The electronic global production network in northern Vietnam : development trajectory and multinationals strategies

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University of Amsterdam – Graduate School of Social Sciences

Supervisor: Dr. Dennis Arnold Second reader: Dr. Marco Bontje

Master of Science Human Geography: Economic Geography

Master Thesis:

The electronic global production network in

northern Vietnam – Development trajectory

and multinationals strategies

Alessio Giustolisi, 11264225 alessiogiustolisi@gmail.com

Amsterdam, 21st August 2017

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Table 1 List of interviewed stakeholders during the fieldwork ... 11 Table 2 Gross domestic product at current prices by economic sector and by year (in %) ... 30 Table 3 Top nine exported goods by commodity in Vietnam in 2015 ... 31 Table 4 Vietnam’s top 10 FDIs by country, number of projects and total registered capital in

mill. US dollars in 2015 ... 33 Table 5 Vietnam exports of total goods, electronics goods (HS85) and mobile phones (HS

851712) in Vietnam 2009 – 2015 ... 37 Table 6 Top 10 exports destinations for mobile phones in 2015 by million US $ and % ... 39 Table 7 Semiconductor imports to Vietnam in 2015 (in million $) ... 40 Table 8 Survey on problems for Japanese firms in Vietnam in 2015 and 2014 (top 5, multiple

answers) ... 41 Table 9 Labour data in electronics industry in Vietnam from 2011 – 2015 by state, non-state

and FDI. ... 42 Table 10 Labour force survey Vietnam 2011 – 2015 by level of skills in the electronic

industry ... 43 Table 11 Average monthly earnings of workers aged 15 and over by, professional and

technical qualification ... 44 Figure 1 The Smile Curve: Stages of development in the value chain ... 6 Figure 2 Samsung Group organisation chart ... 22 Figure 3 Foreign direct investment projects licensed in the period 1988 - 2015 in million US dollars ... 29

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Acronyms and Abbreviations

AFTA ASEAN Free Trade Agreement

ASEAN Association of Southeast Asian

Nations

BTA Bilateral Trade Agreement

CEO Chief Executive Officer

CIT Corporate Income Tax

EOI Export-oriented

Industrialisation

EVFTA Europe-Vietnam Free Trade

Agreement

FDI Foreign Direct Investment

FTA Free Trade Agreement

GDP Gross Domestic Product

GPN Global Production Network

GVC Global Value Chains

ICT Information and

Communication Technology

ILSSA Institute of Labour Science and Social Affairs

IMF International Monetary Fund

IPSI Institute of Policy and Strategic Planning

ISI Import Substitution

Industriali-sation

JETRO Japan External Trade

Organiza-tion

JICA Japan International

Develop-ment Agency

JV Joint Venture

Korcham Korean Chamber of Business

LCR Local Content Ratio

MNC Multinational Corporation

MOI Ministry of Industry

MOIT Ministry of Planning and

In-vestment

MOLISA Ministry of Labour, Invalids and Social Affairs

MPI Ministry of Planning and

In-vestment

NGO Non-Governmental

Organization

ODA Official Donor Assistance

OBM Original Brand Name

Manufac-turer

ODM Original Design Manufacturer

OEM Original Equipment

Manufac-turer

R&D Research and Development

SEC Samsung Electronics

SEV Samsung Vina

SIDEC Supporting Industry Enterprise Development Center

SME Small and Medium-sized

Enterprises

SOE State-Owned Enterprises

TPP Trans Pacific Partnership

USD United States Dollar

VDF Vietnam Development Forum

VGCL Vietnam General Confederation

of Labour

VND Vietnam Dong

WTO World Trade Organisation

PCB Printed Circuit Boards

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Acknowledgment

I wish to thank various people for their contribution to this master’s thesis. My supervisor Dr Dennis Arnold for providing me with many important contacts in Vietnam and for his guid-ance and advice throughout this research work. Dr Nguyen Thi Lan Huong, who gave me the opportunity of getting a work desk at the Institute of Labour Science and Social Affairs (ILSSA) and who arranged one of the most important interviews of this thesis. In general, I want to thank ILSSA, especially Director General Dr Dao Quang Vinh, for my time at the Institute and being invited to the 29th Year celebrations of the Institute. Special thanks should be given to the Research Centre for Information, Strategic Analysis and Forecasts at ILSSA, who hosted me for the whole research project, gave me advice, provided me with contacts, data and other information, invited me for lunch and gave me a good reason to come to the centre nearly every day. In this regard, I would like to express my deep gratitude to Ms Le Thi Luong, especially for her constant support during my stay and introducing me to an im-portant interviewee. Further, I would like to thank Mr Pham Ngoc Toan, Ms Nguyen Hoang Nguyen and Mr Nguyen Than Tuan, all working at the centre. I would also extend my thanks to Ms Bui Thai Quyen for introducing me to many people at ILSSA, supporting me in admin-istrative affairs from the very first day till the last day and for her kindness during the whole time. Finally, I would like to thank my family for supporting me, not only financially, throughout my whole studies and always supporting me in my decisions. My deepest thanks go to my beloved girlfriend, Katharina, who encouraged me to study and do research abroad, who always pushed me to aim for great goals, did proofreading, always visited me abroad and had patience in stressful times.

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1. Introduction

East and Southeast Asia’s economic growth was the result of significant outsource and offshore activities by the multinational corporations (MNC) (FEENSTRA 1998: 36).

Changed consumption patterns and economic crises such as the oil shock years in the 1970s have forced the MNCs to relocate their production to lower cost countries in order to increase their competitiveness in the global economy (Dicken 2011: 64). These developments have led to several frameworks analysing the global economic processes. The global value chains (GVC) framework studied these outcomes with regard to value chains governance structures. In this concept, the MNCs obtain a significant role dictating the type of the value chain or-ganisation which in some cases has clear hierarchical outcomes with high control mechanism but in others are more balanced with equal partnerships between the lead firm and the partner firm (GEREFFI et al. 2005: 85-90). The global production network (GPN) framework has

re-moved the firm centric focus of the GVC framework to a more horizontal perspective, taking all the different actors of a production network into account (HENDERSON et al. 2002:

444-445). Analysing economic outcomes via the GPN framework highlights the interaction of dif-ferent actors in a region on how they contribute to specific regional economic developments. The government and other non-firm actors are crucial for creating strategic couplings be-tween a region and the MNCs in order to create valuable economic outcomes (Coe et. al 2004: 472).

