International division of labor

From CEOpedia | Management online

International division of labor is understood as a phenomenon of continuous involvement of national economies in exchange directed at international partners and the production process. This division was initiated already in the historical period and has been evolving since the 18th century. This phenomenon is a very important function in business activities, constituting a kind of evolution in the division of labor, it occurred at the moment when the level of assortment and quantity exceeded the degree of buyers' needs which was not satisfied.

Factors affecting IDL

Continuous production surplus in the countries has created the need for sales trade exceeding the national borders. In this way, the mechanism of international competition was launched and became an inseparable element determining the directions of the profession of production and exchange of specific countries. Surplus production exceeding the market needs of a given country were not, however, the main factor that would suffice to change the division of international labor and local trade into international exchange. An important factor influencing the emergence of international division of labor was also ensuring that the progressing quantities of goods were efficiently distributed even over long distances. The appropriate development of technical as well as organizational and economic infrastructure, which ensured ease and security in the regular movement of surplus goods, had an impact on the international division of labor. The development of technology has become one of the main reasons that drive the international division of labor.

Factors influencing the specialization of a given country in the international division of labor

  1. Structural factors - they decide about specialization first. They are associated, among others, with the natural wealth of a particular country, capital or work. Countries with large energy resources deal with the extraction and supply of international partners. Extensive areas of fertile soils with favorable geographical and climatic factors contributed to the export and production of food, as a result an economic group was created that combines raw materials and agriculture. This economy has definitely raised the level of prosperity and social development.
  2. Technical and technological factor - presents two very important effects. The first effect that currently plays the most important role is the creation of new products and markets for manufactured products, thanks to which it is possible to create new specializations. Another effect is an increase in efficiency that allows you to produce more. The increase in efficiency allows eliminating specialization barriers that result from natural conditions.
  3. Institutional factors - Among which the political system, treaties, economic policy and international agreements are most often mentioned. This factor is characterized by volatility and subjectivity, it will be favored by an open market economy system that will be appropriate for a democratic system.
  4. Economic factors - usually it is a short-term factor, it lasts while in the global economy the demand for various types of goods and services increases, this favors the development of the productive base and international turnover. International economies are part of the international division of labor, beginning when they increase imports, and as a result they export on a constantly increasing scale.

Internal and external factors shaping IDL

In the case of internal factors, they make conditions specific to specific national economies dependent, when it comes to external factors, they present the impact of structural transformations of the global economy on the international development of the division of labor. The international division of labor is closely linked to the complementarity of economic structures as a match between two or more countries. Complementarity in the process approach is understood as a change that occurs as a result of technical, institutional, conjunctive and structural factors, it is also understood as the degree of reflection of the adjustment of economic structures over a given period of time.

Types of complementarity of structures

Inter-branch, including countries that have a diversified development of the economic and social level, significantly affecting differences in production resources, including natural resources, capital and labor. Mutual adjustment positively affects the turnover of manufacturing economic goods.

Intra-industry, takes place in countries with similar economic and social development, is motivated by the difference during factors of production. The result is the development of this intra-industry complementarity, which includes extensive subassemblies and components.

Global Economy in the 21st Century

The global economy is significantly created by international economic entities, such as supranational institutions, formal or informal organizations, and transnational corporations. Thanks to the dynamically developing economy and spreading technology, we can deal with an international division of labor.

Marginal import and export rates

These measures inform us about the share of imports or exports in each unit of GDP that is additional. The marginal import rate informs us how the imported absorbency of the economy will increase together with the growth rate of gross domestic product. These factors are influenced, among others, by: Production of goods produced in the country, among others, investment matching in a given country of goods, and in particular matching the demand for goods with investment structures. The main task is to perfectly match the structure. Another factor is the development of the economic level of a particular country. If the level is low and there is a rapid increase in the economic growth, the import marginal rate will increase very suddenly.

