The Quest for Asia's Next Manufacturing Miracle

05/03/2015 03:58 am ET | Updated May 02, 2016

This piece is co-authored by Gregory Randolph.

As thousands of government, business and civil society leaders from across Asia descend on Baku, Azerbaijan for the annual Asian Development Bank meetings this weekend, countries in the region are consumed with how to sustain growth as some of the region's biggest economies -- China, Japan and Indonesia -- slow down.

Many Asian nations are turning to manufacturing as a way to fuel growth and create more, and potentially better quality, jobs -- especially for their bulging youth populations. Their resolve is strengthened by prospects of closer regional integration and trade agreements, such as the Trans Pacific Partnership.

But newly emerging economies cannot use the 20th century success of Asian Tigers as a model. A 21st century manufacturing miracle calls for a different strategy.

Today, global competition is fiercer than ever. More countries are playing the manufacturing game, and Asia's more developed economies, such as China, are already formidable players, having claimed their stake in elaborate supply chains. Developing and emerging economies accounted for 32 percent of global manufacturing value-added in 2010. Of this, Asia-Pacific countries accounted for 21.7 percent, with China's share at 15.3 percent in 2010.

Countries like China and South Korea rode the wave of economic liberalization and the revolution in information and communication technologies to transform their manufacturing sectors. For emerging economies now embarking on the same path, there is no watershed economic reform or revolutionary technology that they can leverage to enter an already competitive landscape. What's more, weak aggregate demand in developed economies throws up another barrier to export-led growth.

So, what will it take for a country like India -- which launched its "Make in India" campaign last autumn -- or Myanmar -- the world's newest frontier market -- to become an industrial powerhouse in the 21st century?

Asian leaders in newly emerging markets must continue to prioritize the fundamentals -- attract capital and technological investment and improve infrastructure -- while also diversifying their manufacturing sectors, skilling their workforces, and enabling a healthy industrial relations system.

Massive deployment of labor in one low-skilled sector like garments may have kick-started industrial revolutions in 20th century Asia, but such a strategy is now outdated. For one, diverse economies are more resilient in the face of economic shocks.

Moreover, lack of diversity produces an oversupply of labor in one sector, depressing working conditions and wages. It is unsurprising then that in Bangladesh, where 80 percent of exports come from a single industry (garments), wages and working conditions are among the worst in the world. Countries with a diversified manufacturing sector tend to offer higher wages and clearer pathways of upward mobility for workers. Better-paid, economically mobile workers promote domestic consumption, further expanding opportunity for businesses and reducing dependence on exports.

But diversification can only happen if countries make significant investments in upgrading the skills of their workforces. In some of Asia's most ambitious emerging economies, the percentage of the labor force that is formally trained remains extremely low: only 2.2 percent of Cambodian and 6.4 percent of Vietnamese students in secondary schools are receiving vocational education.

Policymakers in Asia must also focus on building a well functioning industrial relations system. In many newly emerging economies, the proliferation of thousands of unions has muddled workers' voices. Countries should encourage the development of large, legitimate trade unions that truly represent workers' interests and engage productively with employers, rather than stamping out strikes in the fear that they will drive away business.

Governments, business and civil society must work together to create an Asian model of German codetermination -- where employers and employees negotiate fairly and unions hold seats on corporate boards.

In their quest for the next manufacturing miracle, leaders of newly emerging Asian economies have an opportunity to fashion a new, 21st century economic model for the continent -- one based on a diverse manufacturing sector, a skilled workforce, and a new deal between business and labor.

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The JustJobs Network is a global think tank focused on finding evidence-based solutions to global employment challenges. It hosted a seminar at this year's ADB meetings entitled, "From Factory Floor to the Middle Class: Does Labor-Intensive Manufacturing Promote Economic Mobility?"

Sabina Dewan is Executive Director of the JustJobs Network and Senior Fellow at the Center for American Progress. @sabinadewan

Gregory Randolph is Deputy Director of the JustJobs Network.
@justjobsproject