Scenarios on Opportunities and Impediments in ... - J-STAGE

Scenarios on Opportunities and Impediments

in the Asian Pacific Rim

PETER NIJKAMP and NATHALIE VERMOND

Abstract

The Asian Pacific region encompasses a set of different countries with different growth rates, socio-economic conditions and network infrastructures. The trade relationships between these countries are determined by the above mentioned heterogeneity.

In recent years the container transport market has gained much importance in this region. The future of this transport system is dependent on various background factors: political, technological, network morphology and development potential.

The paper aims to identify the driving forces of the maritime shipping network in the Asian Pacific Rim by focusing in particular on container transport. The great many uncertainties involved are depicted by means of scenario analysis, which are put in a cohesive framework on the basis of the so-called Spider approach.

By using these scenarios as a frame of reference, a qualitative impact assessment is carried out in order to identify the consequences of each of these scenarios for the maritime container sector. By means of a strengthweakness analysis the various possible futures are scanned.

1. Towards a Network Revolution

Cities, regions and nations all over the world exhibit complex and turbulent movements

induced by indigenous growth and spatial connectivity. In the past decades, structural change

and differential dynamics have become a major feature of economies at all levels, where

stability is substituted for transformation. After the era of the Industrial Revolution in the

second part of the last century which was marked by new ways of organizing production and

transport on the basis of new technological innovations favouring large-scale production, we

observe in the second part of this century a new phase in the history of our developed world,

viz, a Network Revolution marked by interconnected modes of production and transport on

the basis of radical restructuring of logistic, informational and communicative processes

favouring neo-Fordist types of production (see Lagendijk 1993).

The changes we are observing nowadays have several important dimensions, each relating

to and interacting with a number of others. Spatially, it implies reshaping the location of

goods handling activities (and also the location of information-handling activities) between

and within regions and nations. Sectorally, it incorporates both the growth of tertiary

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activities, and the changing relationship and blurring differentiation between manufacturing

and service industries. And finally, from an organizational perspective, it reflects important

changes in the nature and forms of the relationship between enterprises, and the ownership

and control of these enterprises.

The recent revival of Schumpeterian views on current spatial economic restructuring

phenomena has increasingly induced scientific interest in innovation and economic transfor

mation. Both the behavioural stimuli and the selection environment for the creation and

adoption of technological and organizational change in firms have become a subject of

intensive research. In this context, a rich field of economic research has recently been

developed, for instance, long waves analysis, network configurations, technogenesis condi

tions, impact studies on small and medium sized enterprises, neo-Fordist structural

approaches, labour market dynamics, and the growth potential of high technology industries.

Various studies have been devoted to the seedbed conditions of new technologies, especially

in relation to small and medium sized firms. In this context, different frameworks of analysis

have attracted much attention, such as the spatial incubator hypothesis and the spatial

product life-cycle model. In the same vein, also industrial dynamics has received much

attention.

It should be noted however, that in the Schumpeterian view entrepreneurial innovation is

not an exogenous determinant of economic growth, but an endogenous force in a profit

maximizing economy. Thus, the profit motive, which is crucial to survival in a competitive

system, is the main driving force of adopting and generating innovations and hence of cyclical

economic patterns. Clearly, the discontinuities associated with the adoption and diffusion of

innovations may lead to perturbations in a spatial-economic system.

An important phenomenon that has recently emerged in the economies in many countries

and regions is the emergence of a network society. A network is a particular organization

of an economy based on synergy via actor dependency and operating mainly via nodal

economic regions connected by various modes. Especially the rise of the information

economy has caused this new structure in the evolution of spatial economic systems. Such

networks are also the vehicles par excellence for rapid transition, diffusion of technological

innovation, international mobility and knowledge transfer. Such new networks are increas

ingly becoming the vehicles for competition and cooperation in the industrial sector.

Organized production and service linkages in dynamic niches in networks are governing not

only international trade (e.g., between the EU and the USA, or between the EU and the

Pacific Rim countries), but-by way of a fractal representation-also the interaction

patterns between regions or cities.

This paper will mainly focus on emerging trade networks in the Asian Pacific Rim.

Economically, this region has a remarkable heterogeneity ranging from high grouwth coun

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Scenarios on Opportunities and Impediments in the Asian Pacific Rim

tries (Japan, South Korea e.g.) to low groth countries which are still in their take-off phase

(Vietnam, the Philippines, North Korea, e.g.). Thus this region is essentially characterized

by a complex two-tier economic structure. Nevertheless , the Asian Pacific region has over the past ten to fifteen years emerged as one of the world's major economic and trading

centres, fuelled by growth in Japan, South Korea and Taiwan. In the mean time , the competition inside the region has also sharply risen , as the position of the first-tier low wage

countries (Hong Kong, Singapore, South Korea and Taiwan) is more and more threatened

by competition from the second-tier low wage countries (Malaysia , Thailand, Indonesia and the Philippines) and by newcomers such as China.

The economic expansion of South-East Asia and China has been achieved through a

strategy combining an expansion of the private sector , a reduced state role, labour-intersive

export-oriented industry and substantial foreign investment . This growth caused a signifi

cant increase in the volume of cargo carried through the ports of Asia. Since the late 1960s

we have seen the very rapid spread of containerisation . The great virtue of the container lies

in its ability to be transshipped relatively cheaply and easily from one vessel to another

and/or from one transport mode to another. The intermodality of the container and the rapid

increase in the supply of shipping services have intensified the competition within the liner

shipping market.

In the light of these developments, the present paper seeks to offer an answer to two

research questions:

which theoretical frameworks can be envisaged that explain the above dynamics in

industrial development, with a particular view on the new emerging networks in the

Asian Pacific Rim?

which methodological framework can be designed that seeks to depict the driving forces

of the transformation processes, with a particular view on the uncertain and largely

unpredictable changes in the competitive Asian Pacific region?

To offer an answer to the first question , we will in the next section discuss three alternative explanatory frameworks , viz, the eclectic theory, the transaction cost theory and

the network theory. Next, the development of a new methodological framework will be

based on a scenario approach by using the so-called Spider model . This second issue will be

discussed in the sequel of the paper , complemented with some empirical evidence on the

various countries and their trade linkages. Against the background of these two issues , the final overall objective of this study is to investigate the future structure of the maritime

container transport system serving the Asian Pacific region until the year 2005 and to identify

policy options on the basis of a strength-weakness analysis of the countries involved and

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their maritime trade flows.

2. Competing Theoretical Frameworks

Entrepreneurial linkages have in the past decades increasingly assumed the form of

internationally operating industrial networks. This has exerted a profound impact on the

volume and structure of international trade (e.g., containerisation, outsourcing), as is also

withnessed in recent developments in the Asian Pacific region. In addition to such external

network considerations also the transaction costs for intermediate deliveries made up an

important motive for such changes. The economic organisation of modern industries can

essentially adopt three arche-types,, viz, market, hierarchy and networks. A market

configuration takes for granted that a firm buys its necessary inputs from other producers as

intermediate goods on the market, thus incurring high transaction costs for ad hoc contracts.

A hierarchy is an organisational structure where some industrial production is totally carried

out inside the own corporation. And finally, a network is a sustainable organized industrial

structure characterized by sets of two or more connected exchange relations between

economic actors based on interaction and mutual linkages (Hakansson 1987).

The above mentioned far reaching transformation in both the global economy and the

regional economies in terms of industrial structure and organization has provoked the birth

of various explanatory frameworks. These frameworks have emerged in regional science,

industrial economics and international trade theory. There is a wide variety of such new

theoretical paradims, but some major representative classes in new theoretical thinking are

the eclectic theory, the transaction cost theory and the network theory. All of them serve

to offer more adequate insights into the backgrounds and consequences of our 'Schumpeter

ian era' (Giersch 1984).

