Contradiction of lower costs and higher expectations

One of the most interesting aspects of demand for global brands is consumer’s expectation of lower costs and higher quality.

The nature of individual self-interest in people is driving this. From an economics and logistics perspective, this defies logic.

In a world of increasing scarcity of materials, consumers expect more for the same cost. This individual self-interest is one of the key drivers of continued global expansion.

The only way to achieve lower costs and meet higher consumer expectation is to become better at allocating the factors of production, as described by Adam Smith (1789). The factors include land, labour, capital and entrepreneurship.

  • Land includes raw materials mined, grown or extracted from the earth
  • Labour is human effort manipulating and changing land
  • Capital is the money and finances needed to pay for land and labour
  • Entrepreneurship is the special human effort and ingenuity that helps marshal the other factors of production into real products which will hopefully be desired by consumers

This has a certain element of risk as the products may not be successful. In fact, managing all the different factors of production may not work. It is the unique human ability to be inventive and solve the problems of resource allocation which is so useful in logistics. Some of the features of globalisation are useful in trying to reduce costs and to add more features that meet consumer expectations.

A key feature of globalisation is that different countries have different labour rates of pay. This has enabled entrepreneurial businesses to consider buying both labour or raw materials from the countries with the lowest labour rates. Sometimes they buy both.

There are a diverse range of labour rates and the cost of living around the world. A global brand would be interested in both selling their goods in the ones with a high cost of living as they would probably be richer and making their products in the countries with lower cost of living. This can have serious repercussions for consumers and workers in both developed and developing countries as global brands exploit these differences.

Your task

What do you think are the downsides of globalisation? Share your thoughts in the comments area.


References

Smith, A. (1789) The Wealth of Nations. 5th edn

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This article is from the free online course:

Principles of Global Logistics Management

Coventry University