Apple, China and trade

A piece in the Harvard Business Review on Why Apple has to Manufacture in China by Karan Girotra and Serguei Nettessine makes an interesting read. They argue that labour costs may not be the only or major reason for manufacturing to shift to China - it is more about manufacturing risks and 'comparative advantage" China has in doing things on scale and quickly.

"In China, by contrast, manufacturers can deploy thousands of collocated engineers to introduce needed changes overnight, and large supply of labor allows to ramp up and ramp down capacity quickly. There is simply no factory capable of employing 250,000 workers day and night in the USA, surrounded by flexible and capable suppliers. So the location decision isn't really about labor costs — it's about manufacturing risk and where that risk is best managed (for a fuller discussion of risk in Business Models, see our recent HBR article)."

Another endorsement of the reality of global supply chains? Is "national manufacturing" in comparison to "most competitive manufacturing" politically desirable? While the former is termed being "protectionist", the latter is in tune with the notion of a flat, globalized world. There are lots of people on both sides of this divide in every country,  I guess.

Next decade goes to Africa?

I have earlier blogged about Africa being the next hub of international trade and manufacturing, going the China way here. These interviews provide an excellent overview of the Africa-China trade relationship where the conclusion is that China is accessing Africa mainly for its raw materials while it exports its finished consumer and manufactured goods to Africa. I have also blogged about Africa, in all its diversity, and its role in the multilateral trading system here and here.

An interesting opinion on whether Africa would be the next manufacturing hub of the world replacing China is found in CNN here.

"To be sure, Africa has a number of manufacturing advantages that it has yet to realize. Besides low labor costs and abundant resources, these include duty-free and quota-free access to U.S. and EU markets for light manufactures under the Africa Growth and Opportunity Act and the Cotonou Agreement.

Is this enough to offset Sub-Saharan Africa's generally low labor productivity relative to that of its Asian competitors?

Yes, if Africa can implement appropriate supportive policies to leverage its opportunities soon. This is the finding from a recent book by a team of World Bank economists. China dominates the global export market in light manufacturing, and its competitive edge far exceeds that of low income exporters that recently entered the global market.

But steeply rising costs of land, regulatory compliance, and especially labor in China's coastal export manufacturing centers have begun to erode the latter's cost advantage, a trend likely to accelerate in the coming years.

The ongoing redistribution of cost advantages in labor-intensive manufacturing presents an opportunity for Sub-Saharan Africa to start producing many light manufactures, enhance private investment and create millions of jobs."

The book referred to above titled "Light Manufacturing in Africa: Targeted Policies to enhance Private Investment and Create Jobs" gives an overview of the measures needed to be undertaken to overcome constraints in the African context and promote "light manufacturing" sector in order to boost growth and jobs.

Will African continent be the next big player in the globalisation game? Will it be able to use the multilateral trading system to pursue its developmental agenda? The diversity and interests of African countries are varied and complex. Clubbing them into one monolithic entity of the "African" interest may not be ideal in the context of international trade. After all international trade is largely guided by strong, national business interests and how a country interprets global trade rules to pursue one's agenda legitimately. Can the African countries build capacity and expertise to engage with the multilateral system?

I have come across two splendid blogs on the African perspective on international trade. One is by Lynette Gytonga and the other by Henri Joel Nkuepo. Will the next decade be Africa's decade?