**Paper for the International Conference on Trade, Investment and Production Networks in Asia organised by Leverhulme Centre for Research on Globalisation and Economic Policy, University of Nottingham, 16-16 February 2012, Kuala Lumpur

Introduction

Global production sharing—the division of production processes into geographically separated stages—has been an increasingly important facet of economic globalization over the past few decades. With a modest start in the electronics and clothing industries, multinational production networks have evolved and spread into many industries such as sports footwear, automobiles, televisions and radio receivers, sewing machines, office equipment, power and machine tools, cameras and watches, and printing and publishing. At the formative stage, production sharing involved assembly of small fragments of the production process in a low-cost country and re-importing the assembled parts and components to be incorporated in the final product. Subsequently, production networks began to encompass many countries engaged in the assembly process at different stages, resulting in multiple border crossings by product fragments before they were incorporated in the final product. As international networks of parts and component supply have become firmly established, producers in advanced countries have begun to move the final assembly of an increasing range of consumer durables, including, computers, cameras, televisions, and automobiles, to overseas locations to be closer to their final users and/or take advantage of cheap labour. There has been a steady rise in trade in parts and components and assembled final products – network trade – within global production networks. In 2007, network trade accounted over half of total world manufacturing exports, with over two-fifths of these exports originating in developing countries (Athukorala 2011a).

Global production sharing in consumer goods such as garments and footwear normally takes place through arm's length relationships, with international buyers playing a key role in linking producers and sellers in developed countries. However, the bulk of global production sharing in electronics and other high-tech industries still takes place under the aegis of MNEs. This is because the production of final goods requires highly customized and specialized parts and components whose quality cannot be verified or assured by a third party, and it is not possible to write a contract between the final producer and input supplier that would adequately specify product quality. This is particularly the case when establishing production units in countries that are newcomers to export-oriented industrialization.