Globalisation and Migration
The Rise of the Global Economy
The Global economy can be defined as the wealth and resources of the world in terms of the production and consumption of goods and services. The global economy had value between $65 and $75 trillion in 2013. The lion share of this economy is in the hands of China and the wealthiest countries of the world. The graphic to the left shows the regions of North America, Europe and Asia as the dominant players in the global economy. The following graph by the economist shows the most powerful and influential countries. GDP stands for the values of all goods and services produced in a year.
Economists always talk about economic growth. Growth refers to an increase in the value of goods and services produced in the year. Governments need growth because it increases their income (revenue) and it means jobs are being created in their country. The world has become increasingly connected and trade between countries has increased. This trade is commonly referred to as imports and exports. Imports are goods and services moving into a country and exports are goods and services moving out of a country. Governments either want this to be balanced or for exports to be greater than imports. If imports are greater than exports it is possible that debt increases. The graphics below show the increase in global trade between 1960 and 2000.
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In addition to countries becoming more connected in the global economy, production has also increased rapidly. World production increase can be seen in the chart, bottom left, which shows that GDP by region has increased in all regions. However, take note of the steepness of China's growth. The second chart shows the growth of the emerging economies or Middle Income Countries (MICs). Their share of world GDP according to the graph was expected to overtake HICs in 2012.
It must be noted that MICs represent a much larger group of countries compared to HICs and so the graph doesn't suggest that MICs are in fact richer than HICs. A large part of this growth owes itself to the growth of China and India. The growing importance and contribution to world growth can be seen in the green and pink section of the graph to the left.
Global economic growth is the result of increasing production and increasing conectivity between countries. This means that governments and Transnational Corporations (TNCs) can take advantage of this connectivity to reduce costs of production and services. |
The production of goods relys on a commodilty chain. This commodity chain includes all the raw materials and component parts needed for the assembly of a larger or more valuable good. In the past corporations relied mainly on a local commodity chain. However, the global economy relies on a global commodity chain with raw materials and component parts being produced in many different countries, then transported to another country for assembly and then finally transported to other countries for sale. The global commodity chain has developed because of many factors, including:
- Improved connectivity through transport innovation
- Improved international relations
- Foreign investment
- Development aid
- Cheaper and well educated labour markets
- Advances in technology and communication
Improved connectivity through transport innovation Advances in transport such as the combustion vehicle, train, bullet train and jet have reulted in a shrinking of the world. Places are now more closely connected by a dense network of road and rail routes. Countries are directly linked by major international and regional airports, international shipping routes operate like motorways and trade infrastructure like ports and railway is intergrated. Technologies like containerization and refrigeration have created the need for roll-on-roll-off ports. Global standardisation for all freight has rapidly sped up the movement of trade and therefore the costs to transport it. |
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Advances in technology and communication
Technology advances have reduced the time it takes to get from one place to the next and have drastically reduced time and cost in the transport of goods but technology has an equal role in reducing time and cost of services. Computers, the internet, mobile phone technology, social network sites and online services like skype allow for the transfer of massive amounts of data and information. People are connected and this has enabled both governments and corporations to work across countries much more closely. Technology advances in computers, fibre-optics, nano-technology, medicine and in robotics are speeding up production of goods, reducing waste and increasingly improving efficiency in energy and water use. |
Improved international relations
The world has enjoyed over 70 years of relative peace following the two world wars of the twentieth century. Peace and closer international relations has been nurtured by a number of multilateral organisations. Political and economic unions like the EU or NAFTA allow for increased political and economic integration. Organisations like the UN, the World Trade Organisation and the World Bank encourage closer international relations, trade and development. The west and OECD countries have promoted democracy as the main political vehicle for increasing economic growth and prosperity. |
Foreign investment
Foreign investment or foreign direct investment (FDI) is the flow of financial capital into a country. It is mainly controlled by corporations investing in a country to improve its production. It can be investment in infrastructure, energy, transport or industrial production. FDI creates benefits for the recipient country, mainly through employment but also improved infrastructure. Most FDI remains in developed countries but increasingly it is being paid into developing countries. The graph below shows the close relationship between FDI and job creation in the Midlands, UK. |
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Development Aid
Development aid from HICs to LICs is complex. In short, aid is a gift from one country to another to assist with development. However the way countries qualify for develoment aid isn't always clear. For example despite China's incredible economic rise over the last 30 years, the UK still pays development aid to China. In 2008/09 The UK sent £40 million in development aid to China despite China overtaking the UK in size of GDP. Aid represents only a fraction of financial flows between countries compared to FDI but in addition to providing assistance for development it is also beneficial for establishing contracts through tied aid and building stronger political ties between countries. The video to the left explains the change in EU aid policy. Tied aid refers to aid given with certain conditions attached, e.g. a reduction in import taxes or job contracts. |
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Labour Markets
As developing countries emerge, develop and improve infrastructure they increasingly attract industry. Another factor is the labour market. Some developing countries have the advantage of well educated, skilled and low cost labour. The working environment is also less expensive because working rights such as paid benefits, shorter working hours, holiday pay etc are less regulated and controlled. Less investment is required in health and safety and because of an absolute need for work, the labour market is more pliant and respectful to authorities. Trade unions are not as well established and workers tend to be more productive. |
The Changing Role of India and China
India and China both have a changing role in the global economy. As already discussed both countries have seen a rapid increase in production with China for now taking the lead. China is now the second largest economy in the world. According to a recent report by the OECD China will stabilise its position by 2030 and India will emerge with rapid growth overtaking the US by 2060. The combined GDP of China and India by 2060 will be greater than the total of the other 34 country members of the OECD. The pie sharts below show the growth of China and India as well as declining contribution of the US and EU.
