Thursday, June 21, 2007

Tale of Two Sectors, From NAFTA to China, Innovation and the Limits of State Power, and From Us to Them

Tale of Two Sectors

This chapter looks at the Taiwanese auto industry in terms of the product life-cycle theory as well as the commodity chain perspective—both buyer-driven and producer driven. It examines three components of the industry: assemblers, OEM manufacturers, and aftermarket manufacturers. Each component faces particular constraints to growth, such as a small domestic market and dependence on foreign (mostly Japanese) technology. The producer-driven segments, assemblers and OEM companies, face the most difficult situation as they are locked into relationships with foreign firms, and there is a demand for high levels of production at low cost. The buyer-driven segment, aftermarket, faces less pressure, more flexibility, and lower demand for innovation.

One strategy that Taiwanese firms have pursued is in creating niche markets for specialized products. They have also sought to build brand recognition, diversified product lines, and market segmentation. Another strategy has been to invest in facilities overseas, particularly in China.

The move to China presents a number of challenges. At the time of the writing of the chapter, there were many advantages of moving production to China—its large and highly protected potential market and low labor costs for example. However, as trade barriers come down, and as Chinese firms start to bypass Taiwan in favor of direct ties to Japanese firms (who provide most of the technology to Taiwanese firms), Taiwanese firms will have to develop new strategies in order to remain competitive.

Policy suggestions for the Taiwan government are 1)encourage standardization, 2) support and strengthen a sophisticated parts testing center, 3) strengthen its role as a clearing house for aftermarket parts and improve communication between key parties, and 4) create collective leverage among leaking aftermarket parts manufacturers. Suggested strategies for Taiwanese firms include selective integration into global production networks, tying into the lower tiers of supply networks, and to seek domination of the largest markets for aftermarket parts.

From NAFTA to China

This chapter examines the implications of the shift of production from Mexico to China in light of the theories of regionalization and globalization—two theories that see the organization of regional trading blocks as leading to a breakdown of national borders and an increased emphasis on free trade. The evidence of many firms moving production facilities from Mexico to China calls into question the assumptions of these theories.

Regionalization dictates that proximity to markets is necessary. However, the evidence examined in this chapter shows that shipping finished goods to far away markets can be cheaper and quicker than sending rich country inputs for labor-intensive assembly in low-wage environments. This means trouble for Mexico’s industries, but it can also provide some opportunity for industrial upgrading and niche-market production.

Taiwanese firms, in light of the lessons of Mexico, should consider investing in distribution and service centers in the U.S., rather than in production facilities in Mexico.

Innovation and the Limits of State Power

This chapter looks at software and IC chip design in Taiwan, focusing on the state’s role in their development in terms of financing and innovation. It also takes a critical look at the neodevelopmental state theories, and contends that their assertion that a state is either neodevelopmental or not is not true, with Taiwan being a case in point (as it has had both successes and failures).

There are a lot of details about how the IT industry is organized and how it works, but much of this we’ve already seen in other readings. I found the most interesting part to be about how the state encourages/discourages firms to follow particular business models. For example, how the regulations regarding paying employees stock options encourages companies to go public as fast as possible, foregoing costly and time-consuming R & D.

From Us to Them

This paper looks at the identity politics of diasporic groups, particularly Chinese and Taiwanese. First it shows how these types of groups form networks across national boundaries that are based on ethnic, racial, national, or religious commonalities, either real or perceived. For example, Taiwanese business people form closer ties to ethnic Chinese people when they do business in Indonesia than they do with the “native” Indonesians. This is due in large part because they generally feel more comfortable and safe with people that share “Chineseness” with them. On the other hand, they also try to distance themselves from this Chinesesness when it is perceived as being a disadvantage or danger to their interests.

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