Low-cost Locations Research Articles

Вплив прямих іноземних інвестицій на менш розвинені регіони

The article is devoted to the study of the impact of foreign direct investment (FDI) and the activities of TNCs in less developed regions (LDRs), which can lead to a break in value chains and to an increasingly complex division of labor, more complex decisions on location and directions of regional development. The author presents different types and mechanisms of FDI in more developed regions (MDRs) and in LDRs. The main approaches to FDI in the LDRs, developed in economic theory, are evaluated. Attention is drawn to that that international production and FDI will have significant implications for the LDRs in the near future. The development of factory automation is likely to reduce the feasibility of low labor costs, low-cost locations, which, in turn, will lead to increased reuse, attraction of resources in high-tech industries and a decrease in the level of added value of services. Increasing digitalization of supply chains is likely to lead to the emergence of more complex global production networks, the expansion of international production in both low-tech industries and higher value-added services. Increased automation and digitalization, trends in regional integration towards more stable local and regional sources of supply, and a push to become less dependent on imports of strategic goods undertaken by more developed regions (MDRs) are likely to lead to stronger organization of production networks on a macro-regional scale. The article urges experts to continue researching FDI in the face of uneven development.

Automation and industrialisation through global value chains: North Africa in the German automotive wiring harness industry

Debates on the impact of automation on the geography of production are intensifying. Automation, it is argued, will eliminate the comparative advantage of developing countries and drive processes of re-shoring. While some studies have examined this issue at a macro level, there is a need for further research into specific cases and specific global value chains (GVCs). This paper contributes to this discussion by examining the case of the German automotive wiring harness industry. This industry has passed through a phase of offshoring as German firms sought low-cost locations in Eastern Europe and North Africa. Today, German OEMs are pushing their suppliers to automate manufacturing and relocate closer to assembly production in Europe. Through research at the headquarters and in North Africa, we argue that dispersed global production is seen by German OEMs as an unsustainable and costly organisational and geographical fix that is necessitated by the slow progress of automation solutions and facilitated by the availability of low-cost labour within a logistically feasible geographical space. Through this case, we argue that automation represents a threat to the position of some developing countries in GVCs and highlight the need to move beyond the dichotomy of off-shoring/re-shoring into analysing how automation might drive restructuring of GVCs with varied outcomes in production locations.

How Does Location Determine the Economic Competitiveness of Grid‐Scale Emerging Photovoltaics?

Emerging photovoltaic (PV) devices with perovskite or organic absorber layers may play a substantial role in our energy future due to their potential low‐cost manufacture and differing properties compared to established silicon equivalents. However, it is not clear to what extent physical and human geography influences the cost competitiveness of emerging PV, and consequently, how emerging PV should be optimized for differing locations. Herein, a levelized cost of energy (LCOE) model is used to examine the influence of insolation and economic factors by predicting the price of energy from emerging PV in eight different countries. Herein, it is demonstrated that capital costs play an important role in competitiveness, with low capital cost locations (e.g., India) benefitting more from low module costs and improved degradation, whereas high‐cost locations (e.g., Japan) benefitted more from improved efficiency. The importance of considering location is demonstrated in the results as part of selecting which emerging PV is used, which is emphasized by predictions of LCOE for emerging PV devices reported in the literature over an 8 year period.

Urbanization, Migration, and Adaptation to Climate Change

Climate change is reshaping the comparative advantage of regions and hence driving migration flows, principally toward urban areas. Migration has multiple benefits and costs in both origin and destination regions. Coordinated policies that recognize how and why people move can reduce future costs and facilitate adaptation to climate change both within borders and internationally.

