Newly Industrialised Economies(NIEs)

A country whose level of economic development ranks between the developing and first-world classifications, characterized by high growth and rapid industrialization. 1960s: Rise of 1st tier NIEs The 'Asian Tigers': Hong Kong, South Korea, Singapore and Taiwan Characterised by export-driven development: producing goods for export to highly industrialised nations. These countries singled out education as important means of improving productivity, heavy emphasis placed on ensuring compulsory education and establishing world class education systems. In 1960s, they provided an abundance of cheap yet productive & skilled labour. 1970s : Rise of 2nd tier NIEs Malaysia, Indonesia , Thailand ,Brazil, Mexico Available natural resources and larger domestic market than 1st tiers, growth based primarily on commodity(primary) exports to generate foreign exchange while manufacturing sector produced import substitutes for the domestic market. However, increased pressure with narrowing domestic markets promoted increased transition towards export manufacturing.Malaysia: Manufacturing value added increased from 9 percent of GDP in 1965 to 32 percent in 1994 1990s-200s: Rise of 3rd tier NIEs China, India China and India are home to 2.4 billion people--two-fifths of the world's population. High population growth rates and improved education levels provide large supply of cheap labour for the 21st century, outcompeting 1st and 2nd tiers. From 1993 to 2007 China averaged growth of 10.5% a year. India, with less reliance on trade, managed an average of 6.5%, more than twice Americas average growth rate.

Case Study #1:Singapore

1st Tier NIE: -Industrialized with foreign investment initially in labour intensive and exportoriented industries in 1970/80s. -1965- 1980: manufacturing sector increased from 15% to 28% of GDP. Annual economic growth averaged 10% -No natural resources, relied on productive, educated workforce and strategic location as a world shipping centre(lies on the vital transport link between the Pacific and Indian Ocean) Currently, Literacy rate 96.4% , HDI 0.895, GDP per capita US $60,000(6th in world) The stock of FDI as of 2003 is S$244.3 billion.

Challenges 1. Competition from emerging markets, e.g. China, India is becoming a challenge for 1st tier NIEs with their loss of initial competitive advantages e.g. cheap labour for manufacturing. Rising labour cost and high land cost, with increased population density & standards of living and education, lowers the countrys competitiveness in world export market and in attraction to FDI. e.g. a skilled worker in Bangalore cost 40% lower than in Singapore. Manufacturing sector, once an essential pillar of growth declined from 26% of GDP in 2001 to 23 % in 2010. Manufacturing dwindling further expected to decrease to around 15 20 per cent of GDP.

2.Reliance on export and foreign investment The heavy dependence on external markets and technology exposes the economy to large fluctuations in production and employment. E.g. electronic industry. Market and technological development have subjected the industry to wide cyclical fluctuations every three years or so. From the second half of 1974 to end of 1975, the down turn in the electronic industry coincided with the general world recession to hit the industry with the most severe recession so far. Singapore was perhaps the worst affected offshore location in the electronic industry, some two thirds of the 20,000 workers retrenched. 3. Demographic Issues: greying population and low fertility rate. Life expectancy in the country has been rising and along with that, government expenditure of health services has increased tremendously for the past 10 years . On the other hand, the fertility rate has been on the decline, causing concern about a rising dependency rate in the future.

Shrinking citizen workforce: Increasingly difficult to find sufficient manpower to support low skill jobs necessary to sustain diversified economy Opportunities Diversify economy, focus on high tech, innovative R&D based sectors
- Starting from late 1980s, Singapore began upgrading its industries toward capital intensive, high-tech and high value-added economy. - One-North technological park set up for R&D and biomedical scientific research. The government is committed to spend billions of dollars in the next 15 to 20 years in order to expand the new technological complex & attract top scientists in the world, who will lead Singapores technological transformation -2nd quarter of 2013: Manufacturing sector grew by 0.2 percent, reversing the 6.7 percent decline in the previous quarter. Growth was mainly supported by the biomedical manufacturing clusters, showing potential for development.

Expansion of trade linkages

As a country highly dependent on international trade, with its trade over GDP ratio as the biggest in the world now, Singapore has to continue to seek better trade relationships with other countries in the world. In 2002: Govt. completed first two agreements with New Zealand and Japan. 2003, an agreement was also reached by the Singapore government with the European Free Trade Association (EFTA consists of Switzerland, Iceland, Norway and Liechtenstein). Further agreements also made with Australia and US. Potential formation of ASEAN Economic Community (AEC) allow integration of key markets by 2015 so Singapore can tap into growth in emerging Asian markets e.g. China a major destination for Singapore exports that shows growth up 7 percent on a yearly basis With multiple FTAs and coming ones with the large economies and broad areas, Singapore is assuring and maximizing the potential in the world export market and is diversifying its market risks to avoid the sudden shock due to one area or one industry uctuation. The 15 and 26% strong rebound of exports in 2003 and in 2004, respectively, could be a good signal of the functioning of the FTAs.

