MULTINATIONAL SUBCONTRACTING In the Caribbean Basin

September 25, 2007

L'Eggs, Florsheim, Le Sportsac and
Maidenform-all familiar brand names
which stream into the U.S. market from
production spots on the global assem-
bly line. Most Caribbean women em-
ployed in manufacturing these and other
items are part of a recent global trend:
international subcontracting.
Under this strategy, manufacturers
based in developed countries subcon-
tract the most labor-intensive stages of
production, for example sewing or as-
sembly, to the Third World nations
where labor is cheap. Once assembled,
the multinational re-imports the goods--
under generous tariff exemptions-to
the developed country instead of selling
them on the local market. The sub-
contractor may be the multinational's
own subsidiary, as in the case with
nearly all operations which employ
women assembling electronics for for-
eign companies in free trade zones. Or
the subcontractor may be an indepen-
dent firm or an agent who further sub-
contracts the assembly work to women
who work in their own homes.
While global recession has markedly
slowed trade and investments world-
wide since 1979, international subcon-
tracting has boomed. As a result, Car-
ibbean nations now supply the United
States with 20% of its playsuits*, 23%
of its hosiery, 15% of its dresses, 19%
of its cotton nightwear and a host of
other assembled products.
This rapid growth of subcontracting
appears to signal a significant shift in
the methods used by multinationals
penetrating the Caribbean basin. Tradi-
tionally, U.S. corporations' main in-
volvement in developing countries has
*Playsuits include such garments as beach tops, halters and short jump suits.
John Cavanagh, a fellow at the Insti-
tute for Policy Studies, and Joy Hackel,
a staffperson of Policy Alternatives in
the Caribbean and Central America
(PACCA), work on IPS' project on
transnational corporations.
been through direct investment-either
fully owned subsidiaries or joint ven-
tures. U.S. investment in the develop-
ing world has now surpassed $50 billion.
Since the most recent global eco-
nomic downturn in 1980, however,
banks cut back the volume of new
loans, and new flows of U.S. direct
investment to developing countries de-
clined. After years of steady growth,
new investment did not even hit the $6
billion mark in either 1981 or 1982. In
contrast, subcontracted imports to the
United States from the developing
world exceeded $7 billion in both
years. Over the four-year span from
1979 to 1982, subcontracted imports
rose steadily from 21% of manufac-
tured imports from developing coun-
tries to 26%. In all 10 of the leading
subcontracting countries in the Carib-
bean and Central America-except
Honduras-the value of subcontracted
exports to the United States exceeded
.new U.S. investment in 1981.
IMF and Bank Encouragement
The shift toward subcontracting in
This Business Week ad reflects Barbados' campaign to attract foreign investment.
BARBADOS
1984
April 16, 1984
MAY/JUNE 1984
the Caribbean basin, as in Southeast
Asia, has been encouraged by the
World Bank and International Mone-
tary Fund, which have emphasized
assembly-type, light manufactured ex-
ports as the centerpiece of development.
Since the late 1970s, bank and fund
advice and loan conditions have stimu-
lated government incentives favorable
to multinational subcontracting in these
countries. While debates rage over the
pros and cons of such development
schemes, one figure stands out: for the
two major subcontracting industries-
semiconductors (the essential compo-
nent in the electronics industry) and
apparel-less than two-fifths of the
value of the final imports to the United
States are added in the developing
countries. (Theoretically, this value
should accrue to the country, but even
this fraction is overstated, since some
of it represents profits and other returns
to multinational subsidiaries, which
will be wholly or partially expatriated
from the developing country.)
Since most subcontracting arrange-
ments involve no capital investment by
multinationals, it is easy for a multina-
tional to break a contract in the face of
political upheaval and establish a simi-
lar one in another country. In addition,
the multinational can avoid the risk that
its investment will be nationalized on
unfavorable terms.
Likewise, in the uncertain atmosphere
11of the currenteconomic crisis, multina-
tionals can more easily slash produc-
tion orders without idling their own
industrial capacity. Finally, since the
multinational is often the sole buyer
from the subcontractor, it is able to
dictate price and conditions in the con-
tract from a position of monopoly
power.
If the subcontractor is in a subordi-
nate position to the multinational, the
worker is even lower on the spectrum
of power. With the exception of the
automobile industry, subcontracted la-
bor falls on the shoulders of the female
workforce, particularly in semiconduc-
tors, consumer electronics and apparel.
