Race To Bottom Effect Assignment

Race To Bottom Effect
Race To Bottom Effect

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Race To Bottom Effect


Race to bottom phrase describes how the governments in many different places are deregulating most of the business environments across the globe. They are also imposing high taxes to their benefit where they can retain economic activity in their jurisdictions to their benefit while the business men are highly impacted in a negative manner. Race to bottom is a phenomenon that is bound to increase in the presence of increased competition between geographical areas taking place either in the trade and production sector accordingly.

Most of the workers are now exploited in developing countries due to the race to bottom effect and most of the multinational corporations that benefit countries in operation a lot from such workers (Aneel Karnani, 2010). Workers are less paid and on the other side the multinational companies are getting high finances in return for the service they get in exchange of the cheap labour. This research will focus on how globalization has created a “race to the bottom effect” that enables multinational corporations to exploit workers in the developing countries and profit from low labour costs.

Corporate Social Responsibility (CSR) emphasizes the aspect of companies to behaving ethically and stops exploiting their workers to their benefit; since it is an act that is not human. Practical perspective is provided to many of the organization in the developing countries to guarantee good and ethical dealing of stakeholders for their wealth security. It is a CSR responsibility to ensure that all ethical actions are well adhererd to the latter for the sake of helping their workers and their environment.

Ethical behaviour is well advoatced for smooth running of the organisation performance and increased performance. Any organization that works to ensure that corporate rules are well followed will emerge to be successful and stop exploiting its workers and start listening to their views accordingly. In the past, it was difficult to differentiate between the working and operation of the CSR with the individuals working in the organization.

Globalization effect has brought a lot of effects, including the race to the bottom effect that makes some people gain while the rest are suffering due to the rules in operations that do not yield to their needs (Beddewela & Herzig, 2013). There are many gaps that have been created and they are bringing negative impacts to most of the operations of multinational corporations.

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Globalization of the economy

The race to bottom effect experienced in most developing economies lead to an increased interconnection of people, different cultures and increased economies which benefits only a few, but the rest is humiliated (Blowfield, 2013). Economies will tend to rise at the expense of the few who are benefiting, and the rest are suffering from then increased exploitation cases taking place. It is prudent to say that globalization has stimulated growth through the multinational corporations that are investing highly in developing countries.

The investments of foreign investors in developing countries have led to stimulation of the growth in such countries where workers are working hard on such premises to make end meet. The investors are taking advantage of the high number of unemployment citizens whom they can easily exploit and make use of their knowledge at a very cheap cost. They employ them in the corporations in the developing countries and pay them very less amount of money that cannot cater for their needs. It is due to this reason that most of the multinationals corporations like investing in developing countries for the sake of exploiting poor citizens who have no say.

Company drivers for CSR

Under such circumstances, the CSR becomes more useful in making sure that ethical behaviour is followed to the latter to stop the high exploitation by multinational corporations (Blowfield & Murray, 2011). Regulations of the multinational corporations must not be a difficult duty for the governments because; they are out to save their citizens who voted for them to be in political positions. It is the responsibility of the government to ensure that CSR rules are followed to the latter by different multinational corporations to stop the high exploitation that is taking place.

The societal pressure from the humiliated citizens makes most of the multinational corporations to adopt the use of CSR for the sake of saving most of the humiliated lives within the society. Use of CSR ensures that all the stakeholders’ needs are well met, and their needs followed because; their presence means a lot in the organization (C-Pedersen, 2015). Embracing the right CSR rules is an ethical act that will help to reduce the exploitation of employes in the organisation.  

The corporate social, responsibility requires the businesses to assume their major duties and role that ensures that the world is better than yesterday. The CSR activists demand that the corporations adopt labour, environmental policies, and human rights issues that impact the society positively. Globalization poses a lot of opportunities and challenges for the developing countries and this is the reason as to why most of activities have to be scrutinised. The majority of the businesses have responded to the matter by putting more emphasis on the issue of the corporate accountability and corporate responsibility.

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Organizations responsibilities

Organizations have the Philanthropic responsibilities of ensuring that their workers act as good corporate citizens and that they have behavior that will pay off. Well behaved workers will ensure that they perform their duties as expected and bring the best to the corporation by attaining the set goal. The company is delegated with the duty of ethical responsibilities where it has to do what is expected of it at the right time to attain the desired outcome (Carroll, 1991). Workers who are well treated under a good CSR will tend to perform as required while they who are not given the best will not do their job as required.

