General Impact of Transnational Corporations (TNCs)
One of the most common phenomena regarding the driving force of globalisation is the rapid rise of economic and political significance of retail transnational corporations (TNCs) which has brought them into the spotlight of public attention since the mid-1990s. Before proceeding further, it is crucial to recognise the impact and scope of contemporary retail TNCs.
It is often claimed that increasing mobility, an important aspect of globalisation, has reduced the ability of governments to implement policies that constrain the activities of TNCs within their jurisdictions. This view is widespread amongst both critics and supporters of globalisation. The policy preferences of TNCs as a group are coherent, and these firms act in ways consistent with their preferences. As a consequence, states suffer from a collective action problem that constrains them to meet upon TNC policy preferences through a process of regulatory and incentive-based competition (Chossudovsky, 1997). But why are national governments changing their ways of managing their economies? An important explanation lies in the effect of global market forces on the policy choices of the government authorities. Nowadays, neither market demand nor corporate operations confine themselves to the territorial borders of nation states. To survive in a global marketplace, companies must compete globally to attract Foreign Direct Investment (FDI). FDI ‘reflects the aim of obtaining a lasting interest by a resident economy in an enterprise that is resident in another economy’ (Fox, 2001:15).Moreover, they must forge strategic alliances with former business rivals to succeed, as we have witnessed in the wake of the global recession. For example, Merrill Lynch is currently owned by Bank of America. Gone are the days when a corporation could act as a lone shark in pursuit of global growth, as the Ford Motor Company have done in the past.
The huge change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff liberalisation, easing of restrictions on foreign investment and acquisition in many nations, and the deregulation and privatisation of many industries, has certainly been the most significant catalyst for FDI’s expanded role (Castells, 1996).
Stated very simply, when a company builds a factory in a foreign country, it generally creates new jobs. Foreign investment in the United States contributes significantly to domestic employment. According to the Bureau of Economic Analysis, in 2004, roughly 4.5 percent of the U.S. labour force was employed by foreign-owned enterprises (Ribet, 2009). Competition from foreign firms often encourages domestic companies to become more efficient and globally competitive .These improvements can result from the effect known as ‘backward linkages.’ Backward linkages are ‘the long-term relationships that develop between a foreign investor and other forms in the host country’ (Damoense, 2005: 19). For instance, when a firm decides to build a plant that assembles electrical appliances in a foreign country, the firm not only provides a certain number of people with new jobs, but the location of the plant is also likely to encourage the development of new local industries that can supply it with electric motors, fans, and other parts for its production.
Opponents of globalization state concerns about jobs lost in the domestic economy when a factory moves abroad, and about downward pressure on wages at home due to the availability of cheaper labour abroad. Job losses can mean that displaced domestic workers, though unlikely to remain unemployed permanently, may be forced to take lower-paying jobs. But any downward pressure on wages in general (for those in trade and non-trade related industries) may be offset by lower prices for domestic consumers as a whole due to the movement of the factory (International Monetary Fund, 2000).
As it can be seen, the impact of TNCs, like many aspects of globalisation, presents opportunities as well as challenges. We can wonder where the balance of costs and benefits lies. The question is particularly acute for developing countries: many of the greatest controversies about financial liberalisation are raised when investment flows from developed to developing countries stem from internal deficiencies, ranging from the inadequate supervision of the banking sector to corruption or incompetent labour supply and environmental standards.
On the one hand, very few economists, even among the harshest critics of financial liberalisation, dispute that international investment can be a powerful engine for economic growth. A look at development statistics shows that there is a correlation between investment and growth in developing countries. Proponents of liberalisation such as David Dollar of the World Bank point out that essentially no developing country has managed to achieve rapid and sustained growth, successfully raising the prosperity levels of their population, without increasing their openness to foreign investment (Hirst et al, 1999).
But critics question the extent to which these success stories can be attributed to foreign investment alone. They tend to argue that what is most important for a developing country is that it encourages an environment that is generally ‘supportive of investment’ (Kellner, 1997). That is, when the climate is favourable for domestic investment, it is likely to be favourable for international investment. Economists from this school of thought, while not denying the importance of international investment, tend to promote policies that are more focused on internal concerns.
