Over the last few years, labor and environmental issues have received a great deal of attention both in the United States and abroad. As a result, U.S. companies operating in foreign countries are allocating greater resources to ensure that a host country’s labor and environmental laws are fully satisfied — and then some — even if existing laws are not enforced.

This level of corporate social responsibility is not only good for workers and the environment, it’s good for business.

Environmental Concerns Are on the Rise

Global warming, climate and biodiversity change, and ozone depletion are environmental issues that are increasingly raising eyebrows. As such, satisfying foreign environmental regulations that cover toxic releases, compliance with air permits and hazardous waste management, and worker health and safety standards is essential.

But going beyond what’s required, which may involve local recycling and pollution reducing innovations and techniques, could generate very good standing in the community — and more.

Corporate Responsibility Pays Dividends

U.S. companies that act responsibly in host countries contribute to the improvement of social, labor, and environmental conditions. And by exporting sound operating standards, and best business practices, values, and principles, U.S. companies often act as the model for change, charting a path for other foreign and domestic companies to follow.

These positive examples often shape the way factories are managed overseas, leading to improved working conditions. Plus, this strategy often results in higher morale among employees, a more motivated workforce, and is a factor in raising productivity. What’s more, institutional investors increasingly are aware of the importance of sound labor and environmental practices. Consequently, they often favor companies with sound labor and environmental records. To the contrary, failure to comply with existing laws often results in huge fines and penalties, in addition to worldwide negative media attention and even product boycotts.

Labor Laws and Costs Require Your Attention

While labor laws and practices reflect a country’s culture, social structure, and economic condition, worker health and safety must always be a priority. But several other factors must be considered when hiring workers abroad.

In some countries, labor unions are aligned with political parties that can significantly boost their bargaining power. While in others, temporary work stoppages are frequently used in a bid to generate public support of demands. In Paris, for example, the transportation system ceases to function on a regular basis leading to productivity losses. And efforts by foreign firms to alter host countries’ labor relations may be in vain.

Inexpensive labor costs in developing nations sometimes provide incentive for companies to relocate labor intensive, less sophisticated operations abroad. When doing so, it’s essential to anticipate realistic productivity levels and all the costs involved.

Some Costs May Be Hidden

In order to allocate the necessary resources to improve labor conditions and incorporate environmentally friendly technology, it’s important to have a strong bottom line. And to achieve this, it’s essential that all the costs — especially hidden ones — of doing business are accounted for.

Average hourly compensation costs, which include direct pay and some benefits, may only tell part of the story. When calculating the cost of foreign labor, some not so obvious but potentially expensive indirect costs — if not anticipated — may put a potentially profitable business out of business. Consider outlays associated with mandatory severance, which may surprise you.

For example, workers in Belgium must be provided with a three month termination notice, three month’s severance pay, or a combination of the two. And in the United Arab Emirates, laying off white collar workers can be considered a crime resulting in stiff penalties.

Research Is Necessary

Establishing a presence abroad has many advantages. However, diligent labor and environmental law research is essential before establishing a facility in the host country and/or hiring foreign employees.

Due to substantial differences in culture and legal systems, companies should consult local attorneys and others in the host country before establishing operations. This will help diminish the potential of misinterpretation of local laws and requirements.

This article appeared in June 2001. (BA)

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author and nationally syndicated columnist on global business, trade policy, labor, and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.

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