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Situating Regional Development in the Competitive
Dynamics of Global Production Networks:
An East Asian Perspective
Henry Wai-chung Yeung
Professor of Economic Geography, Department of Geography,
National University of Singapore
Working Paper Series Vol. 2006-15
September 2006
The views expressed in this publication are those of the author(s) and
do not necessarily reflect those of the Institute.
No part of this article may be used reproduced in any manner
whatsoever without written permission except in the case of brief
quotations embodied in articles and reviews. For information, please
write to the Centre.
The International Centre for the Study of East Asian Development, Kitakyushu
1
Situating Regional Development in the Competitive Dynamics of Global
Production Networks: An East Asian Perspective
Henry Wai-chung Yeung
Professor of Economic Geography, Department of Geography, National University of
Singapore
and
Visiting Scholar, International Centre for the Study of East Asian Development
(ICSEAD)
Abstract: The debate on the nature and dynamics of regional development in both academic
and policy circles has now moved on from the earlier focus on endogenous regional assets to
analyzing the complex relationship between globalization and regional change. This paper
attempts to engage with this debate through the experience of regional development in East
Asia. The East Asian perspective shows that regional development cannot be understood
independently of the changing dynamics of global production networks. While the existing
literature on East Asia tends to focus on the state as the key driver of economic development
at the national and regional levels, I argue that the developmental state is a necessary but not
sufficient condition for regional development to take place. Instead, we need to study the
complex strategic coupling of those economic actors, particularly large business firms,
operating in specific regions in Asia with their lead firm counterparts orchestrating production
networks on a global basis. To illustrate these strategic coupling processes and their impact on
regional trajectories, I draw upon primary data collected through personal interviews with
over 70 leading Asian firms. The paper concludes with some major implications for
theorizing regional development and strategic policy options.
Keywords: Regional development, global production networks, strategic coupling, Asia,
business firms.
Acknowledgement
The NUS Academic Research Fund (R-109-000-050-112) supports the research project
underpinning this paper. I am grateful to my research collaborators, Jang-sup Shin and Yong-
Sook Lee, for their significant intellectual inputs, and to Angela Leung for her excellent
research assistance. The paper was written while I was a Visiting Researcher at the
International Centre for the Study of East Asian Development (ICSEAD), Kitakyushu, Japan,
during July-September 2006. I am very grateful to ICSEAD for its generous Visiting
Researcher scheme and excellent research facilities. I am solely responsible for the content of
this paper. The author may be contacted at: HenryYeung@nus.edu.sg
2
Situating Regional Development in the Competitive Dynamics of Global
Production Networks: An East Asian Perspective
1. Introduction
Regional development has been a thorny conceptual and empirical issue in regional
studies. Some three decades ago, Dicken (1976) and Massey (1979; 1984) pioneered the idea
of understanding regional development in relation to extra-regional processes. To Dicken
(1976), these processes were significantly linked to the extent of corporate control exercised
extra-regionally by a nascent form of transnational corporations (TNCs) – the multiplant
business enterprise (or now commonly understood as “multi-domestic” operations). Massey
(1979; 1984), on the other hand, was primarily concerned with the dynamic relationship
between inter-regional social relations of production and successive waves of (foreign)
investment – what she termed “spatial divisions of labour”. Clearly, both major contributions
pointed to the role of extra-regional processes in shaping the trajectories and dynamics of
regional development. This important lesson, however, seems to have been forgotten in the
“new regionalism” literature that has dominated regional studies since the 1990s (see Scott
and Storper, 2003; Lagendijk, 2006). Drawing upon the paradigmatic examples of Silicon
Valley, the Third Italy, and Baden-Württemberg, proponents in this new literature have placed
a great deal of emphasis on localized agglomerations and institutional structures as both
necessary and sufficient conditions to account for regional growth and development.
Situated in the above historiographical context, this paper attempts to revisit the role
of extra-regional processes in shaping regional development trajectories. This task is an
important one as the debate on the nature and dynamics of regional development in both
academic and policy circles has now moved on from the earlier focus on endogenous regional
assets such as localized networks of association and trust to analyzing the complex
relationship between economic globalization and regional change (Coe et al., 2004; Yeung,
3
2005a). In this paper, regions are defined as relatively enduring subnational territorial
ensembles with their own political and administrative jurisdiction embedded within certain
shared historical and socio-cultural formations. Think of Silicon Valley and the Third Italy as
distinctive territorial ensembles with their respective sectoral specialization. Regions are not
closed or bounded systems though, as these ensembles are increasingly permeable in a
globalizing era. Actors in regions actively construct all kind of discursive and material
relations stretched well beyond their territorial boundaries. In this sense, I concur with
Hudson’s (2005: 620) relational view that regions should be “seen as constituted from
spatialized social relations, stretched out over space and materialized in various forms, and
representational narratives about them” (see also Amin, 2004).
The paper aims to engage with this debate on extra-regional processes in an era of
globalization in relation to the experience of regional development in East Asia. The East
Asian experience shows that regional development cannot be understood independently of the
changing dynamics of global production networks (GPNs). While the existing literature on
East Asia tends to focus on the developmental state as the key driver of economic
development (Amsden, 1989; 2001; Wade, 1990; Weiss, 1998; 2003; Woo-Cumings, 1999; cf.
Stiglitz and Yusuf, 2001; Boyd and Ngo, 2005; Doner et al., 2005), I argue that this
developmental role of the national state is at most a necessary but not sufficient condition for
regional development to take place. We need to study the complex strategic coupling of those
economic actors, particularly business firms, operating in specific regions with their lead firm
counterparts orchestrating production networks on a global basis. My emphasis on business
firms and their embedded GPNs is a deliberate choice in order to overcome the excessive
emphasis on regional assets in the new regionalism literature and state interventions in the
East Asian development literature. In doing so, I hope to resurrect the firm as an important
and active strategic player in shaping the regional landscape of global capitalism (see also
4
Markusen, 1994; 2004; Taylor and Asheim, 2001; Dicken and Malmberg, 2001; Yeung,
2005b). As McKendrick et al. (2000: 254) have noted, “firms play the lead role in the
construction of clusters and regional production systems – in effect, constituting economic
space”.
This revision of the Asian developmental state literature is necessary and timely for
two reasons (see also Doner et al., 2005). First, the literature has consistently downplayed the
active role of leading Asian firms in regional development. Reflecting on the “market versus
state debate” in understanding regional development in Asia, Hobday (2001: 25) observes that
“because of the dominance of this debate, there are few studies which derive ‘bottom-up’
policy conclusions from firm-level studies. The activities and strategies of firms in engaging
with international production networks cannot be properly accounted for within theories of
the developmental state, as latecomer firm behaviour tends to be treated (usually implicitly) as
an automatic response to policy and economic circumstances, rather than as a shaping
influence in its own right”. Second, the role of the developmental state from the early 1990s
onwards, particularly since the 1997/1998 Asian economic crisis, has been much less
“developmental” and much more “regulatory” (see also Stiglitz and Yusuf, 2001). This is
evident in the changing role of the state in three Asian newly industrialized economies (NIEs)
of South Korea (restructuring and regulating the chaebols), Taiwan (regulating cross-Straits
activities of Taiwanese firms), and Singapore (market liberalization, policy deregulation, and
privatization of government linked companies).1
In making the above arguments, I have three important caveats that need to be stated
upfront here. First, my point about the strategic coupling of local firms with lead firms in
GPNs is not a functionalist argument (see also Henderson et al., 2002; Coe et al., 2004:
endnote 1). This coupling process is not automatic and always successful; it needs to be
unpacked and analyzed because it changes over time and in different geographical contexts.
