CLASS 1 The process of global shift and the second unbundling
Aug 18, 2014 Prof. Dr. Claes G. Alvstam University of Gothenburg, School of Business, Economics and Law Centre for International Business Studies/Economic Geography
General Outline The setting: Production specialization and fragmentation; Various types of internationalization processes Economic transformation models Basic figures of production and trade Introduction to the GVC concept
Two perspectives Macro the country/nation/economy -- economic size: total, per capita; nominal, PPP -- revealed competitive advantage -- trade policy: multilateral, regional
Micro the transnational enterprise -- degree of internationalization -- home base -- position in the global value chain
UNCTAD, World Investment Report 2013, table IV1, p. 125.
Geographical description levels
GLOBAL MACROREGIONAL/CONTINENTAL NATIONAL/STATE SUB-NATIONAL/REGIONAL LOCAL/INDIVIDUAL Basic reading Dicken, Peter: Global Shift 6th Edition 2011; Hill, International Business. 10th Edition 2014 -------- UNCTAD World Investment Reports 2013-2014; WTO, World Trade Report 2011, 2013; ------ Papers by Inge Ivarsson and C.G. Alvstam
The Global Economy some key figures
Total population: Ca 7,253 mill. inh.(Aug 2014) ca 2.500 mill. (1950) Annual growth: Ca 1,1 % (2.1 % 1970) Global (nominal market exchange) GDP: Ca 77,000 billion USD (2014e) Annual growth : Ca 3,5 % (1985-2010) - measured in PPP terms: Ca 91,000 billion USD (2014e) World Trade (goods): Ca 18,600 billion USD (2014e) Annual growth : Ca 6,5 % (1985-2010) World Trade (services): Ca 4,500 billion USD (2014e) Annual growth : Ca 3,5 % (1985-2010) World Trade (capital): * Foreign Direct investment (outward): Ca 1,411billion USD (2013), 1,347 mill USD (2012) Annual growth : Ca 18 % (1990-2000); ca 8.5 % 2000-2007, 0.7% 2000-2010) * Daily turnover in currency markets: Ca 5,300 billion USD (Apr 2013) (1400 bn USD 1998)
latest update 140810
(2005 rs siffror) North America 17,500 bn USD 350 mill. inh.. EU27+CH,N+IS 19,100 bn USD 515 mill.inh. Other Europe incl CIS 3,400 bn USD 380 mill.inh. Pacific Asia 17,100 bn USD 2,200 mill.inh.. Latin America incl. Caribbean 5,800 bn USD 600 mill.inh, North Afr/M.East 3,000 bn USD 390 mill.inh. South Asia 2,300 bn USD 1,620 mill.inh. Oceania 1,600 bn USD 38 mill.inh Africa south of Sahara 1,200 bn USD 875 mill.inh. Ca 54 % of global nominal GDP in NA/WE/Oc Ca 24 % in Pacific Asia Klla: World Bank, World Development Report 2007 The Global Economy measured in nominal GDP (2011 figures) Gross Global Product: ca 71,000 bnUSD Source: World Bank, WDI, database August 2012 CGA 120901
(2005 rs siffror) North America 16,600 bn USD 350 mill.inh. EU27+CH,N+IS 17,200 bn USD 515 mill.inh. Other Europe incl CIS 5,300 bn USD 380 mill.inh. Pacific Asia 21,000 bn USD 2,200 mill.inh. Latin America inkl. Caribbean 6,800 bn USD 600 mill.inh. North Afr/M.East 4,200 bn USD 390 mill.inh.. South Asia 5,500 bn USD 1620 mill.inh. Oceania 1,000 bn USD 38 mill.inh. Africa south of Sahara 1,900 bn USD 875 mill.inh. Ca 44 % of global PPP in NA/WE/Oc Ca 26 % in Pacific Asia Klla: World Bank, World Development Report 2007 The Global Economy