Question

Apply the flying geese development paradigm and Vernon’s Product cycle theory on one of the manufactured goods produced in Asia. Illustrate how the comparative advantage of producing the goods shifts from countries, and discuss how countries benefited from the process. Aid your presentation with a real one.

Answer 1

Given data:

· Apply the flying geese development paradigm and Vernon’s Product cycle theory on one of the manufactured goods produced in Asia.

· Illustrate how the comparative advantage of producing the goods shifts from countries, and discuss how countries benefited from the process. Aid your presentation with a real one.

· The “flying geese” (FG) pattern of economic development has recently become quite well known throughout the world as a way of describing rapid economic growth in East Asia.

· Such a description is widely used, as if it is a self-explanatory phenomenon; however, the exact meaning of the term is not specified, and its origin not clearly understood. The purpose of this paper is to clarify the relatively unknown and often neglected background of the FG model.

· Akamatsu discovered these two patterns, which looked like a flying geese formation, through statistical analysis of industrial development in the pre-war Japanese economy.

· The FG model intends to explain the catching-up process of industrialization in latecomer economies,

· which consists of:

· (i) a basic pattern, i.e., a single industry grows tracing out the three successive curves of import, production, and export; and

· (ii) a variant pattern in which industries are diversified and upgraded from consumer goods to capital goods and/or from simple to more sophisticated products.

Vernon’s product cycle theory

· Vernon is concerned with a “genuine product cycle” of a new product that is innovated in the most advanced country, the US, although the process of innovation itself is K.

· Along the growth of the new product, firms undertake FDI in their efforts to enter the import-restricting countries. Once they succeed in jumping tariffs and other trade barriers, they monopolize (or oligopolize) local markets by preventing other multinationals’ entries.

· This is what I call an “antitrade oriented (or, in brief, ANT-) FDI.” Because the FDI of this type is undertaken against the pattern of comparative advantages, the original exports, as well as the domestic output, of the new product will decrease, and a “hollowing out” of the home industry may occur. Besides, the benefits for the host country are dubious.

· It may be better for the host country to liberalize trade than to allow an oligopolistic intrusion of multinationals.

Vernon’s model actually suggests another type of FDI. When a new product reaches its mature stage, it becomes standardized with technologically stable production. Instead of the decisive role played by research and development activities or managerial skills, as at the earlier stage, unskilled and semiskilled labour becomes important, especially in the mature stage production characterized by high labour intensity.

· Paradigm of industry life cycle and industry life cycle shift contrast to flying geese model: with special reference to Sri Lankan readymade garment industry

· The Flying Geese model was used to explain the industrial development in latecomer economies with industry life cycle origination, growth and decline and industry life cycle shift form country to another, especially for Asian region.

· This paper compare the Sri Lankan readymade garment industry life cycle with Flying Geese model to verify the validity of the model refer to Sri Lanka. Similarly this paper will explore how this Sri Lankan readymade garment industry life cycle rise, fall and its effect on the comparative advantage and international competitiveness among the nations to influence for a geographical shift of the industry.

· Businesses engaged in high labour intensive industries like readymade garment industry often use spatial strategies for geographical relocation of the industry to countermand the rising economical and social downturn of a given country. Readymade garment life cycle shift occurs whenever a domestic country’s internal production competition intensified due to the increased number of manufacturing firms and the industry reached to its maturity.

· With the growth of the industry, workers will gain their collective bargaining power and wages starts to rise, health and safety cost will rise. Increased state regulations, tax and duties will increase the industrial pressure with high budget allocations for industrial good governance and social responsibilities.

· Severing the condition intensified domestic and international competition demand to enforce the cutting edge industrial technology with high operational and maintenance costs. Industry will tries to base with technology by replacing the labour to face and control the mounting labour and operating costs while improving the production quality and to achieve delivery deadlines.

· By this phase industry’s both labour cost and technical cost were grown drastically, diminishing the country’s comparative advantage by making the country no more low cost attractive production site.

· With the shrinking the profit margins, the brands and manufactures tend to seek low-wage, industrially unorganised, poor legitimate, fresh and alien more lucrative geographical locations to retain and safeguard their high returns margin. Increasing tendency of the globalisation during the past decade made every country to worry about the international trade and division of labour irrespective of the development level. Sri Lanka as a developing country in South Asia and ready-made garment industry as the key decisive exports manufacturing sub sector portrait a comprehensive industry life cycle and industry life cycle shift in and out of Sri Lankan border within period of less than four decades.