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Globalization of Industry Through Production Sharing
Pages 86-105

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From page 86...
... Thus, globalization presents both a major threat and a major opportunity, particularly in developed countries. Industries and companies that previously enjoyed relatively safe home markets now find themselves faced with the possibility of new competition from companies that had never attempted to market products in their part of the world.
From page 87...
... EVOLUTION OF PRODUCTION SHARING FROM THE POINT OF VIEW OF THE DEVELOPED COUNTRY: THE U.S. CASE Production Sharing and Industry Life Cycles In discussions of the changing international division of labor, 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.
From page 88...
... The emergence of overseas assembly activities was a natural result of growing worldwide competition in the manufacturing industry in the postwar period. As Western Europe recovered and Japan quickly became an important industrial power, the United States was the first to face new competition because its wages were so high relative to those throughout the rest of the world.
From page 89...
... The remainder came from U.S. firms dealing with independent contractors and jobbers abroad and from foreign firms securing U.S.
From page 90...
... EVOLUTION OF PRODUCTION SHARING FROM THE POINT OF VIEW OF THE DEVELOPING COUNTRY: THE MEXICAN CASE Factors Contributing to Mexico's Importance as a Production-Sharing Site It is not surprising that Mexico has become an important partner in assembly activities abroad, since U.S. firings can gain substantial competitive advantages by operating there.
From page 91...
... The U.S. economy is currently about 20 times the size of the Mexican economy (see Figure 21.
From page 92...
... This was achieved by a public spending policy that kept government finances in equilibrium by assigning the private sector an enhanced role in economic activities. Equally important was that a trade policy based on import substitution permitted the creation of a major industrial infrastructure throughout the country and also financed the education of the majority of the Mexican population.
From page 93...
... It has stayed undervalued ever since, through continuous slippage of the panty rate of the peso. Consequently, the real cost of unskilled labor has declined and the cost of labor has become competitive with labor costs in other newly industrializing countries (see Figure 31.
From page 94...
... At that time, Mexico instituted its border industrialization program to increase the advantage of its proximity to the United States. This program was aimed at absorbing the potential border unemployment arising from the 1964 termination of the bracero or temporary worker program between the United States and Mexico.
From page 95...
... issues of Assembly Operations in Mexico Because so many foreign firms are involved in Mexican assembly activities, Mexicans and others have extensively debated its merits for the country.
From page 96...
... The critique centers on three principal issues: · the absence of significant linkages of assembly activities to the Mexican economy; · the effects on the labor force and on society in the areas where maquiladoras are concentrated; and · the vulnerability of maquiladoras to swings in the U.S. business cycle and their general dependence on decisions made outside Mexico.
From page 97...
... The experience of Hong Kong, the Republic of Korea, Taiwan, and Singapore seems to prove that assembly activities will eventually integrate assembly production into the national economy. However, to break the vicious cycles that have prevented further linkages of the maquiladora operations to the rest of the economy, specific policy actions must be undertaken.
From page 98...
... Although the growth of the assembly industry in Mexico after 1982 can be related in part to the devaluation in that year, the effects of the recent recession in the United States confirm the conclusion drawn from the experience of the mid-1970s: The downward trend of U.S. business cycles is reflected to a much smaller degree, if at all, in Mexican assembly activities for U.S.
From page 99...
... Growing evidence suggests that assembly activities are highly competitive in the global environment and that the international outsourcing of production by firms is responsive to cost changes. Therefore, if Mexico wants to promote growth in its maquiladora sector, it will have to continue pursuing competitive exchange rate policies.
From page 100...
... Heightened competition arising from trade liberalization will force national firms to reduce costs and increase quality, and therefore facilitate greater participation of national enterprises in assembly activities. With lower costs, firms could reduce prices of products that could serve as inputs for the assembly plants.
From page 101...
... Trade theory predicts that wages as well as other factor prices will be equalized across countries, and continued downward pressure on real wages of the unskilled manufacturing workers seems likely. Policy Implications for the Developed Countries Recent and growing criticism of free trade in general, and offshore production sharing in particular, centers around a strong ideological belief that the key objective of trade policy is the maintenance and creation of jobs.
From page 102...
... An additional 750 million people will enter the labor force by the year 2000, of whom 680 million will come from Third World nations. Developed economies must continue upgrading their labor forces to avoid competition that would erode the standard of living of their less-skilled laborers.
From page 103...
... A special effort should be made to provide incentives for the United States and developed country subsidiaries to provide the necessary technological expertise that domestic suppliers need to efficiently supply assembly operations. It is also clear that subcontracting with local firms in developing countries is more conducive to technology transfer and the establishment of linkages than is operating assembly plants abroad through U.S.
From page 104...
... As long as sharp differences persist between wages in economically advanced countries and those in less developed regions, the rationale for assembly production abroad will remain. The significance of the international reorganization of product flows within a single industry is that the present high wages for unskilled labor in the United States and other industrialized countries will no longer be insulated from international competition.
From page 105...
... 1985. The Global Factory: Foreign Assembly in International Trade.


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