Submitted to: Submitted by:-

Dr. RUPINDER BIR KAUR PARDEEP DAHIYA

MBA SEC-B
•Olympic Knitwear is 40 year old business group promoted by
British American and Hong-Kong Chinese businesspersons.
•Initial locations at America, Britain, Hong-Kong
•American unit closed and shifted to Philippines as hourly
wage in America was equal to daily wage rate in Philippines
•The result was a loss of 700 jobs in New Jersey and creation of
900 new jobs in Metro Manilla.
•In India, one manager reported that in one of the export
processing zones, only one foreign company was there and
when foreigner threatened to close the company and move to
China, the local Govt and administration would give a clean
chit to foreign entrepreneur and weaken the union protest
about the exploitative conditions concerning wages and work.
 In Bangalore, the manager reported the increasing cost of living and
thus demands for higher wages. However the Indian laws prevented
him to close the firm so easily.
 The head office asked the general manager not to accept fresh orders,
gradually reduce production, and show the decline in production and
revenue flows as an excuse not to pay electricity and water dues.
Without payment , the firm could not run and it would easy to
suspend the operations
 The government became helpless, the labours agitated.

 
The governments in the developing countries are in quandary
because if they bow to the pressure of govts in developed nations, the
employers from some of the developed countries threaten to
withdraw their operations for the lack of policy consistency. They
aver that they came to invest money based on some concessions
and if they were withdrawn unilaterally, it would not make
sense for them because they would not be earning profits.
 
QUESTIONS
1. What is the effect of FDI and EPZs on the international labour standards? What is evidence from
this case? can it be generalised?

Ans. The advantages which are incurred as the result of FDIs and EPZ are:-

 Competitiveness
 Latest technology
 Efficiency of production
 Elimination of wastages
 Efficiency of labours
 Reduction in cost of production
 Proper utilization of resources

The disadvantages are

 Cash drain from the country
 Tax havens enjoyed by foreign firms
 Overdependence can lead to high fluctuations in the economy eg the global meltdown.
2. 2. What, if any, has been and should be the role of government in such cases ?
Ans: The government can act on the following fronts in such cases:

 The governments must ensure that in order to attract FDIs , it should limit itself in
providing concessions to the extent that it should recover at least the variable costs
rather than the fixed cost.
 Such contracts should also incorporate various provisions as to inflation, increase in
cost of living etc so that the workers are protected against rising prices.
 The contracts should also include the minimum number of years of operation within
the country.
 The government must limit the cap on FDI. It must allow FDI in certain sectors up to
a certain limit. For eg in India the FDI in retail is 51%, wholesale 100 %, banking 74%
etc.
 The government can restrict the involvement of local entrepreneurs or joint ventures
with the local firms.
 The government can impart technical skills to the workers so that in wake of
shutdown the government can start own ventures and have efficient and skilled
labours available.
 The government must also ensure that it receives the certain share of profits in the
foreign enterprises so ensure that they would remain settled in the country.

 
3. Is there role for the local managers and unions in
similar situations?
Ans: The local managers and unions can play an active
role in such situations. They can :
Keep a strict vigil on the under table activities of the
organisation.
The local managers must insist on technical training
of workforce, increase in productivity etc to ensure
that in wake of such situations they can be own
venture capitalists.
The unions can urge the government to share certain
proportion of subsidies granted to the foreign
entrepreneurs with them.
4. Suggest ways in which labour standards can be
protected in similar cases.
Ans: The following are the key proposals.
Technology transfer eg Hero Honda.
Minimum locking period must be mandatory for
the operations of unit within the country
Foreign control must be limited up to a certain
extend to ensure the confirmation to standards of
local government.