Enforcing higher labour standards within developing country value chains: Consequences for MNEs and informal actors in a dual economy
The 2013 Rana Plaza disaster led external stakeholders to insist on
higher labour 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-internalisation. Elevated costs are further exacerbated in developing
countries where the informal and formal sector 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: informal economy, MNEs, duality, Bangladesh, compliance, GVCs
JEL Classification: F63, E26, F23, J8