Globalisation of Production
Globalisation of Production
Introduction
Because of the process of globalisation, the production activities of firms have become more dispersive. This essay will introduce situation of globalisation of production since 1980s, explore the relationship between governance of a global value chain and the prospects for upgrading in a developing country, identify the factors a firm should consider about the location of its production facilities and analyse influence of a heavy reliance on FDI to developing countries
The globalisation of production since 1980s
Since 1980s, the production among the world became more integrated that firms break up their value chain and locate each activity according to comparative advantage. The increase of foreign direct investment (FDI) flow and the growth of outsourcing demonstrated this phenomenon
UNCTAD (1999) indicated that there are two trends of the increasing FDI inflow. First, the inflow is highly concentrated in developed countries because the change of the focus of FDI. After the second world war, the focus of FDI moved to skill-intensive sectors from labour-intensive industries because the protectionism policies in developing countries and the rapid technologic development (Thun, 2011). Otherwise, the similar development pace among developed countries was more attractive for multinational companies (MNCs). The infrastructure and politic factors in developed countries can guarantee the rate of return on investment.
Second, the mergers and acquisition (M&A) with the higher market access and breakeven speed dominated FDI growth rather than Greenfield (Raff, Ryan, & Stähler, 2009). However, the Greenfield dominated the FDI growth since the economic recession in 2008 (UNCTAD 2012). M&A have high failure rate because MNCs have to consider the relationship between the return and cost of M&A, the management approach under different context, and the synergies effect between existing capabilities and the M&A project (Johnson,
Introduction
Because of the process of globalisation, the production activities of firms have become more dispersive. This essay will introduce situation of globalisation of production since 1980s, explore the relationship between governance of a global value chain and the prospects for upgrading in a developing country, identify the factors a firm should consider about the location of its production facilities and analyse influence of a heavy reliance on FDI to developing countries
The globalisation of production since 1980s
Since 1980s, the production among the world became more integrated that firms break up their value chain and locate each activity according to comparative advantage. The increase of foreign direct investment (FDI) flow and the growth of outsourcing demonstrated this phenomenon
UNCTAD (1999) indicated that there are two trends of the increasing FDI inflow. First, the inflow is highly concentrated in developed countries because the change of the focus of FDI. After the second world war, the focus of FDI moved to skill-intensive sectors from labour-intensive industries because the protectionism policies in developing countries and the rapid technologic development (Thun, 2011). Otherwise, the similar development pace among developed countries was more attractive for multinational companies (MNCs). The infrastructure and politic factors in developed countries can guarantee the rate of return on investment.
Second, the mergers and acquisition (M&A) with the higher market access and breakeven speed dominated FDI growth rather than Greenfield (Raff, Ryan, & Stähler, 2009). However, the Greenfield dominated the FDI growth since the economic recession in 2008 (UNCTAD 2012). M&A have high failure rate because MNCs have to consider the relationship between the return and cost of M&A, the management approach under different context, and the synergies effect between existing capabilities and the M&A project (Johnson,