3. Assessing the impact and potential of EPZs in a global economy

Responses by investors

Zone enterprises have had to adapt to greater competition in international product markets which demands:

• quicker response
• shorter lead times
• faster turn-around times
• greater flexibility in production
• lower costs

Most enterprises find themselves working harder and harder until persistent problems of quality, cost and labour relations force them to find ways of working smarter. The better companies realize that the above-mentioned competitive demands can only be met through constant innovation and improvement. This in turn requires optimum human resource utilization and constructive labour-management relations. There are examples of innovative human resource and labour relations strategies to be found throughout the spectrum of zone investment, from labour-intensive simple processing plants to highly automated manufacturing operations. ILO missions undertaken as part of the Action Programme found three broad responses to increased global competition and the need to improve through better management of human resources in EPZs. These can be categorized as follows:

Type One - Intensification

• Enterprises try to compete by making workers work harder and longer until they burn out or leave. Shifts get longer and longer, with ten hours being the norm and many workers putting in substantial amounts of overtime, voluntarily or otherwise. This is particularly true of labour-intensive, low value added and low-skill production processes. It is also more common where management has an ample supply of cheap labour.
• The workplace tends to be oppressive, intimidating and not fulfilling. It is not uncommon to find guards patrolling the production floor and all entrances and exits (including the fire escape) locked.
• Production is inefficient and error-prone with high wastage rates.
• Labour turnover, late arrival and absenteeism are high.
• There is generally no consultation with workers or appreciation of their needs.
• The intensification of work reaches a limit at which it becomes counterproductive, with falling productivity, deteriorating quality and labour unrest.

Type Two - Motivation

• Management decide to motivate workers. It introduces cash incentives for higher output and productivity, regular attendance and long service.
• Companies tackle the problem of late arrival by offering free breakfast to workers who come on time. This has the added advantage of ensuring that they are strong enough to work a solid shift.
• Some companies offer free transport to and from work to help ensure that workers arrive and to reduce the fatigue of having to walk long distances.
• Many firms provide medical and dental services to improve the health of their workers.
• Firms employing workers who come from other regions may offer housing support.
• Some enterprises supply crèche facilities in the plant, inside the zone, or in the community. This takes a major worry off the minds of feeding mothers and reduces the time and money they would otherwise be spending on securing child care. The in-plant crèches allow mothers to feed a number of times during the shift.
• Plants instal airconditioning to increase their productivity.
• A number of companies visited by ILO officials had set up consumer cooperatives for their workers in order to buy better quality food more cheaply than that available in local stores, and savings cooperatives have brought about major improvements in workers lives in a number of developing countries, particularly in cultures where women turn most of their earnings over to male members of the family.
• In an effort to retain skilled and experienced workers some companies have introduced provident funds which mature after ten or 15 years. This gives workers a lump sum with which they can start some income-generating activity after leaving the zone.
• A particularly innovative approach to providing many of the above services to workers is to do so in partnership with NGOs specializing in those fields.
• These incentives however, reach a plateau and the requirements of improving speed, cost and quality oblige management to look further for productivity and efficiency gains.

• Management seeks to involve workers in meeting the speed-cost-quality challenge. This may be a planned shift towards participative labour relations or a reaction to a crisis situation to which management either does not have the answers or could not put them into operation without worker agreement and support.
• Typical measures are the introduction of teams, their gradual empowerment, increased sharing of information, joint problem solving and target setting and the encouragement of worker innovation.
• The most successful companies have developed a tangible sense of partnership between labour and management and given workers a real sense of ownership of the outcomes.
• Such plants have set a new pattern of labour-management cooperation. Management has reshaped its training programme to cultivate the leadership and decision-making qualities of team workers and have begun to see the role of management as one of supporting and coordinating worker initiative.
• Teamwork is not a new concept, but its popularity is growing in zone enterprises and teams are increasingly self-directed. The most advanced use of this approach is in the highly capital-intensive electronics plants which need to amortize their investment quickly by operating non-stop at very high rates of productivity. In order for teams to be effective workers and management require considerable amounts of training and attitudinal change. Skills such as problem identification, analysis and solution need to be learned, along with the dynamics of working in groups, the nature of leadership and the importance of evaluation. On a different level, workers need to be taught statistics in order to collect and analyse production data. In the Philippines, companies were found sending workers on the sort of outward-bound survival courses normally reserved for top management in order to enhance their decision-making capacity.
• The state of the art at present involves career pathing, upgrading and multiskilling in such a way as to reduce the number of skill layers, increase the value added by each layer and enhance job satisfaction. Training is the key to achieving this and is actively encouraged by the companies.
• This involves a process of phasing out less skilled functions and moving the occupants up the skill ladder. Operators have been upgraded to manufacturing technicians, combining the functions of operator and technician by running several machines, doing the repairs, maintenance and troubleshooting. Supervisors are being eliminated as teams are "empowered". Technicians are being trained to replace the assistant engineers who are in turn being sent to university to become full engineers. The professional engineers move into management or R&D (mostly customization rather than full-blown R&D). The result is a flatter structure with more value added by each individual. Workers appreciate the possibilities for personal advancement, greater earning capacity and expanded responsibility.
• This leaves many zones with two distinct classes of enterprise, one which is innovating human resource utilization and labour relations in order to improve performance and remain competitive, and another which is intent on sweating its labour force to meet production requirements. Policy measures are required in order to encourage and assist enterprises to make the shift from working harder to working smarter. There are a number of variables which affect the way in which this trend plays out. These are:
• the origin of the investment, since most companies bring with them a certain style of labour-management relations and demonstrate an ability to recreate it all over the world
• the origin of the management, particularly the Director of Human Resources, which often results in a certain degree of customization of the companies approach to suit local conditions. A number of companies were found which had replaced expatriate managers with locals after experiencing a strike or other labour relations problems
• the industrial sector, in that sectors with intense competition, high quality requirements and short product life cycles demand greater cooperation, commitment and motivation from their workers. The issue of quality is critical here. ILO officials visited many labour-intensive, low-skill operations which were nonetheless highly innovative, but they were invariably competing on the quality of their product, in addition to its price
• the nature of the production process and the degree of capital-intensity, which are important because the capital- and skill-intensive processes require advanced management of human resources in order to optimize their use and amortize the expensive investment
• the national labour relations system and tradition, which inevitably influence, and may even impose themselves on, the labour relations style of foreign investors. This can even lead to a company adopting different approaches in different countries.
• the prevailing labour market situation, in that tight labour markets oblige enterprises to offer better wages and working conditions and better career prospects, in their efforts to attract, retain and reward workers. Many enterprises visited in Malaysia, for example, had realized that they could no longer rely on better terms and conditions alone to retain workers and had devised ways of making work more rewarding in order to gain an edge in the tight labour market.