Transferring Risks, Microproduction, Transferring Risks, Microproduction, and Subcontracting in the Footwear and and Subcontracting in the Footwear and

Garment Industries of Lima, PeruGarment Industries of Lima, Peru

By Annelou YpeijBy Annelou Ypeij

Presented by Lisa SnyderPresented by Lisa Snyder

Two related phenomena that Two related phenomena that characterize the present-day characterize the present-day

industries in Lima, Peruindustries in Lima, Peru The explosive growth of the small-scale The explosive growth of the small-scale

and micro sectorand micro sector The increase in subcontracting by large The increase in subcontracting by large

enterprisesenterprises

This change can be seen as part of a worldwide process This change can be seen as part of a worldwide process of economic informalization and decentralization of of economic informalization and decentralization of industrial processesindustrial processes

Peruvian Economic HistoryPeruvian Economic History

Two decades of recession and growing Two decades of recession and growing poverty (both urban and rural)poverty (both urban and rural)

Between 1975-1992, the per capita GDP Between 1975-1992, the per capita GDP (gross domestic product) dropped 32%(gross domestic product) dropped 32%

1980-1993 the real urban minimum wages 1980-1993 the real urban minimum wages decreased by 90%decreased by 90%

The subemployed population increased The subemployed population increased from 26% to 76%from 26% to 76%

In 1993 investments and exports began to In 1993 investments and exports began to expand (due to political stabilization)expand (due to political stabilization)

Between 1993-1995 the Peruvian Between 1993-1995 the Peruvian economy was one of the fastest growing in economy was one of the fastest growing in Latin AmericaLatin America

However, the decline of real income has However, the decline of real income has forced households to involve all members forced households to involve all members in income-generating activities (much of in income-generating activities (much of this in the informal sector)this in the informal sector)

The Informal SectorThe Informal Sector

In 1984, the informal sector offered almost In 1984, the informal sector offered almost 600,000 jobs600,000 jobs

In 1993, the informal sector had increased In 1993, the informal sector had increased and offered almost 1.3 million jobs (by and offered almost 1.3 million jobs (by then there were more people working in then there were more people working in the informal sector than the formal sector)the informal sector than the formal sector)

What is Subcontracting?What is Subcontracting?

Subcontracting: the partial (or complete) Subcontracting: the partial (or complete) manufacturing of products by enterprise A manufacturing of products by enterprise A (the small-scale or microenterprise) with (the small-scale or microenterprise) with the aim of delivering them to enterprise B, the aim of delivering them to enterprise B, which sells the final products with its own which sells the final products with its own labels attached to themlabels attached to them

Forms of SubcontractingForms of Subcontracting

Partial Subcontracting: the subcontracting Partial Subcontracting: the subcontracting enterprise assigns part of the production enterprise assigns part of the production process to a subcontractor (some process to a subcontractor (some materials may be provided)materials may be provided)

Complete Subcontracting: the Complete Subcontracting: the subcontracting enterprise assigns the subcontracting enterprise assigns the complete manufacturing of a product to a complete manufacturing of a product to a subcontrator and provides only labels and subcontrator and provides only labels and packing material packing material

Nonequivalent subcontracting: the Nonequivalent subcontracting: the relationship between two enterprises of a relationship between two enterprises of a clearly different size (between small-scale clearly different size (between small-scale and large-scale enterprises)and large-scale enterprises)

Equivalent subcontracting: involves Equivalent subcontracting: involves enterprises of more or less the same size enterprises of more or less the same size and is very common among small-scale and is very common among small-scale and microproducers in Limaand microproducers in Lima

Large Enterprises’ Policies on Large Enterprises’ Policies on SubcontractingSubcontracting

By subcontracting, large industries By subcontracting, large industries substantially economize on labor costs (an substantially economize on labor costs (an employee working in the informal sector employee working in the informal sector earns 50% less than in the modern sector)earns 50% less than in the modern sector)

In 1985, large companies completely In 1985, large companies completely produced 87% of products in its own produced 87% of products in its own plants; this number was down to 43% by plants; this number was down to 43% by 19901990

By the end of 1991 management By the end of 1991 management presented a policy that stated production presented a policy that stated production in its own plants would be terminated and in its own plants would be terminated and replaced by subcontractingreplaced by subcontracting

Subcontracting is already so important in Subcontracting is already so important in the enterprises that without it the survival the enterprises that without it the survival of the large companies would be at riskof the large companies would be at risk

By subcontracting, management transfers By subcontracting, management transfers risks to the small-scale and micro sector risks to the small-scale and micro sector and indirectly generate jobs within that and indirectly generate jobs within that sectorsector

Subcontracting takes place in situations of Subcontracting takes place in situations of both decreasing and increasing production both decreasing and increasing production volumesvolumes

Number of workers is reduced to hinder Number of workers is reduced to hinder trade union actionstrade union actions

The enterprise can more easily meet the The enterprise can more easily meet the demand for middle-class exclusive productdemand for middle-class exclusive product

Materials can now be processed by hand Materials can now be processed by hand (the poor quality makes them ill-suited to (the poor quality makes them ill-suited to mechanical processing)mechanical processing)

Subcontracting and GenderSubcontracting and Gender

Not a gender neutral processNot a gender neutral process Strong sexual division of labor in both Strong sexual division of labor in both

industries (because of the knowledge each industries (because of the knowledge each gender “naturally” possesses)gender “naturally” possesses)

1979-1993 women earned 45% less1979-1993 women earned 45% less ““Female tasks” need “female Female tasks” need “female

characteristics such as dexterity, speed, characteristics such as dexterity, speed, precision and patience”precision and patience”

