Why has manufacturing gone global?



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Manufacturing has “gone global” for two main reasons.  One has to do with the cost of doing business and the other has to do with being able to sell products.

The early moves towards globalized manufacturing were made because of the lower costs of doing business in countries outside of the rich world.  Workers in the rich world had started to get wages that were much higher than those in other countries were willing to work for.  This led to a move to set up factories in other countries so as to take advantage of the lower labor costs.

As countries outside the rich world got richer, however, another reason to manufacture abroad has emerged.  Firms now produce abroad in part so that they can get access to foreign markets.  This is particularly true in China today.  Firms produce there because the Chinese market has gotten to be so big.  Firms that do not produce in China might find it harder to sell in China, thus missing out on a large emerging market.

Thus, there are two major reasons for the globalization of manufacturing.  Companies manufacture around the world so as to get lower labor costs, but also so as to gain access to emerging markets.

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