Modern Global Automotive Industry
The modern global automotive industry encompasses the dominant manufacturers, General Motors (GM), Ford, Toyota, Honda, Volkswagen (VW) and DaimlerChrystler, all of which operate. In a global marketplace, it is suggested that the globalisation of the automotive industry, has greatly accelerated during the last half of the 1990’s due to the construction of important overseas facilities and establishment of mergers between multinational automakers, such as Renault and Nissan (Freyssent et al,2008).
Industry specialists indicate that the origins in the expansion of foreign commerce in the automobile industry date back to the technology transfer of Ford Motor Company’s mass production model from the US to Western Europe and Japan following both World War I and II (Ge, 2009). The advancements in industrialisation led to significant increases in the growth and production of the Japanese market, in particular. The second important trend in industrial globalisation was the export of fuel efficient cars from Japan to the U.S as a result of the oil crisis from 1973 to 1974 (Liang, 2008).
The rise in mass production had helped the United States (U.S) to increase economic prosperity in the 1940s to 1960s. The idea behind this concept is that, moving an assembly line using interchangeable parts could drastically reduce the cost of making costs, and hence making it affordable for the average consumer. The cost-advantages associated with this type of production is defined as economies of scale. Economies of scale ‘are factors that cause a producer’s average cost per unit to fall as output rises’ (Romer,1986: 32).Economies of scale were produced by spreading fixed expenses particularly in plants and equipment and the organisation of production lines, over larger volumes of output, thereby reducing unit costs.
These innovative ideas had led to the birth of Fordism, originated from Ford’s Motor Company success with this paradigm, which began in Detroit 1914. On the production side, this approach brought with it the deskilling of work, along with the bureaucratic nature of work conditions and duties. The hallmark of this system was standardisation. Standardisation required nearly perfect interchange ability of parts. To achieve this, Ford exploited advances in machine tools and gauging systems. These innovations made possible the moving, or continuous, assembly line, in which each assembler performed a single, repetitive task (O’Neil, 1991). However, since the wave of globalisation, it has directly influenced the international automobile industry and has accelerated the global reorganisation of it.
First, the impact of globalisation emerged in the financial and securities industries, which experienced the Big Bang in the 1980’s. Then it spread to the fast growing information and communication’s industries. Now the automobile industry is no exception. The automobile industry was, especially in advanced countries, primarily a national industry, no matter how internationalised its business scope developed. It has been a representation of a nation’s manufacturing industry serving the best interests of the nation. For example, trade disputes concerning automobiles. It has been discussed as being related to the arguments of what should be the correct way to handle automobile trade, the balance of trade, and the job security for a countries’ labour force (Mulgan, 1998).
The automobile industry also has a wide range of related industries such as the component and material industries, on which it has had a great impact at national level. As a consequence, automobile manufacturers in developed nations constructed their management strategies that centred on their own nation. And their overseas strategies tightly connected to the domestic strategies and had an ever-lasting pursuit of complimenting them, regardless of how heavily they depended on their overseas business and exports. Therefore, car manufacturers’ competitiveness was closely related to how superior their competitiveness is in their domestic markets (Kuttner,2002).
Against this backdrop, especially in the 1980’s, and before the 1990’s when globalisation developed at a rapid pace, the automobile industries competed with each other at a nation-to-nation level. In addition, the Japanese automobile industry was the one that grew rapidly by the ‘leans production’ method, which have had an influence on the European and American automakers also. It is fair to state that the lean production revolution ignited reforms taking place in the Western countries. Lean production ‘is a production practice that considers the expenditure of resources for any goal other than the creation for the end customer, and thus a target for elimination’ (Zhang, 2008:17).The basic elements are waste elimination, continuous one piece workflow and customers pull. When these elements are focused in the areas of cost, quality and delivery, this forms the basis for a lean production system.
