Promoting regional development in a world of global production networks and global value chains

The world economy is now characterised by increasingly interdependent economic activities organised through cross-border value chains and production networks. This article looks at how regional development becomes more dependent on these global production networks in East Asia. In its World Investment Report 2013, UNCTAD estimated that some 80% of international trade was now organised through global production networks coordinated by lead firms investing in cross-border productive assets and trading inputs and outputs with partners, suppliers and customers worldwide. If these production networks are indeed the organisational backbone and central nervous system of today’s global economy, how does a regional economy develop and thrive by taking advantage of access to markets, technologies, knowledge, and capital embedded in these chains and networks? I believe regional growth and development can be sustained through a process of strategic coupling that brings together key actors (e.g. firms) and institutions (e.g. state authorities) in regional economies and global lead firms in those production networks. This process of mutual complementarity can work to the benefits of both regional economies and global production networks. The former gain employment, production knowhow and market access. The latter become more competitive through efficiency gains and technological innovation. In East Asian regions, my research has identified three forms of such strategic coupling. 1. International partnership This mode of coupling represents the deliberate and mutually beneficial linkages developed between external and regional actors. These industrial linkages are often “functional” in nature because of well-defined divisions of labour among different firms within each global production network (e.g. marketing and R&D, manufacturing, logistics and distribution, post-sale services). It is particularly prevalent in Taiwan and Singapore, two of the four East Asian “tiger” economies that industrialised after Japan’s post-war resurgence. In both cases, development takes place through the direct articulation of their high growth regions into critical global production networks. In the Taipei-Hsinchu region, this articulation has taken the form of domestic Taiwanese firms serving as strategic partners of lead firms in such global industries as the information and communications technology (ICT), particularly electronics. In Singapore, global lead firms have made a direct presence through inward foreign direct investment. This international partnership with global lead firms, either through transactional relationships or direct presence, brings tremendous growth dynamics and development potential to significant industries in both cases: the Taipei-Hsinchu region (e.g. electronics and ICT) and Singapore (electronics, chemicals, finance, and transport and logistics). Since the late 1990s, major firms from both Taiwan and Singapore have also been leveraging their direct presence in the US for technological innovation and market development.  2. Indigenous innovation This is considered an “organic” mode of coupling because of the co-evolution of regional assets and emerging or global lead firms from the same region. To me, this mode of coupling remains strategic because this co-evolution must be attributed to the conscientious institutional layering and public policy choices made by actors at the regional or national levels for the overall benefits of the regional economy. In East Asia, the presence of the developmental state creates the possibility of indigenous innovation through sustained national efforts in developing new products and process technologies embodied in such organisational forms as national champions and strategic industries. These are large lead firms emerging from decades of sustained industrial policies that work in tandem with the return of technological and business elites from advanced industrialised economies. Indeed, some of these national champions have become lead firms in their respective global production networks, underscoring the developmental possibility of increased autonomy and capabilities in East Asian regions such as Seoul Metropolitan Area (South Korea), Taipei-Hsinchu (Taiwan), Singapore, and Yangtze and Pearl River Deltas (China). 3. Production platforms This mode of strategic coupling has a long history in labour-intensive global industries, particularly associated with the emergence of the new international divisions of labour since the 1980s. Because of its tendency towards structural dependency of the host region in developing economies on lead firms and markets from advanced industrialised economies, this coupling of a region with global production networks should be differentiated from “strategic” coupling through international partnership and “organic” coupling through indigenous innovation. To engage global actors even in this mode of coupling, the host state at both national and regional levels has to develop proactive policies and strategies to attract the location of global production that might otherwise go elsewhere. This coupling, while fragile and unequal, is not a natural outcome due to market forces, but rather an act of conscious, and perhaps even desperate, efforts by regional actors to “plug” into relevant global production networks. It might be “structural” in regional outcome, but it is certainly “strategic” in orientation within the regional and/or national context. Coastal China’s re-entry into the world of global production in the late 1970s was clearly a calculated strategic move by the then supreme leader, Deng Xiao-ping, to modernise the communist state. Since the early 1980s, developing regions such as China’s two coastal regions, Malaysia’s Penang and Thailand’s Greater Bangkok region, have been strategically coupled with the huge demand for competitive production platforms by lead firms in global production networks. As production platforms, these regions provide very competitive cost structures, abundant labour supply, stable policy environment, fiscal and other financial incentives, and so on. Their institutional set-up is geared not so much towards developing indigenous capability as in the case of industrial districts in the US, Western Europe and, more recently, South Korea and Taiwan. In short, strategic coupling is a selective process that incorporates only certain regional and global production network actors. It is unrealistic for regional policy makers and practitioners to expect such a global-regional coupling process to be always inclusive; it is even more dangerous for them to rely exclusively on such strategic coupling as the only pathway to regional upgrading and positive development outcomes. There is always a critical role for regional institutions and groups of actors to engage in joint decision making and collective action to mitigate the negative consequences of such coupling with global production networks and to consider a more balanced and equitable form of regional development. This article is based on Henry Wai-chung Yeung. 2015. Regional development in the global economy: a dynamic perspective of strategic coupling in global production networks. Regional Science Policy and Practice,Vol.7(1), pp.1-23. Available on http://onlinelibrary.wiley.com About the author Henry Wai-chung Yeung is Professor of Economic Geography and Co- Director at Global Production Networks Centre (GPN@NUS). Email: henryyeung@nus.edu.sg

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This article was published in GREAT Insights Volume 4, Issue 4 (June/July 2015).