CFS Discussion Paper Series, Number 113

Advanced Infrastructurefor Time Management:The Competitive Edge in East Asia

Ashokla ModyWilliam Reinfeld

Cofmancing and Project Finance Department(Project Financing and Guarantees)October 1995

21 The World Bank

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CFS DISCUSSION PAPERS

101 - Privatization in Tunisia, Jamal Saghir, 1993.102 - Export Credits: Review and Prospects, Waman S. Tambe, Ning S. Zhu, 1993.103 - Argentinas Privatization Program, Myrna Alexander, Carlos Corti, 1993.104 - Eastern European Experience with Small-Scale Privatization: A Collaborative Study with the Central European

University Privatization Project, 1994.105 - Japans Main Bank System and the Role of the Banking System in TSEs, Satoshi Sunumura, 1994.106 - Selling State Companies to Strategic Investors: Trade Sale Privatizations in Poland, Hungary, the Czech Republic, and the

Slovak Republic, Volumes 1 and 2, Susan L. Rutledge, 1995.107 - Japanese National Railways Privatization Study II: Institutionalizing Major Policy Change and Examining Economic

Implications, Koichiro Fukui, Kiyoshi Nakamura, Tsutomu Ozaki, Hiroshi Sakmaki, Fumitoshi Mizutani, 1994.108 - Management Contracts: A Review oflnternational Experience, Hafeez Shaikh, Maziar Minovi, 1995.109 - Commercial Real Estate Market Development in Russia, April L. Harding, 1995.110 - Exploiting New Market Opportunities in Telecommunications: Lessons for Developing Countries,

Veronique Bishop, Ashoka Mody, Mark Schankerman, 1995.111 - Best Methods of Railway Restructuring and Privatization, Ron Kopicki, Louis S. Thompson, 1995.112 - Employee Stock Ownership Plans (ESOPs), Objectives, Design Options and International Experience,

Jeffrey R. Gates, Jamal Saghir, 1995.113 - Advanced Infrastructure for Time Management, The Competitive Edge in East Asia,

Ashoka Mody, William Reinfeld, 1995.114 - Small Scale Privatization in Kazakhstan, Aido Baietti, 1995.115 - Airport Infrastructure: The Emerging Role of the Private Sector, Recent Experiences Based on Ten Case Studies,

Ellis J. Juan, 1995.

JOINT DIscuSSION PAPERS

Privatization in the Republics of the Former Soviet Union: Framework and Initial Results, Soo J. Im, Robert Jalali, JamalSaghir; PSD Group, Legal Department and PSD and Privatization Group, CFS - Joint Staff Discussion Paper, 1993.

MobilizingPrivate Capitalfor the Power Sector: Experience in Asia and Latin America, David Baughman, Matthew Buresch;Joint World Bank-USAID Discussion Paper, 1994.

OTHER CFS PUBLICATIONS

Japanese National Railways Privatization Study, World Bank Discussion Paper, Number 172, 1992.

Nippon Telephone and Telegraph Privatization Study, World Bank Discussion Paper, Number 179, 1993.

Beyond Syndicated Loans, World Bank Technical Paper, Number 163, 1992.

CFS Link, Quarterly Newsletter.

Copyright( 1995The World Bank1818 H Street, N.W.Washington, D.C. 20433, U.S.A.

All rights reservedManufactured and printed in the United States of AmericaFirst printing, October 1995

The findings, interpretations, and conclusions expressed herein are entirely those of the authors and should not be attributedin any manner to CFS, the World Bank, or to members of the Board of Executive Directors or the countries they represent. The WorldBank does not guarantee the accuracy of the data induded in this publication, and accepts no responsibility whatsoever for anyconsequence of their use. The paper and any part thereof may not be cited or quoted without the author's expressed written consent.

