chapter  8
27 Pages

Business systems, value chains and inclusive regional development in South-East Asia: Edo Andriesse, Niels Beerepoot, Bram van Helvoirt and Guus (A. C. M.) van Westen

Horizontal networking of economic relations in a specific place (city, region) is, of course, not a new theme. The notion stands at the basis of Marshall’s classical concept of the ‘industrial district’, where businesses benefit from a balance between competition (forcing them to remain sharp) and cooperation (creating collective efficiency) (Markusen 1996). An extensive literature on agglomeration effects also deals with geographical proximity (Boschma and Kloosterman 2005). Meanwhile, different authors have stressed the interrelation between regional development and the insertion in global value chains in order to understand the critical link between regions and the global economy (see e.g. Humphrey and Schmitz 2000; Gereffi et al. 2005; Coe et al. 2008; Yeung 2009). The debate on the nature and dynamics of regional development has now moved from the earlier focus on endogenous regional assets to analysing the complex relationship between globalization and regional change (Yeung 2009). Linking regional performance with global value chain dynamics helps one avoid the danger of a myopic reading of regional development on the basis of endogenous growth factors. Since Humphrey and Schmitz (2000) broke new ground by linking value chains and local clusters, various authors have examined how local firms in developing countries might benefit from insertion in international value chains (see e.g. Van Dooren 2003; Smakman 2004; Gereffi et al. 2005). Insertion in international

value chains, where global buyers set and enforce the parameters under which other actors in the value chain operate, has an impact on the endogenous upgrading of producers in developing countries in that it hinders opportunities for cluster-based initiatives and governance (Beerepoot 2005). The key criticism of the early literature linking value chains and clusters is its relatively narrow view on only (horizontal and vertical) producers’ relations. The different institutional configurations characteristic of different nation-states are recognized as having an influence on the way global value chains may be organized but, in Gereffi’s view, such influences are being eroded by globalization processes. The global production networks approach (Coe et al. 2004, 2008) emphasizes that each stage of a production chain is embedded in much wider sets of non-linear/horizontal relationships. Such multi-dimensionality must be incorporated in any analysis of production networks without, at the same time, losing sight of the ‘directed’ nature of the processes involved. In some production networks, the vertical length of the sequential process (the production chain itself) may be short and consist of only a small number of layers. In others, the chain may be very long. Equally, the horizontal width of each layer may be broad or narrow, depending on the number of actors involved (Coe et al. 2008). A great deal of theoretical work is required to understand how regions are articulated in international value chains over time and how differentiating coupling mechanisms lead to divergent regional responses and outcomes (Yeung 2009). Every element in an international value chain – every firm, every function – is, quite literally, grounded in specific locations. Such grounding is both material (the fixed assets of production) and also less tangible (localized social relationships and distinctive institutions and cultural practices) (Coe et al. 2008). A key differentiation when examining the grounding of value chains is made between insertion of firms and regions in predominately local value chains and their insertion in predominately international value chains. Locally oriented chains refer, in this case, to production for national or even just local/regional markets. Although most of the literature concerns global value chains/production networks, many smaller firms in developing countries are primarily embedded in local value chains with limited differentiation and specialization among producers and often only a few links in the value chain (see e.g. Scott 2005; Beerepoot 2005). Both types of value chains are influenced by institutional arrangements at different scale levels. International chains experience a greater impact of institutions beyond the regional level; and locally oriented chains are primarily affected and directed by local embedded social structures.