This study provides a conceptual framework to explain what kinds of difficulties a late-follower will suffer from when it tries to join pre-existing International Production Networks (IPNs). We consider the total production cost minimization problem by a multinational company (MNC) in allocating locations of fragmented production processes across borders. From the clarification of IPN-related costs, we draw out what structural disadvantages late-follower countries have and provide several policy implications to overcome these disadvantages with more targeted efforts. Especially we put India’s case in the conceptual framework of the IPNs and then look at the hurdles that make India’s participation in the East Asian IPNs hard and sluggish. Relevant data are provided in order to support the theoretical explanations.

Executive Summary

I. Introduction

II. An Economic Model of International Production Networks
1. An Introduction to Our Approach
2. Basic Elements
3. Costs Related to Parts-production Location Choice
4. Costs Related to Assembly Location Choice

III. Analysis
1. Utilizing Production Cost Advantages
2. Lowering Offshoring Costs
3. Overcoming Disadvantage from the Agglomeration Effect
4. Aligning with Immediate Upstream and Downstream Locations

IV. Economic Interpretations on India’s Weak Involvement in East Asia IPNs
1. Matching Theoretical Variables with Actual Data
2. Costs Related to Assembly and Parts Production
3. Offshoring Costs: Trade Costs and Coordination Costs α
4. Agglomeration Effects
5. Others: Historical Relationship

V. Concluding Remarks

References

Appendix