Notes from RGS Batch'13



MANUFACTURING Generalisations:Change is inevitable. The location and distribution of industries change over time, in relation to globalisation and technologyChange is linked to time. The internationalisation of production, based on the core-periphery structure of production, to LEDCs has favoured the growth of economy of these countries and paced the economy of the MEDCs.Change can be positive or negative. The effects of global industrial shifts on LEDCs and MEDCs are both positive and negative.Essential Questions (Focus):Will global industrial shift bring about a more equitable distribution of income or narrow the gaps in the level of development in the world?How would the global economic map in the 21st century be reshaped by global industrial shift in this age of globalisation?Enduring Understanding:Global industrial shifts will create growth opportunities for less developed economies, especially in Asia as traditional key global economies strive to maintain their competitive advantage in this age of globalisation.Content Knowledge:Definition of global industrial shiftDistribution of manufacturing industries in light of global industrial shiftCausal factors of global industrial shiftPush (Country of origin) vs. pull (host country)Influential factors space shrinking technologies and transportation and communications, roles/influence of MNCs and government eg. FTAs, economic incentives that attract/gives a competitive advantageImpacts of outsourcingOn MEDCs (country of origin) and LEDCs (host country)3 stakeholders: MNC, labourers, governmentAcross PPECSDefinitions Global Industrial Shift - shift of manufacturers from MEDCs to LEDCs, and from labour intensive to machine intensive industries. It is also a phenomenon that may change over time in relation to the changing needs of society and may not be directly related to a country’s development as the latter is influenced by other factors such as governance, population growth and nature of economy and more. Outsourcing – to branch out processes beyond the country of origin, describe the practice of using cheap foreign labour to manufacture goods or provide services only to sell them back into the domestic marketplaceOffshoring - where you take a function out of your country of residence to be performed at another country in order to reduce the cost. The work is done under the same company office, which is established at the other country. Footloose Industry: one that could set up in many different locations. It is not tied to a fixed location. It may locate where labour is cheaper, or where the government offers incentives.Globalisation - a world of interconnectedness and interdependenceDevelopment – where SOL and QOL is increased and environmental sustainability, societal wellbeing and economic growth is taken care of. SOL: The degree of wealth and material comfort available to a person or community.QOL: personal satisfaction (or dissatisfaction) with the cultural or intellectual conditions under which you live (as distinct from material comfort) ie happiness, health etc. Spatial Distribution of Goods/Key Features of MNCs&TNCs:Spatial Distribution: Manufacturing processes are shifted to LEDCs such that profits are maximised, resulting in growing economies and GDP of LEDCs while MEDCs’ economy and GDP increases by a lot less. Key Features of MNCs:Profit driven and exploitative in natureMultinational global recognition and demandParamount influences on people’s lives (positive and negative)Footloose in nature pack and goConnectors to bridge relationship between host country and country of originKey stakeholders in essential economic development in MEDCs and NICsMarket sensitive mastermind behind market trendsCauses of GISAspect of PPECSPUSH (Country of Origin)PULL (Host Country)Political- Attractive government policies that support creation of physical infrastructure (favorable sites such as industrial parks to provide accessible amenities, transport infrastructure and shared knowledge), tax holidays (Vietnam offers 25% corporate tax instead of 35%, and up to 8 years of tax breaks) and provide incentives like low tax rates and land prices, duty free (no tax) on the imported raw materials in the special economic zones for china and maquiladoras in Mexico. Physical- Reducing risk factors (eg natural disasters, hazards, wars, power shortage, workers’ strike and general instability) by diversifying their manufacturing processes. Toyota manufactures cars in other countries and not in their own because there are earthquakes - Because of agglomeration, a disproportionate surge of manufacturing is attracted to locations with a lower wage cost or higher market access or both (e.g. industrial parks, cutting down on transport costs, leveraging on industrial linkages, where there are complementary industries (e.g. metal companies, tire manufacturing firms etc - one stop shop in some sense), presence of natural resources that causes it to be cheaper to purchase because of lack of middlemen)Economic- Strategic focus (Specialization to maintain competitive edge in the global economy) Studies show that companies that outsource report reducing administrative tasks by more than half ?and increasing their strategic focus by 40%. Since employers cannot pursue excellence in all areas, many will focus on core competencies, such as ?customer service or innovation, and outsource secondary functions, such as benefits administration - Lower costs in LEDCs help MNCs