Transferring Risks, Microproduction, and Subcontracting in the Footwear and Garment Industries of Li

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Transferring Risks, Microproduction, and
Subcontracting in the Footwear and Garment
Industries of Lima, Peru

• By Annelou Ypeij
• Presented by Lisa Snyder

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Two related phenomena that characterize the
present-day industries in Lima, Peru

• The explosive growth of the small-scale and micro
  sector
• The increase in subcontracting by large
  enterprises
• This change can be seen as part of a worldwide
  process of economic informalization and
  decentralization of industrial processes

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Peruvian Economic History

• Two decades of recession and growing poverty
  (both urban and rural)
• Between 1975-1992, the per capita GDP (gross
  domestic product) dropped 32
• 1980-1993 the real urban minimum wages decreased
  by 90
• The subemployed population increased from 26 to
  76

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• In 1993 investments and exports began to expand
  (due to political stabilization)
• Between 1993-1995 the Peruvian economy was one of
  the fastest growing in Latin America
• However, the decline of real income has forced
  households to involve all members in
  income-generating activities (much of this in the
  informal sector)

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The Informal Sector

• In 1984, the informal sector offered almost
  600,000 jobs
• In 1993, the informal sector had increased and
  offered almost 1.3 million jobs (by then there
  were more people working in the informal sector
  than the formal sector)

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What is Subcontracting?

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

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Forms of Subcontracting

• Partial Subcontracting the subcontracting
  enterprise assigns part of the production process
  to a subcontractor (some materials may be
  provided)
• Complete Subcontracting the subcontracting
  enterprise assigns the complete manufacturing of
  a product to a subcontrator and provides only
  labels and packing material

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• Nonequivalent subcontracting the relationship
  between two enterprises of a clearly different
  size (between small-scale and large-scale
  enterprises)
• Equivalent subcontracting involves enterprises
  of more or less the same size and is very common
  among small-scale and microproducers in Lima

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Large Enterprises Policies on Subcontracting

• By subcontracting, large industries substantially
  economize on labor costs (an employee working in
  the informal sector earns 50 less than in the
  modern sector)
• In 1985, large companies completely produced 87
  of products in its own plants this number was
  down to 43 by 1990

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• By the end of 1991 management presented a policy
  that stated production in its own plants would be
  terminated and replaced by subcontracting
• Subcontracting is already so important in the
  enterprises that without it the survival of the
  large companies would be at risk
• By subcontracting, management transfers risks to
  the small-scale and micro sector and indirectly
  generate jobs within that sector

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• Subcontracting takes place in situations of both
  decreasing and increasing production volumes
• Number of workers is reduced to hinder trade
  union actions
• The enterprise can more easily meet the demand
  for middle-class exclusive product
• Materials can now be processed by hand (the poor
  quality makes them ill-suited to mechanical
  processing)

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Subcontracting and Gender

• Not a gender neutral process
• Strong sexual division of labor in both
  industries (because of the knowledge each gender
  naturally possesses)
• 1979-1993 women earned 45 less
• Female tasks need female characteristics such
  as dexterity, speed, precision and patience

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• A growing number of women are establishing
  communal workshops (limited capital and access to
  sales markets)
• These workshops involve more people than a
  typical small-scale enterprise, so sometimes
  management will prefer to work with them
• Large-scale enterprises not only benefit from the
  small-scale/micro sector, but also further
  benefit from the women within those areas

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A Continuum of Production

• But subcontracting, large-scale and small-scale
  enterprises become increasingly interwoven
• The dualistic notion of formal and informal
  sector is too simplistic to explain the
  relationships
• Helps large-scale enterprises use labor as they
  want, maintain flexibility and reduce costs

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Small-Scale and Microproducers and Subordination

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

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• Large enterprises increasingly transfer risks to
  subcontractors, with management setting the terms
  of the relationship
• There is always a large number of small-scale
  producers out there, waiting to take over my job
• Subordination chain has two basic structures
  pyramid and diamond-cut
• Many producers judge their own situation as very
  positive (informal employers can ear, 3x as
  much as their informal employees)

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Hired Worker and Chain Subordination

• Small-scale and microenterprises have worse
  working conditions than in the large-scale
  industry
• Agreements are made verbally and working
  conditions are constantly renegotiated
• Often work 12 hours a day, 6 days a week
• Space to work is often too small for the number
  of employees working there

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• When workers do attempt to organize, the leaders
  are bribed and those involved arent hired later
• Subcontracting adds to the insecurity of the
  workers and adds to the unfavorableness of their
  working conditions
• Small-scale and micro subcontractors are obliged
  to plan production on short notice and transfer
  some of the risks to their workers

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• I really cant tell you how much I will pay my
  workers at the end of the week. The producer I
  work for collects his fee, then I collect mine,
  and part of that I will pass on to my workers
  Calzado Superior is paying very little and that
  they may pay a month after delivery. I dont
  know how much and when the producer is going to
  pay me. When he pays I will have to share the
  money with my workers
• - Senor Galvez

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Female Workers and the Chain of Subordination

• Female workers work almost 8 hours per week more
  and earn 10 less than her male counterparts
• The female labor position is even more unstable
  than the male labor position within the various
  industries

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• Reasons for female labor instability and
  vulnerability
• Her work in the formal sector can be done at home
  for less money
• The position of the female worker is threatened
  by the wife of the producer
• Much sexual intimidation and harassment of
  females
• Female workers dont wish to start their own
  business (84 of informal sector leaders are
  male, and only 16 are female)

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Conclusions

• The footwear and garment industries in Lima are
  characterized by the explosive growth of the
  small-scale and micro sector and an increase in
  subcontracting by medium-sized and large
  industries
• Many jobs are then transferred from the formal
  sector to the informal sector (leads to worse
  working conditions and lower and instable pay)

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• Women are the first to lose their jobs and the
  last to get hired, and so these issues are more
  severe for the females than even for the males in
  the labor market
• Women earn less, have less stable employment and
  must endure more sexual harassment
• The working conditions of many workers,
  especially female ones, seem to me to be in a
  descending spiral Annelou Ypeij