Group Presentation For Geographical Economics:
Download
Report
Transcript Group Presentation For Geographical Economics:
Group Presentation For
Geographical Economics:
Topic ‘C’ Outsourcing Vs. Firm
Competition
Members of Group 4:
Tilahun Fekade
Felix Mulenga
Mwansa Sambo
Paper Review
• Title: Just How Big is Global Production
Sharing
• Authored by Alexander J. Yeats
• Objective of presentation: Highlighting
major contents of the above article
Production sharing Defined:
“The internationalization of a manufacturing
process in which several countries participate at
the different stages of the manufacture of a
specific good”
It thrives on the premise of “least cost” and
“efficiency” of production.
Brief introductory history of
“Production Sharing”
Primary commodities from developing countries/colonies were
shipped to the big empires/ industrial nations for further processing,
and part of processed products were were re-exported.
Example : Iron ores exported from Mauritania to Europe. Steel
products then re-exported to Mauritania.
Mid 1960’s saw the unprecedented development of “specialized labor
intensive production activities within vertically integrated
international manufacturing industries”
Examples: industries producing computer components in Asian
countries, and wearing apparels and leather goods in Caribbean
countries
scope of the reviewed paper
• Relative importance of the production
sharing in the overall trade
• Contribution and place of different
countries
• Causes and promoting factors
• Positive/negative impacts on the domestic
economies of the participating countries
Major Data Inputs Utilized
More disaggregated international trade statistics
from the revised SITC(1 & 2) and OECD with
regard to:
•
•
Data on re-entry of domestically produced
components assembled abroad
The ease to locate and empirically estimate:
(a) actual location of production of parts and components;
(b) direction and composition of trade flows; and
(c) magnitude of trade flows
Notes on the SITC Identification
In its revised form the SITC is most complete for the
machinery and transport equipment group (SITC7)
which is also the main focus of the study:
•
SITC 1 identified 800 products of which 10 consisted
of individual parts or components under the fifth digit;
•
SITC 7 identified 50 individual products under 3, 4
and 5 digit groups
Only four of the forty-four SITC products taken together accounted
for over 70 per cent of the total trade in parts and components:
Share of total (%)
Table 1
The 1995 Value and Share of OECD Imports of Parts and Components Identified in the SITC Rev. 2System
Trade Balance: OECD Vs. Non-OECD Countries
Exports of OECD exceed imports (17 %),
- Most assembly operations are labor intensive and non-OECD
countries generally have a comparative advantage in these
type of activities.
-Relative importance of such trade within trade blocks is more
significant than with other countries outside the trade blocks.
-Decisions are not necessarily based on considerations of
differences in real wage rate per se, in fact they rely on more
secure trading arrangements trade blocks offer for member
countries
Trends in Export:
-The total market share of Germany and US in
the trade in parts and components decreased from
40% to 23% between 1978 and 1995;
-The share of developing countries showed
significant increase (e.g., China’s share increased
from 0.2 to 2.4%, associated with increases in the
value of trade from $ 0.2 billion to $10.7 billion
(Table 3)
Offshore Assembly Processing
(OAP)
• Most industrialized countries’ tariff schedules
provide special favorable treatment for re-imports
of domestically produced components that are
shipped for further processing
• Possibility for underestimation due to parallel free
trade arrangements such as CBI and NAFTA
• 40 per cent of imports to US during 1993- 1994
were accounted by road motor vehicle parts.
• Plus: micro electric components and apparel
Some perspectives on factors affecting South North production sharing (OAP):
1. Trade Barriers
-Through OAP developing countries adopt outward oriented
growth strategies of component assembly whereas firms,
located in industrialized countries could handle marketing and
distribution functions
2. Labor Costs
There are marked differences in wage rates, and lower
wages in developing countries offer possibilities to the
firms in the industrialized nations in terms of:
•
Reducing overall production costs;
•
Increasing profitability in domestic markets; and
•
Increasing competitiveness in third markets.
3. Distance & Transport Costs
•
When the share of transport costs out of the total value
of a given product is low, then that offers possibility for
its assembly abroad
•
Despite very low wage rates, adverse transport costs
have affected negatively the participation of most
countries in SSA under OAPs
4. Governmental influences
•
The investment climate: the attractiveness of investment
and trade policies, e.g., the presence of tax holidays,
availability of subsidized rent and infrastructure
(industrial zones) and possibility to repatriate profits in
foreign currency, practical measures to improve the
levels of literacy, ICT
•
Risk of supply disruption: linked with the level of good
governance (stability of governments and policies) as
well as the quality and efficiency of ICT and Transport
infrastructure
Conclusion:
•
Global production sharing is indeed big: It accounts for
30% of the total exchange in trade in machinery and
transport equipment;
•
At least $ 800 billion of world trade in manufactures –
which totaled approximately $ 2.7 trillion in the early
1990’s – consisted of some form of global production
sharing operations;
•
There is an increasing trend in trade between countries
whereby such trade is increasingly taking the form of
exchange in components and parts than in terms of
finished products –Growing economic interdependence
between countries
•
However, production sharing is not spread evenly over
countries and/or products.