One of the main characteristics of the branded firms that fit the buyer-driven model, such as athletic footwear companies like Nike, Reebok, and L. Gear, and branded apparel companies like Liz Claiborne, Calvin Klein, and The Gap, is they usually do not own any production facilities. These companies are marketers and retailers that design, but do not make, the branded products they order. They rely on complex tiered networks of overseas production contractors to perform most of their specialized tasks.
How do manufacturers in buyer-driven commodity chains deal with the competition from lower-cost suppliers? One of the most important adjustment mechanisms that facilitates the transition to higher-value-added activities for maturing export industries in East Asia is the process of "triangle manufacturing". These offshore factories may or may not have equity investments by the East Asian NIC manufacturers; they can be wholly owned subsidiaries, joint-venture partners, or simply independent overseas contractors.
The triangle is completed when the finished goods are shipped directly to the overseas buyer under the U. Triangle manufacturing thus changes the status of NIC manufacturers from established suppliers for U. Triangle manufacturing has important implications for the temporal and spatial evolution of transnational production and trade networks. As industries have become globalized and producers in different parts of the world are more tightly linked, the pace of change has quickened and exporters have shorter periods in which to exploit their competitive advantages.
In footwear, for example, while an export-oriented industry took more than 20 years to develop in Japan and about 15 years in Taiwan and South Korea, experts estimate that China's footwear sector will be a major player in world markets in just 8 to 10 years. When export windows for Third World manufacturers narrow this fast, countries face the problems of "boom-and-bust" phases of economic growth spurred by fluctuating external demand and intense regional competition.
Furthermore, as the volume. Triangle manufacturing is also socially and culturally embedded.
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Each of the East Asian NICs has a different set of preferred countries where they set up their new factories. These production networks are explained in part by social and cultural factors e. Export roles and industrial upgrading. Countries are connected to GCCs through the goods and services they supply in the world economy. These trade linkages can be conceptualized as a set of five major export roles : 1 primary commodity exports ; 2 export-processing zones EPZs or in-bond assembly ; 3 component-supply subcontracting ; 4 original equipment manufacturing OEM ; and 5 original brandname manufacturing OBM Each type of manufactured exporting roles 2 through 5 is progressively more difficult to establish because it implies a higher degree of domestic integration and local entrepreneurship.
Therefore, industrial development is enhanced as countries move from the second to the fifth options. These export roles are not mutually exclusive. In fact, most nations are tied to the world economy in multiple ways. Most of the countries in Southeast Asia and Latin America are involved in the first three roles. The bulk of exports in South Asia and sub-Saharan Africa fit the first two roles, with many African nations limited only to primary commodity exports.
An overview of the sequence followed by East Asian nations as they have moved from EPZs to OEM to OBM will illustrate the kinds of microinstitutional dynamics that are essential to industrial upgrading in the region. Export Processing Assembly. The export-processing role emphasizes the labor-intensive assembly of simple manufactured goods from imported components, typically in foreign-owned plants.
The main advantages of EPZs for the host country are jobs and foreign exchange earnings. From the vantage point of developing nations, however, low wages provide only a transient competitive edge because they can fluctuate rapidly and are. The first EPZs were set up in the s in Asia as well as in Mexico, where they were part of a border industrialization program based on export-oriented maquiladora plants In the East Asian NICs, however, EPZs have been declining since the mids in response to spiraling labor costs and the systematic efforts of these nations to upgrade their mix of export activities by moving toward skill- and technology-intensive products.
Original equipment manufacturing refers to the production of finished consumer goods by contract manufacturers, who source the inputs and make the final product that will be sold under the bruyer's brandname. East Asian firms learned how to become full-range "package suppliers" for foreign buyers, which gave OEM producers a unique organizational capability for creating and managing elaborate, horizontal networks of suppliers and buyers. Expertise in OEM production increases over time and it can lead to important forms of local organizational innovation.
In addition, the pressures exerted by foreign buyers for new products have made industrial upgrading an intrinsic part of the OEM process. While East Asian governments have been supportive of this process, the key factor is local entrepreneur ship. The main advantage of the OEM export role is that it enhances the scope for local entrepreneurs not only to learn how to make internationally competitive finished consumer goods, but also to generate substantial backward linkages to the domestic economy.
However, East Asian producers confront intense competition from lower-cost exporters in various parts of the Third World. Furthermore, they have discovered that it can be advantageous to establish forward linkages to their developed-country markets, where the biggest profits are made in buyer-driven commodity chains.
