Innovative ICT Industrial Architecture in East Asia

The development of an information and communication technology since the 1990s has spawned new business model of outsourcing of software development, data entry, call center, administrative works, and many other services that centered on the US and European multinational firms. Such ICT-based services were not limited to advanced countries and spread out to offshore destinations in emerging countries. Initial subcontracting destinations included Ireland and Canada, as well as India in Asia. However, entering this century, various East Asian countries, such as China, the Philippines, and Vietnam, have attempted to enter this offshoring market, following India. Amidst the global expansion of offshoring destinations, India and East Asian nations have established a central position in offshoring destinations. East Asia is a production base for ICT hardware, but it has also emerged as a notable offshore destination for the ICT-based services industry. In this chapter, we define outsourcing and offshoring, organize the various businesses of ICT-based services, and attempt to grasp the overall picture. Next, we confirm condition of transfer of ICT-based service businesses from India to the Philippines, China, and Vietnam. Finally, we give an overview of features of ICT offshore industry of these countries in East Asia.

With the development of ICT since the 1990s, offshoring that occurred in America and Europe has rapidly spread to the rest of the world and continues to expand to this day. However, in the case of Japan, offshoring of business processes by ICT firms has been undertaken by a relatively limited number of firms, and the scale has also been small. Behind this are the sense of caution of Japanese firms toward outsourcing and their constraints of language and communication capabilities that are necessary for offshoring. Therefore, Japanese ICT firms prefer captive offshoring to offshore outsourcing and have slowly been expanding offshoring since the turn of the century. This also largely determines the structure of the offshore destination of Japanese firms. However, we have to take note that the ICT user firms, such as those in Japan’s manufacturing industries, are more internationalized than ICT firms and have been promoting the offshoring of ICT-based service processes to their subsidiaries. Moreover, we cannot ignore a serious scarcity of human resources needed for ICT-based processes of Japan. The offshoring of Japan, with its own peculiar features, could advance at a slow, but steady, pace. In this chapter, we will try to grasp the offshoring situation of Japan’s ICT-based services and clarify structural changes after the global financial crisis. We shall closely look at the features of the East Asian economy, which has been growing for over the past half-century and improving its function as a market. We shall consider future prospects and significance of the shift to East Asia of ICT-based service processes of Japanese firms.

This chapter analyzes the current state of Japanese ICT firms’ software development and its influence in East Asia. These firms have brought substantial technology transfers to the Chinese software industry through offshore development. The technological improvements in Chinese firms have enabled them to trade directly with Japanese end users while also benefiting the Japanese economy. In addition, many Japanese ICT firms are planning to increase their foreign sales rapidly. The business expansion will lead to substantial technology transfers that will contribute to technological improvements in the ICT industry in East Asia. This chapter also discusses the reasons for Japanese ICT firms’ poor management of foreign subsidiaries and the measures to improve it.

While offshoring provides a significant opportunity for industrial development in emerging economies, it has been a quite controversial issue for developed economies mainly because of its impact on employment, especially of knowledge-intensive jobs. Although some data show the increase of the amount and extent of work that is relocated from Japan to emerging economies, little is known about the offshoring of high-value-added jobs including engineering labor. It is in this context that this chapter addresses two related questions by examining Japan’s die and mold industry: (1) To what extent do Japanese firms relocate jobs to emerging economies, and (2) why are Japanese firms engaging in offshoring more than ever? We argue that the offshoring practice has been evolved from partial offshoring to comprehensive offshoring and explore forces behind this evolution.

Dalian is a major destination of offshoring of software development and BPO for Japanese and Western clients. Large reasons for the successful development of software and information service industry in this city are the ample supply of human resources, especially Japanese-speaking labor forces, and the ICT industrial development policy of the Dalian municipal government. The government clearly raised the objective of making the city as the offshore destination for Japanese ICT firms and promoted the city’s industrial structure reform from the heavy and chemical industry to the software and information service industry. Taking advantage of the superior initial conditions such as its historical and geographical relations with Japan and its relatively cheap labor resources, Dalian pursued the formation of the cluster of the software and information service industry. Referring to Porter’s industrial cluster framework, this chapter explores the development of the Dalian’s industrial structure.

