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² Globalized production networks are arrangements that link a multitude of producing units in different countries so as to provide all components, materials, and management for the assembly of a particular product.

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⁵ Vernon, Raymond, Sovereignty at Bay (New York: Basic Books, 1971)Google Scholar.

⁶ See, for example, Yamazawa, Ippei, International Trade and Economic Development: A Japanese Model (Honolulu: University of Hawaii Press, 1990)Google Scholar, chap. 2.

⁷ Yamazawa, Ippei, “Gearing the Japanese Economy to International Harmony,” Developing Economics 28 (March 1990), 9Google Scholar. There is often a move from description to prescription in the usage of the flying geese metaphor by Japanese economists: the core assumption is that “the development model adopted by the Japanese may be regarded as a suitable development strategy for newly industrializing economies today” (Yamazawa, 27). Kojima Kiyoshi, a student of Akamatsu's, argues that the special features of what he terms “Japanese-style DFl” are what enables developing countries to imitate Japan's development pattern. See, for instance, Kojima, , “Japanese-Style Direct Foreign Investment,” Japanese Economic Studies 14 (Spring 1986)Google Scholar.

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¹³ Peck, and Wilson, , “Innovation, Imitation and Comparative Advantage: The Performance of Japanese Color Television Set Producers in the U.S. Market,” in Giersch, Herbert, ed., Emerging Technologies: Consequencesfor Economic Growth, Structural Change, and Employment (Tubingen: J. C. B. Mohr [Paul Siebeck], 1982)Google Scholar.

¹⁴ Lundvall, Bengt-Ake, “User-Producer Relationships, National Systems of Innovation and Internationalisation,” in Lundvall, , ed., National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning (London: Frances Pinter, 1992)Google Scholar. Technological change such as the advent of microelectronics makes possible entirely new product attributes, levels of performance and possibilities for their use in conjunction with hitherto unrelated products as part of linked systems. See Abernathy, William J., Clark, Ken, and Kantrow, Alan, Industrial Renaissance: Producing a Competitive Futurefor America (New York: Basic Books, 1983)Google Scholar, chap. 2.

¹⁵ Cf. World Bank, The East Asian Miracle: Economic Growth and Public Policy (New York: Oxford University Press, 1993), 319Google Scholar: “There is some evidence, and a growing subjective sense, that arms-length licensing is decreasing as an option for closing technology gaps.”

¹⁶ Reverse engineering refers to the process by which a finished product is disassembled to discover how it was produced. Studies of technological change have concluded that imitation, primarily through reverse engineering, has been the single most important channel of technological diffusion. Freeman, for instance, notes the importance of reverse engineering to Japan's industrial development: from well before the First World War, the Japanese government gave priority to importing and improving on the best available technology. Freeman, Christopher, Technology Policy and Economic Performance: Lessonsfrom Japan (London: Pinter Publishers, 1987)Google Scholar. Pack, Howard and Westphal, Larry E. make a similar argument about the importance of imitation through reverse engineering in Korea's economic growth; see Pack and Westphal, “Industrial Strategy and Technological Change,” Journal of Development Economics 22 (June 1986)CrossRefGoogle Scholar.

The ability of foreign companies to imitate through reverse engineering is a reflection of the limited effectiveness of the patent system. See, for instance, Hippel, Eric von, The Sources of Innovation (New York: Oxford University Press, 1988), 47Google Scholar; and Pavitt, Keith and Patel, Pari, “The International Distribution and Determinants of Technological Activities,” Oxford Review of Economic Policy 4, no. 4 (1988), 36CrossRefGoogle Scholar. The complexity of contemporary manufactured products, rather than patents, may be their best protection against reverse engineering.

¹⁷ For a discussion of the notion of supply architecture, see Borrus, Michael and Hart, Jeffrey A., “Display's the Thing: The Real Stakes in the Conflict over High Resolution Displays,” Working Paper 52 (Berkeley: Berkeley Round Table on the International Economy, University of California, Berkeley, March 1992), 1–4.Google Scholar

¹⁸ Kunimitsu, M. and Sato, I., Matsushita Denki Sangyo (Matsushita electronic industries) (Tokyo: Kodansha, 1990)Google Scholar.

¹⁹ Bernard, Mitchell, “Post-Fordism, Transnational Production and the Changing Global Political Economy,” in Stubbs, Richard and Underhill, Geoffrey R. D., eds., Political Economy and the Changing Global Order (New York: St. Martin's, 1994)Google Scholar.

²⁰ Ishida, M., Nikkan Sangyo Masatsu (Japanese-Korean industrial friction) (Tokyo: Keilin Shobo, 1987)Google Scholar.

