2 - Expansion of the Production Networks into the Less Developed ASEAN Region: Implications for Development Strategy

Summary

INTRODUCTION

In both journalistic and academic literature in North America and Europe, pessimistic views on outsourcing and offshoring, or sometimes on globalization as a whole, have become vigorous and pervasive. Against such a wind, it is fortunate to see that East Asia has maintained optimism in utilizing globalizing forces for economic development. It has been widely recognized that international production/distribution networks in East Asia are the most advanced and sophisticated form of international division of labour among countries at different income levels and work as a major source of Asian dynamism. An important policy implication from the East Asian example is that if a proper policy environment is prepared mechanics of international production/ distribution networks allow us to effectively utilize globalizing forces to accelerate economic development of lagged behind countries or regions. The Economic Research Institute for ASEAN and East Asia (ERIA), which has been established as a policy-research institute supported by ASEAN+6 research institutes, actually applies this economic logic as a central theme of its policy research and concentrates research resources on achieving deeper economic integration and narrowing development gaps in ASEAN and extended East Asia.

The fragmentation theory initiated by Jones and Kierzkowski (1990) has recently been extended to explain the mechanics of international production/distribution networks in East Asia. Kimura and Ando (2005) propose the conceptual framework of two-dimensional fragmentation that deals with the sophisticated combination of intra-firm and arm' length (inter-firm) fragmentation of production activities, and Kimura (2008a) attempts to apply it to Southeast Asian countries. The spatial structure of production/distribution networks is further explored with the concept of four layers of transactions, which is proposed in Kimura (2008a) and is more thoroughly developed in Kimura (2008b). A missing link to connect the conceptual framework with concrete policy discussion is the mapping of the mechanics and spatial structure of production/distribution networks into actual policy-making situations at different development phases. Phases of economic development or industrialization apparently affect how each country or region can approach and utilize the mechanics of production/distribution networks. This chapter will attempt to bridge our conceptual framework with phases of economic development/industrialization and to systematically list important policy elements in order to effectively utilize globalizing forces, with special reference to latecomers in ASEAN.