Economic Governance and the Challenge of Flexibility in East Asia

249 Pages·2001·40.216 MB·English

by  Frederic C. Deyo, Richard F. Doner and Eric Hershberg

Economic Governance
of
Challenge
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Flexibility in
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Economic Governance
and the Challenge of
Flexibility in n
o
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Edited
Frederic C. Demo, Richard F. Donor,
and Eric; Hershberg
RQWMAN & LITTLEFIELD PUBLISHERS, INC.
Lanham (cid:127) Braulcier 1 New Oxford
RQWMAN s LITTLEFIELT) PUBLISHERS, INC.
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Copyright © 2001 by the Social Science Research Council
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British Library Cataloguing in Publication Information Available
Library of Congress Cataloging-in-Publication Data
Economic governance and the challenge of flexibility in East Asia »* edited by Frederic C.
D:-:Yo, Richard F. Donor, and Eric Hershberg.
p. cm.
A collection of 9 papers be the editors and other scholars.
Includes bibliographical references and index.
ISBN 0-T425-0943-5 (alk. paper) - ISBN 0-T425-0944-3 (pack. : al. paper)
1. Industrial management-East Asia Case studies. 2. Industrial policy-East
Asia-Case studies. 3. Decentralization in management East Asia-Case studies. 4.
Flexible manufacturing systems-East Asia-Case studies. 5. Industries East Asia-Case
studies. l. Demo, Frederic C. II. Donor, Richard F. III. Herslibcrg, Eric.
HD?0.E;2 E34 200I
333.95-L1c21 00-062653
Printed in the United States of America
® 1 2'-i
The paper used in this publication meets the minimum requirements of American National
Standard for Information Sciences Permanence of Paper fir Printed Library Materials,
ANSI/NISO Z39.48-1992.
Contents
Introduction: Economic Governance and Flexible Production in East Asia 1
Frederic C. Deja and Richard H Done?
1 Sources of Success in Uncertain Markets: The Taiwanese
Footwear Industry 33
Lu-lin Cheng
2 Flexibility under Unorganized Industrialism? The Experience of
Industrial Restructuring in Hong Kong 55
Tai Low Lui and Stephen W K. Chiu
3 Governance and Flexibility: The East Asian Garment Industqf* 79
Richard I? Appelbaum and David A. Smith
4 Dynamic Flexibility and Sectoral Governance in the Thai Auto
Industry: The Enclave Problem 107
Frederic C. Demo and Richard E Donor
5 Catching Up and Postcrisis Industrial Upgrading: Searching for
New Sources of Growth in Korea's Electronics Industry 137
Dieter Ernst
6 Politics, Institutions, and Flexibility: Microelectronics Transnationals
and Machine Tool Linkages in Malaysia 165
Rajah Rasialt
V
vi Contents
7 Flexible Production, High»Tech Commodities, and Public Policies:
The Hard Disk Drive Industry in Singapore 191
Pol1»Kam Womb#
Conclusion: Network Governance, Flexibility, and Development
amid Crisis 217
Frederic C. Demo, Richard E Dozen and Eric Hefrshberg
Index 229
About the Contributors 241
Introduction
Economic Governance and
Flexible Production in East Asia
Frederic C. Demo and Richard F Dimer
Some years ago, Charles Sabel explored the possibility that developing countries
would move toward "changing models of economic efficiency," Sabel speculated
that a shift from mass to more flexible forms of production could result from the
internal decentralization of large firms and from the evolution of firms in the in-
formal sector to some variant of what came to be known as the Third Italy (Sabel
$986: 41-50). This volume explores the issues first raised by Sahel, albeit in much
changed economic conditions, through a more explicit institutional and political
theoretical lens and with a focus on a variety of sectors in what, until its wide-
spread late 1990s economic crisis, was the most successful developing region in
the world-East and Southeast Asia.1
Recent years have witnessed profound transformations in the nature of the
challenges facing developing countries seeking to promote economic growth and
equity. A combination of technological advances, external market liberalization,
and transformations in the nature of product markets has imposed powerful con-
straints on firms in developed and developing countries alike, while creating new
opportunities for firms and entire sectors to enter markets from which they had
previously been excluded. The Asian economic crisis intensified these pressures
and opportunities in part by increasing pressure for liberalization in both factor
and product markets. But it also complicated responses to these conditions by
destabilizing macroeconomic conditions and financial flows and stimulating major
changes in corporate governance.
This volume seeks to enhance our understanding of the factors that account
for the success or failure of economic actors seeking to achieve competitiveness
in these new circumstances. More specifically, the volume analyzes the role of
economic governance institutions in facilitating competitive performance in the
1
Z Introduction
developing market economies of East and Southeast Asia. Drawing on case stud-
ies of a variety of industries, the authors demonstrate the significance of p1°odue»
five flexibility for achieving success across a wide range of economic sectors.
Equally important, they highlight the critical role of institutional factors-espe-
cially networks in shaping actors' capacities to adapt to rapid changes in mar-
kets, technologies, and consumer demand.
V/hile "getting governance institutions right" may not be sufficient to sustain
