Global Value Chains, Industrial Policy, and Industrial Upgrading: Automotive Sectors in Malaysia, Thailand, and China in Comparison with Korea

This study compares the evolution of automotive sectors in Malaysia, Thailand, and China with that of Korea by focusing on industrial policy, particularly local content requirements (LCRs) and global value chains (GVCs). Although LCRs show common effects of increasing the localization ratio to a certain degree, the eventual development paths of automotive sectors diverge in the three countries. In terms of three measures of upgrading in GVC, namely, the share of domestic (or foreign) value-added in their exports, export orientation (re-exported intermediate imports), and international competitiveness of their intermediate parts (domestic value-added embodied in foreign exports), China is the most successful (highest in two measures), followed by Thailand with strong export orientation, and with Malaysia being the least successful. Such divergent outcomes in three countries are explained in terms of three key factors, namely, local ownership, disciplines from market competition, and firm-level effort and strategies. Given the monopoly by national brand makers, Malaysia lacks discipline from market competition, whereas Thailand lacks local ownership and consistency in promoting domestic value-added. China is neither a national monopoly nor dominated by foreign joint ventures, but a strong entry by locally owned firms result in fierce market competition. In addition, Chinese firms attempt to build their technological capabilities and localize the production of key parts and components.