The lean production concept was to a large extent inspired by the Kaizen, the Japanese strategy of continuous improvement. Employee empowerment and promotion among them of a way of thinking orientated at improving processes, imitation of customer relationships, fast product development and manufacturing, and collaboration with suppliers are the key strategies of leading lean companies (Romer, 1990). Lean production is described as being different from mass production in that it uses half the factor inputs - half the human effort, half the manufacturing space, half the investment in tools, and half the engineering hours to develop a new product in half the time. Also it requires keeping far less inventory on site, produces fewer defects, and enables a greater and ever growing variety of products (Yang, 1995). Implementing lean production therefore means eliminating waste in the production system, be it in the form of materials, labour or plant capacity. Lean production enables making cars more efficient for car companies to change models quickly, in response to changing consumer taste (Stewart, 1992).
To add as much value as possible in each chain of corporate business, wherever it is located (Porter et al, 1986); firms need strategic alliances, because self-help or reliance on internal resources alone no longer suffices for competing simultaneously across many functions, multiple cultures, and many regulatory boundaries. Firms need not only to pool skills and human resources, improve understanding of diverse national tastes, and share risks and costs in Research & Development (R&D) and production, ignoring their national identities (Prahalad, 1990) but they need also to cross policy barriers and take advantage of policy incentives (Roth et al, 1990) established and maintained by government regulations. Such necessary global strategies are common for global automakers but substance and the methods of operation are not the same. Thus, pursuing scale economy by alliances and ventures just to match up numbers will not be sufficient to accommodate the rapid changes of the automobile technologies. There is a diverse and rapidly changing market to meet consumer needs. The capability to pursue the product capability, flexible production systems to accommodate such progress is inevitable. Matching numbers of the scale economy does not develop global strategies that are sufficient enough to survive the global competition. Effective global strategies must include the capability with value contents to handle changes accurately and promptly (World Bank Research, 2002).
Moreover, a further development influenced by globalisation concerns the sales of vehicles made by non-domestic products, this includes imports have captured an increasingly large share of the market in many countries. The share of non- Big Three vehicle sales in the U.S. rose from less than 1% in 1955, the peak year for sales in the post-war period, to 18.4% twenty years later in 1975 to a high of 28.5% in 1991, before falling back to 25.9% in 1994. The import share in European and Japanese markets is considerably less but climbing steeply, reaching 12% in Western Europe and nearly 5% in 1994 (Wrigley,2005).
A greater degree of global integration in the automotive industry has developed at the level of design, as global firms have sought to leverage design across products sold in multiple end markets. The work of vehicle design and development continues to be concentrated in, or near the headquarters of lead firms (Roth et al, 1990). In addition, suppliers of parts have taken on a larger role in design and have established their own design centres close to their major customers to facilitate collaboration. The reason being these designed vehicles are adapted to local markets and parts are manufactured in multiple regions to the degree possible. This has resulted in local, national and regional value chains in the automotive industry being ‘nested’ within the global organisational structures and business relationships of the largest firms (Kuttner,2002).
To the extent that the globalisation of markets brings greater competition for all automotive companies, it creates pressure for convergence towards whatever approach to work organisation is most associated with market success. At the same time, by driving companies or their plants out of business, it helps select for those work organisation practises with competition survival.
World Recession
The auto industry has a colossus impact on today’s individual, which requires fast mobility and reliability. Presently it is, as well as other industries are undergoing a recession globally. The auto industry are evolving new techniques and signing up new-found agreements and joint ventures in the pursuit to harmonise itself and to avoid further damage. One attempt that carmakers have implemented is to significantly reduce to the prices of their cars. ‘Carmakers across the spectrum have cut prices by Rs 40,000’ (Nishigati, 2009: 17). Tax and Interest cuts have not occurred in a few nations, it is not isolated, and governments across the world have been trying their best to boost sales in every sphere of the economy. Looming over the bleak economy is the potential collapse of America’s Big Three automakers - General Motors, Chrysler and Ford. If any of these companies with trans-national operations go bust, it can spark a snowball effect, dragging down operations in numerous countries, affecting even successful rivals like Toyota and Honda and leading to millions of jobs across many nations (Kiley, 2009).
After much debate, the US car Chief Executive Officers (CEOs) managed to get a $15 billion loan from the US government, which they must repay, and in order for this to happen, firms must downsize their respective operations. Simply put, they will have to cut thousands of jobs, renegotiate many contracts, abandon several car brands and get their creditors to agree to easier repayment terms (Ciferri, 2009). The global recession has and will continue to influence the motor industry, in a catastrophic manner, which could potentially be the demise of major players in the industry, depending on the duration of the downturn.