The eclectic theory addresses the issue of foreign investment and trade from the view

point of internationalisation of international production (see Buckley 1988; Dunning 1988a,

1988b). This approach takes for granted that multinational firms have a certain competitive

asset (e.g., a high quality labour force, a superior technology) which is exploited internally

within the firm's international organisation, rather than using e.g., a license system. This is

mainly done bacause of market imperfections and location-specific advantages (see Lagendi

jk and Van der Knaap 1993). Especially the eclectic theory of Dunning has offered interesting

contributions to a better understanding of international production and foreign investment.

Three main categories of international investments are distinguished by him: localised

resources which encourage resource-seeking investments; markets, which lead to profit-seeking investments (e .g., import substitution); and advantageous production inputs (e.g.,

labour) which attract rationalised production strategies. The main emphasis is thus on

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internationalisation of multinational companies. Less attention is given to transaction costs

or network configurations, issues which will now be discussed.

Next, we will address the transaction cost theory, originally developed by Williamson

(1979). The author focuses in particular on the choice between self production (inside the

hierarchy of the firm itself) or farming out (via the market). A transaction means then

essentially a contractual agreement and communication with the external environment .

Clearly, in a complex multi-product multi-location multi-plant firm the number of transac

tions may be formidable. The choice for a particular form of input channel depends then

according to Williamson on the asset specificity, the uncertainty and the frequency of the

transaction concerned. Based on these characteristics, the author makes then a typology of

organisational forms of industries and their associated contract forms (socalled governance

structures). It is thus clear that the transaction cost theory places most emphasis on

efficiency gains in bilateral contacts and contracts between firms. This is of course a major

limitation of this theory, as, for instance, historical , political or institutional influences are

receiving relatively less attention.

Finally, we will focus on network theory. Networks are essentially an intermediate form

between the market and a hierarchical industrial structure (see Davidson 1995) . The benefits

of a network originate normally from a synergy as a result of a complementarity of

capacities and activities. Efficiency is enhanced by a combination of both competition and

cooperation inside the network, supported by high quality communication and regular inter

actions among interdependent partners (see also Kamann 1993). Thorelli (1986) and Hak

kansson (1987) emphasize in particular the long lasting structuring effects of a network , even though the firm's position in a network may change (this position is a market asset built up

by investments in manpower, time and scarce financial means) (see also Hinterhuber and

Levin 1994). Networks may also exhibit different forms: vertical , horizontal, diagonal and

internal, depending on the firm's internal organisation and competence as well as on the

external market conditions.

It turns out that in general the motives for partners to cooperate in a network are

stemming from efficiency increase, information gathering , power position and external economies (see Capello 1994). Thus, network theory offers a rather broad perspective for the

behaviour of network partners, especially since financial-economic arguments as well as

strategic considerations play a critical role.

The use of network theory has mainly received a path breaking stimulus due to the work

of the IMP Group (Industrial Marketing & Purchasing Group) , an informal group of scientists involved in network research in industrial markets . In the context of this group

three complementary network configurations are distinguished (see Axelsson and Easton

1992, Johansson and Mattsson 1991, Pfeffer and Salancik 1978 and Hakansson 1987) , viz:

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-the interaction model based on stable, tight and complex structures focused on continu

ity in dyadic relations-

the resource dependence model based on inter-connectivities of a corporate organisation

with all relevant partners (and not only intermediate deliveries).

-the composite network model where each firm is supposed to base its strategy on both

interactive and composite network considerations in order to achieve a better competi

tive position through innovative behaviour.

The above mentioned variety in network configurations imply that networks may be

distinguished and analyzed on the basis of four metaphors (see Axelsson and Easton 1992),

viz: relations, structures, processes and positions. Especially the composite network model

developed by Hakansson attempts to establish a bridge to the transaction cost theory.

It should be added that the more recently developed value chain theory (see Porter 1991)

is based more or less on the latter theoretical framework by focusing on competitive

advantages to be achieved through the choice of strategically relevant activities of a firm

(including its position in a network). In this context, also the firm's logistics, marketing, R &

D, trade channels etc. have to be taken into consideration.

The previous frameworks have emphasized in particular the strategic relevance of

efficiently operating networks among firms in a competitive environment. The Asian Pacific

region is a good example of such a competitive environment, in which various aspects of the

above mentioned entrepreneurial strategies are present. Vertical integration, horizontal

integration, outsourcing and search for new markets determine the industrial dynamics in

this area. The commodity flows in the region have rapidly increased in the past decade and

there is no reason to expect that this area will have a quiet growth pace in the next decade.

Furthermore, apart from change in the industrial organisation also the use of modern logistic

concepts and efficient commodity shipping via containerisation will exert a profound impact

(note that Singapore and Hong Kong are the two largest container ports in the world).

It is also clear however, that there is much uncertainty on the future development of this

region, stemming from political, economic, logistic and technological driving forces. In order

to offer a clear analytical picture, we will first describe in a concise way some recent

developments in the most important countries in the region (Section 3). Next, we will offer

some future scenario experiments for the economic development of the Asian Pacific Rim,

with a particular view on network interactions based on deep sea shipping (mainly container

isation).

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3. A Typological Description of Countries in the Asian Pacific Region

The Asian Pacific Rim is economically not a uniform region, but characterized by

pluriform economic patterns and development. The following typology may be made in

relation to the development stage of these courntries:

1. Japan: a nation with very high growth rates for several decades and one of the

leading industrial nations in the world. It is playing a dominant role in the Asian Pacific area,

as a result of several forces, in particular steady technological progress, the excellent

information supply and coordinating role by MITT, a high level of education, a high domestic

savings rate, a relatively high socio-economic and political stability, and flexible entre

preneurial attitudes on the world market. More recently, the establishment of overseas

production bases by Japanese manufacturers has resulted in remarkable horizontal interna

tional specialization in Asia, which is one of the main factors contributing to the expansion

of the region's international trade and network building. With the exception of the past few

years, Japan's growth rate has uninterruptedly been high for several decades.

2. The first-tier countries: Hong Kong, Taiwan, South Korea and Singapore:

traditionally poor countries, which since the 1980's however exhibit high growth rates making

them a member of the class of newly industrializing countries (NICs). Income per capita in

most of these countries is largely equal to that of the European average. These countries

have a relatively low unemployment and inflation, and-apart from South Korea-a consider

able surplus on the current account. Their strong position is caused by a combination of low

labour costs and a strong macro-economic and monetary policy. We will only very concisely

describe each of these individual countries.

Hong Kong is gradually moving from its traditional manufacturing profile to a strong

service sector orientation, while it is also gradually resuming its old role of Chinese port and

financial centre. The British crown colony is also one of the largest investors in Vietnam,

Thailand and Indonesia, while it is expanding its influence in mainland China. Consequently,

Hong Kong plays a central role in the emerging network formation in the Asian Pacific.

Taiwan is following a pace almost similar to that of Hong Kong. It has also various kinds

of indirect linkages with China (e.g., via Hong Kong). The government has encouraged also

investments in other South-East Asian countries since the end of the eighties. Through this

strategy, Taiwan is-next to Japan and the USA-one of the largest investors in the region.

The country has a strong industrial base, not only in traditional manufacturing (e.g., leather,

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textile, toys), but increasingly also in advanced products (e .g., computer components).

South Korea has moved production capacity to the other countries in the region on a

smaller scale than the other first-tier countries; since the beginning of the 1980s under 2 %

of its GDP. After all, the country still has the disposal of a fairly extensive industrial sector ,

just like Taiwan (approximately 45% of its GDP). This sector still generates many heavy

industry products, but the share of consumer electronics is quickly rising . In 1993 these goods

contributed to approximately 25% of the export revenues , in contrast to some 9% in 1975.

Finally, Singapore has specialized in the high-technological financial and trade related

service sector (as Hong Kong has done). About 65% of the GDP can be attributed to the

service sector. At the same time the country has moved to an amount of approx . $10 billion

(about 20% of the current GDP) labour intensive production to South-East Asia and China .