measured in PPP terms (2011 figures) Gross Global Product: ca 79,000 bnUSD Source: World Bank, WDI database August 2012 CGA 120901 GERMANY 3571 DENMARK 333 SWEDEN 538 NOR- WAY 486 FIN- LAND 266 NETHERLANDS 836 BELGIUM 512 UNITED KINGDOM 2432 IRE- LAND 217 AUSTRIA 418 SWITZERLAND 636 ITALY 2195 FRANCE 2773 SPAIN 1491 POR TUGAL 238 POLAND 514 CZECH REP 215 LITHUANIA 46 LATVIA 28 ESTONIA 22 RUSSIAN FED. 1858 BELARUS 54 UKRAINE 165 HUN GARY 140 ROMA NIA 180 MOLDOVA 9 BULGARIA 54 SLOVENIA 50 CROATIA 63 SERBIA- MONT 52 BOS-HERZ 18 GREECE 299 ALBANIA 13 MACEDONIA 9 GNI IN EUROPE 2011 (bill USD) ICELAND 14 SLOVAKIA 96 Source: World Bank, WDI Database CGA 120901 LUXEMBURG 59 GERMANY 3283 DENMARK 236 SWEDEN 400 NOR- WAY 288 FIN- LAND 205 NETHERLANDS 731 BELGIUM 433 UNITED KINGDOM 2316 IRE- LAND 149 AUSTRIA 354 SWITZERLAND 402 ITALY 1966 FRANCE 2346 SPAIN 1476 POR TUGAL 261 POLAND 782 CZECH REP 265 LITHUANIA 63 LATVIA 40 ESTONIA 29 RUSSIAN FED. 2845 BELARUS 138 UKRAINE 324 HUN GARY 203 ROMANIA 324 MOLDOVA 13 BULGARIA 105 SLOVENIA56 CROATIA 85 BOS-HERZ 35 GREECE 294 ALBANIA 29 MACEDONIA 24 GNI PPP IN EUROPE 2011 (bill USD) ICELAND 10 SERBIA 85 SLOVAKIA 123 Source: World Bank, WDI Database Aug 12 CGA 120901
LUXEMBURG 33 MONTENEGRO 13 Bruttoinlandprodukt in den Deutschen Bundeslndern 2010 Nordrhein- Westfalen 719 Rheinland-Pfalz 143 Hessen 298 Baden- Wrttemberg 480 Bayern 586 Nieder- Sachsen 284 Hamburg 117 Schleswig-Holstein 101 Berlin 126 Sachsen- Anh. 69 Thringen 66 Bremen 37 Saar 40 Meckl.Vp 48 Branden- burg 74
Sachsen 126 Vorh. West 88 % Vorh. Ost 12 % (ex Berlin) Klla: Stat.Bundesamt. Stat. Jahresbuch 2011 Volkswirtschaftliche Gesamtrechnungen; www.destatis.de Mrd. USD 1 USD = .755 EUR CGA 120902 Focus on fragmentation of production and cross-boundary transaction flows R P M Resources Raw mtrls Manufacturing production Market Raw material trans- actions Inter- mediate trade
Trade with final consumption goods
USA+CANADA 2844 (586) EUROPE incl CIS 53 units 6861 (4910) OTHER ASIA 35 units 4988 (1975) JAPAN 886 317 (14) MENA 23 units 1004 (157) SUB.SAH AFRICA 46 units 380 (48) LATIN AMERICA 36 units 1180 (236) Japan 167 Other Asia 814 155 504 393 184 165 59 27 102 US+CDN
91 116 714 537 330 126 840 98 170 391 484
Total import value 2012 = 18,500 billion US Dollars Source: IMF DOTS Database Aug, 2013 (prel.data) (Figures within brackets refer to intra-imports within respective bloc) CGA 130821 32 140 incl. Japan 91 164 170 (incl Japan) WORLD IMPORTS BY GEOGRAPHICAL REGIONS 2012 Lat.amer. 217 Asia incl. Japan 300 MENA 174 AUS+NZ 36 15 14 9 32 16 60 LA 34 NA+LA 46 Eur
Aus+NZ 17 18 SSA 357 255 636 296 385 62 25 MENA+SSA 18 2014-04-10 Kurt Grnfors Memorial Lecture
Commodity composition of world trade Per cent of total commodity value
1950 2000 2010 Raw materials and simple preparations
Goods for final consumption
Intermediate goods (semi-manufactures, parts and components, capital goods) 50 10 5-8
