Comparative Analysis of Production Networks in Asia and Europe

The conference on Comparative Analysis of Production Networks in Asia and Europe was held on 15-16 July 2010 at the Vienna Institute for International Economic Studies (WIIW) in Vienna, Austria. It was jointly organized by ADBI and WIIW. The conference had four sessions plus a concluding panel discussion.

The first session had two papers. One paper presented an overview of production networks in Asia. It surveyed several papers to make clear what we have learned about production networks in the region. It also highlighted the need for further research, especially in understanding the theoretical underpinnings of production networks and in using this theoretical framework as a guide for further empirical work. The second paper used data on trade in intermediate goods to shed light on production networks throughout the world. It highlighted differences in intermediate goods trade across countries, regions, and industries. Intermediate goods trade has been increasing rapidly, and is especially important in machinery and electrical industries.

The second session had two papers. The first paper studied the hard disk drive (HDD) network in Asia. It found that HDD assemblers procured parts from many suppliers. Most of these suppliers were located in neighboring countries. For instance, an assembler in Thailand purchased parts and components primarily from Malaysia, Singapore, Indonesia, and Thailand. The author argued that production networks would be advanced if regional integration continued through reducing tariffs, liberalizing services, implementing trade facilitation measures, and improving infrastructure. The second paper investigated the subcontracting network for the Finnish firm Nokia. It found that Asian suppliers were becoming more important in Nokia's global supplier network. One reason for this was that, unlike Asian supplier firms, Finnish supplier firms tended to avoid risk taking and strategic thinking. The author also reported that exchange rate changes influenced the location of Nokia's supply chain.

The third session also had two papers. The first paper investigated the links between ownership, innovation, and exporting by electronics firms in the People's Republic of China (PRC), the Philippines, and Thailand. The author found that foreign ownership and innovation were the main drivers of firm-level exporting in these countries. The author concluded that the keys to exporting more are to continue to attract FDI, to induce multinational corporations to upgrade, and to build technological capabilities through research and development. The second paper investigated the relationship between offshoring and wages. The authors reported that wage effects are more significant for jobs that are routine and that do not require a high level of personal interaction. They also reported that the magnitude of wage effects could be substantial for low- and medium-skilled workers involved in routine jobs.

The fourth session had two papers. The first paper provided an analytical description of triangular trading patterns in East Asia. These patterns involve firms in Japan, Taipei,China, the Republic of Korea, and ASEAN producing sophisticated parts and components and shipping them to the PRC and ASEAN for assembly and re-export throughout the world. The paper showed the imports and exports within regional production networks collapsed during the crisis and then experienced a V-shaped recovery. However, the US continues to play an important role as an engine of growth for Asian production networks, with US imports financed by massive reserve accumulation by foreign central banks. The paper argued that private and social returns are much higher for investments in Asia than for investments in US Treasury securities, and thus Asian central banks should seek to move away from continued reserve accumulation. Appreciation throughout East Asia would give firms an incentive to redirect production away from Western markets to consumers in the region. The second paper considered global rebalancing and the future of international supply chains. The author argued that since much of the value-added of production came from countries other than final assembly countries such as the PRC, exchange rate effects on bilateral imbalances may be attenuated. In addition, traditional Keynesian export multipliers may be smaller. The author concluded that "business as usual" would no longer be possible, and that going forward final demand would have to come more from Asian economies and less from Western economies.

The conference concluded with a panel session. Panel members argued that in Asia production networks and regional integration had been largely market driven, as multinational corporations used foreign direct investment (FDI) and trade in intermediate goods to transform the PRC and ASEAN countries into production platforms to target Western markets. In Europe, on the other hand, much of the FDI into Eastern Europe was driven by a desire to access markets in the host countries. In both Europe and Asia, policies such as reducing tariffs and corporate taxes could promote the expansion of production networks.