East and Southeast Asia has become an interesting region to analyse its economic develop-ment with these frameworks. The forces of liberalisation, an improved information and communication technology and increasing competition have been crucial for the geographic dispersion of manufacturing and the division of labour to this region (Ernst & Kim 2002: 3-6). Especially, when the developing countries in Asia began to rethink their industrial policies and opened up their economies to foreign direct investments (FDI) (Bathia 2013: 313, Pangestu 2002: 154). These governments promoted foreign investments with generous incen-tives schemes such as tariff reductions to participate in the MNCs value chains (ANDO AND

KIMURA 2005: 203; RASIAH et al. 2014: 657). MNCs began to create complex production

networks by strategically dividing the segments of the production lines in different countries enforcing a fast integration of economies in the chains (GEREFFI et al. 2001: 2). The

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fragmentation especially in products such as mobile phones, is a typical industry for these processes (LEE AND GEREFFI 2013: 9). The industries complex organisation of original

brandname manufacturer (OBM), original equipment manufacturer (OEM) and original de-sign manufacturer (ODM) has led to specific value chain configurations in which different countries obtain different value-added roles (STURGEON AND LESTER 2004: 40). The East

Asian firms from Japan and Korea in the electronics sector have to a large extent contributed to the industrial growth in specific regions of East and Southeast Asia. Their strategies and value chain coordination was particularly important when it came to geographic distribution (ANDO AND KIMURA 2005: 188; ASEAN 2016: 164). While the region has experienced a

gradual value chain participation of countries, from the tiger economies1 to the ASEAN 42, China has become the most significant country in terms of shifting manufacturing activities (FUNG et al. 2010: 133, GAULIER et al. 2007: 51 - 58).

But while China is experiencing economic progress and upgraded its position in the value chain, labour costs are rising (LEE ET AL.2016b: 231). In this context, Vietnam has followed

to become Asia’s next country involved in the electronics sector. In exports it has already surpassed some Southeast Asian countries traditionally involved in this sector (STURGEON AND ZYLBERBERG 2016:10-15). This development was made possible due to two factors: the

government's ambitious reforms initiated by Doi Moi (engl. renovation) which moved the country from a command economy to a market-oriented economy (VAN ARKADIE AND M AL-LON 2003: 68-69) and, as a result of this, the increased FDIs by electronics producers. Here,

as in the case of East and Southeast Asia the Korean and Japanese producers highly influ-enced the development of the sector in Vietnam, especially in the Red River Delta (see Chap-ter 4.2). Beginning with Japanese firms the joint ventures in the 1990s (VIND 2008: 230), the

late 2000s experienced high growth rates of Korean FDIs. In the last years, Samsung has played the most crucial role being responsible for more than half of Vietnam’s exports (STURGEON AND ZYLBERBERG 2016:11-13). The country's fast integration into the production

chains of the Korean and Japanese firms, however, meant being involved in the low-value added production stages (OHNO 2009: 26-27). Weak domestic capabilities and firms’

deci-sions to relocate labour intensive stages to Vietnam are a reason for that. Thus, this work analyses the electronics sector in Vietnam as a development trajectory. It does so by looking

1_{South Korea, Taiwan, Hong Kong, Singapore} 2_{Malaysia, Thailand, The Philippines, Indonesia}

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on firms’ strategies (the vertical perspective) and other non-firm’s actors (horizontal perspec-tive) shaping the network. During a two-month fieldwork in Vietnam interviews have been conducted in order to study these strategies paired with the strategic coupling of the non-firm actors.

1.1. Research Questions

1. How do Korean and Japanese electronics firms’ investment and manufacturing strategies shape the production network around Hanoi? How do they affect the development of the electronics industry in terms of technology diffusion and linkages with local industry?

2. How is technology diffusion and linkages with local industry promoted by the government, international organizations, international lending organizations, business associations and other relevant actors? How do these promotion activities contribute to/not to economic up-grading in the electronics sector? How do these activities shape Vietnam’s economic devel-opment trajectory?

2. Theoretical framework

Outsourcing of production activities by the MNCs have generated a disintegration of production. While the MNCs retain specific parts of the value chain such as design and marketing a huge amount of value chain activities are transferred to firms in low wage coun-tries (FEENSTRA 1998: 36). This disintegration and the international dispersion of production

activities has led to a complex organisation of value chain activities in which multinationals influence the way how value chains are governed. For supplier firms in developing countries this is a way to become functionally integrated in the chain. On the other hand, it means to be dependent from the multinationals’ decisions and their production strategies (GEREFFI et al.

2001: 2).

2.1. GVC and GPN in the electronics industry

The electronics industry exemplifies the rise of GVCs. Its high modularity allows a complex and dispersed production organisation, which in turn leads to growing trade in intermediate goods. Since the value-to-weight ratio in the electronics industry is high, producers have bet-ter possibilities to make use of cost advantages in lower-cost countries by relocating their

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production. A characteristic that appears especially after economic crises. Furthermore, in order to develop an industrial base fast governments have introduced policies to attract pro-ducers of electronics goods to their countries and have contributed to the geographic disper-sion of the industry (STURGEON &KAWAKAMI 2010: 10-12). Nevertheless, this fragmentation

does not always mean spatial fragmentation as was the case in the mobile phone production. This industry segment became more and more spatially concentrated in specific regions af-ter the occurrence of consolidations. Today only a limited number of firms is leading the whole segment. Those firms organise their production in industrial clusters by having attract-ed supplier firms to rattract-educe the lead time and strengthening supplier-buyer relations (LEE AND

GEREFFI 2013: 5). The modularity of this industry has further resulted in strategic location

decisions. Low value-added activities such as the assembly are located in low-wage countries whereas high valued-added tasks can be found in countries with higher technological capabil-ities (LEE AND GEREFFI 2013: 9).

To examine these processes several analytical frameworks have been developed and help to understand regional economic development. The focus is not only in understanding the geo-graphical distribution of tasks, but also in understanding the specific network relations in the production processes and the organisation of trade that lead to specific regional outcomes. GEREFFI’S (1994) global commodity chain (GCC) framework has provided an analytical tool

to understand these organisational processes in which different economic actors in the chain are involved. These actors are linked together within proximity or large distance, obtaining different value-added activities. The organisation of the chains has specific governance char-acteristics which can be divided in producer-driven and buyer-driven chains. In the former large firms in capital and technology intensive industries govern the chain, while the latter is governed by retailers and brand-named firms with labour intensive production (GEREFFI

1994: 97-100). Built upon the GCC framework the GVC framework gave more emphasize to governance by adding three factors of influence: the complexity of information about how production processes can be transferred, how the transferred information or knowledge can be codified and the capabilities of the recipient supplier (GEREFFI et al. 2005: 85). These

fac-tors determine the modularity of the value chain governance leading to five different govern-ance types: market, modular, relational, captive and hierarchy. These outcomes differ in the degree of power asymmetries and the degree of how the value chains are coordinated. In this context market-governed value chains are price based with a low degree of power

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tries. On the other hand, a hierarchical governed value chain is fully coordinated by vertically integrated firms. Between these two outcomes three more can be identified: Modular value chains create looser structures with multiple suppliers, relational value chains create symmet-ric relations in which suppliers obtain key competences with more power within the chain. In captive value chains lead firms obtain more power due to its possession of key information and knowledge (GEREFFI et al. 2005: 85-90).

