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Production Networks Notes

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*Link - 1.1 Introduction // PO203 Summative Essay

Production Networks
◦ What are 'production networks', and how have they affected trade and industrialization in East
Asia? [2017]

Is globalization the most significant driving force for the industrial development of Northeast Asian countries?

How can Southeast Asian countries stay competitive in the global value chains?

Who should be blamed for the FOXCONN suicides in Shenzhen? Substantiate your answer. [2018]

What is the difference between 'regionalization' and 'regionalism'?* Discuss with reference to the evolution of production networks in East Asia. [2014]


Globalization has given rise to an explosion of trade in intermediate goods, and subsequently, the international fragmentation of value-added tasks in the production process - e.g. design, raw material sourcing, inputs, marketing, after-sales service, etc.
◦ Fostered by the search for cost minimization and economies of scale which arise through expanding markets.

Production network (IPN) - an international division of labour in which each function or discrete stage of a value chain is:
◦ Geographically relocated to the most efficient site.

Integrated and governed 'at-a-distance' by MNCs or local firms to regulate buyer-supplier relations

Vertical specialization - the degree to which exports rely on imported inputs.

Value chain participation - the value added embodied in exports both looking backward and forward from a reference country…
A. Backward - foreign value added embodied in exports assembled.
B. Forward - domestic value added embodied in inputs supplied to an assembler.

Signifies a shift in how 'development' is conceptualized. Less to do with establishing a self-sufficient industrial base domestically, not with nurturing vertically-integrated firms as 'national champions'. More to do with which 'node' firms choose to engage with in a pre-existing supply chain, and the distinctive opportunities/constraints for participation and value capture that arise as a result.

Reasons for the expansion of EA production networks : (see: 1.1 'REGIONALISM VS. GLOBALIZATION')

1. New regionalism* + lower service-link costs due to geographical proximity makes intra-regional offshoring more attractive to investors.

2. Development gap leads countries to position themselves in different market niches/GVC nodes.

3. The 1985 Plaza Accord* and rapid appreciation of the Yen compelled Japanese MNCs to offset volatility and increase returns by offshoring their peripheral manufacturing tiers to other EA economies (e.g. South Korea and Taiwan).
◦ This kickstarted the phenomenon of intra-regional recycling of comparative advantage in labourintensive manufacturing via FDI and offshoring to low-income countries.

Distinguishing features of EA IPN participation

Significance - IPNs are a major driving force for development and regional economic integration.

Extensiveness - East Asian IPNs encompass a large number of countries at various developmental stages:

GVC participation is unevenly spread
In 2013, 38% of global GVC-intermediate exports went into the Asia-Pacific, 90% of which were located in just 10 AP countries, including 7 EA countries: China, Japan, South Korea, Indonesia, Malaysia,
Singapore and Thailand.

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