Manufacturing was the life blood of a nation’s economy. This is not the case anymore. Although the productivity of the manufacturing sector in United Kingdom, and elsewhere, has improved, the share of manufacturing in the Gross Domestic Product (GDP) of the countries of the developed world has declined (OECD 2009).
In the United Kingdom, for instance, the share of manufacturing has come down from nearly 22% in 2000 to 16% in 2007 (OECD 2009). One of the most important reasons for this loss in the share of manufacturing sector is the emergence of Asian and other third world countries as a provider of cheap labour where the transnational companies could shift their manufacturing units and continue manufacturing their products at a fraction of the cost of what it would have had, had they continued to manufacture it in the developing world.
The multinationals have become adept at exploiting each and every opportunity to reduce the costs of their products by shifting their production base from one low cost centre to another low cost centre. This has resulted in increasing profits for the companies, and in some cases, lower prices for the end customer.
On the other hand, globalization has also lead to problems for the transnational organizations. They have received negative publicity over the alleged ill treatment of the workers at their low cost manufacturing centres, and for using the natural resources of the countries they are operating in and spreading pollution there.
The transnational corporations try to adapt themselves to the changing landscape of business in many different ways. Their responses have ranged from outsourcing a part of their business to acquiring strategic business partners abroad. The advantages offered by moving the manufacturing units offshore are not only related to cost, but also to quality, risk mitigation and the ability to concentrate on the core areas of business.