Factory Asia Case Study

The international production networks consist of vertical production chains extended across countries in the region, or to put it simply, they are the process of global production sharing that has initiated a new form of division of labor (vertical specialization) between Asian economies, especially in East and Southeast Asia, but sometimes it can be global as well. As more countries participate in IPNs, intra-industry trade in parts and components has been growing rapidly as there will be more outward processing trade, which means importing intermediate inputs and using them to produce goods that will be later exported to other countries. Due to rapid globalization, technologies changes, and increasingly open trade and investment environments …show more content…
The first plant of the MNCs was set up in Singapore and then they started to spread to neighboring countries, especially Malaysia, Philippines, and Thailand. The United Sates MNCs decided to locate their sub-supplies in Asia instead of neighboring countries like Latin America in order to avoid unfavorable investment climate, macroeconomic instability, political tensions, trade union upheavals and uncertainty. Because of this, there was a rapid increase in intra-industry trade that occurred in Asia after the mid-1980s. The linkages between countries in IPNs will subsequently be stimulated when China was opened and became a global center for manufacturing assembly in the 1990s. China import intermediate goods such as parts and components from other East and South- East Asian countries such as Republic of Korea, Malaysia, the Philippines, Singapore and Thailand, then export the finished goods to other countries. This leads to an increase in trade and opportunities for the developing economies in Asia that are parts of the IPNs. Furthermore, the growing IPNs has a tremendous impact on merchandise trade patterns and regional integration among Asian countries which will benefit the countries participating in IPNs in terms of gaining access to …show more content…
Nevertheless, the current level of participation of India in both global and Asia FDI are still low. There are number of problems that cause India to underperform in participating in IPNs. Firstly, Manufacturing exports of India are falling and most of them are still low technology and labor intensive goods, which do not involve much fragmentation such as textiles and leather products. Secondly, according to what I have mentioned earlier, the import substitution policies that was adopted prior to the economic reforms has been translated into tight controls of foreign and domestic investment, government involvement in production, and policy that is in favor of capital and skill-intensive industries which actually goes against the country’s comparative advantage in labor-intensive production. Thirdly, the lack of policy flexibility has discouraged FDI in India, especially the efficiency-seeking firms. Fourthly, high workers’ protection and difficulty in exiting a market by uncompetitive business in India sometimes reduced the efficiency of the firms. Finally, some infrastructural elements such as power freight and cargo service are still underdeveloped. For this reasons, improvements in terms of business environment need to be made in order to integrate India further into the IPNs. Firstly, unilateral trade and investment liberalization as well as reduction in investment barriers

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