DE-FACTO ECONOMIC INTEGRATION IN EAST ASIA AND JAPANESE COMPANIES

By Kiyoshi Abe, Chiba University, Japan (E-mail: abe@le.chiba-u.ac.jp)

East Asian (ASEAN-type) integration is different in many aspects from the EU-type integration. The differences can be summarized as follows:

Europe (EU)	Comparison	East Asia (ASEAN)
De-jure integration	Basic feature	De-facto integration
Tight	Organization	Loose
Politics	Driving force	Market
Leader	Role of government	Facilitator
Inherent, strong	Community concept	Alien, weak
Developed countries	Members	Developing countries
Governments	Promoters of integration	MNCs (esp. Jap. firms)
Increasing	Intra-regional trade	Increasing
Relatively Closed	Regionalism	Relatively Open
Yes	US presence	Yes

Despite the differences or difficulties, there has recently been a rise of intra-regional trade in East Asia. What accounts for it? Various new original data from Indonesia, Malaysia, Thailand, Germany, the USA etc.support a view that Japanese multinational companies play significant roles as promoters of the de-facto East Asia, especially Southeast Asia, integration. Behind it are massive inflows of FDIs from Japan, increasing local productions by Japanese transplants, involvement of Japanese small and medium enterprises (SMEs), the formation of supplier network of foreign origin, the shift in Japan’s comparative advantages, Asian local incentives, Asian own efforts etc. Relevant is also the cooperation with Korean firms. Samsung's Asian networks, for instance, are deeply enmeshed with Japanese multinational companies.

When Japanese MNCs relocate, so does their vertical and horizontal relationship. In management localization, Japan lags behind other advanced countries, as shown by my questionnaires. Japanese small and medium enterprises (SMEs) are also promoters of the de-facto integration.

Southeast Asian countries have encouraged Japanese and other MNCs to locate operations within their borders, and by doing so, have PLUGGED IN the regionally-based production system of MNCs. The cross-national networks become increasingly complex, interwoven and overlapping, making the Asian de-facto integration deeper. Market dynamics functions well. All that a developing country in Southeast Asia needs to do is to plug in. The network then starts working under the control of the MNC, just as a formation of airplanes takes off under the control of an aerobatics commander. The developing country is “elevated” by an “elevator”, attaining high economic growth and export expansion inside the MNC-led production network. An “elevator” model functions well.

My own questionnaire surveys of the managers of Japanese-based companies conclude that good foreign-affiliated supporting industries are located nearby in Southeast Asia. Domestic procurement is made possible by the support of foreign-based subsidiaries, which make domestic linkages (clusters) possible. Many Japanese companies have many times tried to find capable domestic suppliers they can trust, but in vain. They have so far ended up with affiliation with Japanese subsidiaries, related Korean companies, Overseas Chinese companies, and the like. Some local economists blame their failure to use domestic suppliers, but what matters in the borderless mega competition is very high quality of products, which can only be secured by experienced, QC-trained and knowledge-intensive companies with global standard. It takes much consistent time and effort to develop technological levels of indigenous workers.

Southeast Asia acts as typical high exchange economy. The key imports from Japan and elsewhere are processed (exchanged) into export-products by localized foreign-affiliated companies. The high exchange economy corresponds to the plug-in model in the MNC production network. Mutual supply of parts among East Asian countries is promoted mainly by Japanese-affiliated MNCs.

In conclusion, various new data including my own original questionnaire survey data support that the de-facto economic integration of East Asia, especially Southeast Asia, is being promoted significantly by the Japanese-affiliated companies.