5
Moreover, the enabling mechanisms and technologies for this coupling may be highly uneven
geographically. For example, while airfreight services account for around 40% of world
trade by value (Bowen and Leinbach, 2006: 148; see also Leinbach and Bowen, 2004), access
to supply chain management and third-party logistics services varies dramatically between
firms in different regions (Heaver, 2004).
Second, the uniqueness of East Asian experience in regional development should be
underscored here, primarily because of the simultaneous presence of three key ingredients –
local firms (public or private), developmental state institutions (often at the national level),
and lead firms and GPNs (see Yusuf et al., 2004). In comparison, these three ingredients
occurred during different historical moments of regional development in North America and
Western Europe. When American investment ventured into Western Europe, particularly the
UK, after World War Two, developmental state institutions were mostly absent and these
American firms were established as multi-domestic clones rather than complex GPNs. Since
the mid-1980s, regional devolution in North America and European countries has intensified,
though the outcomes are rather mixed (Rodríguez–Pose and Gill, 2004). In East Asia, regional
development trajectories are much more variegated, ranging from Japan’s active pursuit of
regional equality policies during post-war development to the strong focus in South Korea
and Taiwan on building up national institutional capacity between the 1970s and the 1990s
and the more recent experimentation of China with regional devolution since the late 1980s
(e.g. Zhang and Wu, 2006).
Third, this paper is not concerned with the governance rescaling debate in geography
and regional studies that views regional devolution as an outcome of rescaling of political
governance in nation-states and macro-regions (see Goodwin and Painter, 1996;
Swyngedouw, 2000; Brenner et al., 2003; Jones et al., 2005; cf. Mansfield, 2005). In this
debate, the analytical focus is particularly concerned with the politics and policy instruments
6
of such rescaling processes, less so with how regions become more articulated into the global
economy through GPNs (cf. Coe et al., 2004).
This paper is organized into four sections. The next section theorizes the strategic
coupling processes between regions and lead firms in GPNs. This conceptual development
draws upon recent theoretical advances in studies of GPNs associated with the Manchester
School in economic geography and regional studies (see Dicken et al., 2001; Henderson et al.,
2002; Coe et al., 2004; Yeung, 2005a; Hess and Yeung, 2006). Having theorized and
identified these strategic coupling processes, this paper proceeds to illustrate how these
processes shed light on the different trajectories of regional development in East Asia in the
third section. Based on primary data collected from personal interviews with over 70 Asian
NIEs firms2, this analysis shows that the strategic coupling of these Asian firms with lead
firms in GPNs matters significantly in accounting for diverse trajectories of regional
development. The final section offers some concluding remarks and major implications for
theory and policy.
2. Strategic coupling: regional development in the context of globalization
From the above contextualization of the different strands of regional studies literature,
it is clear that the focus on the importance of extra-regional processes in shaping regional
development outcome is in itself nothing particularly new (cf. Dicken, 1976; Massey, 1979;
more recently, Phelps and Fuller, 2000). The novelty of the GPN approach, however, rests
with its emphasis on the strategic coupling process between local firms in particular regions
and global lead firms in GPNs. This firm-specific approach differs significantly from the
earlier work that focused on the external dependency of regions and therefore the passivity of
local firms in responding to external control. In the new regionalism literature, on the other
hand, there is too much glorification of local networks of small and medium enterprises
7
(SMEs) and associational economies (see a critical evaluation in Lovering, 1999; MacLeod,
2001; Coe et al., 2004). A more recent incarnation of this literature tends to focus on so-called
“regional innovation systems” (see Braczyk et al., 1997; Fornahl and Brenner, 2003; Morgan,
2004). In either strands of literature, inadequate attention has been paid to the
interconnections between these “external” global firms and their “local” counterparts – often
mistaken as SMEs, even though some of them have grown to become major global players in
their own right.
In this section, I first explain how regional development should be seen as a form of
trans-local dynamic. I then bring in global lead firms and show how regions become
incorporated into their global production networks through the process of strategic coupling.
Some key mechanisms facilitating this coupling process are described and explained. Taken
together, this GPN approach to regional development goes beyond the new regionalism
literature through a consideration of economic-geographical processes occurring at multiple
scales – from local and regional to national and global (see also Hudson, 1999; 2005;
MacLeod, 2001; Hadjimichalis, 2006). This explicit attention to multi-scalar processes of
regional development represents an intentional challenge to the recent rise of the so-called
new regionalism rhetoric in which intra-regional processes are championed as the universal
panacea for regional development. As noted by Hudson (2005: 620) in the European context,
for example, “there is a wealth of evidence of people seeking to construct regions as if they
were closed, bounded and coherent, with shared and unified regional interests”. In the US
case, Jonas and Pincetl (2006: 487) have described American regionalist rhetoric and
concerns as “prosaic” and “atheoretical” that have historically been seeking to uncover the
optimal size and function of the (regional) state.
Several recent geographical studies of Italy’s Veneto region (Bialasiewicz, 2006),
northeast England (Hudson, 2005), and California (Jonas and Pincetl, 2006) have clearly
8
pointed out how regional devolution and the valorization of local networks of trust are
manifested in regionalist politics and localist rhetoric. This narrow-minded championing of
intra-regional issues can be dangerous and inward-looking. As Bialasiewicz (2006: 46) argues,
“the fortunes [of the Veneto] could not have been made without the global market and its
hypermodern thirst for innovation, a thirst that Veneto entrepreneurs have been masterful in
exploiting”. She validly questions regionalist assertions that “all there was to the Veneto
model was ‘hard work and creativity’: the region was a ‘self-organising system’, its success a
result of ‘spontaneous organisation’”. In a similar vain, Hadjimichalis (2006: 85) reflects
critically on the Third Italy discourse and points to the discourse’s “failure to take into
account the wider national, European and global system of capitalist price relations within
which these small firms operate”. He is particularly troubled by the explanation of Third
Italy’s success on the basis of “‘internal’ factors only, by their ‘embedded tacit knowledge’,
while the rest of Italy and the world are reduced to simple consumers of their fashion
products”. He further relates the success of Third Italy in the textile and clothing industry to
favourable state policies in lowering exchange rates and tax liabilities of small firms, macro-
economic protectionist regulations and labour legislations, and the globalization of lead
Italian firms through vertical integration of their value-chain activities (see also Dunford,
2003; 2006). Instead, he calls for “the need to extend the analytical focus from a bounded
territorial system of production to an unbounded, scalar spatial system in which both local and
international relations are taken into account” (Hadjimichalis, 2006: 102-103; see also
Hudson, 2005; 2006).
This recent shift of analytical attention from focusing on successful intra-regional
ingredients à la the new regionalism and regional innovation literature to the complex
interrelationships between local/regional actors and global processes does not represent a
straightforward return to the kind of work associated with external control (Dicken, 1976) and
9
social relations of production (Massey, 1979; 1984). Instead, it builds on this earlier strand of
literature and focuses on a relational understanding of the evolution of local and regional
firms and their dynamic articulation in global production networks – what is now broadly
recognized as a “relational turn” in regional studies and economic geography (Amin, 1998;
Bathelt and Glückler, 2003; Boggs and Rantisi, 2003; Coe et al., 2004; Yeung, 2005a; Bathelt,
2006). In this relational approach to “globalizing” regional development, we typically start
our analysis of a region’s development trajectory in relation to complex dynamics in
respective global production networks. While I will examine empirically in the next section
how business firms in selected East Asian regions have risen and played an important role in
GPNs, the remaining parts of this section tackle two major theoretical issues: (1) why do
global lead firms in GPNs become interested in what Storper (1997: 26) has termed the “holy
trinity” of regional economies –technology, organizations, and territories and (2) how do key
actors in specific regions become strategically coupled with the imperatives of these lead
firms in GPNs?
