Cheap labour no longer a way to economic success
Cross-border services are growing faster than trading in goods and bring bad news for countries relying on cheap labour.
Cross border services are growing 60% faster than trading goods and they generate more financial value, finds a study, produced by Mckinsey. A smaller part of goods-producing value chains are crossing borders as exports declined by almost 6% between 2007 and 2017. The reason for that is that goods-producing value chains are becoming more regional as companies manufacture closer to their customers. This trend is mostly seen in Asia and Europe. Global value chains are becoming more knowledge-intensive and reliant on high-skill labour.
The explanation for this change in value chains hides in three points. Firstly, markets like China have become increasingly important for the world economy and have shifted consumption closer to production. Secondly, emerging economies are building better domestic supply chains and do not rely on imports as much as they did. Finally, technological advances have boosted the service market which could further lower the importance of goods trading in the future.
Those to benefit from this trends will be large economies and developing countries closer to big markets who will have better access to goods. However, countries that missed the last wave of globalisation will have to rethink their economic strategy as the importance of cheap labour is diminishing.
The study analysed 23 value chains from different industries in 43 countries and grouped them into six archetypes based on their trade intensity, input intensity, and country participation. According to the findings globalisation reached a tipping point in the mid-2000s and was slowed during the recession.