competitiveness or to ensure economic development, these elusive outcomes ap-
pear implausible absent such institutional underpinnings. But if coordinating
mechanisms are necessary, there is neither one magic institutional formula for
success nor any functionalist guarantee that an economic need will lead to sup-
portive mechanisms. We instead Find different institutional configurations within
and across different industries. And we find that sociopolitical factors weigh heat
fly on the kinds of arrangements that do emerge. This introductory chapter begins
be
outlining the challenges confronting developing countries and the utility of
East Asian cases for understanding both the challenges and the institutional and
political responses to them.
FLEXIBILITY PRESSURES
Firms in the Indust rializing as well as industrially advanced countries are now
confronting a combination of exogenous pressures-transformed markets, ex-
ternal market liberalization, and accelerating technological change. Global
oversupply in many industries has resulted in buyers' markets where customers
enjoy expanded choices. Today, global buyers stress competitive price, good
quality, quick delivery time, and heightened responsiveness to changing de-
mand requirements. Fleury noted this pattern in his study of industrial change
in Brazil during the 1990s, when unlike the earlier period in which firms were
"[a]ccustomed to a restricted product variety and relatively high prices, the
opening to the global market had a different impact: markets became seg»
rented, and a confusing pattern of price, quality and diversity emerged as req»
uisites of demand" (Fleury 1995).
In addition, firms throughout the developing world are forced to contend with
more liberalized external markets. This process has been especially extensive in
East Asia. The economic crisis there was in part the result of liberalized capital
markets, and the region's product markets had already been relatively open by the
early 1990s. Many of the region's countries are now facing further tariff reductions
as part of imminent \world Trade Organization membership, as well as tariff re-
forms through the Asia Pacific Economic Cooperation process and under the
ASEAN Free Trade Area (AFTA) agreements Combined with significant fcvels
of foreign investment, these reforms collectively transmit cost and quality pres»
sures with ever greater force to local firms.3
Introduction 3
What will be the impact of market liberalization on production? There is of
course the possibility that liberalization will encourage mass, as opposed to more
flexible, production. As McKeown has argued with regard to developed-country
firms, increased *access to large export markers for firms with small domestic mar»
.
bets means greater opportunities for longer production runs (McKeown 1999)
This point was certainly borne out by South Korean success prior to the crisis, as
suggested by Ernst's contribution to this volume. But even where liberalization
promotes longer production runs of standardized goods, successful firms will have
to enhance their operational capabilities with regard to product diversification
(Kotha 1995) and change, continual process improvements (kaizen),"' enhanced
quality and timeliness of delivery of products, and, in some cases, product devel-
opment and innovation. In this volume, we refer to these various performance can
pabilities as instances of the more general concept of production flexibility
The range of industry cases covered in this volume suggest several specific pat-
terns of tlexibilityhinducing market pressures in East and Southeast Asia. For firms
in export»oriented textile/garment and athletic footwear industries (Lui and Chiu,
Appelbauin and Smith, and Cheng, this volume), pressures are for quick-response
and supply-chain management to meet volatile demand for E-1 wide range of prod-
ucts and relatively short production runs, a pattern described by Boyer and
Hollingsworth (1997: 45?-458) as "customized production." A similar pattern
might obtain for firms that cannot compete in mass exports and opt to become
domestic "niche" players. Firms in industries such as autos and semiconductors
(Demo and Doner, Rasiah, and Ernst, this volume) are pushed toward strategies of
"diversified quality mass production," in which increasing returns to scale obtain
but in which high-volume goods also undergo constant modifica-ition.6 Still an-
other related pattern, "adaptive production," is seen in the hard disk drive indus-
try, where firms must shift rapidly from one mass-produced "high-technology
commodity" to another (Wong, this volume).v Although differing in some impor-
tant ways, each of these strategies requires continually improving production
processes in order to meet cost and quality pressures imposed by others trying sim-
ilar strategies
PERFORMANCE DEMANDS AND THE
COMPETITIVE STRATEGIES OF FIRMS
Are heightened demands for flexibility actually reflected in the strategies of less-
developed country (LDC) firms, and are these firms successful in pursuing new
strategies of flexibility? Here we find much variability, since firms compete in part
be selecting and continually redefining the market niches in which they operate.
The possibility of strategic choice implies as well diversity in the performance re»
quirements to which firms attend, although it is also clear that firms may simul-
of
taneously compete in multiple ways. Attention to a ser interrelated performance