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China's Changing Global Role
The most important factor causing China's growth has been its political will to become a market-orientated economy focused on the bulk export of low-cost manufactured goods. Within an authoritarian communist state what ever the state decides it wants to do it simply goes ahead and does it. The second most important factor is the supply of cheap labour and up to now this has been in abundance as poor young migrants from the rural regions arrive at the big Eastern cities in search of work. However, as explained in an earlier video this may be about to change. |
Up to now China has specialised in low-cost manufactured goods and effectively has taken the world by storm, by exporting every type of product imaginable. China's main trading partners can be seen in the graphic to the right. But China's exports are also getting increasingly hi-tech. For example, a fifth of the region of Guangdong's industrial output is now consumer electronics. It is the biggest sector, worth 4.3bn yuan ($500m). One reason for this is investment from foreign electronics and telecoms giants like Nokia, IBM, Phillips and Siemens. Foreign firms investing in China do so partly to tap its growing consumer market. But overwhelmingly these electronic giants are producing for export. As China increases the value of its manufactured exports it will increase its share of the global economy.
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With its economic strength comes a need for China to take on a more mature political role in the world. Up to now China has persued economic growth policies. It has trading partners that can assist with the supply of raw materials. China is the second biggest importer in the world. China’s main imports are electromechanical products (43 percent of total imports). The country is also one of the biggest consumers of commodities in the world. It is the world largest importer of crude oil and hugely influential in importing both coal and wood. China has improved its international relations with African states and has developed (arguably exploitive) trading partnerships. With a massive trading surplus China has enjoyed a global role in providing loans to Africa but is also influential in providing loans to the EU and USA. China needs to show how it can be a global leader for the good. China's political role is changing. It now needs to show itself as a leader and global governer in regard to conflict, trade and climate change. The following video, provides an interesting personal account of the prospects of China becoming a world superpower.
India's Changing Global Role
India is one of the world’s fastest growing economies. The growth in its population and higher standard of living are driving growth forward. In particular the subcontinent’s IT sector, construction industry and automobile sector are drivers of the growth while the demand for consumer goods is also rising.
India is one of the world’s fastest growing economies. The growth in its population and higher standard of living are driving growth forward. In particular the subcontinent’s IT sector, construction industry and automobile sector are drivers of the growth while the demand for consumer goods is also rising.
India is currently undergoing huge change. According to MD research it is the second most attractive FDI location in the world. In 2009/10 India received $25.9 billion and has received $172 billion since 2000. This is expected to increase with Indian infrastructure requirements and new manufacturing policy that is expected to open up $1 trillion of investment opportunity. The Indian car industry is now the 7th largest in the world with a turnover of $73 billion, 6 percent of GDP and is expected to double in the next 3 years. Urbanisation is increasing rapidly and is expected to double by 2030. A major difference between China and India relates to the structure of the economy. Whilst China has an export economy India has a huge domestic economy with over 672 miilion people forming a strong internal consuming market.
