When lawsuits between Shell, a multinational oil exploration company, and the people of Nigeria over the environmental consequences of the company's operations dragged on from 2015 (Meredith, S. 2023), the general public seemed to forget a bitter relationship of mutual economic benefits between developing countries and multinational companies. Although the justification for developing nations to achieve economic growth at the expense of environmental degradation is not a heated debate at present, consequences of climate change are increasingly evident to the point that many wonder “is offshoring still a wise choice?”.

 

1. Definitions

       Before we begin to open the can of worms, let us characterise two important aspects, namely, “offshoring” and “developing nations''. Offshoring, also known as offshore production, is part of the umbrella term “offshoring” and refers to the relocation of the production or assembly of goods to another country. Companies usually do this because labour costs in that other country are lower, or because raw materials are cheaper. Meanwhile, there are many ways to define developing nations, with the most common way being by using per capita income. Statistically speaking, the developing countries are those with low-, lower-, upper-middle, and high income. Low-income countries are defined as countries having a per capita gross national income in 2023 of $1085 or less; lower-middle-income countries have incomes between $1086 and $4255; upper-middle-income countries have incomes between $4256 and $13,205 (World Bank, 2022). It is noteworthy that not every high-income country is considered a developed country. High-income countries may be viewed as still developing if they have one or two highly developed export sectors but significant parts of the population remain relatively uneducated or in poor health. Examples may include oil exporters such as Saudi Arabia and the United Arab Emirates. Another way to classify the nations of the developing world is through their degree of international indebtedness. The United Nations' list of the least developed nations, which as of 2022 contained 46 nations—33 in Africa, 9 in Asia, 3 in the Pacific area and Haiti—is another classification that is frequently used. The United Nations Development Program (UNDP) classifies countries according to their HDI, including health and education attainments, as low, medium, high, and very high. A nation must meet all three requirements to be included as developing: low income, low human capital, and severe economic vulnerability.

 

2. A general history of offshoring

         The main colonial and imperialist endeavours from Western Europe, particularly England and Holland, which began in the 16th century and continued for the following several hundred years, can be identified as the oldest historical foundations of multinational corporations and offshoring activities (Gowley, 2013). Companies like the British East India Trading Company were established during this time to promote the trade or territorial expansions of their home nations in the Americas, Africa, and the Far East. In the late 19th and early 20th centuries, businesses primarily from the United States and a few Western European countries expanded internationally due to the need for resources such as minerals, oil, and food as well as pressure to defend or expand markets. Between the First and Second World Wars, the demand for natural resources remained a driving force behind business enterprises in Europe and the United States (John Dunning, 1993). 

 

        Offshoring really took off in the 1950s onwards as companies took advantage of less expensive labour costs abroad until the host nations began to industrialise. In detail, prior to the rise of the "Asian Tigers" (South Korea, Taiwan, Singapore, and Hong Kong), these nations welcomed enterprises to open their production lines as a means to accelerate their economic development. When these nations grew in size and capability, multinational companies started to look elsewhere in places like China, India and Southeast Asia. Other nations began to develop in the 1980s, including the Philippines, Cambodia, Indonesia, and other South American countries. Correspondingly, manufacturing businesses migrated to these nations to enjoy the low production expense while maintaining a high profit. The service industry started to follow in the 1990s. Moreover, more industrialised nations started to deindustrialize in order to prevent its effect on their nation’s environment. This indicates that the industrial and manufacturing sectors experienced a significant decline in more developed nations like the United Kingdom, which further increased offshoring activities in the world (StudySmarter UK, 2023).  

 

3. Dynamic and interests, align or oppose?

        Offshoring lately took on a new dynamic as a result of the sharp decline in transportation costs and the development of information technology. This has permitted increased fragmentation of production processes as well as the migration of production stages, making developing nations become more and more important in this process. Multinational corporations can benefit from developing countries' typically reduced labour costs by including them in global production supply chains (Taylor & Scott, 2004). In addition, the "pollution havens" hypothesis continues to dominate much of the discussion on foreign direct investment and the environment.

 

        Due to the tendency of multinational corporations to maximise their profits and the accumulation of capital, offshoring operations reduce the cost of labour wage and also evade tax, thus increasing their profit. They also take advantage of dreadful working conditions and loosen labour-environmental laws, corruption and poor insurance policy from developing countries to efficiently produce cheaper, larger quantities of goods, without violating labour or environmental laws (ILO, 2007). These acts further demonstrate the possibility of a “pollution haven”, as the governments of these developed countries also sought ways to move the destructive production-activities plant elsewhere, so they can ensure their homeland is free from pollution.

 

        On the other hand, offshoring is a strategy used by destination nations to increase investment and job development. Developing nations are willing to exchange environmental impacts for short-term economic growth and much needed-fund for industrialization, even setting lower standards and favourable taxation policies to draw in international investment as these nation administrations. Furthermore, corporations are engaged in lobbying and intervention such as the cases of several Latin American nations. One notable incident where the multinational corporation actively intervened in politics to prevent policies against their interest is the Chiquita corporation, also known as the United Fruit Company, which profit from the fruit-plantation-and-processing supply chain it set up in Latin America. The corporation saw many allegations against them for supporting military dictatorships to prevent any policies that affect their exploitation of natural resources from being enacted, utilisation of death--squads to suppress labour movements, as well as using profit gain from their supply chain to lobby governments. Such examples demonstrated that corporations have the tendency to maximise profits whenever possible, during offshore operation (Gowey, 2013).

