It has been argued that one of the major effects of globalisation is to threaten the notion of the territorial nation state, in at least three key respects; its competence, its autonomy and, ultimately, its legitimacy.
■ Loss of competence. In a global economic system, productive capital, finance and products flow across national boundaries in ever-increasing volumes and values, yet the nation state seems increasingly irrelevant as a ‘barrier’ to international events and influences. Governments often appear powerless to prevent stock market crashes or re-cessions in one part of the world having adverse effects on domestic output, employ-ment, interest rates and so on. Attempts to lessen these adverse effects seem, to many citizens, increasingly to reside in supranational bodies such as the IMF, World Bank, EU, etc. This inability of nation states to meet the demands of their citizens without in-ternational cooperation is seen by many as evidence of the declining competence of states, arguably leading to a ‘widening and weakening’ of the individual nation state.
■ Loss of autonomy. In such a situation, the autonomy and even legitimacy of the nation state are also subtly altered. The increased emphasis on international coop-eration has brought with it an enormous increase in the number and influence of inter-governmental and non-governmental organisations (NGOs) to such an extent that many writers now argue that national and international policy formulation have become inseparable. For example, whereas in 1909 only 176 international NGOs could be identified, by the year 2008 this number exceeded 30,000 and was still growing! The formerly monolithic national state, with its own independent and broadly coherent policy, is now conceived by many to be a fragmented coali-tion of bureaucratic agencies each pursuing its own agenda with minimal central direction or control. State autonomy is thereby threatened in economic, financial and ecological areas.
■ Loss of legitimacy. Of course any loss of competence or autonomy for the nation state is, to many, an implied loss of legitimacy. However, proponents of an alleged
‘loss of legitimacy’ in the UK often point more directly to the new EU constitutional arrangement proposed in 2003 and earlier adjustments of UK law and practice into conformity with the European Court of Justice and other supranational bodies.
we’ve got to win in every corner of the world’. In other words, global aspirations tinged with national pride – which Singer would have understood – is just as recog-nisable today among US business leaders.
Source: Adapted from Guerrera, F. ‘US companies choose: National, multinational or “a-national”’, Financial Times, 16 August 2007.
Questions
1 Examine the arguments in favour of a global approach to business activity.
2 Examine the arguments against a global approach to business activity.
3 What policy differences might result from this debate?
Globalisation 25 However, as we saw earlier, globalisation consists of a series of conflicting tendencies.
While there is some evidence that the relevance of the nation state is declining, other writers claim the alternative view. Some argue that the state retains its positive role in the world through its monopoly of military power which, though rarely used, offers its citizens relative security in a highly dangerous world. Further, it provides a focus for personal and communal identity and finally, in pursuing national interest through cooperation and collaboration, nation states actually empower themselves. The sug-gestion here is that international cooperation (as opposed to unilateral action) allows states simultaneously to pursue their national interests and at the same time, by col-lective action, to achieve still more effective control over their national destiny. For ex-ample, the international control of exchange rates (e.g. the EU Single Currency) is seen by some as enhancing state autonomy rather than diminishing it, since the collective action implicit in a common currency affords more economic security and benefits for nationals than unilateral action.
Globalisation is therefore redefining our understanding of the nation state by intro-ducing a much more complex architecture of political power in which authority is seen as being pluralistic rather than residing solely in the nation state.
Case Study 1.5 would suggest that the nation state, as well as the business itself, may have strategic reasons to support or oppose transnational production activities in globalised economies.
Emblazoned across the huge blue barns of the Daewoo shipyards on Koje island, off the southern coast of South Korea, are signs of declaring ‘No change, no future’.
Certainly it is a frequent mantra in Korea, as Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering strive to main-tain their positions at the top of the global industry. Right now, the top three are in a sweet spot – orders are rolling in fast, deep hedging means they are insulated against the strong Korean won and their share prices have been sky-rocketing.
All are frantically extending their docks and building new quays to allow them to increase capacity.
‘Korean shipbuilders are enjoying this very bullish market’, says Koh Youngyoul, chief strategy officer at Daewoo, which has a three-year backlog of orders worth
$29 billion. But how long will it last? Korean shipbuilders are being threatened by China, which is set to have 23 docks for construction of large ships by 2015, many more than Korea’s 15. Meanwhile, Chinese manufacturers, already churning out standard container ships, are trying to make high-tech liquefied natural gas carriers and large containers – the Korean industry’s bread and butter.
Korean estimates of the time China will take to close the technological gap range from four years to ten years. Industry operators know they must not be complacent.