Lead firms in global production networks
By global lead firms, we mean powerful firms that orchestrate and coordinate complex
GPNs in their respective industries that span different territories and regions. Inadvertently,
these lead firms are large transnational corporations that in turn are movers and shapers of the
global economy (Harrison, 1997; Peck and Yeung, 2003; Gereffi, 2005; Dicken, 2007). They
are often market leaders in terms of their brand names, technology, products, and marketing
capabilities. Good examples are Hewlett-Packard and Motorola in information and
communication technology (ICT) industries, Sony and Philips in consumer electronics,
Toyota and General Motors in automobile, The Gap and Nike in clothing and footwear,
Citicorp and HSBC in banking, Hilton and Marriott in hospitality, British Airways and
10
Lufthansa in airlines, and so on. In the manufacturing sector, global lead firms often
specialize in the upstream activities of research and development and downstream activities of
branding, marketing, and post-sale services. While they continue to engage in high-value
manufacturing activities, these global lead firms are increasingly compelled to outsource a
large portion of their product categories to independent manufacturers (e.g. IT, clothing and
garment, toys and footwear, machinery industries). There is thus a movement of global lead
firms towards market control via product and market definitions, rather than leadership in
manufacturing processes and technologies.
While most of these global lead firms are original equipment manufacturers (OEMs),
their manufacturing partners are often described in different ways – OEM subcontractors,
original design manufacturers (ODMs), and electronic manufacturing service (EMS)
providers. OEM subcontractor relationships tend to be most prevalent in labour-intensive
industries, whereby the OEM customers supply design and product specifications to their
subcontractors that take care of the manufacturing process. In EMS and ODM arrangements,
global lead firms rely on the design, manufacturing, and logistic services of their strategic
partners. As noted by Sturgeon and Lester (2004: 43),
Today, suppliers must provide a capability for independent process development and an
ability to perform a wide range of value adding functions associated with the
manufacturing process, including help with product and component design, component
sourcing, inventory management, testing, packaging, and outbound logistics.
Lead firms are also demanding that suppliers have the ability to support the lead firm’s
operations and market-serving activities around the world.
These EMS and ODM partners may also engage in separate subcontractors for the
manufacture of different parts and components of products that they assemble for global lead
firms. The finished products, however, continue to bear the trademarks and brand names of
global lead firms. This lack of product/market control explains why EMS and ODM providers
cannot be seen as lead firms in their own right, even though many of them are very large
11
TNCs in their own right (see the next section). At the very most, they are strategic partners of
global lead firms that are brand name companies with or without OEM capability.
In the service sector, global lead firms are particularly dominant in industries that are
global in scope and operations (e.g. transport, finance, producer services, and hospitality). In
these service industries, there is a great deal of global integration coordinated by these service
lead firms. They therefore generate substantial demand for globally integrated services from
their suppliers and providers, e.g. logistics, maintenance, materials, and so on. This demand
for global integration in both operations and suppliers is explained by the necessity of
ensuring quality consistency on a global scale. This in turn provides opportunities for globally
integrated service suppliers that can “follow” their customers.
As their markets and competitors are becoming increasingly global, these lead firms in
manufacturing and service GPNs are driven by three competitive dynamics that have
profound consequences for regional development: cost, flexibility, and speed. The perennial
drive towards lowering cost is now an established idiom in the economics and Marxian
analysis of industrial competition. To Harvey (1982) and Smith (1984), this competitive
pressure results in capital’s ruthless adoption of a “spatial fix” that see divestment and
investment in different regions in relation to the ebbs and flows of capital. Regions suffering
from high cost reluctantly witness the unfolding of processes of deindustrialization, whereas
lower cost regions gain new investment through the emergence of so-called “new
international division of labour” (Fröbel et al., 1980). This process of spatial fix is best
observed in the international relocation of much of European and American manufacturing
activity to East Asia during the past four decades (e.g. Henderson, 1989; McKendrick et al.,
2000; Ernst, 2005; Feenstra and Hamilton, 2006).
While this spatial fix can alleviate, at least temporarily, the cost problem of global lead
firms, it is clearly not a long-term solution to their competitive plight. As the saying goes,
12
there will always be someone who can do it cheaper. As shown by perceptive scholars of
business competition (Schoenberger, 1997; Mathews, 2005; 2006a), two other firm-specific
dynamics – flexibility and speed – may play a much more important role than previously
understood in the regional studies literature. In order to compete more effectively in today’s
global economy, lead firms begin to opt for what can be broadly termed an “organizational
fix”. Lead firms now realize that competitive advantage can be obtained through a more
flexible and efficient form of organizing production on a global scale. This idea of an
organizational fix must be distinguished from the earlier notion of a spatial fix.
Reorganization of production networks does not necessarily entail spatial relocation of
production, particularly one’s own production facility. Instead, an organizational fix results
primarily from a choice of different business strategies; it is about strategizing the
organizational principle that affords the most competitive advantage. The strategy of
outsourcing, for example, represents an organizational fix through which global lead firms are
able to increase their production flexibility without incurring substantial liability in owning
manufacturing or service facilities. The rise of OEM, ODM, and EMS arrangements can
therefore be interpreted as important organizational fixes for global lead firms. Through these
arrangements, production networks become more globally oriented and integrated, leading to
the emergence of sophisticated global production networks orchestrated by global lead firms.
The search for low cost production locations and the creation of organizational
economies do not capture fully the problem of competitive dynamics in an era of
globalization. As noted by Harvey (1989), time-space compression has compelled capitalist
firms to accelerate their capital accumulation processes. To Schoenberger (1997; 2000) and
Sheppard (2002), this competitive pressure has substantially increased the demand for time-
to-market as a tool of winning market shares. Apart from organizational flexibility, the
adoption of technological solutions can significantly improve a lead firm’s time-to-market
13
capability. This approach can be termed a “technological fix” that entails the critical role of
technology in the competitive dynamics of lead firms in GPNs. In the electronics industry, for
example, information technology (IT) solutions and global electronic platforms have
undoubtedly contributed to the successful organization of production networks on a global
scale by lead firms. Such a technological fix can be seen in IT solutions such as electronic
data interchange (EDI) with customers and suppliers, internet-based integration of
manufacturing processes and enterprise resource planning (ERP) systems, and global tracking
systems with third party logistics (3PL) providers (see Lüthje, 2002; Macher et al. 2002). This
technological fix results in the vertical disintegration and the subsequent vertical
specialization of production in the ICT industry. Its implication for regional development is
highly contingent on the strategies of lead firms and their changing organization of GPNs.
Lüthje (2002: 228) thus argues that “there may emerge different trajectories of technological
learning depending on the position of particular districts or regions within the international
division of labor in the production networks of the respective industries”. Taken together, the
impact of these three fixes on regional development is critically dependent on the ways in
which local and regional firms in these regions are articulated into GPNs – a process termed
“strategic coupling” in this paper.
Strategic coupling in global production networks
Now that I have clarified the nature and competitive dynamics of lead firms in
coordinating GPNs, I can begin to situate regions in these GPNs through a relational
perspective (see Yeung, 2005a). Both regions and GPNs, however, are relational
constructions and social formations that are constituted through ongoing actor-specific
practices and processes; they are not some kind of autonomous actors capable of effecting
spatial change. Instead, we need to focus on business firms – both global lead firms and their
14
strategic partners – as one important group of key actors that bring together regions and GPNs
through their relational processes. This is where the concept strategic coupling becomes
important.3 I define “strategic coupling” as a time-space contingent convergence of
interests and cooperation between two or more groups of actors who otherwise might not act
in tandem for a common strategic objective. This coupling process exhibits several distinctive
attributes. First, it is strategic because the process does not happen without active intervention
and intentional action on the part of the participants. As argued by Mathews (2006a),
strategizing is most useful/profitable in a condition of disequilibrium. Second, it is time-space
contingent as the coupling process is not permanent and is subject to change. It resembles a
form of temporary coalition. Third, the convergence process transcends territorial boundaries
and geographical scales, as actors from different spatial sites (states, regions, and localities)
converge and their practices radiate out to diverse geographical scales – some global and
some highly local. Overall, the concept explains how key actors in specific regions become
articulated into the imperatives of lead firms in GPNs; it is about dynamic relational processes
and mechanisms.