Globalisation of the automobile industry in China
China’s automobile industry continues to grow at a rapid rate. Projections illustrate that by 2010, China will become one of the world’s largest automobile markets with domestic production reaching 5 million units. (Winebrake, 2008).The average annual growth rate of GNP per capita was 8.3% during 1985–1995. Although China is still classified as a low-income developing country, the estimated per capita purchasing power parity (PPP) was at US$ 3550 in 1999, which is comparable to the group of the ‘‘lower-middle-income’’ economies (World Bank Research, 2002). In addition, China has the highest gross domestic savings rate in the world at 40.1% of GDP in 1999. The government, as well as other policy decision-makers in China have implemented policies that are intended to encourage the continuing development of China's domestic automobile industry. However, at the same time, there are significant trade barriers present for foreign competitors to overcome in the way of tariff policies that are applied to imports.
China’s linkages with the global economy are different to other nations including United States and Japan. In order to understand the difference, an examination of the set of circumstances surrounding their emergence and maintenance is required. First, the country has been trying to manage a limited yet significant transition from an economy of at least partial market orientation since 1978 (Liang, 2008). Second, it is trying simultaneously to develop global linkages for investment, technology acquisition and improvement in national trade. Third, while the Japanese and American economies have actual strength, the Chinese economy is based only on its potential (Chen, 2007). As such, the only contribution it can make to its global partners is a potential market instead of real trade in technology, Research and Development (R & D) capacity and existing markets. This leads to a significantly different and possibly weaker position for China in terms of its ability to dictate and shape the global economy (Ge, 2009). While it is vulnerable to some extent to the demands of trade as well as to threats as a means of conducting international and economic relations, the political climate at home does not allow global links to influence and dictate its internal policies (Lo, 2008).
With the start of the 21st century, the Chinese automobile industry is facing growing challenges: joining the World Trade Organisation (WTO), greater market competition and reduced regulation, stricter environmental regulations, increasing demand for quality products and services, oil price increases, and mergers within the industry (Tu, 2006). The WTO ‘is an important selective, mainly private, internal organization designed by its founders to supervise and liberalize international trade’ (Alcock, 2003: 189).
The automobile industry has been heavily industrialised by the government. During 1995-2000, state investment in the automobile industry totalled 58.8 billion Yuan, of which 80% were investment in 13 major state-owned companies. These companies control 90% of the automotive market. The annual production output reached 2 million vehicles in 2000 (Winebrake, 2008). Started from the mid-1980s, the passenger car development is the most remarkable. Its annual production output is more than 600,000 units per year by 2001 with an average growth rate of 40% per year (Zhang, 2008). China had prioritised the development of the auto industry in the Tenth Five year Plan 2001-2005 (Chen, 2007).
In terms of market entry strategy, the major players in the automakers in China includes; Volkswagen, General Motors (GM), Toyota, Ford, Peugeot Citroen, Nissan, Daimler-Chrysler and Suzuki. This group of enterprises is attempting to establish themselves in the Chinese market mainly through joint ventures with Chinese counterpart companies. This is because small automakers are losing ground to larger ones, which receive support from the state and hence collaborate with capital-rich and technologically advanced automakers. Their strategy is to maximise their domestic market shares. By utilising the skilled and cheap labour in major Chinese automakers, these foreign companies can reduce production costs and maximise automobile industry development in China (Liu, 2008).
Over the past two decades, the open-door economic policy has had a massive impact on the automotive market. China’s development in the automobile industry is part of the drive towards integrating key industries into the global marketplace. There are several inter-related driving forces behind the globalisation of the industry, including market competition, technological change, and environmental regulations (Lo, 2008).
Globalisation of the automobile industry implies the integration of the domestic market into the international market with increased movement of goods and services. It is clear that the high growth rate in China’s economy and the increasing purchasing power of the wealthy social groups have attracted all the major international automakers to China. By 1998, there were more than 600 international investors from the auto industry that established their businesses in China (He, 2006). Among them, about 40 are brand-name automakers. The first company to enter the Chinese market was Volkswagen of Germany, which established a joint venture business in Shanghai in 1985 and soon established itself as a key player in the auto market. Volkswagen now accounts for 54% of the passenger car market with 300,000 units of annual output (Ribet, 2009).