Global Sourcing in Fast Fashion Retailers: Sourcing Locations and Sustainability Considerations

For decades, apparel companies have profited from moving their manufacturing to low-cost countries and several academic studies have focused on understanding whether low-cost locations could support optimal supply chain configurations. However, the exploitation of resources in foreign sourcing countries often resulted in many environmental and social issues and apparel companies became progressively more concerned about the negative exposure that they could face with a limited supply chain transparency. Therefore, this paper aims at investigating global sourcing strategies of fast fashion retailers in order to understand whether the decision criteria influencing sourcing locations have changed over time to also embrace sustainability considerations. Drawing on a literature review on sustainability in fashion supply chains, offshore outsourcing, and fast fashion global sourcing, a new theoretical framework concerning fast fashion retailers’ sourcing locations is proposed together with a content analysis of their reports. The findings show that fast fashion retailers identify sustainability as a key element to consider in selecting sourcing locations since sustainability issues at suppliers’ factories may represent relevant hidden costs. Moreover, actions aimed at checking and improving sustainable practices in global sourcing policies are proven to support the development of a strategic sourcing reputation for their fast fashion brands.

Technology Dimensions of Automation in Business Process Management Industry

Internet revolution made it possible to export services beyond the nation’s boundaries to leverage global workforce at low cost locations that revolutionized outsourcing as a strategic strategy to optimize cost. Business Process Management Industry has gone through various types of continual improvement approaches in last two decades of its growth to improve processes for efficiency. A continual improvement methodology does help an organization during its growth phase, but, during transformational times, one needs to rely on automation as a solution. This is the current situation with Business Process Management industry where customer facing businesses are digitizing customer facing operations to gain the competitive advantage of speed in the business services. Business Process Management Industry which supports these customer facing businesses also needs to automate the back-office processes in order to add value to the business. Robotics Process Automation is being deployed across at an exponential rate since “Speed” is of essence to remain competitive in today’s challenging business times. While automation is being deployed across industry, one is seeing multiple instances of non-performance issues in deployment and technology causes of which is a grey area for investigation.Research methodology includes inputs from relevant literature and case studies from organizations who have experimented with automation and research conducted by industry think tanks. It carefully investigates technology aspects that impact automation initiatives from deployment perspective. Literature findings are further validated with empirical evidences through a likert 5 point scale survey taken by Project Managers and Users of automation. Survey is statistically validated and results are analysed to ascertain which are the most impactful causes that affect automation initiative. This research paper investigates technology related challenges of Robotics Process Automation deployment in the Business Process Management industry so that transition to digital business operation is seamless.

Outsourcing STEM Jobs: What STEM Educators Should Know

Outsourcing is a business strategy to cut costs by relocating jobs from high-cost countries, like the USA, to low-cost ones, like India. The practice involves moving the jobs and transferring knowledge, technologies, and capabilities. Outsourcing has been growing in scale and scope in science, technology, engineering, and math (STEM) occupations, and it has implications for the current and future demand of STEM workers. Some jobs will be rendered obsolete as they migrate to low-cost locations, while others, which are complementary to outsourcing, will see demand increases. The paper reviews the theories about which jobs will be vulnerable to outsourcing and the empirical data. It describes the political and policy discussion about STEM outsourcing and how it has been coupled with the STEM workforce shortage debate. Lastly, it explores the implications for STEM educators, workers, and students. Many STEM jobs have already been outsourced and many more are vulnerable. STEM educators, workers, and students can take practical steps to adapt to outsourcing. STEM educators can modify curricula towards skill and knowledge areas less vulnerable to outsourcing and provide tools to students to become better stewards of their own careers. Workers can better steer their careers by closely tracking outsourcing trends.

Toward Economically Dynamic Special Economic Zones in Emerging Countries

Despite a massive recent proliferation of special economic zones (SEZs), there is virtually no quantitative research on what drives their dynamism. The aim of this article is to address this gap and analyze the factors influencing SEZ performance—proxied by economic growth—in emerging countries. The article relies on two novel data sets, using nightlights data to proxy for SEZ performance, and containing a wide range of SEZ policy variables and characteristics across a large number of countries. The main results of the analysis indicate that (1) zone growth is difficult to sustain over time; (2) trying to upgrade the technological component or value added of the economy through SEZ policies is often challenging; and (3) zone size matters: larger zones have an advantage in terms of growth potential. Furthermore, country context significantly determines SEZ performance. Firms look for low-cost locations but in close proximity to large cities. Proximity to large markets as well as preexisting industrialization also increase SEZ performance. In contrast, incentives and other program-specific variables are highly context specific and not structurally correlated with SEZ performance.