What then are these relational processes and mechanisms that facilitate the strategic
coupling of local and regional firms with lead firms in GPNs? In the East Asian context, I will
elaborate on three such processes: (1) the emergence of transnational communities; (2)
changes in industrial organization; and (3) initiatives by states and institutions. These
processes are chosen for their theoretical relevance and policy significance. The critical role
of communities and social capital in regional development is now almost a taken-for-granted
axiom in regional studies. Rodríguez-Pose and Storper (2006) have recently charted several
theoretical evolutionary scenarios in economic development in relation to informal
communities and formal institutions. While their analysis of communities is an important one,
their dichotomous treatment of communities as informal and institutions as formal is a cause
15
for concern. For one, they do not recognize the possibility that social communities can be
both informal and formal at the same time, obliterating their communities-versus-institutions
dichotomy.
One such community refers to the transnational elite professionals and
businesspersons in East Asia who shuttle constantly around the globe – though often along the
East Asia-Vancouver/San Francisco corridor (see Olds, 2001; Coe et al., 2003). To Saxenian
(2002; 2006), this transnational elite community has rewritten the concept of international
knowledge formation from one of “brain drain” to a two-way process of “brain circulation”.
Through their constant movements between different regions of the world, these Asian or
Asian-origin technologists and entrepreneurs have formed a transnational community of
informal “brain networks” characterized by certain common social identity and, sometimes,
nationalistic sentiments. Yet, their transnational business practices have contributed to the
formal coupling of firms in Asian regions with lead firms in GPNs through a variety of
organizational arrangements. Saxenian (2002: 183 and 186; also 2006) thus argues that:
these communities have the potential to play an increasingly important role in the
evolution of global production networks. Transnational entrepreneurs and their
communities provide a significant mechanism for the international diffusion of
knowledge and the creation and upgrading of local capabilities… [They] provide a
direct mechanism for transferring the skill and tacit knowledge that can dramatically
accelerate industrial upgrading in their developing countries. In addition they frequently
coordinate relationships between the network flagships and suppliers, particularly when
they are based in regions with differing languages and business cultures. This role
ranges from helping to identify appropriate original equipment manufacturer (OEM)
suppliers to facilitating the ongoing (and often face-to-face) inter-firm communications
required by the rapid pace of change in the industry.
To elaborate on Saxenian’s important observation, we need to unpack better another
critical coupling mechanism – changing industrial organization. As explained earlier, lead
firms in GPNs are compelled to adopt organizational and technological innovations in order
to “fix” their competitive problems. These fixes in turn create a new form of industrial
organization that provides a window of opportunity for local and regional firms in Asia to
16
plug themselves into GPNs. Saxenian (2002: 184-185) observes that “The deepening social
division of labor in the industry creates opportunities for innovation in formerly peripheral
regions – opportunities that did not exist in an era of highly integrated producers”. In
particular, the rise of vertical specialization by brand name firms and/or OEMs in many
industries is linked to the vertical disintegration of value-chain activity within individual lead
firms and the subsequent vertical reintegration of this activity in geographically dispersed
locations. In the global electronics and ICT industry (see Figure 1), this process of vertical
disintegration/reintegration provides a strategic coupling platform for local and regional firms
in Asia to connect with lead firms in GPNs.
This process is also greatly facilitated by technological changes. Lee and Lim (2001)
and Lee et al. (2005b), for example, show how rapidly emerging new technological
paradigms in digital TV and mobile phones have created windows of opportunity for
latecomer Asian firms to engage in leapfrogging. Primarily because of the capability,
flexibility, response time, and cost competitiveness of domestic firms in particular East Asian
industrial districts and high growth regions, this strategic coupling process operates to the
benefits of both lead firms in GPNs and their Asian partners such as EMS and ODM
providers and dedicated service providers (see more detail examples in the next section; also
Yeung, 2007). Lüthje (2002: 228) notes that “Through their continuing acquisitions CM
[EMS] companies act as transnational network builders, assembling a variety of plants with
different manufacturing practices in specific national and global markets. Contract
manufacturing, therefore, can be characterized as a mode of integrating, coordinating, and
regulating diverging economic, social, and cultural conditions in global production systems”.
The availability of the above transnational communities and organizational-
technological capabilities of local firms must be at least partially explained by the relentless
efforts of state institutions in paving the way for this strategic coupling to take place. The
17
developmental state literature has already explained exactly what the East Asian states did in
terms of industrial policies and fiscal incentives that helped groom the first generation Asian
firms up to the late 1980s. The role of these state institutions during the past 15 years has been
particularly important in enhancing human resources and physical infrastructure in respective
industrial districts and growth regions. In 2002, for example, the total cost of an integrated
circuit (IC) chip engineer in Asia is only 10-20% of that in Silicon Valley (see Ernst, 2005:
Table 3). This is no doubt a positive outcome of state involvement in developing human
resources and physical infrastructure. The outcome for regional development is staggering, as
it stimulates both the relocation of chip design work from Silicon Valley and elsewhere in
developed economies to leading clusters in Asia, and the growing cost competitiveness of
leading Asian firms in chip design and engineering capabilities (see empirical examples
below). Another role of state institutions in the strategic coupling between local firms and
lead firms in GPNs has to do with the rapid growth of public-private R&D consortiums,
particularly in Singapore, South Korea, and Taiwan. In the latter two economies, these
consortiums are strategically located in high growth regions and they serve as a direct conduit
to couple the strategic interests of both local high-tech firms and global lead firms. They also
represent a form of state-sponsored collective action to reduce excessive competition among
participating firms and to develop path-breaking technologies (Noble, 1998).
To sum up this section briefly, I have examined how regional development should be
viewed as a trans-local dynamic process of growth and change, where multiple actors operate
at a variety of geographical scales. The strategic coupling processes of these actors in
different regions and locales constitute the central dynamic of regional development, as they
bring together regions and GPNs in a recursive and cumulative process of growth and
development. What remains to be seen in the next section is how these dynamic processes
unfold in different regional development trajectories in East Asia.
18
3. Regional development trajectories in East Asia
Regional development is a major policy issue in East Asia. From China’s Yangtze
River Delta and Pearl River Delta, South Korea’s Seoul Metropolitan Area, and Taiwan’s
Taipei-Hsinchu region to Malaysia’s Penang and Selangor states and Thailand’s Greater
Bangkok region (see Figure 2), rapid industrialization and economic development are taking
place at historically unprecedented rates on back of high export propensities. As shown in
comparative data in Table 1, these growth regions have clearly stood out in relation to their
growth rates and contributions to national economies. If we apply the standard analytical tool-
kit from the new regionalism literature and its regional innovation system variant, we will
probably find it hard to explain these regional development trajectories (cf. Lundvall et al.,
2006). For there is not much of the kind of “institutional thickness” (Amin and Thrift, 1994a),
“associational economies” (Cooke and Morgan, 1998), and regional innovation systems
present in Western European regions that find their ways to these propulsive regions in East
Asia. There is also a visible absence of the kind of “relational assets” extensively discussed in
Storper (1997) and Scott and Storper (2003), let alone some sort of “learning regions” capable
of generating indigenous technologies and innovation (Asheim, 1996; Morgan, 1997; Simmie ,
1997; Boekema et al., 2000; cf. Hudson, 1999; Bunnell and Coe, 2001). With the exception of
perhaps the Taipei-Hsinchu region and the Seoul Metropolitan Area, none of the regions in
East Asia fits the classic story in the new regionalism literature.
