1. Regional trade and international
production networks: The context of
automobile industry in Asia
Presented by:
NUNNOO Nawseen
BURNAH Neeta
CAMALL SAIB Amiirah
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2. Regional trade and international production
networks: The context of automobile industry in
Asia
Author: DEBDEEP DE
Jaypee Business School, Jaypee Institute of
Information Technology, Deemed University
Source: International Journal of Technology
Management & Sustainable Development
Volume 10 Number 1 (2011)
Website: www.ebsco.com
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3. Regional trade and international production
networks: The context of automobile industry in
Asia
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4.
5. List of Abbreviations
• IPN: International Production Network
• WTO: World Trade Organisation
• LDCs: Least Developed Countries
• P&C: Parts and Components
• EU: European Union
• APEC: Asia-Pacific Economic Corporation
• RTA: Regional Trade Agreement
• MFN: Most Favoured Nation
• OEMs: Original Equipment Manufacturers
• SKD: Semi Knocked Down
• CKD: Completely knocked Down
• CBU: Completely Built Units
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6. List of Abbreviations (Contd)
• ASEAN: Association of South East Asian Nations
• SMEs: Small and Medium Enterprises
• SAARC:South Asian Association for Regional Cooperation
• IIT: Intra-Industry Trade
• EPZ: Export Processing Zones
• FDI: Foreign Direct Investment
• BBC: Brand of Brand Complementation
• AICO: ASEAN Industry Cooperative Organization
• CEPT: Common Effective Preferential Tariff
• AFTA: ASAEN Free Trade Agreement
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7. Overview of the study
IPN in automobile industry
Regionalization in the automobile industry
Intra-Asian trade in auto components
Policy determinant of IPNs in Asia
Conclusion: Is RTA a necessary factor for IPN
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8. Introduction
“Globalization is a process that encompasses
the causes, course, and consequences of
transnational and transcultural integration of
human and non-human activities.”
( Stoudmann,2006 )
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9. Introduction (Contd)
• The proliferation of production networks
• The global value chain
• Advantage of IPN:
o Cross-border production sharing
o Opportunities for cost-efficient specialisation and
welfare-enhancing trade.
o Facilitate trade pattern in South East Asian
economies
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11. Objectives of the study
Objectives
To identify the linkages in the
production networks and the trade
agreements in the context of the
automobile industry.
To assess how the growing formal trade
agreements influence the IPNs in the
region.
To analyse the intraregional trade in the
automobile industry in Asia.
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12. IPN in Automobile industry
• IPN is defined as the nexus of interconnected
functions and operations through which goods
and services are produced, distributed and
consumed (Henderson et al.,2002: 445-46).
• IPN combines various value chain across
countries along with an integrated hierarchical
layers of networks participants.
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13. Evolution of IPN in Asia
1950s
(1)Import-
substitution
industrialization
policies
1990s
(1)Limited
imports and
exports
(2) Change to
trade liberalisation
(3)Developing
countries
becoming more
integral to their
plans
2001-2005
(1)Reduction in
MFN duties on
various
automotive
components
(2)Countries
such as China,
India, Indonesia
and Thailand
liberalised trade
in P&C
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14. Original Equipment
Manufacturers(OEMs)
• OEMs form an industrial network.
• OEMs bargain over:
o Prices
o Wages
o Subsidies & Legislation
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15. Innovation and networks
• Organisation are driven more towards greater
product differentiation
• Likewise, the industry is shaping towards the
cluster and is taking two distinct forms:
o The formation of a geographic cluster
o Innovation process
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16. Innovation and networks(Contd)
• The four factors of the innovation process
leading to the formation of the cluster:
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(2) Collaboration &
interaction
(4) Optimal skills &
Knowledge
(3) Formal & informal
institution
(1) Learning &
knowledge
accumulation
17. Horizontal/Vertical networks
• Definition
• Horizontal relationships among networks of
peer companies can involve vertical network
relationships at the same time.
