ADB urges Asian firms to get in on global value chains

The ADB has found that higher involvement in global value chains was associated with faster output, higher incomes, and improved employment growth between 1995 and 2008. Almost half of all manufacturing exports in 59 economies are now linked to global value chains, while Asia’s share reached 16.2 per cent in 2008, almost double the 8.6-per-cent share in 1995.

Luxmon Attapich, ADB senior country economist in Thailand, said economies that doubled their global-value-chain trade between 1995 and 2008 also saw their gross domestic product increase 19 per cent faster than other economies. Per-capita incomes increased 12 per cent, while industries doubling their trade in this segment saw 10 per cent faster employment gains.    

The launch of the Asean Economic Community next year will also provide an advantage for the region, since global value chains thrive only where tariffs are low and predictable. However, logistics and transport infrastructures must be improved, since this could cut costs even more than tariff reductions, said Yasushi Negishi, the ADB’s Thailand country director.

Luxmon explained that production chains could be within a country, across countries within a region, or global. She gave the example of the production network for an iPhone: Japanese companies provide flash memories and touch screens, US firms provide Bluetooth and audio codecs, and German corporates provide camera modules and processors. Then all this is brought together and assembled in Shenzhen, China.

She said Thailand had been doing well in terms of providing value-added products to global supply chains, since 50-60 per cent of its exported products are value-added. However, the country might be falling behind as global demand for these value-added products is lower than before, and the export sector is facing structural problems that need to be addressed, since problems of this nature can take more than three years to fix.

“Global consumer behaviour has changed, which has lowered the sales of our products when compared with before. And it is clear from the example of the iPhone production process that Thailand is not part of it, even though we used to be one of the largest suppliers of microprocessor chips for mobile phones,” she said.

“Structural change in consumer demand means we need time to think where we will fit into these new global production and value chains. We have to innovate.”