TABLE OF CONTENTS

CHAPTER 8 ADVANCED INFRASTRUCTURE FOR TIME MANAGEMENT: The Competitive Edge In

East Asia ........................................................................... 1

Advanced Infrastructure Has Changed the Way Business Is Done ................................................................... 2

Advanced Infrastructure Takes Many Forms ........................................................................... 3

Cargo flow and freight movement: Advanced infrastructure moves goods quickly and reliably ........... ..............3

Terminal and facility operations: Advanced infrastructure facilitates cargo processing and handling of customs

documents ...... .................................................................. 4

Inter- and intraindustry communications: Advanced infrastructure is used to integrate transindustrial business

operations ...... .................................................................. 5

Time Management Tools Are Used-or Not Used-for a Number of Reasons .................................................. 5

Time management tools are used widely by electronics firms and the automobile industry, less by the clothing

and footwear industries ....................................................................... 6

Time management tools enhance product demand, market competitiveness, and operational integrity ............... 7

Still, many industries do not-or cannot-invest in these tools ........................................................................ 8

Governments Must Actively Endorse-or Even Supply-Advanced Infrastructure ..................................... 10

Access to Advanced Infrastructure Affects International Location Decisions ................................................... 12

Conclusion ....... ................................................................... 13

Table of Figures

Table 8.1 East Asia supports a number of advanced infrastructure networks ............................................... 15

Table 8.2 Time management tools are becoming more popular ....................................................................... 16

Table 8.3A Value added services play a big role in the takeup of time management techniques .................. 17

Factors contributing to the adoption of logistics management techniques, all firms ...................................... 17

Table 8.3B Factors contributing to the adoption of logistics management techniques, by industry ............. 18

Table 8.4A Advanced infrastructure helps attract industry ......................................................................... 19

Factors contributing to firms' location choice, by major activity ..................................................................... 19

Table 8.4B Factors contributing to firms' location choice, by industry ........................................................... 20

Chapter 8 Advanced Infrastructure for Time Management:

The Competitive Edge in East AsiaAshoka Mody and William Reinfeld

Advanced infrastructure is a spectrum of * In Taiwan (China) pockets of developmenttransportation and communications systems that exist within the advanced infrastructureare enhanced by information technology. This industry, but the government has not yetform of infrastructure is a part of modem time undertaken the policy reforms required formanagement techniques that allows users to successful advanced infrastructurereduce costs, improve services, and enhance development. Although the government istheir market competitiveness. Companies unable to provide the diversity of servicesworldwide are recognizing the benefits of needed, it has not permitted easy entry byadvanced infrastructure, as are forward-looking new providers. Third-party servicegovernments, which are coming to realize that providers are thus not as active as they areadvanced infrastructure will be necessary for in Singapore and Hong Kong.them to maintain global competitiveness.

Advanced infrastructure is now The different government approaches indiffusing to the newly industrialized economies part reflect, but also reinforce, the types ofof Asia, a development that, along with low industrial activity undertaken in the threewage levels, will make these economies economies. In some cases advancedattractive to global firms as they make decisions infrastructure and advanced managementabout locating regional headquarters and techniques have not been incorporated intoproduction and sourcing operations. The industries or firms because their standards andgovernments of Hong Kong, Singapore, and language requirements have not been madeTaiwan (China), in particular, have recognized compatible with local operations. But otherthe importance of advanced infrastructure, Asian countries that still rely on their less-particularly as they seek to enhance their roles expensive labor force to compete in worldwideas regional hubs for global manufacturing and markets are beginning to realize that they areservice industries. Each government has taken a lagging behind Hong Kong, Singapore, anddifferent approach to expanding and promoting Taiwan (China) in development. For most ofadvanced infrastructure services: these countries a dilemma exists between

developing basic infrastructure and advanced* In Hong Kong the government has taken a infrastructure. Now it appears that they will

laissez-faire approach to encouraging have to work on both to compete successfullyadvanced infrastructure development, and even in traditional industries, which are well onfirms have been comparatively slow to their way to global integration.adopt it, particularly in the manufacturingsector. Responsibility for advanced Advanced Infrastructure Has Changed theinfrastructure services is thus left to third- Way Business Is Doneparty providers, who have been quite active. Twenty years ago East Asian economies were

