Thu, Jan 03, 2013 - Page 8 News List

Challenges in changing dynamics

By Kung Ming-hsin and Eric Chiou 龔明鑫,邱奕宏

In addition, since the 2008 global financial crisis, emerging markets, such as the BRICS (Brazil, Russia, India and China) nations, have swiftly emerged as driving forces propelling the growth of the global economy. This new economic landscape suggests that these emerging markets are likely to play a more important role in leading the way for the recovery of the global economy than the US or Europe. The robust demands from these countries’ rising middle classes along with their insatiable desire for consumer goods imply that the existing model of the global production chain merely focusing on final products in advanced economies may be obsolete and needs to be overhauled.

Furthermore, given that the EU is still mired in its debt crisis and the US has not recovered from its economic downturn, the brighter economic prospects of emerging markets not only provide a silver lining for the world economy, but also suggest that the traditional roles these countries play in the global production chain as the “world’s factory” may no longer be valid. It is worth noting that China has initiated new policies to transform the structure of its economic growth by gradually reducing economic dependence on exports while expanding the weight of domestic consumption. If this strategy succeeds, the traditional global production chain targeting Western countries as the final consumer may need to be reconsidered. Foreseeing huge business potential in emerging markets, unsurprisingly, more multinationals have adjusted their marketing strategies and production models, placing more emphasis on these emerging markets to secure the benefits of their rising prosperity.

Another critical change is the promotion of “re-industrialization” in advanced economies. Traditionally, Western multinationals have been major proponents of globalization. By moving less competitive manufacturing jobs overseas and engaging in worldwide outsourcing for cheaper raw materials, labor and services, these multinationals have established a highly integrated global production network across borders and generated widespread welfare for both advanced and developing economies. However, while people in advanced economies enjoy low-priced goods from all over the world, they also have to bear consequences such as the loss of manufacturing jobs and a high unemployment rate.

Given the importance of the manufacturing sector in terms of enhancing a nation’s economic security, re-industrialization or revitalizing manufacturing policies have been frequently emphasized in advanced economies since the 2008 global financial crisis. US President Barack Obama has promoted re-industrialization and a revival of the US manufacturing sector by encouraging US multinationals to shift their overseas production lines back to the US. Recently, Apple’s chief executive Tim Cook announced that a line of Apple Mac computers will be manufactured in the US this year.

Coupled with soaring production costs in developing economies, an increased number of multinationals have considered shifting production lines back to more developed countries. As a result, advanced economies may revitalize themselves as manufacturing powerhouse and resumes past glories as leading exporting countries, which would be likely to further alter the structure of global production networks.

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