Relocating labour-intensive manufacturing firms from China to Southeast Asia: a preliminary investigation

China’s rise as a “world factory” since the late 1970s has been attributed to the strategic coupling of local assets in the coastal regions, viz. Pearl River Delta (PRD) and Yangtze River Delta (YRD) in the global production networks (GPNs) driven by transnational corporations (TNCs). Since 2000, these export-led regions have encountered unprecedented challenges, particularly the rising cost of labour, which have engendered spatial relocation of labour-intensive manufacturing firms from coastal China to lowercost locations such as inland China and neighbouring Southeast Asian countries. A rich body of literature has examined the internal relocation of TNCs from coastal to inland China, relatively little has been conducted on cross-border industrial relocation out of China to Southeast Asian countries. Drawing upon the global production networks (GPNs) perspective, this study attempts to examine the relocation of TNCs from China’s coastal regions, e.g. the Pearl River Delta (PRD) to Southeast Asian countries, e.g. Indonesia, Vietnam and Cambodia. Particular attention is paid to the rise of Global South and its subsequent implications for the restructuring of global manufacturing in the increasingly globalizing economy.

Knowledge spillovers and future jobs

Globalization brings both good and bad job news. The bad news is that jobs will be outsourced from high-cost developed countries into lower-cost locations as soon as the associated economic activity becomes mechanized and predictable. The good news is that globalization creates opportunities that can be realized by people bold enough to transform new ideas and knowledge into innovations. In that way, entrepreneurs will play a vital role in creating the jobs of the future by transforming ideas and knowledge into new products and services, which will be the competitive advantage of the advanced economies.

On the attractiveness of the UK for outsourcing services

Purpose – Outsourcing is in a new era: an era of value-adding services, innovation and transformation. An era that shifts competition to skills and expertise where the main focus of key players in the industry is on the strategic impact of outsourcing services. As the outsourcing landscape is changing, so competition between countries for outsourcing work is reconstructing. It is no longer competition for low costs, but a search for superior skills, both technical and managerial, that provides the strategic guidance and operational excellence needed in the twenty-first century. While the professional and academic literature has extensively studied the comparative advantage of low-cost locations such as India, we know very little about the attractiveness of Western countries, such as the UK, for outsourcing services. To contribute to this end, the purpose of this paper is to examine the UK attractiveness in light of three key trends in the outsourcing industry: the maturity of the outsourcing industry drives more client firms to seek impact on business and strategic performance from their vendors; client firms and vendors deploy complex sourcing models that increase the importance of sourcing managerial capabilities, such as relationship management, vis-à-vis technical and delivery capabilities; locations with promising entry points to lucrative markets are becoming attractive for outsourcing investments as part of the firm's growth strategy. Design/methodology/approach – The empirical base of this study is based on a comparative analysis of eight European destinations (UK, Germany, France, The Netherlands, Spain, Ireland, Czech Republic and Poland) to conclude that the UK, as a talent-base, value-adding country that also offers advanced sourcing capabilities, has positioned its economy to attract investments from both outsourcing vendors and client firms. While the authors acknowledge the relative high-cost base of the UK economy, they assert that the high service standards, access to skills, entry point to mainland Europe and the USA, government support and supportive infrastructure are superior value propositions offered by the UK in the context of outsourcing services. Findings – The findings of this study highlight the contribution of Western economies to outsourcing and their fairly strong comparative position to specific line of services such as contact centers, research and development and specific business process outsourcing services. Research limitations/implications – The main limitation of this study is the use of a country attractiveness framework which has been mainly used for low-cost countries. The authors therefore acknowledge the need to develop a country attractiveness framework which is suitable for Western countries. Practical implications – This study offers decision makers an extensive tool to assess their outsourcing investments by considering both low-cost and Western countries based on the value expected from each investment. Originality/value – This is the first study on the attractiveness of a Western country, such as the UK, which the authors defined as a talent-based, value-adding and advanced sourcing (TAVAAS) country. Through the examination of its comparative attractiveness the authors highlight the potential of the UK and many other Western countries such as USA, Germany or Canada to attract outsourcing investments.

