Is globalisation a threat?

[WakingDragon]

I find this an interesting topic so I thought I do a quick poll to see what people's thoughts were. Basically it is to find out how you view global competition: a source of low cost products and services or a threat to your current market.

This can mean anything that is not from the UK or EU e.g. IT services from India, textiles from Turkey, manufactures from China, and so on.

I have put the answers in order of "hot" (very positive) to "cold" (very negative. Apologies in advance for this linear generalisation, but please answer as acurately as you can.

Explanations would be very interesting too ;)

cheers
WD

[WakingDragon]

Hmm - pretty interesting so far! A very internationalist perspective. Are there no textile companies out there who supported the re-introduction of quotas?

[Cornish Steve]

The British Empire thrived on the principle of free trade. In fact, almost every great economy in history has thrived on free trade. The moment you erect protective barriers, you admit defeat.

Singapore has no natural resources and yet has one of the strongest economies in the world. North Korea, on the other hand, has erected barriers and their economy is in tatters.

It sounds simple: Protect our industries and our jobs. Historically, though, this is always a mistake. The appropriate course of action is to retrain the workforce to take advantage of emerging technologies and market trends. We need much less regulation, not more. We need access to more markets, not fewer.

[multilingual]

Good post Steve, completely agree.

JB

[WakingDragon]

After the reaction to, for example, the removal of textile quotas in Jan 05, I expected a higher proportion of SMEs to be colder on the topic.

[WakingDragon]

Playing devil's advocate, I will put across what I think is a very convincing argument for the opposition that has been put to me by an industry body that we got in a tussle with on the subject.

Free trade is a nice concept but, in practice, moves towards liberalisation must be set in the context of the existing environment.

In the case of the removal of textile quotas this was particularly the case. The argument used publicly was that there should be a "level playing field" but actually the situation was quite different. Many UK textile firms were simply not prepared for the removal of quotas (even though it had been on the cards for around 5-10 years). And, even though there were still tariffs of over 14% on the goods, the adjustment was too sudden for industries to adapt.

One of the biggest problems was communication. The government should have done more and sooner to prepare the industry for the impacts of change, and should have been clear that this was a binding WTO ruling that would be enforced. The immediate capitulation by the EU to its textile lobbies has actually been extremely bad if you consider that liberalisation is inevitable. This is because the industry may now put more energy into strategies that have proved to work (i.e. lobbying) than into those that have not been proved (i.e. becoming more globally competitive).

The speed of adjustment was too quick. Even an ardent free-trader can see the sense in having a timetable for removing barriers in a sensible way. A 5-year gradual increase in quota limits would provide companies with the minimum time required to adjust and restructure.

There is also the problem of compensation. All political economists recognise the need to "compensate the losers", but where was the mechanism for this in textiles? Simply setting up a LearnDirect centre in the effected town is not enough. As all of society benefits from reduced textile prices, some of that increase in benefit should be redistributed over the medium term to compensate those who have set up thriving businesses in good faith and are having them destroyed by arbitrary changes in the economic environment.

[Cornish Steve]

Free trade is a nice concept but, in practice, moves towards liberalisation must be set in the context of the existing environment... In the case of the removal of textile quotas this was particularly the case.
Switching from a protected industry to a tariff-free industry does require planning; nonetheless, it benefits everyone in the long-term.

I can really sympathise with those working in the textile industry; however, we can't cling to the past. My homeland of Cornwall has always been a land of mining, fishing, and farming. The last mine closed a few years ago, the fishing industry has been decimated by EU rules, and many farms are now owned by up-country folk or absentee landlords.

Should we regulate against this to protect the Cornish people? Are these industries going to thrive and drive the Cornish economy in the future? Of course not! Cornish leaders need to be visionaries and lead the region forward (which, incidentally, they have not done). What's wrong with having a Cornish School of Software Engineering or Advanced Communication or Robotics? These are industries of the future and for which we need the smartest people and the best education system in the world.

One of my favourite movies is Brassed Off. I can relate to it because I used to conduct a brass band in a county where mines were closing. Beyond the sentimentality, however, is economic reality: We have to move on. It's people like the entrepreneurs in this forum who are leading the charge.

[Eagle]

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I think it can be a threat, particularly for those who work online in the service industry.

Once China and others get fully online and over here, you'll all be complaining when they offer their services at a 10th of your cost.

Bye, bye business...

[Coding Monkey]

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I think it can be a threat, particularly for those who work online in the service industry.

Once China and others get fully online and over here, you'll all be complaining when they offer their services at a 10th of your cost.

Bye, bye business...

At the same time, haven't we seen these techniques used by companies to cut costs by using call centers? TV adverts by banks are now dominated by putting customer service at the front of their campaign, with emphasis on their English call centers.

[WakingDragon]

I agree with you there. Our company argued publicly and loudly against the reintroduction of import controls on textiles. But policy wonks seem seldom capable of putting the case properly.

1. Free trade in textiles benefits the poor relatively more than the rich as a higher proportion of the income is spent on textile products. Removing quotas would effectively raise the real incomes of the poorest in our society.

2. British industry is changing, as you say, and step-by-step structural change is far easier to manage and has a shallower impact than if the change is "pent up". Rover is a classic example of this: rather than allowing the organisation to downsize and turn to niche, quality MG production the government maintained the status quo with predictable results.

