Beyond China: The Current Debate on Globalization

Lately, globalization has been a hot button among US manufacturing managers. While there is currently much debate about creating production centers in China to lower costs, I propose that you look past China. Although China does offer cheap labor and materials, quality control is still a major issue. In addition, while government crack-downs are improving, Intellectual Property Rights (IPR) violations can found in every major city and they are much more difficult to control in a country as large as China. Then there is also the high level of corruption: you may need to pay manufacturers just to maintain quality levels. What manager wants to worry about these issues?

There are two other Asian countries that also offer cheaper labor solutions, without as many IPR and corruption headaches. One of these countries is Vietnam, specifically Ho Chi Minh City. Known as the “Pearl of the Orient”, this city is growing at a rapid rate and it desires to “become a hub of industry, services, science and technology in Southeast Asia” according to city officials. Vietnam has the fastest growing economy in Southeast Asia, with a recorded growth of 8.4% in 2005 and a GDP growth of almost 50% over the last 5 years.

The opening of the Vietnamese economy, through accession to the World Trade Organization (WTO), will create extensive opportunities for US companies. WTO accession requires the Vietnamese government to promote transparency and eliminate corrupt practices in its effort to participate in the global rules-based system, effectively reducing your investment risk. Some people might argue that Vietnam is even more corrupt than China, but this is incorrect – Vietnam is a smaller country, less isolated from the West, and is taking the WTO much more seriously than China. In addition, Vietnam has finalized intellectual property regulations and legislation that is concurrent with the TRIPs (Trade and Related aspects of Intellectual Property Rights) agreement administered by the WTO – thereby safeguarding foreign companies from IP violations. These are only some of the implications of Vietnam’s accession to the WTO that could tremendously benefit your organization.

Another country that is receiving increased Foreign Direct Investment is Thailand. As a creation of the Thai Ministry of Commerce, the Department of Export Promotion (DEP) plays an essential role in the promotion of international trade with Thailand. The DEP seeks to boost exports in an effort to grow their national economy. To achieve its goals, the DEP is focused on developing the country’s core competencies to add value to locally produced goods and services. Additionally, the application of new approaches to international trade including the DEP’s 53 Overseas Trade Promotion Offices, have facilitated the growth of Thailand’s international trading network.

What could the DEP’s strategy mean for your company? First, by employing superior technology in manufacturing, product quality levels will increase. Global sourcing for raw materials, machinery, and other inputs will allow the maintenance of competitive production costs. Thai manufacturers will receive assistance from the DEP to raise product quality to international standards. And the elimination of trade barriers through numerous free trade agreements is streamlining all business activities. These are just few of the benefits arising from trade in Thailand.

While there are benefits to producing and sourcing in China, it is important to evaluate other viable alternatives. Vietnam and Thailand offer many benefits to foreign manufacturers and welcome foreign direct investment.
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For additional information, contact Kelly Kasic, President of GLOBAL ID, LLC. – a Management Consulting and International Market Research Company. http://www.identifyglobal.com/ (720) 334-6982

Minimizing Risk by Engaging In International Business

One reason why companies engage in international business is to minimize risk. In particular, companies decide that it will be beneficial to go into foreign markets to minimize swings in sales and profits. This has to do with smoothing sales and profits, as a company will try to take advantage of a business cycle in another country that differs with their own. Sales will tend to increase or grow more quickly during an economic upswing and decrease or grow more slowly during a recession. It makes sense then for companies to expand to other countries with business cycles opposite that of their domestic country, in order to counteract slower sales during a recession in the domestic country. One example of this is when Nestlé experienced slower growth in Western Europe and the United States in the early twenty-first century, but this was offset by higher growth in Asia, Eastern Europe, and Latin America.

Also, by purchasing the same products, services, or components from different countries, a company can avoid being affected by price swings and shortages from one particular country. Companies will also do international business to defend themselves against competitors. They might need to counter an advantage that a competitor is getting from going global. These are all ways to minimize risk and some reasons why companies will decide to conduct international business.

Written by Carl Phelps, Research Associate for GLOBAL ID, LLC

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Trade Adjustment Assistance

There is much debate about the benefits and disadvantages of globalization. The main issue of concern is that many low-skilled workers in developed countries lose their jobs due to cheaper imports from low-wage countries. What alternatives do the displaced workers in the developed countries have when they are terminated?

In the United States there is one potential solution called the Trade Adjustment Assistance (TAA) Program. According to the US Department of Labor "The TAA Program provides aid to workers who lose their jobs or whose hours of work and wages are reduced as a result of increased imports. Workers whose employment is adversely affected by increased imports may apply for TAA. TAA offers a variety of benefits and reemployment services to assist unemployed workers prepare for and obtain suitable employment. Workers may be eligible for training, job search and relocation allowances, income support and other reemployment services."

When the Democrats recently took control of congress, they proposed an amendment to the TAA Program to assist both manufacturing workers as well as service workers whose jobs have been off shored. The amendment would also offer assistance to whole industries instead of just individual factories.

At GLOBAL ID, we believe that it is the ethical responsibility of companies that transfer production abroad to assist their displaced, domestic employees. Programs such as TAA allow companies to receive free assistance for the retraining of their displaced employees. We will continue to provide additional information about this topic in future articles. In the meantime, additional information can be found on the TAA Program at the following sites:
http://www.whitehouse.gov/infocus/internationaltrade/taapager.html
http://www.doleta.gov/programs/factsht/taa.htm

Written by Kelly Kasic, President of GLOBAL ID, LLC
Visit Our Website! http://www.identifyglobal.com/