35 20 15-17 15 70 75-80 _____ ______ _______ 100 100 100 Internationalization (globalization) of Raw material supplies; Markets; Production systems (goods and services) Labour Capital Information and communication Culture; consumption patterns; . Internationalization of raw material supplies R P M Country A Internationalization of markets R P M 1 Country A M 2 Internationalization of the production system (goods) R M 1 Country A P 1 P 2 P 3 P n M 2n Basic manu- facturing Knowledge intensive Labour intensive Final assembly UNCTAD, World Investment Report 2013, figure IV1, p. 123. 2014-09-03 Kurt Grnfors Memorial Lecture
Example of fragmented production: Husvarna chain saws Source: Husqvarna, cit. by the Swedish Ministry of Foreign Affairs Fragmentation of production The GM case Source: Made in Sweden? Kommerskollegium 2010, p. 11 Fragmentation of production: The Toyota Case Source: Hiratsuka(2010) quoted in IDE-JETRO, Trade patterns(2011), p. 16 Fragmentation of production: The Boeing 787 Dreamliner case Source:Meng and Miroudot, 2011, Quoted in IDE-JETRO, Trade patterns(2011), p. 95
Fragmentation of production: The iPod case Source: Made in Sweden? Kommerskollegium 2010, p. 10
Internationalization of the production system (services) R P M Country A Upstream Downstream Services The growth of the world economy Annual percent change in global real GDP 1980-2015 -3 -2 -1 0 1 2 3 4 5 6 1980 1985 1990 1995 2000 2005 2010 2015 Market exchange rate PPP exchange rate Source: IMF, World Economic Outlook, Latest April 2014 Per cent 131027 140810 The growth of the world economy Annual percent change in global real GDP 1980-2015; Trend 1980-2008 -3 -2 -1 0 1 2 3 4 5 6 1980 1985 1990 1995 2000 2005 2010 2015 Market exchange rate PPP exchange rate Source: IMF, World Economic Outlook, Latest April 2014 Per cent 131027 140810 The growth of the world economy Annual percent change in global real GDP 1980-2015; trend 1985-2015 -3 -2 -1 0 1 2 3 4 5 6 1980 1985 1990 1995 2000 2005 2010 2015 Market exchange rate PPP exchange rate Source: IMF, World Economic Outlook, Latest April, 2014 Per cent 131027 140810 GDP growth in advanced and developing/ emerging economies 1985-2015e -6 -4 -2 0 2 4 6 8 10 1 9 8 5 1 9 8 7 1 9 8 9 1 9 9 1 1 9 9 3 1 9 9 5 1 9 9 7 1 9 9 9 2 0 0 1 2 0 0 3 2 0 0 5 2 0 0 7 2 0 0 9 2 0 1 1 2 0 1 3 2 0 1 5 Advanced econ. Emerging econ. Per cent Source: IMF, World Economic Outlook Latest April 2014 090502 110818 120901 140810 Comparison of production and trade growth 1990-2015 -15 -10 -5 0 5 10 15 1990 1993 1996 1999 2002 2005 2008 2011 2014 PRODUCTION TRADE Per cent 100425 120901 121020 131027 140810 Source: IMF, World Economic Outlook , October 2012 Source: IMF, World Economic Outlook, various volumes until April 2014 World Foreign Direct Investments 1990-2013 (bn USD) 0 500 1000 1500 2000 2500 1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8 2 0 1 0 2 0 1 2 2 0 1 4 Source: UNCTAD World Investment Report, latest July 2014 120821 121029 131027 140809 Bill USD Outward Inward Model of Economic Transformation Primary Manufacturing Services Services Primary Manufacturing Time Share of total econ.active pop. 80 05 15 33 33 33 10 50 40 05 20 75 Model of Economic Transformation Time Share of total econ.active pop.
Singapore Malaysia Thailand Indonesia Vietnam Philippines The Southeast Asian Case Model of Economic Transformation Time Share of total econ.active pop.
