Regional Economic Cooperation Essay
Regional Economic Cooperation
One of the most important developments in the world trade system in the 1990s has been the emergence of regional cooperation. The end of the Cold War reduced political tensions between countries in Asia as well as globalizing production processes and increasing vertical integration. Cities like Bangkok, Kuala Lumpur, and Singapore have been lifting their populations out of poverty in part through cooperative arrangements with neighboring countries. Transnational economic zones have utilized the different endowments of the various countries of East Asia, exploiting cooperative trade and development opportunities.
Transfer of technology and manufacturing between nations has allowed them to develop sequentially. Information technology has improved linkages between economies and put remote regions in contact with the world. The private sector provides capital for investment; the public sector provides infrastructure, fiscal incentives, and the administrative framework to attract industry. Regional cooperation is now considered the means of enhancing economic development and providing economic security within the regions.
Trade among ASEAN members accounted for more than 23% of all trade by member nations in 1994, topping that of any of the group’s major trading partners. Singapore has concentrated on becoming the technology center for Southeast Asia, sending labor-intensive operations to low-cost neighboring countries like Malaysia and Indonesia in special mutual cooperative trade and development arrangements known as growth triangles or growth polygons. The Southern Growth Triangle, also known as SIJORI (Singapore, the Johore state of Malaysia, and Riau Province of Indonesia), was formed in 1989 and covers a population of about 6 million people.
It attracted $10 billion in private sector investments during its first five years. Such regional economic cooperation has occurred in other Asian regions as well, spurring economic development. Growth triangles are expected to be a continued driving force for growth in Asian economies throughout the 1990s. Four growth triangles have been established since 1989, involving parts of 11 countries. There are currently eight growth polygons in East and Southeast Asia, with additional triangles being planned.
For example, Cambodia, Laos, Myanmar, Thailand, Vietnam, and China’s Yunnan Province have been discussing ways to develop the Mekong area since 1992. Regional cooperation provides a competitive model to attract investment and technology. According to the secretary general of ASEAN, Ajit Singh, “These growth areas will have to be flexible to change where necessary, innovative, and always attentive to the needs of the investors and the businessmen. They also have to be aware that they are competing with much larger countries such as China and India, whose capacities for attracting investors are much greater than their own” (Kruger 1996, 17).
Asian capital markets are now watching the global economy, and large companies recognize their need to be involved in this fastest growing region in the world. The growth triangles typically group remote regions of the nations involved in an effort to exploit complementary assets within the groupings. For example, the Tumen Delta triangle integrates the capital and technology of Japan and the Republic of Korea with the natural resources of Russia and North Korea (i. e. , the People’s Democratic Republic of Korea) and the labor and agricultural resources of China.
The governments of Brunei, East and West Kalimantan, and North Sulawesi of Indonesia; Sabah, Sarawak, and Labuan in Malaysia; and Mindanao and Palawan in the Philippines have given priority to expanding air and shipping routes within the East ASEAN Growth Area, another polygon. Where all parts of the polygon are at similar levels of development, growth is expected to be slower. Singapore has provided capital and technology for developments in Malaysia to support SIJORI. Thailand is expected to provide capital and experience in developing the Mekong polygon.
It will encompass a population of over 400 million people offering low wages, rents, and land costs. The Southern China Growth Triangle The Southern China Growth area comprises Hong Kong, Taiwan, and the southern provinces of China (Thant et al. 1994). Because China lags behind Taiwan and Hong Kong considerably in economic development and has a very large population, growth in this triangle has enormous potential. Establishment of this triangle was spurred by market forces and private sector initiatives rather than by policy coordination among the countries. However, government policies have supported the economic links that were instituted.
The PRC’s economic reforms and open door policy initiated in 1978 laid the foundation for economic success in Guangdong and Fujian provinces. Establishment of China’s first Special Economic Zone (SEZ) in 1980 provided for tax concessions, expanded land use rights, and simplified procedures for foreign investment. Policies for land use, finance, and trade were designed to reduce transaction costs and to provide greater access to the domestic as well as the world market. Policies formulated within the SEZs themselves have been even more liberal than those in other parts of the triangle.
For China, the triangle has provided exports, foreign exchange, and employment as well as access to the larger global economy. Rapid economic growth and higher incomes have occurred in Guangdong and Fujian Provinces with materials and components from Taiwan’s manufacturing sectors and the support of Hong Kong’s advanced services sector. Geographical proximity and common language are the most compelling factors for capital to move across the border from Hong Kong into Guangdong Province, or for investment to flow across the Formosa Strait from Taiwan to Fujian Province.
Cantonese is a Chinese dialect spoken in both Hong Kong and Guangdong, while Fujianese is spoken in both Taiwan and Fujian. For Hong Kong and Taipei, the triangle has provided a means of implementing structural changes in manufacturing and export patterns at minimal cost. In spite of recent political posturing on the part of China, economic planners in Hong Kong and Taiwan are optimistic that economic logic will continue to drive regional integration. Low-Cost Sourcing As Japanese and U. S firms seek to reduce the cost of their latest innovations, they are outsourcing production to low-cost contract manufacturers.
China has a growing number of low-cost parts and components suppliers. With a minimum of overhead and a large pool of low-cost labor in China, there is a growing list of high-quality vendors in China. The continuing miniaturization of products has lead to joint ventures with companies from Japan, the United States, Taiwan, Hong Kong, and other Asian countries. The success of these firms is dependent upon providing competitive value in a timely manner. Low-cost board assembly operations in China utilize the latest SMT equipment required by new computer and telecommunications products.
Capital intensity will increase as IC packaging and SMT assembly operations are installed. In the 1980s, Korea and Taiwan provided the first step in the cost reduction chain by providing the most advanced process capabilities. Singapore and Malaysia became additional sources for contract manufacturing with the establishment of global vendors like SCI and Solectron. Today, further cost reduction is possible by moving production to lower cost regions like China and the Philippines. Wong’s Electronics in Hong Kong provides a three-step process for cost reduction that includes low-cost labor, low-cost sourcing, and low-cost production designs.
Hong Kong, Thailand, Malaysia, and China are considered the home of lowest-cost manufacturing competitors in the electronics industry today. They offer limited component technology or product design skills, but provide many low-cost suppliers of generic, low-technology components. Since low-cost manufacturing countries generally lack the technologies required to become industry leaders, they must follow the technology trends as quickly as possible. OEM competitors from Taiwan and Singapore are being forced to open branch plants in China or other Southeast Asian countries to produce the most labor-intensive, cost-driven products.