Globalisation of Manufacturing Units 3.4 & 3.5

Global Industrial Shifts With globalisation, industries are no longer just based in one country. In this chapter you will learn about: 1)Reasons for the shift in Global Industries 2)Case Studies of Multinational Companies (MNCs)

What is globalization? Refers to the growing interconnections between all parts of the world Indicators: international trade, investment, production and consumption Why are industries shifting their manufacturing plants? How are these shifts possible?

The Global Industrial Shift 1. Traditional economic powers Before WWII, traditional economic power lies in USA and the European states. By the 1950s, the industrial power has shifted to the USA, Japan and Germany.

Rise of Japan Giant of East Asia After WWII, Japan rebuilt itself Govt invested heavily in the coal and steel industries, which stimulated the growth of other industries such as the shipbuilding & machinery industries. Also funded R&D in new industries such as consumer electronics By mid 1980s, Japan has attained a high technological status.

Rise of Japan… Maintained traditional supremacy in traditional industries such as iron & steel, shipbuilding etc Overtook many nations to become world’s greater producer of automobiles and motorcycles Took leading role in the production and export of wide range of electrical appliances Were very advanced in the electronics industry Demand for Japanese-made goods high worldwide Today, Japan is the largest economy in Asia and second largest in the world, after the USA

2. Changes in Manufacturing Industries Worldwide A) From Labour-intensive to Capital intensive, high-value manufacturing Early secondary industry engage in a large number of workers Light industries employ more females while Heavy industries tend to employ more male workers With the advancement in technology, many industries gradually shifted to labour-saving, value added production This is achieved through high capital investment in the latest technology available, greater automation, use of research findings and skilled/qualified/trained personnel What is capital intensive?

2. Changes in Manufacturing Industries Worldwide B) From Developed to Developing Countries In the 2 nd half of the 20 th century, the “triad economies” – USA, Japan and Europe – dispersed economic power to neighbouring regions There was a shift of mfg activities from the traditional powers to the Pacific Rim (Asia + South America).

Why are industries shifting their manufacturing plants? “Push” Factors: 1. Exhaustion of key raw material or energy fuel 2. Industrial congestion 3. Scarcity of land – Exorbitant land prices 4. High Labour cost 5. Saturated markets

Why are industries shifting their manufacturing plants? “Pull” Factors: 1. Cheap, increasingly educated labour 2. Attractive government policies 3. High rate of savings, which makes them potential markets

The NIEs Greatest concentration of MNCs’ investments in East Asia – NIEs “Four Asian Tigers”refer to Singapore, Hong Kong, Taiwan and South Korea So called because i)Fastest economic growth in Asia ii)”Aggressive” in the development of their mfg industries Eg. General shift from labour-intensive industries to capital intensive industries

The NIEs Singapore: started with garment but shifted to electronics, petrochemicals and heavy engineering Hong Kong: garment, toys, household goods, shipping and finance Taiwan: household goods and garment South Korea: economic growth centred first around textiles, then electronics, steel and automobile.

The NIEs – Reasons for success… USA gave considerable assistance and investment after WWII Benefits from the expansion of Japan’s economy Each encouraged foreign investors to set up businesses Each focused on export industries

The NIEs… Other emerging NIEs are catching up with the industrial development of the 4 Asian Tigers They possess similar geographical and economic advantages These countries include Malaysia, Thailand, India and China

The NIEs Malaysia: world’s largest producer of semiconductors and refrigerators; started its own automobile industry Thailand: expands its textiles, electrical and household product industry India: electronics industry became the fastest growing economic sector, culminating in the establishment of the International Tech park China: Experienced high rates of economic growth, particularly after switching its communist economy to “open market economy.” Created Special Economic Zones.

New International Division of Labour (NIDL) Refers to a strategy by MNCs to use low-income countries for their mfg processes. Initially the factories were mainly labour- intensive assembly plants, whose products are exported back to North America or Europe. Since the 1980s, the NIDL has changed in 2 main ways a) Growth of Asian economies has made them important markets b) NIEs grew their own MNCs, so they are also investing in Western economies

What makes globalization possible?

Factors Influencing Globalisation of Manufacturing 3 Main Factors: A. Space-shrinking technologies B. Multinational corporation (MNCs) C. Government Policies

A. Space-shrinking technologies Technologies in transportation and communication makes it easier to conduct economic activities between distant locations. 1.Transportation Advances: much larger ocean-going vessels (superfreighters / container ship), jets / cargo airplanes, more extensive transport network Effects: shortens travel time, lower transport costs, and improves reliability of transport

A. Space-shrinking technologies 2. Communications Advances: mass media, fax and electric mail, satellite technology, optic-fibre cables, digital transmission Effects: Ability to transmit information at high speed needed to complement the increased speed of transportation. Communication can also replace the need for trave, eg. Via tele-conferencing *Create a information highway

A. Space-shrinking technologies Space-shrinking technologies in transport and communication have changed the organization of business. For example, big companies in Western countries are using remote locations as their “back offices”.

B. The Rise of MNCs Large businesses that have operations in more than 1 country. Rapid increase in the no. of MNCs are due to cost savings gained by producing in high volumes Many small companies merged into large corporations This enables them to practice spatial division of labour, that is, the separation of the manufacturing process into different stages and tasks, which are allocated to different locations.

B. The Rise of MNCs Many advantages gained by the MNCs from global production 1. Take advantage of the specializations of the areas. Eg. Locate their high-tech mfg & research centres in developed nations while actual production process can be in developing countries where labour is cheap and abundant. 2. Spreading the operations in several countries will reduce the risks

Benefits of MNC’s investments 1. Create thousands of jobs for the locals 2. Bring in related investment 3. Help to diversify the local economy 4. Stimulate improvement in technologial level through transfer of technology 5. Provides links to international markets 6. Contribute significantly to business taxes

Negative impact of MNCs 1. Makes it harder for local businesses to operate 2. Remit large amounts of profits back to their parent companies in their home countries 3. Increased mobility of investment 4. Creation of uneven development opportunities

C) Government Policies Govt of developing countries attract MNCs who provide employment, generate revenue and produce a transfer of technology Govt can offer favourable financial incentives, coordinate infrastructure and labour needs of the MNCs Play an important role in maintaining political stability