‘We Gained a Lot Over What We Would Have Had’: The Geographic Arbitrage of North American Lifestyle Migrants to Cuenca, Ecuador

This article reports on the results of 69 individual qualitative interviews in Cuenca, Ecuador, conducted with lifestyle migrants in 2011, 2012 and 2013. Many of the North American migrants interviewed are in Ecuador for economic reasons, a motivation that has been under-theorised in lifestyle migration literature. The paper develops the concept of geographic arbitrage to explore the motivations and strategies of migrants in a context of structural inequalities and geographic differentiation in labour costs. Geographic arbitrage consists of relocating day-to-day expenses to low-cost locations, a strategy that is perhaps of increasing importance in North American, given the lack of retirement security there. The paper argues that the strategy of geographic arbitrage of North Americans to Cuenca is framed by powerful players in the field of international lifestyle marketing and by the socio-economic context of the migrants themselves.

How the EU’s Eastern Enlargement Changed the German Productive Model. The Case of the Automotive industry

What impact did the Eastern Enlargement of the European Union have on the productive models and labor relations in the German automotive industry? Did it lead to a “race to the bottom” and “social dumping”? This article examines the evolution of value chains and product strategies as well as the development of employment and labor relations in the German automotive industry and discusses the hypotheses of “dualization” or “disintegration.” It is based on case studies of automobile manufacturers and suppliers as well as on statistical data about employment, foreign trade, and foreign direct investment. The analysis shows that the use of low-cost locations in CEE allowed German automotive companies to strengthen their focus on high-quality products without losing their price competitiveness. German companies have used relocation threats to demand labor cost reductions and higher flexibility on working times and employment (i.e., the use of agency work) in their home country locations. These demands, however, did not go as far as to break the governance compromises in the German automotive industry. The metalworking union and the works councils still remain strong enough to reach compromises that guarantee employment security in exchange for higher flexibility and that set limits on the use of precarious employment forms.

Crisis and Upgrading: The Case of the Hungarian Automotive and Electronics Sectors

By triggering a wave of organisational restructuring, reconfiguration of supply chains and consolidation of business processes at multinational companies, the crisis offered significant upgrading opportunities for peripheral actors in globalised production networks (the so-called global value chains). Drawing on Hungarian case studies of local subsidiaries in the automotive and electronics industries, this essay investigates the crisis-induced product, process and functional upgrading opportunities in low-cost locations. We show Hungary's high level of integration into global value chains and document the rapidly ongoing process of functional upgrading.

The In Situ Upgrading of Japanese Electronics Firms in Malaysian Industrial Clusters

The ability of clusters generated by direct foreign investment (DFI) in emerging economies to generate sustained, value-added growth is a matter of controversy. This article assesses this debate with reference to the role of Japanese electronics multinational corporations (MNCs) in the development of clusters in Malaysia. Conceptually, we present a typology of DFI-generated industrial clusters that represent increasing degrees of commitment to local value creation and upgrading. Empirically, we conducted a survey of 10 Japanese firms in Malaysia that examined whether or not their factories increased technological upgrading, increasingly embedded their operations through using local skilled labor and supply firms, and responded positively to national policies and cluster-governance measures supporting the electronics industry. We found that Japanese firms had clearly moved beyond simple assembly-based to embedded clustering but had not progressed further to technology-intensive behavior because of the poor technological environment in Malaysia, as well as Japanese MNCs’ strategies that depend on technology from headquarters. Nonetheless, Japanese MNCs were sufficiently embedded in Malaysia to upgrade production to digital consumer products, and semiconductor assembly has flourished, warding off competition from China and low-cost locations in the Association of Southeast Asian Nations. At the end of the study period, Malaysia remained an attractive location for Japanese electronics MNCs.

