Few economic concepts are as widely used today as Value Chains, directly or indirectly all economic entities are part of some, however; the term is of greater relevance when delving into the manufacturing sector and it is well known that Asia plays a leading role on the subject.
Decades ago China, India and the Asian Tigers (South Korea, Taiwan, Hong Kong and Singapore), rose as global benchmarks of economic growth through a boom in their economy by becoming the manufacturing centers of the world, from then on China has consolidated its hegemonic role on the matter.
For years, nothing seemed to affect the Asian giant and the only thing that could be seen around the world was the consolidation of its hegemony, a situation that began to bother the great powers, since many of their local companies began to look for a decrease in their production costs, as well as a specialized labor force that would generate additional value to their products, and moved their manufacturing operations to China and other Asian countries that offered them the opportunity to increase their profits to levels not seen since the industrial revolution.
This ended up generating a wave of unemployment in many countries, so alternatives were sought to combat this situation, and one of the most natural strategies was the creation of economic blocs, from which emerged the Treaties or Trade Agreements that provided the member countries with tax benefits, and unprecedented access to foreign markets; with the intention, that companies remained active, generating employment, local taxes and profits for the involved territories.
Based on this, several countries worldwide rebounded quickly and had the possibility of maintaining or attracting new companies to their territory. However, for the great powers, the results were not one hundred percent as expected, since it was still almost impossible for them to keep these large companies within their territory, mainly due to the high salaries paid to specialized workers.
Mexico was no exception and began to emerge as one of the most important economies in terms of foreign trade worldwide. The complexity of
NAFTA amazed hundreds of nations because of the speed with which the three nations involved understood what was needed to make it work and be an example worldwide. The United States already had a highly qualified workforce, Canada had already made great progress in this area, and Mexico launched technical schools, which added to the migration of specialized technicians from the U.S. to the country, which allowed it to be at the forefront in high-tech sectors at the time, a clear example of which is the automotive sector. However, even with all this, it was not enough to stop China and other Asian countries; their population rates and economic systems made it too easy to maintain very low production costs, which were difficult to compete with.
The efforts of the economies to contain the aggressive pace of the Asian powers have not ceased to this day, which has generated a proliferation of governments with radicalized agendas and tendencies towards an economic regression of the 70’s and 80’s, a trend that, although it started with the poorest economies, quickly escalated to the developing economies and finally reached the great economic powers worldwide. This situation is especially important because it has generated very aggressive protectionist measures with which we are dealing globally and which show no signs of diminishing or disappearing in the medium term.
Under this new reality the Global Value Chains are being reconfigured, the trade battle that arose with the arrival of President Donald Trump between the USA and China (which continues to this day) has done nothing but make Chinese products more expensive, and to a lesser extent has caused some companies to abandon China as their global manufacturing center. While the effects have not been as successful as expected, it is not surprising that in the coming decades we will see a decrease in production and export volumes by the Asian giant, the high tariffs on steel, pork and electronic components will finally have an economic effect, as the population of the middle and lower sectors is close to reaching the limit of its purchasing power, which will compromise the purchase of products generated in China.
Likewise, the accelerated aging of the economically active population and the decrease in birth rates have been the subject of great debate worldwide. To cite an example, the average active population in Japan is currently 46 years old, and in China it is 36 years old, which will put them in a very complex situation in the next 20 years, since their age will make it very difficult to maintain a high productive efficiency at the manufacturing level and compete with countries with a lower average age.
COVID-19 is one of the fundamental aspects that are making value chains evolve; we are seeing the forced birth of teleworking, home office and a new trend in terms of production. Companies were not unaware of the forced stoppage they suffered to contain the onslaught of the pandemic, which, in some cases, has awakened and in others has accelerated the adoption of new production technologies, in which the mechanical systematization of production activities prevails, which will strongly contribute to the accelerated replacement of human labor in growing economies, which will not necessarily be beneficial for the world in the long term, but it will be a reality in the coming years, as health experts have been very careful to spread the message that pandemics will become increasingly recurrent at the global level.
Undoubtedly, we are living in complex economic, social and cultural times, the great conflicts to agree on energy prices have been felt between the great powers such as Saudi Arabia and Russia, thus generating an increase in the price of energy, and a worldwide volatility that has affected almost all the world’s stock exchanges, At the same time, it has generated a global inflation problem that has not been seen for almost 50 years in developed or developing economies, and although it is expected to be a temporary effect, the truth is that it is almost impossible for products and services to return to pre-pandemic levels, it will simply be controlled at a certain level, and the population will have to get used to this new reality.
In the particular case of Mexico, with the USMCA, it has a very interesting opportunity to attract productive investments that will allow it to bring in companies that were previously established in Asian countries, due to the opportunity generated to enter the American market with an almost free pass; however, it has a very laborious path and requires underpinning the technical and scientific education that the new production and distribution trends require, moreover, the average age of its workforce is around 28 years old, a very advantageous situation in the coming years, if it is well exploited. The investment in infrastructure that has been taking place (apart from the political aspects involved), is emerging as a high impact incentive for companies wishing to invest in the production, services and tourism sectors. Value Chains
The Mayan train is a work of connection with the south of the country, which will benefit the population of the states involved in the route, it will also
bring benefits to Central American companies, when finding a means of transport of smaller cost and greater efficiency in terms of time of transfer and security of the load in this means and vice versa with the Mexican companies that look for to expand their commercial activities to this geographic zone. Value Chains
as they will find a lower cost and more efficient means of transportation in terms of travel time and cargo safety, and vice versa for Mexican companies seeking to expand their commercial activities to this geographic area. Value Chains
In the coming years we will witness the countermeasures that Asian countries will take to contain the effects of the protectionist policies of the world’s major economies, since this is an economic and reconfiguration battle that is far from over and for which companies must prepare very quickly, seeking to expand their production and marketing areas to developing countries, and which also have trade agreements and treaties that allow them preferential access to their products, free from the restrictions that the major powers are imposing.
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