The change in the economic structures of the first-tier countries has had an influence upon

their trade. The import from the new low-labour cost countries have risen sharply , mainly labour-intensive products including consumer goods, textiles and garments , processed raw materials and transport equipment. On the other hand , exports to the new upcoming countries has also grown strongly, often even faster than the imports . The major items in the

export trade are knowledge- and capital-intensive products, such as machinery , electronics, chemical products, office- and telecommunication- equipment and precision instruments .

The movement of traditional labour-intensive mass production to the low labour-cost

countries depends largely on the shortage of low-educated labour and sharply risen labour

costs. Moreover, together with the expanded economic prosperity the social awareness of the

domestic labourers in the first-tier countries has risen, which has led to higher wage claims

and, especially in South Korea, to an increasing willingness to strike .

The extent to which governments have influenced these developments , differs significantly. At the one side of the spectrum we find Hong Kong , where the government intervention in conformity with the laissezfafire philosophy is limited to creating a healthy investment

climate. On the other side of the spectrum is South Korea, where (analogous to Japan) a

strongly centralized bureaucracy is still highly influencing the real and financial economy . The government involvement in this country creates impediments to a free access for

products and companies which have to compete with the domestic industrial and service

sector. The government is Singapore plays a very special role already since 1965, as it is focused on the strategic management of the whole economy. However , the dynamics has not been hampered by strong regulations, but has been encouraged by financial incentives .

Moreover, the public institutions in Singapore carry out large-scale infrastructural projects

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in the second-tier countries where afterwards companies from Singapore establish them

selves.

Despite the different degress of the government interventions in the economy of the first-tier countries , there is one outstanding similarity in their policy: the importance of

investments in physical and human capital and the technological progress in the industrial

and service sector.

3. The second-tier countries: Indonesia, Malaysia, Thailand and the Philippines:

second-tier countries in the Asian Pacific Rim are those countries which imitated the

successful strategies of Japan and the first-tier countries since the mid 1980s. The four most

important countries in this category are: Indonesia, Malaysia, Thailand and the Philippines.

These followers would also benefit from the relatively higher wage costs in the previous first

-tier countries and Japan . Deregulation and economic like realization are put high on the

policy agenda, but have not yet been realized to a full extent, as government policy has not

always been favourable to market principles. Besides, the labour force and the infrastructure

leave much to be desired. Nevertheless, the rate of economic and trade growth has been

impressive (e.g., in Indonesia), especially in the field of traditional manufacturing.

Indonesia has recorded an estimated merchandise trade surplus of $7.6 bn in 1994.

Exports rose to $39.1 bn and imports to $31.6 bn. Japan is the major supplier and buyer of

goods in Indonesia. The current account deficit of Indonesia was reduced from $4.2 bn in 1991

to $3.8 bn in 1992. This occurred through an increased trade surplus of $6.0 bn (from $4.8 bn

in 1991). The current account deficit of Indonesia stood at $3.5 bn in 1994. The current

strong growth in domestic demand however, will prompt a sharp rise in imports and keep the

current account deficit large. Inflation is still high (sometimes up to 9%). In addition to a

less restrictive monetary policy, an upward adjustment in the administered prices of energy,

fuels and transport services contributed to a high inflation rate.

The Malaysian economy has grown rapidly since 1987 and started showing signs of

pressure in the form of rising-though still modest-inflation, growing labour shortages and

bottlenecks in infrastructure. Growth in real GDP was however, buoyant at 9.7% in 1990,

moderating somewhat to 8.7% in 1991 and 8.0% in 1992. The growth rate for 1993 is

estimated to be 7.6%. GDP growth in 1993 was supported by a strong growth in manufactur

ing, construction and the service sector. The composition of trade underwent a transforma

tion in the 1970s and 1980s. In 1985 earnings from manufactured exports edged ahead of the

traditional agricultural products. After 1987, Malaysia's manufactured exports, based

primarily on electrical and electronic appliances and textiles, matured and became more

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competitive in world markets as a result of the depreciating ringgit. They accounted for 74%

of Malaysia's total exports in 1993, while the agricultural exports' share dropped to just 16.

4%. Infrastructure spending will be a major pillar of the growth strategy. There is no

shortage of construction and civil engineering groups to take on the work , but they all depend

on immigrant labour. The success of the infrastructure building programme will depend on

progress in recruiting and training these mostly unskilled workers. Trade policy will be the

focus of foreign policy activity, although regional security issues will also assume greater

importance. The economy remains at risk from inflation.

Thailand's economy grew at 7.4% in 1992, despite political uncertainty in the country

during the year and a recession in major industrial economies, a result not far below the 7.

9% achieved in 1991. The growth rate of GDP in 1993 was approx. 7.5%. Growth in private

investment in Thailand slowed since 1989. Public sector investment spending increased

sharply as a result of higher spending on infrastructure projects and local development.

Overall investment growth in 1992 was 7.6% compared with above 14% in 1991. Investment

growth for 1993 was expected to be better. Gross domestic savings increased to 35.9% of

GDP in 1992 from 34.4% in 1991. The rate of inflation in Thailand came down to 4.1% in 1992

from 5.7% in 1991. This was largely attributed to a moderate slow down of the economy .

Thailand's continuing economic boom, liberal policies towards foreign investment and a

generally favourable investment environment are continuing to attract high interest among

multinational corporations. Thailand still offers numerous operating advantages for interna

tional capital, despite the occasionally bad publicity the country receives about infrastructure

deficiencies and skill shortages. The main policy issues include liberalisation of financial and

foreign exchange systems, improvement of the country's overburdened infrastructure and

reduction of tariffs for goods manufactured elsewhere in the ASEAN . The government is

also trying to redress the growing unequal income distribution by a policy of decentralisation .

The trade sector of the Philippines picked up with an accelerated growth in both exports

and imports despite the slow progress of overall economic recovery in the country. The

Philippines recorded an estimated merchandise trade deficit of $7 .8 bn in 1994. Exports

totalled $13.5 bn and imports $21.3 bn. The Philippines has traditionally run a substantial

deficit on its current account, with the deficit on merchandise trade only partly offset by

tourism income and transfers. The current account balance deficit was lowered to $1 .3 bn

in 1992 compared with $1.4 bn in 1991. However, the deterioration on the merchandise trade

account in 1993 pushed up the current account deficit to $3.3 bn. In 1993 22.8% of the imports

originated from Japan, while this country took 16.3% of exports. However, the export of the

Philippines is dominated by the USA, with 38.3% of the total exports. Growth in 1994 was

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mainly because of the following factors: buoyant private consumption, markedly rising

levels of investment, and strong external demand for Philippine manufactures. The relatively

strong currency may help bring down inflation. The government's main priority is to restore

economic growth and international business confidence. The country maintains an external

trade imbalance and is burdened with sizeable domestic and foreign debt. The present

challenge is how to jump-start the economy without stimulating inflation.

From the above observations it is clear that the second-tier countries in the Asian Pacific

region have a less pronounced public policy supporting their economic growth. Their main

competitive feature is their low-wage profile, although this position may easily be endan

gered by upcoming new developing countries in the region.

4. The newcomers: China, Vietnam and North Korea: these three countries in the

Asian Pacific region have historically been characterized by a centrally planned economy, but

have in recent years to some extent shown the first signs of a more liberal form of economy.

Their potential impact in the region may however, be rather large or-in the case of China-

even dominant.

