Great global economical vibrancy has been witnessed in the Asian region in the recent past. This has led to a group of nations in this region developing into economic powerhouses that command global trade markets and policies. Dynamic Asian economies have earned themselves the name “Asian Drivers of Global Change” due to new energy they have injected in the global markets.
It is apparent that the global trading patterns and systems have been on the shift in the 21st century from the Transatlantic West. As such, nations such as Vietnam, Thailand and Japan are consolidating their position as new global economic engines.
In the first half of the twentieth century, the global trading systems were dominated by Europe and US, a trend that is now skewing to the South Eastern Asia. On the same note, trade alliances between the North American nations and the Southern East Asia have been on the rise leading to emergence of Asian tigers such as Japan.
The emerging major economies in Asia have been dubbed “drivers”, a term with a connotation of great impact they are likely to possess in charting forward the global economy. This influence does not only stem from the large populations witnessed in Asian countries, but also from their capacity to build acclaimed private and public sectors.
The economic activities created by these nations’ have the potential to change the continental and global political, social and economic relations. These economies’ contributions have caused a stir in the global political and economic pattern by changing the long held view of the economic world and birthing a Global-Asian epoch.
Thus, the global effect attributed to the drivers’ economic activities is likely to cause major drifts in global market patterns as opposed to mild global economic improvements. Increased bargaining power by the Global Change Drivers in the economic, political and social aspects is likely to challenge the old power drivers or weed them out eventually.
The emergence of the Global Drivers of Change is not only a threat the developing world but also to the developed economies. The emerging economic dynamics that are positioning some Asian nations as global economic leaders have the likelihood of affecting the Sub-Saharan Africa and parts of Latin America by altering their economic growth paces.
The high level of technological advancements and ability to produce cheap labour-intensive commodities gives Asian nations an edge over their competitors. As such, in the past, African and Latin America nations have been used as dumping grounds for cheap low quality commodities from Asia.
This essay will seek to discuss why the growing importance of the Asian drivers in global market is impeding growth and development of economies in the Sub-Saharan Africa and some parts of Latin America.
Factors that have contributed to emergence of Asian Drivers
The effect of large economy sizes of the most Asian nations cannot be overemphasized. For instance, China was ranked as the world’s third biggest economy the year 2005 thus underpinning the big country effect. While a big population could be more of a challenge to a nation, countries like China have managed to take advantage of their populace to impact positively in their economy.
Nonetheless, other small nations in Asia such as South Korea and Japan have also observed similar economical growth trends to India and China despite their relatively low populations. This phenomenon points that there are other factors besides large population that spur economic growth. This has led to economists challenging the concept of “small country” in regard to building strong economies.
The economic philosophy of a nation has an implication the nation’s economic growth rate. China and India for instance, apply a blend of capitalistic and state owned economic initiatives unlike many other nations in the industrialized world. As such, China possesses large regional firms that are operated under a combination of property rights making these countries great players in the global market.
Additionally, most Asian drivers’ governments have policies that enable firms to access long-term low-cost capital. The availability of capital is crucial to growth and expansion of any firm. Most Sub-Saharan economies are usually faced with the challenge of high cost of capital attached to accessing investment funds.
The Asian drivers are also known to be more of risk takers as compared to the transatlantic nations. There is a correlation between the return of an investment and the level of risk taken. Notably, the higher the risk the higher the return that is likely to result from a financial investment. This risk taking nature of the Asian Drivers have positioned them as technological innovators and industrial giants.
Thirdly, most of the Asian Drivers have a similar characteristic of low wage levels coupled with a great propensity for innovation. This can be explained by the large investments in research that has led to major world inventions. For instance, in the year 2006, China was reckoned as the second heaviest spender in research and development.
As such, these drivers are able to manufacture goods and offer them at lower prices in comparison to other global economies. These nations have a large pool of cheap labour which is a great boost to their labour intensive industrial processes. For instance, in the year 2002, China had 150 million of unskilled labour compared to 83million of the skilled labour, indicating the great availability of cheap labour in the economy.
The Asian drivers have organized themselves into regional trade blocks through diverse regional integrations. Trade regional integrations enable economies involved to come up with conventions that set rules of operation in these regions. For instance, China and India are involved in regional production networks that increase their regional competitiveness.
As such, most goods are produced through the territorial manufacturing systems thus assuring markets for such goods. China goods consumption in the Asian region increased in the year 2002 from 55% to 62% explaining the impact of good regional trade relations.
China and India also continue to act as policy role models to many developing economies through their involvement in the global institutions with India advocating for the rights of such nations.
Various parameters can be used to compare the economic performance of nations. The parameters used are often set yardsticks that monitor growth and include measures such as the changes in the Gross Domestic product (GDP), growth in exports and the ratio of exports to the GDP.
In the last half of the 20th century, a common trend was observed in regard to the mentioned parameters in relation to Global Drivers of Change. There was great positive economical growth of the Asian Global economy drivers, which set the course of positioning them as global powerhouses.