Thus, a number of the firms in the East Asian NICs that pioneered OEM now are pushing beyond it to OBM by integrating their manufacturing expertise with the design and sale of their own-brand merchandise. The most recent stage in the development of East Asia's export economy is to move beyond OEM production to the establishment of proprietary brandnames that give exporters a more visible presence in both local and developed-country retail networks. South Korea is the most advanced of the East Asian countries in this regard, with Korean brands of automobiles Hyundai , computers Leading Edge , and household appliances Samsung and Goldstar , among other items,.
Taiwan also sells its own brands of Acer and Mitac computers, Giant bicycles, Pro-Kennex tennis rackets, and Travel Fox shoes in overseas markets. Hyundai is the most prominent example of a Third World manufacturer that decided to integrate forward to the marketing end of a producer-driven commodity chain. Hyundai entered the North American market for cars in the late s by building an independent marketing network. This was a risky strategy by Hyundai because Hyundai only had dealers in the U.
But Hyundai's strategy was also more profitable. Hyundai obtained a 3.
Daewoo earned a 3. Many Hong Kong apparel manufacturers have embarked on an ambitious program of forward integration into retailing, using their own brandnames and retail chains for the clothing they make. Since the embrace of neo-liberal policies, the overall exports of Latin American countries grew over the s, with a lion's share of these earnings going towards paying their accumulated foreign debt.
The gap between Asian and Latin exports has widened over the last two decades. However, if one excludes the more extreme case of Malaysia, Asians in exported 40 percent of their GDP to some 30 percent for an average Latin American country. This difference is significant but not dramatic.
Based on this, it would be hard to continue to attribute superior growth performance of Asian countries to their relative export prowess; note the weak relationship in Figure 6. The real dramatic difference in export patterns across Asia and Latin America lies instead in the composition of their exports: whereas Asian countries mainly export manufactured goods, Latin Americans mainly export commodities Table 5.
Only Brazil and Mexico in Latin America notice, not Chile are significant exporters of manufactured goods. The remaining Latin countries continue to fit the profile of what Cardoso and Faletto long back characterized as "enclave economies", with heavy foreign investment and commodity exports. By contrast, the preponderance of manufactured goods among Asia's exports is really noteworthy. It underlines the relative competitiveness of Asian economies and thus points to one more component of their superior economic growth Figure 7. The "Washington Consensus" on development was supposed to help Latin American countries grow faster by employing their factors of production more efficiently, including labor, which, in turn, ought to have helped a better income distribution.
Unfortunately, much of this did not come to pass Stallings and Peres, , at least until recently when many countries abandoned the straight jacket of neo-liberal policies. Instead, Asian countries, that did not readily embrace policies dictated from Washington, have continued to grow faster with more modest inequalities over the last three decades. The underlying determinants of such divergent patterns of development are complex. What the simple exercise above documents is that Asia and Latin America continue to pursue different models of development; Asia's development model is more nationalist and that of Latin America more dependent.
The Asian model has been characterized by high rates of domestic savings, limited foreign debt, limited dependence on foreign investment, and a significant capacity to export manufactured goods. By contrast, Latin American economies continue to save less, depend more on foreign capital for their growth, and export more commodities than manufactured goods. While simple scatter plots only highlight some associations, the data above does seem to cumulatively suggest that these alternate models of development have been consequential, especially for molding growth patterns.
If Asians and Latin Americans have pursued different models of development, especially over the last three decades, what are the deeper determinants of these alternate pathways? How, and in what sequence, has the causal story of Asia unfolded differently than that of Latin America?
Any full story would have to be rather complex, taking into account differing geographies, resource endowments, and even colonial histories see, e. Krieckhaus, Less ambitiously, my main proposition is that the origins of the differing pathways traversed by Asia and Latin America are political, rooted in differing patterns of state intervention, which in turn reflect the different processes of state formation in the two regions around the period of WWII.
Generalizing hugely, and again somewhat dangerously, decolonization in Asia created significant political discontinuities, which in turn led to modified class relations, altered external relations, and more nationalist development choices. By contrast, there was no such discontinuity in Latin America in the post-WWII period; state and class formations modified of course, but only incrementally, continuing along the grooves of dependent development of a much earlier historical origin. Following WWII, for example, China had a major communist revolution and the world's most significant non-communist nationalist movement captured state power in India.