The Chinese automobile products are dominated by foreign automakers. However, government policy works to give a competitive edge to domestic manufacturers. First, the policy of transformation of foreign technologies and products aims to localise the production of cars and spare parts, which is intended to reduce parts. Second, protectionism applies high tariffs to keep foreign products less competitive than domestic products (MacDuffie, 1995). Thus far, 40-80%, of the parts can be supplied within China, depending on the products. However, this policy of protecting the domestic spare parts industry also removes the incentive for investing in improving its know-how and technical ability (Winebrake, 2008).
To promote market competition, the government has relaxed price regulation for automobile sales. Auto-markers are trying to bring the best of their products and services to the market. However, China’s imminent entry into the WTO will bring about a great uncertainty in their businesses. Over the past half a century, protectionism has, to a large extent, guarded the domestic auto industry from international market competition. Deregulation of the automotive markets to increase competition will attract foreign automakers to China with their quality products and services (Yang, 1995). The domestic auto industry will find it difficult to survive without considerable improvement in management techniques and technology. The government has taken measures to reduce tariffs on imported automobiles to put more pressure on domestic car-makers (Liang, 2008).
On the other hand, globalisation of the auto industry will provide better opportunities for Chinese enterprises that target the rural market, domestically and internationally. In the last few years, the increasing export of China produced commercial light-weight vehicles, mini-vans, and motorcycles; to other developing countries is a good example (Chen, 2007). Apparently, this export strategy fills a gap left by international automakers.
Market Competition
In the Chinese auto industry, most technologies are imported. Chinese carmakers have comparatively weak R & D capacity for product innovation and new designs. Joint venture companies dominate in terms of technology transfer, adaptation and product innovation (Lo, 2008). In terms of fuel economy, domestically developed cars consume some 10-30% more of energy than those products made by foreign technologies and designs (He, 2006). Driven by the desire to dominate the market, major automakers are attempting to introduce new technologies into the Chinese market. This is a new phenomenon compared with that in the 1980s and 1990s. Volkswagen plans to tap into the diesel car market in China with its latest technology. This intention is signalled by the ‘‘3-litre/100 km’’ Lubo car. Volkswagen’s plan to introduce models with low operating costs is based on its prediction that the purchase of private cars in China will grow steadily in the coming years (Chen, 2007). Concerns about fuel economy and the environment will drive up the demand for more energy efficient and cleaner cars. One of the emerging areas for technical innovation and market development will be in energy efficient cars. A driving force behind the growth in this area is the government desire to clean up the environment and to reduce China’s dependency on oil. In April 1999, 13 key government organizations under the support of the State Council started implementation of the ‘‘Air Cleanup Program: Clean Automobile Action Plan’’, which involves programs to promote R&D on fuel cells electric and hybrid cars, and dissemination of mature alternative fuel technologies (Lo,2008).
The main obstacles to manufacturing more fuel-efficient cars are the weak R&D capacity within industrial firms, underdeveloped marketing networks, and a low rate of technology dissemination. The government has been the major initiator of R&D efforts conducted at universities and government research institutions, but disseminating research results to the market has been unsatisfactory (Zhang, 2008). At the moment, there has been little market demand for electric cars, mainly because the technology has not developed sufficiently. In contrast, alternative fuel technologies have found a market niche and are being disseminated rapidly in some large cities such as Beijing, Shanghai, and Shenzhen. Some of the key technologies are imported from abroad, such as the American natural gas engines being used in public buses in Beijing. This wide market acceptance is assumed to be demand driven with the aim of reducing vehicle emissions (Tu, 2006). Government subsidization of infrastructure development also plays a role in technology dissemination. However, there have been some problems in adapting to technology change.
The trend of switching to alternative fuels is driven by a number of factors: stricter environmental regulations, rising gasoline prices, and an increasing supply of natural gas (Winebrake, 1998). However, the effectiveness of using alternative fuels is a highly political issue. It has been argued that alternative fuels do not drastically reduce pollution, particularly with respect to NOx emissions. Advanced research is being conducted with regard to the application of fuel cell technology. Hybrid cars haven’t yet been given enough attention, although they have recently become the focus of attention internationally. Attitudes are changing, as customers have become more aware of the positive effects associated with hybrid cars (Liang,2008).
