The current essay is aimed at discussing the drivers of global shift in economy and development of new geographies of economic activities. The current era of globalisation is the result of massive shift is economic activities and identification of drivers that have fostered economic shift is highly significant to consider in this study. In order to achieve this aim, the present study has alienated into different sections. The first section has provided the brief introduction of global shift by offering visual indication of circle of global shift. Followed by this, the second section has separately discussed three drivers of global shift along with rationale of their choice. Finally, the study has concluded by shedding light on key aspects of underlying issue.
The global shift is recognised as the movement of economic activity initially from most developed countries to newly industrialised countries and later to less developed countries. During the era of 1960s, the global shift was linked with manufacturing sector only, whereas later in 1990s, the shift of services was witnessed (Bryson, 2007). The complete process of global shift can be viewed in the figure 1 mentioned below.
Figure 1. The complete process of global shift.
Source: Dicken (2007)
By viewing the complex circle of global shift, it is important to look at the factors that have caused global shift. The main drivers of global shift are spatial division of labour, diffusion of knowledge and communication. The geographic reorganisation of economic activities and spatial shift of industries from capitalist developed countries to developing and less developed countries is recognised as the outcome of global division of labour. It has emphasised by the Dicken (2007) that most of assets that are required by firm are geographically dispersed. The labour is the most momentous resource of the businesses and access to knowledge and skills embedded in geographically dispersed labour is one of considerable motivation behind shift in global economy and formation of new economic geographies. The concept of spatial division of labour is considered by many researchers as the underlying driving force of fostering shift in economic activities (Mcguinness and Simm, 2005).
In terms of spatial division of labor, there are four core aspects of labor that are geographically dispersed including; knowledge and skills, wage cost, labor productivity and labor controllability. The knowledge and skills of labor are unevenly distributed among different locations based on the education levels including; rate of enrollment in different education phases, rate of literacy and level of expenditure on education (Grant, 2006). It has underlined by Hess and Yeung (2006) that differential level of knowledge and skills of labour has motivated large corporations to expand their activities beyond a specific geography. Along with this, there is huge variation in wage cost across different geographic locations which has attracted corporations to reorganise their operations with an aim of minimising labour cost (Ernst and Kim, 2002). The manufacturing companies relocated low cost labour intensive parts to the less developing countries with an aim of gaining benefits of cheap locations.
Furthermore, the scale of output gained per worker is considered as highly important for organisations. It is termed as performance capacity of labour or labour productivity that varies substantially from place to place (Christopherson, 1989). The productivity of labour is an indication of geographic importance of labour and it has highly motivated organisations to gain advantage of spatial variation. Finally, the aspect of labour controllability has also been offered significant placing in the literature(Ernst, 2002). It is important to note in some geographical locations, labours are more organised by unions, while in other countries the involvement of labour unions is reducing markedly. It has indicated by Scott (2006) and Sturgeon et al., (2008) that organisation had practices relocation from region characterised by highly organised labour to the region where labour was malleable.
The notion of spatial labour has served as one significant driver behind shift to new geographies of economic activity. The global industrial shift to locations with favourablelabour conditions was supplemented by the advancement in transportation and communication technologies. It has highlighted by Held and McGrew (2000) from 1953 to 1990s the world manufacturing output from advanced capitalist countries has reduced from 95% to 77%, whereas the output of manufacturing from less developed countries has increased from 5% to 23%. The battle of division of labor is extensive between north and south regions of the world (Forsgren, 2008). The north has one quarter of world’ population but it is occupying about four fifth of the world’s income. On the hand, the south has three quarters of population but it has access to only one fifth of world’s income. It has been asserted by the researchers that this widening gap is due to differences in knowledge and skills of labor and favorability in terms of labor.
