The Impact of Globalization on the United States Economy in the 1990's.

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The Impact of Globalization on the United States Economy in the 1990’s.

Globalization, generally speaking, refers to the integration of the global economy (Hanson, 2001) as economic resources, especially the means of production and capital, move freely across national boundaries, thanks to a regime of lower tariffs, reduced trade restrictions, greater access to information, and the enactment of laws and formulation of policies that offer various inducements to the foreign entity to re-locate to a destination outside the confines of national boundaries. The globalization of production has meant that one of the most enduring concepts in economics, David Ricardo’s, comparative advantage (Hollander, 1979), no longer means that countries may only specialize in the production of goods for which they have been historically deemed to be most suitable in terms of their endowment of economic resources and other factors that give them a relative comparative advantage in the production of these goods (Porter, 1990). The principal vehicle of global change in production has been the multinational or trans-national corporation (Lagace, 2002). The MNC carries with it the wherewithal for setting up production facilities far removed from the country of origin. It will transplant manufacturing facility, lock, stock and barrel, if necessary, from the home country to the host country. It brings with it capital and skilled manpower and specialized knowledge. It is truly an agent that has all the potential to act as a catalyst for meaningful change. The United States has been a world leader in manufacturing for the greater part of the 20th century. However its previously seemingly unassailable position as an automotive production powerhouse has been gradually eroded since the 1980’s. Japanese manufacturers with their innovations in, so called, lean production techniques, have consistently outperformed their American counterparts and have been able to come up with a better product at a lower cost. The gradual influx of Japanese automotive manufacturers into the United States (Dicken, 2003) is illustrated in Fig-1 (Appendix). U.S. automotive power in the 1980’s was concentrated in the ‘Big Three’ corporations- GM, Ford and Chrysler and although it had become evident even then that foreign auto manufacturers were a force to be reckoned with (Michel Freyessenet, 1998), the U.S. ‘Big Three’ giants relied on the loyalty of the American consumer for home grown products. This loyalty was certainly a factor of significance but in time a dent was made and slowly but surely, a preference shift for foreign automobiles became established. The ‘Buy American’ battle cry became muted and then fell silent. The impact of these changes in the 1990’s has been directly instrumental in a loss of customer base for ‘Big Three’ products so that by 2000 their had declined from 71% in 1999 to 69 % in 2000 and this downward shift accelerated in the post 2000 period and in 2006 had gone down to 57 % while the share of the foreign auto makers had gone up from 29 % in 1999 to 31% in 2000 and to 43% in 2006 (Charleston, 2007). As more and more of the finished product began to be made in Japanese auto plants on American soil, the supply chain of products that went into the finished product also began to change. Suppliers in the ‘home country’ were preferred by the Japanese corporations and they continued to buy from them. They also encouraged and indeed convinced some to re-locate to America. The U.S. suppliers for the ‘Big Three’ U.S. giants continued to cater to their traditional customer base but some amongst them also began to diversify and won new clients in the Japanese corporations. For U.S. suppliers the dynamics of globalization has led to intense price competition as the ‘Big Three’ aggressively put the squeeze on them to reduce product cost to make it possible for them to face up to the foreign competition whose finished product characterized by...
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