To a large extent, China has not yet developed a high level of research expertise in auto industry innovation. This will require further investment in capacity building, particularly in training of experts and technicians. This will require further investment in capacity building, particularly in training of experts and technicians (Lo, 2008).
Technology Advancement
In the past, the Chinese government paid inadequate attention to assessing, and adjusting, its policies on road transportation in relation to reducing the environmental impacts of automobile emissions. There are contradictions in governmental policy with regard to prioritizing the use of private cars versus relying on the development of public transportation systems to satisfy demands for mobility and flexibility (Tu, 2006). On the one hand, the government intends to boost the use of private cars to stimulate economic development; on the contrary, critical issues, such as environmental effects of automobile use, puts a strain in oil production and road transportation capacities, have forced the government to reassess its policies on public transportation systems, and to adjust automobile industrial policy. The policy shift to regulating the use of leaded gasoline is a clear example (Lo, 2008). Use of leaded gasoline was banned nationwide by July 2000. There has thus been a push to produce energy efficient and environmentally friendly cars. Recently, the Chinese government realized the importance of pollution control from urban transportation and became determined to take action (Chen, 2007).
It was estimated that Beijing would demand at least 200,000 units of motor vehicles during 2000–2002, stimulated by new environmental protection measures in the city (Ribet, 2009). It was stipulated that by the end of 2002 all motor vehicles then in use must meet the new exhaust emission standards that took effect in early 1999. To strictly implement the emission criteria, more than half of the more than 1.6 million units of vehicles now in use in the city need to be re-fitted or replaced (Tu,2006). It is believed that strict environment regulations will both encourage people to trade in old polluting vehicles for cleaner cars and help improve the production technology of China’s automotive industry.
The Chinese government has used regulatory instruments relatively effectively to regulate industrial behaviour. The command-and-control policy approach is more widely used in China than elsewhere in the world. This approach may produce quick changes in technology applications and dissemination of new technologies and products, but is less cost-effective in economic terms as it brings high marginal costs in transformation of production facilities and management systems (Liu, 2008). In the past few years, Beijing regulated the taxi market and ordered the demolition of some 40,000 highly polluting Dafa minivans to replace them with more energy efficient and cleaner models. The costs of this substitution were mostly borne by private taxi drivers and their affiliated companies. It is in the early stage for the Government to experiment with economic incentives or disincentives for vehicle emissions reduction, which are expected to be more cost-effective in policy enforcement, or in combination with the use of environmental performance standards (He, 2006). Equally important is the use of nonmarket oriented measures, such as the provision of information on motor vehicle fuel efficiency to consumers.
From early 2001, competition has intensified in the auto industry. Some automakers have modified their market development strategies. Major automakers, such as Toyota, GM, VW are investing heavily in new models and products. Vehicles using new technology, which makes them cleaner and more energy efficient, are entering the market. This development can be seen as the result of intensive market competition among major automakers. It seems to be a positive trend in terms of improved fuel economy and emissions reduction. Increasing competition will push automakers to use more advanced technologies to meet consumers’ demands (Ge, 2009). However, in some cases, pressure for cost reduction may also push automakers to select cheaper products or lower standards, as long as they meet the minimum requirements in emission standards. It seems that the current emission standards of Euro I largely behind the state of market development, as most of the new vehicles produced can reach Euro II emission standards. The reason that the industry has responded positively to meet stricter emissions standards is twofold: both market competition and emission regulations for new products have played a role (Winebrake, 2008). State tax authorities have provided an incentive for the automobile industry to employ stricter environmental standards by giving the consumer a 30% tax reduction on the purchase of new products that meet Euro II emission standards. Economic incentives such as this provide a direct market signal to vehicle manufacturers, providing an incentive for them to produce less-polluting vehicles. A similar incentive could be provided to fuel refiners to produce cleaner fuels, if taxes on motor fuels were adjusted to reflect their potential air pollution effects (Liang, 2008).