gain the biggest profit margin (wages are lower, workers get fewer benefits like proper working conditions and health and safety benefits, land rent and operating cost like cost of water and electricity is also lower) (wages in china are $3.10 as compared to $22.30 in the us)- Rising markets in LEDCs due to increased living standards where they have more disposable income. (China has become a major automobile market in the world, setting up markets in these new markets makes it easier to make goods suited to local tastes and to respond to market trends more easily)- Trade agreements due to economic liberalization where more countries have open economies and government restrictions on certain countries are eased, making them more receptive to all investors (reopening trade routes in the middle east [silk road] has caused a 30% increase in trade between Saudi Arabia and china)Social- Skilled laborers in the global talent pool, providing MNCs with cheap value-adding services for their products (mechanical engineers in India)- Social demographic of LEDCs, they have a high birth rate and number of immigrants, giving the MNCs a large labor pool. The demographic set up of such countries is also usually pro-capitalist. - Increasing proficiency of the English language Influential Factors- Advancements in transport developments in large vessels and oil tankers lowers the transport time and cost of goods, as manufacturing industries can be located far away from the natural resources needed. - Advancements in information and communications technology widespread use of the internet (gives more freedom to industries to choose its location) and quick flow of information (lowers difficulty to choose their companies over borders) allows a firm to manage its labor, money flow etc. from overseas branches more easily.Impacts of GISPositive impactsCriteria (Host Country)Negative impacts- Depends on MNCs that one attracts (SG attracts green companies to prevent environmental degradation)Physical- Environmental degradations due to CO2 emissions and mishandling of toxic waste from heavy industries Under Kyoto, developing nations, such as China and India, are not obliged to cut their emissions. The reason why under the protocol developing economies are not required to meet definite emission-reduction targets is not to hinder the countries’ economic development and progress Iincreased productivity and efficiency can lead to environmental impacts due to the improper disposal of waste and air pollution (CHINA being one of the world’s largest air polluting countries)- High influx of rural settlers result in emergence of urban slums, causing QOL to decrease. - Urban heat occurs when land becomes a concrete jungle to put up with increased number of people on the same land capacity and also factories. - LEDCs more lax in environmental laws, and thus factories can dispose waste anyhow, and also using up more energy - Fosters good diplomatic ties with countries of origin on the MNCs based on the economic relationship because it is based on economic grounds, both sides are more conscious of keeping the relationship good- Creation of jobs (e.g. 800, 000 people employed in Asia Nike sweatshops)Technological development through technological transfers (e.g. India)Sharing of superior research and managerial expertise by domestic industriesIncreased business from the operation of MNCs(E.g. Vietnam has US$198bn FDI, flowed into pharmaceutical industries, etc.)(E.g. China’s 9.5% growth a year from 1978 to 2010 ever since it opened its doors to FDI)Political- Possible lack of sovereignty due to overdependence on MNCs for employment, GDP etc. - Increase in corruption as government officials want to gain more money from MNCs as the latter wants things done quickly and but things get done slowly due to red tape and hierarchal flows MNCs might bribe officials- With FDI, investors put money in the foreign market, with a complete development of facilities, causing government to lose control over economic and political decision-making as MNCs are not part of the national autonomy- Weak ethics, corrupted government, high number of natural resources gives the MNCs great flexibility and autonomy over how they want their factories to be run to maximize profits- Job employment opportunities in affiliated industries- Increase in wages as compared to before- Some have a better environment to work in (eg not under the sun like farmers)- Increase in country’s GDP (E.g. Vietnam has US$198bn FDI, flowed into pharmaceutical industries, etc/China’s 9.5% growth a year from 1978 to 2010 ever since it opened its doors to FDI/India’s high technology sector is growing at 30% a year, GDP at 7% a year as compared to country of origin like UK whose GDP is growing at 3% a year)) - Creation of jobs (e.g. 800, 000 people employed in Asia Nike sweatshops)- Technological development through technological transfers (e.g. India)- Sharing of superior research and managerial expertise by domestic industriesEconomic- General exploitation of labour force- High dependence on MNCs for job creation- Lack of career advancements as positions such as labourers are reserved for more highly educated people- Gains are never mutual and reciprocal in reality - one party which tends to benefit more economically out of free trade, and the benefit can even border on exploitation. Profit flows to DCs and not to LDCs, or even only towards MNCs, and goods the LDCs produce will not go towards their domestic economy