²¹ The Plaza Agreement took its name from the Plaza Hotel, New York, where a meeting of the Group of Five (France, Germany, Japan, U.K., and U.S.) agreed in September 1985 on a coordinated strategy to push down the value of the dollar vis-a-vis the currencies of its major trading partners. For details, see Funabashi, Y., Managing the Dollar: From the Plaza to the Louvre (Washington, D.C.: Institute for International Economics, 1989)Google Scholar.

²² I1 Sakong reports a study suggesting that nearly 30 percent of Korea's exports to the United States in the years 1984–89 were subject to some form of U.S. protectionist action. Cited in Sakong, , Korea in the World Economy (Washington, D.C.: Institute for International Economics, 1993), 131Google Scholar.

²³ As an illustration, the average hourly labor costs in spinning and weaving in 1990 were estimated as follows (relative to the U.S. average hourly rate of $10.02): Japan 139%; Taiwan 46%; Korea 32%; Hong Kong 30%; Mexico 22%; Malaysia 9%; Philippines 7%; China 4%; Indonesia 2%. Such data must be interpreted with caution given the problems involved in conversion to a common currency. And they tell us nothing about the relative productivity of the various labor forces. Nevertheless, they do provide an indication of the magnitude of intercountry differentials. Data from Werner International in Textile Month (February 1991), quoted in O'Connor, David, “Textiles and Clothing: Sunrise or Sunset Industry,” in , Jomo K. S., ed., Industrialising Malaysia (London: Routledge, 1993), 241.Google Scholar

²⁴ The primary focus of our discussion of this spatial extension of regional manufacturing is on ASEAN, especially Malaysia and Thailand. In the 1990s parts of coastal China have also come to figure prominently in the regionalized production networks. We do not deal with the Chinese case in this article, as the unique features of the Chinese political economy would require separate and protracted discussion. For example, China had developed a large industrial base as part of its pre-1978 development strategy. Unlike other countries in the region, China's recent promotion of export-oriented production is not so much part of a process of “industrialization” as it is one of “re-industrialization.” We believe, however, that recent industrial change and the incorporation of parts of China into regionalized production networks actually buttress our central argument.

²⁵ Tho, Tran Van, Technology Transfer in the Asian Pacific Region: Implications of Trends since the Mid-1980s, Discussion Paper no. 19 (Tokyo: Japan Center for Economic Research, August 1991), 44Google Scholar, table 1; and Urata, Shujiro, “Changing Patterns of Direct Investment and the Implications for Trade and Development,” in Bergsten, C. Fred and Noland, Marcus, eds., Pacific Dynamism and the International Economic System (Washington, D.C.: Institute for International Economics, 1993), 278Google Scholar, table 2.

²⁶ Takanori, Satake, “Trends in Japanese Foreign Direct Investment in FY 1989,” Exim Review 11 (July 1991), 97Google Scholar.

²⁷ Textiles had been the second most significant sector (after steel and nonferrous metals) in Japanese investment in ASEAN in the years 1951–86, accounting for close to 20 percent of allJapanese manufacturing investment. In the period from 1987 to 1989 fully one-third of all Japanese manufacturing investment in ASEAN countries was in electrical machinery production, another 11 percent was in general machinery production, while textiles accounted for less than 5 percent. Van Tho (fn. 25), 44, table 1.

²⁸ These figures are those officially recorded for Taiwanese investment. All of the evidence points to these being only a small fraction of actual Taiwanese overseas investment. The World Bank notes that Taiwan's balance of payments figures suggest that investments are twenty-five times those actually recorded; data on inflows from Taiwan reported by host countries similarly reveal very large discrepancies from official Taiwanese data. World Bank, Foreign Direct Investmentfrom the Newly Industrialized Economies, Industry and Energy Department Working Paper, Industry Series Paper no. 22 (Washington, D.C.: World Bank, December 1989), 10.Google Scholar

²⁹ In Malaysia, for instance, foreign investment contributed approximately one-third of all domestic capital formation in the 1987–89 period. As we will discuss later in this article, however, subsidiaries of foreign companies are the source of virtually all manufactured exports from Malaysia. For data on the role of FDI in the Malaysian economy, see Aoki, Takeshi, “Japanese FDI and the Forming of Networks in the Asia-Pacific Region: Experience in Malaysia and Its Implications,” in Tokunaga, Shojiro, ed., Japan's Foreign Investment and Asian Economic Interdependence: Production, Trade and Financial Systems (Tokyo: University of Tokyo Press, 1992), 75Google Scholar.

