Abstract
Growing internationalization of firms in Asia through participation in global value chains (GVCs) and free trade agreements (FTAs) has focused attention on small and medium-sized enterprises (SMEs). Yet there is scant literature on the characteristics of SMEs involved in GVCs and FTAs. Malaysia is reputed for its engagement in GVCs and is actively pursuing FTAs. Drawing on a survey of Malaysian enterprises, this chapter examines the characteristics of SMEs in GVCs and FTAs and explores the policy implications. It finds that even among SMEs, firm size matters for participation in GVCs and FTAs. But size is not the whole story for SME internationalization. Licensing of foreign technology and investment in research and development are also positively associated with SMEs joining GVCs. Furthermore, increased exposure to international trade, knowledge of FTA provisions and central location positively affects the use of FTAs by SMEs. More business support for SMEs can help them to engage in GVCs and FTAs.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
Also known as production network trade.
- 2.
The “noodle bowl” refers to the observation that multiple rules of origin in overlap** Asian FTAs may raise transaction costs for businesses, particularly SMEs, for using tariff preferences in FTAs.
References
ADB (Asian Development Bank). 2015. Asia Regional Integration Center FTA database. http://www.aric.adb.org. Accessed 10 Jan 2015.
Arndt, W., and H. Kierzkowski. 2001. Fragmentation: New production patterns in the world economy. Oxford: Oxford University Press.
Athukorala, P. 2011. Production networks and trade patterns in East Asia: Regionalization or globalization? Asian Economic Papers 10(1): 65–95.
Bell, M., and K. Pavitt. 1993. Technological accumulation and industrial growth. Industrial and Corporate Change 2(2): 157–209.
Bernard, A.B., and J. Bradford Jensen. 1999. Exporting and productivity, NBER working paper no. 7135. Cambridge, MA: National Bureau of Economic Research.
Chirathivat, S. 2008. ASEAN’s strategy toward an increasing Asian integration. In East Asian economies and new regionalism, ed. A. Shigeyuki and B. Nidhipraba. Kyoto: Kyoto University Press.
Clerides, S., S. Lach, and J. Tybout. 1998. Is learning-by-exporting important? Micro-dynamic evidence from Colombia, Mexico and Morocco. Quarterly Journal of Economics 113: 903–948.
Harvie, C. 2010. East Asian production networks—The role and contribution of SMEs. International Journal of Business and Development Studies 2(1): 27–62.
Harvie, C., D. Narjoko, and S. Oum. 2010. Firm characteristic determinants of SME participation in production networks, ERIA discussion paper series 2010–11. Jakarta: Economic Research Institute for ASEAN and East Asia.
Helpman, E., M.J. Melitz, and S.R. Yeaple. 2004. Export versus FDI with heterogeneous firms. American Economic Review 94(1): 300–316.
Hiratsuka, D., K. Hayakawa, K. Shino, and S. Sukegawa. 2009. Maximising the benefits from FTAs in ASEAN. In Deepening East Asian integration, ERIA research report 2008-1, ed. J. Corbett and S. Umezaki. Jakarta: Economic Research Institute for ASEAN and East Asia.
Iammarino, S., R. Padilla-Perez, and N. von Tunzelmann. 2008. Technological capabilities and global–local interactions: The electronics industry in two Mexican regions. World Development 36(10): 1980–2003.
Jones, R.W., and H. Kierzkowski. 1990. The role of services in production and international trade: A theoretical framework. In The political economy of international trade: Essays in honour of R.E. Baldwin, ed. R.W. Jones and A.O. Krueger. Oxford: Basil Blackwell.
Kam, A.J.-Y. 2013. International production networks and host country productivity: Evidence from Malaysia. Asian-Pacific Economic Literature 27: 127–146.
Kawai, M., and G. Wignaraja (eds.). 2011. Asia’s free trade agreements: How is business responding? Cheltenham: Edward Elgar.
Kawai, M., and G. Wignaraja (eds.). 2013. Patterns of free trade areas in Asia, Policy studies, vol. 65. Honolulu: East-West Center.
Koopman, R., W.M. Powers, Z. Wang, and S.-J. Wei. 2010. Give credit where credit is due. Tracing value added in global production networks, NBER working paper no. W16426. Cambridge, MA: National Bureau of Economic Research.