* In Singapore both the government and the attractive for their low costs. With rising wagesprivate sector have vigorously supported and soaring land costs, governments and firmsadvanced infrastructure development. The located in the region are seeking new strategiesgovernment itself is an active provider of for maintaining their competitive edge.services. Advanced infrastructure is a key component in

the emerging economics of international

competitiveness. Those engaged in becomes more important. Thus, in contrast tointernational business as investors or exporters basic infrastructure, where the bias has beenare increasingly looking at the availability of toward achieving quantitative physical targets,advanced infrastructure when deciding where to advanced infrastructure is more demand-establish headquarters, produce, and source their oriented, consisting of innovative applicationsproducts. Based on in-depth interviews- designed to meet an array of specific user needs.between December 1992 and February 1993- Products and markets that benefit fromwith the top management of twenty leading advanced infrastructure have one or more of thefirms in Hong Kong, Singapore, and Taiwan following characteristics: they have high value(China), we identify factors responsible for added, compete in terms of time-to-marketincreased use of advanced infrastructure and the (particularly to the United States and Europe),implications of such use for international or are linked to extensive global operations.location and sourcing decisions in the region. To demonstrate the growing influence

Advanced infrastructure, as addressed in of advanced infrastructure beyond industrialthis article, refers to a spectrum of countries to regions that have traditionallytransportation and communications systems and competed on the basis of low wages, we focusservices enhanced through the use of on labor-intensive products-certain electronicsinformation technology and delivered by products, automobile parts, and garments andinnovative providers. Considered in parallel is footwear-where considerations of timelinessthe use of logistics management techniques. and user responsiveness are increasingly crucialWhile not a part of infrastructure in a for successful competition.conventional sense, logistics managementtechniques-such as just-in-time and quick- Advanced Infrastructure Takes Many Formsresponse production-have a growing In international commerce advancedrelationship with information technology-based infrastructure may be applied to three activities:advanced infrastructure. Thus, although cargo flow and freight movement, terminal andadvanced infrastructure specialists are key to facility operations, and inter- and intraindustrycoordinating the distribution task, the distinction communications. While the construction ofbetween the producer and distributor blurs with physical infrastructure is often an element ofthe increasing use of time management, as advanced infrastructure, it is the value addedproduction and distribution strategies mesh services overlaying the basic infrastructure that(Suri 1994). are of greatest interest. Innovative providers of

The enhanced physical facilities and value added services, who use modernvalue added service applications of advanced information technology to manage the flow ofinfrastructure significantly augment the moving goods and information, are key to the success ofof cargo and information. By exploiting effective advanced infrastructure delivery. Ofsynergies among information technology, course, they often choose to provide advancedlogistics management, and transportation and infrastructure services because their userscommunications technology, advanced demand them. Specific examples of suchinfrastructure has given industries the services are shown in table 8.1.opportunity to achieve the substantial benefits ofreduced costs, shorter production and product Cargo flow and freight movement:development cycles, and an ability to compete Advanced infrastructure moves goodsmore effectively through service and reliability. quickly and reliablyTaken together, these changes have radically One of the best examples of advancedaltered ways of doing business, particularly infrastructure is integrated transport logisticsamong firms in industrial countries (Peters systems. These systems incorporate various1992). As manufacturers increasingly focus on forms of enhanced physical infrastructure andreducing product cycle times and improving provide a range of services, starting withcustomer service, use of advanced infrastructure sourcing, continuing in some cases with

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inventory management, and extending through major city in the United States in three to fourwarehousing and ultimate distribution of the days. This service includes separation andfinished product. Logistics systems such as boxing (by store) at point of pickup, preparationthese integrate numerous forms of advanced of all necessary accompanying documentation,infrastructure-air express cargo movement, cartage to port of departure, air transport,automated warehousing, and computerized customs clearance, delivery, and tracking andtracking of the flow of goods. Taken together, tracing of every package. The same steps bythe various components of the logistics traditional services take ten days by air andinfrastructure allow goods to move in the thirty days by ocean vessel. Total distributionfastest, most reliable way, minimizing total costs vary according to the nature of thelogistics costs and strengthening the strategic products shipped. According to serviceposition of users. providers, the savings in costs between