In the electronics sector the organisation is determined by the different production stages which are organised by the lead firms. The lead firms are the OBMs obtaining an important role in organising a whole production chain. The OBMs order products and components from their contract manufacturers, the OEMs and ODMs. The ODMs have more responsibilities providing design and software development to the OBMs (STURGEON AND LESTER 2004: 40).

Considering the governance modularity OBMs built relational structures with ODMs, since they are dependent on their important inputs. Otherwise, the relation between OBMs and OEMs are more modular (Gereffi 2005: 83). Some Asian firms, especially the Koreans, have realised the low possibilities while being OEMs. These firms tended to create higher syner-gies in being involved in deeper relations as ODMs (YEUNG 2007: 20), showing the higher

importance of ODMs in the chain.

Production stage fragmentation in the electronics sector and its specific value-added can be better understood by looking more detailed into the chain processes. At first stage, different inputs such as metals and plastics are needed for components as semiconductors and circuits. These components are sub-assembled and distributed to the final assembly where the final product is created. High value-added activities such as design, software integration and prod-uct development exist outside of the chain. These activities generate the highest profits in the GVCs (FREDERICK AND GEREFFI 2016: 11-12). In Southeast Asia, different countries have

highly promoted the electronics industry with specific FDI-attracting policies. While this has led to a rapid increase of foreign electronic firms and job creation, the government’s efforts to provide efficient human capital and a necessary institutional and supportive environment was insufficient. Hence, countries such as the Philippines, Indonesia and Thailand remained stuck in low or lower value-added activities (RASIAH et al. 2014: 657). The key target of

the-se governments, however, was to attract the high value-added part of the chain with their spe-cific policies (GEREFFI AND STURGEON 2013: 338).

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6 Stage’s share of products total value Product concept, Design, R&D Manufac-turing Sales Stages

As mentioned obtaining a specific part of the chain can lead to different outcomes of value creation. The so-called “smile curve” (Figure 1) underpins the specific stages of the chain that generate different shares of the total value.

Figure 1 The Smile Curve: Stages of development in the value chain

source: Baldwin 2014 The first stages of the value-chain have the conceptualisation of a product, the design and re-search and development (R&D) have a high share of the total created value. Manufacturing processes as intermediate functions generate the lowest share of value. Sales activities can be found in the final stage of the chain. In this stage, the value share is again high with the curve signalising a steep increase towards a high value-added (BALDWIN AND EVENETT 2015:

34-45). As an example, the value share in the Chinese Apple iPod production has provided a good understanding of how a specific production can generate a significant low value cap-ture. China, even though deeply involved in the production of Apple's iPod, captured the lowest amount of value in the process, while countries such as Taiwan and Japan, in which high valued-added components were produced, generated a much higher share. The high val-ue-added design stages on the other hand, were in the United States (LINDEN et al. 2007: 5-9).

Considering these different stages of value chain activities and the different outcomes regard-ing the total value share an economy or a firm can capture, a strong emphasis was given to

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upgrading processes in GVC. Upgrading is associated with skill improvement due to the competitive pressure firms experience. Here it can be differentiated between process upgrad-ing, in which higher technology leads to production improvements. Product upgrading ap-pears when firms create higher value-added products than they did before. Functional upgrad-ing can be considered as a general shift to another task in the chain associated with a higher value share. A last type is the inter-sectoral upgrading in which firms move from the produc-tion of a product, with their acquired knowledge and skills, to the producproduc-tion of a similar product (HUMPHREY AND SCHMITZ 2002: 1018-1021). The Taiwanese electronic firm HTC

has experienced such an upgrading process moving its role from a contract manufacturer for Microsoft to a leading OBM by producing its own smartphones (LEE AND GEREFFI 2013: 15).

In the last years, China has been exemplary for value chain upgrading. In the smartphone production Chinese firms obtained significant technological capabilities to produce own brands such as Huawei and Xiaomi which are currently accessing new markets in Europe and South Asia (UNCTAD 2017: 55). These examples show how upgrading can occur leading to the creation of domestic firms with international participation and customers.

The prior sections have described production value chains, which are mainly influenced by firm’s competitive dynamics such as costs leading to strategic decision making. This perspec-tive results in an upstream and downstream view of economic activities mainly influenced by the lead firms (YEUNG 2009: 331) and provides a linear picture of chain activities. A similar

way to analyse economic processes evolved with the GPN framework. The network perspec-tive helps to understand economic processes as horizontal, vertical and diagonal activities at the same time in which the different dynamics in different locations influence the production (HENDERSON et al. 2002: 444-445). The GPN framework includes the analysis of different

actors in the network, not only giving emphasis to the firm but also including governments and other institutional actors such as non-governmental organisations (NGO), unions and business associations. Further, it includes the analysis of inter and intra-firm network rela-tions where value is created and captured (HENDERSON et al. 2002: 446-455). In this context,

the GPN perspective understands economic processes as an relational outcome of social ac-tors and as, what COE et al. (2004: 469) call “strategic coupling” between the business firms

and locally embedded actors. These strategic coupling processes and its specific coupling quality determine the way a region develops. Considering the coupling quality between lead firms and local actors the GPN framework enables to find the areas in the network where

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value is created, enhanced and captured (COE et al. 2004; 475). In other words, it gives the

possibility to understand how regional institutions interact with lead firms to facilitate posi-tive effects on regional development, such as technology transfer into local firms.

Strategic coupling between firms and institutions could be observed in the 1970s in Taiwan. The government introduced measures for the private sector to increase technological capabili-ties of the local firms. It funded R&D activicapabili-ties, assisted start-ups with tax incentives and fi-nancial help and created industrial associations for the promotion of “technology learning and knowledge diffusion” (LEE AND SAXENIAN 2008: 165-166). In Singapore’s electronics

indus-try, the government's strategic coupling with the MNCs has highly contributed to increase technology transfer and a move away from simple assembly activities (HILL 2004). These

examples show how the role of institutions can facilitate technology transfer and play an im-portant role in a region's economic development. In general, building strategic linkages be-tween foreign lead firms and local firms of developing countries has become highly im-portant with the rise of FDIs. In most cases, foreign multinationals do not vertically integrate their activities in the host country, they rather integrate local firms in their supply chains so that technological capabilities can be adopted by these firms. Further, the entry of multina-tionals generates increasing competition within the local industry leading to efficiency im-provements in the domestic industry (BLOMSTRÖM AND KOKKO 1998: 23). To go into more

detail firms, involve local suppliers so that these firms are required to invest in modern ma-chinery. Technical support, but also direct instructions are common in this process, leading to knowledge and technological diffusion. A more informal way of adapting technological ca-pabilities is through reverse-engineering and observation. But, this learning outcomes are not directly implemented by the lead firms (Ernst & Kim 2002: 1423-1424). When local firms receive transfers of important skills and knowledge spillovers efficiency improvements are created (SMARZYNSKA 2003: 2010-2011).

