# CHAPTER 4 TRANSFER OF JAPANESE ELECTRONICS INDUSTRY TO MALAYSIA

### 1. TRANSMISSION OF INDUSTRIAL DEVELOPMENT : ANALYTICAL FRAMEWORK

Since the mid-1980s, the economic interdependence in the Asian Pacific Region (APR) has been rapidly increasing due to a process of industrial relocation occurring through flows of international trade and foreign direct investment (FDI), from more advanced countries to less developed ones. Following the change in the structure of comparative advantages, some labor-intensive industries have already been almost entirely transferred and other more capital or technology-intensive ones are proceeding along the same direction. Such a dramatic shift in the location of international production is taking place according to a pattern of specialization for the developing countries which is similar to that previously experienced by the more industrialized ones. In particular, the idea that the process of industrial development can be “transmitted” is based on the relocation process of some strategic industries (like textiles, steel or electronics) which has been occurring from Japan towards Asian countries.

The purpose of this section is to introduce the “product cycle” theories’ analytical framework, which provide a consistent explanation to three main problems related to the transmission of industrial development. First, understanding the reasons why an industry is gradually transferred from one country to another. Second, predicting the changes which will occur in each country’s structure of comparative advantages and pattern of specialization. Third, identifying a particular sequence of countries and industries according to which the process of industrial development transmission takes place.

### 1.1 Limits of the Neoclassical Approach

The neoclassical model of international trade affirms that a country will enjoy comparative advantages and specialize in the industry which uses more intensively the factor of production that country is relatively more well endowed. Taking for simplicity only labor and capital as factors of production, the pattern of trade is decided as follows: a labor-abundant country will specialize in the production and export of labor-intensive industries and will import capital-intensive products from capital-abundant countries. This model is very useful in understanding the “reasons” of trade, but the strict assumptions on the supply and demand side and the static comparative nature limit its ability to fully explain the international movement of factors of production and the flow of goods with similar factor requirements, as well as to predict the dynamic changes in the “pattern” of trade.

In other words, the simple structure of the international division of labor depicted by the neoclassical approach does not offer any explanation to some striking characteristics of actual international specialization patterns, like the flow of foreign direct investments and the intra-industry (and intra-firm trade) which are primary factors to the increasing economic interdependence among the countries of the Asian Pacific Region. Moreover, what is more crucial in the analysis of the international transmission of industrial development, is that this model is unable to enlighten on the temporal sequence which occurs in the process