Examples of International division of labor

  • Offshoring: Offshoring is a form of international division of labor which involves relocating part of a company's production process to another country in order to take advantage of lower labor costs. This is often done for labor-intensive processes such as manufacturing or data entry. For example, many companies in the United States outsource their manufacturing operations to China or other countries in order to take advantage of cheaper labor costs.
  • Specialization: Specialization is another form of international division of labor in which countries specialize in the production of certain goods or services. This allows countries to focus on what they do best and become more efficient in their production processes. For example, Japan is known for its highly specialized automobile industry, while the United States is well-known for its specialized technology industry.
  • Outsourcing: Outsourcing is a form of international division of labor in which firms contract with outside suppliers for goods and services that they need. This allows companies to take advantage of lower labor costs and access to specialized suppliers in other countries. For example, many companies in the United States outsource their software development to countries such as India or the Philippines in order to take advantage of lower labor costs.
  • Global Value Chain: The global value chain is a form of international division of labor that involves different countries participating in the production of a single good or service. This allows companies to take advantage of different countries' strengths in different stages of the production process. For example, many companies in the United States outsource their raw materials production and assembly processes to countries such as China or Mexico, while they keep the research and development processes in the United States.

Advantages of International division of labor

The international division of labor has numerous advantages that have enabled businesses to expand their operations and become more competitive in the global marketplace. These advantages include:

  • Increased Efficiency: By allowing companies to specialize in a particular area or region, businesses are able to reduce their production costs and improve the quality of their product or services. This allows them to become more competitive in the global market and increases their efficiency by reducing the costs associated with production.
  • Cost Savings: By utilizing international division of labor, businesses can source their materials and labor from countries that have lower labor costs. This allows them to reduce their production costs, as well as their overhead costs, and pass the savings to the consumer.
  • Access to New Markets: By expanding their operations to multiple countries, businesses are able to access new markets and increase their customer base. This allows businesses to increase their revenue and profits, as well as increase their market share.
  • Increased Trade: By utilizing the international division of labor, businesses are able to increase the level of trade between countries, as well as increase the number of products and services that are available to consumers. This helps to promote global economic growth and development.

Limitations of International division of labor

International division of labor has a number of limitations that can prevent its effective functioning. These include:

  • Unequal exchange: International division of labor often results in unequal exchange, where countries with more developed economies receive more benefit from their global trade relationships than those with less advanced economic systems. This can lead to a situation in which countries with weaker economies are unable to benefit from international trade and development.
  • Cultural differences: International division of labor can be impeded by cultural differences between the countries involved in the exchange. This can lead to misunderstandings and miscommunication, which can result in an inefficient division of labor.
  • Language barriers: A lack of common language can be a major obstacle in international division of labor. Without a shared language, it is difficult to communicate effectively, which can lead to misunderstandings and miscommunication.
  • Political instability: Political instability in one or more of the countries involved in the international division of labor can cause the process to fail. For example, if one of the countries involved has a volatile political situation, then international trade may be disrupted.
  • Inadequate infrastructure: Insufficient infrastructure in one or more of the countries involved can also prevent an efficient division of labor. For example, if one of the countries does not have adequate transport or communication systems, then the process of international exchange will be hindered.

Other approaches related to International division of labor

The International Division of Labor is a complex phenomenon that can be approached from various perspectives. These include:

  • Inter-Industry Trade: This approach focuses on how the international production of goods and services is organized, and how trade patterns between countries are established. It also looks at how comparative advantage and specialization of labor affects the global production system.
  • Global Value Chains: This approach looks at how firms organize their activities to take advantage of different countries’ resources, capabilities, and production costs. It considers how firms take advantage of economies of scale and scope, as well as how they manage international supply chains.
  • Labor Migration: This approach looks at how the international movement of labor affects the structure of labor markets, wages, and working conditions. It also examines how the movement of people affects culture, social norms, and identity.
  • Comparative Advantage: This approach looks at the economic principles of specialization and comparative advantage, and how these affect the structure of international production and trade.

In conclusion, the International Division of Labor is a dynamic phenomenon that can be studied from various perspectives. These perspectives include inter-industry trade, global value chains, labor migration, and comparative advantage. Understanding these approaches can help us better understand the structure of international production, trade, and labor markets.


International division of labor — recommended articles
Internationalization — Importance of international business — Domestic market — Commercial sector — Economies of scale — Etatism — Agribusiness — International competitiveness — Globalization

References

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