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Parahyangan Catholic University

Course: Politic Bisinis International

Final Exam

Dosen: Dr. Irawan J. Hartono

Topic: Adidas and Health Issue in Cambodia

Name: Sina MAO

ID: 2013851008

Year: 2013-2014

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ADIDAS Multinational Corporation in Cambodia (Health Issue)

Introduction

Since 1993 due to establishment of Cambodian new constitution, Cambodia has implemented

capitalist regime. Private property rights have been recognized and as well as free market

implementation. Cambodia economy changed from plan to free market and with status of LDC

country, Cambodia was given priority to export its own products to the USA without paying tax.

Moreover 2004, Cambodia becomes member of World Trade Organization. Until the end of

2004, Cambodia was aided by the provision of the Multi-Fibre Arrangement/Agreement on

Textiles and Clothing (MFA/ATC), under conditions which exports to the EU and US market

were limited by export quota tightly stipulated quantitative controls on a product-by-product and

country-by-country basis.

Moreover, labor cost in Cambodia has been low as well as fruitful of natural resources

and good locations, those conditions are primary factors to attract Multinational Corporations to

host in Cambodia especially textiles and garments. For instance, ADIDAS has set up in

Cambodia and manufacture such as footwear, sportswear and other products. With good

potential of low skill workers and miss skill labor in Cambodia, so that this multinational

cooperation can enjoy with employ those workers to work in their factory with providing less or

small salary in return with their low skill working condition. Moreover, since, growing number

of multinational corporations, which most of them set up in the capital city in Phnom Penh, thus

most people in rural area and high percentage of them are women moving to city to find job in

order to secure themselves and their family. Most of them have no skill or law skill with low

education, thus it is easy for employers to exploit them during employment. Even thought,

garment industrial sectors contribute to Cambodia economic growth since, they set up their

business in Cambodia; however, they also give negative impact to employees, mostly women

causing from inadequate salary, poor working conditions at working place. For instance, April

2014, hundreds of garment worker fainted during working, without clear reasons in Adidas

supplier factories. These issues have occurred almost every year and until right now, solution

still can’t be found.

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In order to more understand, important questions raised why does this issue occur? How

can we tackle this issue?

Theoretical Framework

Multinational corporations play in form of the intersection of production, international

trade, and cross-border investment. Multinational Corporation is an enterprise that engages in

foreign direct investment (FDI) and owns or controls value adding activities in more than one

country (Dunning 1993). MNCs have two characteristics. First, they coordinate economic

production among a number of different enterprises and internalize this coordination problem

within a single firm structure. Second, a significant portion of the economic transactions

connected with this coordinated activity take place across national borders. These two attributes

distinguish MNCs from other firms. While many firms control and coordinate the production of

multiple enterprises, and while many other firms engage in economic transactions across borders,

MNCs are the only firms that coordinate and internalize economic activity across national

borders. In the recently, Tens of thousands of MNCs with numerous subsidiaries conduct

business around the world, such as firms expand overseas primarily through foreign direct

investment (FDI), whose purpose is to achieve partial or complete control over marketing,

production, or other facilities in another economy; such as investment my services,

manufacturing or commodities. FDI can entail either the purchase of existing businesses or the

building of new facilities called green-field investment. Overseas expansion is frequently

companied by mergers, takeovers, or inter-corporate alliances with firm of other nationalities.

Moreover, Multinational Corporations (MNCs) lately are without a doubt playing an important

role in the global economy and statistics mentioned that in late 1990s there are about 53.000

MNCs in the world with 450.000 branch offices spread all around the world. This number then

increased to 63.000 MNCs with approximately 690.000 branch offices in the year 1998. Thus,

there are two motives why MNCs expand themselves across borders and make investments in

new areas, the first one is the demand factor and second is the cost factor. The demand factor

usually is based on the pressures on MNCs to gain profit. This pressures to collect profit force

MNCs to search for new areas which are capable to give new production resources. On the other

hand, the demand factor is the benefit of having the perfect location, the cost factor means how

MNCs reduce production costs with the intention to gain maximum profit and also to secure their

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international competitiveness over the products they made. The opening of production facilities

outside the country would definitely reduce production costs of a product, starting with the

accessible raw materials for the production process, until the availability of relatively cheap-paid

workers.

