Global Employment Policy - Delocalisation of Labour in Development and Transformation Countries

Markus Demele

The competition on the global markets increases dramatically. Countless smaller and medium-sized enterprises must almost continually fight for their existence. In many cases, they can only avert bankruptcy through severe cut-backs or closing parts of the company in expensive industrialized countries and open new production lines in transformation and developing countries. “Offshoring”, as the technical term for this cross-border relocation of individual production or service elements and the concomitant jobs, plays a prominent role in the economic policy debates of the industrialised countries. In Germany the recent debate was about the cell-phone manufacturer NOKIA who went from Bochum to Rumania. Classical economic theory understands an increase in international competition as an expansion of the division of labour that is advantageous for all parties.

This division of labour has changed within the course of Globalisation. It is not only the volumes of international trade which have increased considerably. Rather, the geographical structures of trade have also changed. At the same time, the lion’s share of world trade remains a transaction between enterprises from the industrialised countries. This new form of international division of labour comes about partly as a result of cooperation between these enterprises and independent suppliers or service providers in other countries, and partly through foreign direct investment. This foreign direct investment (short FDI) includes the establishment and expansion of presences abroad. Despite the clear definitions, it is difficult to provide an empirical description of the offshoring phenomena. Therefore one has to use the available data on FDI to get at least the dimensions of Offshoring activities.

The overall group of developing countries has been able to considerably increase its share as target countries of FDI in recent years. They still reached a share of 35 % of newly-made direct investment in 2005. When it comes to the total stock of foreign direct investment worldwide, the share of developing countries as target countries was 26 % in the same year.The service sector plays a major role in offshoring in these countries. But the distribution within the group of developing countries is very different. More than half of all FDI flowing into developing countries is currently attracted by the greater region of Southern, South Eastern and Eastern Asia. Two-thirds of this amount flowed in recent years to China alone. Despite considerable increases in recent years, FDI in the Near and Middle East does not even account for two percent of worldwide direct investment. FDI has also been increasing in Latin America in recent years, having reached a share of almost 5 % of worldwide direct investment in 2005. FDI in Africa accounted for almost three percent of all FDI that year. The ten largest destination countries received 86 % of all direct investment in Africa.