Regionalisation on Production
On the other hand, opponents of globalization and in particular the tranformationlist angle do acknowledge globalization exists, however they argue that alternative economic trends can be found in the economy. Consensually, the stance on globalization so far has been like a stretch of the river marked by swirling currents and eddies than a river flowing strongly and consistently. In this section, there is a case to suggest that these alternative economic patterns, which are called regionalisation, that justify what is transpiring in the world today. Regionalisation refers to economic activity dependent on resources which focuses on the interest of a particular region or group of regions (Belis, 2000).
The rise in regionalisation expanded during the late 80s and early 90s. One of the main motivators was the lack of progress made by the multi-lateral GATT (General Agreement on Tariffs and Trade) during the Uruguay round. The GATT, which was signed in 1947, is a multilateral agreement regulating trade among 150 counties roughly. The purpose of the GATT is the ‘substantial reduction of tariffs and other tariff barriers and the elimination of preferences’ (Freyssenet,2000:8).There have been eight rounds of negotiations addressing various trade issues. The Uruguay round which was completed on December 15th 1993, addressed issues such as tariffs and services. The resulted agreement was among 117 countries, and went into effect on January 1st 2001 (ibid)
Examples of regionalism include the European Union (EU),NAFTA North American Free Trade Agreement (NAFTA) and European Economic Area (EEA) to name a few. By far the most developed is the integration of the west and European continent in regard to the EU. The EU is an ‘economic and political union of 27 member states, located primarily in Europe’ (Bailey,2003). The NAFTA can be viewed as an attempt in ‘balancing the economic power of the North American centre’ (Belis,2000: 16) created by the governments of the United States, Mexico and Canada. Annex 300-A: Automobiles (one of the most sensitive areas in the NAFTA negotiations, in spite of the fact that there is already considerable integration between the three countries. Major concern the possibility that European and Japanese producers could use Mexico as an export platform to the United States and Canada).Focused on the liberalization of Mexico’s 1989 Auto Decree, because the Canadian and U.S. auto industries were already liberalized and integrated (Rothstein, 2005).
Gradually removes Mexican trade barriers and investment incentives as well as other performance requirements.
NAFTA has had a significant impact which certainly warrants considerable attention. This supra-national organisation has had a positive overall impact on the Mexican auto industry. NAFTA provided certainty that allowed auto firms to design and implement long-term strategies, guaranteed access to larger markets, which is particularly important for firms established in Mexico, a small market that cannot support economies of scale for all established vehicle associated companies. Between, 1993-1997, the total investment was $9.9 billion, and just over a third of this, had come from FDI. One of NAFTA’s most important effects on the Mexican auto industry: maintaining high levels of investment, particularly considering the context of economic recession in Mexico after December of 1994 (Carrillo, 2008). A combination of rules of origin and Mexico’s requirements of establishment in order to have market access, but also other events, particularly those related to structural changes in the auto parts industry worldwide.
Also, investments responded to different firm objectives: modernization/rationalization of operations (mainly, the Big Three); for firms not established in Mexico, establishment of production operations in order to have access to the Mexican market (BMW, Mercedes-Benz, Honda, Navistar, Freightliner); and, non-regional producers that want to both exploit Mexico’s competitive advantages and have duty-free access to the North American market (they need to meet rules of origin). This is the case of VW, Volvo, and Nissan. Also, a change in the regional/geographical base of suppliers for non-regional assemblers, due to rules of origin and structural changes in the auto parts industry worldwide. (ibid)
In addition, another counter-trend to globalization is localization. Localization is the ‘process of adapting a product or service to a particular language, culture and desired the needs of the local community’ (Liu,2006). An example of this strategy can be illustrated through the system of ‘Big Three, Small Three & Mini Two.’ This reflects the current policy of the Chinese government, which restricts entries into the passenger car market and ‘allocates car production to 8 manufacturers’. This policy aims to replace foreign cars by protecting domestic car makers, an initiative taken by the government after reflecting upon the large amount of entry of commercial vehicle production. Further signs, of localization in China can be seen through the local content policy, by restricting the import of complete cars. China Imports complete cars to aid the shortage of domestic supply and therefore imposes high tax on them. Since the birth of NAFTA, new tariff rates went into effect, 110% to 150% on passenger cars, which is very high in comparison to other countries. Not surprisingly, therefore, to state that globalization is an unstoppable force and cannot be reversed, is a comment that’s not entirely fair. As I have attempted to explain in this section, there are two counter-trends that exist, and substantial evidence to suggest this. Thus, it would be wrong to dismiss these two particular developments (Chunli,1997).
