BA 317, International Management Case- Study 8 – Race to the Bottom vs. Race to the Top
Does globalization affect the environment? The answer is debatable. Several individuals believe that “globalization does not necessarily have negative effects on the environment in developing countries to the extent suggested by the ‘pollution haven’ hypothesis,” (Peng, 2016).
The pollution haven hypothesis “is the idea that polluting industries will relocate to jurisdictions with less stringent environmental regulations” (Levinson, n.d.). Whereas, other individuals are on the side that “because of heavier environmental regulation in developing economies, multinational enterprises may shift pollution-intensive productions to developing countries with lower environmental standards,” (Peng, 2016). With the two sides, there are multiple motives as to why the debate that globalization continues to affect the environment remains.
For the side that does believe that globalization essentially affects the environment in an undesirable manner might proceed into a “race to the bottom” by dropping the environmental values to attract investment. The race to the bottom is known as a competitive state where an organization, nation, or state tries to weaken the oppositions prices by sacrificing quality ethics or worker safety, defying regulations, or paying lower wages (Beattie, 2018). Typically, when companies enter into a race to the bottom, it is applied to the labor context. Several organizations will go through intense lengths to keep their wages low to protect profit margins, but continuing to provide a competitive product. In response to the increase in salaries, several businesses will transfer their production overseas to zones with lower wages and benefits or have started to motivate their contractors to accomplish this modification by using their procuring influence.
Whereas, the opposite side that does not believe globalization effects the environment in a negative way believe this because of many multinational enterprises voluntary adherence to the environmental values higher than the ones required by the host countries (Peng, 2016). Therefore, this is where the race to the top comes into play. The race to the top attracts and enables the global sustainability within a business (World Bank, 2004). There are three explanations behind why the multinational enterprises volunteer their loyalty, which is the worldwide corporate social responsibility, CSR, pressures, CSR demands made by customers in developed economies, and requirements of multinational headquarters for worldwide compliance of higher CSR standards (Peng, 2016).
Overall, there will probably always be a debate on whether globalization affects the environment. For the individuals who are against the race to the bottom, it is tough to declare it does not happen. Since it is problematic to demonstrate that the race to the bottom does not exist, the multinational enterprise does not add a problem to the developing countries that might have lower environmental standards. Instead, the multinational enterprises provide a simplified dispersion that will eventually better the environmental technologies to struggling countries to produce a positive manner instead of negatively affecting the environment.
Beattie, A. (2018, March 15). Race to the Bottom. Retrieved August 15, 2018, from https://www.investopedia.com/terms/r/race-bottom.asp
Levinson, A. (n.d.). Pollution Haven Hypothesis. Retrieved August 15, 2018, from http://faculty.georgetown.edu/aml6/pdfs&zips/pollutionhavens.pdf
Peng, M. W. (2016). Global 3: Global business. Boston, MA: Cengage Learning.
World Bank. (2004, April 19). Race to the top: Attracting and enabling global sustainable business - business survey report. Retrieved August 15, 2018, from http://documents.worldbank.org/curated/en/459391468762926408/Race-to-the-topattracting-and-enabling-global-sustainable-business-business-survey-report
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