To account for regional development trajectories in East Asia, we need to look beyond
growth dynamism generated endogenously from these regions and bear in mind the openness
of regional formations. In this sense, the earlier discussion of global production networks and
strategic coupling between regional and extra-regional actors becomes relevant and useful.
While I am not concerned with the nitty-gritty of regional policies per se or the social and
environment impact of sometimes imbalanced regional growth4, I intend to illustrate how
19
regions and regional development occur in East Asia in relation to the strategic coupling of
local firms with lead firms in GPNs. In particular, I show two types of regional development
trajectories and analyze their dynamics: (1) strategic coupling through international
partnership and (2) strategic coupling through the provision of platforms for innovation and
production. In both instances, my focus is on how local firms are articulated into the strategic
imperatives of GPNs in respective high-growth industries.
Strategic coupling through international partnership
The Taipei-Hsinchu region and, to a certain extent, Singapore present two best
examples on how regional development can occur through managing the strategic coupling of
local firms with lead firms in GPNs.5 In both cases, development takes place through the
direct articulation of the region into critical GPNs. In the Taipei-Hsinchu region, this
articulation has taken the form of indigenous Taiwanese firms serving as strategic partners of
lead firms in GPNs. In Singapore, lead firms have made a direct presence through inward
foreign direct investment (FDI). 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 are also
leveraging their direct presence in the US for technological innovation and market
development (see Poon and MacPherson, 2005; Poon et al., 2006; Hsu et al., 2007).
In Taiwan, state promotion of high tech ICT industries since the late 1970s and the
early 1980s has led to a high degree of spatial concentration mostly in the northern region
centred around Taipei (Mathews, 1997; 2006b; 2007; Hsu, 2005; see also Table 1). Taipei
now hosts the headquarters of some 70% of Taiwan’s top 50 ICT companies. My interviews
20
with top executives in some 19 of these top 50 ICT firms conducted between June 2004 and
July 2005 show that they are not only all located in the Taipei-Hsinchu region. But they also
constitute the top 50 largest Taiwanese firms in all sectors, measured by their turnover,
market capitalization, and assets (see details in Yeung, 2007). Many of them are world’s top 3
or top 5 players in their respective market niches, ranging from EMS providers and ODM
system integrators (e.g. Hon Hai, Quanta, and Compal) to specialized components and
services (e.g. TSMC, UMC, AU Optronics, and SPIL). These large Taiwanese ICT firms are
highly innovative and perform an important role as strategic partners of global lead firms in
the ICT GPN. Between 1980 and 2000, more than 60% of Taiwan’s industrial patents were
created in the Taipei-Hsinchu region (Hsu, 2005: 660). In 2001, Taiwan was ranked fourth on
back of 6,545 patents granted by the US Patent and Trademark Office, just after three
industrial giants of the US, Japan, and Germany and ahead of France and Britain (Chu, 2006:
Table 4.12).
Through these large Taiwanese ICT firms, the Taipei-Hsinchu region is effectively
coupled into the strategic shift of global lead firms in Silicon Valley towards high tech R&D
activity and leaving much, if not all, of the manufacturing activity to these strategic partners
in the Taipei-Hsinchu region. The story of regional success, however, does not end with state
promotion efforts. In fact, a whole transnational elite community of professionals and
entrepreneurs has emerged during the past two decades that contributes significantly to the
successful strategic coupling of indigenous firms in the Taipei-Hsinchu region with their
global lead firm customers (see Hsu and Saxenian, 2000; Saxenian and Hsu, 2001; Saxenian,
2006). The previous professional experience of these transnational elite entrepreneurs in
global lead firms is highly important to this strategic coupling process. Classic examples are
Macronix’s founder Miin Wu who worked in Siliconix and Intel and was a founding member
of VLSI Technology, and TSMC’s founder Morris Chang who worked for Texas Instruments
21
(Interviews with Macronix and TSMC in Taipei, July 2004; see also Liu et al., 2005). In both
cases, their personal experience is useful not only in helping them develop strong links with
their former employers, but more important in allowing them to learn best management and
manufacturing practices. For example, Macronix’s Miin Wu learnt from his Intel experience
how to manage business focus:
Having a real product out is very time consuming and very demanding. So within
these 2 years (2001-2002), we have nothing coming out. And nobody knows what’s
going on. Suddenly [our] technology was behind, and the product was losing money,
because we don’t have new product to begin with… Suddenly we became very hard. I
think what I learned is the focus, how you execute it, give people a sense of urgency.
So that’s what we learned. That’s what is happening gradually. But if you look at
every company, I worked for Intel, and other companies; for first 10 years, even Intel
three times they almost got under. They run out of money, they are not making
money… but it’s good for them because they know it’s not easy. The first10 yrs,
execute perfectly, and then start losing (Interviewed in Taipei, 9 July 2004).
This strategic coupling process does not end with the Taipei-Hsinchu region. During
the past five to ten years, these transnational professionals and entrepreneurs from the region
are extending their spatial reach into selected regions in China, e.g. the Yangtze River Delta
and the Pearl River Delta. The Silicon Valley-Taipei/Hsinchu connection becomes enlarged
into what might be termed a triangular connection that incorporates Shanghai, the “dragon
head” of the Yangtze River Delta, into its operating orbit. Echoing Leng’s (2002) views, Hsu
(2005: 661) observes that:
a triangle connection between Silicon Valley–Taipei (Hsinchu)–Shanghai is emerging
and creating a pattern of capital and knowledge circulation in the nodes of transnational
business networks. The power of the transnational technical community is evident, and
has become a key force in shaping the global production networks. It originated in
Silicon Valley and has been transferred first to Taiwan by overseas Chinese
entrepreneurs (emigrated from Taiwan) and then from Taiwan (as well as directly from
Silicon Valley) to China. The dense social and professional networks foster flows of
technology, capital, know-how, and information within the triangle, supporting
entrepreneurship in the three regions while also providing the foundation for formal
inter-regional business relations such as consortia, joint-ventures, and partnerships.
The spatial outreach of major Taiwanese ICT firms has been occurring since the late 1980s,
although it has been accelerating very rapidly in China (see Chen, 2002; Yang and Hsia,
22
2006). In developing this triangular connection, the Taipei-Hsinchu region continues to
maintain its competitive edge in serving global lead firms such as Hewlett-Packard and
Motorola through innovative designs, product developments, and sophisticated supply chain
management grounded in the Taipei-Hsinchu region. And yet these Taiwanese firms are able
to achieve cost competitiveness through their manufacturing operations in the two delta
regions in China (and elsewhere in Southeast Asia). In many ways, this transnational triangle
resembles Dunford’s (2006: 29) idea of a “magic circle” in the Italian clothing industry
centred around Milan where clothing “districts are parts of an interdependent, interregional,
and international division of labor in the sector and are profoundly shaped by their articulation
with the distribution system”.
In Singapore, such transnational community of elite professionals and entrepreneurs
also exists. In one example, Venture Corp’s Chairman and CEO Wong Ngit Liong was
formerly recruited by HP in California and sent back to Southeast Asia to establish HP
factories in Malaysia and Singapore during the 1970s. After 12 years with HP, he struck out
on his own and subsequently built Venture Corp into a top 10 world-class EMS provider, with
a turnover of US$2 billion in 2005. Venture is now the strategic partner of both HP and its
spin-off Agilent Technology (Interviewed in Singapore, 19 May 2006). Venture Corp,
however, is an exception rather than a rule in explaining Singapore’s articulation into the
electronics GPN. In contrast to the Taipei-Hsinchu region, Singapore prides itself in attracting
global lead firms in the electronics industry to establish direct presence in terms of R&D
facilities and manufacturing operations. As the largest manufacturing industry in Singapore
accounting for 9.8% of GDP and 36.5% of manufacturing output in 2005, the electronics
industry boosts the substantial presence of the industry who’s who in the global league of lead
firms, e.g. HP, Matsushita, Motorola, Philips, Samsung, Seagate, ST Microeletronics, Toshiba,
and so on. Apart from generous fiscal and non-fiscal incentives offered by the Singapore
23
government, these world-class electronics firms also benefit from Singapore’s important
logistical position in the electronics GPN. Singapore’s Changi Airport is the world’s eighth
busiest freight handling airport and Singapore Airlines is the world’s fourth largest freight
carriers in terms of freight tonne-kilometres (Bowen and Leinbach, 2006: 155). Virtually all
leading third party logistics (3PL) providers have established a strong presence in Singapore,
e.g. Exel (the UK), DHL (the Netherlands), and GeoLogistics (the US). Taken together, the
experience of both the Taipei-Hsinchu region and Singapore shows that regional development
can benefit substantially from the strategic coupling of local firms with global lead firms.
