Globalization and Divergent Paths of Industrial Development: Mobile Phone Manufacturing in China, Japan, South Korea and Taiwan

Abstract

Globalisation has challenged the way industrial development takes place. Fragmented and decentralised global production and the rapid growth of consumer markets in emerging economies demand a more sophisticated framework to analyse development paths than does the dichotomy of export orientation and import substitution. This article proposes a typology based on (a) specialisation in the global value chain and (b) market orientation to distinguish different development trajectories and then applies the typology to mobile phone manufacturing in four East Asian countries. This study finds that globalisation does not lead to the convergence of development paths, but promotes cross-national divergence depending on countries’ positions in the value chain and market niches. Both Korea and Taiwan emerge as key players in global markets, yet in different parts of the global value chain. Their common orientation toward global markets strikingly contrasts the inability of Japanese firms to translate their domestic success overseas. Finally, Chinese firms concurrently engage in different development paths, making the country’s multi-path approach unique. The implications of these findings are discussed in terms of industrial development in East Asia in an era of globalisation.

KEYWORDS:

• Globalisation
• industrial development
• global value chains
• development path
• East Asia
• mobile phone manufacturing

Acknowledgements

We are grateful to Cornelia Storz, Hang Young Lee and anonymous reviewers for their valuable comments on earlier versions of the article. We also would like to express our thanks to Myoungsoo Kim and Jongseok Yoon for their research assistance in data collection. An earlier version of the article was presented at the 2012 Society for the Advancement of Socio-Economics (SASE) Annual Meetings in Boston. The usual disclaimers apply.

Notes

1. For example, in smartphones, Apple and Samsung accounted for nearly half of global sales and nearly all of the industry’s operating profits (Dediu 2012). Two smartphone operating systems (OS), Google’s Android and Apple’s iOS, accounted for over 90% of the mobile phones sold in 2013 (Gartner 2014).

2. For mobile phones, we used Harmonized System (HS) code 851712 (telephones for cellular networks/other wireless networks, other than line telephone sets with cordless handsets) in the 2007 classification and 852520 (transmission apparatus for radio‐telephony incorporating reception apparatus) in the previous HS classifications. For mobile phone components, we used HS code 851770 (parts of telephone sets, including telephones for cellular networks/for other wireless networks) in the 2007 classification.

3. For more on these databases, see the relevant websites: http://comtrade.un.org; and http://data.worldbank.org/data-catalog/world-development-indicators. These databases are the sources for the statistical data that follow.

4. According to Kraemer and colleagues (2011), the total wholesale price of the iPhone ($549) in 2010 was split as follows: Apple profits (58.5%); cost of labour in China (1.8%) and outside China (3.5%); cost of material inputs (21.9%); profits for firms in Korea (4.7%), the EU (1.1%), Japan (0.5%), Taiwan (0.5%), non-Apple American firms (2.4%); and unidentified profits (5.3%).

5. CDMA, or IS-95 to be precise, is a second-generation (2G) digital cellular standard developed by Qualcomm. In 1995, Korea became the world’s first country to deploy a CDMA-based commercial mobile network. Meanwhile, GSM is the widely adopted 2G digital cellular standard, developed by the European Telecommunications Standards Institute (ETSI). By 2005, GSM networks accounted for more than three-quarters of the worldwide cellular network market, serving 1.5 billion subscribers.

6. PDC is one of the second-generation digital mobile telecom standards, similar to GSM and CDMA. It was exclusively adopted in Japan, unlike the other two standards, which had a global presence.

7. In actual number of users, China, with 334 million users, was four times larger than Japan in 2004. By 2010, China had 859 million mobile phone users, 64% of its population, making it by far the largest mobile phone market in the world.

8. Hong Kong’s mobile phone exports were almost entirely re-exports (99.99% in 2011), and the majority of them were from China (57% in 2011), according to the UN Comtrade data set.

9. The share of non-OECD markets in China’s mobile phone exports decreased from 30% to 18% between 2007 and 2011, but it appears to be in part because an increasing number of mobile phones from China to non-OECD markets were exported through Hong Kong, which accounted for almost 40% of China’s mobile phone exports in 2011.

10. This is also affected by the relocation of production by many Korean and Taiwanese mobile phone firms to countries like China and Vietnam, which is particularly the case for the products targeting developing countries.

11. For the points made in this and the next paragraph, we are indebted to our two anonymous reviewers. Despite the importance of the topics, it is beyond the scope of our current article, a task we leave for future research.

Additional information

Funding

We acknowledge the financial support provided by the Samsung Economic Research Institute (SERI) for this research. The research was also supported by an Asia Research Foundation Grant funded by the Seoul National University Asia Center [grant number SNUAC-2014-009].