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18. Closed/open networks
• Closed networks – Long term relationships
exist that are not accessible to outsiders
Examples ; Renault & Volkswagen
• Open networks – Easily penetrable by
outsiders
• Combination of both can exist
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19. Closed/open networks (Contd)
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• Sourcing strategies:
o Single sourcing strategies
o Multiple sourcing strategies
• Internationalisation strategies
o Exports of complete cars
o Exports & local assembly of cars that are slightly
disassembled(SKD)
o Substantial local assembly of cars (CKD)
o Integrated local manufacturing (CBU)
21. Regionalization
“Regionalization can be defined as politico-
administrative process by which regions emerge
as relevant units of analysis for economic and
political activity and welfare and service
provision” (Magel, 2011).
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22. The Triad region
• 80% of world automobile production takes
place in the three triad regions
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23. Automobile production in Asia
• The automobile production in Asia is
dominated by Japan and lesser extent by
Korea
• Major focus of automobile production in East
and South East Asia are China, Malaysia,
Taiwan, Thailand and to lesser extent,
Indonesia and India
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24. Regionalization IN THE AUTOMOBILE
INDUSTRY
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• Japanese cars are assembled in Thailand,
Malaysia, India, Indonesia, Taiwan and China
• Japanese firms are prone to penetrate the
Asian market to developed customised cars
• The western automobile companies are also
taking interest in Asia
o GM and Ford
25. Profile of automobile trade by automotive-
producing and Asian countries (2006)
(values in US$ billion)
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26. Intraregional integration of production
• The size and affluence of the market
• The high degree and wide geographical extent
of political integration
• East Asia is regarded as potentially the fastest
growing market for cars over the next few
decades
• South East Asian countries are inevitably the
next automobile hub
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27. INTRA-ASIAN TRADE IN AUTO
COMPONENTS
• The growth of the components depend on
relationship between supplier and assembler
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OEM
Players
focus
on
Servicing on
After-sales
market
Assembly
operations
Basic design
Deal with
smaller
group of
large
suppliers
28. INTRA-ASIAN TRADE IN AUTO
COMPONENTS (Contd)
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• Strong competition exist in component sector
caused by:
o Price cut
o Shorter life cycles of production
• Importance is being given to price and quality
while buying from suppliers
• Governments are supporting the sector by
providing incentives
29. INTRA-ASIAN TRADE IN AUTO
COMPONENTS (Contd)
• SMEs were encouraged to set up plants
around OEMs
• The concept of assembly process at different
stages resulted in multiple-border crossing of
product fragments before getting
incorporated in the final product
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30. Major export destination of auto
components from Asia (2006)
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31. Export destinations of automobiles
• India export to:
o US
o UK
o Germany
o Middle East
o SAARC members
• ASEAN is a major destination of Indian auto
component product
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32. Import destinations of automobiles
• India imports from:
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Asia • US$2.4 billion
Japan • US$575 million
China • US$484 million
Thailand US$234
million
36. POLICY DETERMINANT OF IPNS IN
ASIA
• Production networks in the Asian region can
be explain by policy factor because of two
region-specific policy events:
1. The tendency of the so-called hollowing out
of the Japanese economy in the 1980s
(Baldwin 2007)
2. The Asian economies introduce the dual-
track strategic approach to industrialisation
(Kimura 2006)
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37. POLICY DETERMINANT OF IPNS IN
ASIA (Contd)
1. Japanese reallocating
their production plants
2. Industrialization in
less developed Asian
countries
3. Liberalization in
foreign direct
investment
4. Liberalisation in trade
policy
Factors that initiated
production networks
within Asia
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38. Tariff phase out in Asia for auto
components, 2000-07
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39. Problems facing automobile industry
in East Asia
• The region remains one of the largely separate
markets
• Schemes devised to counter these problem:
• BBC (Brand of Brand Complementation)
Schemes in the late 1980s
• AICO ( ASEAN Industry Cooperative
Organisation) in 1996
• CEPT (Common Effective Preferential Tariff in
2003
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41. History of automobile industry in
Mauritius
• At the beginning of 1860, the transport of
passengers and goods was undertaken by
animals, carriages and carts.
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42. History of automobile industry in
Mauritius (Contd)
1901
• First two seater car
• First motorised truck of British origin
1930
• 3,016 vehicles around the island
1950
• 5, 161 vehicles
1970
• 25, 389 motorised vehicles
2011
• 392,276 vehicles registered
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43. The Mauritian Automobile Industry
• As at 30 June 2010, the number of vehicles
registered at the National Transport Authority
(NTA) was 374,547.