The size of the Asian Global Drivers economies such as China when integrated into the world economy, are bound to impose economic challenges to the global economy due to their heightened negotiation power.
In the recent past, some of the Asian drivers have been engaged in the importation of raw materials and semi processed from other nations at lower prices. This aspect enables the Asian Drivers to appropriate cost leadership strategies through the production of low cost goods that are ultimately offered at the market at cheaper prices.
According to Feenstra (1998), the level of such import trade stood at $ 404.8 billion in 2003 from $2.5 billion in 1981representing a shift from 5.7% to 48% of the total trade in China. Conversely, other economies of the Asian drivers such as India rely on their national production of systems as opposed to importing raw materials. As such, the contributors of economic power to a given economy may observe different growth paths.
Finally, the Asian drivers are endowed with natural resources such as coal in China that is a vital source of industrial energy. Incidentally, Asian drivers are also major consumers of energy globally with China’s demands expected to double by the year 2015 and India’s to grow by half in the same period.
These huge energy and resource needs pose a challenge to the global ability to suffice their needs and sustain such growth. The drivers have gained negotiation powers in matters related to the environment, a factor that is likely to be a threat to developing nations.
Asian Drivers and Economic Impediment in SSA and Latin America
Asian Drives impact in the developing world such as the Sub-Saharan Africa and some parts of the Latin America is dualistic in that it offers both threats and opportunities. First, drivers like China and India offer ready and large markets for the exporting developing nations due to their large population.
On the other hand, they are leading exporters of labour intensive goods industrial goods to the developing nations that are generally cheaper hence contributing the collapse of local industries in those nations.
Additionally, these drivers have the potential to use their growing economic power to influence global economies. For instance, they differ with the Washington Consensus and their success has been emulated by many of the developing economies in developing their policies.
Many factors lead to the increased level of competitiveness in global and regional economies by nations. For example, the economies of the China and India signify similar characteristics of low wage rates and high innovation levels. Hence, production of goods becomes cheap and ultimately making it possible to offer lower priced goods to the market.
Likewise, natural resource endowment is also paramount in enabling a nation build a competitive edge. China and India for instance, have a large pool of natural resources and energy demands hence making them key global determinants of environmental issues.
China for instance exports grew from $ 50bn to $ 798bn between 1985 and 2005 translating China to third largest economy globally. These exports are mostly exported to Africa and Latin America hence paralyzing the industries of these developing economies.
The Asian Drivers (AD) continue to pose many challenges to the Sub-Saharan Africa (SSA) in many economical aspects. For instance, their many exports into the world markets replace the African exporters in the global markets especially in relation to manufactured products.
The AD continue to present challenges to the SSA in the export markets due the fact they are able to offer their products at lower prices due resource endowment. Also, the AD engages themselves with the political establishments of the nations they engage in to the detriment of the good governance in the SSAs.
As such, the growing presence of Asian Global Drivers contributes to the harboring of developing economies of SSA and some parts of the Latin America.
For instance, in regard to export trade, China has replaced Lesotho as an exporter of textile and clothing products to US. The high level of mechanization and technological developments enables the AD to produce the same products as the SSAs at lower cost hence making the importers to prefer their products.
Likewise, the AD such as China often have a strategy to respond to forces compelling them to relocate their production to other nations. As such, they move to regions such as the SSA to suffice their energy and resource needs hence threatening the local firms through competition for resources.
Secondly, the growing presence of AD in global marked has also challenge the Foreign Direct investments (FDIs) to the SSA region. Many world economies now prefer to establish their industries in Asia as opposed to Africa and some parts of Latin America.
This could be explained by these firms’ rationality in cutting down the cost of labour as they seek to utilize the high level of unskilled labour in the manufacture of the labour-intensive products. For instance, the US has moved their cloth production activities from Lesotho to China in response the global market dynamics.
The role of DFIs cannot be overemphasized in the developing global economies such as the SSA and Latin America nations. Foreign companies are beneficial in many ways to the countries they operate in. For instance, FDIs contribute reduction of the level of unemployment in a nation. The foreign owned companies employ the locals of the country of operation hence improving the welfare of the citizens.
Likewise, FDIs lead to the development of the infrastructure and social amenities such as roads and schools in the country’s of operation. They also enhance in the creation of an assured market for the raw materials from nation they are located.
Often, they also provide an easy opening for export market as the foreign investors are likely to export the products to the countries of origin. Loss of the benefits of FDIs to AD such as China as witnessed in Lesotho is a major barrier to growing SSA and Latin American economies.
In the area of finance, the increasing presence of the AD in southern Africa had an effect in raising the value of the South African Rand that had a negative impact on the value of the clothing exports from Lesotho.
The involvement of the AD in a region has the effect of strengthening the major currency in a region at the expense of the weak economies’ currencies. As such, the profitability realized from such economies’ exports are lost due to currency value differences as in the case of Lesotho.
The involvement of the AD in the global governance through Global Government enlarged governance, has contributed to the World Trade Organization eliminating some privileges enjoyed by the members of African Growth and Opportunity Act (AGOA).