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The Global Shift in Manufacturing
The global shift in manufacturing refers to the movement of manufacturing away from HICs to emerging economies. This began in the 1960s and 1970s with the emergence of the Asian economies, sometimes referred to as the Four Tigers, including Hong Kong, Singapore, South Korea and Taiwan. Hong Kong and Singapore have become world-leading international financial centres, whereas South Korea and Taiwan are world leaders in manufacturing information technology. But it didn't start there. At first Taiwan was famous for low cost-low quality manufactured items and its economy has matured to high-end manufacturing. Today other Asian economies are emerging as manufacturing sectors, such as Malaysia, Vietnam and Cambodia and of course China. The strongest and most developing economies today can be referred to as the BRICS economies. These are Brazil, Russia, India and China. The global shift in maufacturing from developed economies to emerging economies can be explained by the following factors:
Shift away from developed economies
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Shift to emerging economies
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Needless to say all these factors allow for cheaper and more productive manufacturing in emerging economies. Costs are high in developed economies and so low-value manufacturing has shifted to emerging economies. Economists just call this comparative advantage.
The Role of TNCs in the Global Economy
Trans National Corporations are companies that operate within and across a number of countries. They are the most important players in the global economy. They control the flows of FDI between countries are increasingly the big investors in FDI in developing and emerging economies. The graph to the left shows the percentage of profit coming out of developing regions by a selection of the top TNCs. In addition, TNCs control intellectual property through patents and through investment in research and development. This investment seeks to gain controlling interests in all products from transport to food and from medicine to weapons. TNCs also have the financial capital to support huge global marketing campaigns to create demand for its products. Companies like Nike do this through huge celebrity endorsements that cost $billions each year. Other companies like Apple use a technology-push strategy that creates a demand for products that didn't previously exist.
The influence of TNC is not considered by all to be only positive. TNCs are considered by many to be too powerful and exploitive. Many examples of TNCs exploiting the lives of local people exist. Because TNCs are so powerful they are able to negotiate deals that take adavantage of weaker countries. This can lead to:
- environmental exploitation and damage including freshawater and forest
- poor working condition
- long working hours with few worker rights
- child labour
- unfair dismissal
- land confiscation
- unfair contracts
The following two videos give an insight into the problems of large TNCs in the global economy.
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The Global Operations of Nike
Nike is a huge TNC with a massive global reach. Nike's head office is located in Beaverton, Oregan in the USA. It is a state of the art headquaters that is primarily focused on research and development (R&D) in sports equipment. It employs the best creative and scientific people to plan and design new products and marketing strategies. Nike's manufacturing operates across many countries, through an outsourcing strategy. Outsourcing means that Nike doesn't invest or own factories manufacturing Nike products. This allows Nike to reduce its production costs and doesn't take on direct responsibility for the pay and welfare of its workers. However, it does operate a strict ethical policy for all its contracted factories. Nike has contracts with independent factories to manufacture Nike products. Virtually all of Nike's footwear is produced outside of the United States. In 2009, contract suppliers in China, Vietnam, Indonesia and Thailand manufactured 36%, 36%, 22% and 6% of total NIKE brand footwear, respectively. Nike also have manufacturing agreements with independent factories in Argentina, Brazil, India, and Mexico to manufacture footwear for sale primarily within those countries.
Almost all of Nike brand apparel is manufactured outside of the United States by independent contract manufacturers located in 34 countries. Most of this apparel production occurred in China, Thailand, Indonesia, Malaysia, Vietnam, Turkey, Sri Lanka, Cambodia, Taiwan, El Salvador, Mexico, India and Israel.
Nike is a leading sports company in clothing footwear and equipment manufacturer. In 2009 its total revenue as over $19 billion. It is the leading global brand in sports footwear with a 31% market share, 35% including Converse. It’s also a leading brand in sports apparel although this remains a much more competitive market.
The following interactive map shows the level of transparency Nike offers in regard to where and who is employed manufacturing Nike products. It provides information on the location of each factory, what it manufactures, the number employed and the gender of its employees. From this information it's very clear to see the dominance of China in the manufacturing of Nike products and within China the importance of female factory workers.
Almost all of Nike brand apparel is manufactured outside of the United States by independent contract manufacturers located in 34 countries. Most of this apparel production occurred in China, Thailand, Indonesia, Malaysia, Vietnam, Turkey, Sri Lanka, Cambodia, Taiwan, El Salvador, Mexico, India and Israel.
Nike is a leading sports company in clothing footwear and equipment manufacturer. In 2009 its total revenue as over $19 billion. It is the leading global brand in sports footwear with a 31% market share, 35% including Converse. It’s also a leading brand in sports apparel although this remains a much more competitive market.
The following interactive map shows the level of transparency Nike offers in regard to where and who is employed manufacturing Nike products. It provides information on the location of each factory, what it manufactures, the number employed and the gender of its employees. From this information it's very clear to see the dominance of China in the manufacturing of Nike products and within China the importance of female factory workers.
