PART1: IS GLOBAL COMPETITION A REAL THING?

Let us start with the question about Global competition: Is it a real thing? Or is it just being made up as scare tactics by some of the large powers and international media? To answer this question, I need to explain first, what we mean by globalization (as it is not well understood or misunderstood by most). Global competition does not necessarily mean that we must go abroad and compete in international market, nor we have to face international companies coming directly into our home market. This is the common misunderstanding that the public have. Actually, global competition is much more subtle and closer to us than that.

Let us bring examples to drive this issue home: does Kelantanese rice planters compete with planters, say in Vietnam? Both don’t even have a clue about each other, and would unlikely ever met in their lifetime. Both are tilling different lands and don’t even share any resources that they have to fight each other for. But in reality, they are engaged in a “fierce” competition that will eventually drive some of them out of their jobs! How could this happen?

The answer lies in the flow of goods that has become global and at the core of it is the ability to produce goods at a cheaper costs and with higher productivity. If the Vietnamese farmers can produce more quantity of rice (say per acre), with better quality and at a cheaper costs – then, gradually the Kelantanese will be driven out business, as economically speaking, they will have marginal economic benefits, and eventually, they will be forced to abandon their farming activities.

The same thing is true for many other economic activities that we are performing, such as manufacturing: before, Malaysia used to be one of the hot beds of electronic factories. Over the last ten years we can see that most of the advantages have diminished, and one by one the factories are being phased out into other locations that are deemed by the manufacturers as more competitive. This is not true only for the multinational companies, but also for Malaysian owned companies, as they have to work within a certain cost and competitive structure, in order to survive. In this sense, then the workers in Malaysia do compete with workers say in Guangdong Province of China. And in this case Malaysian workers have lost.

Another example is Malaysian Palm Oil. What it has to do say with soy bean produced in Argentina? Both locations are thousands of miles away, operating under totally different climate and serving different markets. The costs structures for the plantations are different; the cycle of planting also differs. In short, both are seemingly in totally different domain. Yet, in actuality, both are highly interdependent on each other. While both are serving quite a distant market, the prices of them are determined by the financial markets in New York, Chicago and London. Whenever, prices of soy bean futures get battered, CPO prices also takes a plunge; and vice-versa. The global financial market has made this integration to be so close and intricately linked. Hence, a drought in Argentina helps to push CPO prices upwards, while a bountiful harvest there produce strains on CPO prices.

How about construction industry? It seems that small contractors from China will have a hard time to come and compete with small contractors in Malaysia and vice versa. Again, that is not true; neither has to come to the other market to compete. Take for example, the steel and cement prices; the contractors in China, due to their high domestic demands for both items, drive up their local prices to almost a triple fold; which in turns drive up Malaysian prices to almost similar level. The resulting problem caused many Malaysians contractors suffered losses, due to assumptions of lower costing strategy that they have adopted prior to the increase. This is an example of how, two different sets of people, operating in two different environments compete for the same resources that both needs for their activity.

With those examples, I hope that I have driven the point clear: global competition is pretty much closer and nearer to us than what we think. It is there in our daily lives. Now, let us move on to some serious examples and further deliberate the subject. Could we imagine that someday, our telecommunication providers are of non-Malaysian origins; and our providers are operating beyond Malaysian borders? The answer is: we already are. Whenever we make international calls, the “traffic” is being routed through international fibre optics and satellite linkages, which are not owned by Malaysians – and hence these international companies do operate on us, albeit indirectly. They are the ones that determine the costs structures for these calls. On the other hand, our companies also have gone abroad to Indonesia, Pakistan, and others as an operator. How about automobiles, banking, airline transportations, and others? The same answer is also true. In another words, even in so called strategic industries and sectors, where we deemed them to be of national interest and national security, we are no longer safe. In fact, the hypothesis is, over the next ten or twenty years, the situation will even worse (for example: WTO agreements and other international multilateral agreements).

In summary: we are already living in the era of global competition. Whatever we do and perform, one way or the other, we are competing with people from other part of the globe, consciously or unconsciously. How we do our things affects how other people do their things and vice versa in a much intricately linked way. Despite all the various walls of protectionism that we have built to protect our markets, they all have literally crumbled down. What’s more dangerous is, we continue to live as if we can protect our markets; and shield them from other global players – whereas day-to-day we are subjected to them. This sense of false “security” and “protectionism” are what worrying me; because it gives us less sense of urgency and ill prepared the society for many challenges that are facing them.

What is more worrying is the further integration of global economies just beyond the goods markets (i.e. international trade) into integration in the financial sense and in terms of how the global feedback mechanism works. Recently, some scholars have started to address and documents how the US economies affected other major economies and vice versa. Furthermore, how the major economies affected other smaller economies. What they found is that the percentage of transmission of economic aggregates from one country to another can be as high as 20%. As the saying goes: “when someone in New York sneezes, someone else in Tokyo will sneeze too; and worse still someone else in Third World country will catch the fever”.

I hope that the above introduction convinces you that global competition is such a serious thing and deserves careful look; and that is what I hope to do in the next few articles.

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One thought on “PART1: IS GLOBAL COMPETITION A REAL THING?

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