The Role of Government in Jump-Starting Industrialization in East Asia: The Case of Automobile Development in China and Malaysia

Abstract

Based on the statist perspective, this paper examines the role played by the government in nurturing both auto parts manufacturers and the parts-supply systems in developing countries. Undertaking a comparative case study of China`s Shanghai-Volkswagen (SVW)and Malaysia`s Proton, this paper argues that government interventionist policies were critical in supporting supporting parts manufacturers, which were small and medium-sized enterprises (SMEs) with weak financial and technological based. Government commitment was also key in encouraging the foreign partners in the joint ventures to commit themselves to localization and technology transfer. At the same time, this government-led industrialization was accompanied by negative side-effects including the rise of vehicle retail prices and the inadequate international competitiveness of parts suppliers.\nThis study also found that government policy orientation could influence the structure of the parts-supply system. SVW was able to develop vertical networks among its suppliers because the Shanghai government encouraged SVW to promote outsourcing and extend supplier networks across the entire country. In contrast, vertical networks did not develop substantially among Proton`s suppliers because the Malaysian government limited the range of suppliers by favoring bumiputera (indigenous Malay) enterprises against relatively competitive Chinese enterprises.\nThe Role of Government in Jump-Starting Industrialization in East Asia.