In China, successful reform policies, especially the introduction of "special economic

zones", have resulted in a doubling of its per capita income over the past decade. A key

characteristic of the strategy was extensive government planning aimed at the rapid substitu

tion of foreign imports for domestic production. For this purpose, industry was heavily

protected against foreign competition. According to report of the World Bank, China may

become in about 25 years the strongest economy in the world, if this country still develops at

the current rate. The double-digit growth rates achieved by China in 1992 and 1993 raised

concerns about the economy becoming overheated and inflation running out of control. The

rate of inflation accelerated to 25% in 1994. The inflation moderated somewhat, following

the introduction of China's austerity measures, a depreciation of the Chinese currency

reducing the costs of imports from China, also supported by low international prices and costs

of raw material imports. The estimated 13% growth in GDP in China in 1993 was buttressed

by rapid growth in industrial production. Growth was sluggish however, in the energy and

transport sectors, raising concerns that their inadequacies could give rise to bottlenecks to

further economic expansion. The rate of import growth exceeded that of exports. Almost

25% of Chinese exports went to Hong Kong, while exports to Japan accounted for 17%. In

1993, export growth slowed down for a number of reasons. These included high domestic

demand and diversion of some of the export items for domestic use. The key economic issue

facing China's leadership is how to liberalise the economy further and end the current

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Table 1. Summary of macro-economic indicators of countries in the Asian Pacific Rim

1 GDP growth2 GDP per capita3 Inflation rate4 Trade balance5 Current account balance6 Savings/GDP7 Investment/GDP8 Quality infrastructure9 Employment10 Government finance

++ very strong point

+ strong point

0 neutral

- weak point--

very weak point

na not available

inflationary spiral. Overheating is causing shortages of raw materials and infrastructure

problems. Although the economy is liberalised, the political environment remains tightly

controlled. The aftermath of Deng Xiaoping's death will lead to attempts to consolidate the

leadership's grip on the economy .

The economy of Vietnam sustained a high growth rate for a second consecutive year in

1993. GDP growth, estimated at 7.5% in 1993, was somewhat lower than the 8.3% achieved

in 1992. Growth in agriculture, estimated at 3.2% in 1993, was however, about half of the

6.3% in 1992. The industrial growth rate in 1993 was estimated to be very close to the 11.2% of 1992. The high growth was supported by both the state and non-state sectors . The service

sector was estimated to record an even higher growth at 9.4% in 1993 compared to 8.5% in

1992. The investment ratio was estimated to grow from 12% of GDP in 1992 to 14% in 1993 . Large increases in infrastructural investment were to occure during 1993. Vietnam's main

convertible area trading partners are Japan, Singapore, Hong Kong , South Korea and Taiwan. Exports to Japan, with which Vietnam enjoys a surplus , have been growing

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Figure 1. GDP growth

source: Country Reports, The Economist Intelligence Unit (1995)

(a) 1990-1994 n. a.; (b) GNP; (c) 1990-1994 n. a.; (d) 1990-1994 n. a.

particularly rapid mainly due to rising sales of crude oil. In 1991 however, Singapore, which

is Vietnam's largest source of imports, overtook Japan as Vietnam's leading trading partner

(30.5% of exports, 29.2% of imports). Until 1987 Vietnam's chronic current account deficit

with the non-convertible area was balanced by an equivalent surplus on the capital account.

The most striking trends of the late 1980s in North Korea were a substantial increase in

trade volume (which more than doubled in the four years 1984-1988), accompanied however,

by the growth of a chronic trade deficit which topped $1 bn annually for several years after

1987. Growth in exports has been sustained at rates of 8% to 9% between 1991 and 1993,

which was a considerable improvement from the serious setbacks received in 1989-1990, but

still much lower than the pre-1989 achevements. Russia has now dropped from the first (in

the 1980s) to third place among North Korea's trading partners. This leaves China as the

new number one. In contrast to these changes, the trade pattern with Japan remains fairly

constant. North Korea has turned a chronic deficit into a small surplus from 1988 onwards.

But there has likely been little success in increasing the volume, and nor will there be until

North Korea allays Japanese fears on the nuclear issue. North Korea continued to face

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Figure 2. GDP per capitasource: EIU (1995)(a) n. a.; (b) n. a.

Figure 3. a. Foreign trade Japan 1993source: Direction of Trade Statistics Yearbook, IMF, 1994

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Figure 3. b. Foreign trade Hong Kong 1993source: Direction of Trade statistics Yearbook, IMF, 1994

Figure 3. c. Foreign trade Taiwan 1993source: Direction of Trade statistics Yearbook, IMF, 1994

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Figure 3. d. Foreign trade South Korea 1993source: Direction of Trade Statistics Yearbook, IMF, 1994

Figure 3. e. Foreign trade Singapore 1993source: Direction of Trade statistics Yearbook, IMF, 1994

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Figure 3. f. Foreign trade Indonesia 1993source: Direction of Trade statistics Yearbook, IMF, 1994

Figure 3. g. Foreign trade Malaysia 1993source: Direction of Trade Statistics Yearbook, IMF, 1994

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Figure 3. h. Foreign trade Thailand 1993source: Direction of Trade Statistics Yearbook, IMF, 1994

Figure 3. i. Foreign trade Philippines 1993source: Direction of Trade Statistics Yearbook, IMF, 1994

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Figure 3. j. Foreign trade China 1993source: Direction of Trade Statistics Yearbook, IMF, 1994

Figure 3. k. Foreign trade Vietnam 1993source: Direction of Trade Statistics Yearbook, IMF, 1994

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Figure 3.1. Foreign trade North Korea 1993source: Direction of Trade Statistics Yearbook, IMF, 1994

serious economic problems emanating from their need for adjustment of the external eco

nomic linkages, partly as a result of the dislocation of their trade with the former Soviet

Union. The government was trying to redress the situation by encouraging foreign trade,

especially with neighbouring countries, as well as foreign investment. In the past decade

North Korea has shown intermittent signs of change in the relations with South Korea.

However, North Korea broke off all negotiations as a protest against the joint US-South

Korean "Team Spirit" military exercises. Each Korea still claims to be the only legitimate

government on the peninsula, after Japan's surrender in 1945. Yet much will depend on

whether the US-North Korean deal sticks, as well as on the question whether Kim II-sung'

s son and appointed successor, Kim Jong-il, plumps for more openness or a continued hard

line.

The above described 12 countries in the Asian Pacific region have clearly a wide variety

in economic history and performance. The main macro-indicators are summarized in Table

1. The main foreign trade and network linkages with other countries in the region are

summarized in Figures 1, 2 and 3.a-3.1. These data emphasize once more the importance of

the emergence network configurations in South-East Asia.

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4. Scenarios for the Asian Pacific Rim

The economic and trade development in the Asian Pacific region is faced with many

opportunities, but also with many bottlenecks and uncertainties. The benefits of the emerg

ing transnational networks depend on a series of background factors which are difficult to

predict. For the development of a strategic policy view on the future potential and challenges

of this area, it may therfore be helpful to design scenarios which depict systematically the

various driving forces. Such scenarios differ from prognoses of the future in that they allow

Figure 4. a. Spider model: Free market scenario

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Figure 4. b. Spider model; Regulatory scenario

for more flexibility in possible pathways and final images of the future , in contrast to

prognoses which are usually based on extrapolation of trends and try to identify the most

probable future developments.

In a recent study (see Nijkamp et al. 1996) a systematically structured methodology for

scenario design has been developed on the basis of the so-called Spider model, which offers

a systematic menu for choosing future scenarios on the basis of a comprehensive depiction

of driving forces of future developments. This approach will also be followed in the present

study. In our scenario experiment we will distinguish four major classes of such driving

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Figure 4. c. Spider model: Freetrade association scenario--------=Japan and first-tier countries-

=rest of the countries

forces, each further distinguished into mutually contrasting aspects or characteristics:-

regulations:

•E economic autonomy vs. market control

•Einventions and innovations vs. protectionism

•E market-based vs. government-controlled environmental management

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Figure 4. d. Spider model: Trade bloc scenario- +--------=Japan and the first-tier countries

- =rest of the member countries-- -=not -member countries

- development potential:

•Efree disposal vs. quota systems for natural resources•E

flexible vs. rigid labour market

•E high vs. low savings rate

- network characteristics:

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Figure 4. e. Spider model: Disintegration scenario-------=Japan and the first-tier countries

- =rest of the countries•E

low vs. high quality physical infrastructure•E

low vs. high quality social infrastructure•E

high vs. low international interaction

- socio-cultural features:

•Einequity vs. equity•E

Pacific competitiveness vs. cooperation

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Figure 4. f. Spider model: Global change scenario---------=Japan and the first -tier countries

- =rest of the countries•E

cultural openness vs. closedness

Each of these twelve characteristic features can be used to compose different scenarios .

