Home ›› 16 Feb 2022 ›› Editorial
The world economy has passed successively through comprehensive stages of integration with massive globalisation of world economies. Markets for traded goods, and the financial markets, have merged across national boundaries into a truly international structure. Industries that previously enjoyed relatively safe home markets now find themselves faced with the new competition from contestants that had never attempted to market products in their part of the world. Globalization has made worldwide competitiveness critical for survival for business that follows orthodox policies. The demand of products has become homogeneous across borders. Producers of major consumer goods can use similar marketing concepts and approaches to reach the entire global market.
Globalization presents both a major threat and a major opportunity, for both developed and developing countries. It brings the enterprises closer for cooperation. Because of the sharp differences persisting between wages in economically advanced countries and those in less developed ones, the rationale for assembly and co-production across countries became viable. Co-production can be seen as a principal feature of global supply chain and partnership of industries in cross border markets. Enterprises in industrially advanced countries collaborate with firms in developing countries to manufacture a variety of products As a result, labour markets have been integrated into an international system, partly through migration, but mainly through trade in the changing global pattern of the international division of labour.
Before wage differentials became an important factor in world trade, co-production, linked to technology and skill specialization, was primarily a phenomenon of industrialized countries. Thus, production sharing among
industrialized countries have involved sophisticated goods with technologically advanced production processes. Production sharing between industrial and developing countries is a comparatively a recent phenomenon and has been stimulated by transfer of technology and communications.
There should be two main policy objectives regarding production sharing. One is to preserve and enhance the competitive advantages as a production-sharing site; the other should be to promote a tighter linkage of
assembly activities to the rest of the economy.
The global market of individual products has been integrated and the high wages for unskilled labour in industrialized countries will no longer be insulated from international competition. Technological advances in the developed countries are unlikely to offset this trend, so that what remains is a fundamental long term policy choice for industrial societies.
At this stage of globalization, the major challenge is survival of the most efficient and competitive producers. To achieve international competitiveness, many entrepreneurs are now moving their factories in different corners of the world where they could get cheaper or better materials, labour, and vendors, and where laws and governments were more congenial. More and more manufacturers make spare parts and sub-assemblies in different areas of the world and then assemble the complete products elsewhere and sell them in global markets. The location of competitive producers changes constantly, and factories move repeatedly to find the most favourable locations.
Manufacturing industries are often classified as either traditional industries that use stable, widely understood technology to make relatively simple products or high-technology industries that use rapidly developing technology to make a continuous stream of quickly obsolete new products.
The traditional industries have generally been associated with fairly labour-intensive technologies. Because of persistently low wages in the least developed countries and the relatively low investment needed to begin production, these industries have led the burgeoning exports of manufactured goods produced in developing countries.
The high-tech industries, in contrast, depend for their success on access to the specialized resources required for research and development and highly complex production processes. These industries have therefore been located in the industrialized countries. As products mature and technology diffuses, high-tech products eventually become traditional products, and production moves to more competitive locations abroad.
The phenomenon of production abroad may be viewed as a system geared for retaining competitiveness for industries in developed countries after a product has entered the downside of the product cycle. That is, the enterprises that developed the product continue to produce profitably by eventually relocating or subcontracting assembly production facilities in low-wage developing countries. Some of the enterprises particularly the service industries through availing service from white collar workers from developing countries through ICT.
When this strategy works, these firms generally have some other competitive cost advantages, such as access to capital, marketing administration, or technology, since an indigenous firm producing standard products in its native business environment could do so at no greater and possibly at lower cost. Also, production processes must permit such a division of labour, and transportation costs should not be an excessive component of total costs.
In addition to policy change the government must change their orthodox mindset of old pattern policy of controlling the economic activities through approval, permission and so-called close supervision. In order to make an industry or product competitive, country should be competitive through massive reform in policies. Some of those are:
The country should have flexible exchange rate and favourable inflow and outflow of currency.
The country should streamline the administrative procedures. Bureaucratic rigidities in the issuance of permits by regulatory authorities have fostered delays in both establishing and operating firms and should be tenaciously combated.
The country should enhance the logistics, transportation and telecommunication infrastructure.
These co-sharing industries should be streamlined with rest of the economy. It can be affirmed that existing policies of free trade zones, in-bond arrangements, waiving of requirements of national ownership and content, and similar measures are designed to expand assembly operations.
Free trade zones or free economic zones should allow investment in banks, insurance, technical schools, universities and other services.
Support of assembly activities should be aligned with the general trade policy of the country.
The import and export trade should be further liberalised.
The local support enterprises, particularly SMEs should be supported with technology and finance to be competitive and reduce costs and increase quality, and therefore facilitate greater participation of national enterprises in assembly activities.
Go for Free Trade Area agreements as much as possible with countries that are hubs of raw materials and markets for end products.
Investment in technical education and skill development institutions.
Along with trade liberalisation, special incentives might be needed to induce national capital to venture into assembly activities as suppliers or operators. A strong inducement would be to eliminate all restrictions both on production for the domestic market and on assembly for exports. Fluctuations in both domestic and foreign business can be smoothened if operations can be shifted between production for the domestic market and production for export.
The attractiveness of assembly activities to local enterprises could be enhanced further by lifting the restriction on the sale of in-bond assembly products to the domestic market. Overseas investors willing to increase local content will be rewarded with domestic sales as they work to make local enterprises more efficient suppliers of components to assembly plants.
Through the gradual integration of FDI and local industries, the nation will gain optimum benefits of globalization through transfer of technology and market access. There should be real free economic zones to gain confidence and attract more overseas investors. In order to achieve the goal Bangladesh may come out of ‘low cost labour theory’ and concentrate on competitiveness of its products.
The writer is a legal economist. He can be contacted at mssiddiqui2035@gmail.com
