Transcript The Global Economy and Southeast Asia

The Global Economy and Southeast Asia
Global Economy
• Common to buy clothing anywhere in US which
has a tag labeled, ‘Made in Malaysia, Indonesia
or Vietnam’
• Simple observation reminds us that our
consumption of goods has a strong international
character
• Increasingly true to speak not only of national
economies but a larger, highly inter-connected
and interdependent- GLOBAL ECONOMY
• Before discussing basic mechanisms of
industrialization and economic change within
Southeast Asia, important to look at the broader
global industrial environment within which these
nations are forced to compete
Setting the Stage: Origins of the Global
Economy
• Since 1970s world economy hit by
turbulent forces
• Unemployment in western countries
• Traditional industries (iron and steel) have
declined
• LDCs bearing huge financial debts which
threaten drive for development
• Trading tensions have emerged between
industrial countries and the newly
industrializing countries
Causes of These Conditions?
• Some argue that continuing OPEC
escalation of oil prices through limited
production is root cause
• Had some effect but too simple an answer
• More profound changes in world economic
structure were underway before this
• Increasingly growing consensus that world
economy has become more volatile,
complex and tightly connected
• Countries affected by what is happening
abroad and at larger geographical scale
Internationalization of Trade and Labor
• As with Japanese autos, American
computers and Taiwanese calculators
there is an emergence of a “new
international division of labor”
• Basically a change in geographical pattern
of specialization at the global scaleconstantly changing and very dynamic
• Example: movement of textile and shoe
production from Indonesia to China
International Division of Labor
• Division of labor has taken on spatial
dimensions- some areas come to specialize in
certain types of economic activity
• At broad scale : industrialized countries ---
manufactured goods while non-industrialized
countries --- raw materials
• However this simple pattern no longer exists
• Now much more complex structure involving
fragmentation of many processes and their
geographical relocation on a global scale
Forces Surrounding Global System of
Production
• These four factors are affecting production
patterns:
• 1. Trans-national or multi-national
corporations (MNCs)-firms that operate in
many nations
• Increasingly these firms have local production
points and suppliers that operate across national
boundaries providing and securing labor, capital
and other resources from a variety of places
Forces Surrounding Global System of
Production
• 2. National governments- through their
industrial, trade and foreign policies especially
liberalization policies
• Liberalization refers to the way in which policies
facilitate transactions (trade and sales) of a
variety of products and services
• Deregulation refers to the easing of taxation,
entry and pricing of products or services dictated
by government policy
• Privatization refers to the ownership of former
public sector operations and firms by private
corporations and enterprises
Forces Surrounding Global System of
Production
• 3. Enabling Technologies- transport,
communications, production and organizational
improvements
• Explosion of enhanced transport and
communication services such as air cargo,
integrators offering definite time delivery (FedEx
and UPS), electronic mail and electronic data
interchange (EDI)
• Advanced inventory management such (just-intime (JIT)) and new systems of distribution such
as third party logistics (3PL)
Forces Surrounding Global System of
Production
• 4. Shifts in Market Conditions and Demand
• Economic cycles affect markets and production,
e.g. the Asian financial crisis
• Dramatic shifts in demand affect over time
influence type of good being produced and
production schedules
• Application of new technology can mean product
obsolescence
• These changes can be described in part through
product life cycle
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What was the Asian Financial Crisis?
Financial crisis not due to cronyism but failure of
private sector
Rapid investment and excessive borrowing after
period of liberalization
Bubble economy (prices well above those
justified) developed in real estate and financial
institutions
Collapse of export growth provided trigger that
undermined baht, produced non performing
loans and provoked capital outflow
Export collapse caused by increase in real
wages, competition from China and labor
intensive industry unable to adjust
Devalued currency bad for high import content
goods but good for resource based products
Urban areas unemployment and high prices
Product Life Cycle- growth in sales of product follows
systematic path, from initial introduction to market through
development, growth, maturity, decline and obsolescence
Competition
Sales
Monopoly
Idea
Promotion
Research and
development
Stage 1
First competitors
Mass production
Decline of
production
Growth
Maturity
Decline
Stage 2
Stage 3
Stage 4
Hinterland
Global Financial Centers
Telecommunications
Space
Time
London
Los Angeles
Tokyo
New York
Hong Kong
Singapore
Stock Market Opening Period
Global Production Chains and Networks
• Production Chain: Materials >
Procurement > Transformation >
Marketing and Sales >Distribution >
Service
• Definition: transactionally linked sequence
of functions where each stage adds value
to the process of goods and services
production
• Two aspects important: coordination and
regulation and geographical configuration
• Production chains may be very localized
but increasingly are global in scale to take
advantage of international division of labor
KIA Auto Parts Flow
• Assembled in S Korea KIA Sorrento clear
example of global supply chain
• Uses 30K parts from all around world
• Parts shipped from places as diverse as
Wales and Mexico—but very risky
• War in Iraq and piracy in Malacca Straits
• Demonstrate surprising adaptability due to
advance planning, multiple sourcing of
parts and ability to shift routes on short
notice
KIA Auto Parts Flow
• Communicates regularly with suppliers-at
least once a week
• Order several months in advance
• If necessary use air freight instead of sea
freight
• Greater demand forced KIA to air freight
airbags from Swedish company which
makes them in the U.S.
• Greater expense of trans-Pacific flight
better than slowing down production line