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Enforcing higher labor standards within developing country value chains: Consequences for MNEs and informal actors in a dual economy

Rajneesh Narula ()

Journal of International Business Studies, 2019, vol. 50, issue 9, No 9, 1622-1635

Abstract: Abstract The 2013 collapse of the Rana Plaza building in Dhaka, Bangladesh, led external stakeholders to insist on higher labor standards in apparel global value chains (GVCs). Stakeholders now expect MNEs to take ‘full-chain’ responsibility. However, the increased monitoring and enforcement costs of a large network of suppliers have been non-trivial. MNEs instead implement a ‘cascading compliance’ approach, coupled with a partial re-internalization. Elevated costs are further exacerbated in developing countries where the informal and formal sectors are linked, and cost competitiveness greatly depends on this duality. Monitoring actors in the informal sector is difficult, and few informal actors can achieve compliance. GVCs have therefore reduced informal sector engagement by excluding non-compliant actors and investing in greater automation. By seeking to strictly enforce compliance, MNEs are attenuating some of the positive effects of MNE investment, particularly the prospects for employment creation (especially among women), and enterprise growth in the informal sector. I discuss how these observations might inform other cross-disciplinary work in development, ethics, and sociology. Finally, I note implications for IB theory from the disparities between the ownership, control, and responsibility boundaries of the firm.

Keywords: economic development in emerging markets; value chain; transaction cost theory; internalization theory; MNEs and economic development (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1057/s41267-019-00265-1

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