Production in a Developing Country

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Exploitation of workers

In developing countries, where no stringent Government labour policies exist, multinationals see opportunities to lower production costs. In most developing countries, people need jobs therefore multinationals can demand cheaper labour and lesser healthcare benefits. Using cheap labour in a developing country may be a false economy for companies, as it may cause reputation damage and ultimately reduced profits. Apple has also faced a lot of bad press following deaths and disclosures about suicides at its China Foxconn firm. Employees were expected to work a 60 hour week and were falling asleep on the job. Excessive overtime, minimal pay and rampant abuse were also reported.

Trading issues

Instability in currency

Due to political and economic instability, developing countries experience large fluctuations in currency value/rates, which present trade risks with other countries. For example, banks in developed countries attribute a high-risk profile to certain developing countries, leading to increased lending costs for multinationals setting up production in a developing country.

Trade barriers/regulations

Certain countries also don’t allow a company to run its business like in other countries, due to differences in labour and business laws. They may even insist on state involvement in the management of the company (eg China) and/or additional reporting on profits/production etc.

Developing countries may wish to prevent monopolies to ensure that local businesses are not disadvantaged. It may also want to prevent/limit the depletion of natural resources, which may compromise the developing country longer-term

A company in the U.S. that uses a certain brand might not be permitted to use the symbol in a different country if a business in that country uses a similar one.

Poor infrastructure & Technology

Lack of investment by the developing country in its’ national infrastructure (e.g. roads, trains, airports, ports), this may cause increased cost/delays in the production and distribution supply chain for multinationals in their trade (incl. maintenance) processes. When investing in a developing country, technology is a key factor. Multinationals need to have secure & reliable network, bandwidth, data-centre, local IT expertise & suppliers