Integrated transport logistics systems traditional air cargo and the integrated airare offered by various service providers who service can be anywhere from 10 to 25 percent.previously concentrated primarily on specific When inventory costs are significant, the timesteps in the process, such as airlines or freight savings of integrated air express service overforwarders. As a consequence of information ocean service can be a much more criticaltechnology and policy reforms that have reduced factor.traditional service distinctions and associatedentry barriers, some of these companies are now Terminal and facility operations: Advancedproviding services that not only integrate the infrastructure facilitates cargo processingdisparate components of cargo flow, but also and handling of customs documentinclude cargo tracking, document processing, Another area in which advanced infrastructurecustoms clearance, and time-definite, door-to- can potentially benefit the manufacturing sectordoor, and express pickup. The service providers is the application of electronic data interchangegenerally use a combination of public to cargo movement through ports. Theconveyances, their own conveyances, public and enhanced physical infrastructure utilized in thisproprietary data networks, and systems that have case centers around telecommunications,been tailor-made for the customers. principally an integrated services digital

According to service providers, these network. The enhanced value added servicesdevelopments are market-driven. End users are are the electronic data interchange applications,finding it increasingly advantageous to use one- prepared by service suppliers referred to asstop services and are demanding that suppliers VANS (value added network services)tailor services to meet their total needs. With all suppliers. Benefits from this example oftheir logistics needs supplied by one vendor, advanced infrastructure result fromshippers can enjoy savings from fewer errors, computerized systems that link shippers,lower transport costs, lower capital costs for shipping agents, freight forwarders, couriers,warehousing and maintaining inventory, and the and cargo agents into an electronic informationelimination of redundancy in time and effort. network that allows them to make declarationsThey also are finding that revenues increase as a of relevant trading documents more efficiently.result of greater customer satisfaction and faster, The most common use of this system ismore reliable delivery. for handling customs documents. But more

The impact of these services on a sophisticated systems, such as those developedcompany's business depends on the economics in Singapore, allow users to take advantage ofof its product and the characteristics of its this standardized data network to communicatemarket. The benefits typically include reduced information conceming their shipments to bothdistribution or inventory costs. For example, an upstream and downstream elements in theinternational air express service can provide trading process, such as banks, insurance agents,door-to-door, break-bulk service from Hong other manufacturers, distributors, and retailersKong, Singapore, or Taiwan (China) to any (Tan and others 1992). (For more details on the

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Port of Singapore, see chapter 4.) These other companies in the value chain-design,electronic transactions allow users to reduce production, distribution, and sales. Thesepaperwork resulting from repeated keying of the communications applications are based largelysame trade data. The significance of this on value added network capabilities that supportsavings can best be appreciated from studies in exchange of information (data, text, graphics,the United States and Europe, where it was image, voice) between dispersed componentsfound that this type of paperwork can cost within an organization and between differentbetween 4 and 7 percent of the value of goods organizations.freighted in international trade. Various applications of electronic data

Considerable savings are also realized interchange to procurement and productionfrom expedited customs clearance procedures. allow manufacturers, within the same or relatedIn Singapore, for example, average cargo industries, to integrate their information bases toclearing time has been reduced from a day or take better advantage of available advancedmore to thirty minutes. Users have increased infrastructure. Asian industries-other than thetheir productivity by 20 to 30 percent, and Japanese-are still relatively behind theirsavings in non-value added manpower are counterparts in more industrialized parts of theestimated at up to 50 percent. world in applying electronic data interchange

Several of the major ports in Asia techniques, but they are beginning to see theprovide such systems, including those in Japan, advantages and are starting to develop systems.the Republic of Korea, Singapore, and Taiwan Singapore, with systems such as(China); Hong Kong is currently working on OrderLink, is probably the most advanced indeveloping a system. While each system has electronic data interchange applications. Incertain basic similarities, Singapore's TradeNet Hong Kong, Hutchison Telecom, a private valueis the most comprehensive. added network operator, has joined with