Tax-efficient sourcing and supply-chain management

With such significant growth in the LNG industry and the broader energy and natural resources sector, the supply-chain risk and the cost of sourcing capital equipment and materials is increasingly difficult to manage. Many organisations are beginning to consider the merits of moving to a tax-efficient supply chain and procurement model, both through sourcing from a low-cost country and also centralising purchasing and supply operations in a tax-efficient location. Tax-efficient sourcing integrates supply chain and procurement-operating model design with tax planning to deliver significant cost reductions and profit increases through centrally controlling procurement operations. The consideration of the most efficient tax structures to support sourcing and distribution of equipment also delivers. Centrally controlled strategic and tactical supply chain and procurement operations in a tax-efficient location support an organisation in: realising benefits through leveraging scale in operations and procurement; designing a flexible framework that can be used to decide which categories of spending are managed globally, regionally, and locally;and, the acceleration and sustainability of significant procurement savings delivery from low-cost locations. Planning and management of the tax implications of physical supply-chain operations to reduce the actual taxes paid on profits and operations happen through: the potential to reduce corporate taxes on company profits; reducing absolute value-added tax (VAT) payable or cash-flow cost of VAT; reducing duty payable; optimising the indirect taxes paid on physical flows; and, change of transfer pricing driving reduction in effective corporate tax rates.

Outsourcing drug discovery to India and China: from surviving to thriving

Global pharmaceutical companies face an increasingly harsh environment for their primary business of selling medicines. They have to contend with a spiraling decline in the productivity of their R&D programs that is guaranteed to severely diminish their growth prospects. Outsourcing of drug discovery activities to low-cost locations is a growing response to this crisis. However, the upsides to outsourcing are capped by the failure of global pharmaceutical companies to take advantage of the full range of possibilities that this model provides. Companies that radically rethink and transform the way they conduct R&D, such as seeking the benefits of low-cost locations in India and China will be the ones that thrive in this environment. In this article we present our views on how the outsourcing model in drug discovery should go beyond increasing the efficiency of existing drug discovery processes to a fundamental rethink and re-engineering of these processes.

U.S. Solar Photovoltaic (PV) Cell and Module Trade Overview

This paper examines trends in U.S. cell and module trade over the period from 2006 to 2010 The results of this analysis indicate that recent growth in the U.S. and global solar photovoltaic (PV) markets, expanding U.S. PV production capacity, and growing PV production in China, Mexico, and other countries contributed to a $3.2 billion increase in total U.S. PV cell and module trade from 2006–10 U.S. imports are rising due to increasing crystalline silicon module production in low-cost production locations and a growing U.S. market, while exports are rising due to increasing U.S. production capacity and expanding markets in Canada and Europe.

The futures of offshoring FDI in high-tech sectors

This paper examines what is still a relatively new phenomenon in the literature, the outsourcing/offshoring of high-technology manufacturing and services. This has become a concern for both policy makers and academics for two reasons. Firstly, policy makers have become concerned that the offshoring of high-technology sectors in the West will follow the more labour intensive sectors, and move to lower cost locations. Secondly, international business theory has tended to view low costs, and high levels of indigenous technological development as being the two main drivers of location advantage in the attraction of FDI. We show that this may not be the case for offshored high-technology manufacturing or services.

Skill webs and international human resource management: lessons from a study of the global skill strategies of transnational companies

This paper examines the development of global skill webs in transnational companies (TNCs). Based on research in seven countries, it argues that skill webs are becoming more strategic in character as companies seek competitive advantage by relocating high-skilled work to low-cost locations. The paper explores the implications of these findings for both the ‘conventional’ approach to international human resource management and that influenced by the ‘varieties of capitalism’ School.