Monthly review | Outsourcing Costs in an Indonesian Case Study (“Value Chains” Reviewed by the Global Labor Journal)


On July 8, 2021, a fire at a factory owned by one of Bangladesh’s largest packaged food exporters, Hashem Foods Ltd., in Rupgunj, an industrial town fifteen miles east of Dhaka, the capital of Bangladesh , killed more than fifty workers. While most of the workers were charred to death, some died jumping from the burning seven-story building. The only exit door to the factory had been padlocked, preventing workers from escaping the deadly hell. The factory produced packaged drinks and snacks for export and stocked plastic packaging materials and chemicals on its premises. The horrific incident also revealed that the factory employed very young children who were killed in the blaze.

The regularity with which such horrific incidents occur in Bangladesh and other countries of the South makes it no exception; miserable workers in these countries are almost expected to die like this, if not by fire, then by gas leaks, building collapse or ill health. Beyond watching the images splashed for a day or two by the media (if it is an incident important enough to be reported), people have become oblivious to these devastating events, even in countries where these incidents happen. The blame is often placed on the workers themselves for their negligence, or on greedy factory owners or corrupt officials. While the immediate reasons in most of these cases are unsafe working conditions, poor building safety, reduced costs, lax regulatory enforcement, etc., what is often overlooked or ignored are the historical reasons. and deeper structural issues for which these incidents occur so regularly. in such places.

In his book Value chains: the new economic imperialism, Intan Suwandi addresses these structural issues through the study of Global Commodity Chains (GCC). Suwandi uses the concept of capitalist imperialism – “an inegalitarian and hierarchical world economy system” which is led and controlled by giant oligopolies (corporations) and a few global northern states (the “imperial core”) to explain how the self – saying modern production processes continue to usurp the wealth created in the countries of the South through the exploitation of labor and the control of finance and technology. It draws on the work of the Marxist political economist John Smith on the understanding of modern imperialism; he explains the concept of ‘value capture’ – a key mechanism by which the surplus value generated in production (which takes place mainly in southern countries due to low unit labor costs) is’ captured ”by the Global North via oligopolistic multinational corporations with asymmetric power relations. By putting forward the framework of imperialism to analyze the modalities of the GCC, Suwandi challenges the more dominant theorization of the GCC which maintains that due to its structural and organizational complexity increasingly prevalent across the world, the power does not remain entirely concentrated at the top in the CCGs. , but is more dispersed, and that the strings are, to a large extent, non-hierarchical. This in turn, as some have argued, has created opportunities for less powerful firms in southern countries to ‘modernize’, leading to economic growth in less developed countries where production takes place.

Suwandi challenges and demystifies this analysis both theoretically and empirically by examining specific case studies from Indonesia. As other critical GCC researchers have shown, far from a decentralized power structure, leading companies (mainly multinational companies based in northern countries) maintain inter-company governance structures through headquarters. centralized financial institutions and retain monopolies on information technologies, markets and the appropriation of the majority of the added value. The two case studies in the book illustrate this argument by showing that, thanks to arm’s length contracts, the lead firms can still control a large part of the nodes of the chains, either directly through their subsidiaries located in the same countries as the suppliers, or through various bureaucratic mechanisms. process and production process such as “flexible production”. They also seek to externalize financial costs by transferring risky responsibilities to suppliers, including waste management or dealing with market fluctuations.

The two case studies used by Suwandi do not represent the stereotypical labor-intensive factories of the Global South, as described in the opening example of Bangladesh, but are seen more as “oriented towards” categories. high tech ”and“ capital intensive ”. This then shows the different ways in which the countries of the South are integrated into the GCC. Both companies manufacture plastic packaging materials for companies that produce shampoo, cigarettes, food products, etc. the other prints the film tailor-made for specific clients. A portion (30 percent) of the packaging material was exported directly to large multinational companies based in the United States, Western Europe and Japan; the remainder was supplied to subsidiaries of multinational companies (MNCs) based in Indonesia as well as to large Indonesian conglomerates. The final products wrapped in this printed plastic film are sold by the subsidiaries of multinational retailers in the domestic market and are also exported. Suwandi notes that even when products were sold domestically by subsidiaries, due to their trade agreements with multinationals, “these companies are still subject to the same processes that characterize systemic rationalization and flexible production. These are third party subcontractors who supply multinationals, while they also have their own suppliers…. In this sense, they play the role of dependent companies within the work-value chain ”(p. 101). In terms of work organization, although these companies were not considered to be labor intensive, Suwandi notes concentrations of workers in specific segments of the production process, especially in the finishing areas. and bag making. In addition, where work was automated, workers were stationed to visually inspect products.

Suwandi’s study of the two national companies shows how national companies fit into production chains in a non-linear fashion, mainly through arm’s length contractual practices in which subsidiaries of multinationals subcontract production. of their packaging materials to third party suppliers. She argues that these national firms “serve the role of dependent firms in labor value chains, driven by the pursuit of low unit labor costs by capital from the global North seeking to capture the value of labor. global South, which materializes in the price of commodities. consumed domestically or in Indonesia ”(p. 147). Interviews with multinational executives reveal a control over the technological knowledge of flexible packaging by the companies and not by the national companies manufacturing and supplying the products.

A key finding of the case studies is “cost outsourcing” by foreign companies where the entire burden of market risk, flexibility and wasted material is borne by domestic companies. They do not have much control over finances or production technology, and more often than not the risks they face in staying in the company are passed on to workers through reorganization of work to reduce costs. costs – essentially the only space where local businesses can and manipulate the production process is through the control of the work process.

Using the detailed case studies, Suwandi refutes the claim that modern management has led to the elimination of alienation from work or to the “humanization of work”; instead, she maintains that the Taylorist organization of work still persists. This can happen, as the author notes, due to the existence of unequal capital-labor relations in which firms in the global North find multiple ways to exploit workers in the South by controlling dependent firms. where workers are employed, often without direct participation or visible connections.

Value chains thoroughly and powerfully criticizes modern forms of capitalism by bringing to the table the indispensable analytical lens of imperialism to show the continuities of inequality, an unequal world economic system and the domination of powerful societies and nations over other regions, places, economies, labor and resources.

See the original review on Global Labor Journal

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