Case Study #2: China

3rd Tier NIE Since 1979 when Deng Xiaoping introduced an "open policy" based upon a carefully controlled trade and inward investment strategy. The Chinese economy has been gradually liberalised to foreign investments. Special Economic Zones (SEZs) established in 1979 at Shenzhen, Zhuhai, Shantou and Xiamen to attracted US, Japanese and European investment by offering incentives: tax concessions, duty-free imports and serviced infrastructure.

Opportunities
Population Since the 1980s, China's large booming population has driven many TNCs to invest due to the country's immense pool of labour and also large domestic market which allowed for competitive advantage, helping to minimise costs of production and maximise profits. For example, 23,000 Japanese companies are now operating in China. Matsushita has invested $558 million in 31 joint ventures in China. China's population can continue to be an advantage due to rising education and income levels, China's higher education institutions had about 31 million students in 2010, an increase of 35 percent compared to 2005 showing China's increasingly education levels which can help to generate a larger pool of highly skilled labour which can aid China's transition towards high tech industries and service sectors. Currently, as many as 430 million Chinese could be classified as the core consumer class, that is, a household owning at least six electronic products such as a television, a washing-machine, a telephone, a mobile phone, a stereo, a DVD player, air-conditioners or a microwave. Some estimates predict that by 2030 the middle class in China will number 1.4 billion consumers, compared with 365 million in the US. This may be attractive for consumer service firms which want to tap into the growing market. Huge land area & rich resources- large developmental potential China is a country with a huge land area. With an area of about 9.6 million km, the People's Republic of China is the 3rd largest country in total area behind Russia and Canada, and very similar to the United States. It stretches some 5,026 kilometres across the East Asian landmass. This makes it very attractive to countries who need land to set up companies. China is bordered by seas and waters eastward, with the East China Sea, Korea Bay, Yellow Sea, Taiwan Strait, and South China Sea. The eastern and southern half of the country, its seacoast fringed with offshore islands, is a region of fertile lowlands and foothills with most of the agricultural output and human population. More recently, the 18,000-kilometers coastline has been used extensively for export-oriented trade, making a power shift, with the coastline provinces becoming the leading economic centre. Besides, China found 1.52 billion tonnes of new crude deposits in 2012, 270 million tonnes out of which can be exploited with current technologies. It also discovered 961.22 billion cubic meters of natural gas last year, up 33 percent year on year. Out of the newly found deposits, 500.8 billion can be exploited

with current technologies, up 36 percent. In order to extract all these crude deposits and natural gas, Chinas government needs to attract foreign companies as partners to develop these resources. For example, the Changbei Tight Gas Project is such a partnership with Shell, an established international oil company. Challenges Uneven development within the country: As a result of differential government policies, the coastal areas, being much more developed than the inner rural areas which are undeveloped. Resources and capital and concentrated only at the coastal regions. Besides, issues of income inequalities also are surfacing. Figure 1: GDP per person by province, 2002 (US$)Figure 1 shows the wide variation in GDP per person in China. In terms of Chinas three regions (East, Middle and West), the scale of economic activity and the affluence of the population generally decline from the coastal regions into the interior. The recent rapid growth of the economy has widened the gap between core and periphery in the country. However, the government recognizes this problem and in has in recent years initiated it's "go west" development strategy to helped the relatively backward area, which includes 12 provinces such as Sichuan and Yunnan, to catch up with the country's coastal zones and big cities. China has been busily building infrastructure in its interior since 2000, such as highways, airports and railways. Government will work to boost environmental protection in the western regions and also increase job opportunities for the people and upgrade education and medical services. Environmental Concerns: Conversely, having occupy such a large area, it makes it hard for the government to be able to regulate and enforce strict environmental laws. Thus many parts of China also struggle with serious pollution problems. In 2007, 16 of the world's 20 most polluted cities are in China. TNCs often choose to set up branch plants in the country because of the less stringent environmental laws that will help them easily to get away with polluting the environment. Up to
760,000 people died prematurely each year in China because of air and water pollution. High levels of air pollution in China's cities caused to 350,000-400,000 premature deaths. Another 300,000 died because of indoor air of poor quality. There were 60,000 premature deaths each year because of water of poor quality. This can threaten the country's economy affecting healthcare expenditure and the health of the workforce.

Rising costs and loss of competitive edge: Other challenges that are faced are also due to how China is becoming a more developed economy and is expanding very rapidly. The standards of living in

developed coastal regions have definitely increased, hence the costs to set up businesses in the country are now much higher. TNCs and foreign investors might have to reconsider investing in these regions of China if they want to maximise profits. China is losing its edge as the world's cheapest place to manufacture goods.As the country gets more and more developed, the education level of the people have also risen. Chinese workers are now demanding higher wages and thus, the labour costs are no longer as cheap. A couple of companies have shifted their branch plants to other countries where cheaper labour can be found. Indonesia and Bangladesh are benefiting most as rising costs in China force firms to switch production. Based on a report by KPMG, minimum wage levels in China are now four times greater than other places in South and South East Asia.