Another main driver for global shift is considered to be diffusion of knowledge. Diffusion of knowledge is highly useful when it is studied in the production context. The companies are becoming global and they focus on global production systems. Global production networks are formed by the international companies to get benefit out of local suppliers. In addition, these networks are useful for global production that is a major driver of global shift and development of new economic geographies (Henderson et al., 2002). Due to globalisation and economic integration, global production networks came into existence. Companies have no remain local and operating at global level, causing the global shift. This can be easily understood by focusing on network flagship model. Flagship firm is considered to be a multinational company that make a business network with the help of four major partners including competitors, customers as well as suppliers along with non-business partners (Girod and Rugman, 2005). The formation of flagships has caused the diffusion of knowledge and it has further caused the global shift. It is very important for the flagships to remain competitive. That is why, they are provided access to the particular suppliers at lower-cost sites that outshine in rapid and flexible response to the flagships’ needs. Being a major driver of global shift, global production networks act as influentialtransportersor diffuser of knowledge. Primary, it is required by the flagships to convey special technical and administrative knowledge to the domestic suppliers. It is done for improving the suppliers’ practical and managerial skills as well as abilities. Later on, information and knowledge related with manufacturing, product as well as process development is provided to the local suppliers. In the past, the flagships had to convey knowledge to the foreignpartners and suppliers for effective production of goods at global level. The partners and suppliers used the information and knowledge to produce the goods. This factor caused the global shift and new geographies were formed to carry on economic activities by multinational companies. It is important to understand that knowledge transfer and knowledge diffusion are two different phenomena. As per Ernst et al., (2002), diffusion of knowledge is completed when the transferred knowledge is adopted and converted into the competence of the domestic suppliers.Due to globalisation of big companies, local suppliers used the information/knowledge provided to them for production of goods or services. Due to this diffusion of knowledge from flagships to local suppliers, global production took place that lead towards global shift and new geographies for economic activity (Beaverstock, 2007).
Most of the literature on global shift and integration of economic activities has considered communication as the core facilitator behind development of new geo-economy. It has asserted by Rugman and Collinson (2005) that rapid communication of economic activities of one region to another region has attracted the economies to look for ways of expansion beyond geographical boundaries. There are different companies that are operating in more than one countries, transferring their knowledge to the local companies, with the help of effective communication. In past decade, the number of acquisitions, mergers, JV as well as partnerships between companies is increased (Buono and Bowditch, 2003). This has happened because of effective communication between companies of different countries. In order to join hands with other businesses in international world, companies have to communicate and transfer knowledge. As the demand of products increased, the businesses started taking help from the local as well as international suppliers. Due to this factor, the economic activities including production of goods, selling and purchasing of goods or services took place in the new regions, thus increased the geographies of economic activity and caused global shift (Gereffi et al., 2001). Held et al., (2000) has mentioned the story (may or may not be true) of Marco polo, who has carried the concept of noodles from China to Italy, which has served as the basis for formation of various Italian Pastas. From this instance, it can be maintained that communication has greater power to reshape thinking and behaviours of people. The perceptions and opinions of customers towards any product can be changed by effectively communicating its working/features or qualities. The research on early era of globalisation focusing on transnational firms has revealed thatincreasing knowledge about other regions of the world has laid its hands in expansion of economic activities (Dicken, 2007). This indicates that the big multinational companies have started taking help from small companies, operating in developing countries. The large firms had exploited their resources to fulfill the needs of consumers all around the world, based on their ability to identify needs of global consumers through communication technologies. This has not only helped the large multinational companies but companies operating in developing countries have used the knowledge gained from big companies to improve their processes, products and operations. The communication revolutions have compressed time and space. The communication technologies have enabled to transmit knowledge in real time and also enabled the repositioning of social arrangements. It was stated by Blomström et al., (2003) that developing countries try to attract the foreign investors as well as companies to get benefit out of their latest technologies. The communication at international level has become possible due to technological developments. Internet has become a source of effective communication at global level. Big business concerns are communicating with other firms in different corners of world by using different internet technologies and systems. These include video calling, e-mailing and many others. Businesses are communicating with each other to share information, to find out growth opportunities in different regions and to get skilled and efficient labor force (Ietto-Gillies, G., 2005). All of these factors have made fast communication possible and it has ultimately lead towards global shift and emergence of new geographies for economic activities. The discussed drivers have deep impact on the global business, caused global shift and became a source of emergence of new geographies for economic activity. The arguments are supported by past studies and researches as well (Rugman and D’Cruz. 2000).
It can be concluded that the global shift is considered as a process in which the economic activity moves initially from most developed countries to newly industrialised countries and later to less developed countries. There are different factors or drivers that have made global shift possible and are the reason behind emergence of new geographies for economic activity. The notion of spatial labor has served as one significant driver behind shift to new geographies of economic activity. Another main driver for global shift is considered to be diffusion of knowledge. Diffusion of knowledge is highly useful and a main driver behind global shift. The formation of flagships has caused the diffusion of knowledge and it has further caused the global shift. It is also noticed that rapid communication of economic activities of one region to another region has attracted the economies to look for ways of expansion beyond geographical boundaries. There are different companies that are operating in more than one countries, transferring their knowledge to the local companies, with the help of effective communication, thus causing the global shift. In short, all the three identified drivers including communication, spatial division of labor and diffusion of knowledge have caused global shift.
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