2. Global Economy
• Common to buy clothing anywhere in US which
has a tag labeled, ‘Made in Malaysia, China or
Sri Lanka’
• Simple observation reminds us that our
consumption of goods has a strong international
character
• Increasingly true to speak not only of national
economies but a larger, highly inter-connected
and interdependent- GLOBAL ECONOMY
• Before discussing basic mechanisms of
industrialization and economic change within
Third World, important to look at the broader
global industrial environment within which these
nations are forced to compete
3. Setting the Stage: Origins of the Global
Economy
• Since 1970s world economy hit by
turbulent forces
• Unemployment in western countries
• Traditional industries (iron and steel) have
declined
• LDCs bearing huge financial debts which
threaten drive for development
• Trading tensions have emerged between
industrial countries and the newly
industrializing countries
4. Forces Surrounding Global System of
Production
• These five factors are affecting production
patterns:
• 1. Trans-national or multi-national
corporations (MNCs)-firms that operate in
many nations
• Increasingly these firms have local production
points and suppliers that operate across national
boundaries providing and securing labor, capital
and other resources from a variety of places and
which have become very powerful and important
influences in the global economy
5. Sequential Model of TNC Development
• Stage I- Serve domestic market only
• Stage II- Export to overseas markets through
independent channels (sales agents)
• Stage III- Establish sales outlets in overseas
markets by acquiring local firm and/or setting up
new facility
• Stage IV- Establish production facility overseas
by acquiring local firm and/or setting up new
facility
6. Forces Surrounding Global System of
Production
• 2. National governments- through their
industrial, trade and foreign policies especially
liberalization policies
• Liberalization refers to the way in which policies
facilitate transactions (trade and sales) of a
variety of products and services
• Deregulation refers to the easing of taxation,
entry and pricing of products or services dictated
by government policy
• Privatization refers to the ownership of former
public sector operations and firms by private
corporations and enterprises
7. Forces Surrounding Global System of
Production
• 3. Enabling Technologies- transport,
communications, production and organizational
improvements
• Explosion of enhanced transport and
communication services such as air cargo,
integrators offering definite time delivery (FedEx
and UPS), electronic mail and electronic data
interchange (EDI)
• Advanced inventory management such (just-in-
time (JIT)) and new systems of distribution such
as third party logistics (3PL)
8. Moving storage
units
Delivery units for
parts
Delivery units for
finished goods
Old warehouse before
Just-in-Time
FACTORY
Assembly and warehousing
place
Production Unit
Just-in-Time and its Logistic
Moving storage
units
Assembly Line
9. Forces Surrounding Global System of
Production
• 4. Shifts in Market Conditions and Demand
• Economic cycles affect markets and production,
e.g. the Asian financial crisis
• Dramatic shifts in demand affect over time
influence type of good being produced and
production schedules
• Application of new technology can mean product
obsolescence
• These changes can be described in part through
product life cycle
10. Product Life Cycle
• Essence of PLC is that growth in sales of
product follows systematic path, from
initial introduction to market through
development, growth, maturity, decline
and obsolescence
11. Product Life Cycle
Sales
Stage 1 Stage 2 Stage 3
Monopoly Competition
Research and
development
Maturity Decline
First competitors Mass production
Growth
Stage 4
Promotion
Idea
Decline of
production
12. Cellular Phones of Nokia
• Evolution of basic Cellular
phones are an example
of a product which is
especially applicable to
the notion of the product
life cycle
• phone to color
enhancement to camera
and email device
