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Abstract
In this study, we examine cross-border production fragmentation of Japanese firms and their practices of the Thailand-Plus-One strategy in the Greater Mekong Subregion (GMS). Thailand-Plus-One refers to a business strategy in which Japanese firms in Thailand move the production processes of labour-intensive parts to the neighboring countries with cheaper labour cost. We find several cases of Japanese manufacturing firms operating in Thailand that do fragmentation by transferring labour-intensive production blocks of their manufacturing processes to Thailand's neighboring countries (i.e., Cambodia, Laos and Myanmar, or the so-called the CLM countries). The development of Special Economic Zones (SEZs) near the borders between Thailand and the CLM countries promotes the Thailand-Plus-One strategy. Greater regional economic integration (i.e., ASEAN Economic Community), the improvement in political and economic conditions in the CLM countries, the development of logistics infrastructure, and differences in factor prices (e.g., raw materials, wages and production costs) between Thailand and the CLM countries increase the prospect of implementing the "Thailand-Plus-One" strategy in the region.
Keywords
Cross-Border Fragmentation, Production Blocks, Japanese Firms, Thailand-Plus-One, Greater Mekong Subregion.
Introduction
ASEAN Economic Community (AEC), the most advanced form of economic integration in Asia, commenced in December 2015. Under the AEC scheme, goods, services, skilled labour and capital investment can be moved freely across ASEAN member countries (i.e., Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam). This level of economic integration is expected to have significant business implications, especially for firms that have production bases in the Southeast Asia region. Japanese firms have established production bases in Southeast Asia since the 1980s. The production networks of Japanese firms in this region are one of the long-established and the most competitive production networks in the world. In this study, we investigate the practices of Japanese manufacturing firms regarding cross-border production fragmentation and, more specifically, the practices of the Thailand-Plus-One strategy in the Greater Mekong Subregion (GMS). The Greater Mekong Subregion (GMS) is an economic area in Southeast Asia bound together by the Mekong River. Countries in the GMS include Cambodia, Yunnan Province and Guangxi Zhuang Autonomous Region of the People's Republic of China, Lao People's Democratic Republic, Myanmar, Thailand, and Vietnam. This article focuses on Thailand-Plus-One Strategy, which is a form of cross-border production fragmentation of Japanese firms...