However, the importance of multinational corporation (MNC) is a key feature of

globalization of the world economy. However, opinions differ greatly over the significance for

domestic and international economic affairs of the globalization of corporate activities. Some

commentators believe that the multinational corporation has broken free from its home economy

and has become a powerful independent force determining both international and political

affairs. However, according to Paul Krugman’s writing, MNCs are not significant factor in the

international economy; indeed, he and coauthor Maurice Obstfeld have written in their textbook

on International economic activities and other economic outcomes can’t be distinguished from

those of international trade. They argue that the principal effect of FDI is on the domestic

distribution of income; that is between capital and labor. Moreover, Krugman argues that

oligopolistic nature of international business is significant for trade patterns and the location of

business activities. For instance, because oligopolistic firms engage in strategic behavior, and

MNC’s decision whether to export a product from its home market or to invest abroad in order to

service a foreign market will strongly affect the location of economic activities and the rates of

economic growth around the world. In this term, the activities of MNCs can profound impact on

international economic affairs. MNCs are not merely substitutes for trade; indeed they attempt to

extend their power and control over foreign economies. It is clear that multinational firm desire

not only to earn immediate profits, but also to change and influence the rules or regime

governing trade and international competition in order to improve their long term position1.

Moreover, in the context MNCs, human security also needs to be addressed to issues

occurring from negative impact of MNCs and to take action to combat with the issue. However,

we also need to understand the concept of human security.

Human security means protecting fundamental freedom. It means protecting people

from critical (severe) and pervasive (widespread) threats and situations. It means using processes

that build on people’s strengths and aspirations. It means creating political, social,

environmental, economic, military, and cultural systems that together give people the building

1 Rober Gilpin, 2001, Global Political Economy, understanding the international economic order, New Jesey

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blocks of survival (PAUL D. Williams). Moreover, there is agreement that the forces of

economic globalization are transforming international politics and changing relation between

states and people with important implication to Human Security. Globalization’s critics argue

although some countries in the South have gained from globalization, many have not, and

income inequalities between the world’s richest and poorest countries are widening.

On the other hand, human security is a universal concern. It is relevant to people

everywhere, in rich or poor nations. There are many threats that are commons to all people such

as unemployment, drugs, crime, pollution and human right violation. There are two major

components of human security; freedom from fear and freedom from want, this was recognized

by the United Nations, but later, the concept was tilted in favor of the first component. However,

the threat of global poverty affecting all human lives in poor and rich countries and there are no

global safeguards against these real threats to human security. The concept of security must thus

change urgently in two basic ways, from an exclusive stress on territorial security to a much

greater stress on people security and from security through armaments to sustainable human

development. The list of threat to human security is long, but most can be considered as seven

main categories such as economic security, food security, health security, environmental

security, personal security, community security and political security2. Economic security

requires an assured basic income usually from productive and remunerative work, or in the last

resort from some publicly financial safety net. However, nowadays many people in rich nation

feel insecure because jobs are increasingly difficult to find and keep. Millions of people try to

seek work and high proportions were women. Therefore, Cambodia people also have faced this

challenge. The paper intents to explore some categories of human security below,

Economic Security requires an assured the basic income, usually from productive and

remunerative work, or in the last resort from some publicly financed safety net. Moreover, the

term of economic security mean that people feel secure free from the threat of losing their job.

People feel secure during working as well with basic income for their living and especially

secure working condition. On the other hand, food security is also important for human security

scope, human security means that all people at all times have both physical and economic access

to basic food. This requires not just enough food to go round. It requires that people have ready

access to food that they have entitlement to food, by growing it for themselves, buy buying it or

2 UNDP, Human Development report in 1994

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by take advantage of a public food distribution system. The availability of food is thus a

necessary condition of security but it is not sufficient one. However, people still starve even

when enough food is available thus people go hungry not because food is unavailable but

because they cannot afford it. Food security is really close relation to health security as well.