As a result of the prior sections, the GPN framework gives the possibility to analyse these economic processes and to build upon the GVC concept. Bringing the relation between so-cially embedded actors into account it provides an inclusive framework moving away from the firm-centric approach (COE et al. 2008: 272-273). Using both the GVC and GPN

frame-work in this frame-work helps to understand northern Vietnam's economic position in the electron-ics industry. The value chain perspective helps to perceive the firm’s vertical coordination

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and where they locate specific value-added activities. The GPN perspective supports the hor-izontal perspective by taking socially embedded actors into account. In this context, the Viet-namese electronics industry represents a current example of firm’s decision, value chain inte-gration and government policies. As mentioned in the introduction the country has made a fast change from a command economy and a strong dependence from the agrarian sector to-wards a globally integrated export economy involved in the electronics industry (VAN

ARKADIE &MALLO 2004: 27-30).

3. Methods

The main unit of analysis in this research is the electronics industry as a development trajec-tory for northern Vietnam. As the title, and more specific the research questions concretise, the focus lies in the strategies of the multinationals from Korea and Japan and in this sense how they shape the production network by generating technological diffusion with local in-dustries. As explained above, the impact of multinationals in developing economies can have an important impact on learning processes in the local industry and improve the position in the value chain. In this regard, the MNCs governance of the value chain represents the verti-cal perspective. Viewing this in a horizontal perspective stresses the role of other actors in the network. This leads to the second research question and the focus on non-firm actors and how they try to facilitate economic upgrading along the value chain and within the production networks. To answer those research questions qualitative interviews with 18 different stake-holders, of which 13 were relevant (table 1), were conducted. These interviews were held be-tween March and May 2017 in Hanoi and neighbouring provinces. To create a triangulation of stakeholders, the interviews were held with representatives of five categories: Lead and supplier firms to get the vertical value chain perspective, business associations, development institutions, union and ministerial institutes to get the horizontal perspective.

As interview method, qualitative and semi-structured interviews were chosen, since this helps to get a better understanding of the interviewees perspective and its point of view. The inter-viewee can give a focus on the relevant topic, while a survey would not give these insights (BRYMAN 2012: 470). Further, doing interviews gives the possibility to change a possible

theme and focus on more important topics while doing the interview. In addition, the inter-viewer can directly reply on answers and ask again on specific topics. These characteristics

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give a high degree of flexibility for both the researcher and the interviewee, plus they gener-ate proper and more in-depth answers (BRYMAN 2012: 470). An important step before

start-ing the semi-structured interviews was to give a clear introduction of the topic and the inten-tion. This was done by already mentioning key topics the interviewer was interested in and by mentioning what the interviewer wanted to know from the interviewee itself in particular. Further, it was important to create a topic list to avoid improvisation during an interview (BOEIJE 2010: 473). These steps saved time and gave a focus to the point of interest. Since

the interviews were semi-structured the interviewer prepared an interview guide beforehand, but gave himself the flexibility to ask questions based on the interviewee’s answers. The preparation of the interview guide contained a first specification of the topic areas. Further, questions were already pre-formulated. Since quantitative questions do not lead to leading questions, the focus was on qualitative questions (BRYMAN 2012: 473). The sampling method

could be described as snowball sampling, which is a method of making contact to a small group in the research topic and building new contacts (BRYMAN 2012: 424).

Based on a prior research on the electronics industry in Vietnam important stakeholders were identified from the literature, policy papers, government documents, newspaper articles and business directories. In total, more than 58 stakeholders from every category were contacted up to four times via email and at least two times via phone. This was done upon arrival at the end of March in Hanoi and during the stay. While in some cases the contacted stakeholders did not respond, in other cases the language barrier was problematic to arrange a meeting. In some cases, stakeholders did not show interest for an interview or referred to other stakehold-ers. Getting in touch with people should have led to other contacts. In most cases the inter-views themselves did not lead to other interinter-views. A work place at the Institute for Labour Science and Social Affairs (ILSSA), which works under the Ministry of Labour- Invalids and Social Affairs (MOLISA), gave a fast understanding of internal governmental structures. Per-sonal contacts have been built during the two month stay at ILSSA, leading to interviews with key stakeholders. In a country such as Vietnam it is crucial to have the right contacts and get introduced to people. Thus, by mentioning the personal relations to ILSSA in the con-tact email and receiving a confirmation from ILSSA, it has in many cases helped to get an interview partner. Especially, with the Korean institutions it was further necessary to send a confirmation from ILSSA. Another method was to mention people or organisations which have been already interviewed in the contact email, in order to get attention.

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As a result of direct help by an influential person at ILSSA an interview with the deputy di-rector of Samsung's affiliate Samsung Electronics Vietnam (SEC) could be arranged already at the beginning of the research. SEC’s involvement in Vietnam increased drastically in the last years, leading the multinational to the most important exporter of manufactured goods in Vietnam (explained in more detail in chapter 4). Further, an interview with a manager of the SEC Thai Nguyen facility could be conducted.

Two more interviews were held with supplier firms. These were the local joint stock compa-nies Vietnam HTMP Mechanical., LTD (HTMP) and Thien May Industries (TMVP). TMVP belongs to the category of a small and medium-sized enterprise (SME) with its headquarter in Ho-Chi-Minh City (HCMC), two more facilities in the Dong Nai province (Southern Vi-etnam) and Vin Phuc province northwestern of Hanoi. The company is involved in plat-ing,coating and supplying plastic parts and steel parts. In 2016, it generated around $ 7 mil-lion revenue with 300 employees. 55% of the products are exported and 66 of their 86 cus-tomers are FDIs. The company is a first-tier supplier in the motorcycle industry and supplies to electronics firms such as SEC and LG as second-tier supplier (interview, deputy CEO TMVP, 11/05/2017). HTMP began to produce in the early 2000s as a Japanese-Vietnamese joint venture until it closed in 2005 and reopened as a Vietnamese joint stock company. They traditionally manufactured moulds, but started with die casting moulds and injection moulds in 2012. In the same year, they became supplier for Samsung in Bac Ninh (interview, deputy CEO HTMP, 10/05/2017). Both were two of more than ten suppliers which have been con-tacted due to their role in the electronics production network in the Red River Delta in north-ern Vietnam. The decision to contact these suppliers were in both cases based on the inter-view with SEC’s deputy director, while talking about examples of successful cooperations with domestic suppliers. Nevertheless, these two firms were already identified in the process of analysing the Vietnam Manufacturing Supporting Industry Yearbook.