They can be depicted as scores or rank orders on a twelve-dimensional axis system , composing altogether the Spider-model (see Figures 4.a-4.g). These axes have only a

qualitative meaning, but the order of the rankings has been made in a systematic way. We

will now concisely describe seven interesting development scenarios for the Asian Pacific

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Figure 4. g. Spider model: Enviromental crisis scenario--------=Japan and the first-tier countries

- =rest of the countries

area.

a. Free market scenario

In the free market scenario competitive forces and Schumpeterian 'animal spirits' of

entrepreneurs are deciding the economic outcome for the Asian Pacific region: companies

and sectors rise and fall. Economic progress is never certain and painless. Government

interventions tend to aggravate the transition problems, as they lead to more rigidity,

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protection and inertia on markets. Economic motives are dominant, not only in business life

but also environmental policies. Competitive market structures stimulate entrepreneurs also

to play an important role as inspirators and organizers of technological innovation and to

seek for new forms of industrial cooperation inside and outside their home base (including

internalisation). Labour markets become more flexible and savings rates fairly high , but the limited role of the government hampers the construction of advanced infrastructure . Socio -economic discrepancies , social tensions and the absence of public spirit are the consequences

of the limited role of the government. In conclusion , this scenario depicts a future for the Asian Pacific Rim which is governed by competitive forces . All these forces are presented in

Figure 4.a where the inner circle illustrates non-governmental and competitive critical

factors.

b. Regulatory scenario

The regulatory scenario is more Keynesian-oriented , which means that coordination and market intervention may be necessary for the pursuit of economic progress . This means an

organisation of economic forces in closed cooperation with various social and interest groups . Consequently, cooperation, coordination and the quality of government become critical

success factors in promoting economic development . As a result, also protectionist measures

aiming at reducing unfair competition are to be implemented . The same applies to govern

ment sbusidies. In the absence of a fully operating price mechanism , also regulations in terms of quota systems, import tariffs, resource constraints etc . will be introduced, including labour

market regulations. The resulting decline in socio-economic uncertainty will reduce the

savings rate. On the other hand, the gavernment will heavily invest in infrastructure and

education, meaning high tax regimes. The tendency towards international cooperation will

decline, so that the countries of the Asian Pacific Rims will become more isolated economic 'islands' . In summary, there will be less efficiency but more equity in and between the

countries in this part of the world, but they will be less open . All these forces are concisely

depicted in Figure 4.b where the outer circle represents clearly the regulatory economic

system instigated by a strict public policy.

c. Free trade association scenario

The main thought behind this scenario is that national trade restrictions are in the interest

of only one country, but when countries cooperate , resulting in free trade agreements, all

participating nations gain from this agreement. This view is strengthened by the possibility

that imposing trade restrictions in one country , may lead to retaliation by other countries,

which then adopt the same protectionist policies. The steering role of the government has

then to diminish, leaving more room for decisions at the enterprise level . The management

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of the pysical environment will be left principally to the market, but when necessary also

international agreements can be made. At the international level cooperation is expressed in

the rapid removal of trade restrictions between the Asian countries and the gradual establish

ment of free-trade zones. This opens up possibilities for trade creation, economies of scale

and diffusion of technology, giving a strong growth impulse to the Pacific Rim economies.

Countries can specialize in products in which they have a comparative advantage, whether in

terms of production technique or relative abundance of a production factor. For Japan and

the first-tier countries, the second-tier countries are suppliers of cheap labour force and

natural resources. So, each country has free disposal of natural resources, either from its

own soil, or obtained by international trade. According to the emphasis on the market

principles the labour market will be very flexible and cleared. The second-tier countries

become now also important as a potential market for consumer goods. On the other hand,

they will benefit from the transfer of technology, marketing and management know-how and

direct investments from Japan and the first-tier countries. These developments will encour

age the mutual interdependence in the Pacific Rim region. The changing trade patterns in

this region and the shifts in economic positions in these countries lead to the scenario picture

of Figure 4.c, in which international communication and transport infrastructure are the

critical success factors for the countries in the Asian Pacific region.

d. Trade bloc scenario

The main difference with the free trade association scenario is that in this scenario there

is only a free trade zone in the northern part of the Pacific Rim region, while the remaining

countries are confronted with trade barriers from the participating countries. The Tumen

River Agreement may to some extent be compared to other regional development and trade

programme such as the European Community and the North American Free Trade Agree

ment, but unlike the EC or NAFTA, the Tumen River Agreement brings together countries

with vastly different levels of economic development, different economic and political

systems, as well as countries whose primary trading partners are outside the region. On the

other hand the advantages of free trade and cooperative efforts in development that are felt

in the EC or NAFTA countries are the ultimate goals of Tumen River development. The

development of the northern region is placed under the control of a multi-national body

which will include all of the Tumen River Development Agreement partner nations. This

model has the advantage of promoting region-wide development while avoiding the problems

of duplication and competition. Such an economic bloc would prevent potential investors in

the northern part of the region from some of the risks involved in doing business within the

partner countries.

On the other end of the spectrum, the Tumen River Agreement also includes South Korea

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and Japan. Unlike the other countries that are involved in the project , Japan and Korea have abundant capital (high rate of savings), modern infrastructure, and strengths in high technol

ogy production and management (high quality of education) while these two countries have

more problems in their need for natural resources and labour . Japan and Korea would also

benefit from the Tumen Project in that this would provide the impetus for development along

the Sea of Japan.

Some groups will gain more than the others from this prosperous development , so that the income distribution will become less equal, because of the lack of a redistributing policy . The

resulting scenario is depicted in Figure 4.d, which shows that there are different types of

winners and losers in the area.

e. Disintegration scenario

The disintegration scenario presupposes that political forces which kept the Asian Pacific

Rim together (e.g., the dominance of the USA) are gradually vanishing . This may cause

major geopolitical tensions in the area, e.g., between Japan and China . This will also be

reflected in nationalistic feelings and policies which will result in economic and political

rivalry between the countries in the region. Issues like resource dependency and accelerated

technological innovation will dominate the international scene. The governments of the

various countries will then make an extensive effort at a rapid substitution of foreign imports

for domestic production. Bureaucracy, mismanagement of resources and corruption will

likely arise. This situation will contribute to the neglect of traditional government tasks such

as education, basic health care, and physical infrastructure. Also environmental management

will be left to the market

However, the economic growth in all countries in the region will be inhibited considerably , but this is felt most of all in the second-tier countries, which are dependent on other countries

in the region. Military expenses cause everywhere a loss on productive resources , but especially in the poor developing countries the expenses mean a huge dissipation . Many

governments in the developing countries neglect also the need for health care, education and

infrastructure. This clear conflict scenario looks like a doomsday picture . It is represented

in Figure 4.e, which also shows the main differences between the major types of countries .

f. Global change scenario

Our global change scenario means a clear contrast with past developments. In the global

change scenario the centre of activity of the global economy shifts from the Pacific Rim

region to the African continent. The forces of market competition in the Pacific Rim region

bring about company closures on a large scale and lead to sharply increasing unemployment .

Major social tensions will arise, because the means for a social safety net are lacking . The

30


economies in the Pacific Rim depend increasingly on Japan. It is impossible for countries like

China, the Philippines, Thailand etc. to attain a path of self-sustainable growth.

As a result of the unrelenting population explosion in the Pacific Rim region, poverty will

intensify even further. Social and political tensions, which have already risen sharply in the

economic stagnation, are further inflamed, and will be followed by "harsh" authoritarianism.

