GENEVA — Companies that move manufacturing abroad to lower production costs stand to benefit from comparative advantages, but also run a risk of creating new competitors, a global report said.
“An extended, global value chain based on the networking of partners implies more corporate proprietary information is freely shared inside the system and thus can be copied or stolen,” said the World Competitiveness Yearbook 2006. “In such an open environment, friends can quickly turn into enemies.”
The study, compiled by the International Institute of Management Development, Lausanne, Switzerland, points out that advances in communication, transportation and logistics have enabled firms to “manage the value chain globally” and develop multicountry sourcing strategies.
“The proliferation of powerful new local enterprises and brands in China and India illustrates how quickly the world is producing new actors and competitors on the … landscape today,” the study said.
The latest yearbook, which ranks 61 economies on economic performance, government and business efficiency, and infrastructure, ranked the U.S. as the world’s leading economy.
However, the study also shows China moving up 12 places to 19th and India gaining 10 slots to 29th.
Stéphane Garelli, principal author of the study and a professor at the business school, said in a phone interview that the global firms most at risk of creating their own competitors are probably those that relocate assets and production in China.
He said normally foreign firms need a local partner, transfer technology and finance in the venture. But in some instances, the local partner, after it gains enough experience and confidence, can go it alone and branch out independently to manufacture and build its own brand, Garelli said.
He said some established apparel firms with strong brand appeal are less threatened, but others could quickly lose new-found market share and find their investment squandered. He said Chinese firms, for example, are concentrating more resources on building brand appeal and good quality.
Increasingly, Garelli said, Chinese brands in computers, TVs and cell phones “are attacking established brands in the rest of the world.”
The lowering of trade barriers and the explosion of the Internet, notes the report, are accelerating the pace of change.
The report projects that a key dynamic in the global economy will be the “creation of a middle class in previously … underdeveloped markets, mainly in Asia, where 600 million people already reached this status in the past five years and thereby generated an explosion in consumer goods sales.”
Garelli estimated this new middle class represents a combined gross domestic product in excess of $4 trillion.