Integrating ASEAN firms into GVC for Industrial Upgrading

Yasushi Ueki

Economic Research Institute for ASEAN and East Asia (ERIA), Jakarta

11 December 2014

yasushi.ueki@eria.org

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2nd ASEAN-OECD Investment Policy ConferenceASEAN Hall, ASEAN Secretariat, Jakarta

Questions

1. What are the main challenges for ASEAN firms to participate in GVCs?

2. What roles can MNCs play?

3. What can governments do?

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East Asian Production Networks and Agglomeration

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Agglomeration Forces Dispersion Forces

• SEZ, Industrial Park• Compulsory education• Connectivity• Trade and FDI Promotion

Relocation of a production block by a lead firm and inter-cluster technology transfer

• Vocational Education• Capacity Building of Local

Industry• Urban Planning

• Engineering Education• Collaboration among

Firms, Public Research Institutes, and Univ.

Value Added

Cluster

• Increase in local factor prices (wage, rent)

• Competition in local market

• Fragmentation of production

• Decrease in transportation costs

• Capital flow liberalization

Geographical Space

• Economies of Scale Attraction of supporting industries

Intra and inter-cluster technology transfer,Learning by producing

SEZ

Emerging Industrial Districts Large Industrial Districts in East Asia Policies

Focus

1. Relationships between Quality Control, Tech Transfer, and Upgrading

2. Supply Chain and Supplier Support Chain– Supplier Supports along a Supply Chain

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Data used for this presentation• ERIA Survey FY2013• Indonesia, Philippines, Thailand, and Vietnam.• Manufacturing• 100% locally owned firms• 719 of 998 observation (about 700 available for tabulation).

Focus 1Quality Control, Tech Transfer, and Upgrading

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Upgrading

Technology Transfer Quality Control

Introduction of New Product

Supplier. Support by Buyer Adoption of 5S

Receive training from a main buyer Sort (整理)Straighten (整頓)Shine (清掃)Standardize (清潔)sustain the discipline (しつけ)

Quality Control and Upgrading

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Introduction of New Product

Supplier Support by Buyer

Adoption of 5S

10%

16%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

not adopted 5S adopted 5S

Introduction of New Product

(n=725)

Firms who have adopted 5S are more likely to introduce new products based on new technologies.

Tech. Transfer and Upgrading

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Introduction of New Product

Supplier Support by Buyer

Adoption of 5S

(n=717)

Firms who received technical assistances from buyer are more likely to introduce new products based on new technologies.

9%

21%

0%

5%

10%

15%

20%

25%

without SupplierSupport by Buyer

with SupplierSupport by Buyer

Introduction of New Product

Quality Control and Tech. Transfer

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Introduction of New Product

Supplier Support by Buyer

Adoption of 5S

(n=714)

Firms who adopted 5S are more likely to receive technical assistances from Buyer.

21%

45%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

not adopted 5S adopted 5S

Supplier Support by Buyer

Focus 2Supply Chain and Supplier Support Chain

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Focal Firm Buyer B’s BuyerS’s Supplier Supplier

Supplier Support by Buyer and by Focal Firm

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(n=717)

Firms who received technical assistances from buyer are more likely to provide technical assistances to supplier.

10%

51%

0%

10%

20%

30%

40%

50%

60%

without SupplierSupport by Buyer

with SupplierSupport by Buyer

Supplier Support by Focal Firm

Supplier Support ChainThe buyer-supplier relationship extends along a supply chain

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Upgrading

Tech Transfer through Production Networks

Management Practice

Introduction of New Product

Tech Support from Buyer

Adoption of 5S

Receive training from a main buyer

SortStraightenShineStandardizesustain the discipline

CapacityTech Support to Supplier

Provide training to a main supplier

Tech Transfer through Production Networks

Role of MNCs: Foreign-owned Buyer and Supplier Support

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(n=716)

Foreign-owned buyers including JVs are more likely to provide technical assistances to the focal firm (supplier) than locally owned buyers.

Foreign-owned buyers can initiate a supplier support chain.

47%

31%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Foreign-owned Buyer Locally owned Buyer

Supplier Support by Buyer

Tentative Answers to the Questions1. What are the main challenges for ASEAN firms to participate in GVCs?

A better implementation of quality control enables firms to plug into collaborative production networks. The opportunity for participating in collaborative production linkages will become open to all

firms by putting 5S into practice.

A big challenge for firms is to change organizational culture. 5S is an approach meant to change organizational culture. Changing organizational culture requires time and perseverance before it is realized.

2. What roles can MNCs play? MNCs foster regional production networks in ASEAN. MNCs bring technologies, know-how and human resources. MNCs bring a willingness to develop local people and suppliers.

GVC is a learning school for local firms.

MNCs stimulate supplier supports along a supply chain.

3. What can governments do? Governments can support private efforts for adopting 5S and other quality

management practices Governments can develop infrastructure to attract FDIs and stimulate

agglomeration. Distance between buyer and supplier is a matter for technology transfer and spillover.

Governments can improve physical, institutional, and people-to-people connectivity. Connectivity for fostering inter-cluster linkages People-to-People Connectivity for facilitating face-to-face interactions among business partners

and tacit knowledge transfer.

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Thank you very much for your kind attentions!Your comments, and suggestions are highly appreciated.

Yasushi Ueki

yasushi.ueki@eria.org

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