Industry in the Developing World

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Industry in the Developing World

There are a number of countries around the world that can be accurately described as Newly Industrialised Countries (NIC's). They all share the same characteristics, and one of the best examples is South Korea.

South Korea is one of the countries in south-east Asia described as being part of the Tiger Economies. The others are Taiwan, Singapore and Hong Kong. NIC's share the characteristics of being:

  • An increasing exporter to the world market, usually by copying existing products and then re-producing them for a much cheaper price.
  • Rapid growth in the manufacturing sector, which results in far more exports and a rapidly rising GDP.

There are three stages to the development of an NIC, from its traditional society to a developed world society. These are shown on the diagram and described below. The time frame for the whole process can be as little as 30 years.

Traditional society:

  • Most industry is labour intensive, concentrating on small cottage-style traditional industries, using local raw materials. Examples could include food processing or textile manufacture.
  • Often, the majority of people are still in the primary sector, doing things such as farming.
  • There is little technology and most people have very little money.
  • Most products are imported from abroad, meaning that the country is relying on other for many of its needs.

Import substitution industries:

  • The country decides to promote its own industries.
  • New companies copy products from well-known companies, and then make them for a far cheaper price.
  • The country operates a strict regime of trade tariffs and high taxes for any similar products being imported into the country. This is aimed at protecting their own companies whilst they grow.
  • Example industries are car manufacture, computer manufacture and the manufacture of other electrical goods, such as hi-fi's.

Export orientated industries:

  • Once the new companies have become established in their own country they are unleashed upon the world market.
  • These industries are now capital intensive, using high technology and aimed at making a big profit.
  • The GDP of the country starts to rocket, often growing at well over 5% per year, which is an amazing rate.
  • The country is now described as being an NIC.

Multi-national or Trans-national companies are ones which locate their factories throughout the world. This gives them many benefits, such as access to the world market, cheap labour, cheaper production costs, and therefore greater profits. The headquarters of the company remains in its original country, usually one of the most developed countries in the world, such as the UK or USA. They then have factories throughout the world, which either make parts or entire finished products for the company to sell on the world market.

Most of the largest multi-national companies are oil companies such as BP and Exxon (Esso), as well car companies (for example, Ford, Toyota, Nissan and Volkswagen). Other well-known companies such as Coca-Cola, IBM and Sony are also defined as being multi-national.

Multi-national companies locate around the world for their own benefit - in other words - to make as much money as possible. They bring with them both advantages and disadvantages for the country that plays host to them.

How do multi-national companies affect their host country?

Investment:

Advantages: The companies bring much needed money into the country. Although most of their profits do return to the company's country of origin, the local economy does benefit.

Disadvantages: The wages paid to local workers are often low and some companies have been accused of exploiting the local workforce rather than benefiting it. There are often tax incentives for these companies to locate in countries in the Developing World. This added to the fact that they take most of their profits out of the country, means that the actual economic benefit to the country could be minimal.

Technology:

Advantages: The companies help the development of the country by bringing in technology and knowledge that the host country does not possess.

Disadvantages: Unless the company actively participates in a program to educate local companies in the new technologies, the country's industry will not really benefit. Multi-national companies might be worried by sharing too much information, as they could find themselves with increased competition from local companies.

Transport:

Advantages: The new companies often help to improve transport links around the area.

Disadvantages: The transport links that do receive financial help from the multi-nationals often only serve the direct routes and needs of that company, not the wider area as well.

Employment:

Advantages: They create jobs for the local population.

Disadvantages: Often the jobs are highly skilled and so the company brings in their own people to do them. Also, the technological nature of many of these companies means that there aren't as many jobs as there might have been.

Growth poles:

Advantages: The new multi-national companies act as growth poles for other similar companies. They could encourage more companies to locate in that country once they see the benefits that it brings.

Disadvantages: Only a limited range of companies find that moving to a Developing World location is beneficial. They will only move there if it makes economic sense for the country. They do not consider the potential benefits to the host country.

Environment/Safety:

Advantages: Companies bring with them the technology and expertise to reduce harmful pollution and create a safe working environment.

Disadvantages: Many multi-national companies have very poor records on pollution and worker safety. They have been accused of trying to cut corners with both safety and pollution in order to keep costs down.

Multi-national companies in Brazil:

Brazil has encouraged multi-national companies to locate in the industrial areas around the major cities of Rio de Janeiro, Belo Horizonte and Sao Paulo.

Excellent transport links to most places in the world have encouraged companies to locate in the area.

Companies such as Coca-Cola, Fiat and Volkswagen all have located in this area. There are plentiful natural resources, a large workforce and lots of suitable land for large-scale factories.

Large industrial areas have been specifically set up outside of these great cities for the companies to locate in.

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