More generally, a form of international partnership exists between these regions and lead
firms in GPNs, facilitating by an indigenous community of transnational elites and
entrepreneurial firms.
Strategic coupling through indigenous innovation and production platforms
Similar to the success stories in Western Europe, endogenous regional development
can occur if there are sufficient efforts in developing innovative capacity in specific regions.
The Seoul Metropolitan Area is a good illustration here (see Table 1), as it plays host to two
of the world’s largest producers of digital TV and mobile phones – Samsung Electronics and
LG Electronics. Unlike their Taiwanese and Singaporean counterparts, these South Korean
chaebols have chosen a different developmental trajectory that is described by Lee et al.
(2005b) as path-creating catch-up; they have grown from serving as subcontractors to OEMs
to become OBMs in their own right (see van Hoesel, 1999; Cyhn, 2002). While state
promotion efforts have laid important preconditions for these two chaebols, their strategic
coupling through technology licensing and agreements with respective lead firms provides the
initial knowledge base for their subsequent choice of leapfrogging as a successful pathway to
global leadership. This process of strategic coupling was particularly critical during the early
24
phase of their entry in both product categories. Samsung, for example, achieved rapid catch-
up through such technology agreements in the semiconductor industry between 1983 and
1997 (see Lim, 1999: Table 4.9). Cyhn (2002: Chapter 3) observes that by the early 1990s, the
chaebols had become much less dependent on government-sponsored research institutes for
their technological innovation. Instead, they turned to in-house R&D labs, friendly global lead
firms, and international industrial associations. To Lee et al. (2005b: 42), both Samsung and
LG have successfully pursued a path-creating catch-up approach through an appropriate
combination of “technological regimes, the competitive advantages of the innovation
outcomes in the market, the foreign and domestic knowledge base, the government policies
and firm strategies”. By the mid-2000s, they had become first movers in these two product
categories.
Our research shows that both chaebols have actively pursued a strategy of OBM with
their own distinctive technological strength and marketing capability. There is also a great
deal of reluctance in internationalizing their R&D and manufacturing activity. Both
companies prefer to keep a large portion of their manufacturing activity in South Korea,
particularly within the Seoul Metropolitan Area (Interviews with Samsung Electronics and
LG Electronics in Seoul, May 2004 and June 2005). With respective sales of US$80 billion
and US$44 billion in 2005, Samsung Electronics and LG Electronics have become world’s
top three PDP and LCD makers. Samsung Electronics is also the world’s No.2 mobile handset
manufacturer, trailing just behind Finland’s Nokia, and the world’s largest maker of memory
chips and LCD driver integrated circuits. Taking into account Samsung’s first foray into the
memory chip business in September 1982 (Lim, 1999; Shin and Jang, 2005), its global market
dominance since its successful construction of the world’s first 1-Gigabyte DRAM prototype
in November1996 is indeed a remarkable achievement.
This South Korean strategy of building highly vertically integrated OBMs such as
25
Samsung, LG, and Hyundai, however, requires very substantial financial commitments and
technological development – something that regions in other Asian developing countries
cannot yet afford. Instead, these regions such as China’s two delta regions, Malaysia’s Penang,
and Thailand’s Greater Bangkok region are strategically coupled with the demand for
competitive production platforms by lead firms in GPNs (see Table 1). As production
platforms, these regions provide very competitive cost structures, abundant labour supply,
stable policy environment, 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. Rather, these developing country regions are
actively plugging themselves into evolving global divisions of labour spearheaded by brand
name lead firms (OEMs). This process of strategic coupling is sometimes mediated by the
strategic partners of global lead firms in the Asian NIEs (EMS and ODMs). The resultant
regional development trajectory is thus not a straightforward pattern of the “new international
division of labour” described in Fröbel et al. (1980) and, more recently, in Scott (2006). It
reflects much more complicated pattern of strategic coupling that occurs during the past 15
years when manufacturing firms in the Asian NIEs have emerged as strategic partners of
global lead firms. In this context, the strategic coupling of these developing regions as
production platforms is coordinated through Asian partners of global lead firms. This is
particularly the case in China’s Yangtze River Delta and Pearl River Delta (see Table 1).
Export-oriented production platforms have been well established to serve global lead firms
and their Asian strategic partners – mostly from Hong Kong, Singapore, and Taiwan – in such
diverse industries as clothing, footwear, consumer products, electronics, and ICT.
In the electronics GPNs, Malaysia’s Penang has gained a strong foothold in the
development of integrated manufacturing of computer and semiconductor products (see Table
1). In 2000, electronics accounted for over 80% of Malaysia’s total manufactured exports
26
(Rasiah, 2006: 127; see also Ernst, 2004). After over three decades of active promotion of the
industry at the federal and state level, Penang is now well articulated into the electronics
GPNs, primarily through such lead firms as Intel, Dell, and Seagate (including the former
Maxtor and Conner Peripherals), and their different tiers of foreign and domestic suppliers
(e.g. Read-Rite, Komag, MMI, and Eng Teknologi). Together with Singapore and Thailand,
Penang is an integral part of the Southeast Asian “golden triangle” that accounts for a massive
majority of the global hard disk drive (HDD) production. It now serves as a “ramp-up” centre
for these global lead firms to prepare new products for mass production in other lower cost
locations in Southeast Asia or China (Bowen and Leinbach, 2006: 155). The Penang
Development Corporation (PDC) plays a critical role in this coupling process by developing
and maintaining the air hub at Penang with strong links to Singapore, Taipei, and Tokyo, and
introducing IT into the supply chains of local firms.
In Thailand’s Greater Bangkok region that includes Rayong and Samutprakarn
provinces along the eastern seaboard (see Figure 2 and Table 1), global lead firms in two
contrasting GPNs have found favourable production platforms for their regional and global
markets: automobile and HDD industries (see Krongkaew and Krongkaew, 2006). In both
industries, the Thai regions have successfully coupled with the demand by global lead firms
for low cost and reliable production platforms. In the automobile industry, the Rayong region
has now become Southeast Asia’s leading production centre, featuring some two dozen
automobile assemblers (global lead firms) and their 700 plus first-tier suppliers (Coe et al.,
2004: 479; see also Doner et al., 2004; Takayasu and Mori, 2004; Hassler, 2006). In 2003, the
automobile industry exported 230,000 units of its total production of 760,000 cars. It is now
the second largest export after electronics and electrical products.
In the HDD industry, we can find major manufacturing facilities in the same Thai
regions, operated by the world’s leading HDD firms such as Seagate, Maxtor (part of Seagate
27
after the acquisition in May 2006), Western Digital, Hitachi-IBM, and Fujitsu. Thailand is
only second to Singapore in terms of global HDD outputs. In the HDD industry, McKendrick
et al. (2000: 8) note that “[t]he ongoing fit between the operational requirements of American
HDD firms and the region’s abilities underscores the dynamic character of competitive
advantage”. The Thai regions are also intimately woven into the complex regional production
networks of these global lead firms and their major suppliers based in Singapore (McKendrick
et al., 2000; Wong, 2001). For example, MMI Holdings, a world’s leading precision
component supplier and a strategic partner of Seagate, enjoys proximity to Seagate’s
operational headquarter in Singapore and a long-standing partnership since its inception as an
OEM supplier to Seagate in1989. As a Singaporean company, MMI has developed very
strong capability and competitiveness in manufacturing die cast base plates for Seagate disk
drives (Interview with co-founder and Group Managing Director in Singapore, 22 June 2006).