Table 1 List of interviewed stakeholders during the fieldwork

Stakeholder Representative Province Role Main Activities SEC Vietnam Deputy Director Hanoi Lead Firm CEO Electronics Industry

SEC Vietnam Production Plant Manager

Thai Nguyen Assembly Production capacities, order and working plan

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LTD (HTMP) tries injection

Thien My Industries Co., LTD. Vin Phuc (TMVP)

Deputy CEO Vin Phuc SME/Supporting Indus-tries

Electroplating

Japan External Trade Or-ganisation (JETRO)

Secretary General Hanoi Business Association Investment support, matchmaking

Korea Chamber of Business (KORCHAM)

Secretary General Hanoi Business Chamber Investment support, matchmaking

Vietnam Electronics Industry Association (VEIA)

Senior Analyst Hanoi Electronics Association Investment support, matchmaking

Japan International Coopera-tion Agency (JICA)

Senior Project For-mulation Advisor

Hanoi Governmental Agency ODA; technical assis-tance, capacity building

Vietnam Development Forum (VDF)

VDF research-er/lecturer National Economics Universi-ty

Hanoi development institute Policy Assistance

Vietnam General Confedera-tion of Labour (VGCL)

Union representative Hanoi Labour Union Labour conditions/rights, drafting team labour code

Centre for Development and Integration (CDI)

Managing Director Hanoi NGO Policy support, good

governance

Industrial Policy and Strate-gy Institute (IPSI)

Experts Hanoi Ministerial Research

Industry

SME support

Institute for Labour Science and Social Affairs

Senior Expert, Hanoi Ministerial Institute Labour Conditions and Rights in Vietnam, Source: Authors interviews March 2017 - May 2017 A horizontal view was given by the following interviews. As business associations, the Japan External Trade Organisation (JETRO) and the Korea Chamber of Business (KORCHAM) were chosen, who are representing firms from their home countries and sup-port with legal and business advices, but also match making with domestic firms. As will be explained in chapter 4 the Japanese and the Korean firms are significant in the electronics production network. As representative of Vietnamese firms the Vietnam Electronics Industry Association was chosen, even though questions were responded via email. All three associa-tions are important actors in building a dialogue between multinationals and supplier, but also between firms and the government. Further, they are of high importance in the strategic cou-pling process. As international financial institution Japan International Cooperation Agency (JICA) provides developmental help through official donor assistance (ODA) but is deeply involved in technical assistance and SME development as well. Another horizontal type of actor in the strategic coupling process. The Vietnam Development Forum (VDF) is a joint research project between the National Graduate Institute for Policy Studies in Tokyo and the National Economics University under the supervision of the economist Kenichi Ohno. The

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institute is deeply involved in the improvement of Vietnam’s manufacturing industry as a de-velopment trajectory and tries to support Vietnam’s way out from the so-called middle-income trap by improving the country's position in the GPN/ GVC. They focus to a large ex-tent on policies to create efficient supporting industries. An interview was held with a senior researcher of the institute. As important actors who significantly influence the power balance in the production networks and do pressure to both firms and governments, union and labour rights organisations play a significant role. Interviews with these stakeholders were held with a representative of the Centre for Development and Integration (CDI) and with the Vietnam General Confederation of Labour (VGCL). The CDI aims to build good governance in the process of Vietnam's rapid economic integration. The VGCL is Vietnam's only labour union. The Supporting Industry Enterprise Development Centre (SIDEC) is a subdivision of the In-stitute for Industrial Policies and Strategies (IPSI). The inIn-stitute acts between the domestic industry and multinationals firms and belongs to the drafting team of specific industrial poli-cies. SIDEC belongs to the Ministry of Industry and Trade (MOIT). The third interview with a senior expert at ILSSA was attended in person, even though the questions were held by an-other researcher.

In general, the interviews were semi-structured in which a short introduction of the research project was given. This included the mentioning of key topics which were of interest and a half a dozen initial questions to start the interview. After that, questions were asked based on the answers, so that the outcome of every interview took a different way and focused more on the expertise of the interviewees.

The following chapter will explain the production shift of the electronics industry to East Asia and focusing on the role of Vietnam. It will highlight East and Southeast Asia's de-velopment of the last decades of globalization. The electronics industry was a dede-velopment trajectory for the Asian tiger economies which created domestic multinationals and generated a local high value-added industry. But also, the developing countries of Southeast Asia such as Malaysia, the Philippines, Indonesia and Thailand became a production location for elec-tronics multinationals. Next to western multinationals especially the elecelec-tronics lead firms from Japan and Korea have highly influenced the region's production networks. Their strate-gies and value chain reconfiguration are analysed in relation to their national backgrounds. The fourth chapter will shortly analyse Vietnam’s economic development of the last 30 years

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and its policy environment during the industrialisation and global integration process. A stronger emphasis is given to the electronics industry and the influence of the Japanese and Korean FDIs in this sector. Their value chain coordination and their recent expansion strate-gies in Vietnam are considered. The last section will analyse the findings of the interviews and put them into a thematic context.

4. Economic Development and Globalisation in East and Southeast Asia

Places of manufacturing have shifted from traditional industrial regions into new production locations of East and Southeast Asia. In this process, strong interdependencies between these countries and regions have developed and complex interconnected production networks evolved (Dicken 2011: 51-54). But what are the reasons behind this new organisation of pro-duction? In fact, three forces can explain economic development of the past four decades: Liberalisation, improvement in information and technology and increasing competition. Lib-eralization in regard to trade, FDI policies, privatisation or capital markets occurred in a peri-od of a general institutional change. Economies that faced financial difficulties after years of reflationary fiscal politics changed towards a more open system to cope with these problems. On the other hand, a changed environment in which supranational institutions obtained more and more influence on policies led to open markets. Improvement in information and com-munication technology (ICT) have increased and strengthened the way how knowledge and information could be diffused. Thus, liberalisation paired with improved communication pos-sibilities led to higher competition which did not end on a country's border (Ernst & Kim 2002: 3-6).

East and Southeast Asia has highly benefited from these forces. A closer look into the region reveals the scope of these dynamics and the impact on world economic processes. From the 1990s to the early 2000s a large increase of component trade could be observed. In this con-text, East and Southeast Asia played a significant role of becoming part of the labour divi-sion. These countries increased their world export share from less than 30% to around 44%. Excluding Japan, whose share was reduced in this time span, the Asian developing countries increased their export share from 16% to 31%. Many of these countries developed positive trade balances. Above all is China who made the biggest improvements in this period

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(ATHUKORALA AND YAMASHITA 2006: 8). East and Southeast Asia’s fast development has

hence shifted world manufacturing processes from the former industrialised countries to the newly industrialised and developing economies of Asia. The next section examines the role of government policies in the region and the influence of MNCs in the electronics sector, es-pecially from Japan and Korea, who formed a complex production network in the region and created the basis of the industrial progress.

