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The Global Economy

The global economy has become highly interconnected due to several forces. Products are commonly made in multiple countries as manufacturing processes have fragmented across borders. This has led to the rise of multinational corporations and global production chains. New technologies in transportation and communication have enabled the efficient movement of goods, capital, and information worldwide. Shifting market conditions also influence where manufacturing takes place over the course of a product's life cycle from introduction to decline. The document discusses how these various factors contribute to the complex, dynamic nature of the global economic system.

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Nemes Samuel
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77 views22 pages

The Global Economy

The global economy has become highly interconnected due to several forces. Products are commonly made in multiple countries as manufacturing processes have fragmented across borders. This has led to the rise of multinational corporations and global production chains. New technologies in transportation and communication have enabled the efficient movement of goods, capital, and information worldwide. Shifting market conditions also influence where manufacturing takes place over the course of a product's life cycle from introduction to decline. The document discusses how these various factors contribute to the complex, dynamic nature of the global economic system.

Uploaded by

Nemes Samuel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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The Global Economy

Global Economy
Common to buy clothing anywhere in US which has a
tag labeled, Made in Malaysia, China or Sri Lanka
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 Third
World, 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 five 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 and
which have become very powerful and important
influences in the global economy

Sequential Model of TNC Development


Stage I- Serve domestic market only
Stage II- Export to overseas markets through
independent channels (sales agents)
Stage III- Establish sales outlets in overseas
markets by acquiring local firm and/or setting up
new facility
Stage IV- Establish production facility overseas
by acquiring local firm and/or setting up new
facility

Basic Enterprise

Ta
rif

1
Nation
Center

er
h
Ot

tio
a
N

Factory

Penetration of a National Market

Geographical Growth of a Multinational


Corporation

Distribution center

Multinational Corporation

Penetration of Foreign Markets

Representative

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)

Just-in-Time and its Logistic


Delivery units for
parts

Production Unit

Delivery units for


finished goods

se
ou
eh
ar
W

Old warehouse before


Just-in-Time

FACTORY
Assembly Line
Moving storage
units

Assembly and warehousing


place

Moving storage
units

% of Products Shipped for Just-in-Time


Manufacturing

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

Product Life Cycle


Essence of PLC is that growth in sales of
product follows systematic path, from
initial introduction to market through
development, growth, maturity, decline
and obsolescence

Product Life Cycle


Competition

Monopoly
rs
it to
pe
m
Co

Sales

Inno

Idea

Promotion

Research and
development
Stage 1

vati
ng f
irm

First competitors

Mass production

Decline of
production

Growth

Maturity

Decline

Stage 2

Stage 3

Stage 4

Cellular Phones of Nokia


Evolution of basic Cellular
phones are an example
of a product which is
especially applicable to
the notion of the product
life cycle
phone to color
enhancement to camera
and email device

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 Mexicobut 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

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