Globalization has significantly played an important role for decades. All countries have become more integrated, generating further interdependence in several aspects, especially economic and cultural activities. The access to information, money circulation, and trade flow is less restricted and bound to be governed by similar rules and regulations of world liberalized market. With these notions, in order to be better off, a country should specialize in the production of goods and/or services in which it has a comparative advantage and then trade to another country. In addition, the development of its economic and resources required cooperation with other countries. The international production networks (“IPNs”) have consequently emerged to promote a friendly trade and investment environment in both regional and international levels. This part will elaborate what IPNs are and how they work by focusing on the phenomenon in Asian countries. Moreover, India will be taken as an example of countries in this region to be analyzed its role in the IPNs, including problems and prospects for India’s participation in the IPNs.
Over the past few decades, in response to rapid globalization, technology and cultural changes, and more importantly, increasingly open trade and investment environments, the development of Asian IPNs have commenced under the multinational enterprises’ strategies on international fragmentation of production, leading to the international division of labor between countries along the global supply chain system. Merchandise trade patterns and regional integration among Asian countries have extensively transformed since the opening of China in the 1990s, resulting in an outstanding expansion of intra-regional trade and a significant growth in exports “through multiple border crossings of parts and components” by the Asia-Pacific region. With the IPNs phenomenon and the existence of China as the “global assembly center”, trade and investment linkages between Asian countries have been connectedand offered a variety of opportunities to many developing Asian economies participating in the IPNs, mainly in manufacturing industries. This is because China’s manufacturing exports rely heavily on parts and component imported from other countries, particularly those in East and South-East Asia. A number of available evidences demonstrate that the IPNs have brought about various benefits to nations. This is to say that the more they increase their presence in existing IPNs, the more advantages they get in terms of income, exports, technology exchange, and etc. According to theoretical perspectives of IPNs, literature views can be divided into two main points: (1) offshoring literature; and (2) new economic geography (“NEG”). As regards the first, it emphasizes factors influencing a company to separate its production process into stages and locate them between countries under the context of comparative advantages. It can be concluded that factor intensity of production stages and differences in factor prices between countries are the principal determinantsto divide labor between countries in the IPNs. Meanwhile, the NEG literature, covering a wide range of agglomeration in both forward and backward linkages, focuses on “the centripetal forces that causes economic activities to cluster together in particular locations and the centrifugal forces that push it apart”. These above-mentioned elements have all together happened to explain and support the phenomenon of the achievement of IPNs acceleration in the Asian region.
Even though several East and South East Asian nations have enjoyed their success in the Asian IPNs for almost three decades, some have not been through in the same way. India, the second-most populous economy in the world, is taken as a sample country which shows diminutive participation in the world’s IPNs of manufacturing industries. It is clear that India has been successful in offering a hi-class IT services center without following the IPN-driven development strategy. Nevertheless, a number of concerns have been raised owing to the increasingly low-employment generation of India’s growth. First of all, regarding India’s background, poverty is the main problem that India has been suffering with for a long time. The level of per capita income is still relatively low. The majority of workers, therefore, are unskilled which are suitable for labor-intensive, in terms of factor endowment. However, India has been renowned for IT services hub which is considered one of skill-intensive service sectors. This point does not match with the fundamental story of India, causing a dramatic rise in unemployment growth rate. In addition, Indian society is largely conservative and consists of a variety of races and cultures. Thus, it is difficult for the government to make most people easily admit to and integrate with new modern thoughts and national policies. This concern has become one of major obstructs for India to be part of the IPNs in the region. Last but not least, entering into the preferential trade agreements (PTAs) does not create the successful development of IPNs, in case of India. Although this tool should lead to a reduction of border barriers to trade goods and services with cheap resources, generating further an efficient division and labors, India has not been entertained with such positive impacts. This is because the integration of India with the Asian IPNs by using PTAs as a vehicle depends significantlyon the complexity of the rules of origin, as well as the features, characteristics and complexity of each PTA that India has signed. A number of researches reveal that most India’s PTAs are in the form of shallow agreements which commonly cover only two general criteria: (1) removal of mutual trade barrier; (2) harmonization of some beyond the borders standard. At the same time, the lack of policy flexibility has to be taken into account. Foreign and domestic investment in India has been blocked by restricted controls and regulations, resulting in constraints for business entry to and exit from the market. Apart from the above-stated hindrances in relation with trade and investment, there are various issues involved in getting the production networks in the region effective smoothly, i.e., having good physical connectivity, functional infrastructural services and institutions for the protection of intellectual property.
In spite of a lot of problematic issues of India’s integration with the Asian IPNs, it is believed that greater benefits of trade opportunity implications for developing countries in South Asia through their trade with India will dramatically arise if such integration of the Indian economy into Asian IPNs occurs. Additionally, although China, an Asian major power, is currently facing an aggressive competition from other low-wage countries, particularly developing nations in South-East Asia. Counterbalance with China is still required. In this regard, the position of India will become stronger as ASEAN’s members view that their engagement with India would serve a counterbalance with China. As a result, in order to obtain numerous advantages from the expansion of IPNs, in terms of export growth rate, employment stimulation and technology transfer, there are some recommended prospects for India to enhance its performance to catch up with this process. Firstly, outstanding benefits of India result from the sheer size of the country’s economy and population. An initial requirement for India to get more highly involved with the IPNs is to offer low trade costs. As a consequence, in order to establish appropriate costs, India’s economic policies should be revised to be more liberalized by reducing tariffs, especially on raw materials, parts and components, to be in line with the level of ASEAN and East Asian members. This is to say that the integration with IPNs cannot work efficiently under tight regulations and reservation of products for production by small firms. Moreover, in order to accommodate more convenient way for foreign trade, procedures for business application should become less complex by providing a one-stop service for foreign direct investment promotion. This prospect would help enhance the attractiveness by a large number of foreign investors.In addition, basic infrastructure in the country is still inadequate. This factor will limit local productivity and interest from multinational enterprises. A rapid upgrade of crucial infrastructure is required for the development in the near future. Furthermore, the pattern of PTAs into which India will enter should be changed to fit into “deep integration”, rather than a shallow form like before. A variety of researches also reveal in the same way.In order to ameliorate the status of India’s production networks in the region, efforts in securing and entering into several deeper PTAs with players in Asian IPNs have accelerated an increase in the amount of the integrated production network trade and operation of networks in the region.It is thus clearly that India should initially pursue policies in such directions and prospects to become more integrated in the IPNs.
All things considered, although it is not possible for all countries to take part in the IPNs, it is widely proved that the value of being connected to the production networks has brought about several advantages to the country. Encountering a lot of difficulties on unemployment challenges, India, therefore, as a late-comer with labor abundant in this process, should take a serious consideration in following the above-mentioned policies to become a major players in the IPNs.