Complexities of migrant labor | The star
FOR a very long time, developed countries around the world have relied on the labor force of less developed countries to develop their economies and infrastructure.
Through influx and net migration, the United States was essentially a “new world” that brought together immigrants from all over the world. The iconic Statue of Liberty on Ellis Island was the busiest immigrant inspection station where nearly 12 million immigrants arriving through the Port of New York and New Jersey were processed between 1892 and 1954.
Until today, migration still occurs on a global scale. Voluntary migration is when people move from one country to another in search of a better income or a better life.
Involuntary migration, on the other hand, is where people, known as refugees, flee their countries due to poverty, war or natural disasters.
While involuntary migration was prevalent in the early 19th century due to geopolitical tensions and wars, voluntary migration appears to be more common today in the longest period of global peace and prosperity.
Differences in wages and income levels are the main reasons human capital crosses continents. In sports, we are seeing huge transfer fees and record salaries for professional footballers to move teams across countries to play in different football leagues.
In the corporate sector, we see professionals such as lawyers, investment bankers or executives moving from country to country for better employment opportunities and career advancement.
In emerging markets, we see workers or blue collar workers moving between countries to work in the agricultural, industrial or manufacturing sector that pays higher incomes.
By now, most readers would have read the story of one of Dyson’s top three contract manufacturers in Malaysia, ATA IMS Bhd (ATA IMS), which is going through a difficult period due to problems related to migrant labor.
The case came to light due to the role of a migrant labor activist, who first highlighted the labor issue in May 2021.
Allegations were made against ATA IMS and a petition was filed with US Customs Border & Protection (US CBP) on the grounds of forced labor conditions, including unethical recruiting practices and conditions inadequate work or life.
Dyson subsequently terminated his contract with ATA IMS. The grounds for the allegations were similar to complaints against glove makers in 2020 which led to U.S. CBP imposing a Ban and Stay Order (WRO) on Top Glove Corp Bhd..
Is the situation of migrant workers in our country’s manufacturing sector appalling or is there a disconnect between expectations, perception and reality?
The ATA IMS share price has taken a hard hit since this issue was resolved, with nearly RM3 billion in market cap wiped out from the current price of 42 sen coin.
This is how the issue of migrant labor can get out of hand, especially if contract manufacturers rely heavily on a global brand as a key customer. These supply chain issues are not just a Malaysian problem.
In December 2020, one of Apple’s top global suppliers, Winstron Corp’s Taiwanese manufacturing plant in Narasapura, near India’s Bengaluru tech hub, faced a major protest by 2,000 workers over allegations of unpaid wages and long working hours.
Workers ransacked the manufacturing plant and destroyed properties with losses estimated at US $ 60 million (RM 254 million).
Winstron Corp has issued a public apology after investigations uncovered the work of intermediaries exploiting contract workers and skimming their wages. Police examined the role of six contractors who acted as intermediaries for Wistron. The survey also found that 8,500 of the 10,500 workers were contractors rather than full-time employees.
The issue of migrant labor is a complicated one. It involves many stakeholders including governments, authorities, intermediaries and agencies and major global customers such as Apple and Dyson.
Manufacturers involved in all forms of unfair labor practices are penalized, whether by the authorities, major customers or investors. However, these are often retrospective and not preventive.
If major customers oppose and want to address the unfair use of labor, they could consider sharing their profit margins with contract manufacturers to contribute to the cost of social compliance.
Contract manufacturers sometimes operate on very slim margins, relying on economies of scale, productivity and cost-cutting measures to survive. Managers seem to have very high profit margins. Apple’s most popular product, the iPhone has enjoyed a gross profit margin of at least 50% in recent years, according to the Techinsights website.
Dyson, known as Apple of Home Appliances, while competing in a very competitive industry, has the ability to generate good profit margins with the latest business financial results for fiscal 2020 showing it has profit margins of 23%.
All it takes is 1-2% of their profit margins, which is in the hundreds of millions of dollars, which would be enough to help their contractors deal with the painful costs of social compliance.
Role of government and authorities
Then there is the question of the government and the authorities. We frequently see statements from ministers or officials publicizing the fact, and rarely before an incident occurs. Why did this have to happen in the first place? Many countries, especially those in emerging markets, benefit from contracts for the supply of migrant labor.
Often this involves government-to-government agreements from which the respective governments then appoint certain agencies to act as an intermediary to handle permits, medical examinations, insurance and other necessary documents.
Some of these agencies in turn may take upfront fees and commissions. There have been allegations of corruption and cronyism in this complex network which contributes to the problem.
Role of activists and NGOs
Without a doubt, society is doing better with activists and NGOs voicing their concerns and fighting for the rights of the exploited and oppressed. This is the only way to hold those who oppress and those in power to make a change to account.
However, one should also be wary of opportunists who may look like militants but may have hidden intentions.
Concerns arise when an activist is motivated by the hope of becoming an independent advisor or consultant for the very targeted companies in the first place.
Perhaps all of these NGOs should be independently funded and supported by the state in order to ensure impartiality and prevent conflicts of interest.
The hard work of building a business and reputation over time can end in vain simply because of workforce issues. As we move towards building a more equal society through education and the advancement of civilization, increased automation may be the only win-win solution for all parties.
Businesses with the capacity to invest in research, development, and automation should do so even if their bottom line may suffer, given the ever-increasing cost of social compliance going forward.
Ng Zhu Hann is the author of “Once Upon a Time in Bursa”. He is a lawyer and former chief strategist for a Fortune 500 company. The opinions expressed here are his own.