This means the stages wherein countries develop from agriculture moves towards manufacturing, towards services and resulted to demand from people and makes the economy wealthy to supply.
Examples of Emerging countries are Brazil, Russian, India and China (B R I C)
These are the topics about emerging economies:
- Absolute advantage and comparative advantage
- Competitive advantage
- Influencing the diamond
- Offsourcing and outsourcing
- Newly industrializing and emerging nations
- Transition economies
- Industrialised strategies
Absolute advantage is Adam Smith’s theory which he proposed that each nation should specialize in producing those goods that it could produce most efficiently.
This is the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources. Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input.
Since absolute advantage is determined by a simple comparison of labor productivities, it is possible for a party to have no absolute advantage in anything; in that case, according to the theory of absolute advantage, no trade will occur with the other party. It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost.
Comparative advantage is David Ricardo’s theory that contradicts the absolute advantage, which means that relative opportunity costs were most relevant when considering economic activities in relation to other countries.
The law of comparative advantage says that two countries (or other kinds of parties, such as individuals or firms) can both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage), it can still gain by trading with a less-efficient country, as long as they have different relative efficiencies.
Competitive advantage is Michael Porter’s theory that argues that comparative advantage is too general. This suggests that some nations’ industries are more internationally countries than others.
Michael Porter identifies the four principal factors that impact on the competitiveness of organizations – the form the Porter’s diamond.
D – Demand conditions
I – Industries’ competitive success is linked to success of related industries
S – Strategy, structure and rivalry
C – Conditions
Factors conditions – China is the most populated country with 6.9 billion people. This is the same source of resource that it has that they can leverage. They have the enough skilled people, they have the available location to construct factories and they have capital from the government to be successful.
Demand conditions – Since the emerge of factories in China that manufacture different gadgets, the demand on all sorts of gadgets that you wouldn’t think of exist, are available here.
Related and supporting industries – all companies Foxconn, for example, like Hewlett-Packard, Apple, Nokia, are successful. This makes Foxconn also successful.
Firm strategy, structure, rivalry – apart from being the worldwide manufacturer, China is also known for making knock-offs. This brings the rivalry among factories in China.
Factor conditions
These relate to those factors used as INPUTS in the production of goods and services.
(Code: PRICK)
P – Physical Resources like land, minerals, climate, location relative to other nations. Singapore is located in the center of Asia and the climate is moderate from not too hot and not too rainy.
R – Human Resources like skills, price, motivation, industrial relations. The skills of the people in Singapore are professionally equipped and the market for jobs are competitive.
I – Infrastructure like transport, communication, housing. The transportation in Singapore is considered one of the best, from buses to trains and even to getting taxi cabs. Communication and housing are never been outdated. These are always available to its advanced capability.
C – Capital like amounts available for investments. Singapore government has so many funds to support the inventors.
K – Knowledge like scientific and technical know-how, education institutions. Singapore has one of the best educational system in the world. They believe in producing the young and smartest citizens.
Demand conditions: the home market
The home market determines how organizations perceive, interpret and respond to buyer needs.
(Code: N C I S S A G E)
N C I – No cultural impediments to communication
S -- Segmentations of the home market shapes an organization’s priorities
S – Sophisticated and demanding buyers at home encourage high quality standards
A – Anticipation of buyer needs
G – Growth rate
E – Early saturation of the home market encourage an organization to export
Offshoring and outsourcing
Cost reduction is the primary reason for offshoring and outsourcing.
Offshoring is the relocation of some part of an organization’s activities to another country. The most common motivation for offshoring is to make cost savings by taking advantage of lower labor or other costs.
Example of this is the Center of Excellence that companies established to low-cost locations. This means that the scopes of job (i.e., accounting, IT support) are centralized to one area.
Challenges of Offshoring: (Code: DELETE)
D – Cultural Differences
E – Exchange rates
L – Language barrier
E – Exercising control from a distance
T – Time zones Differences
E – Example is India, as one popular offshoring country.
Outsourcing involves organization sub-contracting business activities to external providers.
Example of this is from the previous discussion on Foxconn as Global Manufacturer.
Outsourcing is appropriate for peripheral, non-core activities. If the strategic or core competencies are outsourced, this might lead to loss of competitive advantage.
Cox’s Types of competence:
Advantages of Outsourcing (Code: PC FEES)
P – Long-term contract encourage PLANNING for the future
C – Remove uncertainty about COST
F – Flexibility.
E – Increase in EFFECTIVENESS where the supplier deploys higher levels of expertise
E – Access to specialist knowledge and innovations in technology is made EASIER
S – Save on cost by making use of a supplier’s economies of scale
Disadvantages of Outsourcing: (Code: SLAC)
S – Service Level Agreement
L – Loss of control over quality
A – Area of threshold competence that may be difficult to reacquire
C – Competitors might have the same outsourcing services
Newly industrializing and emerging nations (NIEs) – countries grouped together by virtue of the fact that their economies have grown significantly in recent years and they are becoming increasingly important in the world economy.
- BRIC – Brazil, Russian, India and China – when combined, they have bigger share of the world trade than the USA
- Second tier emerging nations (Emerging Nations) – Vietnam, Indonesia, Columbia and Ukraine. South Korea, Taiwan and Mexico
Transition Economies
This applies to countries that abandoned the Soviet-type political and economic system at the end of the 20th century. Countries included that most of which have completed their transition to a market economy and become members of EU are Russian Federation, Poland, Hungary, Romania, the Czech Republic, Ukraine, Kazakhstan, the Slovak Republic, Bulgaria and Belarus.
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