Social and political unrest and coups make the risk to invest in this region too large for

foreign investors. They will change their investment strategies towards a new successful

region with favourable development prospects. A slowing down of growth rates is the

consequence, leading to a diversion of capital flows. In contrast to a slow down of the Asian

economies, we see a rapid rise in the Southern part of Africa. In particular South-Africa,

which used to be an apartheid system, has become a flourishing democracy with potential

development programme. Fertility rates have declined, so economic growth will be used to

increase prosperity levels. Due to the introduction of promarket reforms, such as privatiza

tion of state monopolies, government will only marginally interfere with the economic

process. The government's tasks will be limited to improving education, basic health care

and physical infrastructure. The sheltered sectors will be opened up. This will lead to a rapid

catch up process in low-productive segments of the economy. The recovery in productivity

also generates the financial means by which the government deficit can be reduced and

human and physical infrastructure bottlenecks tackled. So, this region will become an

attractive investment for foreign investors. The overall picture is one of economic decay and

at least many threats, for both domestic economies and the economic cooperation among

countries in the Asian Pacific region. This scenario means an uncertain future prospect for

the whole area, but again with different changes for various groups of countries. This

disintegration scenario can be found in Figure 4.f.

g. Environmental crisis scenario

The rapid process of industrialization in the less-developed countries has not been

accompanied by a sustainable development. The desire for fast economic growth is so strong

that environmental concerns are pushed aside for some time to come. Economic growth has

led to depletion of raw materials, income inequality and environmental pollution. A quick

-fix attitude provides short-term temporary solutions. It is primarily the pressure of

increased population that has led to a situation in many developing countries where the rate

at which land and water renewable resources are being used is in excess of the regenerative

capacity of those resources. Renewable resources are being "mined" in much the same way

as exhaustible resources; their stock is being reduced. Especially the developing countries

in the Asia Pacific Rim are facing major environmental problems. Developing countries have

a marked direct dependence on natural resources. The depletion of anyone of these resources

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impacts on the availability of others (resource interconnectedness). Managing natural

resources in a sustainable fashion is vital to the well-being and development prospects of the

people of the developing world. However, expenditures on environmental damage reduction

are small or negligible in many developing countries. Decision-making in developing coun

tries is very much concentrated in ministries of finance and economic planning. Environmen

tal policy is not likely to be seen to be important unless its economic dimensions can be

assessed. The emissions of sulphur dioxide are expected to quadruple and the CO2 emissions

are expected to double between 1990 and 2025. Moreover, in 2025 East Asia will use three

times as much energy as in 1990. In that year the region has also the highest CO2 emissions,

higher than the emissions of Europe and the United States. Consequently, an environmental

disaster seems to be inevitable, before an environmental policy will be constructed. To

combat the greenhouse effect successfully, the use of fossil fuels/energy (coals, oil and gas)

has to be reduced worldwide and the different countries in the Pacific Rim region have to

cooperate to solve this immense problem. The environmental solutions may consist of a

substitution by means of a more efficient use of resources, a better use of technology which

may replace non-renewable resources, technological developments which promote recycling,

a decrease in energy intensity, or a substitution of a scare resource with much more abundant

(new) materials. The costs of the necessary measures and the effects of changes in the

structure and volume of the production will drastically inhibit the economic growth. The

resulting scenario is visualized in Figure 4.g.

We will now give a concise overview of the main characteristics of the scenarios described

above. On the basis of the Spider model seven impressions about possible future develop

ments have been presented in the form of scenarios. The two reference scenarios, the Free

market scenario and the Regulatory scenario, are extreme forms of posible development.

These two scenarios are constructed in such a way that they form the inner and outer circle

of the spider.

The Free trade association scenario is the most promising scenario. In this scenario , the

highest growth rate which is also ecologically sustainable, will be achieved. This scenario

will not easily be realized since all countries in the region would have to cooperate and to

remove their trade barriers.

The Trade bloc scenario explores the risk of the emergence of antagonistic trading blocs

in the region, based on the Tumen project. This will significantly reduce the trade flows

between the northern and the southern part of the region.

The Disintegration scenario is the scenario representing severe political and economic

tensions in the Asian Pacific region. The economic take-off will be severely hampered by

protectionism.

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In the Global change scenario the focal point of growth in world trade shifts to competing

regions, notably the Southern African continent. The economic performance of Africa will

have profound effects on the investment climate of the Asia Pacific region.

The Environmental crisis scenario finally, depicts the risks of a neglect of regional and

global environmental problems. The scenario focuses on a possible destruction of the

environment, which can only be corrected at high costs.

The above described scenarios are meant to offer a systematic framework for strategic

policy development in the Asian Pacific Rim. It is evident that each of these scenarios

comprises various elements of the network theories and transaction cost theories discussed

in Section 2. Next to external developments, industrial network strategies will be decisive

for the future of trade in the region. After the presentation of various background scenarios,

we will provide next a strategic future exploration of the structure of the container transport

system in the Asian Pacific Rim as an example of the expected or foreseeable network

developments in the region, as a consequence of the possible realization of the scenarios

concerned. Finally, this will result in policy relevant conclusions.

5. Future Container Flow Networks in the Asian Pacific Rim

As mentioned above, the Asian Pacific area is moving towards an international network

connected by large trade flows. A significant part of the commodities shipped are container

ized (approximately 60%), and hence we will focus our attention in particular on container

flows in the region. It is clear that economic growth is decisive for the total volume of trade

and hence also for the volume of container transport. The future development of container

transport is thus contingent on the development of driving forces, as incorporated in our

scenarios. In addition, the growth in container transport is dependent on intermodal competi

tion and new shipping technologies (including logistics) (see Turner 1990). An illustration

can be found in Figure 5 taken from Trace (1992).

It should be emphasized that the development of container trade may take different forms:

-a pure network of linear routing structures of successive line connections (instigated by

geographical product specialisation, large market potentials, or protectionist regulations

such as the UNCTAD 40/40/20 rule for liner trade or cabotage restrictions).-

a hub and spokes system where significant flows are diverted via central nodes in a

network in order to benefit from economies of scale.

- an intermediary network with mutually connected multiple hubs which are linked with

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Figure 5. The implications of economic growth for the structure of regional shipping source: Trace (1992)

both feeder services and regular liner services (an example is Mitsui OSK lines).

In a region as large and diverse as the Asian region there are obviously marked differ

ences in the total number of containers handled in ports and in the rate and pattern of growth.

However, even during periods in which the growth of world trade slowed considerably there

was a sustained growth without major interruption. Individual ports in East Asia have now

reached exceptional levels of throughput (see Table 2). Figure 6 shows that there are

essentially three areas of a marked trade concentration in the Asian Pacific region. The

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Table 2. Information on container throughputs in Asian cuntries, past data

(1985) and 1990 and forecasts (2000) ('000TEUs)source: Asian prosperity and maritime industry, KMI/IAME Joint Conference (1994)

whole area seems to develop as an intermediary network configuration with Singapore, Hong

Kong, Kaohsiung and Kobe as mainports or hubs. Some data on container movements in the

region can be found in Tables 3 and 4, which describe intra-Asian container flows; the

importance of Japan (and the routes southbound), Hong Kong, Taiwan and Singapore can

immediately be identified. The growth in container trade is indeed impressive.

We will now turn to the question whether such growth patterns can also be sustained in

the future. This will of course depend on uncertain background factors expressed in our

scenarios. And hence we will now investigate the implications of the above described

scenarios for container trade in the five intermediate scenarios and thus forget about the two

extreme reference scenarios (free market and strict regulation).