4.1. Asian regional economic perspective and division of labour

East and South Asia's economic history experienced different phases of policy making with the aim to catch up with the leading industrial economies. A favourable measure were import substitution industrialisation (ISI) policies to protect their domestic markets and generate a whole integrated industry in the own country (Bathia 2013: 313). Countries such as Taiwan, Korea (Doner et al. 2005: 341 - 343), Thailand (Ueda 2009: 4) but also Japan, the Philip-pines, Singapore and Malaysia implemented ISI policies in the 1950s and 1960s (MASUYAMA

et al. 1997). The success of these policies was already questioned in the 1970s realising seri-ous issues such as the high dependence on imports of intermediate goods for sustaining a lo-cal industry which led to severe trade imbalances. Other problems were the misallocations of resources or the lack of technology transfer (BRUTON 1998: 919-920). It was realised that a

self-sustained industrial growth, as it was promoted in ISI policies, was an insufficient meas-ure. Key drivers of this turn were the mentioned improved ICT, which facilitated spatial fragmentation without rising production cost. This enabled a shift from a production in sec-tors to a production in stages, which in turn allowed economies to join the firm’s value chains (BALDWIN 2011: 6). After ISI policies, the East and Southeast Asian countries facilitated

in-dustrial growth by increasing investment incentives for export activities such as subsidies on exports or credits and the creation of export processing zones. In this context, East Asian and Southeast Asian countries have changed their ISI policies towards export oriented industriali-sation (EOI) policies (PANGESTU 2002: 154). A supportive argument to change to EOI

poli-cies was the general reduction in economic growth, caused, among others, by the oil shock and debt crisis in the 1970s. Hence, countries like Taiwan and Korea but also Thailand and Malaysia who opened up their economies experienced rising employment and a general re-duction of poverty (BRUTON 1998: 922). Korea and Taiwan changed their strategies to EOI

in the 1960s. During this time, many governments followed a more liberalised approach while opening their economies to foreign investors. These countries were soon followed by

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other Southeast Asian developing economies (WORLD BANK 1993: 123-125). Thailand and

Indonesia for instance, significantly reduced quantitative restrictions on imports and loosened their tariffs rates in the period from the 1970s to 1990s, with significant reduction in the elec-tronics industry (JAMES &RAMSTETTER 2005: 14-17).

In the electronics industry, Malaysia's EOI policies such as the tariff reductions and the crea-tion of free trade zones in 1970s have generated a yearly average export increase of more than 40% (Rasiah 2010: 304-305). But while government policies played a significant role in promoting industrial growth in the East and Southeast Asian economies (RASIAH et al. 2014:

657), lead firm’s strategies were also important for shaping the region's economy and led to a rapid integration of developing economies into the electronics value chain (STURGEON AND

KAWAKAMI 2016:22-37). As a result, East and Southeast Asian countries participated in

sup-ply chains and the trade in intermediate and final goods have further increased (GANGNES AND VAN ASSCHE 2010: 5). Western and Japanese electronics MNCs producing in the newly

industrialised economies have benefited from the low wages. Later, with increasing learning processes of Asian supplier firms these MNCs changed their GPN organisation and increased their outsource activities (Yeung 2007: 7-9). In fact, this integration into the GPNs of the big multinationals and the participation in specific activities in the value chains have been an im-portant contribution to East and Southeast Asia’s growth. The three forces of liberalisation, improvement in ICT and increasing competition have contributed to this as could have be seen in the above paragraph.

The GPN organisation of the led firms in Asia further shows specific characteristics. The Asian GPN, to some extent, is deeply involved in intra-regional trade. Import numbers from Europe and the USA decreased in the last two decades, whereas the Asian share of imports grew. Especially the integration of China into the production networks has had a significant contribution to the increase in intra-regional trade (FUNG et al. 2010: 133). When China

opened their markets, it appeared as a game changer. East Asian lead firms from Japan, Tai-wan or Korea began to use China as their export base. As a consequence, they reduced to ex-port directly from their home markets but increased the exex-ports from China. Exex-port data in electronics goods underlines that. Beginning with the 1990s China could increase its export share in electronics goods surpassing the traditional export countries in the region (GAULIER

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2007: 7-8) and later the expansion of Korean firms to Southeast Asia and China had a deep impact on the formation of the East and Southeast Asia’s regional production networks (ASEAN AND UNCTAD 2016: 51-56; LEE ET AL. 212: 6-7). The next sections will further

explain how Japanese and Korean lead firms contributed to the Asian GPN.

4.2. Japanese and Korean investments in the Asian context

Japanese FDIs to Asia started in the 1960s as a measure of resource seeking activities. Later they got involved in manufacturing activities which was supported by the government when wages in Japan began to rise. A significant historical occurrence appeared in the 1980s when the appreciation of the Yen against the Dollar caused severe cost increases (ERNST 1997: 56).

The strong Yen caused rising wages and higher initial investment costs in Japan. On the side the Yen appreciation led to a high Japanese expansion to East and Southeast Asia in the mid-1980s (ERNST 1997: 56) explaining the high increase of Japanese FDIs to the region. As

could be observed before the Asian Financial Crisis in 1997 the Japanese share of Asian FDIs doubled from around 12% in 1989 to around 24% in 1996. In the same time the Japanese to-tal European FDI share declined to 15% while remaining stable at 45% in North America (URATA 2002: 4). Thus, Japanese involvement in the region began in the second phase of

1980s showing high increase during the 1990s. During that Japanese firms, not least because of Vietnam's opening, began to invest in Vietnam (see chapter 4).

Korean firms first expansion into East and Southeast Asia were, as in the case of the Japanese firms, mainly caused by resource seeking activities in the course of the oil shock. The gov-ernment partly supported these activities in the 1970s and 1980s, even though FDI policies to a large extent restricted Korean firms to invest in foreign countries (ASEAN AND UNCTAD

2016: 52). A second expansion stage during the late 1980s followed and was the result of the Won appreciation (KIM 1993:30), but also because of internal political and societal changes.

Korea was under the rule of an authoritarian government which introduced market oriented policies in the 1970s. It promoted Korea's integration into global trade by implementing ex-tensive EOI policies and created to a large extent a favourable corporate-led economic devel-opment with restriction to labour unions and states intervention in labour strikes (SHIN AND

LEE 1995: 180). The increasing social unrest in the following decade consequently put the

government under strong pressure. A Korean democratisation process in the 1980s was the result (CHU 1998: 195) and improved labour rights and a stronger union system and in turn

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led to increasing strikes and rising wages (SHIN AND LEE 1995: 180). Confronted by this new

environment the Korean firms experienced domestic production disruptions. The government supported its firms by loosening the FDI restrictions in the late 1980s. A consequence was a third push of Korean outward FDI (OFDI) in the 1990s (KIM AND RHE 2009: 126). From the

2000s onwards a higher increase in Korean OFDIs into the developing countries could be ob-served. While these countries meant cheap labour pools they further provided a new market (Moon & Yin 2015: 7-8). Vietnam was a late comer in attracting Korean FDIs. While Sam-sung began its involvement in the late 1990s (Vind 2008: 230), a push of Korean investments began in the mid 2000s (ASEAN & UNCTAD2016:54). The Japanese and Korean expan-sions during the 1960s until the 1980s were a measure to get access to resources, but more important to cope with internal cost increases. The Yen and Won appreciation made it attrac-tive to invest in countries with weaker currencies. Further, the Korean domestic labour diffi-culties have been a significant push factor during the big expansion phase of the 1980s and 1990s.