4. Conclusion
In this paper, I have attempted to situate regional development trajectories within the
competitive dynamics of global production networks. Moving away from the new regionalism
approach in which analytical privilege is placed on networks and institutions endogenous to
specific regions, my interest here rests with how these regions are articulated into the global
economy. This question can only be satisfactorily answered if we examine the critical link
between regions and the global economy – business firms and their trans-scalar production
networks. In doing so, I focus on the strategic coupling of key actors in regions – local firms –
and their lead firm counterparts in respective GPNs. This relational approach to linking
regional performance with GPN dynamics is fruitful because it helps us avoid the danger of a
myopic reading of regional development inherent in the new regionalism literature. More
importantly, it helps us appreciate the relevance of what Amin and Thrift (1994b) some time
28
ago called “holding down the global”. Without unpacking the strategic coupling processes and
mechanisms, we will not be able to explain convincingly why global lead firms have
selectively incorporated some regions into their GPNs. My analytical approach therefore
echoes several recent attempts to understand the phenomenon of “globalizing” regional
development in economic geography and regional studies (Coe et al., 2004; see also Amin,
1998; MacKinnon et al., 2002; Smith et al., 2002; Cox, 2004; Hudson, 2004).
To “operationalize” my arguments, I have illustrated two contrasting development
trajectories among several major growth regions in East Asia. Based on an analysis of firms
and industries in these growth regions, I have provided some evidence for the analytical
relevance of understanding the strategic coupling between regions and GPNs (see also Yusuf
et al., 2004; Gereffi et al., 2005). In the cases of the Taipei-Hsinchu region and Singapore, a
distinct trajectory of strategic partnership with global lead firms is identified. In both
instances, there exist deeply coupled relationships between the region and propulsive GPNs.
Whereas local firms in the Taipei-Hsinchu region play a much more instrumental role in
coupling transnationally with vertically specialized global lead firms, the developmental
trajectory in Singapore is more driven by the direct presence of these global lead firms and
their local coupling process. In other growth regions of East Asia, the coupling process works
out differently. In South Korea, for example, the Seoul Metropolitan Area is articulated into
the global economy through indigenous innovation activity by large-scale chaebols. Global
lead firms play a much less significant role here. In China, Malaysia, and Thailand, global
lead firms have established major operations, mediated by their Asian strategic partners, to
take advantage of the production platforms of these regions. All of these cases point to the
analytical importance of understanding regional development as a form of trans-local
dynamics constituted by the complex strategic coupling process between local firms and lead
firms in global production networks. They also show how the archetypical Asian
29
developmental state can play a necessary but not sufficient role in engendering regional
development. Effective state policies and initiatives can enhance the strategic coupling
process. But this enhancement takes place within the broader context of global lead firms
searching active for the spatial, organizational, and technological fixes of their competitive
problems. Overall then, regional development is a multi-scalar phenomenon that encapsulates
the local firm, the region, the nation-state, transnational lead firms, and global production
networks.
Looking forward, this analysis provides several major implications for theory and
policy. First, it is clear that we need to theorize the (re)positioning of regions within GPNs.
This is an important task as the coupling mechanisms and articulation processes are not yet
fully theorized and understood. This theoretical inadequacy is particularly unfortunate
because the interest in the trans-local dynamics of regional development was raised as early as
the 1970s in Dicken (1976) and Massey (1979). While the recent “relational turn” in regional
studies and the GPN-inspired research programme have begun to focus on the issue of
regional development, there is a great deal of theoretical work required for understanding how
regions are articulated into GPNs over time. Our theoretical work also needs to go beyond
industrial organization, technological change, and knowledge accumulation. There is also a
high important but often neglected aspect of the financialization of regions in GPNs. Pike
(2006), for example, shows recently how firm closure in a region can be intricately linked to
strategic considerations by financial communities located elsewhere, often in global financial
centres. We need to theorize urgently how technology, knowledge, and finance shape the
strategic coupling of regions in GPNs.
Second, the multi-scalar analysis of regional development from a GPN perspective
points to the importance of theorizing the intensification of inter-regional competition. As
different regions are articulated into the global economy through diverse networks of local
30
firms and their global lead firm partners, we expect inter-regional competition to be
significantly intensified. In the East Asian context, regions are competing directly with each
other through their efforts in developing indigenous firms, facilitating their coupling with
global lead firms, and attracting the direct presence of these lead firms in GPNs. As the
Taipei-Hsinchu region, the Yangtze River Delta, Penang, Rayong, and Singapore are
competing fiercely in the global ICT industry, there is a misleading perception that these
different regions are in head-on collision with each other within the context of a zero-sum
game. Indeed, the reality is far more complex and interdependent than the above casual
observation commonly found in the public domain. There are, for example, intricate and,
often, complementary relationships between global lead firms, their strategic partners in
Taiwan and Singapore, and production sites in the Yangtze River Delta, Penang, and Rayong.
This “inter-regional” competition should rather be theorized as intra- and inter-GPN
competition. At the intra-GPN level, different EMS and ODM providers are competing
against each other for the same lead firm. At the inter-GPN level, lead firms and strategic
partners belonging to different GPNs are competing for market shares.
This phenomenon is not unique to the global ICT Industry and can be observed easily
in other industries and regions (see also Phelps and Fuller, 2000). Reflecting on the future of
textile and clothing firms in Italy, for example, Dunford (2006: 56) notes that “many are
insufficiently differentiated from producers in low-cost countries and are insufficiently
oriented toward export markets with growth potential. As a result, many enterprises and
regional economies are under threat”. His conclusion underscores the critical importance of
understanding the strategic coupling of firm activities in regional economies within GPNs.
For this coupling process brings about greater intra- and inter-GPN competition that may
manifest in the form of alleged inter-regional competition. Clearly, we need to theorize these
complex relationships that impinge on inter-regional competition.
31
Last but not least, we can learn a great deal about strategic policy options from a GPN
perspective. Regional authorities and government agencies should not be paying excessive
policy attention to building regional capability without carefully assessing and understanding
the kind of GPNs with which the region can have a good chance of strategic coupling. This
means an in-depth assessment of the position of a region within certain GPNs. There is, of
course, no easy policy solution and universal panacea, as pointed out in the second
implication above. Regions can become locked-into the strategic interests of global lead firms
and face a serious policy dilemma when the latter disembed from these regions (Phelps et al.,
1998; Phelps and Waley, 2004; see also Martin and Sunley, 2006). While regions are not
necessarily the scale at which competition takes place, regions do certainly experience the
outcomes of this competition. This is where policy instruments might be deployed to mitigate
the potential negative regional impact of intra- and inter-GPN competition. Again, such policy
initiatives should be situated within a comprehensive understanding of the relationships and
positions of a region in certain highly competitive GPNs. This greater sensitivity and
sensibility in regional policy making, in Stiglitz’s (2001: 523) words, requires decisions
makers “to resist accepting without question the current mantras of the global marketplace of
ideas”. The currently endless debate on clusters in regional studies is just one such example
(see Martin and Sunley, 2003).
