High-Technology, Globalization, and Manufacturing

High-Technology, Globalization, and  Manufacturing

High-Technology, Globalization, and  Manufacturing

High-technology the traditional way for developing countries to stimulate their growth, based on the manufacturing industry, could be at risk as the criteria for becoming an attractive place of production are changing. While there are challenges, developing countries continue to have opportunities, as long as governments adopt appropriate policies in three areas: competitiveness, capabilities, and connectivity (the 3Cs). Washington, September 20, 2017 - Throughout history, low-income countries have relied on the manufacturing sector as a central engine of development, providing jobs for low-skilled workers, helping to increase productivity, and boosting economic growth. However, few countries are currently performing well in their manufacturing sectors and global value chains. In 2015, 55 percent of the world's manufactured goods were produced in high-income countries. China, the world's largest producer, accounted for another 25 percent. Where are the other countries In a new report from the World Bank Group's Global Practice on Trade and Competitiveness titled Trouble in the Making? The Future of Manufacturing-Led Development explains that the criteria for becoming an attractive location for production are changing. Companies, which once had an interest in locating in places with low labor costs, are beginning to prefer places where they can take better advantage of high technologies. The increasing adoption of industrial automation, advanced robotics, smart factories, the Internet of Things, and 3D printing is transforming the production process. "Using high technologies to produce traditionally manufactured products will be disruptive to developing economies, whether or not they use those high technologies," said Mary Hallward-Driemeier, senior economic advisor. of the Global Practice on Trade and Competitiveness of the World Bank Group and co-author of the report. Fewer companies will relocate to places where costs are lower and local companies will face stiff competition. But not all the news is bad. There are also high technology new opportunities, and that part of the story requires more attention. "

The model is well known: in some industries, robots and other high technological advances are automating jobs that were previously done exclusively by people. Foxconn - the company known for producing Apple and Samsung products in China's Jiangsu province - recently replaced 60,000 Chinese workers with industrial robots. Philips in the Netherlands and Adidas in Germany are two companies that recently returned to producing razors and sneakers in their territories, to be closer to end consumers. In each of these cases, the high technology-driven factories generated cost savings compared to plants located abroad and were driven by a lower-wage workforce. At the same time, changes in the world economy present other challenges. Potential manufacturing growth could slow due to factors such as weak import demand caused by slower trade following the 2008 financial crisis, declining trade in parts and components, continued expansion by China at the low end of global value chains, and the resurgence of protectionism. The intersection of these trends in high technology and trade determines where and how production takes place, where different types of jobs are created, and the extent of economic opportunities around the world. There is a risk that the manufacturing sector will no longer offer an accessible growth path for low-income countries.

However, according to the report The Future of Manufacturing-Led Development, the future is not completely negative. The media reports of massive job losses due to high technology while dramatic may also be exaggerated in developing countries. In fact, according to the document, automation could have a modest 2-8% impact on jobs today in developing economies. The biggest unknown, according to the document, are "the jobs of tomorrow." On the one hand, there is a real risk that countries will lose jobs that will never be created. On the other hand, high technologies could also lead to completely new occupations that cannot be predicted today. "Countries still need to face the costs of change. However, to facilitate development, more attention should be paid to positioning companies and workers to take advantage of new opportunities. This work [report] helps to change the focus on what needs to be done in this crucial area. " Despite the growing obstacles that economies face in being globally competitive, there are opportunities ahead for developing countries. The production of marketable goods such as textiles, clothing, and footwear is still labor-intensive and does not yet have much automation. Ethiopia has become a new center for the textile industry, attracting large investment from China and supplying major European brands such as H&M. Brazil is a country that has excelled in this sphere, producing exports amounting to USD 44.2 billion in 2016. Lastly, services that relate to business - such as call centers (customer service telephone services) and data centers - and those that relate to manufactured products - such as design, marketing, and distribution. they are another area where developing countries can seize future opportunities. For example, the Philippines, which has had great success with call centers, has become a service center for transnational companies, employing one million workers with an estimated value of US $ 18 billion in exports. “Countries still need to face the costs of change. However, to facilitate development, more attention should be paid to positioning companies and workers to take advantage of new opportunities. This report helps shift the focus on what needs to be done in this crucial area, ”said Anabel González, senior director of the World Bank Group's Global Practice on Trade and Competitiveness.

How can countries prepare for change? 

The report recommends a policy agenda focused on three areas (the 3Cs): competitiveness, capabilities, and connectivity.

Skills: 

It is necessary to equip workers with new skills, create stronger companies and develop the infrastructure to adopt high technologies.

Connectivity: 

It is necessary to improve logistics and limit trade restrictions on manufactured products and services. The manufacturing sector will continue to be part of development strategies, but its contribution to growth is likely to be less than in the past. The possibility of attracting the production process and allowing local companies to use high technologies is becoming increasingly difficult. As countries adapt to the changing global economic environment, it is urgent to deliver on the policy agenda. "Change creates winners and losers," said Gaurav Nayyar, an economist with the World Bank Group's Global Practice on Trade and Competitiveness and a co-author of the report.