Global Production Sharing-Benefits to East Asia-Lessons to Developing Countries

The  slicing of a production process into vertically separated stages that are carried out in different countries otherwise known as Global production sharing—has redefined the dynamics of the world trade over the past few decades. Developing countries aiming at industrializing but ignoring global production sharing or outsourcing system and its related benefits, risk not only failing their policy goals but also being displaced out of the global trading system.  Developing risk losing out skills upgrading associated with international trade in form of global production sharing (Suervey report by Gordon H. Hanson)

According to the study by the Asian Development Bank (Chandra Athukorala and Jayant Menon, 2010) world trade in parts and components increased from about 18.9% to 22.3% of total exports between 1992/93 and 2005/06. Most of this growth reuslting from global production sharing originated from East Asia and as result the share of the subcontinent in total world exports increased from 27% to 39% over the same period. Click for more information on global production sharing and lessons to developing countries.

Global Production Sharing: Implications for Trade and Investment Policy for Developing Countries

Developing countries and particularly African countries need to borrow a leaf from the East Asian countries on how to benefit from Global production sharing. Global production sharing which in itself is the process of ‘splitting of the production process into discrete activities (tasks) which are then allocated across countries’, opens up new opportunities for export-led economies if they strategize and specialize in division of labour. 

A country can benefit from the growth of world demand for automobiles and become competitive in the production of just a single auto part. Economic integration into the global market that developing countries crave cannot be easily achieved if countries continue to aim at completing production domestically. Due to technological advancement resulting in easy, fast and less costly telecommunication and transport, it is no longer important to aim at exploiting the comparative advantage on a product as a whole.  Examples from East Asia can help us understand why global production sharing is an alternative that developing countries should embrace.   

Global production sharing which is sometimes referred to as; international production fragmentation or vertical specialization or slicing the value chain or outsourcing or offshoring can be exemplified in about three products. Read more on how East Asian countries benifit from Global production sharing.