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Passage 2Asia, You Cost Too Much  The Asian economic miracle can be best summed up as the biggest price undercut in history. Asia grew because it was the cheapest source for the low-tech consumer goods that the West craves. Hong Kong and Korea didn't invent new or more efficient manufacturing techniques, they simply bought market share with low wages. But now Asia is beginning to cost too much. If you still think Asia is cheap or even a bargain, compare office rents in Shanghai with those in Chicago and Paris. Or try to hold a qualified manager in China against the almost weekly job offers he receives due to the shortage of Chinese professionals. No wonder companies are voting with their feet in response to Asia's rising cost. Germany's Siemens is dumping Singapore in favor of lower cost locations in the region. The way things are going, Siemens may have to move again before too long.  The competition facing Asia is not going to let up, either Local council representatives from Britain are running all over the world advertising tax cuts, giving away state land and slashing bureaucracy in an effort to attract industry. Technological innovations and cost reduction in communications and transport mean that location isn't as important as it once was. Only Singapore seems to understand that keeping up isn't good enough and that being competitive means forging ahead. The Lion City made a concerted effort to open market, cut government regulations and create transparency. But most Asian government just don't seem to understand the relationship between high costs and low competitiveness. Otherwise why would tariffs on agricultural imports be crippling the Korean and Japanese food processing industries? The oligarchical nature of trucking in Malaysia guarantees that high transport costs will drive business away.1. Asian economic growth was primarily based on cheap exports rather than high technology.2. Siemens is satisfied with Singapore's low cost and will stay there all the time.3. High rents and shortage of professionals became China's disadvantage in Business.4. The importance of location is weakened by technology and communication innovations.5. Most Asian government learned from Singapore to open markets and cut tariffs.

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Passage 1Force of the Multinationals  Direct investment by multinational companies is becoming a hugely important force in the world economy. In essence, a combination of factors, such as the development of global communications and a change in the political climate towards multinationals, is bringing in an era of true global manufacturing. A company such as Siemens may now start making a product in Germany then ship it to Malaysia for the labor-intensive final stages of manufacture. The strategy by Japanese companies of locating production in cheaper Far Eastern countries such as Thailand has done much to integrate the economies of the region. US companies were setting up production in Mexico, for similar reasons, before negotiations on the NAFTA had even started. There is an important distinction to be made between the kind of integration based on trade, which is relatively simple, and the far more complex links involved in global manufacturing. The report says that “ as integration moves from shallow trade - based linkages to deep international production - based linkage under the common governance, the traditional division between integration at the corporate and country levels begins to break down.”  Foreign direct investment tends to transfer assets from the developed world to the developing world. But the pattern is not entirely simple. Big shifts have occurred in the composition of foreign direct investment by sector. Increasing investment is going into services and high-tech manufacture, rather than basic manufacture and natural resources. As might be expected, foreign direct investment in the developed world is mostly in the former category, whereas in the developing world the emphasis is on the latter. It seems countries have to reach a basic level of sophistication before they can get in the act. Simple cash incentives to set up production in a country have little effect, other than on margin. In addition, the increasing sophistication of global production means that cheap labor is often not a deciding factor either.1. International production-based integration is better than trade-based integration.2. Labor-intensive manufacture is the production mainly depend on the use of a large number of labor.3. US companies set up production in Mexico for its cheaper labor and cost.4. Cash incentive is a deciding factor in global production.5. Foreign direct investment in the developed countries is mostly in services and high-tech sector.

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