Health security aims to guarantee a minimum protection from disease and unhealthy

lifestyles. In developing countries, the major causes of death traditionally were infectious and

parasitic diseases, whereas in industrialized countries, the major killers were disease of the

circulatory system. Today, lifestyle-related chronic diseases are leading killers worldwide.

According to the United Nations, in both developing and industrial countries, threat to health

security is usually greater for poor people in rural areas due to malnutrition and insufficient

access to health services. Besides, Personal Security means the protect people from physical

violence, whether from states or external state, from violent individual and sub-state actors from

domestic abuse, or from predatory adult. For many people, the greatest source of anxiety is

crime, particularly violent crime. Thus all workers also shall enjoy right to human security as

well.

On the other hand, workers shall deserve special protection during their employment such

as according to international labor Organization on labor aspect, such as worker’s rights such as

everyone have right to work to free choice of employment, to just and favorable condition and

protection against unemployment. Everyone, without any discrimination, has the right to equal

pay for equal work. Moreover, everyone who works has the right to just and favorable

remuneration ensuring for himself and his family an existence worthy of human dignity and

supplemented, if necessary, by other means of social protection. In addition, everyone has the

right to form and to join trade unions for the protection of his interests. In general these rights

always have been debated with negotiation with workers’ pay, benefit and safe working

conditions. For instance, safe working conditions shall be paid more attention because it is very

important to effect to health of worker. Explicitly, International Labor Organization and WHO

Committee on Occupation Health adopted principle of occupational safe and health. This

principle commonly refers to occupational health and safety or work place and safety which is an

area concerned with protecting the safety, health and welfare of people engaged in work or

employment. The goals of occupational safe and health program include to foster a safe and

healthy works environment. It also may protect co-workers, family member, employers,

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customers who might be affected by workplace environment. Moreover, occupational safety and

health can be important for moral, legal and financial reason. All organizations have a duty of

care to ensure that employees and any other person who may be affected by the companies

undertaking remain safe at all time. Moreover, moral obligations would involve the protection of

employee’s lives and health. Labor movement arose in response to worker concerns in the wake

of industrial revolution, work’s health has been considered as important labor related issue. For

instance, workplace hazard, which present risks to the health and safe of people at work. These

include but not limited to chemicals, biological agents, physical factors, adverse ergonomic

conditions, allergens, complex network of safety risk and broad range of psychosocial risk factor.

Moreover, mechanical hazard such as machines, confined spaces, noise, temperature as well as

electricity.

Machines are commonplace in many industries. Those machines can be dangerous to

worker such as sharp edges, hot surface and other hazard with potential crash, burn, cute, shear,

stab if use unsafely. So that employers shall use safety measure to minimize this hazard by using

protection system for vehicles. Besides, according to the National Institute of Occupational

Safety and health defines confined spaces as having limited opening for entry and exist and

unfavorable natural ventilation. Noise also presents a fairly common workplace hazard such as

occupational hearing loss. Addition, Temperature extreme can also a danger to worker. Heat

stress can cause heat stroke, exhaustion, cramps and rashes. Heat can also fog up safety glasses

or causing sweaty palm or dizziness, all of them can increase the risk of other injure. Worker

near hot surface or steam also are at risk for burn. Electricity also causes danger to worker as

well in four forms such as fatal electrocution, electric shock, burns and falls caused by contract

with electric energy. Those sectors are really important health issues that employer need to give

more attention to keep worker healthy.

In exemplified, Cambodian workers also have faced those problem such as a few years

lately, workers get suffer a lot because negligent of employers. Let draw attention to

Multinational Corporations known as Adidas which is famous brand name sweatshop in the

world.