Beijing Shanghai Other coastal provinces The China Case Inland provinces Sichuan Shandong Dongbei Model of Economic Transformation Time Share of total econ.active pop. Bangladesh India Pakistan The South Asian Case Model of Economic Transformation Manufacturing Services services Manufacturing Time Share of total econ.active pop.
Singapore Hong Kong The Asian City-state case (Low value added) (High value added)
(Low value added)
(High value added)
Global manufacturing output Per cent share of value added (current prices 2000- 2025 0 5 10 15 20 25 30 35 40 1990 1995 2000 2005 2010 2015 2020 2025 Per cent 5,700 bnUSD 11,800 bnUSD 28,150 bn USD Source: Global Insight, cit. by FT May 29 and Aug 11, 2008 081014 CHINA USA JAPAN CHINA USA
JAPAN
The role of manufacturing Source: The Economist, November 24th, 2012 American industry in transition (1) American industry in transition (2) European Manufacturing Source: Financial Times, May 27th, 2013 The service sector in the world economy 50- 75 per cent of economically active population Even higher shares when measuring the contribution to GDP 30-50 per cent in larger emerging markets 0 10 20 30 40 50 60 70 80 U S A C H I N A I N D I A S W E D E N Primary Secondary Tertiary Source: World Bank, World Development Report 2011. Per cent 120902 Served in China Manufacturing and services 1994-2012 Source: The Economist, February 23rd, 2013 The Share of Service Exports in Total Exports of Goods and Services (2010) 0 5 10 15 20 25 30 35 USA INDIA EURO16 JAPAN CHINA RUSSIA Source: IMF, International Financial Statistics, Yearbook 2011 Per cent 120902 The Share of Service Exports in Total Exports of Goods and Services in EU27 (2010) 0 10 20 30 40 50 60 70 80 90 CY LX GR MT IR DK UK ES PT SE AT FI EU16FR BE IT PL NL GE HU CZ Per cent Source: IMF, International Financial Statistics, Yearbook 2011 120902 Internationalization of markets foreign direct investment R P 1 M 1 Country A M 2 P 2 FDI Flow of manufactured goods Flow of raw materials Flow of capital Internationalization of capital over time Technical opportunities Lower Higher Poli- tical oppor- tunities
Higher Lower O Before WW 1 O Mid-war period O Post-war until mid- 80s O After de- regulations Outward FDI Stock by leading investing countries 1914-2013 as per cent of world total Origin 1914 1960 1978 1990 2000 2010 2013
Developed economies 100.0 99.0 96.8 93.2 88.7 82.3 78.9
Sources: Knox-Agnew, 1989; UNCTAD World Investment Report, 2011, 2014 110825 140910 Inward FDI Stock by leading host countries 1914-2013 as per cent of world total Destination 1914 1960 1978 1990 2000 2010 2013
Developed economies 37.2 67.3 69.6 75.3 75.6 65.3 63.0
Sources:Knox-Agnew, 1989; UNCTAD World Investment Report, 2011, 2014 110825 140810 Financial Times November 13, 2012 Alternative ways to measure welfare Alternative ways to measure welfare Alternative measures of business cycles and welfare Financial Times, September 17th, 2013 BloombergBusiness Week July 29, 2013 Source: Financial Times, December 31, 2012 The Value Chain Source: WTO, quoted in IDE-JETRO, Trade patterns(2011), p. 12
Vertical integration Source: WTO, quoted in IDE-JETRO, Trade patterns(2011), p. 13
Outsourcing and offshoring Source: WTO, quoted in IDE-JETRO, Trade patterns(2011), p. 20
The Economist, January 19th, 2013 Complementarity and substitution between trade and FDI Source: WTO, quoted in IDE-JETRO, Trade patterns(2011), p. 50
EVOLUTION OF REGIONAL PRODUCTION NETWORKS IN ASIA Source:IDE-JETRO, Trade patterns(2011), p. 75
Measuring value added and vertical specialization through an international production chain Source: WTO, quoted in IDE-JETRO, Trade patterns(2011), p. 97