Use of CSR help workers feel appreciated and part of the organization, which they are offering service for (Crane, Matten & Spence, 2014). Employing the use of ethical responsibilities ensures that a company does what is right and fair and in such a case, it does not mistreat it workers no matter what. It values its workers welfare and rewards them to motivate them to keep offering their services and doing their best for the sake of improved performance in the firm. Following of legal responsibly is the duty of all multinational corporations to avoid exploiting workers in the environment in which they are situated.  

Embracing legal responsibility means that the multinational corporations adhere to all that is required by the law to undertake its company operations in the country. Following the rules that are set in the law, the multiple corporations will be able to know what is right and wrong; hence, follow what is right to make their working smooth. However, some corporations evade the paying of taxes which is the unlawful act and once they are found guilty in courts, they lose a lot of money paying for their uncouth behaviours.

Adhering to the rules set in operation for the foreign organization a lot of problems are avoided, and it means that the company is bound to humiliate and exploit workers. The multinational corporations are associated with the economic responsibilities where they have to work hard and make sure that they make profits for the benefit of its workers and the government as well. Making of high profits by the corporations means that they will have enough money to pay taxes and pay its workers well under reputable CSR rules. A high profitable corporation will pay high taxes and benefit the government, which will use the money to run its activities and create more jobs for its citizens.           

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Code of conduct

CSR has to be well maintained in a supply chain to make sure that the organization adheres to all the required rules of operations and that it cannot exploit workers to its benefit. When CSR is well used in a supply chain, it will mean that fair trade will be transacted, and cases of oppression will be minimal. To ensure that CSR is managed in the supply chain, it is prudent to realize that all the CSR strategies are well aligned with the actual purchasing practice.  

A supply chain will be deemed important if it creates value and clarifies all the objectives of obtaining the right steps of development to the organization’s benefit. A good supply chain should ensure that understanding as well as ability is well developed in any multinational corporations for the sake of continuity and better performance of the company. Workers who are better treated will contribute to giving all their efforts for the company success. It is therefore very prudent to reward workers with good pay to retain best brains that will keep the corporation standing for a longer period (Filatotchev & Dotsenko, 2015).

Implementation of the required code in the organization helps to ensure that the multinational corporations do not exploit workers. In some instances, workers tend to be treated badly by the multinationals corporations, which do not yield to right codes of ethics. Supply chain management should ensure that they get feedback of how working is taking place and what ought to be rectified with an immediate effect. Feedback shows that the worker is given a chance to air their views and give a recommendation on what should be done better. Improving working conditions imply that the multi-corporations are concerned with their workers’ welfare.

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Effects of CSR in the supply chain

There are various factors affecting CSR in the supply chain like the goals and values of the multinational corporations which have been set aside to be attained. However, the only problem that might arise in such a case is the incompatible goals that might interfere with the handling of different activities (Crane, Matten, & Spencer, 2014). When goals are conflicting, operations in the organization might be difficult to handle, and performance will be affected negatively.

The importance and complexity of CSR might be a big problem in the operations of the supply chain by the multinational corporations; since, compatibility will tend to be a bother. There is a need to ensure that there is a balance of power that will guarantee knowledge sharing and good management of the workers and organization operations. Workers ought not to be exploited under power balance, but should be given their rights accordingly because; resources are now available to better their working conditions and increased pay.

Multinational Corporations

The multinational corporations are popular as the big business, and they are a very powerful economic power. The world globalization enhances the integration between the MNCs and the developing countries where the capitalist process and major labour division occur due to the high level of competition to increase economies of scale. At present, the MNCs access cheaper labour by exploiting the low-income earners (Garavan & McGuire, 2010). The industries that need low-skilled labour outsource labourer from the developing countries.

The process involves MNC and the SMEs where the MNCs outsource labour from the small and medium enterprises with whom they can easily exploit. With the global revolution in business, the capitalist firms have changed the pattern of operations in order compete competitively. The MNCs have strengthened their power by opting to do mergers and acquisition, which are better ways of dealing with the race to bottom effect.

The MNCs manipulates the supply chain to ensure that efficiency, productivity, performance, and reliability. The supply chain involves high labour requirements in the production process, and the high, labour are located in the developing countries (Gond, Kang & Moon, 2011. Some of the employers in specific industries come across important incentives to infringe labour standards laws. Lack of enough regulations on the labour standards in the developed and developing nations create opportunities that are favourable to the MNCs.

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The big businesses have the ability to improve the labour standards and adhere to the set labour regulations. The political conflicts between the developed and developing countries create an obstacle to the achievement of the effective labour standards governing both nations. The market liberations offer both opportunities and challenges to the developed and developing nations.

