January 28, 2015

Since the industrial revolution, when the economy changed dramatically, companies have been in a frenetic search for the lowest price possible – the lowest price for raw materials, for research and for labor. Competitive pricing has made and buried companies and states. But nowadays all seems to move even more quickly than before – production plants seem to change countries at an astounding rate, leaving behind perplexed workers, while trying to find new poverty stricken people to exploit. And although it might seem like a never-ending game, unwinnable for the poor, what the manufacturers forget is that people are not machines, they communicate, they have hopes, dreams and visions for a better future.

The price of cheap labor has been paid many times before and history is to repeat itself, if companies are not willing to learn from the past mistakes. Henry Ford was among the first to understand that cheap labor is a bad financial habit for a company and a soul crushing experience for the workers doomed to endure it. Experiencing a massive turnover of the workforce, turnover that resulted in the loss of profits and in bad quality products, Henry Ford started to treat people as the soul of his business, creating unheard of working conditions, paying an astonishing wage for the time and saluting experience and qualification. In doing so, he transformed Ford Motor Company into a market leader, bringing in profits and creating an image of quality and trust for the famous Model T.

But the story of market success and good practices from Ford Motor seems to have been forgotten even by Ford. Nowadays we have experienced a migration of the production plants wherever the cheap labor took them. But putting the production into the hands of poorly paid and badly treated workers from Asia comes with its risks.

Although people love to have jobs and are glad that a new company chose their region, they will never develop dedication and loyalty to the company, because they know the company does not care about them. The company cares only about profits, and if profits shrink, they will find another cheap labor destination to place the production. So between the company and the workers there will almost never be the form of bound that takes companies to a next level or that helps them survive a rough patch. And at first, the lack of mutual respect and social bond might seem irrelevant to the business aspect of the production, but it might affect the sole structure of a business model. A classic example of affected reputation after moving production to Asia is the Burberry Case – after a history of luxury goods production in Great Britain, Burberry decided to move production to Asia in order to cut the production costs – but the company’s business model was based on using the scarcity factor in order to create demand and to keep a high pricing level. After moving to Asia, they have been especially affected by a great afflux of counterfeit goods. Both the scarcity and quality factors – the base of their business model – have been unprecedentedly affected.

Also, when companies unmercifully exploit people, the workers have no guilt when sabotaging production through strikes and walk-outs. Workers have nothing to lose and everything to gain by stopping production or even leaving, after qualifications and years of experience, in order to work for the competition. A memorable moment of strike for a repeated offender of humane working conditions happened before the launch of iPhone5 – workers were being pressured to put in supplementary hours, under increasing quality control, in order to produce a higher quota of phones to satisfy the preorders and sales expectancies for the new Apple phone – but due to prolonged harsh working conditions and prior situations when they had to work far more than the 60 hour working week, workers were not going to support the company and meet the new production quota. A riot involving 2.000 people took place, stopping the production line and delaying the accessibility to the newly launched product.

Another problematic point is facing a turnover that kills productivity, speed and quality, transforming a product from a competitive market leader, into an item to be avoided. Even the raving fans of Apple and Harley-Davidson, faced with a questionable quality product, stopped buying the brand that used to brighten their days.

But returning to the eternal search for the cheapest labor, companies are faced with even more investment risks – a higher rhythm of change in the labor market, the cost of corruption and the unexpected cultural differences.

In the near past, when a new factory was being built, a company would expect that the price of labor would not change for at least a decade – making the investment in the new plant and specialization of the workers produce a handsome profit. What the companies didn’t take into account was the new era of communication and freedom. Communication has become cheap, accessible and easy, transforming local information about job opportunities into international job opening announcements. Transportation has also become a more common commodity. So people don’t feel tied to a specific workplace or to a specific geographical area. This aspect transformed crowded, cheap labor areas, which used to be the ideal place to move production to, into a moving target that gets harder and harder to hit.

A generally hidden cost of the cheap labor is the corruption that usually comes with territory. Poverty ridden areas have always been more prone to having corrupt leaders that condition the existence and evolution of a specific company. So although it is hard to admit and difficult to prove, companies that want the benefit from small production costs need to face or entertain the local corruption.

Another unpredictable risk is the consumers’ reaction to a product with a shady brand history. People like buying brands that seem like family. Brands that they have known for a long time and that they know they can trust. But trusting a brand that has no local history, which seems to have no certain origin due to frequent movement of production, might prove difficult. Consumers like to identify with the brand, to be able to talk about it and share its story – but creating a brand fidelity relationship might prove difficult when there seems to be no certain brand to stick to.

Also an unpredictable risk might prove to be the breach of the consumers’ moral standards. Consumers do not like to feel like they exploit child labor, cause cheap labor and use the impoverished in order to enjoy a product. A part of enjoying the product is knowing that its production caused no harm – no harm to nature, to animals and to fellow humans. Knowing that the product has been made with care and love by people who are fairly treated makes a product even more desirable.

As an innocent consumer, let’s imagine for a moment that you discovered the perfect product for yourself – an amazing phone or a line of clothing that brings you joy. Using the chosen one of all products brings you pride and happiness; you even advertise your choice to friends and family, convincing them to buy the product you love. But then one day you find out that due to harsh working conditions in the plants that make your product, people are getting sick with cancer. Because of the long working weeks, people die from heart failure, and the low wages that can’t support the workers and their families lead people to suicide. Would you still be able to joyfully use it? Would you still recommend it to friends and family? Would you, as a consumer, want to be associated with all that harm and support it with your money?

In conclusion, although the case for cheap labor has been proven times and times again to be a losing fight, there will always be companies that will try to bent the rules and find that ideal poverty stricken spot to exploit. Although Henry Ford showed how to obtain good quality and high profits by paying fair wages, there will always be leaders that think the only way to profit is by exploiting the work force. But as communication and freedom of movement become more accessible commodities, people begin to find new ways to fight for the ideal of fair payment for their work. Also, another step in the right direction has been taken by consumers through consumer responsibility. If before this consumer awakening the laws of supply and demand ruled the market, nowadays consumers understand that their money can support the companies that act in conformity with healthy moral values. People know that they will never truly enjoy a product that demands sacrificed lives as a prime component.


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