and instead only to the foreign economies (Kenya’s economy has declined with free trade due to exploitation by MNCs from MDCs from the 1970s to 2000s, who exploit their raw materials for the MDCs to make more valuable products there, and then export and sell them for a higher price elsewhere - profit flows to DCs, not the LDCs)- MNCs may end up monopolizing the local market instead, making it vulnerable to sudden withdrawals (Coca-Cola left India in 1977 due to disagreements in economic policies), small-medium enterprises struggle to survive with increased competition from MNCs Crushing and stifling of domestic economies due to influx of superior goods from MNCs which overwhelm and monopolizes the local economy, and can cause bankruptcy - Over-dependence on MNCs to bolster economy will thus cause massive layoffs to ensue and will severely cripple the economy should MNCs decide to leave- Large sums of money flows to foreign countries, money does not stay within the local country- Raise unemployment in LEDCs as foreign technologies replace manual labour (Happened in India’s chemical, pharmaceutical, manufacturing industry)- Increased affluence due to presence of jobs, increased disposable income, increased SOL- Increase in revenue can be rechanneled to building social infrastructure transport network, power supplies, schools, hospitals etc- Greater diversity of cultural practices, increase in FnB diversity and promoting fusion of ideas!- Upgrading of skills and knowledge when they learn and pick up skills from the factories (At Nike factories in Vietnam, workers go through skills upgrading, and the supervisors are ?usually local workers who have gone through management training.- Utilization of profits for development and improvement of infrastructure and facilities that allows for higher efficiency (Improvements in IT/transport infrastructure) -Better wages, especially for LEDCs, and increase disposable income which will also increase the standard of living (Average personal income in China in 1978 was meager, but currently is US$2000 annually)(Indian Microsoft software engineer earns $11000, India’s GDP is $500)- Improved access to health care and clean water and hence improved life expectancy through the provision of adequate medical care and the lowered risk of infection - Increase in choices for domestic consumers (Higher quality goods available such as in China through the entry of foreign-owned ?supermarkets like Wal-Mart, Carrefour, which can allay food safety) (Increased choices such as the availability of branded bags in China (high demand))Social- Cultural erosion of the indigenous - Income inequality as the money doesn’t trickle down to the masses, where they still face poor working conditions, minimum wage, and long working hours because they are exploited Wages: pay is 5% that of a US worker, children work 14 hours a day. (Vietnam workers paid about US $100-$150 a month, in comparison with Chinese workers who ?can be paid close to US$300), The overall basic wage is so low, compared to the local cost of living, workers have no choice but to work more hours than the legal limit, sometimes 11 hours per day, seven days a week, essentially standing in place all day except for two short meal breaks Working Conditions: Bangladesh factory collapse, killing over 300 workers, housed brands like Mango, built with shoddy workmanship and materials, holding 3x the building capacity of weight in workers, Apple’s supply firms in China, workers have died from workplace hazards, labour rights groups claim that 18 workers have tried to kill themselves at Foxconn plants, Foxconn workers are to work for 10 hours a day without toilet breaks and are not allowed to talk to one another, or risk facing a fine - Social tensions when they see how the government officials are thriving and how the foreigners are exploiting them- Changes the lifestyle of the locals (Obesity rate in Mexico is highest in the world at 32.8%, food MNCs like Coca Cola and Macs who price their food at cheaper than healthy food. Number of Coca Cola factories in Mexico is highest in the world + Mexico has water deficit due to increasing demand and limited supply Coca Cola cheaper than water, used as substitute and due to high sugar content, obesity)- Westernization of values Traditional cultural & spiritual values not preserved (Non-Marxist ideologies and cultures from different countries into Vietnam have directly impacted on the country’s social relations, ideology and culture)Positive impactsCriteria (Country of Origin)Negative impacts- organisations can shed light on unsafe/unsustainable manufacturing practices in LEDCs- less carbon emissions as they are now produced in LEDCsPhysical- environmental commitment is questioned (see below)- extreme weather …? (from I have no idea)- Better diplomatic ties with LEDCs- Money from taxation of MNCs can go to help various aspects of societyPolitical- Government may be seen as a hypocrite: Kyoto Protocol countries that have shown to be its leading advocates, such as Japan, Canada, and the members of the European Union won’t be able to meet their targeted reductions of emissions.?