³⁰ For a discussion of this coordination in the context of Japan's domestic political economy, see Imai, Ken-ichi, “Japan's Corporate Networks,” in Kumon, Shumpei and Rosovsky, Henry, eds., The Political Economy of Japan, vol. 3, Cultural and Social Dynamics (Stanford, Calif: Stanford University Press, 1992), 218-23Google Scholar.

³¹ See Foundation for Advanced Information and Research, Interim Report of Asia-Pacific Economic Research (Tokyo: Foundation for Advanced Information and Research, 1990), 64Google Scholar.

³² Production structure refers to the way production is organized, the social relations and subjective understandings among participants, and how particular firms are embedded in both the domestic and the global/regional political economies.

³³ See Bernard (fn. 19).

³⁴ Arrighi, , “The Three Hegemonies of Historical Capitalism,” in Gill, Stephen, ed., Gramsci, Historical Materialism and International Relations (Cambridge: Cambridge University Press, 1993), 154.Google Scholar

³⁵ Kogyokai, Nihon Denshi Kikai (Electronic Industries Association of Japan), Kaigai Hojin Risuto (List of member corporations overseas) (Tokyo: Nihon Denshi Kikai Kogyokai, 1991)Google Scholar.

³⁶ According to the Taiwan Electrical Manufacturers Association (TEAMA), between 1987 and 1991 there were over one hundred separate investments in Malaysia by member companies, and just over fifty in Thailand. Similarly, a World Bank study indicated that in the four years following the Plaza Agreement, more than one-quarter of Korean investments in Thailand was related to the production of electrical appliances. World Bank (fn. 28), 36.

³⁷ Kogyokai, Nihon Denshi Kikai (Electronic Industries Association of Japan) Chosa Shitsu Shirabe (Research report) (Tokyo: Nihon Denshi Kikai Kogyokai, 1993)Google Scholar.

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³⁹ Tian Xia, Wai Xiao Qian 100 Ming Zhong (Taipei: Tian Xia Wen Hua Chuban Kengsi, June 1991)Google Scholar.

⁴⁰ Much of this information is based on interviews conducted by Mitchell Bernard with company representatives, Taipei, June 1991.

⁴¹ Original equipment manufacturing is an arrangement whereby a corporation will contract for another firm to manufacture one or more of its products to its specifications and to be marketed under its brand name.

⁴² In the prerecession year of 1991 domestic production of consumer electronics was in fact higher than in 1986. Nihon Denshi Kikai Kogyokai (Electronics Industries Association of Japan), Chosashitsu Shirabe (Research report) (Tokyo: Nihon Denshi Kikai Kogyokai, various years).

⁴³ Jingjibu Tongjichu (Ministry of Economic Affairs statistics) (1991).

⁴⁴ Interviews conducted by Mitchell Bernard with representatives of both companies, Taipei, March 1992.

⁴⁵ See Bernard, Mitchell, “The Post-Plaza Political Economy of Taiwanese-Japanese Relations,” Pacific Review 4, no. 4 (1991)CrossRefGoogle Scholar. Japanese imports of audiovisual equipment and household electrical appliances from Korea and Taiwan fell by one-third from 1989 to 1991; in the same period Japanese exports of these products to these two countries rose by over 40 percent. Consequently, the index of intraindustry trade in electronic goods between Japan and Korea and Taiwan fell from 0.55 to 0.31 in this period. Hiroshi Tanaki, “Overseas Direct Investment and Trade: Investment by Japanese Consumer Electrical Appliance Industries in ASEAN and the Import of Such Products into Japan,” Exim Review 13 (December 1993), 27, table 15.

⁴⁶ For the Korean case, see Amsden, Alice, “Is Business-Led Growth Working?” in Clark, D., ed., Korea Briefing, 1992 (Boulder, Colo.: Westview Press, 1992)Google Scholar.

⁴⁷ Amsden, Alice, Asia's Next Giant: South Korea and Late Industrialization (New York: Oxford University Press, 1989), 19.Google Scholar

⁴⁸ Ibid., 143.

⁴⁹ See Eckert, Carter J., Offspring of Empire: The Koch'an Kims and the Origins of Korean Capitalism, 1876–1945 (Seattle: University of Washington Press, 1991), 142-43Google Scholar.

⁵⁰ Ichizo, Yamauchi, Kaden (Consumer electronics) (Tokyo: Nihon Keizai Shinbunsha, 1990), 31.Google Scholar

⁵¹ Interviews conducted by Mitchell Bernard with representatives of various medium-size and large textile companies in Korea and Taiwan in 1991 and 1992. These companies are major users and often manufacturers of textile machinery.