It does not make much sense, for example, to implement policies that promote a
region as a production platform for lead firms in GPNs, if the region already has strong
presence of local firms and technological competence. Regional policies will likely to be
more effective if they are designed to help these local firms to achieve enduring strategic
coupling with lead firms in GPNs (e.g. the Taipei-Hsinchu region) or to become global lead
firms in their own right (e.g. the Seoul Metropolitan Area). In other developing regions (e.g.
the Yangtze River Delta and Penang), the policy challenge is much more complicated as local
32
firms remain relatively weak in their organizational and technological capabilities. And yet
these regions face tremendous pressure from cost-based competition. Whatever the chosen
development trajectory and policy regime, one important lesson is that they are unlikely to be
effective and sustainable without a full appreciation of the trans-local dynamics in which the
region is located. This is the key contribution of thinking of regional development as
necessarily situated in the competitive dynamics of global production networks.
Notes
1 My observation may appear to be quite strange when key developmental state theorists had published their
work by the late 1980s and early 1990s (e.g. Amsden, 1989; Wade, 1990). While not denying the significance of
state policies in paving the initial conditions for industrialization and economic development (see also Lee et al.,
2005a), I believe their work was based on research conducted in and referring to mostly the early phases of
development during the 1970s and the 1980s.
2 The empirical evidence presented here originates from a major transnational research project in which personal
interviews with top executives of leading Asian firms were conducted in the four NIEs. We interviewed a total of
68 leading Asian firms between June 2004 and June 2006: 19 Hong Kong firms, 13 South Korean firms, 24
Taiwanese firms, and 12 Singaporean firms. These firms were selected on the basis of their 2003/2004 operating
revenues or turnover captured in the OSIRIS database published by Bureau van Dijk Electronic Publishing, a
comprehensive database containing detail financial information on publicly listed companies worldwide. We
selected the top 50 firms from each of the four NIEs and approached them for personal interviews with their top
executives. Among the 68 leading Asian firms interviewed, 15 were in the top-10 and 29 were in the top-20 by
operating revenues in their respective economies. Eleven of them were ranked in UNCTAD’s (2005) Top 50
TNCs from developing economies. Some 33 of the interviewees were CEOs/Presidents or Managing Directors,
whereas another 32 were Executive Directors, General Managers, or (Senior/Executive) Vice Presidents. In
some cases (e.g. Samsung Electronics), personal interviews with several top executives were conducted. In all
interviews lasting between one to two hours, we took an open-ended approach and used only brief interview
aides. Extensively background information from all available public sources was consulted to form the basis of
customized qualitative questions during each interview. All except one interview were taped and transcribed and
these transcripts and other relevant information form the empirical basis of this paper.
3 Again, it is important to note that this concept, despite its potential misinterpretation as a structuralist or
functionalist take, is a heuristic device for understanding the interconnections with regions and global production
networks (see Coe et al., 2004: endnote 1).
4 There is now a credible body of literature examining the political economy of regional development in China
(Fan, 1995; Lin, 1997; Marton, 2000; Wei, 2000; Zweig, 2002), Malaysia (Jomo and Greg, 1999; Morshidi,
2000; Smakman, 2003), South Korea (Cho, 1997; Park, 2005), Taiwan (Hsu and Cheng, 2002; Hsu, 2005), and
Thailand (Unger, 1998; Dixon, 1999; Glassman, 2001).
5 Singapore is taken as a region in this section, even though it is an independent nation-state. As a city-state,
Singapore is territorially and functionally not too different from any major global city-regions in the world (Scott,
2001; Olds and Yeung, 2004).
33
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Figure 1. Changing industrial organization and global production networks and their
impact on knowledge diffusion
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45
Figure 2. High growth regions in East Asian economies
46
Table 1. Economic statistics on growth regions in East and Southeast Asia
(Population in 10,000 persons, employment in thousands, and value in billions in local currencies)
China
2004
% of total
2004
% of total
2004
% of total
2004
% of total
2004
% of total
Growth rate between
2004 and 2000 (%)
(RMB)
Population
Gross
regional
product
Value added
of enterprises
Gross
industrial
output
Gross
capital
formation
Gross
regional
product
Value added
of enterprises
Total 129988 - 13688 - 5481 - 6282 - 6235 - 53 115.8
Shanghai 1742 1.3 745 5.4 343 6.3 349 5.6 361 5.8 63.7 103
Jiangsu 7433 5.7 1540 11.3 645 11.8 771 12.3 803 12.9 79.5 148.1
Zhejiang 4720 3.6 1124 8.2 417 7.6 538 8.6 575 9.2 86.1 167.3
Guangdong 8304 6.4 1604 11.7 709 12.9 801 12.8 637 10.2 66 107.3
South Korea 2000 2004 2004 2004
Growth rate between
2004 and 2000 (%)
(Won)
Population
No. of mfg
establishments
No of workers Value o
f
shipments
No. of mfg
establishments
No o
f
workers
Value
of shipments
Total 4614 - 113310 - 2798 - 788633 - 15.5 5.5 41
Seoul 990 21.5 19264 17 267 9.5 38412 4.9 4.7 -4.3 18
Gyeonggi-do 898 19.5 34766 30.7 823 29.4 189642 24 20.1 10 30.5
Taiwan 2004 2001 2001 2001 2001
Growth rate between
2001 and 1995 (%)
(NT)
Population
No of mfg
establishment
No o
f
employment
Wages
Gross output No o
f
establishment
(all sectors)
No o
f
employment
Gross
output
Total 2269 - 147340 - 6655 - 3020 - 17011 - 8.66 1.16 25.1
Taipei city 262 11.5 8605 5.8 1635 24.6 876 29 4881 28.7 3.13 8 48.74
Hsinchu city 38.7 1.7 2636 1.8 165 2.5 84 2.8 545 3.2 8.44 26.94 71.43
North region1 NA NA 62588 42.5 3677 55.3 1773 58.7 10049 59.1 6.14 3.07 30.57
47
Table 1 (cont’d). Economic statistics on growth regions in East and Southeast Asia
(Population in 10,000 persons, employment in thousands, and value in billions in local currencies)
Malaysia
2005
% of total
2002
% of total
2002
% of total
2002
% of total
2002
% of total
Growth rate between
2002 and 2000 (%)
(RM)
Population
N
o of mfg
establishment
Mfg
employment Wages
Mfg
gross
output
N
o of mfg
establishment
Mfg
employment
Wages
Mfg
gross
output
Total 2613 - 19705 - 1489 - 27.2 - 456.5 - -3.7 -5.5 4.2 3.8
Penang 147 5.6 1645 8.3 297 19.9 5 18.4 77.8 17 -7.9 24.8 8.7 -5.7
Johor 135 5.2 3660 18.6 196 13.2 4.3 15.8 78.3 17.2 2.3 -36.2 -10.4 -0.4
Selangor 474 18.1 3469 17.6 393 26.4 8.8 32.4 132.2 29 1 3.1 12.8 9.3
Thailand 2004 2004 2004
Growth rate between
2004 and 2000 (%)
(Baht)
Population
Gross
regional
product
Mfg gross
output
Gross regional
product
Mfg gross output
Total 6420 - 6577 - 2312 - 33.6 39.8
Bangkok and vicinities 1114 17.4 2899 44.1 1104 47.8 24.3 23.1
Eastern region 434 6.8 998 15.2 528 22.8 59.9 79.6
Notes:
1 Including prefectures of Taipei, Taoyuan, Hsinchu, and Yilan.
Sources: China Statistics Press (2005: Tables 3-1 on p.51, 3-11 on p.59, 4-3 on p.94, 14-2 on p.489), National Statistical Office, South Korea (2002: Table III-3, p.130; 2006:
Tables II-11 on p.146, V-1 on p.319), Executive Yuan, ROC (2003: Table 3 on p.3, Table 23 on p.43, Table 51 on p.428; 2005: Table 13 on p.22), Department of Statistics,
Malaysia (2003/2006: Tables 2.1 and 5.1.), and National Economic and Social Development Board (2006).