- Government may receive a lot of backlash as they do not do anything to stop MNCs from offshoring but instead try to stop as much greenhouse gas emissions irony because MNCs move to LEDCs so they don’t produce greenhouse gases in their home country but in other countries ._. Government can but doesn’t tax MNCs to get revenue for GDP so as to control what MNCs does- Greater specialisation for workers (especially in RnD sector)- Increased profit margins due to decreased amount of money spent on labour and operational costs- Highly skilled workers get opportunities to outsource where they are able to achieve higher wages, exposure, expat status and career advancementsEconomic- MNCs close up job opportunities at home if it is more worth it to invest in a foreign market low wage labourers lose their jobs and employment opportunities- Deindustrialization in MEDCs causing massive layoffs and job losses especially amongst blue-collared workers, drop in income levels - Increase in choices and variety for domestic consumers (Cheaper goods with larger quantity as bulk production costs are lowered)-Freer labor movement between and within countries concerns - Increased SOL, economic revenue, societal infrastructure (more space for that after factories are relocated), better pays if members are transferred overseas- Investment in green technologies when factories are rebuiltSocial- Low skilled labourers lose their jobs when factories with menial labour are shut down and offshored , causing the ones originally struggling to be in a worse state while - Increased income gap and social economic status disparity (Further emphasized by globalization as the rich’s income increases by 223.5% while the poor by only 49.1% in Vietnam.)- Brain drain, families are uprooted when one member is transferred to a head an overseas branch exacerbating the situation of family ties being stretched due to fast pace of life in society- Despite wider range of consumer goods, quality is compromised and questioned.Maintaining a competitive edgeSingaporeCategoryFactorsExplanationPolitical1. Stable, effective government2. Investment-friendly business policies put forth by the government to bolster growth- Responds to situations quickly (work permits approved within __ days) allows for high productivity and efficiency- Government strives for Singapore to be a leader as hub and heart of SEA given strong diplomatic ties, allowing manufacturing industry to tap on synergy with regional partners to enter regional markets.- Proper legislature hierarchy allows secure investments- High stability in Singapore due to single party ruling- Ranked most transparent country in Asia in IMD World Competitiveness Yearbook 2011- Ranked 7th in the world and 1st in Asia for having least corruption in its economy in 2011- Low corporate tax rate: below 9% for profits below $S300, 000, and capped at a flat rate of 17% for profits above $S300, 000. (b) Physical Advantages:? Physical location is a gateway to Asia, given Asia’s rise of truly epic proportions (; ?★ Singapore is located near to emerging economies such as China and India which are in the ?BRIC economic bloc and are high-growth economies ? World’s top transportation hub for air and sea cargo, with extensive sea and air links internationally?★ Dubious about air but it’s definitely top ten. Air freight volume handled in 2008 by Change ?Airport: 1.88 million tons ? Deep sheltered harbor encourages port development and building of infrastructure, which facilitates large shipments of imports and exports ?★ #1 for port infrastructure in the Global Competitiveness Report 06/07 ★ Currently the busiest port in the world for 2011 ? No natural disasters that would cause adverse effects on the economy ? ?Big hinterland that gives access to a large market, neighboring countries are rich sources of raw materials which can be easily transported to Singapore. ?★ Malaysia & Indonesia are rich in tin, petroleum, copper, timber ? Small land size which increases connectivity and proximity to services, as well as heightened efficiency ?★ Land size of SG: 704 km2 ?(c) Economic Advantages: ? High quality labor force with high mastery of English (the language of international business) and also highly literate, educated, highly motivated and have high productivity. ? Good working environment and infrastructure ★ ?Rated #1 by World Bank in 2010 and 2011 for ease of doing business ★ ?Good transport infrastructure (look at physical points above) ★ ?Good communication infrastructure (very network ready: Rated #2 for network readiness by The ?Global Information Technology Report 2012) ? Large flow of capital inputs into the country ★ ?FDI (Foreign Direct Investment) into Singapore was US$39b, #9 in the world in 2011 according to UNCTAD World Investment Report 2011 ★ ?Many financial institutions enhance availability of capital funds. Leading banks reside here Citibank, HSBC, Maybank, DBS etc. ?? Access to key markets due to proximity?★ Proximity to Asian market which is emerging, and has a high demand for goods and services ?? High availability of R&D facilities as well as complementary services?? Protection of Intellectual Property to prevent piracy and gives investors a sense of security ? Stable economic and strong dollar ?(d)Social/Cultural Advantages: ? Fair laws and safe environment which allows for peace of mind and a conducive working environment for people to settle here and start/expand businesses ? Cosmopolitan city with a high Quality of Life ★ HDI Ranking: 26th in 2011 ? High standards of facilities that enhance quality of life ★ ?Availability of entertainment areas ★ ?High healthcare standards (6th in the world in 2000, lowest infant mortality rate in 2007, ranked ?by the WHO) ★ ?High educational standards ................
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