Conclusion
Despite China's growing auto industry, industry productivity lags behind competition, and it lacks the ability to conduct research and development, and is dependent on its fellow alliances to develop new vehicles. Chinese automakers are presently creating new policies through joint-ventures to continue the development of China's automotive industry. However, currently China's automotive industry remain fairly weak, there is still room for improvement and it must do, if the country wishes to fulfil its potential both technically and managerially. These factors offers a significant challenge for China's automotive industry, and it is expected to take a considerable amount of time before China becomes a global competitor in the automotive market.
In conclusion, this essay hopes to have proved that the globalization debate is rife with smaller debates and hence does contain many differences. Within each sub-section of this essay it is hard to find one converging view about globalization. However, the greatest convergence of the globalization debate comes from its analytical framework. The issues considered in this essay are at the root of the globalization debate and each school has formulated general arguments and conclusions for each of the issues. I feel that the motor industry in China informs our understanding of the general concept of globalization. That is, the spread and connectedness of production, communication and technologies across the world. Moreover, I argue that the motor industry is the best example of a genuine globalized industry and that the globalised economy is no more than the sum of its parts, including the motor industry. In general it can be said that all four schools recognize that there has been some growth in recent decades in economic interconnectedness. However, it is important to bear in mind, that the arguments made in each case, represent a theory about what is happening in the world today, not a set of firm conclusions.
Hyper-globalists would argue that the global spread and the inter-dependency of the internal automobile industry would be inevitable. An individual firm like Ford, cannot survive in the marketplace, without any co-operation from other manufacturers and suppliers, a global co-operation has become a necessity. The sceptics advocate that international car makers are exploiting labour by outsourcing into lower-wage economies. Firms do this through, paying low wages and provide unsafe working conditions. As a consequence, the rich get richer and the poor get poorer, and the inequality gap widens. In my opinion, globalization boils down to the natural selection. Only the fittest and strongest firms associated in the automobile industry will succeed, while the weak are going to perish. It is life, some people are academically better then others, some people will make more money than others and in this case, some car manufacturers are better than others. Although, exploiting lower-waged economies violates a sense of fairness and other moral issues, it’s the harsh reality of life. The transformationlist state that individual countries’ decisions are still in their own hands, because nations regulate their own level of tariff and barriers. Trade between car manufacturers is regional and not global as hyper-globalists suggest. The decisions made by nation states is influenced by the global economy, however the choice is solely down to the nation. Finally, the internationalist perspective promote that different countries respond differently to the international automobile industry. Furthermore, globalization is compromises of international decisions, but not necessarily a global action.
Finally, people have also taken radically different positions on the policy course to adopt with regard to globalization. Neoliberals argue that market forces should determine globalization and public authorities should facilitate but not interfere with these dynamics. In contrast, reformists hold that globalization should be deliberately guided by public policies, including supra-state as well as state measures. More radically, traditionalists believe we ought to ‘de-globalize’ and return to a pre-global position. Meanwhile other radicals like global socialists and postmodernists have advocated a continuation of globalization, but only with a transformation away from other social structures like capitalism or rationalism.
In my opinion, the transformationlist is the most plausible view because the notion of the declining importance of the nation-state has weakened and this has sparked the interests and pressures of TNCs and international institutions. Although, there has been a global economy, I don’t feel that the course of globalization is inevitable. The reason globalization has led onto the path of neo-liberalism, is down to many factors. Political ideologies adapted by nations, the pressures of supra-national groups such as the EU and the power of developed countries in the global economy. The development of these attributes has flourished into the current conceptualisation of globalization today. It is very difficult in reality to achieve a consensus on how globalization has shaped and responded to automobile industry.
Waiting to find out what the actual combination is, how the character of the government will change, and how this will affect the policies and the people of the future, is what makes the study of globalization very unpredictable.
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