 

4. Double-edge Solutions

          As developing nations' population continues to grow and benefit from offshoring practices, environmental degradation is likely to worsen. Although this back-and-forth has been around since the day it began, ever-more implications of climate change have augmented calls for the industry to adapt toward eco-friendly and sustainability practices. Yet, when considering policies to alleviate the situation, states often run into solutions that bring forward uneasy knock-on payoffs both economically and politically. For more details, we shall consider the pros and cons of recent popular solutions, namely Proper resources pricing, Debt-for-nature swap, and Development assistance.

 

4.1. Proper resources pricing

         Proper resources pricing prefers to exacerbate the shortage of resources or increase the cost of production deemed as economically unsustainable for companies via government implementations of resource pricing or subsidy. Government resource subsidies that aim to attract foreign investment to stimulate growth had backfired as it left room for the untenable and reckless economic practices by enterprises, thus popularising the need for government appraisal of resources. The main caveats are, to put companies and enterprises accountable for their wasteful or unsustainable economic practices while reducing environmental degradation hardships for the poor that have received little benefit from government resource subsidies (Todaro, 2015). By reducing or eliminating the improper use of natural capital, the government can safeguard resources and galvanize surplus revenue which can be used for environmental conservation. Yet when setting aside what governments can get for Proper resource pricing, the stake of confronting powerful cooperation seems untenable for developing nations. The Bolivian’s 2019 political crisis proved that when the leading company in the technology industry Tesla was alleged of sponsoring the coup d’etat attempt to depose democratically re-elected Bolivian president Evo Morales, after the enactment of policies that would nationalise lithium mines across Bolivia and enforce the indigenous people right to natural resources (The conversation, 2015).

 

4.2. Debt-for-nature swap

        Being hailed as “kill two birds with one stone”, debt-for-nature swap offers developing nations an escape route from heavy foreign-denominated debt while substantially improving efforts in preserving natural habitat. When the first swap happened between Conservation International and Bolivia in 1987 (OECD, 2007), the foreign private environmental organization (i.e. Conservation International), working in collaboration with a local environmental protection agency, acquired a fraction of developing-nation debt at face value on the financial markets (Torado, 2015). The debt is then commuted for government bonds denominated in the debtor-country currency but worth the full expense of the original foreign debt. Theory-wise, the swap can lessen the burden of heavy debt while generating available funds for the nation's sustainable development program. At the same time, alleviating debt will also improve debtor-country credit rating which allows the government to borrow money with lower credit. Amid an ongoing economic crisis, debt-for-nature swap becomes an attractive alternative, such as Gabon's 700 million dollar worth of debt to fund marine conservation, an action that was followed by praising statements from Sri Lanka, Colombia, Pakistan, and Kenya at the COP27 conference on climate change (Bloomberg, 2022). When the prospect of liquidating burdensome debt by swapping becomes the bell ringer for developing nations, the hard-to-swallow reality makes this whole swap make it as more of a scheme as foreign entities assert their control over the leased resources without state monitoring, such as the case of accusations of clandestine exploitation of natural resources toward Swedish private firm Gethal whose owner was privatising Amazon land for the purpose of “conservation” (The telegraph, 2008).
 

4.3. Development assistance 

         When all of the assets and liabilities of the aforementioned solution had been elucidated, one can recognize the solution’s drawbacks in resolving the environmental problems that arise from offshoring. In order to address the daunting tasks of mitigating offshoring’s environmental byproducts, countries must accept the reality that offshoring must be in parallel with sustainable development. In that regard, international assistants play a vital role, as these cooperations can range from alleviating developing nations’ core issues of alleviating poverty, strengthening welfare programs, and promoting environment-friendly patterns of both domestic and transnational production. Programs like REDD+ and the Global Environment Fund (Todaro, 2015), are just one of many initiatives that currently support developing nations to achieve environment-friendly prosperity. Yet, behind all of these rose-colored glasses, international tensions and economic downturns can swiftly change the dynamic and commitment of assistance between nations in a matter of days.

 

5. Conclusion 

         From the onset, it is obvious that offshoring gives nations a silver lining for their socioeconomic and technological shortcomings. However, when mounting unavoided consequences of offshoring become ever-more evident, states often found themselves in an up-hill struggle. Oftenly, these transnational corporations are the bulwark of development in developing nations, which directly puts the third-world’s government in a dilemma. Should they strengthen environmental law at the expense of unfavourable positions to attract foreign development? Or to completely abandon the ideal of offshoring to seek a gradual approach that combines national growth and sustainability? For now, the answer to such a question remains undecided, and so does the fate of offshoring be.

 

Author: Trinh Minh Quan, Le Chi Nam, Nguyen Thanh Binh

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REFERENCES

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