Free trade association scenario

In this scenario very strong growth rates in cargo volumes between East Asia and South

-East Asia will prevail until at least the year 2005. The vast potential for expansion of the

Chinese container trades will also induce strong growth in traffic flows within East Asia

itself. The countries in the region will increase their purchases from each other, as trade

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Figure 6. Container concentrations in East and South-East Asian portssource: Robinson (1994)

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Table 3. Intra-Asia container cargo traffic, 1992

source: Ross Robinson (1994)

Table 4. Inter Asia Trades End-Year Container Capacity Development 1986/93, '000 TEUs per annum

Source: Ocean Shipping Consultants (1994)

1 Japan/Korea-East/Southeast Asia2 East Asia-Southeast Asia3 East Asian coastal4 Southeast Asian coastal5 Japan-Korea

barriers are removed. Wealth in all countries is rising while stimulating imports from other

Asian countires (in particular, sophisticated consumer goods from Japan, South Korea and

Taiwan). Outsourcing is taking place at a large scale and this is boosting once more the

southbound trade and the intra-Asian trade in general.

Taking into account the above, it would appear that the opportunity for at least some of

the ports presently serviced by feeder ships to attract direct calls look very promising with

the current economic climate and the massive grwoth in trade. In these cases it is the role

of the port to create the environment that will attract the main line shipping calls by

providing appropriate infrastructure, equipment, management and services. Also the ports in

South-East Asia are eager to attract direct deepsea service calls to reduce their dependence

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Table 5. Inter Asia Trades Forecasy Container Trade Volumes to 2000, '000 TEUs;

source: Ocean Shipping Consultants (1994)

1 Japan/Korea-East/Southeast Asia2 East Asia-Southeast Asia3 East Asian coastal4 Southeast Asian coastal5 Japan-Korea

on expensive and delaying feeder services to main hub ports. There is considerable potential

for an increased number of direct calls from Japan, South Korea, Taiwan and Hong Kong at

several important South-East Asian ports, notably Bankgkok/Laem Chabang, Jakarta and

Manila.

Hongkong's position as a leading hub port and transhipment centre for Chinese cargo is

under threat from a number of developments its reversion to China in 1997, recent port

developments in China, and speculation on the opening of direct shipping links betwen

Taiwan and mainland China.

The surging level of economic growth in China, and the increased integration of Hong

Kong (and Taiwan) will result in a further increase in East Asian coastal trade volumes to

some 3.8m TEU at the end of the period (see also Table 5). This increase will be largely

reciprocated by a decline in the relative significance on the Japan-Korea trades, as these

become increasingly similar to trades between fully developed economies (Ocean Shipping

Consultants, 1994).

Trade bloc scenario

Trade with China has been the most dynamic feature of the economic relations in the

northern triangle which comprises Japan, South Korea, North Korea, northern China and the

eastern extremities of Russia. China and North Korea provide Japan and South Korea with

the raw materials they need, while the latter two provide China and North Korea with

sophisticated consumer goods and advanced infrastructure. One uncertainty when analysing

38


the impact of China on transhipment traffic is the capability of Chinese ports to capture

direct calls. However, foreign investment in Chinese ports has led to considerable improve

ments in container handling facilities, particularly in the Guandong and Shanghai regions.

Although both Hong Kong and Taiwan are expected to record continued dynamic develop

ment over the next decade, the really significant growth will be in demand shipped via the

new Chinese ports.

As part of the Tumen agreement-the essential feature of the trade bloc scenario-,

successful moves towards the unification of North and South Korea are likely to result in a

further boost in economic development. This in turn will have a positive impact on the

container port handling industry. Busan may then act as a gateway for both northern China

and Russia. This port has a good competitive position, because handling charges in South

Korean ports are claimed to be "low".

In this scenario, structural difficulties in the Japanese economy will hamper trade volume

developments, although the proximity of Japan to the major East Asian growth zone (and the

level of regional investment from the side of Japanese companies) indicates a considerable

surge in short haul import container trade.

Because the northern region imposes trade barriers on the non-partner countries, South-East Asia will shift its attention to Europe for purchasing consumer goods , capital goods and

components. The European-Far East services achieve acceptable cargo volumes to justify

direct calls at the principal ports of each ASEAN country.

The coming decade will-in the trade bloc scenario-witness a change in the geographical

structure of ASEAN container trade, with an increasing focus on the European and intra

-ASEAN trade , while the cargo volumes between North-East Asia and South-East Asia will

significantly decline. Thus, in the northern and southern region there will be network

developments, while the "thin" trade between the two regions will be based on transhipment

via Singapore, Hong Kong and Kaohsiung.

Disintegration scenario

In the disintegration scenario, we take for granted that re-emergence of protectionist

pressures will result in reduced access for suppliers in international markets. For the whole

Asian Pacific region, political instability and efforts to control inflation will generate a sharp

reduction in economic growth. The political tensions between central authorities of Japan

and China will increase. Because the transition to a market-oriented economy will be

reversed, the economic development in China will be hampered significantly and much of the

potential growth will not be realised. Also the increasing tension between North and South

Korea will create more instability which will have adverse effects on the region. The other

countries in the region which feel threatened will also spend high amounts of money on

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military expenditures.

The shift identified above is very closely reflected in the overall development of Asian

container trade flows, which will decline significantly. The declining scale of the container

flows into and out of the ports will likely make an Asian port call a relatively unattractive

proposition for a major operator. Because of the hostile relations between some of the

countries, cargo volumes will not always be transhipped, but are likely carried by direct

sailings to the destination.

Thus, the intermediary network will be a continuing feature of the structure of the

shipping system in the region. For South-East Asia, Singapore will remain the hub port , for China Hong Kong, for Japan the Japanese ports, and for South Korea Busan.

Global change scenario

The global change scenario-with he emerging importance of Africa-has clearly negative

effects on Asia from the shift in geographical patterns of trade, (such as the company

closures and increasing unemployment). Hence, the growth in the Asian Pacific Rim will

likely stagnate, although the trade relations between the countries in the region will remain

unchanged. The economic developments in the Asian Pacific region are market driven in a

highly competitive environment. The tendency towards concentration will continue . The hub

and spokes system will become the major feature of the shipping network , since this is economically the best solution. This means the use of hub ports, with transhipment via feeder

services to and from other ports. The "thin" Asian trades are served by feedering .

Containerisation in China however, has still to find a muture place, largely due to a lack of

domestic transport capabilities. In this context, the current main hub ports of Kaohsiung , Hong Kong and Singapore seem to remain the leaders. In order to remain so , however, each will need to continue to match its facilities to shipping requirements. Otherwise , its trade will be lost to other competing ports. Busan will likely be closely connected to the Japanese ports , while Kaohsiung will become the base for Southern China, the Philippines and Thailand , and Singapore for Thailand, Malaysia and Indonesia.

Environmental crisis scenario

The scarcity of natural resources and the CO2 tax will-in the environmental crisis

scenario-be reflected in the energy prices. The resulting significantly higher energy prices

will influence the regional economy through a lower purchasing power of customers and

lower investment levels by companies. The necessary critical mass of cargo will not be

available in most of the regional ports to justify direct calls. So, like in the Global change

scenario, the trend towards the hub and spoke system will continue .

A significant proportion of cargoes will be shipped via feeder services linking Asian

40


port (s) to (an) Asian hub (s), for transhipment to mainline services. A high proportion of

intra-Asian cargoes will flow via an Asian hub, being carried on by feeder services. A major

factor hampering the establishment of direct calls by deepsea operators to Chinese ports will

also be the lack of facilities capable of handling large deepsea vessels.

6. Policy Implications

The scenarios presented above encompass both bottlenecks and opportunities. Strategic

policies are needed to create opportunities for the Pacific Asian region and to overcome some

of its current weaknesses.

From all the scenarios, the disintegration scenario will hamper the economic develop

ment in the region most. The independent pursuit of individual ofjectives by countries will

increasingly create international tensions and conflicts. Macroeconomic mismanagement

and instabilities experienced in one country may then also cause disequilibrating forces in the

other economies of the region. The danger of individual strategic industrial, technological

and trade policies in the trade bloc scenario lies in the trade wars they may prompt.

Therefore, actively favouring cooperation between the countries in the region and stimulat

ing a more stable economic and political climate in the region, can help ease the pressure on

regional conflicts, implying a movement towards the free trade association scenario.

