. Teams and other forms of workers participation are used to ensure constant improvement. In this regard they seem to be effective, although there are questions about the degree of authority that teams have to meet their increased responsibility. Responsibility without the authority to make the necessary decisions and changes can be highly stress producing and ultimately conflictual.
In the most advanced cases smart enterprises have set up career plans for their workers with training as the basis of advancement. Job enrichment programmes have expanded the functions of each worker and profit sharing ensures that workers receive a percentage of the benefits generated by improvement. Innovation on the part of workers is actively encouraged and rewarded.
Smart enterprises have also confronted the social problems faced by their workers and provide assistance with housing, transport, child care and basic necessities.
Smart enterprises are to be found in all industrial sectors and in a surprising variety of zone settings, from the most modern to the most basic. However, there are a number of factors which stimulate enterprises to work smarter -
- tight labour markets force enterprises to go further to attract and retain workers, and many find that job satisfaction is as important as pay
- expensive high tech plants operating on a zero defect basis require not only more skilled operators but committed and motivated people in whom they can invest for a long term working relationship
- plants operating on a quick response basis, or working on products with a very short life cycle, need workers who can adapt to frequent changes in production without compromising productivity and quality
- in our factory visits we found a surprising number of plants where the introduction of smart working was not company policy but rather due to the presence of a visionary owner or manager.
Two other factors which play an important role are the institutional support services available to enterprises and codes of conduct. Many zone enterprises are not part of a multinational group which can assist them to make the transition to working smarter and could benefit from policy advice and capacity building provided by an employers organization, industry association or government agency. In the Philippines for example, human resource managers in the semiconductor industry have formed their own association. In addition, the Philippine Association of Labour-Management Councils promotes best-practice systems of consultation and negotiation and the Department of Labour and Employment is active in capacity building.
Codes of conduct are proliferating rapidly and there are real problems of inconsistency, vagueness and monitoring involved, but a number of key companies such as Reebok and Levis are insisting that their contractors sign their code of conduct and in this way instilling new approaches to the labour-management relationship in enterprises which otherwise may not have adopted a different way of working.
Trade unions face the hardest task in developing appropriate responses to globalization in EPZs. Many zones effectively restrict the access or activities of trade unions and in some countries the unions are not in a position to tackle the huge challenge of organizing zone workers. Unions in developing countries also lack information and education about the phenomenon of globalization and the new forms of work organization that it promotes. One approach has been to provide organizational support and training to workers in the community through advice centres. Participatory research into zones conducted by zone workers themselves has also served as an excellent educational tool.
NGOs play an important role in providing support to zone workers. There are ground-breaking cases of zone administrations and enterprises inviting NGOs in to provide services such as child care and life skills training to zone workers inside the zone. Women's groups in particular have rallied to help female zone workers cope with the problems they face at work and at home. This is a particularly important form of organization because the majority of zone workers are women and the problems that zone workers face impact more severely on women than on men.
6. Conclusions
- EPZs are right at the cutting edge of globalization and this gives them a dynamic of constant change
- the emphasis of speed, cost and quality in global competition obliges enterprises to look for constant improvement and this obliges them to work smarter
- human resource management (HRM) techniques are being adopted by a wider range of enterprises and are being spread through joint-ventures, alliances, sub-contracting and codes of conduct
- trade unions face a difficult task of gaining access to zones and organizing in an environment increasingly dominated by HRM
- there is a major need for policy advice and capacity building by government agencies, organizations of employers' and workers', and international organizations like the ILO.
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