Local Value Chain Development in Global

Supply Network:

Technical Learning and Rent Management

Christine Ngo, Ph.D.

Department of Economics

University of Denver

12th International Post Keynesian Conference

“Where Do We Go From Here”

Kansas City, September 25-27, 2014

Outline

1. Introduction

2. Case Studies: the Motorcycle Industry in

Vietnam

1. Developmental Rent Management Analysis (DRMS)

2. Local Value Chain Development

Research Interest

How do developing countries upgrade their

technological capability and what is the role

of the state in this process?

Problems of Development

1. Growth and development requires

technological upgrading and industrial

capability-building

2. Embedded within each developing economy is

a rent-seeking society, which operates both

formally and informally

• Identifying the constraints or bottlenecks

• What if politics matters

Technology matters because…

The

Vietnamese

Experience

…

This is exciting and important!

MOTORCYCLE INDUSTRY

Vietnam 1975

Ho Chi Minh City 1980

Ho Chi Minh City

2009

Ho Chi Minh City 2009

2013

Transformation of the Motorcycle

Industry

FDI Oligopolistic

Market (1995-2000)

The China Shock 2000-

2004

FDI Driven Market

(post 2014)

Major Foreign Motorcycle Firms in Vietnam, 1992–2013

Political Economy of Development

What Tools?

1. Rent

2. Rent Seeking

1. Rent Management

Developmental Rent Management Analysis

(DRMA)

Four-step Approach

1. Identify the rent

1. Schumpeterian Rent

2. Learning Rent

3. Monopoly Rent

4. Redistributive Rent

5. Rent with Unintended Effects

2. Identify the incentive induced by the rent

3. *Analyze the configuration of rent management

4. Observe the transformation and outcomes

Configuration of Rent Management

• Configuration of politics and institutions that describes the macro-political order of the rent

Political Context of Rent Creation and Management

• Policy and policy-making structures that generate and implement particular rents

Institutional Structure of Rent

Allocation

• Structure and boundaries of and between firms and the market

Industry

Structure

Local Value Chain

1. Local assembling

2. Suppliers to local or foreign assemblers

3. Second-tier suppliers become first-tier suppliers

4. First-tier suppliers become lead firms

5. Domestic-branded motorcycle

1. Locating learning rents

2. Incentive induced by the rent

3. Configuration of Rent management

4. Outcomes

Case Study 1 (1995-2000)Failure of Learning Rents

1. Outcome

Case Study 1 (1995-2000)

Yamaha

Honda

Assembling

Case Study 2: The “China Shock”Accidental but Growth-Enhancing Rents

Major Foreign Motorcycle Firms in

Vietnam

67.2

63.1

19.4

11.9

19.4

33.3

35.7 36.9

13.5

23.8

75.2

80.5

65.1

37.8

29.635.7

0

10

20

30

40

50

60

70

80

90

1998 1999 2000 2001 2002 2003 2004 2005

Per

cen

t

Honda

Yamaha

Suzuki

VMEP (SYM)

Chinese and

local

assemblers

Wave Alpha in 2001

Wave Model 2014

OUTCOME: Technological Transformation of the

Value ChainsFrom Local Suppliers to Parts Suppliers

Fujita (2007); reproduced with the author’s permission

Honda in Vietnam

Observations

1. Role of FDI and GVC in development

2. Types of technology matters

3. Industrial policy with inadequate institution

extraction, and lost opportunity

2. Positive rent management mechanism emerged from

the China Shock

3. DRMS: focusing firms capability and institutions that

support them

“Where Do We Go From Here?”

State vs. Market Debate

Rent Management Factors from the

Vietnamese Experience

1. Initial capability

2. Market competition

3. Informal pressures

4. Time horizon

5. Loss of rents and future benefits

Thank You!