Trade patterns and global value chains in East Asia: - IDE-JETRO

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Trade Patterns and Global Value Chains in East AsiaC. Growing vertical specialization in Asia and regional clustering of tasksWhen investing in East Asia, international firms pursuetwo different types of objective. Some respond to thelogic of trade in tasks and geographical fragmentationby staging production along a global supply chain(vertical specialization). Others produce the same typeof goods that they do at home, with a view to entering theAsian market using the “build-where-you-sell” strategy(horizontal diversification of production). Consumerelectronics correspond more to the vertical specializationpattern, where lead firms, selling branded products in finalmarkets, place orders for key components with suppliersand have them assembled in a third, low-cost, country. 8The automobile industry is a typical example of horizontaldiversification; a Toyota car produced in Thailand maydiffer only slightly from the same model built in Japan. 9The division between the two types of investment is notclear-cut, and many foreign affiliates operating in EastAsia have progressively adopted the characteristicsof both vertical and horizontal multinationals. 10 Verticalspecialization started first. In the 1970s, according toSturgeon and Kawakami (2010), US semi-conductorfirms, whose production was very labour intensive,located assembly plants in East and South-East Asia, andJapanese companies located low-cost transistor radioproduction in Chinese Taipei and in Hong Kong (China).As household income in developing Asia rose, so didforeign direct investment for horizontal diversification. In2001, only 40 per cent of Japanese companies’ overseasproduction in Asia went to local consumers. Now theproportion is 62 per cent and growing as export-orientedindustries based in low-cost Asian countries build adomestic market and related consumption capacity.Both horizontal and vertical production patterns cancoexist, and the flexibility in sourcing components fromvarious countries, while exporting the resulting finalgoods, is closely linked to trade policies. As shown inFigure 6, Japanese automobile assemblers procure keyparts from four ASEAN countries, taking advantage ofthe ASEAN Free Trade Area (AFTA).Figure 6Complementary parts supply system of an automobile assembler in ASEANthailand• Press parts• Frame panels• Electronic parts• Interior parts• Engine partsAFTAphilippines• Engine fuel system• Emission dress parts• Engine electronic parts• Suspension parts• MT missionAFTA-CEPT AFTA-CEPT AFTA-CEPTmalaysia• Instrumental panelassembly• Bumper• Drive shaftAFTAindonesia• Cylinder head assembly• Cylinder block• Engine valve• Steering handle• AT missionNote: the ASEAN Free Trade Area - Common Effective Preferential Tariff (AFTA-CEPT) is a cooperative arrangement among ASEAN member states to reduce intraregionaltariffs and remove non-tariff barriers.Source: Hiratsuka (2010).16
EndnotesI. From massdemand to globalsupply chains1Inaugural speech to the conference on “Globalization of theIndustrial Production Chains and Measuring International Tradein Value Added” at the Senate in Paris on 15 October 2010.2The Ministerial Declaration on Trade in InformationTechnology Products (ITA) was concluded at the WTOSingapore Ministerial Conference in December 1996. The ITAeliminates duties on IT products covered by the Agreement.Developing country participants were granted additional timeto implement their commitments for some products.3See Baldwin (2006).4Grossman and Rossi-Hansberg (2006).5Sturgeon (2001).6Porter (1985).7The “make-or-buy” decision process was extensivelydeveloped by Williamson (1991).8The classical example is the iPod, designed and developedby a US firm and “made in China” out of US or Koreancomponents and licences which constitute most of the factorycost of the appliance.9“Leaving home: Japan’s big companies are shippingproduction abroad”, The Economist, 18 Nov 2010.10See Hiratsuka (2010).II. Organizationof the globalproduction processIII. Infrastructureservices in globalvalue chainsIV. The evolutionof tariff policiesV. Foreign directinvestmentVI. IntegrateddiversityVII. An evolutionaryperspective onproduction networksin the Asia-US regionVIII. Trade inintermediate goodsIX. Vertical tradeand trade invalue addedX. Cross-regionalspillover ofeconomic growth17
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The Republic of Korea, Chinese Taip
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Figure 5Development of cross-nation
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Table 2 shows disaggregated results
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Figure 7Labour content of net trade
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I. From massdemand to globalsupply
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Figure 1Evolution of regional produ
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Due to their relative size, other e
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B. Intermediate goods drive world t
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E. Intra-Asian trade in intermediat
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The increasing internationalization
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Trade patterns and global value chains in East Asia: - IDE-JETRO

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