Headquarters, Beaverton, Oregan
The following two videos give an insight into the creative design, expertise and technology available for research and development at the NIke headquaters.
The following two videos give an insight into the creative design, expertise and technology available for research and development at the NIke headquaters.
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The pros and cons of Nike's global operations.
There is no doubt that Nike has an important impact on regions it has outsourced manufacturing contracts to. Nike is an important global company that brings prestige into a region and with it employment opportunities that pay fair wages at a level comparable to regional or national minimum levels. The following statement is taken from Nike's own website.
Nike requires our suppliers to pay workers at least the locally mandated minimum wage and benefits, and any additional benefits outlined in individual employee contracts or collective bargaining agreements. We require contracted manufacturers to comply with a standard against which we can audit consistently. Where factories are found not to have met these standards, we require remediation action.
Nike contracts may also draw additional employment opportunities into a region via a multiplier effect due to the demand for additional components and supply chains required for Nike manufacturing. However, Nike has limited impact and control on either the employment work conditions or pay of these supply-chain factories.
Nike operates an impressive and transparent website on its factories and it is also is very open to some of the problems that have arisen through its experience of outsourcing. The most prominent problem relates to how Nike regulates the working conditions of people employed in factories producing Nike goods. The most notoriuos example of Nike failure was the Hytex Apparel factory in Malaysia in 2008. Here migrant workers from LICs including Vietnam and Bangladesh were treated like farm animals, with as many as 350 men forced to live in single tin sheds adjacent to the factory. The following video reveals the squallid living conditions at the Malaysian factory. In this example, workers were trapped without passports and papers, forced to sign 3 year contracts, and payed just $45 for 6 days work.
There is no doubt that Nike has an important impact on regions it has outsourced manufacturing contracts to. Nike is an important global company that brings prestige into a region and with it employment opportunities that pay fair wages at a level comparable to regional or national minimum levels. The following statement is taken from Nike's own website.
Nike requires our suppliers to pay workers at least the locally mandated minimum wage and benefits, and any additional benefits outlined in individual employee contracts or collective bargaining agreements. We require contracted manufacturers to comply with a standard against which we can audit consistently. Where factories are found not to have met these standards, we require remediation action.
Nike contracts may also draw additional employment opportunities into a region via a multiplier effect due to the demand for additional components and supply chains required for Nike manufacturing. However, Nike has limited impact and control on either the employment work conditions or pay of these supply-chain factories.
Nike operates an impressive and transparent website on its factories and it is also is very open to some of the problems that have arisen through its experience of outsourcing. The most prominent problem relates to how Nike regulates the working conditions of people employed in factories producing Nike goods. The most notoriuos example of Nike failure was the Hytex Apparel factory in Malaysia in 2008. Here migrant workers from LICs including Vietnam and Bangladesh were treated like farm animals, with as many as 350 men forced to live in single tin sheds adjacent to the factory. The following video reveals the squallid living conditions at the Malaysian factory. In this example, workers were trapped without passports and papers, forced to sign 3 year contracts, and payed just $45 for 6 days work.
Nike responded to the investigative report immediately, stating how this did not meet Nike standards. The full Nike statement to the Hytex incident is also permanently placed on their website and linked to above. From NIke's website there appears to be a very genuine and transparent approach to the problems they encountered in Malaysia. However, it is also realistic, the news report was an outstanding piece of investigative reporting and is permanently on youtube, there really is no hiding place for Nike with this one.
It must be stated that this is not an isolated incident. Many companies such as GAP and Primark have experienced similar problems with regulating outsourced manufacture. Nike does appear to be very committed to improving its regulation of factories. The following statement is taken directly from their website.
We believe this experience has strengthened our overall work commitments to improve conditions for workers in our supply chain around the world. To help ensure the above corrective actions are maintained, Nike implemented a robust migrant worker policy that covers not only the issues found in Malaysia, but the employment of migrant workers throughout our global supply chain.
It must be stated that this is not an isolated incident. Many companies such as GAP and Primark have experienced similar problems with regulating outsourced manufacture. Nike does appear to be very committed to improving its regulation of factories. The following statement is taken directly from their website.
We believe this experience has strengthened our overall work commitments to improve conditions for workers in our supply chain around the world. To help ensure the above corrective actions are maintained, Nike implemented a robust migrant worker policy that covers not only the issues found in Malaysia, but the employment of migrant workers throughout our global supply chain.