Poor Health and Safety Records
In the continuing controversy over
the advantages and disadvantages of
multinational investment, most concede
the often dangerous health and safety
A cruise passenger arrives in Haiti, 1983. Jvtte Rodaaard
standards in multinational factories.
The saire could be said of subcontract-
ing to multinational subsidiaries, which
is usually the case with semiconductors
and often with autos.
The story grows much worse, how-
ever, when subcontractors are domes-
tic firms, or simply home workshops.
Locally owned firms are typically in a
far more precarious financial situation
than multinational subsidiaries, which
have the best access to capital markets
through ties with the multinational
banking network. Hence, whereas the
quoted wage rates offered by multina-
tional subsidiaries are usually not much
more than those offered by domestic
firms, the latter often have a far worse
record in paying wages on a regular
basis. And, while multinational sub-
sidiaries often use dangerous industri-
al chemicals and eye-damaging micro-
scopes under which electrical compo- nents are joined, workers in domestic
firms often face the dangers of old, poorly maintained machinery.
Conditions deteriorate further when
work is subcontracted to the home, as
is often the case with apparel. Here,
women work in isolation, receiving
even lower wages, no social welfare
benefits and--since they usually work
on a piece rate basis-are totally at the
whim of the multinational supplier. In
turn, the multinational reduces the
overhead and minimizes the chance of
labor unrest.
Industrious, Dependable People
After Mexico, with its over 600 ma-
quila factories on the U.S. border,
Haiti has attracted the most subcon-
tracting business in the region. Accord-
ing to Capital Consult, a Haitian re-
search firm, some 154 corporations
have subcontracting arrangements in
Haiti, 42% of them foreign owned. It is
not coincidental that the Caribbean's
largest subcontractor is also the poorest
country in the Western Hemisphere.
Haiti's shockingly low per capita an-
nual income of $280 per year reflects
the level of "development" at which
subcontracting flourishes. Unlike more
capital-intensive forms of industry, most subcontracting requires little in-
frastructure, capital outlay or transfer
of technology.
Haiti offers, according to its invest-
Best Assembly Plant Operation
In the Caribbean: Haiti
"That's right-Haiti. We're not talking about a steel mill or chemical plants-but if
you have in mind a light assembly or pro- cessing operation, you'd do well to take a look at Haiti.
Scores of American companies are right now making excellent profits from Haiti's
minimal labor costs, among the world's
lowest; so are taxes. And you'll get along fine with the government of Pres. Jean-
Claude Duvalier-if you've made a deal with Jean-Claude Duvalier. Sure it's a dic-
tatorship, but in a sense it always has been.
Though not as stable as many of the coun- tries in the Caribbean, the fact that you can
recoup your initial investment in a short
period of time and the profit potential is
great enough that one does not have to look for long term stability. Haiti has one of the world's lowest stan-
dards of living. The country seems eternally
beset by bad luck-hurricanes, drought and
political violence. But all that has had very little adverse effect on the scores of Ameri-
can firms with light manufacturing opera- tions in and around Port-au-Prince. They continue to make huge profits turning out such items as clothing, jewelry, most of the
world's baseballs, even electronic products.
Most of them recoup their initial invest-
ment the first year-which is why they can afford the corporate risk of investing in this
troubled land. As for personal risk, it's much less than on the island of Manhattan.
No American businessman has ever been
killed or kidnapped."
Caribbean Dateline, December 1983.
12 REPORT ON THE AMERICAS
ment brochures, "An industrious peo-
ple, dependable, friendly and eager to
respond to productive challenges,"
and "A tradition of respect for private
property and foreign ownership."
Within the seriously depressed Hai-
tian economy, subcontracting has been
brought to center stage and, in the past
decade, has been the economy's fastest
growing sector. The total value of as-
sembly industry exports skyrocketed
from $2.3 million in 1967 to $86 mil-
lion in 1976; by 1981 this category of
exports to the United States alone ex-
ceeded $171 million. Presently, 90% of all manufactures produced in Haiti
for U.S. markets are made under a
subcontracting arrangement.