The Asian giants thus began their sovereign development experiments by focusing first and foremost on state consolidation. Once in power, the nationalistically inclined Chinese communists Johnson, minimized Western economic and political influence on China, eliminated China's comprador classes, and created a well organized state that penetrated the Chinese society deeply Schurmann, While India's democratic state was less efficacious than the Chinese communist state, India's nationalist leaders also prioritized sovereignty and state consolidation. They too minimized the role of old landed classes that collaborated with the British, as well as keeping at bay new political and economic dependencies Nayar, The Asian giants then used the power of newly consolidated states to create nearly autarkic economies in the early decades say, to While these experiments were hardly without costs, even serious costs in areas of state repression and state-led upheavals China , slow and lingering poverty India , and sluggish economic growth both China and India , there is no denying that state consolidation laid the foundation for a nationalist model of development in both China and India, which is now paying off.
Decolonization created a variety of political outcomes in the rest of Asia, with one shared commonality, namely, the creation of sovereign, new, and, for the most part, effective states. For example, the Japanese lost WWII and, along with that, their power and investments in such colonies as Korea and Formosa; this led to a new political beginning in the partial countries of South Korea and Taiwan.
The Dutch were forced out of Indonesia, as were the British from Malaysia. Both the French and the Americans were eventually defeated militarily in Vietnam.
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While there were exceptions e. It might be objected that countries like South Korea or Pakistan very quickly developed new dependencies, this time on the U. This is true but with one important qualification. These new dependencies were mainly a product of the Cold War and thus were security-oriented in nature. For the most part, countries like South Korea were left alone to pursue their economic development, even gaining preferential resources and treatment from the U. In contrast to Asia, decolonization in Latin America was in the distant past.
State consolidation occurred mainly in the inter-War period. Unlike the Asian pattern of anti-colonial mass mobilization, the underlying processes leading to state consolidation in Latin America often involved struggles between rival elites, especially struggles between centralizing and regional elites. Following WWII newer political formations emerged in many Latin American countries too, but there was more continuity than discontinuity in the social base of state power, in patterns of economic dependency, and in developmental choices Cardoso and Faletto, Most of these regimes readily embraced the emerging Western alliance, led by the United States.
While a new democratic regime of sorts replaced an authoritarian regime following WWII, Skidmore skillfully demonstrated the elements of continuity in the pre-and the post-WWII political economy of Brazil. In Brazil, Vargas, the authoritarian leader of the pre-War period, even came back to power, this time as a democratically elected president. The Cuban revolution marked a moment of potential change in Latin American politics, in the direction of activist states supported by mass politics.
From Goulart to Allende, a variety of nationalists, populists, and social democrats emerged to give voice to new political forces of the region. The United States - the regional hegemon, committed to open economies, especially in its "backyard" - sought to co-opt the emerging political restlessness in a liberal direction via the Alliance for Progress.
When such efforts did not succeed, the U. This tilted the balance of power within Latin American societies, retarding the trend towards more nationalist and plebiscitary politics. Landed oligarchs, foreign investors, and militaries - often trained in the United States - felt threatened by the new direction. A variety of military coups that occurred in Latin American countries during the s and the s brought to power elites who were inclined to cooperate politically and economically with the U.
Scholars coined the term "associated-dependent development" to capture these new types of Latin American political economies Cardoso, While anti-colonial mass movements consolidated power in many Asian countries during the s and the s, similar political forces were thwarted in Latin America.
What emerged in the latter instead was a variety of narrower elitist arrangements under American tutelage. These contrasting political developments cast the die for a longer term divergence in political and economic evolution of the two regions. Among the developmental changes in the two regions that can be traced back to these earlier contrasts in state construction are: land reforms and related patterns of inequalities; strategies towards dependence on foreign capital; and the role of national capital and indigenous technology, including trained manpower, in industrialization strategies.
These contrasting policy choices in turn often reinforced the character of developmental states of the two regions, more nationalist in Asia and more dependent in Latin America. Take, for example, the issue of land reforms. We know that land reforms were a lot more successful in Asia than in Latin America Evans, It is important to recall the strong political motivation in the pursuit of land reforms Tai, Traditional land owning elites not only limited the reach of the state into the countryside but comprador classes often had their roots in landed wealth.
