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Globalization Vs. Localization - Time To Rethink The Economics Of Emerging Markets

Foxconn factory in Shenzhen
Foxconn factory in Shenzhen
Betty Ng

BEIJING - The 18th century British scholar Thomas Malthus predicted that when population growth exceeded agriculture's capacity to support new population numbers, it would lead to starvation and misery.

His prediction was wrong, because he did not take into account the impact of scientific and technological progress. His name has since become an adjective for referring to false prophets and pessimists.

In the past decade, the term "globalization" has flooded the media, marking the end of geographical, cultural, financial, and economic boundaries. With the liberalization of many economies, labor as well as capital and technology were suddenly able to flow around freely – it was as if the world had become flat.

While the developed countries’ manufacturing sector faced a crisis, emerging countries were rapidly rising. Because of lower costs, much of the world's production shifted from mature markets to emerging markets, marking a critical turn. Returns on investments in emerging countries surpassed those of many developed economies.

However, recently this trend has started to slow down or even reverse – some U.S. companies have reportedly started to move their offshore manufacturing back home. This is partly due to the increase in oil prices, which drives transportation costs up – and partly because wages in countries like China have gone up significantly. In addition, pollution is forcing some Chinese cities to reduce or stop their manufacturing and production. The threat of a currency war also threatens offshore production. Finally, new manufacturing technology such as 3D printing will also contribute to making production become more individualized or localized.

Globalization is quickly losing ground, throwing the future of the manufacturing sector in emerging countries into doubt.

If there’s anything in common between Malthus’ theory and globalization, it’s perhaps that when a notion becomes a phenomenon, it tends to lead to exaggeration and even panic, which will ultimately result in extreme views. This is certainly the case in the globalization vs. localization debate.

Globalization is a powerful phenomenon but it’s not without limits. When markets regulate themselves, cross-border wage differentials self-correct. Oil prices rise and fall, depending on supply and demand: excessive oil prices reduce orders for overseas production, which in turn curbs the demand for oil, resulting in the stabilization of oil prices – and vice versa. And finally, because of health concerns, industrial pollution is reduced. Wages, oil prices and pollution all show that shifting production to emerging markets has its limitations. The quantitative easing measures taken by various countries’ central banks will also lead to exchange rate instability and further restrict offshore production.

So-called “additive manufacturing” is also contributing to the reversal of globalization. For many people, manufacturing “additively” using new technologies such as 3D printing may still be a strange concept, but it has been gaining momentum. Additive manufacturing takes drawings from CAD (computer aided design) and divides them into cross-sections, which are printed one layer at a time and merged to become a 3D object.

This allows users to create and print out objects instantly, bypassing overseas production and transport. This is the same as printing an email at home instead of receiving a letter though the post office. This kind of 3D technology allows large-scale individualized customization and localization avoiding large-scale production in the emerging markets. This new technology cast a doubt on the manufacturing advantage and cost-effectiveness of producing in emerging markets.

Undoubtedly, 3D printing will change the way many products are manufactured. However, it’s too early to predict how it will evolve and if it can be applied on a large-scale. It is tempting to break with mainstream ideas, but in reality many factors come into play, rendering predictions for the future very difficult. Three-dimensional printing is not free, so it’s about comparing costs and efficiency. And if shale gas extraction technology continues to progress, a fall in oil prices will work in favor of offshore production.

Rising labor costs in emerging countries

Cross-border wage differentials are also an important factor to be taken into account. The fact that mature markets' wages have stagnated while emerging markets' wages have increased has reduced one of the main advantages of offshore production. Added to this, certain countries such as China are experiencing labor shortages. However, if China relaxes its “hukou” household registration system and allows the free movement of workers between different towns and provinces, it will probably be beneficial for China’s wage differential.

In other words, 3D printing costs have to be reduced in order to offset decreasing oil prices and wage differentials for it to be more cost-effective than offshore production.

In the long term this could happen, but it is still too early to know when – this could depend on the need for customized products. Nevertheless, however these factors evolve, thanks to increasing wealth, the emerging countries’ manufacturing sector will continue to benefit from the structural increase in domestic demand.

While many pessimists are worried about its aging demography, China should continue to enjoy its demographic dividend in the next decade. This is because the majority of China’s population is still at the most productive age, with spending power. In Africa, however, the population is too young so it can only consume instead of producing. If China relaxes its one-child policy it will further ease the pressure of an aging population.

People tend to follow mainstream ideology and ignore other factors. We can be convinced that nothing can stop the momentum of globalization, or we can be over-anxious about emerging countries losing their competitive advantages. In reality, each country and each region has its own relative advantages.

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Queen Elizabeth II with UK PM Boris Johnson at a reception at Windsor Castle yesterday

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Hej!*

Welcome to Wednesday, where chaos hits Syria, Brazilian president Jair Bolsonaro is accused of crimes against humanity and a social media giant plans to rebrand itself. For Spanish daily La Razon, reporter Paco Rodríguez takes us to the devastated town of Belchite, where visitors are reporting paranormal phenomenons.

[*Danish]

🌎  7 THINGS TO KNOW RIGHT NOW

• Syrian violence erupts: Army shelling on residential areas of the rebel-held region of northwestern Syria killed 13 people, with school children among the victims. The attack occurred shortly after a bombing killed at least 14 military personnel in Damascus. In central Syria, a blast inside an ammunition depot kills five soldiers.

• Renewed Ethiopia air raids on capital of embattled Tigray region: Ethiopian federal government forces have launched its second air strike this week on the capital of the northern Tigray. The air raids mark a sharp escalation in the near-year-old conflict between the government forces and the Tigrayan People's Liberation Front (TPLF) that killed thousands and displaced over 2 million people.

