Two key factors brought changes to the increasingly extensive EARPNs. The first factor was the ICT industry boom that led to significant changes in international production networks; the second one was the emergence of a rising China and its integration into the EARPNs. Both factors essentially affected the operational modes of EARPNs to varying degrees. The next section will focus on the impacts from the boom of the ICT industry around the world.
1 The Boom of the ICT Industry around the World and In East Asia in Particular
Many commentators have observed that the ongoing tremendous changes resulting from the rise of the ICT boom would be likely to bring changes to the Flying Geese paradigm (Ginzburg and Simonazzi 2003). Some believed that East Asian economies would not develop according to this paradigm, but rather, the developmental model of great-leap-forward would replace the original model of gradual industrialization (Ozawa 2005).
Since the 1980s, with the emergence of specialized ICT companies like Intel and Microsoft, the production of computers and subsequent telecommunications sector has become increasingly modular. In other words, computers, servers, and internet-routers can be assembled from standard components including chips, operating software, disk-drives, modems and displays units, which can all be bought on the open market to be assembled and configured in various ways depending on the requirements of different competitors (Luthje 2004: 2). This vertically fragmented production system has been characterized as the ‗Silicon Valley System‘ or the ‗horizontal computer industry‘(Luthje 2004: 2; cite Grove), which is also called ‗Wintelism‘(Borrus and J.Zysman 1997). This concept was fully explained in Chapter One.
Production in the ICT industry in the global arena has rapidly transformed from traditional forms of Fordist mass-production, dominated by large vertically integrated corporations, towards vertical specialization in product development, markets and manufacturing (Luthje 2001). The patterns of internationalization have profoundly changed from integrated transnational production to network-based forms of organization called global flagship networks (Ernst 2002). The global production networks in the electronics industry are typically characterized by a concentration on electronics contracts in manufacturing and services (Luthje 2004: 1).
The IT revolution led to new markets for electronics products, and in these markets the microprocessor-based system converged with the cost-effective, technological foundation of networkable systems (Borrus and Zysman 1997: 16). Market competition can occur at any point of the production value chain, including components, subsystems, system assembly, operating software and applications software These traditionally
belong to an integrated system and are tightly vertically and hierarchically controlled by traditional powerful corporations (Tan 2001: 2). Some components and software made and designed by small companies from NICs have become real market standards (Borrus and Zysman 1997: 16). Strategies to set and control the evolution of standards have also been developed (Borrus and Zysman 1997: 17). In brief, those who have advantages in the design of products, and those who set standards in specialized and separate markets may be very successful. Vertical specialization has come to be the main characteristic of international production networks and as a result the development of such RPNs in East Asia is characterized by vertical division, vertical specialization and horizontal cooperation.
2 The ICT Industry in East Asia and EARPNs
As a region with rapid industrialization, sustained economic growth and considerably improved social indicators brought by the flying geese paradigm (Harvie and Lee 2002: 130-131), East Asia witnessed the formation of an international production network on an extraordinary scale (Kimura and Mitsuyo Ando 2003). In East Asia, the international production network is a shifting process from Northeast Asia to China, the NICs and a few ASEAN countries to other countries of the region. Simultaneously, it is moving from those businesses in the EU and the US to countries that are believed to be the most effective and most productive. Differentiated from the original patterns and trajectory of the flying geese paradigm, Japan was no longer the only ‗leader‘. Korean chaebol, Taiwanese PC-related products and components producers, and network suppliers based in Hong Kong, Taiwan, Singapore and China brought about new production networks that were characterized by a continuous and rapid technological upgrade (Ernst and
Guerrieri 1997). Broadband technology and applications can be easily found in those emerging innovation clusters in South Korea and Singapore; while clusters for mobile communications and digital consumer devices were present in Korea, Taiwan and China (Ernst 2006: 32). In such circumstances, some countries from the second or third tiers did not need to climb the rungs of the economic ladder step by step, due to latecomer advantages, especially in the 1980s and 1990s when drastic changes occurred in development strategies (Ando and Kimura 2003).
The EARPNs, with diverse and differentiated economies, are accompanied by complex divisions of labour among economies which are at different stages of development with different technical and economic capabilities (Borrus and Zysman 1997: 22). Clearly, provided that you have advantages in at least one part of an international value chain, ‗you do not have to be a giant‘ to achieve success in international production networks (Borrus and Zysman 1997). However, for those economies lacking in basic infrastructure and technological power, the path to success is not as straightforward. As low labour costs and rich natural resources were emphasized in the original EARPNs, strong research and development (R&D) capabilities have come to be stressed, along with the changes in international production networks.
Some countries still follow the traditional mass production model that is typical of the flying geese paradigm. As a result of the IT revolution, the EARPNs, in which both horizontal intra-industry trade and complicated intra-firm cross-border production-sharing coexist, are deeply influenced by the changes in international production networks (Kimura and Mitsuyo Ando 2003).
The modified EARPNs helped East Asia recover from the 1997 Asian Financial Crisis. Simultaneously, the flying geese paradigm was further improved with new changes in ICT. Under the modified RPNs, the countries previously in the second or the third tiers gained more opportunities and were quickly elevated to a higher tier. China in particular became the centre of attention with its spectacular economic development supported by its mass market and remarkable performance during the last decade.