During the WTO Ministerial Conference of 1996, the European and US Commissions maintained the labour standards implementation in the human rights centre, but the labour rights and minimum wage missed from the agendas (Goranova & Ryan, 2014). The Asian nations were not comfortable with the whole decision and they resisted any trade links with them since the standards could end up as non-tariff barriers.

The ILO is in charge of overseeing the labour standards the entire world and it is one of the UN organizations. The body is important since it makes resolutions and passes them urging the nations to honour their duties to realize the ILO Fundamental Rights and Principles. The declaration in the ILO involves four major labour rights that involve the abolition of child labour, banned forced labour, the right to collective bargaining and freedom of association and the abolition of discrimination in employment. The labour practices involve realization of the standards, living wages and minimum wages, the occupational safety, and health, and limit the working hours (Karnani, 2009).

MNCs and Developing Countries

            The majority of the developing countries do not have laws to look after the set labour rights and at some level the infrastructural and institutional limitations pose challenges in the implementation process. Due to limitations in the implementation process, the labour performance affects the set core standards. The consumer goods industries are labour intensive despite the technological advancement in the developing nations (Lam and Khare, 2010).

The developing countries and the MNCs get controls from the political and economic relationships. Some of the countries can effectively provide good environments to the Foreign Direct Investments for the MNCs. The standard labor effects differ from one developing country to the other.

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            The developing countries are attraction to the MNCs; since, the majority of the developing countries has unskilled and low skilled labour who are exploited at all cost by foreign investors. The global competition in the countries with abundant labour like Indonesia modifies the state of features endowments since the production increases and the wages go down.

The goal of the majority of the MNCs is to increase profits and market shares and gain competitiveness (Mamic, 2005). The majority of the developing countries is attractive to the MNCs since they encourage the bargaining power of wages due to the inelasticity of labour supply. The wages decrease in the developing countries that are experiencing trade liberation like the Mexico occurrence with North American Free Trade Agreement.

            The presence of cheap labour is a key factor in the growth of the low-skilled businesses. Currently, the majority of the brand shoes and garment are in the developed countries while they carry out production in developing countries. The labour costs are very little of the retail price of the finished goods that sells at high prices 9Porter & Kramer, 2006). The majority of the MNCs motive is to take advantage of the up-and-coming economies in the developing nations.

Moreover, the MNCs aim at expanding their market shares and remain competitive globally. To fulfil the requirement of increased profit production costs need to be minimal. The ever changes in consumer demand need low-cost investment due to the high likelihood of low pricing. To achieve this MNCs prefer to low labour cost through by paying less to the unskilled labourers.

            The internal political and economic factors in the developing economies influence wages. Globalization causes integration in the global labour supply chain that raises competition in the export firms that are labour intensive (Prahalad and Hammond, 2002). This overall practice affects and challenges the labour performance in the developing countries. The regional trade unions in the developing countries vary from one region to the other.

The China and India trade unions differ from the African trade unions like that of the Congress of South African Trade Unions. The Trade Unions cannot bring a strong solution to the issue of low wages in the developing countries. The MNCs will always defend their supply chain and fail to address the issue of low wages (Spence & Bourlakis, 2009).

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Shareholders and Investors

            The labour standards are a concern that the MNCs need to address to implement positive changes in the developing countries (Bartley, 2007). The motivation to bring in positive impacts comes from the investors and employees among other members who manipulate the supply chain. Research and ethical source state that the MNCs are likely to implement the labour practices and standards now when the external stakeholder pressure them. The MNCs reputations and profitability increase the values of the shareholder (Vo, & Karen Delchet-Cochet, 2013). The shareholders are the main force that can influence the MNCs corporate social responsibilities.

            The branded footwear and clothing industries are under pressure due to the presence of bad working conditions and low wage. For example, the Nike experienced negative publicity concerning the working conditions in the factories (Aneel Karnani, 2010). Despite the open letter from the Clean Clothes Campaign Nike defended itself and maintained it did not carry out any unlawful business. The US Securities and Exchange Commission does not fully support the issue of shareholders addressing wages and so shareholder see labour standards like an unsuitable topic to tackle.


            The majority of the MNCs do not address the CSR in the developing countries due to the presence of a low implementation of rules and laws. The issue of labour standards is a major concern, especially in the developing countries due to the presence of high unskilled labour and low skilled labour. The MNCs focus on profits increment, market shares expansion, gaining global competitiveness and expanding operations among other factors.  

The developing countries focus more on the FDI that comes in because of investments by the MNCs. The high rates of unemployment in the developing countries facilitate exploitation of labourers and presence of bad working conditions like increased working hour.


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