The free trade scenario may overcome the threat incorporated in the disintegration

scenario to help solve the existing tensions in the relations between, for example, China and

Tainwan, and North and South Korea. Disarmament nagotiations will then of course play

an important role in international policy. Furthermore, a radical scaling down of military

expenses would free the financial means for policies in the fields of education, technology and

infrastructure. However, the political repercussions of North Korea's stance on nuclear

inspections pose potential threats to the implementation of such development scenarios.

In the case of the global change scenario a cooperative strategy for strengthening the

performance of the trade sector will become necessary. Complementarity of policies and

programmes for mutual advantage have to start with strengthening the intraregional trade

flows, and intraregional resource transfers. Furthermore, the responsibilities of the stronger

economies of the region, particularly Japan and the first-tier economies, to assist the other

economies will become pressing. The overall trade surplus may, for instance, be converted

into a development fund for facilitating grwoth in the region. The countries in the region

have to adopt new strategies promoting more integration with the rest of the region.

Increasing complementarities among the countries of the region become a crucial issue. Most

probably, the most important hindrance to a balanced trade expansion in this region is the

absence of market information. In order to enhance the pace of cooperation in the region,

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it is necessary that potential complementarities be identified and fully harnessed . The same

applies to export countries which might develop joint marketing strategies in order to benefit

from scale economies. Emergence of a system of trade-creating joint ventures among the

countries in the region is an effective instrument for realizing both inter-country integration

and also indigenous country development. It contributes to the generation of employment

opportunities and incomes and it induces trade expansion on an enduring basis . However, a

variety of factors have inhibited the rapid expansion of regional joint ventures in the past:

lack of information on each others' capabilities and also on the available opportunities , mutual mistrust, and unfavourable trade and exchange control policies . Sometimes, restric

tions on capital movement and exchange controls regulating the repatriation of earnings have

been the most significant negative factors .

Growth in intraregional trade depends not just on production complementarities , but also on the removal of trade barriers and the establishment of trading relations among the

countries in the region. The restrictions on intraregional trade are the highest for those

commodities in which comparative advantage complementarities are strongest . It is thus

clear that the countries may have to reduce gradually their trade barriers towards more open

and liberal markets. Japan may play a significant role here by opening up its market for

manufactured products from the other members of the region to a much greater extent than

hitherto. Improving competitiveness in the industrial structure by fostering competition in

the domestic markets, and maintaining open policies with respect to foreign investment and

trade are likely to stimulate intraregional trade.

To avoid the realisation of the terrifying vision presented in the environmental crisis

scenario, a strict and obligatory environmental policy has to be introduced on an interna

tional level. In order to reduce the external effects caused by transport and industry , an action plan has to be developed, which sets targets for CO2 and other emissions . The most

important characteristic of natural resources is the strong geographical concentration of

global reserves. This, together with the strategic importance of an adequate energy supply,

explains the governments' intensive interference in the energy market . More strict sus

tainability policies may result in a gradual introduction of a CO2 tax . The higher prices

provoke extra energy savings. The application of energy-saving technology reduces energy

dependancy on raw material abundant countries, while also providing the opportunity of

tackling important environmental problems, for example , acid rain, through a joint policy for

energy conservation.

However, the heavy emphasis put on environmental policies will slow down economic

growth. To compensate the poor countries which suffer most from the introduction of the

CO2 tax, the richer countries may have to transfer the know-how and technology in the

energy field to them, as well as porviding aid-and where needed-compensation for

42


deforestation and for stimulating re-forestation. Moreover, favourable economic develop

ment in Asia implies that attractive market opportunities are gradually created for the

second-tier countries to set up policies aimed at developing their own technological potential.

With their relatively weak position in high-technology sectors, it is very much in their

interest to oppose the threat of protectionism in technology know-how.

The above observations have also implications for the shipping and the container sector.

Just like the economic developments taking place in the region, also shipping policies of the

developing countries are moving toward a greater introduction of economic market forces to

reshape fleet structure and operating routes. To improve their competitive position many of

the developing countries of the region are moving toward commercialisation of their shipping

industry. In these cases, it is the role of ports to create the environment that will attract the

main line shipping calls by providing appropriate infrastructure, equipment, management and

services. In this context, it is noteworthy that in Japan major port developments have been

scheduled, which resulted in additional capacity predicated on the basis of anticipated

container trade growth. Nevertheless, primarily attributable to the recent severe recession

in the Japanese economy, this trade growth has not been realised. The next few years are

thus set to be characterised by the emergence of severe over-capacity in Japanese container

ports. The effect of increasing competitive pressures between ports is thus likely to be

manifested in lower handling charges.

Although demand in China is assumed to accelerate sharply and steadily in the free trade

association scenario, the level of committed and planned port investment is expected to

generate considerable overcapacity. However, this cannot simply result in a redirection of

vessel calls to the Chinese ports, given the water depth constraints at most mainland Chinese

ports. There will be a lack of availability of deepwater terminals for deepsea vessels and an

overabundance of feeder berths. So, if the Chinese ports would like to attract direct calls,

port authorities have to set up programmes for dredging the ports. Otherwise, Chinese

cargoes will be transhipped at more distant deepsea ports, such as Korean and Japanese

terminals. Currently, Huangpu, Jui Zhou, Chiwan, Shekou and Yantian are designated

deepwater international ports, which have potential for direct calls. This will significantly

influence the future competitive structuring of the shipping system.

The countinuing rapid expansion in demand in Hong Kong will more than offset planned

capacity additions in the near future. The comparative advantage of the port is likely to

decline markedly, despite the addition of further significant capacity. Hong Kong's competi

tive advantage has been built on its market-driven economy. New container terminal

facilities are planned and developed via the market mechanism. However, as a consequence

of this laissez-faire strategy, the unconstrained market has increased the land acquisition

43

Nijkamp and Vermond

costs and terminal construction costs, which are reflected in higher handling costs than in

Singapore or Kaohsiung. Another development threatening Hong Kong's position will be the

development of direct calls capabilities of Chinese ports . This will reduce feeder dependence

on Hong Kong.

In contrast to the situation in Hong Kong , port demand in Singapore is more broadly based on its role as a transhipment port. The port is not as vulnerable to disruption at the

political level as Hong Kong and is not as dependent upon any single set of trades (tranship

ment of Hong Kong is dominated by the trade with mainland China) . However, in the free

trade association scenario, the level of demand at Singapore is likely to fall back as a

consequence of rapid port development in South-East Asia . Singapore has however for the

time being created a competitive advantage through a continuing change with investment in

physical and social infrastructure.

It is likely that rapid growth in container trading and changing political circumstances

will create modifications in port networks. When the current restrictions on China trade with

Taiwan via a third country are removed , Kaohsiung and Keelung can trade directly with Chinese ports. For Kaohsiung, its current competitive advantage derives from the availabil

ity of extensive terminals in a regional environment in which port space is limited . But the

pace of anticipated container port demand is expected to exceed the capacity of Taiwanese

ports, even with the current significant expansion programme. Under these conditions the

feasibility of further increasing transhipment to/from eastern China will be increasingly

constrained by lack of capacity.

In conclusion, in the South-East Asian ports the current massive port investments will

significantly boost available capacity despite the very strong anticipated demand growth . As regional economies and trade accelerate over the study period , it is forecast that the position will deteriorate markedly and all available economic capacity will be utilised by 1999. (Ocean Shipping Consultants 1994) Investment will be necessary if lack of handling capacity

is not to constrain demand growth. Unless the disintegration scenario will become reality , it is clear that significant investments will be required in the next decade for the whole

region, except for Japan. The above analysis suggests that if the full advantage of the

potential of this region is to be realized, it must attract the synergy of all participating Asian

Pacific countries. In this context , further emphasis on outward looking policies and greater

specialization in production driven by comparative advantage would foster closer integration

of the region. Such a closer integration, however , can only succeed in an environment of willingness to adapt, of mutual trust , security and cooperation.

44


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