What's happening in Intra Asia

 

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Pacific Basin economies have what it takes at every level to rise on a tide of prosperity

Over the last decade, technology hierarchy among Pacific Basin countries, which dominate the intra-Asian trade, can be exemplified by the rapid growth of intra-industry trade and the spread of segmentation of production networks across national boundaries.

That's because of several technological developments have facilitated the expansion and integration of intra-industry trade, not only among richer OECD countries, but between industrialising and developing nations as well.

Once progress is made in transport and communication, which reduces transaction costs, so movement up the supply and industrial food chain can take place, after which comes "progressive simplification of engineering".

This enables the consumer electronics industry for example, to reduce the number of components needed. Third, comes widespread automation of production, which standardises the labour skills needed in the assembly stage worldwide.

This enables a firm to physically separate the stages of production and or to decompose production elements in accordance with production requirements at various stages.

More precisely, globalisation exists primarily to enable multi-national companies (MNC) to disintegrate their production lines across national boundaries to exploit comparative advantages available in developed and less developed countries in line with the specific needs of each stage of production.

The cost-driven foreign direct investment (FDI) strategy, analysed by John Dunning, widely recognised as the father of international business studies, from technological advanced countries had compartmentalised production process in accordance with technological hierarchies and dynamic comparative advantage in hosting nations.

Hence, a well-integrated global production network, which was facilitated by mobile capital from multi-nationals and financial liberalisation undertaken in the newly industrialised countries (NIC), was emerging rapidly.

For example, in consumer electronic industries, each of the major stages of production has different production characteristics; the design stage of consumer electronics usually involves research-intensive process, which requires high quality human capital.

The manufacturing stage, especially for key component such as TV screen tubes, is highly capital intensive. Hence, economies of scale production are necessary to maintain cost effectiveness.

Finally, in the assembly stage, under which automation and standard technology are prevalent, the demand for great quantities of cheap labour. Therefore, globalisation of production network was fostered by the changing production techniques, and the pattern of new divisions of labour was primarily based on technological advancements among nations.

Let's take a look at a semi-conductor goods produced by General Electric. Such a commodity is generally considered as high-tech. It has three major product groups; the integrated circuit, diodes and transistors. The general sequence of semi-conductor production includes five major stages; 1) design of new circuit, 2) production of masks, 3) fabrication of wafers, 4) assembly of integrated circuit, and 5) final testing and shipping.

The stage of design and wafer fabrication required high-powered scientific and engineer personnel whereas final assembly would only require low-skill labour. Because each stage has unique production characteristics, which is different from the other, and neither of them need to be close to each other.

Thus, it takes little imagination to appreciate that the scope of talents available and their critical affordability is abundant among the nations of the Pacific Basin in general and among the ASEAN economies in particular. Keeping costs down and providing a stable social environment in which rule of law prevails is critical going forward. In that way fortunes will improve incrementally as all boats rise on the incoming tide of prosperity.

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