3. Textile manufacturers are only one part of the industry as a whole. There are designers and retailers among others. There are plenty of sales promo people on this forum who are paying more for a product that is actually the lion's share of the promo market. All these sectors would benefit from a larger, more efficient production base. Again, there is an example in the American steel tariff hike a couple of years ago: as soon as tariffs came in, all the industries reliant on steel started screaming cos their costs went up.

From Cornish fishing to IT services, competition and change comes from all quarters (not just overseas). The successful will benefit, but you have to admit that so much more could be done to reduce the suffering caused.

Why is the debate not being firmly put in the context of long-term social welfare?

[Meg]

Hey guys, great going. I too find this topic to be interesting, thanks WakingDragon, for such a nice topic. Well, I don't find anything bad in this concept of global competition. Unless and until we come to know about other good products, how can we evaluate our own products and how can we improve on that? I think this is absolutely fine, and we can get quality products in such a low cost. Moreover, if we are confident of our work, I don't think there is any place for insecurities and fear.

[mtw]

There's no getting away from the fact that business is now truly global thanks to communications and air travel.

People in IT, for instance, can't complain about free trade when the nature of their work gives them access to the world - and the world to them.

As has been said, you have to adapt and innovate. I think this is true of most if not all business at all levels.

That doesn't advance the debate, but it's a position and I'm holding it!

Mark

[theMBA]

Globalisation is a double-edged sword. On the one hand, it leads to greater competition among alternative suppliers of goods and services. On the other hand, it represents a bigger market of potential customers. These two effects will manifest themsleves in different ways for each sector and each company. Some are net winners, others are net losers. Protectionism is only a short-term fix to a major disruption in the global competitive landscape. Govts should use it sparingly to give domestic industries just enough breathing-space to adjust and make themselves more competitive. if they use it for extensive periods of time, it ultimately damages the country's economic position. There is plenty of strong research evidence that free trade across international boundaries leads to greater economic growth than restricted/protected trade, although the distribution of the benefits of this growth is still an issue.

[Leader]

I remember that some time in the past Russia was not allowed to WTO on the grounds that its prices on energy and labour resources inside the country are not the same as on the world's level and that's why Russia could not be a full member of WTO and by that it was restrained from world markets. Russia is still restrained from integrating fully into the world markets. That measure was meant to protect fair competition.

Then there is an immediate question. How has China or India managed to get an access to world markets having even cheaper resources than Russia?

The answer would be - it was done by politics of Uncle Sam. That's the point - this sort of selective politics should be banned from economics. Economic regulations should be consistent and the same for everyone. Otherwise it will collapse from imbalances and then we can blame only ourselves.

I do think that new markets violate fair competition principles. Governments failed to act on it, even worse, they acted selectively.

[ami]

My answer is no. Personally, I believe that the globalization is good for an economy. The main advantage of the globalization is that it ends the monopoly of any particular company and increase the competition in the market leading to reduction in price, increase in job opportunity, use of advance technology, better services etc. Globalization has wide impact on the economy as it generates a lot of revenue, which is helpful in developing the infrastructure of a country.
Every coin has two sides and there are some demerits of globalization. There are few demerits of the globalization whereas there is a long list of its merits.

[telemax]

Certainly not.

Just look at the city of London that provides a huge chunk of the UK's wealth, all the foreign currency, banks, insurance companies etc. People see foreign companies as buying up UK businesses and ruining the country but don't see the other side of the coin. The UK is one of the largest buyers of foreign companies and investors in other countries in the world. In fact I think it is second only to the USA.

On a personal level globalisation, means I can work from anywhere in the world as long as I have an internet connection and a phone. My base and employees are in Canada allowing me to pass on savings to my customers in the UK as my expenses are far less in canada than they would be in the UK.

Jonathan

[Cornish Steve]

Since this thread started, I read the book "The Lexus and the Olive Tree" by Tom Friedman. I highly recommend it. It really brings to the fore the positives, negatives, and inevitability of globalisation.

[Videoguy]

We need much less regulation, not more. We need access to more markets, not fewer.

I totally agree. On a personal level, since I started my online business in 2004 I’ve derived the vast bulk of my sales from customers overseas - more than 20 countries last time I counted. If I had to rely on business exclusively from the UK, I would have gone under ages ago.

True, I sell products that lend themselves to this type of international distribution, but surely if UK industries concentrate on what they do best, they can carve out a niche and dominate it.

If the textile industry in this country concentrated on the quality end of the market where the increased cost of production and low quantities could be offset by a higher price point, and left the bottom end of the market to China - where they have the low labour rates and economy scale to manufacture things cheaply and still make a profit - surely it’s a win - win situation for everyone.

I agree with the earlier post about Rover, too. When BMW divested themselves of the company, they quite wisely kept the Mini, and spun it off as another brand. It’s expensive, but because it’s prestigious, it sells well at a high price point. If Rover had been allowed to do the same with MG, I’m sure there would still be jobs at Longbridge now. Granted, not as many as before, but some jobs none the less. Now the Chinese are going to make the more downmarket former Rover models in China, and I’m sure they’ll do well in the global marketplace. If Rover had done this itself, surely it would still be in business now.

Just my two cents worth :)

Shaun