A Study of a Newly

Industrialising Economy
The rise of NIEs, Globalisation
• Companies in DCs were attracted by the competitive advantage offered by the LDCs
• Advancements in technology and communications have encouraged the shift
• Physical barriers and national barriers have been overcome
• World have become more connected as in information, ideas, cultures and values
between countries are exchanged
• Process known as globalization

• Allowed companies to conduct their business on a global scale

• Companies known as TRANSNATIONAL CORPORATIONS TNCs
• Large and established thus have many regional headquarters located in other countries
• Set up units in LDCs
• Train people there to set up manufacturing operations and other aspects like marketing
• TNCs operations increase, level of Industralisation increase

• Result in LDCs to develop rapidly ---NEWLY INDUSTRALISATING ECONOMY NIEs

• First used by Organisation for Economic Co-operation and Development
• Used to describe countries that belong to less developed countries but highly successful
in industrialization process
• Can divided into first-tier, second-tier, third-tier NIEs

First-tier
 Started industralising rapidly in the 1960s
 Achieved much industrial growth with high levels of productivity manufacturing
outputs and exports by the 1980s
 People in these economies enjoy living high living standards close to levels of DCS
 Singapore, Hong Kong, South Korea, Taiwan

Second-tier
 Started industrailisation process only in 1980s
 Enjoying rapid industrial growth
 Mexico, Brazil, Philippines and Malaysia

Third-tier
 Started in 1990s
 Chile, Vietnam, China and India
 China and India have achieved rapid economic growth similar to that of the first-tier
but regional disparity exist in the two countries due to large populations
Characteristics of NIEs

1. Fast rate of growth in manufacturing

 Manufacturing sectors expand rapidly over the last few decades
 Means that level of employment in industries and its share of total employment in
NIEs rise accordingly
 Accordingly to federal Research Division
 Brazil employment in the manufacturing industry made uo only 14.1% of
country total employment in 1950
 Figure increased to 23.9% in 1980
2. Rising share of world exports in manufactured goods
 Although many LDCs may have increase their output of manufactured products,
a large part of it are catered for their local market
 NIEs due to huge growth in manufacturing industries, they have become major
exporters of manufactured products
 Library of Congress Country Studies reveled that in 1970s First-tier NIEs
had just a 2% share in world’s merchandise exports
 By 2003, share in exports has rise to 9.4%
3. Fast growth in real per capital income
 Enjoys a fat growth in real per capita income
 /wealth generated by each person in the country/
 United States Conference on Trade and Development
 Annual per capita income of South Korea increased from US$100 in 1963
to about US$24500 in 2007
 Generate more economic wealth , able to narrow the gap between themselves
and DCs
INDIA!
• 2006, India was Asia’s 4th largest economy
• 2nd fastest growing economy in the world
• India’s GDP was US$800 billion in 2005 , compared to US$ 460 billion in 2000
• GDP growth was 9% in 2006 while it was 2% for the growth of Japan

• Rapid growth in industry had been attributed to the its growing industries, especially in
manufacturing and in services
• Contribution to the GDP by manufacturing and service sector increased between 1984
and 2004, whereas contribution by the agriculture has decreased

• India’s manufactured products are gaining acceptance in the world markets even though
they contribute only 27% to the country GDP in 2004
• In same year, India exported US$50 billion worth of manufactured goods with key
contributing sections being textile and apparel, automobile, specialty chemicals and
electronics product

• Electronics company showed potential to eventually manufacture the bilk of India’s

exported products

Electronics industry in India

• Rise in electronics industry begin in 1960s
• India started to shift away from policy of import-substitution
• At that period most of the manufacturing activities were carried out by the government of
india
• Mainly limited to basic defense and telecommunication products.
• As the economy began to expand in the 1980s,
• More consumer electronics such as radios and calculators were produced
• By 1990s, there were both local and foreign investments in the electronics industry to
meet rising demands for electronic products

• Rapid growth in India’s electronics industry had been largely due to the increasing
number of TNCs setting up manufacturing bases in various parts of the country

• Industry was worth US$10 billion in 2006 and could grow up to US$40 billion in 2010
• It would overtake its textile industry which was extimated to reach US$14.5 billion in
2010
Why locate in India??

Land
 Electronics industry had become an important sector of India’s economy
 Much land had been located for the industry in form of large industrial psrks that were
constantly being expanded

 2006, Technopark in the state of Kerala was considered on of India’s largest industrial
parks
 Occupied an area of 1.2km2 as well as a build up space of 0.22km2
 2007, park houses more than 100 local and international companies that specialized in
electronics, software and other Information Technology products
 As Technopark have been build on a extensive piece of land, plans were made to
expand the area of the park by at least 2km2
 Therefore enabling Kerala to meet the increasing demand for space in the electronics
industry

Skilled labour
 Abundance of skilled labour available at lower costs as compared to other countries
 Average labour cost of a skilled graduate workers in India was about US$7 per hour as
compared to an average wage of about US$40 in more developed countries like
Germany
 Most of the skilled workers are proficient in English, which was in consideration for many
TNCs that had branched located in English-speaking countries

 Chennai, capital city of Tamil Nadu

 Area where the electronics industry take off quickly
 Due to the large pool of workers that are well-equipped for jobs in the electronics
industry
 In 2007, the state consisted 250 engineering colleges , 230 polytechnics and as well as
the India Institute of Technology which provided the students with higher technological
education
 Tamil Nadu produced 43000 engineering graduates and 61000 diploma holders, making
one of the greatest source of educated workers in the country

Government support
 Actively encouraging the growth of electronics industry in past 2 decades
 Looking to attract more foreign investors and TNCs to set up branches in the country
 To increase the amount of electronic products for export, which made up only 0.7% of
global electronics industry in 2007

 Introduced policies such as allowing foreign investors to have 100% private ownership of
businesses that manufactured products solely for export
 Special economic zones were set up around the country to provide incentives such as
tax exemptions on export income for a period of time
  Consist of many individual states that have autonomy to oversee and implement their
own policies for industrial growth
 State of west Bengal heavily promoted the growth of electronics and IT sectors
 To attract foreign investments into the state, the governing body of west Bengal
introduced a new IT policy in 2003
 Subsidized companies for the training of employees and provided special concessions
and privileges for new start-up companies
 Industrial parks and infrastructure such as roads and railways were developed to support
the activities of the companies there

Market
 Trying to become a major global manufacturing hub in recent years with electronic
products being exported to the European Union (EU), South east Asia and the USA
 Still focused on the local India market, especially in the area of consumer electronics

 With a population of over 1.1 billion in 2007

 400 million lived in urban areas
 India presented a huge domestic market for electronics products that had continued to
grow as consumers become more affluent
 Estimated 2 million mobile phone users were added each month , while there was a
local demand for about 9 million television sets every year
 Accessibility to market is one of the considerations for a company in selecting a location
 TNCs are eager to set up operations in India so as to tap into the large market

 Maharashtra
 Wealthiest state in the country
 Capital city, Mumbai, had a population of 18 million, making it India’s most populous city
 With high employment rates and increasing levels of income of its people in the middle
class,
 There was a strong demand for consumer electronics and household appliances
 Market had attracted TNCs such as LG Electronics, Whirlpool and Panasonic to set up
manufacturing bases in Maharashtra