⁵² Bloom, Martin D., Technological Change in the Korean Electronics Industry (Paris: OECD, 1992), 73Google Scholar; Bank of Korea, List of Import-Inducing Effects of Korea's Major Goods (in Korean) (Seoul: Bank of Korea, 1993)Google Scholar.

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⁵⁴ See Bloom, Martin D., “Globalization and the Korean Electronics Industry,” Pacific Review 6, no. 2 (1993)CrossRefGoogle Scholar.

⁵⁵ OECD, Main Science and Technology Indicators (Paris: OECD, 1992)Google Scholar.

⁵⁶ For several examples relating to Taiwan, see Bernard (fn. 45).

⁵⁷ Taiwan Institute for Information Industry, Taipei, 1992 (mimeographed statistics).

⁵⁸ Interview conducted by Mitchell Bernard with representatives of Sampo Corporation, Taipei, March 1992.

⁵⁹ Petri (fn. 9, 1993), 32.

⁶⁰ Bernard, Mitchell, “Northeast Asia: The Political Economy of a Postwar Regional System,” University of Toronto/York University Joint Centre for Asia Pacific Studies, Asia Papers 2 (1989), 24.Google Scholar

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⁶² Ibid., 427.

⁶³ Bank of Korea (fn. 52).

⁶⁴ In Malaysia, for instance, the value of exports of machinery and transport equipment more than trebled in the years 1986–90. By the end of this period they alone accounted for more than a quarter of total exports. Total manufactures contributed more than half of the country's export earnings—up from 36 percent at the start of this period. World Bank, World Development Report (New York: Oxford University Press, 1988 and 1992)Google Scholar.

⁶⁵ Authors who have applied the flying geese analogy to Southeast Asia include Lim, Hank, “Japan and the Asian Newly Industrializing Economies,” in Kendall, Harry H. and Joewono, Clara, eds., Japan, ASEAN, and the United States (Berkeley, Calif.: Institute of East Asian Studies, University of California, Berkeley, 1991), 216-17Google Scholar; Chen, Edward K. Y., “Trade Policy in Asia,” in Naya, Seiji et al. , eds., Lessons in Development: A Comparative Study of Asia and Latin America (San Francisco: International Center for Economic Growth, 1989)Google Scholar; Okita, Saburo, “The Outlook for Pacific Cooperation and the Role of Japan,” Japan Review of International Affairs 1 (Spring—Summer 1987), 4Google Scholar; and Schlosstein, Steven, Asia's New Little Dragons: The Dynamic Emergence of Indonesia, Thailand, and Malaysia (Chicago: Contemporary Books, 1991), 32Google Scholar. The analogy is applied to the Southeast Asian electronics industry in Chalmers, Ian, “International and Regional Integration: The Political Economy of the Electronics Industry in ASEAN,” ASEAN Economic Bulletin 8 (November 1991)CrossRefGoogle Scholar.

⁶⁶ Kunio, Yoshihara, The Rise of Ersatz Capitalism in Southeast Asia (Singapore: Oxford University Press, 1988), 111Google Scholar.

⁶⁷ Data from Bank Negara Malaysia, Quarterly Bulletin 6 (March-June 1991), 50Google Scholar; and World Bank, World Tables 1991 (Washington, D.C.: World Bank, 1991)Google Scholar.

⁶⁸ For an overview, see Warr, Peter G., “Export Processing Zones: The Economics of Enclave Manufacturing,” World Bank Research Observer 4 (January 1989)CrossRefGoogle Scholar. A survey of the Penang Free Trade Zone in Malaysia found that linkages between firms in the zone and the local economy were not well developed, “despite more than a decade of operation.” Nesadurai, Helen E. S., “The Free Trade Zone in Penang, Malaysia: Performance and Prospects,” Southeast Asian Journal of Social Science 19, nos. 1, 2 (1991), 122Google Scholar.

⁶⁹ Lim, Linda Y. C. and EngFong, Pang, Foreign Direct Investment and Industrialisation in Malaysia, Singapore, Taiwan and Thailand (Paris: OECD Development Centre, 1991), 110Google Scholar.

⁷⁰ Thus in 1989 purchases from local companies amounted to ony 14.5 percent of the components utilized by Japanese subsidiaries in the electronics sector. This sector had the highest local content: local companies provided only 3.3 percent of inputs in the transport field. All data in this section are from a JETRO survey of Japanese subsidiaries in Malaysia reported in Aoki (fn. 29).

⁷¹ Reich, Cf. Robert B., The Work of Nations (New York: Alfred A. Knopf, 1991)Google Scholar.

⁷² O'Brien, “Malaysian Manufacturing Sector Linkages,” injomo (fn. 23), 157, 159.

