Indirect Employment in Global Value Chains

Multinational companies today employ increasingly global and complex value chains to source, manufacture and distribute products and services in global, interconnected markets.  Literature has studied the phenomenon of global value chain dispersion and their contributions to international trade, economic value creation and societal development (see Gereffi et al, 2005; Gereffi, 2014). However, literature has not paid enough attention to the role of a growing cadre of sophisticated intermediaries that aid the multinational companies in their global sourcing and scanning capabilities. Through such intermediaries, developed market multinational companies (DMNCs) indirectly employ vastly greater numbers of people in developing and transition economies than they do directly in their own subsidiaries abroad or in their facilities at home. This “indirect employment” poses difficult questions for DMNCs in terms of managing employment relations in emerging economies, particularly when host country laws and regulations differ substantially from their home country’s, or are rapidly evolving.  Indirect employment relations thus need to be managed across organizational boundaries, in addition to the national, geographical, institutional, and cultural distances MNCs have to manage in employee relations in other countries. Many firms have implemented codes of conduct for their suppliers; however, there is limited evidence on the efficacy of such codes in improving working conditions (e.g., see Frenkel, 2001; Yu, 2008).

 In this article, we explore the major issues and challenges faced by DMNCs in managing indirect employment relations in emerging economies. We are particularly interested in highlighting how DMNCs’ indirect employment practices evolve in response to factors such as employee voice mechanisms, media coverage of specific events, role of external parties such as non-governmental organizations, home and host country regulations, and organizational strategy. 

Methodology: Given the lack of existing theories and data on indirect employment relations, we employ a mixed methods approach, using a case study supplemented with event analysis and social media analysis. We focus on indirect employment practices of Apple Inc., via its contractual arrangements with Hon Hai Precision (Foxconn). While Foxconn operates manufacturing and assembly plants in many regions of the world, we focus on Foxconn operations and employee practices primarily in China.

Findings and Contribution:We first identify several factors contributing to the spread of global indirect employment in recent decades. We then discuss external and internal factors that make managing indirect employment challenging, and illustrate these issues with a discussion of the evolution of Apple’s relations with Foxconn. Subsequently, we analyze a series of 7 critical events over the period 2001-2011 relating to Foxconn employees in China, and the responses and opinions they generated from a subset of the key stakeholders. This event analysis along with our findings above led us to propose a conceptual model of indirect employment that helps us better understand and manage indirect employment relations.