Kumar, S. 1992. Policy issues and the formation of the ASEAN free trade area. In AFTA: The way ahead, ed. P. Imada and S. Naya. Singapore: Institute of Southeast Asian Studies.
Kuroiwa, I. (ed.). 2009. Plugging into production networks! Industrialization strategies in less developed Southeast Asian countries. Singapore: Institute of Southeast Asian Studies.
Kuroiwa, I., and T.M. Heng (eds.). 2008. Production networks and industrial clusters: Integrating economies in Southeast Asia. Singapore: ISEAS.
Lall, S. 1992. Technological capabilities and industrialization. World Development 20(2): 165–186.
Lim, H., and F. Kimura. 2010. The internationalization of small and medium enterprises in regional and global value chains. ADBI working paper no. 231. Tokyo: Asian Development Bank Institute.
Melitz, M.J. 2003. The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 17(6): 1695–1725.
Nelson, R.R., and S.G. Winter. 1982. An evolutionary theory of economic change. Cambridge, MA: Belknap/Harvard University Press.
Ng, F., and A. Yeats. 2003. Major trade trends in East Asia—What are their implications for regional cooperation and growth? World Bank policy research working paper 3084. Washington, DC: World Bank.
Performance Management and Delivery Unit (PEMANDU). 2014. Economic transformation programme annual report 2013. http://etp.pemandu.gov.my/annualreport2013/upload/ENG/ETP2013_ENG_full_version.pdf
Rasiah, R., M. Rosli, and P. Sanjivee. 2010. The significance of production networks in productivity, exports and technological upgrading: Small and medium enterprises in electric-electronic, textile-garments, automotives and wood products. In Integrating small and medium enterprises (SMEs) into the more integrated East Asia, ed. T.T. Vo, D. Narjoko, and S. Oum. Jakarta: Economic Research Institute for ASEAN and East Asia.
Takahashi, K., and S. Urata. 2008. On the use of FTAs by Japanese firms, RIETI discussion paper series 08-E-002. Tokyo: Research Institute of Economy, Trade and Industry.
Tambunan, T., and A.C. Chandra. 2014. Utilisation rate of free trade agreements (FTAs) by local micro-, small- and medium-sized enterprises: A story of ASEAN. Journal of International Business and Economics 2(2): 133–163.
Ting, O. K. 2004. SMEs in Malaysia: Pivot points for change. Available at http://www.mca.org.my
UNCTAD. 2010. Integrating develo** countries’ SMEs into global value chains. United Nations. http://unctad.org/en/Docs/diaeed20095_en.pdf
Wignaraja, G. 2013. Can SMEs participate in global production networks? In Global value chains in a changing world, ed. D. Elms and P. Low. Geneva: World Trade Organization.
Wignaraja, G. 2014. The determinants of FTA use in Southeast Asia: A firm-level analysis. Journal of Asian Economics 35: 32–45.
World Trade Organization. 2014. Trade policy review, report of the secretariat, Malaysia. http://www.wto.org/english/tratop_e/tpr_e/g292_e.pdf
WTO and IDE-JETRO (World Trade Organization and Institute of Develo** Economies-Japan External Trade Organization). 2011. Trade patterns and global value chains in East Asia: From trade in goods to trade in tasks. Geneva/Tokyo: World Trade Organization/Institute of Develo** Economies-Japan External Trade Organization.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Appendix
Rights and permissions
Copyright information
© 2016 Asian Development Bank Institute
About this chapter
Cite this chapter
Arudchelvan, M., Wignaraja, G. (2016). SME Internationalization Through Global Value Chains and Free Trade Agreements: Evidence from Malaysia. In: Wignaraja, G. (eds) Production Networks and Enterprises in East Asia. ADB Institute Series on Development Economics. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55498-1_10
Download citation
DOI: https://doi.org/10.1007/978-4-431-55498-1_10
Publisher Name: Springer, Tokyo
Print ISBN: 978-4-431-55497-4
Online ISBN: 978-4-431-55498-1
eBook Packages: Economics and FinanceEconomics and Finance (R0)