Japanese and Korean government’s policies played a significant role for the formation of the Asian GPN. Beginning with the new century the Japanese government turned away from its critical position against free trade agreements and expanded its FTA policy, implementing FTAs with more than a dozen countries in the last 17 years (URATA 2014: 21). The Japanese

government, as URATA (2014) argues, not only experienced increasing pressure from its

cor-porations to implement FTAs and bilateral trade agreements (BTA) it also faced structural problems in Japan itself with slow growth rates. Further, with looking to Southeast Asia, FTAs should facilitate economic growth in these countries to generate a larger consumer market for Japanese businesses (URATA 2014: 21). Further, they made a higher fragmentation

of production stages possible and the steady increase of trade in intermediate products. A sig-nificant contribution of FTAs were the allocation production stages around these countries. Strong differences in economic prosperity as in the case of Singapore and Cambodia allowed strategic distributions of tasks (URATA 2014: 11). As did the Japanese government, the

Kore-an begKore-an in the mid-2000s to initiate bilateral FTAs with more thKore-an 15 countries Kore-and is still in negotiations with several other countries. The FTAs included one with ASEAN, but also with Singapore, Vietnam and China. In the government's ambitions to improve Korea's strong po-sition in the high-value added part of the chain, these FTAs were important supportive in-struments. As a consequence firms have higher possibilities to relocate specific fragments of

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the production in competitive nations in Asia and maintain the high-technological activities in Korea (CHEN AND CHEN 2017: 6-8).

The geographic distribution of the Japanese investments showed a two-path way. First in-vestments occurred in the East Asian economies Taiwan, Korea, Hong Kong and the South-east Asian economies Singapore, Malaysia and Thailand. Later a shift towards China, Indo-nesia, the Philippines and Vietnam occurred (Ernst 1997: 80-81). Here a key strategy for Jap-anese firms was to offshore labour intensive production stages to East and Southeast Asia while keeping their headquarter as well as high-technology activities in Japan. Known as “triangle trade”, high-tech goods were exported to the assembly lines in Southeast Asia and sold to the US and European market (BALDWIN 2007: 7). This clear division of tasks could be

observed in the electronics industry which had a significant contribution to the Japanese ex-pansion phase, obtaining more than half of Japanese FDIs during the mid 1980s and early 1990s (ERNST 1997: 58). As part of the triangle trade Singapore and Hong Kong played an

important role as the regional headquarters with major coordination functions in the produc-tion network. Their OEMs were located in Korea and Taiwan, while Malaysia and Thailand obtained the labour-intensive part of the Japanese electronics production networks (ERNST

1997: 58). Malaysia became a strategic location for Japanese electronics firms, bringing the country in a high dependence of these firms. The MNCs established electronics clusters and upgraded their activities over the years. China’s and Vietnam’s World Trade Organisation (WTO) accession, but also the rising labour costs in Malaysia have reduced Japanese invest-ments in the country bringing Malaysia under strong pressure (EDGINGTON AND HAYTER

2013:244). This underlines Malaysia's weak competitive advantages by facing competition from China and Vietnam. Otherwise, Korean firms focused on Indonesia in the beginning years because of its low labour costs and the authoritarian regime which restricted labour rights and showed similarities with the Korean pre-democratisation era of the 1970s (SHIN AND LEE 1995: 180). This location preference was in fact a measure for Korean firms to

compensate the rising labour difficulties in their own country (ASEAN AND UNCTAD 2016:

52). Labour costs reduction was key determinant for the Korean firms, since the main labour-intensive activities were outsourced to the low-wage countries in Southeast Asia and China, whereas the capital-intensive activities were in Korea, North America and Europe (MOON

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In both the Japanese and Korean FDI expansion China has played a significant role. In fact, China’s integration into the world economy has been significant for the reorganisation of Japanese production networks. China’s efforts to create an efficient policy environment to attract FDIs have influenced Japanese investments which shifted to China and increased the country's participation in the Japanese production networks (KAWAI AND URATA 1998: 258).

As a result of China’s and the ASEAN’s policies in favour of FDIs the Japanese firms could increase their flexibility to organise their complex production networks in the region. The Korean multinationals expansion could particularly be observed in China where they created networks by relocating Korean SMEs in close proximity to their production facilities (LEE et

al. 2012: 12). China’s deep integration into Korea's production networks around the 2000s made 50% of total Korean FDIs in Asia, with a high concentration in the north-eastern Chi-nese provinces (KANG AND LEE 2007: 442). Main reason for entering the Chinese market

were the low labour costs. LG opened several facilities in China (KIM AND RHE 2009:129) as

did Samsung in the last two decades (KIM 1998: 91-92). Both the Japanese and Korean firms

highly benefited from market liberalisation processes in the region which gave them the pos-sibility to efficiently organise their production. The Vietnamese case shows strong similari-ties to that development. LG and Samsung are important investors in the country being at-tracted, as in the case of China, by the government's incentives and low labour costs (see chapter 4).

Another important aspect of the production organisation of the Japanese and Korean MNCs lies in their corporate governance. Both have a dominant impact on the host countries with their organisational structure. In the Japanese case the organisation of production networks is highly influenced by the Keiretsu system which is characterised by strong ties of intercon-nected business firms with the lead firms as the central organ (KIMURA AND PUGEL 1995:

484-487). Keiretsu members are responsible for nearly 40% of total Japanese FDIs to East and Southeast Asia signalising its high involvement in the network. Here the lead firms ob-tained enough power to organise the whole network and influencing decisions to localise spe-cific tasks. Further, the Keiretsu system supported the expansion of Japanese suppliers as they followed the lead firms to produce in their proximity (PENG et al. 2002: 258). Their

Keiretsu system has to some extent loosened throughout the 1990s, when Japanese firms faced several forms of pressure resulting in reconfiguration of their production networks. In the electronics industry, constant technological innovations changed the general lifecycle of a

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product. To stay competitive firms needed to create a flexible production system in which new products could be produced. This contradicted to the Japanese model based on long-term, qualitative products and mass-production thus, changed their production organisation (BELDERBOS AND ZOU 2006: 6). As a result of these new production requirements the

