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However, in the last 15 years, with the expanding of its global production network, the new international division of labor is taking a dominant role. For one product, the value chain now spans several countries.
The biggest difference between the new and old international division of labor is the shift from industry division of labor to intra-product division of labor, i.e., different countries cooperate and divide the labor to manufacture a product based on their position in the product value chain.
Global companies now incorporate manufacturers in different countries into the global economic infrastructure. Through their participation in the international division of labor, more and more enterprises have been incorporated into the global product value chain, and the chain continues to grow.
One feature of this new arrangement is that developed countries control the technology and hold the highest value in the product value chain.
By contrast, developing countries only work in low-tech manufacturing and are at the low-end of the value ranking. Because China doesn't have cutting-edge technology, it can only participate in the value chain through using its assets of low-cost labor and land. It has become a factory of the world, but not in the same way that Great Britain was during the Industrial Revolution.
Now, as the expense of running factories in coastal provinces has gone up, manufacturing companies have moved to lower cost-of-living areas such as central or western China. The coastal provinces need to attract new foreign high-tech industries, yet these industries are often weary of protectionism and the lack of intellectual property-rights protection.
An article in Time Magazine (Feb. 1) addressed the topic. In “The China Fix,” James McGregor wrote: “In my more than two decades in China, I have seldom seen the foreign business community more angry and disillusioned than it is today … Visiting CEOs' banquet-table chatter is now dominated by swapping tales of arrogant and insolent Chinese bureaucrats and business partners.
“The litany includes purposefully inconsistent and nontransparent enforcement of regulations, rampant intellectual-property theft, state penetration of multinationals through union and Communist Party organizations, blatant market impediments through rigged product standards and testing, politicized courts and agencies that almost always favor local companies, creative and selective enforcement of WTO requirements … The list goes on.”
In light of all this, even though the “labor shortage” in China’s coastal areas really drives low value-added manufacturers to other places, it does not mean that high value-added manufacturers will come in.
Read the original Chinese article.