The growth of the hardware sector of Vietnam’s ICT industry, through the establishment of multinational firm bases oriented toward a global market, has been remarkable. The software sector has also rapidly developed since the early part of this century and has been getting attention as a global ICT services offshore destination. Vietnam has attracted global multinational ICT firms. At the same time, the country has cultured the mushrooming of software firms centered on local firms. This ICT industrial growth has given birth to globally competitive local firms. Entering this century, Vietnam has attracted attention of Japanese firms as an offshore development destination. In recent years, Japanese small- and medium-scale as well as large-scale ICT firms have become interested in Vietnam as a China + 1 development destination, and Vietnam has also been earnest in acquiring a share in Japan’s offshore market. In particular, after the global financial crisis, through its competitiveness against Chinese and Indian rival firms based on its relatively low wages, Vietnam, with its Japanese-fluent and high-quality engineers, has started to explore the Japanese market. Vietnam is also becoming important in the ICT-based service offshoring of Japanese firms other than ICT firms. The transfer of ICT service activities in sectors such as manufacturing, construction, and consultancy is silently underway. In the offshoring of ICT-based service activities, there is a deepening of the international division of labor across industries between Vietnam and Japan. This structure promotes technological accumulation in Vietnam, the upgrading of which strengthens mutual dependency, and has the possibility of supporting the future development of Vietnam.

The Philippine BPO industry is considered as a “sunrise industry,” a leading source of economic growth and improvement in the overall standard of living. The BPO industry is often cited for creating jobs and for bringing substantial revenues into the country. It also supports the expansion of economic development in areas outside of the National Capital Region (NCR). At the same time, however, the BPO industry leads to the evolution of a new working class with unique challenges and opportunities. This chapter will present the state of the BPO industry and examine whether the Philippine BPO industry, in its present form, can bring about shared growth. It presents a more micro perspective of this sector. A more macro perspective will be presented in the next chapter.

This chapter constitutes a macroanalysis of the Philippine Information and Communications Technology (ICT) sector, which has come to be a critical part of the country’s economic development. It investigates the role of this sector in relation to the (lower) Middle Income Trap (MIT), which is considered as a major factor for the generally poor performance of the Philippines since the end of the world war. The analysis focuses on two structural phenomena that have been associated with the MIT: early deindustrialization and product trap. To this end, the ICT sector is divided into the soft portion corresponding to the services sector and the hard portion corresponding to the manufacturing sector. The soft portion analysis uses the three Kaldorian laws to investigate whether or not the early deindustrialization is premature (bad) or precocious (good). The hard portion analysis uses product space proximity and input-output tables to assess the nature of the product trap in the Philippines. The general conclusion is that there is a need for a strategic look at the ICT sector, especially with regards to the very real possibility that the ICT industry poses the risks of slowing down the growth of the Philippines through premature deindustrialization and a product trap.

In the 1980s, the Taiwan government vigorously pushed for development of the information technology, which gave birth to the Taiwanese ICT hardware industry. In the 1990s, the industry’s quick response to American global ICT and semiconductor manufacturers in need of outsourcing allowed Taiwan to become a top original equipment manufacturer (OEM) and original design manufacturer (ODM) contender in the global ICT industry. The Taiwanese ICT manufacturers created a cross strait division of labor to successively relocate productions to China. However, the cross strait model of “R&D in Taiwan, manufacturing in China” has been changing. Taiwanese ICT manufacturers have been increasing R&D in China in order to quickly respond to clients. To sustain the international competitiveness and the growth of the Taiwanese ICT hardware industry, the industry needs to continue developing high-added-value products.

Taiwanese companies in the ICT industry began receiving ODM contracts from brand-name companies in developed countries in the late 1980s, and ICT industry have grown significantly in Taiwan. This paper will first review how technology transfer through ODM during the 1990s enabled Taiwanese companies to grow, which, in turn, led to the growth of the entire personal computer industry. Then it will analyze the current development of these Taiwanese ODM companies, such as tablet devices and server business, including the development of private brands. It will also analyze the issues inherent in their development and their future challenges.