Japa-nese firms began to integrate external SMEs in their supplier networks, helping to create pro-duction agglomeration and secure economies of scale in these regions (Ando and Kimura 2005: 188). This governance structure implicates that on the one side the Keiretsu system leads to a hierarchical or captive value chain modularity, but otherwise, with the integration of external suppliers, has developed to a more modular or relational governance organisation. Meanwhile ANDO AND KIMURA’S (2009) empirical work on Japanese productions networks

has given evidence on Japanese organisational trade relations. Compared, for instance, to US firm’s production networks in the Mexican Maquiladora, the Japanese are more complex and highly fragmented. Trade relations through long distances, such as Japan and the ASEAN region are coordinated through intra-industry trade, while trade relations within the host country are through arm-length transactions with external partners. The Korean corporate governance model has similarities to the Japanese. Firms such as LG and Samsung are part of Korean business conglomerates (Korean: Chaebol) which resembles the Japanese Keiretsu system with even closer ties and a higher control mechanism (Kimura and Lee 1998: 118-119). In general, the Chaebol structure leads to high vertical integration with a low amount of external supplier. Contract manufacturers in these networks are highly dependent of the lead firms and in a weak position (Lee et al. 2016b: 233). In the early 1990s the Chaebols OFDIs accounted for more than 70% of the total share of Korean investments. Samsung was the conglomerate with the highest number of foreign facilities (KIM 2000: 11-113). In China, the

conglomerates took advantage from their organisational structure to develop full value chain production. This has changed when Chinese companies began to upgrade their activities and replaced Korean firms in specific value chain activities (LEE et al. 2012: 6). Both the Keiretsu

and the Chaebol hierarchical value chain organisation of Japanese and Korean multinationals underline the high vertical integration and control mechanisms.

Samsung case study

Having looked into Asia's economic path and the influence of the Japanese and Korean mul-tinationals in the region the next section should highlight the case of Samsung’s most im-portant subsidiary SEC, accounting for more than two thirds of the Samsung Group’s profit

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(HAN et al. 2013: 27). The Samsung Group consist of 62 affiliates of which every affiliate has

a myriad of subsidiaries as in the case of SEC, which has 159 with a majority ownership (SAMSUNG 2015). SEC was established in 1969 having its core business in consumer

elec-tronics (CE), information technology and mobile communications (IM) and device solutions (DS) (SAMSUNG 2015). With its HQ in South Korea SEC operates further 159 subsidiaries all

over the world responsible for production and sales. All divisions are represented by their re-gional HQ.

Figure 2 Samsung Group organisation chart

Source: Samsung 2015

In 2015, the net revenue of SEC was around $ 175 billion with 51% proportion in the IM di-vision, 23.4% in CE and 37.4% in DS. Mobile Devices made around $ 87 billion. Regarding research and development (R&D) SEC spend around $ 13 billion in 2015 (SAMSUNG 2015).

Internationalisation

The company began to internationalise its production activities in the 1980s and 1990s. As in the case of the Japanese firms, SEC faced difficulties to export their products to the US and European markets. Therefore, they started the production in these developed countries al-ready in the 1980s. As Korea’s political ties with China began to improve in the early 1990s, SEC was one of the first Korean firms to start the large Chinese expansion by initiating a

Samsung Group 62 affiliates

Samsung Electronics (SEC) 159 Subsidiaries (over 50%

own

Samsung Display Samsung Semiconductor

Others: Samsung Heavy Industries, Samsung C&T,

Samsung Life Insurance, etcership)

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joint venture. As mentioned before, the Chaebol structure allowed to build efficient networks for those firms, as did SEC by including other Samsung Group members in their Chinese production network (KIM 1998: 90 - 94). In fact, Samsung Chinese facilities developed a

rap-id creation of production networks due to a top-down management system organising the subsidiaries activities and steadily increased their involvement making China to the most im-portant location for Samsung outside Korea in the early 2000s (KIM 1998: 90 - 94). In 2004

69 affiliates were localised in China with more than 43 000 employees (LEE AND KIM 2004:

12). SEC was the first of the Samsung Group to be represented in ASEAN by establishing Thai Samsung Electronics of Production in Thailand in 1988. In Vietnam, SEC established in 1996 as the first subsidiary in the country producing and selling electronic devices. In 2009, two years after the WTO acceleration, SEC expanded its production site in the Bac Ninh province, while five years later SEC established another subsidiary, its Thai Nguyen facility which is involved in communication system services (ASEAN AND UNCTAD2016: 65-66).

Production networks coordination

SEC shows how a Korean lead firm in the electronics industry organises its value chain around East and Southeast Asia. In its component supply chain SEC differentiates between seven organisational units, with different responsibilities. For its most important components SEC involves either affiliates of the Samsung Group, which account for 11% of the total in-puts or multinational parts supplier. These firms have high-capabilities, own significant tech-nology patents and are thus, irreplaceable for SEC. Further, due to the high capabilities, these firms obtain a high degree of bargain power. The third and fourth types of components sup-pliers have weaker bargain power but can be important on depending on their capabilities. These are first tier-suppliers, which get higher attention with regards to support from SEC, and subcontractors who produce outsourced parts for SEC. On the bottom of the supplier units are the low value-added parts suppliers, which in most cases are local firms. These sup-pliers are highly dependent on SEC and due to the low requested technology can be quickly replaced (HAN et al. 2013: 27).

Having looked into East and Southeast Asia's development in course of the electronics indus-try fragmentation led by government policies and firms strategies, the focus turns now to Vi-etnam having experienced a similar developmental path as its competitors such as China and its neighbouring countries in the ASEAN.

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5. Vietnam

The forces which had brought East and Southeast Asia on the spotlight of the electronics in-dustry, could be observed after some decades in Vietnam. The country has introduced signifi-cant reforms in the late 1980s as a consequence of economic uncertainties. These reforms gave commitments to free trade and opened the economy for foreign investments initiating a process of economic growth. On the other hand, firms’ decision to focus on Vietnam has also contributed to that. Especially Korean and Japanese firms have developed a production net-work in Vietnam with structures similar to their industrial clusters. Industrialisation was the most important government target in the last years, which was highly promoted in the 2000s with trade policies and policies to attract foreign investments (THANH et al. 2004: 2-5). The

key for Vietnam's economic growth has been its new role as an export market. The country turned from commodity exports to textile and garments and most recently became an im-portant exporter of electronics goods (chapter 4.2). This export growth was the result of the government's stabilisation efforts (Hill 2000: 284).

5.1. Doi Moi and Economic Development: Historical Background

To understand Vietnam's development towards a transition economy it is necessary to look back at the past four decades and to know the key issues Vietnam was facing in these years after the Indochina war and especially in the years after the reforms of the late 1980s. While this historical context was studied in more detail by other scholars (among others Beresford 2008; Fforde & de Vylder 1996; Gainsborough 2013; Masina 2006; VAN ARKADIE AND

MALLON 2003), the following sections will summarize key events and policies which have

led to Vietnam’s industrial transformation and integration into the GPN.

Vietnam’s reunification era began after the dramatic fall of Saigon in 1975, months after the Fourth National Party Congress decided to move the unified country into a socialistic econo-my with the focus on heavy industries and an improved agricultural system (THIEN 2005: 26).

This system did not last long. The fifth congress in 1982 already acknowledged the failed economic path of the last years and what is more, the country witnessed a system change in