Contemporary International Division of Labour - Example

Contemporary International Division of Labour and How it is Affecting Patterns of Production and Distribution in the World Table of Contents Introduction Globalisation and its causes such as improved transport infrastructure, increased cross-border movement of people, and advanced information and communication technologies, among other factors, have made it possible for firms to manufacture their products at cheaper costs in suitable locations across the world. There is some kind of division of labour in that companies are setting up factories in different locations or working with suppliers in different locations to supply different components that form the final products. Even in the services sector, there companies in various countries that outsource services such as those offered by call centres from other countries so as to enjoy cheaper labour rates. The result is that the large companies across the world have various specialised units across different countries which are involved in the production of different services or components that constitute the final product or service. This is in contrast to the situation in the past when specialisation involved developed countries being the leaders in manufacturing while the developing countries specialised in the production of raw materials to be used by the rich countries. The current specialisation or division of labour can be seen as a new form of division of labour that takes place between different countries across the globe – or contemporary international division of labour. Against the background information above, this essay seeks to examine the meaning of the concept of contemporary international division of labour. The essay will discuss what the concept entails and provide a detailed analysis as to how contemporary international division of labour is affecting patterns of production and distribution both between and within the developing and developed countries across the world. In the context of this essay, developing countries are defined as countries that can generally support low standards of living and are in the early stages of development (Mathur 2001, xxix). On the other hand, developed countries are regarded as those countries that can support high living standards and are at an advanced stage of development (Mathur 2001, xxix). Meaning of Contemporary International Division of Labour Before 1960, international division of labour was such that rich countries that had manufacturing capabilities – also referred to as core countries – specialised in manufacturing goods which they exported to other countries (Smith 2012, 243). On the other hand, peripheral countries, or the poor countries that had limited resources to support manufacturing, specialised in producing food stuffs and raw materials which were used by the core countries (Smith 2012, 243). This state of affairs meant that countries that specialised in manufacturing remained the leaders in terms of industrial capacity and technological innovation, which put them in a better position to generate wealth through product innovation. In contrast, countries which specialised in agricultural production and raw material extraction became underprivileged in regard to their capacity to create wealth and establish modern industries, and were therefore susceptible to highly variable prices for raw materials in the global market. Starting from the 1960s, there has been a rise in what is referred to as contemporary international division of labour. Salinas and Moulaert (1983, 9) suggest that contemporary international division of labour or new international division of labour (NIDL) can be defined as the integration of the poor countries or peripheral economies into the global capitalist market via the creation of new exports based on different countries’ comparative advantages. The phenomenon of NIDL started with the selective transfer of manufacturing operations to developing nations where costs, in particular labour costs, were considerably lower than in the developed countries (Mackinnon 2015, 97). As a result, unlike the situation prior to the 1960s when advanced economies dominated manufacturing through their advanced technological capacities while poor countries focused on producing raw materials for export, today, manufacturing can be extended to these developing countries. In essence, since the world today can be regarded as a single market because of globalisation, companies have had to restructure their operations to reach their target markets more conveniently, source raw materials and get cheaper labour. Ríos (1993, 99) points out that the restructuring of the global economy has led to the establishment of a single world market of commodities, labour and capital. The same author also notes that changes in the world economy have redefined the role played by developing countries in the global economy. As evidence of this, there is a new international division of labour that is making developing countries to function as sites of manufacturing rather playing their traditional role of being suppliers of raw materials. Whereas the developed economies are specialising in research and development, specialised services, financing and administration, developing countries are increasingly getting involved in the manufacture of goods for the world market (Ríos 1993, 99). For instance, while companies such as Apple, Kodak, Hewlett-Packard and Colgate-Palmolive are headquartered in the USA, an advanced economy, they conduct some of their manufacturing activities in developing countries such as China, Taiwan and South Africa among other