IMPACTS OF GLOBALIZATION

IMPACTS OF GLOBALIZATION

Global Car Industry Runs on NAFTA,” Wall Street Journal, November 11, 2016

North America free trade agreement is a critical pillar in the global car industry. According to Jody Fledderman, president of Batesville tools & Die Inc., globalization accounts for the expansion in the automotive production. In particular, Queretaro, a Mexican based auto parts factory, has expanded its operations within and without Mexico border. Partnership with other car manufacturers such as Nissan Motor Co. and Honda motor co., among others, has equally contributed to the success of the company because of the services it offers. In the wake of President Trump elections, there were plans to reopen talks on NAFTA, trade agreement that connects Canada, the U.S, and Mexico to improve terms of trade between these countries will enhance fairness. In addition to this, the deal will curb the loss of millions of factory jobs to Mexico and China.

Batesville’s growth has been contributed by its proximity to customers on both sides of the Mexico border due to the efficient and reliable delivery of auto parts. In recent years, the company has expanded five times as business in North America surged. With 800 employees evenly distributed within the two factories, the company recorded an annual revenue of $130, up from $ 8 million yearly income recorded in 1989. Specialization and localized production of auto parts have been an essential concept of the Batesville factory over the years. The opportunity to expand in low-cost countries has allowed auto factories to thrive in years. This is evidenced by the doubling of auto production in México to reach 3.4 million light vehicles over the past decade. While the surge in Mexico car and auto parts manufacturing is undeniable, an estimated 60% of the 17.5 million light vehicles sold in the United States are assembled within auto alley that cuts across the Great Lakes to the Gulf of Mexico. According to the U.S government data collected in 2015, the auto parts industry accounts for about 14% of the $531 billion acquired in the U.S.-Mexico trade. Given the multilayered connection between U.S and assembly points and foreign suppliers, a change would be relatively complicated. This is more so because auto parts are manufactured in different countries and travel back and forth across borders several times. Automakers and suppliers tend to move some of the high-tech production to other countries while retaining more highly skilled and automated tasks to their U.S. factories. In light of this, automakers and suppliers become cost-competitive with imports from Europe and Asia.

Globalization account for the unprecedented pace and success of the car industry since the 1990s. NAFTA gave U.S based car manufacturers and auto parts suppliers the incentives to relocate their factories to low-cost countries in the efforts to remain competitive. This signifies the vital role of integrating the free flow of components through NAFTA to either remove or reduce trade tariffs in efforts to remove trade barriers and promote international commerce. Globalization allows countries to develop through increased manufacturing, economic expansion, specialization, and diversification, not to mention improved standards of living. In the automotive industry, globalization has reshaped manufacturing and business landscape with manufacturers capitalizing on lower production costs. Among the three NAFTA signatories, Mexico has recorded growth in its shares in the wake of increased auto production investment over the past decade.

Strong Dollar Forces Factories to Lose Flab,” Wall Street Journal, January 25, 2015

The rising dollar has put U.S. manufacturers under increased pressure to automate more and specialize in remaining competitive, despite foreign exchange working against operations. Following more than a decade of a weakening dollar, a surge in mid-2014 against other currencies has rendered the U.S made products pricier compared to other countries. Contrary to this, imports from other countries are becoming cheaper. There has been an expansion in the U.S. trade deficit since manufacturers are forced to redesign products and automate more production processes. To ensure competitiveness, U.S manufacturers implemented strategies for purchasing lower-cost parts and materials from other countries, including Asia and Europe. In Freeport, Oberg Industries has been on the frontlines in streamlining production processes to ensure competitiveness and increases its share in the global economy. The company, which has employed 750 people and reported about $130 million annual sales for a host of products in door locks and oil-production equipment, attributes its growth to globalization. Oberg Industries is resolute on highly regulated markets as opposed to markets where competition is highly controlled through pricing. Recently, the company sold its Mexico plant owing to stiff competition from Asian manufacturers situated in Mexico. Alternatively, the company invested in high-tech to automate the processes. In light of this, the cost of production was reduced, allowing the company to thrive and remain competitive in the global market and acquire a larger market share. Surge in the dollar against Euro and Yen, and intensified global competition provide a challenge to manufacturers to cut cost out of their companies. As an example, Terex has moved most of its production processes in China since resources are readily available, not to mention that labor is cheaper and abundant. Customer needs and currency are cited as some of the factors that account for companies relocating to countries where costs are lower. Joint ventures are strategies employed by industries around the globe to remain competitive. By creating a global network of factories, industries insulate themselves against the effects of dollar surge. Additionally, companies are forced to cut their staff to lower cost, thus increasing profit margins and competitiveness in the global market. Although shifting production to countries with a relatively better business environment and cheaper currencies are applicable, some companies fear losing their technological secrets to rivals.

Globalization is a polarizing issue in the United States, given the relocation of factories abroad in search of cheap labor and materials. A surge in the dollar against other world currencies remains problematic as U.S based industries scrabble for quality while striving for a low production cost. Globalization impacts foreign exchange as the global market expands to liberalize economic activities. In the wake of the weakening dollar, U.S. manufacturers have opened factories in other regions, particularly in Mexico and the southern United States, where the cost of materials and labor are cheaper. Such strategies are both beneficial and detrimental to the economy of the United States and countries abroad. One the one hand, jobs have been lost in the United States while opportunities have been expanded to other regions.