• Bolsonaro accused of crimes against humanity: A leaked draft government report concludes that Brazilian President Jair Bolsonaro should be charged with crimes against humanity, forging documents and incitement to crime, following his handling of the country's COVID-19 pandemic. The report blames Bolsonaro's administration for more than half of Brazil's 600,000 coronavirus deaths.

• Kidnappers in Haiti demand $17 million to free a missionary group: A Haitian gang that kidnapped 17 members of a Christian aid group, including five children, demanded $1million ransom per person. Most of those being held are Americans; one is Canadian.

• Putin bows out of COP26 in Glasgow: Russian President Vladimir Putin will not fly to Glasgow to attend the COP26 climate summit. A setback for host Britain's hopes of getting support from major powers for a more radical plan to tackle climate change.

• Queen Elizabeth II cancels trip over health concerns: The 95-year-old British monarch has cancelled a visit to Northern Ireland after she was advised by her doctors to rest for the next few days. Buckingham Palace assured the queen, who attended public events yesterday, was "in good spirits."

• A new name for Facebook? According to a report by The Verge website, Mark Zuckerberg's social media giant is planning on changing the company's name next week, to reflect its focus on building the "metaverse," a virtual reality version of the internet.

🗞️  FRONT PAGE

"Oil price rise causes earthquake," titles Portuguese daily Jornal I as surging demand coupled with supply shortage have driven oil prices to seven-year highs at more than $80 per barrel.

#️⃣  BY THE NUMBERS

98

For the first time women judges have been appointed to Egypt's State Council, one of the country's main judicial bodies. The council's chief judge, Mohammed Hossam el-Din, welcomed the 98 new judges in a celebratory event in Cairo. Since its inception in 1946, the State Council has been exclusively male and until now actively rejected female applicants.

📰  STORY OF THE DAY

Spanish civil war town now a paranormal attraction

Ghosts from Spain's murderous 1930s civil war are said to roam the ruins of Belchite outside Zaragoza. Tourists are intrigued and can book a special visit to the town, reports Paco Rodríguez in Madrid-based daily La Razon.

🏚️ Between August 24 and September 6, 1937, during the Spanish Civil War, more than 5,000 people died in 14 days of intense fighting in Belchite in north-eastern Spain, and the town was flattened. The fighting began on the outskirts and ended in house-to-house fighting. Almost half the town's 3,100 residents died in the struggle. The war annihilated centuries of village history. The town was never rebuilt, though a Pueblo Nuevo (or new town) was built by the old one.

😱 Belchite became an open-air museum of the horror of the civil war of 1936-39, which left 300,000 dead and wounds that have yet to heal or, for some today, mustn't. For many locals, the battle of Belchite has yet to end, judging by reports of paranormal incidents. Some insist they have heard the screams of falling soldiers, while others say the Count of Belchite wanders the streets, unable to find a resting place after his corpse was exhumed.

🎟️ Ordinary visitors have encountered unusual situations. Currently, you can only visit Belchite at set times every day, with prior booking. More daring visitors can also visit at 10 p.m. on weekends. Your ticket does not include a guaranteed paranormal experience, but many visitors insist strange things have happened to them. These include sudden changes of temperature or the strange feeling of being observed from a street corner or a window. Furthermore, such phenomena increase as evening falls, as if night brought the devastated town to life.

➡️ Read more on Worldcrunch.com

📣 VERBATIM

We still cling to the past because back then we had security, which is the main thing that's missing in Libya today.

— Fethi al-Ahmar, an engineer living in the Libyan desert town Bani Walid, told AFP, as the country today marks the 10-year anniversary of the death of dictator Muammar Gaddafi. The leader who had reigned for 42 years over Libya was toppled in a revolt inspired by the Arab Spring uprisings and later killed by rebels. Some hope the presidential elections set in December can help the country turn the page on a decade of chaos and instability.

🇮🇷🎓  IN OTHER NEWS

Iran to offer Master's and PhD in morality enforcement

Iran will create new "master's and doctorate" programs to train state morality agents checking on people's public conduct and attire, according to several Persian-language news sources.

Mehran Samadi, a senior official of the Headquarters to Enjoin Virtues and Proscribe Vices (Amr-e be ma'ruf va nahy az monkar) said "anyone who wants to enjoin virtues must have the knowledge," the London-based broadcaster Iran International reported, citing reports from Iran.

The morality patrols, in force since the 1979 revolution, tend to focus mostly on young people and women, particularly the public appearance for the latter. Loose headscarves will send women straight to a police station, often in humiliating conditions. Five years ago, the regime announced a new force of some 7,000 additional agents checking on women's hijabs and other standards of dress and behavior.

Last week, for example, Tehran police revealed that they had "disciplined" agents who had been filmed forcefully shoving a girl into a van. Such incidents may increase under the new, conservative president, Ibrahim Raisi.

Speaking about the new academic discipline, Samadi said morals go "much further than headscarves and modesty," and those earning graduate degrees would teach agents "what the priorities are."

Iran's Islamic regime, under the guidance of Shia jurists, continuously fine tunes notions of "proper" conduct — and calibrates its own, interventionist authority. More recently the traffic police chief said women were not allowed to ride motorbikes, and "would be stopped," Prague-based Radio Farda reported.

Days before, a cleric in the holy city of Qom in central Iran insisted that people must be vaccinated by a medic of the same sex "as often as possible," and if not, there should be no pictures of mixed-sex vaccinations.

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Thoughts on Facebook's new name? Zuckerverse? Tell us how the news look in your corner of the world: Drop us a note at info@worldcrunch.com!

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Sign up to our expressly international daily newsletter!
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