Made in Home Country, Host Country, or the World? The need to Revamp Globalization Indices

Dr. Hwy-Chang Moon's picture

South Korea is very concerned about its economy because the exports of its major conglomerates like Samsung Electronics and Hyundai Motors have declined. Although their domestic production and exports are decreasing, they are producing more in foreign countries and increasing their exports from these host countries. Similarly, the United States (US) is worried about its deteriorating trade balance as shown by Presidential candidates’ bashing of foreign countries, especially China. Generally, firm value chains are becoming more and more fragmented, meaning less products are being made entirely in home country (and then exported) or in a single host country. Instead, an increasing number of products are being produced in multiple sites across the world. Take Apple’s iPhone 4 for example. Out of the export value of around USD $200/unit (i.e., factory gate price), China only contributes roughly 3.5 percent of the total value added; the US takes up 12 percent; Germany 8 percent; South Korea 40 percent; and so on. In short, although the iPhone is assembled in China, most higher value added parts derive from elsewhere. Unfortunately, traditional trade statistics and other new indicators of value added—e.g., the OECD-WTO’s Trade in value added (TiVA)—do not sufficiently capture the new reality. FDI statistics do not, either. For example, UNCTAD has developed an index for measuring the degree of MNC globalization called the Transnationality Index (TNI) which includes three elements—foreign assets, foreign employment, and foreign sales. The limits of this index are shown by the fact that Apple is excluded from the list of the Top 100 non-financial transnational corporations in terms of TNI score because Apple does not have notable foreign assets. The above shows us that we need to develop a better index for measuring firms’ globalization to reflect the current reality of “made in the world.”