The process of consolidating nationalist states in Asian countries was thus aided by the elimination of a variety of "feudal" types of intermediate elites. Land reforms enhanced the reach of the state on the one hand, and moderated inequalities of wealth and power in the countryside on the other hand. Such developments were clearest in the communist cases of China and Vietnam. The threat of communism, in turn, also facilitated significant land redistribution in such other cases as South Korea and Taiwan. Even in an India - where land reforms were mostly a failure - the largest zamindars traditional large land holders who had often cooperated with the British colonial government in India were broken down and pressures of democracy mitigated the "urban bias" of the polity, leading to reasonable terms of trade between the city and the countryside.
A similar outcome unfolded in Indonesia, where the mechanism was less democratic politics but more threats of peasant rebellion. Of course there were exceptions, such as the Philippines and Pakistan. These cases continued to resemble Latin American cases, where landed oligarchs survived well into the modern period, state consolidation remained incomplete, and dependence on the U. During the s and the s, the well known import substitution model of development ISI was pursued in both Asia and Latin America.
On the whole, Latin American countries pursued ISI with foreign investors producing consumer goods for Latin elites behind high tariff walls. By contrast - again, generalizing hugely - ISI policies in Asia focused on heavy industry that was promoted by domestic resources and for domestic markets. These contrasting policies both reflected the contrasting political preferences of more nationalist versus more dependent states on the one hand and further reinforced these tendencies, with future consequences, on the other hand.
In Communist China, for example, a heavy industrial base was laid down by public investments. This involved mobilization of domestic resources, often via brutal political mechanisms, and then borrowing and slowly but surely indigenizing technology. Public investments also played a crucial role in India's heavy industry oriented ISI, but then so did indigenous capital.
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The Indian state also limited the role of foreign capital in India's development and prioritized training indigenous technical manpower to aid its industrial ambitions. When the dust of civil war and reconstruction settled in South Korea say, around , the government there pursued simultaneously heavy industry oriented ISI and a state subsidized drive to promote light industry exports, both financed by domestic savings.
Here too a direct role for foreign capital was minimized and spread of education helped rapid industrialization. Asian countries by contrast pursued "difficult ISI.
ASEAN Economic Co-Operation Adjusting to the Crisis by Suthad Setboonsarng
Of course, a South Korea or a Taiwan grew much faster in this earlier period than an India or a China for an analysis of why, see Kohli, , but in all of these cases foundations of more nationalist political economies were built by conscious political decisions of post-colonial states. One is tempted to impute fairly distinct developmental motivations to Latin American rulers: whereas many rulers in Asia were committed to creating strong and modern national political economies, development for Latin American rulers often meant enhancing national incomes so that a narrow ruling class could rapidly join the life styles of Europeans and Americans, with whom they identified.
In Brazil, for example, the development strategy focused on inviting foreign investors to produce consumer goods for its upper and middle classes. To be fair, savings rates in Brazil did improve and some heavy industry did take root, but nothing in comparison to countries like South Korea, and then Brazil was an exception in Latin America. Neo-liberal scholars during the s often blamed high tariffs in countries like Brazil as responsible for their lack of export prowess and debt crisis. This was discussed above. What is often forgotten is the important role high tariffs played in attracting foreign capital to Brazil and elsewhere in Latin America in the first place.
Foreign investors came to Latin America, not to take advantage of their cheap labor for export promotion, but to take advantage of their protected elite markets. This is what Fishlow probably had in mind when he brilliantly characterized East Asian integration into the world economy as more along the axis of trade and Latin America's integration more along the axis of foreign capital; while countries like South Korea mobilized domestic resources and exported, Brazil and others invited foreign capital to produce for indigenous elites.
The Latin American strategy worked as long as foreign capital kept coming in, and as long as a focus on enriching and catering industrialization to narrow elite tastes could be maintained politically, preconditions that have not always proven easy to sustain. While there were many false starts, and a fair amount of learning occurred via trial and error, on the whole between and , nationalist states consolidated power in most Asian countries, eliminating or mitigating the power of traditional intermediaries, minimizing the role of foreign capital, and laying the foundations for the development of indigenous technology and heavy industry.
By contrast, the ruling elites in Latin America continued to rely heavily on foreign capital, failed to mitigate internal economic inequalities and the related elite-mass political gap, and constructed political economies that remained dependent on the outside world. While the growth performance of many Latin American countries during this period was often impressive again, notice Brazil , the fact is that this growth remained dependent on the availability of foreign capital.
With growing foreign debt in the late s and the early s, foreign capital increasingly shied away from Latin America, leading to the "lost decade" of development. By contrast, most Asian economies surged ahead during the s, especially the giants, China and India. Tuesday, September 24, AM.
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