Clearly, the rise of subcontracting has not diversified Haitian exports. As
of 1976, three products together made
up over 80% of the total value of sub-
contracted exports: apparel and acces-
12 REPORT ON THE AMERICASsories (39%), toys and sporting goods
(29%), and electrical and electronic
equipment (13%). Over 3 million bras
for U.S. customers are assembled an-
nually by Haitian and Dominican wo-
men who can't afford to buy even one.
Since 1960, the Haitian government
has actively wooed subcontracting by
enacting a series of decrees which pro-
vide lucrative incentives to foreign
firms. Inside a 25-hectare* "industrial
zone" in the capital city of Port-au-
Prince, companies producing targeted
products are exempt from income tax
for eight years and pay the total tax
only after the 14th year of production.
Among the array of privileges: foreign
patent and licence fees are not appli-
cable for 10 years. Production inputs,
70% of which originate in the United
States, are imported duty-free.
Dictatorship Best for Haitians
Haitian Manufacturers Association
officials also frequent trade fairs and
conferences in Florida and elsewhere
with the explicit message that Haiti can
make subcontracting highly profitable
for U.S. firms. At recent conferences
in Florida, the association's president,
Andre Arpaid, has also played on fears
about new Haitian refugees by arguing
that subcontracting will create island
jobs and "stop Haitians from invading
Florida."
Haitian subcontractors offer other
allurements. General Assembly (owned
by one of Haiti's wealthiest families)
pays all overhead, supervision, social
security and training costs for the as-
sembly work of several U.S. corpora-
tions. Perhaps Haiti's most enticing
incentive to subcontracting firms is the
lowest industrial wage scale in the
Caribbean-a minimum wage of $2.64
to $3.12 per day. The 154 subcontract-
ing firms operating in Haiti employ
80% of the nation's workforce at these
subsistence wages, while attaining pro-
ductivity levels of 75-80% of U.S.
levels.
Stanley Urban, president of the Hai-
tian-American Chamber of Commerce
and Industry, summarized the attrac-
tion in 1982. "There's more democ-
racy for business in Haiti than for busi-
ness in the United States," he told the
Multinational Monitor. "A dictatorship
*1 hectare = 2.4 acres.
is the best form of government for these
people. There are six million illiterates
on that island. Think what the Russkies
could do there."
Data Processing by Satellite
In the short and medium term, all
forms of subcontracting are likely to
grow. The technological possibilities
of banks and corporations transporting
segments of office work-a bastion of
female labor-to the Caribbean for re-
turn via satellite open up vast and
ominous new horizons for corporate
deployment of subcontracting in a vari-
ety of service sectors.
Certain English-speaking Caribbean
governments have already begun to of-
fer incentives for such international of-
fice work subcontracting. At the fore-
front is Barbados, an island where by
the late 1970s, 59 of 170 industrial
enterprises were involved in interna-
tional subcontracting. In the new office
work "factories," local workers receive
information via satellite at the Barbados
plant, type it into a computer and then
transmit it back to the United States. In
one operation orchestrated by Satellite
Data Corporation of New York, Barba-
dians are paid $1.50 per hour for work
that earns their U.S. counterparts $4 to
$12.
Passage of the Caribbean Basin Eco-
nomic Recovery Act of 1983, guaran-
teeing duty-free access to the U.S.
market and a host of new incentives for
multinationals, assures that Caribbean
subcontracting will continue to grow.
Familiarly known as the CBI, the act
begins its 12-year existence during
months of intense congressional debate
over renewal of the Generalized Sys-
tem of Preferences (GSP), the U.S.
trade legislation which already guar-
antees duty-free entry of many devel-
oping country products into U.S. mar-
kets.
Corporate fears that the GSP might
expire without renewal in January 1985
has sent a flurry of trade representa-
tives and corporate officials to Carib-
bean sites from Hong Kong, South
Korea and Taiwan as well as from the
United States. "I foresee tens of thou-
sands of new jobs in the region over the
next five years," claimed Frederic
Brooks, chairman of MacGregor Sport-
ing Goods, which is expanding opera-
tions on the island by shifting produc-
tion involving several hundred jobs
from Taiwan to Haiti. Singularly lack-
ing in government and corporate pro-
nouncements about the Caribbean is
any coherent notion of how the corpo-
rate involvement will enhance genuine
development schemes based on the
needs of the majority.

Tags: multinationals, subcontracting, Caribbean, IMF


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