• Composition of the fleet:
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45%
42%
13%
Central Statistics Office, August 2010
Cars and dual purpose
vehicles
Motorized two-wheelers
Vans, Lorries and trucks,
buses and other vehicles
44. Vehicles registered in Mauritius
Table 1.1 - Vehicles¹ registered as at June 2010
No. of New
Imported
Re - registered Vehicles off the No. of
second-hand Net addition2 3
Type of vehicle vehicles at vehicles vehicles at
vehicles vehicles road
Jan. - June 2010
31.12.09 Jan. - June 10 30.06.10Jan. - June 10 Jan. - June 10
Jan. - June 10
Car 117,890 2,251 2,493 141 577 122,198 4,308
Dual purpose vehicle 47,146 638 68 57 335 47,574 428
Motor cycle 44,222 2,201 24 122 348 46,221 1,999
Auto cycle 108,713 1,667 1 - 718 109,663 950
-5-
Lorry and truck 12,950 132 108 42 107 13,125 175
Van 25,622 140 177 40 238 25,741 119
Bus 2,803 74 - - 33 2,844 41
Other 7,174 66 31 16 106 7,181 7
Total 366,520 7,169 2,902 418 2,462 374,547 8,027
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45. Agreements signed by Mauritius
Mauritius has secured preferential access to
markets of several hundreds of million consumers
with:
o The US under the Africa Growth and Opportunity
Act (AGOA)
o The Eastern and Southern Africa through the
Common Market for Eastern and Southern Africa
(COMESA)
o The Southern African Development Community
(SADC)
o Membership to African Pacific- Carribean (ACP)
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46. Agreements signed by Mauritius
(Contd)
o The Investment Promotion and Protection
Agreements (‘IPPAs’)
o The North American Free Trade Agreement
(NAFTA)
o European Union (EU)
o World Trade Organisation (WTO)
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47. Free Trade Agreement (FTA) between
Mauritius and Turkey
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48. Free Trade Agreement (FTA) between
Mauritius and Turkey (Contd)
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Source: ANNEX II to Protocol 1- Free Trade Agreement between the Republic Of
Turkey and The Republic Of Mauritius
49. EU Trading With Mauritius (2011)
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Source: MAURITIUS EU BILATERAL TRADE AND TRADE WITH THE
WORLD 21-MAR-12
http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc
_122463.pdf
50. EU Trading With Mauritius (2011)
(Contd)
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Source: MAURITIUS EU BILATERAL TRADE AND TRADE WITH THE WORLD 21-MAR-
12 http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_122463.pdf
51. United States-Mauritius Trade and
Investment Framework Agreement
(TIFA)
• Mauritius exports to U.S.: $ 176.4 million in
2008, a 6% decrease from 2007. (textile and
apparel, cut diamonds and jewelry, live
animals, prepared fish, optical and medical
instruments and perfume)
• U.S. exports to Mauritius valued at $51.3
million, a 3% increase (wheat, diamonds and
jewelry and machinery)
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52. Benefits of regional integration to
Mauritius
• Regional integration is expected to:
o bring efficiency in the production system
o develop the regional market
o bring homogeneity in transportation sector
o liberalize trade and trade facilitation in this
sector
o reach economies of scale
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53. Limitations
• Secondary data was limited based on the
Mauritian context of automobile industry
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55. Conclusion
• Market-led integration, rather than integration
that comes from formal trade agreements
• More recently, after the 1997/98 Asian
economies crisis, countries in East Asia tried to
formalize the market-led integration
• The establishment of regional trade
arrangements helped to deepen production
networks and supply chain
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56. Conclusion (Contd)
• RTAs could be adopted as a vehicle to further
activate IPNs as:
o RTAs are flexible policy tools, in terms of speed,
scope and sequencing
o Trigger IPNs by reducing service-link costs arising
from geographical distance
o Promoting production cost saving in the
fragmented production blocks
o Promoting institutional building to reduce firms’
arm-length transactions
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