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ADIDAS Multinational Corporation

Adidas is a German Multinational Corporation was founded in 1948 by Adolf Dassler,

who was German guy. It has headquarters in Herzogenaurach, in Germany. Adidas was slit from

Dassler Schuhfabrik between him and his older brother Rudoft and register in 1949. However,

his brother Rudolf created Puma. Adidas produces such as footwear, sportswear, sport

equipment, toiletries and other accessories. In 2013, Adidas earned profit €787 million. Adidas

group consists of Reebok, which is Sportswear Company, TaylorMade-Adidas, Ashworth, and

Rockport, which is golf company, and 9.1 percent of FC Bayern Munich, which is sport club.

Adidas is the largest sportswear in Germany and EU and the second largest sportswear after

NIKE in the world.

In order to maximize their own profit as other multinational corporations have done,

Adidas also needs to go abroad to developing countries, which are good condition for their

production process and benefit more resources such as cheap labor and good conditions to host

their company to product, thus in 2006, Adidas has arrived to Cambodia. Shenzhou (Cambodia)

Co., Limited, which is the supplier for Adidas since 2006 after this company achieving

compliance with UNIQLO’s requirements, the Fast Retailing Group and its core brand,

UNIQLO, adhere to the strictest safety standards in their markets of operation, including Japan,

Europe and the U.S. FR has incorporated these rules into the UNIQLO Global Quality and

Safety Standards. Moreover, with production orders stabilizing at around 400,000 pieces per

month, Shenzhou Cambodia has begun to realize profit since June 2006. Adidas is Parents

Company of Shenzhou.

Worker health issue

Cambodia government can earn more than 5 billion US dollar per year, but garment

workers have been exploited by the company through low wage, poor working place condition in

the factory, has caused workers get problem with their health. For instance, in 2013, there were

180 workers manufacturing clothing for Adidas and Polo Ralph Lauren fainting during their

working time. Moreover, in 4 April 2014, something happened the same, more than 100 workers

also fainting in Adidas factory in Phnom Penh in Cambodia, mass fainting was called shop till

they drop. Garment workers in Cambodia, even though, they work for well- known brand

company but, they still get less salary due to their minimum wage is just 100$ in 2014.

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Every moth, workers get salary 100$, they need to survive themselves and their family.

Each month, they need to send some of their money around 20 to 30$ to support their parents

and their brother and sister for studying. So they left just 70 or 80 $, for paying rented room

around 15 or 20 $ per month by sharing room with their friend. With less amount of month they

can’t access nutrition and sanitization as well. According to Washington Post, more than one-

third of factory workers consume only 1,600 calories per day. The study found roughly one-third

of workers, who spend, on average, $1.50 on food per day, were medically malnourished.

Other reason of fainting caused by working condition such as long working hours, poor

condition at working place such as poor ventilation especially lack of fans and other equipment

for refresh air, strong chemicals and the use of potent glue for footwear and using insecticide

without proper method. Moreover, temperature at working also is main cause to push mass

fainting as well.

Solutions

This problem can’t be solved by workers,

Government

Law enforcement

Multinational Corporation

CSI program

Civil Society

Campaign to push Multinational Corporation to conduct moral business such as clean

clothes campaign

Conclusion

Adidas multinational cooperation invests in Cambodia since 2006, has exploited workers,

through inadequate income, their garment workers still live in poor condition, and health

problem. Workers get minimum wage 100$ per month for supporting their survival and their

family. They live in poor circle situation, health become poor when they work long time.

Moreover, poor condition at working place such lack of material for air refreshing such as fan or

other equipment to go in and out un-favorite air. That cause worker become weak while they

can’t access healthy food so they faint. Until nowadays, Cambodia garment workers live in

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human insecurity, such as economic insecurity, health insecurity, personal insecurity and food

insecurity.

References

- Rober Gilpin, 2001, Global Political Economy, understanding the international

economic order, New Jesey

- Paul D. Williams, 2008, Security Study, Introduction, published by Routledge, New

York, USA. And Canada.

- UNDP, Human Development report in 1994

- http://www.washingtonpost.com/news/morning-mix/wp/2014/04/10/mass-faintings-in-

cambodia-whats-the-reason/