Through AGOA, African states had an opportunity to export goods to the EU member nations to a certain set quota. The increased presence of (AD) and their contribution the removing of some preferences is a threat to the SSA and Latin America nations as they lose their exports share.
The industrial relocation of the AD into the SSA and Latin America has continued to pose diverse challenges to their host economies. First, there is a possibility of the local industries being pushed out of their operations by the AD’ industries due to price discrepancies.
Additionally, the AD are a threat to the environment through their industrial carbon emissions that lead to global warming. The AD and other contributors of global warming are usually not willing to take the responsibility for the negative implications of environmental pollution caused by their industrial activities.
The AD use their negotiation power to oppose laws that hold them accountable for their actions; a case witnessed in the Global Environmental convention in South Africa recently. As such, rainfall patterns are affected leading to further problems in the SSA economies such as acidic rains.
Finally, the great potential portended by the AD in the infrastructure development has positioned them as major development partners with SSA and the Latin America.
This has also been contributed by their fewer conditions attached to the development aids to Africa as opposed to the aids given by the western nations, Japan and the US that usually have strings attached. Nonetheless, the infrastructure development potential of the AD has hindered the growth of the engineering sector of the SSA nations as they are awarded tenders at the expense of the local contractors.
The growing presence of the Global Asian Drivers of Change in the global economy cannot be denied. With the various factors that have positioned them at their current position in the global economy, they are not only going to continue posing challenges to the developing world, but also to the developed.
As a matter of fact, their ability to challenge the developed economies explains why AD are more likely to affect SSA and Latin America negatively. As such the key challenge to the SSA and the Latin America is their ability to counter the negative implications of the Asian Drivers practices to their economies.
The developing economies can improve their position through research and development for more efficiency in industrial innovations. Alternatively, these economies can decide to work together with the AD for mutual economic gains.
Chan, G. China´s Compliance in Global Affairs. New Jersey/London: Scientific World, 2006.
Feenstra, R C. Integration of Trade and Disintegration of Production in the Global Economy. Journal of Economic Perspectives 12, no. 4 (1998): pp 31–50.
Gibbons, M, C Limoges, H Notwotny, and S Schwartzma. The new production of knowledge: The dynamics of science and research in contemporary societies. London: Sage, 1994.
Heberer, T, and A Senz. The Role of China in Global Governance Arenas (DIE Discussion Paper). Bonn: German Development Institute, 2007.
Humphrey, J, and D Messner. China and India as Emerging Global Governance Actors. Asian Drivers: Opportunities and Threats (IDS Bulletin) 37, no. 1 (2006): pp 107-114.
Johnson, Joseph, and Gerard J Tellis. Drivers of Success for Market Entry into China and India. Journal of Marketing Vol. 72 (May 2008): pp. 1–13.
Johnston, A I. China and International Institutions. Perspectives from Outside China. Edited by Wang, Y. Beijing: China Development Publishing House, 2003.
Kaplinsky, Raphel, and Dirk Messner. Introduction: The Impact of Asian Drivers on the Developing World. World Development, 2008: pp. 197–209.
Kennedy, P, D Messner, and F Nuscheler. Global Trends and Global Governance. London: Pluto Press, 2002.
Krugman, P R. Scale Economies, Product Differentiation, and the Pattern of Trade. American Economic Review 70 (5) (1980): pp. 950–59.
Lall, S, and M Albaladejo. China’s Competitive Performance: A Threat to East Asian Manufactured Exports?.World Development Vol 32, no. No. 9 (2004): pp 1441-1466.
Mooij, De M. Global Marketing and Advertising: Understanding Cultural Paradoxes, Thousand Oaks, CA: Sage, 1998.
Naughton, Barry. The Chinese Economy: Transitions and Growth. Cambridge, MA: MIT Press, 2007.
Nolan, P. Transforming China: Globalization, Transition and Development. London: Anthem Press, 2005.
Sawyer, Charles W, and L Sprinkle Richard. International Economics. 3rd Ed. Pearson: Prentice hall, 2009.
Saxenian, A. The new Argonauts: regional advantage in a global economy. Cambridge, Massachusetts: Harvard University Press, 2006.
Shenkar, O. The Chinese Century: The Rising Chinese Economy and its Impact on the Global Economy, The Balance of Power and Your Job.. Upper Saddle, NJ: Pearson Education Inc, 2005.
Stern, N. The Economics of Climate Change. London: HM Treasury, 2006.
Tull, D M. China’s Engagement in Africa: Scope, Significance and Consequences. Journal of Modern African Studies Vol. 44, no. No. 3 (2006): pp. 459-479.
Vietor, Richard H.K. How Countries Compete. Boston: Harvard Business School Press, 2007.
Weikert, Jochen. Re-defining ‘good business’ in the face of Asian: China and the global corporate social responsibility discussion. Berlin: Bonn, 2011.
World Watch Institute. State of the world 2006. The Challenge of Global Sustainability. London: Earthscan Publications, 2005.