Anyone follows the global economic trend closely could vividly recall the robustness and ecstasy on South East Asian's 1990s economic boom. During that short interval, if we track the economic growth from 1980s to current, the countries, Malaysia, Thailand, Singapore, Taiwan, South Korea, Indonesia are believed to be main players in the world economy, as these countries were magnet of foreign investments from across the world, mostly technology, engineering and electrical. They were called “Asian Tigers".
This pour in of foreign investments were mainly due to the protection given by the local governments to attract investments, low labor cost, and other local factors. They were combined with technology euphoria at that time, particularly fueled by digital technology. The belief was that every company should leverage on technology which could digitize information, because the demand and future are so unlimited. That was premised under the assumption that every piece of information, movie, news, and any other information can be digitized. So the scramble by world manufacturers to set up plants to be part of the production chain was deemed to be profitable. As Asian countries has the lowest cost of production, companies who wanted to remain competitive would throng here. This sets up the foundation of the linkages of industry in the host countries.
The presence of the foreign manufacturers coincide with the export orientation policy advocated by the host governments, as it was believed the foreigners could help to seed and upgrade the local players. Thus, many of the local companies were set up and be part of this production chain. And to further increase the competitiveness, government concessions were given out to the local companies, but with strong collaboration with the more capable foreign partners. Many of these concessions were farmed out to foreign firms, and local players who were blamed to be less capable were simply secondary producers, or merely low cost supporters to the flagship companies. Thus, subsequently created the worry of “technologyless industrialization" which the problem became very obvious and enhanced in the recent world economic downturn. As what investor Warren Buffet said, “when the water tide is receded, those without pants are caught revealed".
Another worry faced by the local manufacturers now are the hedging of the foreign manufacturers. China, since 2003, has become the world magnet in parallel with India, as two most attractive low cost destination to the world economy. The set up of industrial estates in Dalian, Shenzen, Kuantong, Shanghai and others, were crowded with foreign investors, due to the accessibility to the mass market, low cost, and most importantly linkages. However, the instability and trade surplus due to the exchange rate Yuan Vs USD, caused concern; US might constrain trade with China. Low quality control, which caused the recent call backs of toys, pet foods and etc, also make foreigners distanced, or at best reluctant to put all investment in China. Through these reasons, many manufacturers are still remain in other Asian countries, or partly set up their plants in China but still maintain the technology and development or high end chain in South East Asia. The last reason is the main concern to the inventors and the flagship companies as the lack of intellectual property rights in China have caused much preservations.
So the question is now will the current trend of manufacturing growth sustainable? This becomes very worrying in the recent development; the slow down of demand from US and developed countries in Europe, the emergence of other competitive countries such as Russia, Brazil, Vietnam, and Cambodia. As these countries could offer low cost production, high quality labor, agglomeration benefits (the presence of big players such as Intel, Motorola and Samsung in these countries), the challenge faced by the Asian Tigers (or Kittens, as the robustness of growth is not that magnificent compare to decades ago) are tremendous.
John Chng at http://economicsandpolitics.blogspot.com/