‘At the moment, China is simply building low-value added ships while Korea is making much more high-technological oriented ships’, says Mr Koh of Daewoo, which expected to win orders worth $11 billion this year but had to revise this up to
$17 billion after achieving its target in the first half. ‘There is no serious competition
CASE 1.5 Competing in a globalised economy
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from China right now but it is only a matter of time until China catches up with Korea like Korea caught up with Japan ten years ago,’ says Mr Koh.
Korea came from nowhere to become the world’s biggest shipbuilding country and, thanks largely to Hyundai, Samsung and Daewoo, has a global market share of around 40%. The rise of Chinese industry has caused Korean manufacturers to look at Japan’s mistakes and make sure that they do not fall into the same trap. ‘Japan failed to diversify’, says Park Chung-Heum, executive vice-president of project plan-ning at Samsung Heavy, which likewise received $10 billion in orders in the first half and raised its projected orders to $15 billion.
About 90% of all Korean orders are for run-of-the-mill container carriers and tankers but the other 10% is made up of vessels such as floating production storage and offloading oil facilities that Korean shipbuilders hope will be their future. Already Daewoo has built the Agbami FPSO vessel for Chevron, the US oil giant, for a record
$1.6 billion offshore oil production facility for Abu Dhabi Marine. Samsung is in-creasingly concentrating on offshore vessels such as barge-mounted power plants and drilling rigs. It has also built an Arctic tanker for Lukoil and ConocoPhillips that can break 1.5m-thick ice. ‘Six years ago the average price of a Samsung ship was $50 mil-lion or $80 milmil-lion at today’s prices – but now it is $170 milmil-lion,’ Mr Park says from his office overlooking the Koje shipyards, illustrating both the sophistication of the ships being built and the recent escalation of prices shipyards can command.
But all this new added value carries a risk, namely technology leakage. Korea’s National Intelligence Service has been investigating leaks from Korean companies to Chinese competitors and a former Daewoo employee has been arrested for selling drawings to a Chinese company. ‘We are very concerned about this sort of leakage’
says Mr Park of Samsung. ‘Now we are putting watermarks on our drawings and we always print them on paper, not on CD. This is a very critical time and China would like to be able to catch up with Korea.’
Sanjeev Rana, a shipbuilding analyst at Merrill Lynch in Seoul, nevertheless says Korean shipbuilders will be able to remain market leaders in high value ships at least until 2010, although he adds that this is not necessarily a recipe for success.
Korea will maintain their lead in the value added segment but they need to main-tain conventional shipbuilding in their portfolio – you can’t have everything value added,’ Mr Rana says. ‘So even if they increase the high-tech component of their portfolio to 65%, they will still be 40 or 35% exposed to China.
Strategy of cheap labour
China might present a threat to Korean shipbuilders, but it also offers significant opportunities. Samsung Heavy Industries and Daewoo Shipbuilding and Marine Engineering, Korea’s second and third largest shipbuilders, respectively, have both opened yards across the Yellow Sea. There, Chinese workers construct the blocks that form the basis for Korean ships, which are then transported back to Korea for value-added production. This enables Korean producers to utilise China’s cheap labour without – in theory – giving away core technology.
‘China is supplying the one-third of the blocks used in our ships, which are put together in the Koje yards’, says Park Chung-Heum, executive vice-president of project
Globalisation 27
planning at Samsung Heavy. ‘The price of block fabrication in Korea has become very expensive so we are very happy to do this in China.’
Samsung’s factory in Ningbo, Zhejiang province, now produces 200,000 tonnes of ship blocks a year, while Daewoo’s subsidiary in the north-eastern port city of Yantai, Shandong province, will churn out 220,000 tonnes of ship blocks when it reaches full capacity in 2011. However, Hyundai Heavy, Korea’s largest shipbuilder, does not have a joint venture in China and has no plans to open one, says Kevin Chang, a company spokesman. ‘Shipbuilding is a very labour-intensive industry and Hyundai Heavy wants to supply jobs for Koreans,’ he said.
Source: Adapted from Fifield, A. ‘Korean shipbuilders struggle to keep Chinese in their wake’, Financial Times, 27 March 2007.
Questions
1 Why does Korea look to Japan when reviewing its strategies?
2 Consider the opportunities and threats to Korean shipbuilding from globalisation.
Pro- and anti-globalisation issues
Public announcements of jobs being relocated overseas often help to fuel the impression that globalisation equates with job losses for many countries. It is hardly surprising therefore that many trade union representatives and their members swell the numbers in the broad based coalition sometimes referred to as the ‘anti-globalisation movement’.
Since this often finds expression in protests against global institutions (such as the WTO, World Bank, IMF, Group of 7/8, etc.), the basis of these anti-globalisation protests is considered in more detail in Chapter 3, where these institutions are reviewed – see, for example, discussions of the WTO (pp. 116–22) along with arguments in favour of globalisation.