Adjusting The East Asian Production Network And China's Industrial Upgrading

In response to fierce competition in the global market, multinational corporations(MNCs) allocate resources on a global scale, and constantly innovate economicorganization. Since in the late1980s, Overseas Chinese entrepreneurs andmultinationals of Japan, US, and so on have massively increased seeking efficiencyinvestment in East Asia and business outsourcing. Increased FDI mainly exploited thefactors cost advantage in East Asian region to improve product competitive advantagein developed economies’ markets. At the same time, each economic entity in East Asiaactively implemented economic liberalization policies, as well as the rapiddevelopment of communications and transportation technologies has continued toreduce linkage costs. These rapidly spurred East Asia production network servicingfor MNCs’ global strategy to develop, to extend in East Asia region. East Asianeconomic entities, particularly developing economic entities, have become MNCs’(i.e.flagship firms) labor-intensive or low-technology intensive production departments,assembly departments. Today, this division of labor in East Asia still expands andpromotes regional cooperation.To East Asian suppliers integrated in East Asian production network, they havedeveloped a close relationship with the network enterprises came from developedcountries and frequently gained advanced knowledge passed through the productionnetwork. Furthermore, it forced suppliers to improve manufacturing or research anddevelopment (R&D) capabilities to meet the flagship firms or high-tier suppliers’requirements. So the local suppliers’ capacities have obtained a certain degree ofincrease after joining East Asian production network. However, because of theirdependence on high-tier suppliers or flagship firms’ distribution channels or key partsand components supply, the local suppliers would most likely be locked on fixedposition in East Asian production networks and it is difficult to gain further industrialupgrading for them, which means always locating in lower added value position of avalue chain. Studies have shown that many industrial suppliers in China are still in thelow-value links. Labor-intensive links still continue to expand parallelly and consumelots of resources, and these probably form inertial development pattern, even rejectefforts to promote the technology capacities, or sales capabilities. However, Chineseadvantages, such as land cost, labor cost, are shrinking.It was fast horizontal extension of East Asia production network that resulted in a rapid expansion of manufacturing capacity in East Asia which leads to East Asianregion increasing dependence on developed economic entities markets in Europe andAmerica. Especially dependence on the United States market has been far moreserious, causing trade imbalances. At the same time, East Asia dependence on energy,raw materials, capital and technology from outside region was deepened. But therewas limited growth of demand of Europe and America form East Asia; and demanddecrease sharply during the economic crisis. This always makes the economicdevelopment of East Asia be seriously constrained by extra-regional markets.So East Asia must require gradually transformation of economic developmentpattern. It needs East Asia multinational division (East Asia production network)constantly changing. As the global strategies of flagship firms and manufacturing costof every region are changing, East Asia production network itself is in constantdevelopment and adjustment. This allows more local suppliers to join the East Asianproduction networks, access to opportunities to form capacity; also allows the existingsuppliers which probably be replaced by new suppliers to have more opportunities tomove up the position in the value chain.Chinese local suppliers may exert different effects on adjustment of East Asiaproduction network in according to their own power. They may seize opportunities toachieve value chain upgrading during the development and adjustment of East Asiaproduction network. Some suppliers may develop new own production networks atother regions, thereby raising the position in value chain. Some improve R&D level tomaster some patents through their efforts based on advanced knowledge acquired byproduction networks. Some improve process technology, focusing on parts andcomponents elaboration processing to improve product competition advantage. Someignore adjustment of production network and may be replaced by other suppliers, andthey may face bankruptcy, etc.. Chinese authorities of various industries and all levelsof government had better be based on the law of development and adjustment ofvarious industries production networks and the division reality of labor; exertappropriately effects on adjustment of the East Asian production networks, exploit thechances of adjustment of the East Asian production networks, promote industriesupgrading.