The Global Shift In Manufacturing

The global economy is not only expanding in size and extent , it is also changing. For example, new services are appearing within the tertiary and quaternary sectors. Advances in technology are creating new branches of manufacturing, most notably the high-tech industries. Modern communications are leading to new ways of working and new work locations. Teleworking and outsourcing are two such examples. However, no less significant is that established braches of manufacturing are shifting their locations from HICs to MICs and then from MICs to LICs.

Perhaps the greatest impact that the TNCs have had is on the global distribution of manufacturing. As a result of their policy of looking for the cheapest locations at which to make their products, factories have been closed down in HICs. They have been replaced by new factories (branch plants). So the global shift in manufacturing is the outcome of deindustrialisation in the developed world matched be industrialisation in the developing world.

The UK was the world’s first industrialised nation. It led the Industrial Revolution. Today however, manufacturing produces about 25% of the country’s economic wealth (GDP). Fifty years ago, the equivalent figure was 40%. The UK has now lost most of its traditional industries, such as iron and steel, ship building and textiles. The world is still producing those commodities, but in what the TNCs see as today’s low-cost and more profitable locations. These are locations with some comparative advantage i.e.:

  • Relative distance from a raw material source, such as iron, ore or oil.
  • The availability of cheap land for building large new factories.
  • The presence of cheap or unregulated labour, therefore meaning that a company could pay workers less and make them work longer hours, often in less safe working conditions.
  • The absence of tight anti-pollution regulations – this can be a strong attraction to those industries, such as the manufacturers of steel and chemicals, that are big polluters of air and water.

Because modern transport is so efficient and relatively cheap, it does not matter too much where these low-cost locations are situated. These factories can be thousands of kilometres from the main markets for their products. They can assemble parts made in different continents.

The main winners have been Asia, particularly the so-called `emerging economies` – China and India. In a short period of time china has become one of the world’s leading manufactures.

It would be wrong to think that the global shift in manufacturing has left the UK and other HICs without any industry. In fact, the UK still ranks sixth in the global shift in the global league table of manufacturing nations. This is explained by the fact that many of the remaining industries are making relatively high value products. Good examples would be the high-tech industries, such as aerospace, telecommunications, biotechnology and nanotechnology.