A growing number of women are A growing number of women are establishing communal workshops (limited establishing communal workshops (limited capital and access to sales markets)capital and access to sales markets)

These workshops involve more people These workshops involve more people than a typical small-scale enterprise, so than a typical small-scale enterprise, so sometimes management will prefer to sometimes management will prefer to work with themwork with them

Large-scale enterprises not only benefit Large-scale enterprises not only benefit from the small-scale/micro sector, but also from the small-scale/micro sector, but also further benefit from the women within further benefit from the women within those areasthose areas

A Continuum of ProductionA Continuum of Production

But subcontracting, large-scale and small-But subcontracting, large-scale and small-scale enterprises become increasingly scale enterprises become increasingly interwoveninterwoven

The dualistic notion of formal and informal The dualistic notion of formal and informal sector is too simplistic to explain the sector is too simplistic to explain the relationshipsrelationships

Helps large-scale enterprises use labor as Helps large-scale enterprises use labor as they want, maintain flexibility and reduce they want, maintain flexibility and reduce costscosts

Small-Scale and Microproducers Small-Scale and Microproducers and Subordinationand Subordination

The degree of independence of a producer The degree of independence of a producer can be measured in terms of:can be measured in terms of: Ownership of machinery and toolsOwnership of machinery and tools Control over production and labor processesControl over production and labor processes Direct contract with purchasing/sales marketsDirect contract with purchasing/sales markets

Large enterprises increasingly transfer Large enterprises increasingly transfer risks to subcontractors, with management risks to subcontractors, with management setting the terms of the relationshipsetting the terms of the relationship

““There is always a large number of small-There is always a large number of small-scale producers out there, waiting to take scale producers out there, waiting to take over my job”over my job”

Subordination chain has two basic Subordination chain has two basic structures: pyramid and diamond-cutstructures: pyramid and diamond-cut

Many producers judge their own situation Many producers judge their own situation as very positive as very positive (‘informal’ employers can ear, 3x (‘informal’ employers can ear, 3x

as much as their ‘informal’ employees)as much as their ‘informal’ employees)

Hired Worker and Chain Hired Worker and Chain SubordinationSubordination

Small-scale and microenterprises have Small-scale and microenterprises have worse working conditions than in the large-worse working conditions than in the large-scale industryscale industry

Agreements are made verbally and Agreements are made verbally and working conditions are constantly working conditions are constantly renegotiatedrenegotiated

Often work 12 hours a day, 6 days a weekOften work 12 hours a day, 6 days a week Space to work is often too small for the Space to work is often too small for the

number of employees working therenumber of employees working there

When workers do attempt to organize, the When workers do attempt to organize, the leaders are bribed and those involved leaders are bribed and those involved aren’t hired lateraren’t hired later

Subcontracting adds to the insecurity of Subcontracting adds to the insecurity of the workers and adds to the the workers and adds to the unfavorableness of their working unfavorableness of their working conditionsconditions

Small-scale and micro subcontractors are Small-scale and micro subcontractors are obliged to plan production on short notice obliged to plan production on short notice and transfer some of the risks to their and transfer some of the risks to their workersworkers

““I really can’t tell you how much I will pay I really can’t tell you how much I will pay my workers at the end of the week. The my workers at the end of the week. The producer I work for collects his fee, then I producer I work for collects his fee, then I collect mine, and part of that I will pass on collect mine, and part of that I will pass on to my workers… Calzado Superior is to my workers… Calzado Superior is paying very little and that they may pay a paying very little and that they may pay a month after delivery. I don’t know how month after delivery. I don’t know how much and when the producer is going to much and when the producer is going to pay me. When he pays I will have to pay me. When he pays I will have to share the money with my workers”share the money with my workers”

- Senor Galvez- Senor Galvez

Female Workers and the Chain of Female Workers and the Chain of SubordinationSubordination

Female workers work almost 8 hours per Female workers work almost 8 hours per week more and earn 10% less than her week more and earn 10% less than her male counterpartsmale counterparts

The female labor position is even more The female labor position is even more unstable than the male labor position unstable than the male labor position within the various industries within the various industries

Reasons for female labor instability and Reasons for female labor instability and vulnerabilityvulnerability Her work in the formal sector can be done at Her work in the formal sector can be done at

home for less moneyhome for less money The position of the female worker is The position of the female worker is

threatened by the wife of the producerthreatened by the wife of the producer Much sexual intimidation and harassment of Much sexual intimidation and harassment of

females females Female workers don’t wish to start their own Female workers don’t wish to start their own

business (84% of informal sector leaders are business (84% of informal sector leaders are male, and only 16% are female)male, and only 16% are female)

ConclusionsConclusions

The footwear and garment industries in The footwear and garment industries in Lima are characterized by the explosive Lima are characterized by the explosive growth of the small-scale and micro sector growth of the small-scale and micro sector and an increase in subcontracting by and an increase in subcontracting by medium-sized and large industriesmedium-sized and large industries

Many jobs are then transferred from the Many jobs are then transferred from the formal sector to the informal sector (leads formal sector to the informal sector (leads to worse working conditions and lower and to worse working conditions and lower and instable pay)instable pay)

Women are the first to lose their jobs and Women are the first to lose their jobs and the last to get hired, and so these issues the last to get hired, and so these issues are more severe for the females than even are more severe for the females than even for the males in the labor marketfor the males in the labor market

Women earn less, have less stable Women earn less, have less stable employment and must endure more sexual employment and must endure more sexual harassmentharassment

““The working conditions of many workers, The working conditions of many workers, especially female ones, seem to me to be especially female ones, seem to me to be in a descending spiral” – Annelou Ypeijin a descending spiral” – Annelou Ypeij