countries. Evidence that production is moving to developing countries is also seen in terms of the proliferation of offshore export processing zones, which represents a new mode through which developing countries are making a contribution to manufacturing for the global economy (Ríos 1993, 99). Drivers of Contemporary International Division of Labour Contemporary international division of labour is driven by a number of factors. These factors relate to how multinational enterprises (MNEs) “use their market power to play off workforces against each other within international production networks so as to drive down labour costs and maximise economic rents” such as profits (Dent 2008, 35). The point here is that when companies such as Apple, Hewlett-Packard, Colgate, Toyota and Kodak decide to manufacture some or all of their products’ components outside their home countries, they are seeking countries from which they can get lower labour costs and hence increase their profits. Generally, developing countries such as South Africa, Taiwan, China, Hong Kong, South Korea and Mexico offer lower costs of labour compared to developed countries such as Japan and the USA (Feinstein 2005, 245). When manufacturing is outsourced to the developed countries, the outcome is that the final products are cheaper and therefore more competitive in the market. According to Dent (2008, 35), there are two main developments that have driven NIDL. The first one relates to advances in communication and transport technologies that have made it possible to achieve the co-ordinated supervision of production networks as well as workforces across country borders (Dent 2008, 35). Just like the aforementioned factors have driven globalisation, they have also made it possible for people in different countries to manage logistics operations, thus enabling effective co-ordination of different production activities being undertaken in different factories located across different countries. For instance, a Toyota car can be designed in Japan and its parts made by different suppliers located in both Japan and other countries such as China or South Korea. The second development that drives NIDL is how new process technologies have broken down and standardised particular tasks that can be quite easily contracted out to developing nations that are characterised by low costs of labour (Dent 2008, 35). For instance, the Coca-Cola Company, one of the largest soft drinks manufacturers headquartered in the USA, is able to produce standardised or slightly modified products through its independent franchises that are located in many countries across the world. The company is therefore able to sell locally made products in each region instead of having to rely on products made at its headquarters. By producing its products locally in each country, Coca-Cola is also able to enjoy benefits such as cheaper costs of labour in some of the developing countries in which it operates (Hamilton and Webster 2012, 24). How NIDL is affecting patterns of production and distribution between and within the developing and developed countries Taylor et al. (2016, 2) have identified some of the major characteristics of contemporary international division of labour. The first one is the transfer of labour-intensive industries from industrialised nations to developing countries. The second one is the relocation of manufacturing, which initially occupied a core position in the developed countries, to other countries (mostly developing countries). The third aspect of contemporary international division of labour is the emergence of many sectors that are connected with the world economy in developing countries. According to Taylor et al. (2016, 2), the fourth aspect that characterises NIDL is the occurrence of major transformations to the relationships between the world’s various regions. The various attributes of contemporary international division of labour that have been identified above have different impacts on production and distribution patterns between and within the developing and developed countries. For instance, the transfer of labour-intensive industries from industrialised nations to developing countries has the effect of utilising the pool of labour that is available in developing countries. Apart from providing jobs to the local population, the transfer of labour-intensive industries to developing countries has the effect of transferring the knowledge and technology involved in such industries from developed countries to developing countries (Saggi 2004, 7). Based on the product life cycle theory (Vernon 1966), it is normally the developed nations that bring new products to the market, by virtue of their dominance in scientific research and innovation. Upon the technology becoming standardised for the newly introduced product, the base of production gradually moves to other countries ostensibly to reduce costs of production and marketing. Khondoker and Kalirajan (2012, 5) note that the textile industry is a classic example of an industry that has been moving from the developed countries to the developing ones in such a way as predicted by the theory of product life cycle. This is illustrated by the point that historically, various countries that are now developed such as the USA, Japan and the UK commenced their industrialisation process through the growth of the textile industry. Specifically, organised textile factories cropped up in England during the 18th century and in the 1850s in the United States. Khondoker and Kalirajan (2012, 6) also point out that during the 1850s, the textile industry was the biggest manufacturing industry in New York. In this city, over 