⁷³ Tanaka (fn. 45), 31, table 17.

⁷⁴ Aoki (fn. 29).

⁷⁵ This is estimated at 0.5 percent to 0.6 percent of GDP for Malaysia, but the bulk of local expenditure for R and D is devoted to the primary products sector. Ibid., 77. In 1990 Korea spent approximately 2 percent of its GDP on R and D; the equivalent figure for Taiwan was 1.65 percent.

⁷⁶ For one dimension of state-society relations, the relationship between business and the state, see, for instance, Hawes, Gary and Liu, Hong, “Explaining the Dynamics of the Southeast Asian Political Economy: State, Society, and the Search for Economic Growth,” World Politics 45 (July 1993)CrossRefGoogle Scholar; and Maclntyre, Andrew, ed., Business and Government in Industrializing East Asia (Ithaca, N.Y.: Cornell University Press, 1994)Google Scholar.

⁷⁷ Fankel, Jeffrey, “Is a Yen Bloc Forming in Pacific Asia?” in O'Brien, R., ed., Finance and the International Economy (New York: Oxford University Press, 1991)Google Scholar; and Petri (fn. 9, 1993).

⁷⁸ Kreinin, Mordechai E., “How Closed Is Japan's Market? Additional Evidence,” World Economy 11 (December 1988)CrossRefGoogle Scholar. Sakong reports data from a Korean Ministry of Finance study that show that in 1986, 74 percent of the imports of the subsidiaries of Japanese corporations operating in Korea came from Japan, 8 percent from the United States, and 18 percent from other countries. For U.S. subsidiaries 50 percent of imports came from the United States, 20 percent from Japan, and 30 percent from other countries. Sakong (fn. 22), 124, table 5.10.

⁷⁹ Data from Hirobumi, Takaoka and Takanori, Satake, “Report on Results of FY 1990 Foreign Direct Investment Survey,” Exim Review 11 (July 1991), 18Google Scholar; and Urata, Shujiro, “Japanese Foreign Direct Investment and Its Impact on Foreign Trade in Asia,” in Ito, Takatoshi and Kreuger, Anne O., eds., Trade and Protectionism (Chicago: University of Chicago Press, 1993)Google Scholar.

⁸⁰ World Bank (fn. 28), 24, table 8.

⁸¹ Krugman, Paul, “Introduction,” in Krugman, P. R., ed., Trade with Japan: Has the Door Opened Wider} (Chicago: University of Chicago Press, 1991), 4CrossRefGoogle Scholar. For further discussion, see Ravenhill, John, “The 'Japan Problem' in Pacific Trade,” in Higgott, Richard, Leaver, Richard, and Ravenhill, John, eds., Pacific Economic Relations in the 1990s: Conflict or Cooperation? (Boulder, Colo.: Lynne Rienner, 1993)Google Scholar, chap. 5; and Lincoln, Edward J., Japan's Unequal Trade (Washington, D.C.: Brookings Institution, 1990)Google Scholar.

⁸² Takaoka and Satake (fn. 79), 17.

⁸³ The share of local, Japanese, and other markets varied considerably across sectors. Local sales were particularly high in transport machinery (over 90 percent) and iron and steel (over 85 percent). It is particularly noteworthy that sales to other export markets were highest (over 35 percent) for the most rapidly growing sector of Japanese manufacturing investment—electrical machinery. See Takaoka and Satake (fn. 79), 17; and additional data from Urata (fn. 79). Japanese subsidiaries operating in Korea do send a larger percentage of their exports to Japan. In 1985, however, one-third of the exports of Japanese subsidiaries in Korea went to the U.S. market. Sakong (fn. 22), 122, table 5.8.

⁸⁴ In 1992 the United States had a trade deficit of $12.5 billion with the member states of ASEAN (excluding Brunei). The deficit with the People's Republic of China in the same year was $18.3 billion. Malaysia contributed 4.7 percent of the total U.S. trade deficit; Thailand 4.2 percent; Indonesia 2.1 percent; Singapore, 2.0 percent; and the Philippines 1.9 percent. Data from United States Information Service, Wireless File, May 17, 1993.

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⁸⁶ The neoclassical theory of growth suggests that economies will converge as they exploit their comparative advantage to pass through successive stages of growth. We find more persuasive the recent endogenous growth theories that emphasize the role of technology in generating increasing returns to scale: rather than convergence, a widening gap may develop between richer and poorer economies. On endogenous growth models, see, for instance, Romer, Paul, “The Origins of Endogenous Growth,” Journal of Economic Perspectives 8 (Winter 1994)CrossRefGoogle Scholar.

⁸⁷ See Lim and Fong (fn. 69).

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