Southeast Asian industrialisation and the changing global production system

The diversion of foreign direct investment (FDI) flows into developing Asia, from Southeast Asia to China, has renewed doubts about whether Southeast Asia's traditional reliance on FDI has left the region without the local capabilities required to sustain the region's long-term competitiveness. Southeast Asia's industrialisation has involved deepening integration into international production networks, comprising internal exchanges between multinational corporations (MNCs) and their subsidiaries, affiliates and subcontractors. While indigenous industry has been secondary to Southeast Asian industrialisation, this paper highlights three elements of local technological accumulation and clustering within foreign-dominated export industries: production deepening, co-location of design, engineering and R&D with off-shore manufacturing, and the spatial clustering of MNCs in particular industry segments. Southeast Asian governments have responded to these trends by broadening investment promotion from manufacturing to business services and regional headquarters operations, by targeting incentives and infrastructure development to foster industrial clusters, and by invigorating technical support programmes for local small and medium-sized enterprises (SMEs) in supporting industries. Taken together, these trends suggest that Southeast Asia will remain an important site within multinationals' international production networks