400 textile entrepreneurs were involved in marking garments. During the 1950s, the textile industry grew in Japan, and by the 1960s, Japan had become the biggest exporter of clothing to the USA (Khondoker and Kalirajan 2012, 6). Further changes saw the textile industry grow into various countries in East Asia such as South Korea, Hong Kong, Taiwan and Singapore, which are today regarded as the newly industrialised countries (Khondoker and Kalirajan 2012, 6). The aforementioned countries emerged as the prominent suppliers of textiles to the global market. Later, during the 1980s, the textile industry developed gradually into other developing nations such as India, China, Vietnam and Bangladesh, which have become the new major exporters (Khondoker and Kalirajan 2012, 6). Therefore, the trends in the textile industry show that the labour-intensive industry has been moving progressively from the high-income (developed) countries to the low income or developing countries over time. The associated effect is that the shift has played a critical role in the early stage of industrial growth in the host economies, thus transforming the developing countries from importers of products such as garments to exporters of the same products. Another effect of NIDL on patterns of production and distribution is related to the relocation of labour-intensive manufacturing from developed countries to the developed ones, the emergence of new industry sectors, and the change in relationships between different regions of the world. For example, because of the relocation of the labour-intensive industry from Japan, the country has had an increased focus on expanding the new technology-oriented industries (knowledge-intensive industries) which comprise more complex chemical and heavy industry products as well as software (Odagiri 2006, 132). This kind of expansion is critical to opening up more opportunities for importation of metals and other raw materials both from the developed countries and the developing ones. As well, with Japan now not focusing much on the labour-intensive industries such as textiles, the situation creates an opportunity for the country to import textiles and related materials from the developing countries, which now have more opportunities for exporting their labour-intensive manufactures (Kojima 2010). Contemporary international division of labour also affects patterns of production and distribution of goods and services through its impact on international trade. Ietto-Gillies (2002, 40) argues that one effect of NIDL is that it increases international trade as components are moved between different countries. For instance, Apple, a company that is famous for the manufacture and distribution of the iPhone, is headquartered in the USA – a developed country. According to P.K. (2011), although Apple products such as the iPhone are renowned globally, Apple does not make the iPhone itself. The company neither manufactures the phone’s parts nor does it assemble the components into a finished product. Instead, the components come from various suppliers and the assembling work is done by a Taiwanese company known as Foxconn at its factory in the Chinese city of Shenzhen (Beugelsdijk et al. 2006, 62). Some of the major suppliers of components to Apple include Samsung and LG, both of which are South Korean companies (Beugelsdijk et al. 2006, 62). For instance, Apple sources most of the key components of the iPhone such as flash memory, working memory (DRAM), and processor from Samsung (P.K. 2011). Apple and Samsung also have an interesting relationship in that although the two companies are competitors, Apple is Samsung’s largest customer while Samsung is Apple’s largest supplier (Steers, Nardon and Sanchez-Runde, 2013, 20). The relationship between the two companies shows how the production and distribution patterns of commodities change because of the new international division of labour, especially given that two companies operate across countries that are at different levels in terms of development. Notably, for Samsung, acting as a supplier of components for companies gives it the ability to manufacture its own products more inexpensively. For Apple, letting other companies deal with production of product components and assembly makes the company able to focus its competencies on innovation and production of customer-focused devices (P.K. 2011). Conclusion In conclusion, contemporary international division of labour is a concept that denotes the integration of the developing countries into the global market through the establishment of new production and export channels based on the different comparative advantages that different countries have. The phenomenon is driven by the selective transfer of manufacturing, especially labour-intensive manufacturing, from developed countries where labour costs are high, to developing countries where the costs are comparatively lower. The result of this is that developed countries have ventured more into knowledge-based areas such as research and development, specialised services and financing and administration while developing countries are getting more involved in labour-intensive manufacturing. As a result of this shift, production and distribution patterns are changing in that both developing and developed countries are involved production and export at different levels. There is also increased interdependence between companies in both developed and developed countries as a result of the new international division of labour. References Beugelsdijk, Sjoerd, Steven Brakman, Harry Garretsen and Charles van Marrewijk. 2006. 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