Introduction: Services Supply Chain--The Impact on Trade and Development in East Asian Countries.

• Author: Kimura, Fukunari

1. Introduction

   Services supply chains are becoming important drivers of trade and growth in Asia. In particular, the value chain activities within supply chains are critical to fully exploit the region's potential. Recent literature also recognizes that activities related to services and investment in global value chains (GVCs) are important for maintaining competitiveness of trade and investment (Kimura 2018; Miroudot 2019; Gereffi and Fernandez-Stark 2016; Baldwin 2012). In this regard, the global production value chain provides an integrated framework to understand the value-creation activities along the supply chains linking domestic industries to regional and global production and consumption structures.

   Several scholars have highlighted the impact of services activities in the dynamic transformation of domestic and regional industries to participate in global production value chains related to trade and investment. The new trend of "servicification" of manufacturing is also picking up pace. Increasingly, manufacturing firms are starting to produce and export goods that are bundled with key services, such as installation, maintenance and repair (Kimura 2018; Miroudot 2019). The role of such servicification in developing dynamic value-creation activities, ultimately leading to greater competitiveness and productivity of the firms, is very critical for the region (Vandermerwe and Rada 1988). For example, it has enabled several manufacturing firms of OECD countries to upgrade from low-end fabrication tasks to high-end services jobs like factory-less goods production, upgrading their position in GVCs (Lodefalk 2017). A number of academic papers demonstrate that servicification improves the performance of manufacturing firms through several channels, including: higher productivity (Anukoonwattaka, Scagliusi, and Mikic 2015; Lodefalk 2014; Lanz and Maurer 2015); more diversified export varieties (Kelle 2013); better access to foreign markets (Lodefalk 2017); and larger profits (Mastrogiacomo, Barravecchia, and Franceschini 2017).

   Services activities are also becoming vital for domestic industries to participate in global production value chains. Activities related to information and communication technologies (ICT), transportation and logistics are seen as important linkages that facilitate global production networks. Moreover, services from developing countries are important input sources for multinational firms to reduce their cost of production and improve productivity by outsourcing inefficient activities. For instance, back-office activities and call centres in India and the Philippines allow overseas manufacturing firms to fragment and improve their overall production process (Lodefalk 2017).

   In a traditional value chain framework, services only support core manufacturing activities. Lately, however, supply chain activities that are independent of linkages to manufacturing are also witnessing significant growth (Gereffi and Fernandez-Stark 2016). The developments in sectors like education, business services and wholesale activities are prominent examples. This suggests that there might be ample opportunities for East Asian countries at various stages of growth to participate in production value chains.

   This paper and examines services from a supply chain perspective and discusses policy implications for liberalization of the sector in East Asian countries. Apart from outlining the special issue, it looks at the global value chain activities of services that are independent of linkages to the manufacturing sector and derives recommendations to improve the participation and positioning of the regional countries in GVCs. The study also aims to map the fundamental factors of production, institutional reforms, and soft and hard infrastructure for various stages of the services supply chain activities in the region.

   The paper is organized as follows. The next section provides an overview of the services sector development in ASEAN. The third section reviews the literature and discusses various methodologies to measure services activities in GVC. The final section concludes with a brief overview of the special issue.

2. Overview of Services Activities and Trade in East Asia

   The real and potential GDP growth for selected East Asian countries is shown in Table 1. While the larger economies of China and India are expected to grow at around 5-7 per cent between 2015 and 2020, Indonesia, the Philippines and Vietnam are projected to grow at around 4 per cent.

   Between 2000 and 2017, the East Asian economies have shown significant growth in services, with the share of the sector in GDP consistently increasing across all countries (Table 2). Simultaneously, a decline in the share of manufacturing can also be observed in China, Brunei, Indonesia, Malaysia, Singapore, the Philippines and Thailand.

   In Figure 1, the increasing importance of services trade for the selected East Asian countries is quite apparent. Very strong growth in services trade is noted in different services industries between 2000 and...