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26 - Global Production Sharing, Trade Patterns, and Industrialization in Southeast Asia

from SECTION IV - INTERNATIONAL DEVELOPMENTS

Published online by Cambridge University Press:  22 June 2017

Prema-Chandra Athukorala
Affiliation:
Australian National University,
Archanun Kohpaiboon
Affiliation:
Thammasat University
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Summary

The purpose of this chapter is to document, analyze and explain Southeast Asia's engagement in global production sharing and to examine its implications for the process of industrially transformation in these countries.

A BRIEF HISTORY

Southeast Asia's engagement in global production sharing dates back to 1968 when two US companies, National Semiconductors and Texas Instruments, began assembling semiconductor devices in Singapore (Lee 2000). As early as 1972 the MNEs with production facilities in Singapore began to relocate some low-end assembly activities in neighbouring countries, particularly Malaysia, Thailand and the Philippines, in response to the rapid growth of wages and rental costs. By the late 1980s this process had created a new regional division of labour, based on differences in relative wage and skill requirements in different stages of the production process.

By the mid-1980s, the hard disk drive assemblers entered Singapore, further boosting the country's role as a global assembly centre. As in the case of semiconductor industry, a regional production network encompassing Malaysia, Thailand and the Philippines and centered in Singapore have developed by the early 1990s.

Until about the early 1990s, Southeast Asian countries’ engagement in global production sharing was predominantly a two-way exchange with the home countries of MNEs: parts and components were brought to these countries for assembly, and the assembled parts and components were then re-exported to the home country to be incorporated in final products. As supply networks of parts and components became firmly established, producers in advanced countries began to move the final assembly of an increasing range of electronics and electrical goods such as computers, cameras, TV sets and motor cars) to Southeast Asian locations.

In recent years, the East Asia production networks have begun to spread to Vietnam and Cambodia. Despite obvious advantageous in terms of its location and relative wages, Indonesia has continued to remain a small player in regional production networks. Its engagement has so far been limited only to some low-end assembly activities under-taken mostly by Singaporean subcontracting companies in the Batam free trade zone (BFTZ).

TRADE PATTERNS

The past two decades have seen palpable shift in global production sharing away from mature industrial economies toward developing countries and in particular countries in East Asia. The share of network trade in total manufacturing trade is much higher in East Asia compared to the other major regions.

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The 3rd ASEAN Reader , pp. 140 - 144
Publisher: ISEAS–Yusof Ishak Institute
Print publication year: 2015

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