Reverse Globalization?
March 20th, 2010
Globalization, whether considered beneficial or harmful, is often considered the major driving force of the modern global economy. From clothing to computers, most of the products we use have components from many countries and are produced far from where they are sold. This system of utilizing multiple sources for components is due in part to the low cost of transportation. However, will this always be the case?
In an article by ABC News (Click Here), the consequences of higher transportation costs are described. In the summer of 2008, the cost of a barrel oil surpassed $100 for the first time in history. These massive oil costs led to an even larger increase in shipping costs. Due to these increased shipping costs, some companies found that it was more profitable to produce goods in the country in which they were selling in rather than using lower manufacturing costs somewhere else. This change is described as reverse globalization.
Although oil prices are not as high as they once were, reverse globalization is still occurring. The automotive industry provides an example of this. In the United States, Korean car company Hyundai built their first plant in 2002 to reduce their overall costs. Since transportation costs are proportional to the volume of goods being transported, Hyundai chose to manufacture their top selling U.S. vehicles at this plant to minimize these costs. Despite being only a single plant, this decision has been very successful in that it has helped Hyundai garner a stronger presence in the United States.
This might lead one to think that countries like India will suffer from this reverse globalization in America. However, similar occurrences are happening in India as well. Most high-end automakers who could afford to have their vehicles shipped into India since they already command a price premium are now being built in India for Indians. These include vehicles like the Audi A4, BMW 5 Series, and Mercedes C-Class. Although I do not remember the original page with the information pertaining to the particular vehicles produced, Wikipedia also contains this list: (Click Here)
Coca-Cola, which used to be imported into India, is now being produced in plants once used by a local cola producer.
Given the gains experienced world-wide from reverse globalization, does this mean the end of globalization? Or is this simply a false term, and merely an evolution of globalization?
-Mathew Perez
Entry Filed under: 2010 Student Blogs, India, Misc.
5 Comments Add your own
1. joe | March 28th, 2010 at 12:18 pm
http://www.amazon.com/Unsavory-Characters-Eclectic-English-Teachers/dp/1451545037/ref=sr_1_1?ie=UTF8&s=books&qid=1269806682&sr=8-1
2. Frank Blazkiewicz | April 5th, 2010 at 10:58 pm
The interaction of unifying and disruptive elements of the global economy is wonderfully complex. To be simplistic, I would argue that this is primarily an evolution in the “globalizing” world.
One of the stages of a transnational company is where the company expands its manufacturing capabilities into areas where they wish to sell their products. Part of that is the recognition of cost savings due to either reduction in possible import tariffs, labor costs, and shipping costs. Additionally many countries link the opening of its markets with the opening of operations. This creates local jobs and assists the local economy as well. China is a clear example of a country which uses its market potential as a bargaining chip.
The point about the increasing costs of shipping due to oil prices reaching the highest levels on record highlights concerns about disruptions in the relations between countries and trade. However, I would tend to think that the most critical danger to globalization would a major armed conflict.
3. Erika Bylund | April 7th, 2010 at 6:58 pm
Those of you in GSB 533 (macroeconomics) are all too familiar with the discussion behind the phrase “unintended consequences.” It’s really interesting to see how things come full circle, and though we may think we know where the future is going, it doesn’t always (and frequently doesn’t) turn out that way. Matt’s blog asks the reader to consider if reverse globalization is a good thing or a bad thing. I personally think it’s ironic that America has been worried for a long time about outsourcing American manufacturing jobs (a specific example being the Detroit auto industry). And now, here we are with foreign auto manufacturers like Hyundai knocking on our doors, asking to set up manufacturing plants in the U.S. What else can we do and what kinds of incentives can we offer (aside from keeping oil prices high) to encourage other foreign manufacturers to set up shop in the U.S. and bring those jobs back?
4. Jordan Wente | April 10th, 2010 at 3:14 pm
I would have to say it’s the evolution of globalization rather than the end of it. I think companies are recognizing more and more that in these rapidly developing countries there are new markets of consumers. Labor is much cheaper in many of these countries. The cost of shipping aside, producing products in these countries cuts costs in other ways. I mean isn’t that why we have sent manufacturing of products overseas in the first place. However, now there is an added benefit, the economic growth is enabling people in developing countries to be able to purchase these goods as well. Businesses are now starting to capitalize on the growing markets. In my opinion this is the main reason why Coca-cola and automakers are producing their products in India for Indians. This reminds me of the Philips example given in The Elephant and the Dragon.
It’s pretty clear that as transportation costs continue to increase there will be a shift in the path of globalization. Hopefully there will be more of a concern placed on the cost of transportation of goods to the environment; in addition to the just the increased costs of shipping.
5. Alex Thornton | May 25th, 2010 at 4:53 pm
This is a good point; modern globalization is predicated on the existence of a cheap fuel source, oil. Once oil reserves near depletion, oil prices will permanently rise an globalization may reverse.
However, I wonder about the car example you provide, Matt. I suspect that car manufactures come to America primarily to avoid high tariffs, not high shipping costs. These tariffs can add several thousands of dollars if the car is not assembled in the United States.
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