Vietnam, Flying Geese, and the Globalization of China

1
Vietnam, Flying Geese, and the Globalization of
China

• How will the deep integration of China into the
  global economy affect the growth prospects of
  Southeast Asian states such as Vietnam?
• Asian pattern of transmission of
  industrialization Japan to Taiwan and Korea
• Flying Geese Model

2
Vietnam, Flying Geese, and the Globalization of
China Basic Questions

• To what extent and in what ways can we expect
  China-based firms to shift operations to Vietnam?
  
• Can Vietnam, which comes in as a lower cost
  alternative, benefit from Chinas growth?
• Are there good reasons to expect the creation of
  regional economic clusters focusing on China and
  including Southeast Asian nations?
• How do the forces of technology, global
  production networks, knowledge flows, and
  political and institutional capability affect
  this process?

3
Flying Geese Model

• The lead goose transmits industrialization to
  follower geese through trade and later serves
  as a market for the exports of these same
  products, based on product cycles.
• Shift to a focus on the costs differences that
  emerge from the timing of economic development
  and the role of transnational corporations.
• This paper focuses on dynamic comparative
  advantage based on the interaction of
  transnational corporations, global production and
  knowledge networks, and local firms and
  governments.

4
Dynamic comparative advantage and flying geese

• Comparative advantage emerges from the efforts of
  national governments to develop a set of
  complementary assets that make its lower wages
  effective in attracting FDI, technology and
  knowledge from TNCs.
• When this ensemble of complementary assets of the
  follower state begins to approximate that of the
  lead state and thereby establishes the capacity
  for entry into global production networks,
  resources in the form of FDI will flow from the
  leader to the follower.

5
Changing Costs in China

• Huge TNC presence in China linked to global and
  regional production networks
• Rising costs from
• Upgrading in value chain
• Improving environmental pollution
• Improving worker welfare
• Rapidly rising wages in coastal cities
• Adverse demographic trends

6
Vietnam I

• Second fastest growing economy from 1990 7-8
  annually
• 600 per capita income (2200 ppp)
• Population 82 million 60 under 30
• Wage levels 30 below those in coastal China
• 1.5 2.0 billion annual inward FDI (8.4b
  committed)
• WTO membership at end of 2006
• ASEAN FTA plus ASEAN-China FTA
• PNTR with U.S. uncertain but likely

7
Vietnam II

• Vietnam has created a set of complementary assets
  that make its low wages attractive to FDI from
  TNCs
• Political stability and governmental
  effectiveness
• Rapidly improving road, airport, communication,
  electricity
• Adequate education, specialized training, local
  suppliers
• Credible national commitment to continuing
  liberalization and upgrading of capabilities
  (WTO)
• Evidence is from large investments from Intel,
  Cisco, Ford, Honda, and Hyundai

8
Expectations

• TNCs operating in China shift low end of GPNs to
  Vietnam
• Chinese firms globalize low end operations to
  Vietnam
• Vietnam as low end production platform for an
  ASEAN-China market
• Vietnam captures knowledge and technology from
  TNCs for upgrading
• Cluster and agglomeration dynamics improve
  capabilities
• Guangdong-Haiphong regional cluster