Joining Global Production Networks: Experience and Prospects of India

• Author: Prema‐chandra Athukorala
• Published date: 01 January 2019
• DOI: http://doi.org/10.1111/aepr.12248
• Date: 01 January 2019

Joining Global Production Networks:

Experience and Prospects of India

Prema-chandra ATHUKORALA†

Australian National University

Cross-border dispersion of different stages/slices of the production processes within vertically

integrated global industries (“global production sharing”) has been a key structural change in the

global economy in recent decades. This paper examines India’s experience with exploiting

opportunities created by this phenomenon for export expansion from a comparative East Asian

perspective. The analysis reveals that India has so far failed fitting into global production net-

works in electronics and electrical goods, which have been the prime movers of export dyna-

mism in China and the other high-performing East Asian countries. The findings of this study

provide further support to the case for completing the unfinished reform agenda, encompassing

both trade and investment policy reforms, and “behind-the-border”reforms. There is also a

strong case, based on the experiences in East Asia and elsewhere, for combining further reforms

with a proactive investment promotion campaign to attract multinational enterprises engaged in

global production networks.

Key words: export performance, global production networks, global production sharing, India

JEL codes: F13, F21, F23

Accepted: 29 June 2018

1. Introduction

Recent reviews of the outcome of India’s historic policy reforms launched in 1991 have

focused on export performance as one of the areas where the reform outcome has not so

far met the original expectations. Even though the rate of export growth has been much

faster during the reform era compared to the first four decades of the postindependence

era, India still remains a small player in world trade, compared to China and other

dynamic East Asian economies. Moreover, unlike in these countries, the composition of

manufacturing exports from India has continued to exhibit a bias toward capital- and

skill-intensive products, a pattern that runs counter to the objectiveof achieving inclusive

growth (Srinivasan, 2012; Bhagwati & Panagariya, 2013; Panagariya, 2013). An India-

The author is grateful to the two discussants, Fukunari Kimura and Shujiro Urata, and other

participants at the Twenty Seventh Asian Economic Policy Review Conference, including Mon-

tek Ahluwalia and Rakesh Mohan for their excellent comments and suggestions.

†Correspondence: Prema-chandra Athukorala, Arndt-Corden Department of Economics, Craw-

ford School of Public Policy, J.W. Crawford Building (B. 132), Australian National University,

Canberra, ACT 2601, Australia. Email: prema-chandra.athukorala@anu.edu.au

© 2018 Japan Center for Economic Research 123

doi: 10.1111/aepr.12248 Asian Economic Policy Review (2019) 14, 123–143

East Asia comparison seems to suggest that both the slower rate of export market pene-

tration and the emerging export patterns largely reflect India’s failure to well integrate

into global production networks (GPNs;Krueger, 2008, 2010; Joshi, 2017).

The breakup of the production processes of an ever-increasing array of products

into vertically separated stages carried out in several countries (“global production

sharing”

1

) has been a key structural change in the global economy in recent decades.

Trade based on global production sharing, that is trade in parts and components, and

assembled end products within GPNs, which we call “GPN trade”in this paper, has

been the prime mover of the dramatic shift in manufacturing exports from developed

to developing countries over the past four decades (Krugman, 1995, 2008; Athukorala,

2014a). This process of international division of labor opens opportunities for coun-

tries to specialize in different slices (tasks) of the production process in line with their

relative cost advantages. Trade theory postulates, and the East Asian experience illus-

trates, that in a labor-abundant economy, tasks undertaken within GPNs tend to be

relatively more labor intensive and, hence, help achieving the objective of inclusive

(pro poor) growth.

The purpose of this paper is to examine India’s export performance in the reform

era focusing on its emerging role within GPNs from a comparative East Asian perspec-

tive. It aims to address the following issues: (i) How Indian manufacturing fits into

global production sharing compared to China and other emerging East Asian econo-

mies; (ii) What are the implications of global production sharing for the performance

and structural change in domestic manufacturing in India? (iii) What are the policy

options for effectively linking Indian manufacturing to GPNs?

GPNs are not a homogenous phenomenon. In terms of the organizational structure

of production sharing, production networks take two major forms: buyer-driven pro-

duction networks and producer-driven production networks. Buyer-driven networks

are common in diffused-technology-based consumer goods industries such as clothing,

footwear, travel goods, toys, and sport goods. In these networks, the “lead firms”in the

production networks are international buyers (large retailers such as Walmart, Mark &

Spencer, H&M) or brand manufactures such as Victoria’s Secret, Gap, Zara, Nike).

Global production sharing in these networks takes place predominantly through arm’s

length relationships, with global sourcing companies (value chain intermediaries, such

Hong Kong-based Li & Fung, Mast Industries Far East) playing a key role in linking

producers and the lead firms. Therefore, there is room for local firms to directly

engage in exporting through links established with foreign buyers (Gereffi, 1999).

Producer-centered production networks are common in vertically integrated global

industries such as electronic, electrical goods, automobiles, and scientific and medical

devices. In a producer-centered production network the “lead firm”is a multinational

enterprise (MNE) (such as Intel, Motorola, Apple, Toyota, and Samsung). Global pro-

duction sharing takes place predominantly through the lead firms’global branch net-

work and/or its close operational links with established contract manufacturers (such

as Foxconn, Flextronics) that undertake assembly for these global corporations. In

these high-tech industries, production technology is specific to the lead firm and is

Joining Global Production Networks Prema-Chandra Athukorala

124 © 2018 Japan Center for Economic Research