Mon, 01 Mar 2021 Today's Paper

Evolution of production networks in Asia Pacific

11 April 2017 12:00 am - 0     - {{hitsCtrl.values.hits}}

A A A

 

By Hubert Escaith, Satoshi Inomata and Sébastien Miroudot
As production activities became increasingly fragmented and relocated across borders, a number of observers started to use the expression ‘global value chain’ (GVC). The term is often used without knowing what a value chain really is or looks like. What is clear is that the GVCs, as they are usually described, do not reflect the international production networks that we see around the world today.
In 1985, there were only four key economic players in the Asian region: Indonesia, Japan, Malaysia and Singapore. The basic structure of the production network was that Japan built up supply chains from countries such as Indonesia and Malaysia.
By 1990, the number of players had increased. Japan, the first regional giant, had extended its supply chains of intermediate products to South Korea, Taiwan, China and Thailand. While still relying on the productive resources of Indonesia and Malaysia, Japan also started to supply products to other East Asian economies, especially to the group known as the ‘newly industrialised economies’ (NIEs), namely Hong Kong, Singapore, Taiwan and South Korea. During this phase, Japan relocated production bases to neighbouring countries quickly, due to the yen revaluation agreed to in the Plaza Accord of 1985.
In 1995, the United States came into the picture as the second regional giant. It drew on two key supply chains originating in Japan, one via Malaysia and the other via Singapore. These two countries came to bridge the supply chains between East Asia and the United States.
In the year 2000, on the eve of its accession to the World Trade Organisation (WTO), China began to emerge as the third regional giant. The country entered the arena with strong production linkages to South Korea and Taiwan. It gained access to Japanese supply chains through the latter. The United States also brought a new supply chain from the Philippines. In this way, the basic structure of the tri-polar production network in the Asia–US region was completed.
By 2005, the centre of the network had completely shifted to China, pushing the United States and Japan to the periphery. The shift of supply chains towards China typically had a high degree of fragmentation and sophistication, incorporating substantial value-added input from each country involved in the production network. The competitiveness of Chinese exports was not only attributable to that country’s cheap labour force, but also to the sophisticated intermediate products that the country imported from other East Asian economies, embedded in goods labelled ‘Made in China’.
The organisation of international production networks has so far been mostly regional, producing in a given region and selling to consumers in that same region. This is especially the case in Europe, with Western Europe absorbing the manufactures produced in the eastern part of the continent and in North America, where the main source of final demands is the United States.

 


Asian picture
Asia presents a slightly different picture. The ‘supply’ part of the networks is regionally concentrated, yet when it comes to the ‘demand’ side, the networks become fairly global. This configuration stems from the early days of the export-led growth strategy espoused by Japan in the second half of the 20th century and later by the NIEs in the 1970s. The evolution took a dramatic turn with China’s accession to the WTO in 2001. The irruption of one billion Chinese workers into the global economy had a tremendous impact on the redefinition of comparative advantages in the region (and beyond).
The net impact of global value chains on employment has been the subject of a heated debate in the years since the global crisis of 2008–09, in view of the high rate of unemployment affecting many open economies. The debate has intensified mainly in developed countries, where lower-skilled workers are exposed to higher chances of job losses. In contrast, countries with large labour surpluses and low wages have observed relatively strong job growth following their GVC integration. Developed countries specialise in services, particularly research and development or business services, where they have so far maintained comparative advantage. Employment in these countries tends to be mainly in services, with only marginal employment being generated by primary sectors. But there are exceptions. Australia, despite being a developed economy, has a strong primary-based export sector.
Strength in basic commodities does not always mean large employment impact: Chile, the world’s largest exporter of copper, employs relatively few in its mining sector considering its gross export strength in that area. This apparent paradox reflects the fact that modern mining industries are highly capital-intensive and thus generate relatively low employment. Most of the jobs indirectly related to extracting operations are in supporting activities such as maintenance, energy supply and transportation, which are classified in the service sector rather than the mining sector itself. When it comes to considering the performance of non-exporting sectors, some firms may participate in export efforts indirectly by providing intermediate products to exporting lead firms. This mode of GVC participation is particularly important for providers of services (which were traditionally considered ‘non-tradeable’) or for small and medium-size firms which do not have the capacity to engage in global market operations. Compared with the previous import-substitution industrial policies that underpinned the development of large-scale industries, the utilisation of more flexible networks of second-tier suppliers is one of the distinctive features of the new mode of industrialisation. Irrespective of an economy’s development status, the export-related demand for low-skilled jobs has gone down in all countries, while demand for higher-skilled positions is on the rise.
Over the past few decades, cross-border production networks have evolved and continually expanded according to countries’ comparative advantages. This process was intrinsic to the development of Japan and China, as well as the newly industrialised economies in Asia. It has also shaped income distribution across the Asia Pacific. As Asian integration goes forward, understanding the nature and dynamics of these production networks will be more important to securing stable and fair growth throughout the region.
(Hubert Escaith is the World Trade Organisation’s Chief Statistician. Satoshi Inomata is Chief Senior Researcher at the Development Studies Centre, Institute of Developing Economies, JETRO and Sébastien Miroudot is Senior Trade Policy Analyst at the Trade in Services Division 
of the OECD Trade and 
Agriculture Directorate) 

See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.

 

  Comments - 0

See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.

 

 

Add comment

Comments will be edited (grammar, spelling and slang) and authorized at the discretion of Daily Mirror online. The website also has the right not to publish selected comments.

Reply To:

Name - Reply Comment




The Man Behind Moves to Form the “BJP” in Sri Lanka

The flower bud is the accredited electoral symbol of the Sri Lanka Podujana P

Is it a giant leap backwards in the name of patriarchy?

154 years after the Sri Lanka Police was established, an Acting Woman Deputy

DIG Bimshani talks about patriarchal beliefs and perceptions towards women

On September 21, 2020 The National Police Commission granted approval to prom

Ecocide – Another pandemic in disguise

COVID-19 wasn’t the only pandemic that struck Sri Lanka in 2020. A mass sca

See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.