«Factories and Development» - Free Essay Paper
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The approaches toward strengthening the economies of the developing countries are various, and one of them includes inviting big factories for operations. The outsourcing approach appears to be attractive to some groups in the political and business system, but it is not the ultimate salvation for the economies. Although inviting big companies to the countries may be beneficial and can strengthen the country’s economy, there are many other factors of success, which have to be implemented first.
In the beginning, it is essential to stress on the reasons for inviting the large companies into developing economies. The proponents of the suggestion believe that big companies build factories that would provide the citizens with working places. The big factories will be operating and intensifying the local development since people will acquire jobs and receive the salaries (Reardon et al 2004). Therefore, it would be possible for the government to decrease the unemployment rate as well as provide the citizens with better living conditions. People will be secure with a job and a regular salary every month; therefore, they would be able to provide for themselves and their families. Besides, they would afford to buy products and commodities with the regular payments. Thus, with higher buying capacities, the big companies and large factories would intensify the economy of the developing country (Robinson 2009).
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Benefits of Outsourcing
The proponents of the outsourcing idea suggest two major benefits of the big companies. Firstly, it is the solution for the unemployment in the country. Secondly, it intensifies the economy when market relations become developed, while selling and buying is easier. It is a common rule of business that commodity circulation is the main necessary thing for economy to succeed (Beamish 2013). The owners and entrepreneurs want their products to sell quickly so they reinvest the money and continue with business operations (Fold 2008). The process is impossible in a country where people live below the poverty line and have no money to spend. Moreover, the problem often rises because of the lack of jobs (Robinson 2009). Thus, when big companies offer people places of work, they can pay salaries that will later be spent on the same products. The process would increase commodity circulation in a community and the country in general. Therefore, the presence of the big companies in a developing state has of great benefit for the economy.
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Also, big companies mean international investments that could be further directed into different spheres for the country’s benefits (Dolan & Humphrey 2004). In the situation, it is essential for the government to foster the relationship with the big companies. The state has to create good conditions for the companies to build factories, and then, invest in developing other spheres. Consequently, the money that came into the country for various purposes can be allocated to different areas to strengthen its economy.
Besides, the presence of the big companies is important for the international image and positioning (Gibbon 2001). It makes the country appear open and attractive for the foreigners, and other investors may come to the country. The success of the rivals in the new market motivates the businesses to invest for additional profits and decrease of the production costs. That is the reason the economy grows since it attracts more outsourcing companies.
Finally, the international investment impacts the state’s political image (Lee et al 2012). Whenever a country develops more liberal laws regarding international trade, business relations and economics, it also influences its political positioning. The country that had a reputation of struggling democracy can greatly improve the political image. Alongside economic liberalization, international business often brings political liberalization, which is a positive outcome (Gereffi & Christian 2010). The process causes further developments and improvements in the overall economic system of the country.
Disadvantages of Outsourcing
The given analysis shows the benefits of having and inviting the large companies to open the factories in the developing countries because it may be a valuable asset for strengthening and improving the economies. Nevertheless, there are disadvantages to the approach, too. Firstly, the new companies with large factories do not necessarily cause the increase or improvement of the living standards. Big companies come to developing countries for a reason. There, they can cut production costs because they can pay smaller salaries as compared to developed capitalistic states. Often, lower expenses is the main reason the organizations and corporations seek production abroad. Therefore, they may pay higher salaries than the local companies, but, most likely, they will keep the salaries at the average level. Therefore, in case the country has a very low living standard, and an average salary is around $50, there are high chances that the big factories and the large companies will be paying the same average to their workers. As a result, the international conglomerates will turn the state into a cheap labor place, where economy would be staying on the same level. Hence, instead of strengthening and intensifying the economic growth in the country, the big factories may create negative stereotypes about the country. The outsourcing may create perception of a state with cheap labor where the workers can be exploited, and the economy will also keep on the same level (Henson & Jaffee 2008). Besides, the large companies may bring many threats to the developing countries using child labor. The child employment is rather common in poor countries where children have to work because of the poor living conditions in the families. Therefore, the large companies can hire children as workers and pay them an extremely low amount of money. Moreover, they sell the products made in a poor state for an enormous price in other countries (Hilson 2012). At the same time, the price may be absolutely normal for the developed states, but it is extremely high for the workers receiving a very small salary. Besides, the large companies can break the law and mistreat the workers. The government presents little regulation in case it is corrupt, which is often the case for the developing states.
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Another doubt about economic growth due to large factories is the fact that they often do not encourage education and do not require highly skilled professionals. On the contrary, the big factories brought to the developed states by the large companies require a significant amount of workers with some basic skills. Thus, they hire personnel with higher education from the developed countries. Therefore, it remains highly difficult for skilled professionals to find well-paid jobs, and the large companies do not encourage progress and education in the developing countries (Maertens & Swinnen 2009). Finally, the international corporations also affect small local businesses and factories that need to compete with larger rivals and are unable to do so (Henson & Jaffee 2008).
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Therefore, there are two sides to inviting big companies and large factories to a developing state. The advantages can be increased, and the disadvantages can be minimized in case particular criteria are met. Firstly, it is essential to have an honest and democratic government that works transparently and is free or at least fights with corruption. As a result, it will be possible to ensure that the big companies follow the laws when they arrive in the new market (Ramasamy et al 2012). With the government working democratically and openly, workers will be protected. Moreover, the companies will invest and increase the professional standards as well as the salaries. The suggestion shows that the cooperation between the government and the business sphere is essential for strengthening the economy.
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Also, it is crucial for the country to operate under the rule of law. The problem with many developing states is that absence an effective judicial system, and it has a negative effect on the country in general. The businesses become corrupt, and there is no effective way to solve the issue, since laws do not protect the workers and the state in general. Therefore, unless the regulations are followed in the country, the economic growth will be hindered with or without big international corporations. Besides, in a country without functioning legal system, it would be extremely difficult to invite the companies from abroad. They would not want to work in a problem country, because they realize the difficulties and prospective challenges of doing business in such a state.
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Finally, as it was mentioned before, without the laws and democratic capitalist government, it would be impossible to speak about the economic development in general. The reason is that the money would stay in one hands and not benefit the entire country. The local businesses would suffer, and the citizens would receive the same low level salaries, bad treatment and poor living conditions as they used to have before.
Thus, without an effective government and transparent legal framework, big international companies and their large factories would not benefit the economic development of poor countries (Seck 2012). On the contrary, the state and its people would not feel significant shifts or the improvements. The large companies can be of great help for the developing states in case the governments are willing to reform (Raynolds et al 2007), implement and follow effective laws, meet the international standards and work for the general benefits of the country. On the other hand, of the government in a developing state is corrupt, and there is no political will to change or improve the country, the results will not be satisfactory (Shaharudin et al 2015).
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The given analysis provided with the conclusion that the large companies and big corporations can benefit the local economies of developing states. However, they are not the only reasons for the improvement. The first and the most important cause is the political system, which further influences the economy and social relations. In case the political system is working properly and appreciates feedback from the society, it is possible to talk and predict further economic success. The foreign investments and big corporations operating on the market encourage further growth. They have a potential of developing the industries and bringing new businesses. Thus, it is essential for the governments to see the foreign investment opportunity and turn it into the benefit for the state.