Other applications of advanced American Telegraph and Telephone (AT&T) toinfrastructure in terminal operations may be provide EasyLink, an interindustry electronicfound in intelligent warehouse facilities. Such mail and facsimile service. In Taiwan (China)facilities are now being operated in Hong Kong, pilot studies are under way to developSingapore, and Taiwan (China), though their interindustry electronic data interchangeeffectiveness depends on how much operational systems for automobile manufacturers andflexibility is allowed by the government. grocery stores. These systems will allowPotentially, these facilities offer users companies to better manage their inventoriesconsiderable savings as a result of enhanced and to speed new product development.storage and handling, which, along withintensive use of information technology, allows Time Management Tools Are Used-or Notrapid processing of and access to goods. The Used-for a Number of Reasonsfull potential value of these warehouses is The extent to which a firm uses advancedreached only if the goods also pass rapidly infrastructure depends on the sophistication ofthrough customs clearance, which is often its business and whether its government takes animpossible due to restrictions in policy, not active role in promoting advancedtechnology. infrastructure. A firm's decision to use advanced

infrastructure is driven by the demands of itsInter- and intraindustry communications: customers, the time it takes to develop products,Advanced infrastructure is used to integrate the competitive forces it faces in its market, andtransindustrial business operation the operational structure of its facilities.Another family of advanced infrastructure To demonstrate the implications ofapplications is the set of technologies and advanced infrastructure in East Asia, weservices that facilitates the integration of the conducted select interviews with firms in Hongbusiness, engineering, and manufacturing Kong, Singapore, and Taiwan (China). Thefunctions of firms with relevant activities of firms chosen for interviews were in industries

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and product segments regarded as labor- question was used to deterrmine both a firm'sintensive and traditional-electronics, auto familiarity with issues surrounding time-parts, and clothing and footwear. The survey sensitive management criteria and its use ofwas meant to examine how the economics of information technology in production andthese industries are changing in response to new distribution management. All twenty firmsopportunities provided by advanced interviewed are familiar with logisticsinfrastructure. management and electronic data interchange.

In all, twenty firms were interviewed: Half are relatively experienced users. Use waseight in Hong Kong, four in Singapore, and most extensive in electronics, where five ofeight in Taiwan (China) between December seven firms are experienced users; this is1992 and February 1993. The distribution followed by three users of five in automobilesamong industries was seven in clothing and and auto parts and two of five in clothing andfootwear, seven in electronics, and six in footwear. Though the techniques are used leastautomobiles and auto parts. in clothing and footwear, even these firms are

The sample is small. Our strategy was beginning to use some form of timenot to study a wide cross-section of firms, but to management.focus on relatively large firms with a strong The sectoral differences also appear ininternational orientation. Each of the firms the relationship between the extent of usage andinterviewed has factories throughout the region, the location of the firm interviewed. Forand about half have factories throughout the instance, in Singapore, where informationworld. They all export to markets both in the technology and advanced infrastructure areregion and outside. They vary in size from relatively well developed and the governmentmultinational giants (having regional actively supports these developments, all fourheadquarters in one of the three economies), to firms interviewed were actively using thesemedium-size firms (by Asian standards) with at techniques. At the same time, three of fourleast $50 million in annual sales. All are well firms interviewed in Singapore were inestablished and successful and all are electronics and none in clothing or footwear. Inconsidered forward-looking. Hong Kong, where, according to the Director

A questionnaire was used in the General of the Federation of Hong Konginterviews to guide the discussion. Discussions Industries, more than 40 percent of thefocused on issues about which the interviewee manufacturing sector has relocated its factorieswas particularly knowledgeable or with which (mostly to nearby sites on mainland China inhe or she was most comfortable. Our strategy search of cheap labor) and where thewas to interview the firm's top management to government has taken a less active role inget their insights into the dynamic relationship promoting information technology and advancedof advanced infrastructure and operational infrastructure, the split between "novices" anddecisions, including strategies for locating active users was six to two. The usage patternvarious firm activities. also reflects the relatively high concentration of

garment firms in Hong Kong. Taiwan (China)Time management tools are used widely by lies in between with numbers of novices andelectronics firms and the automobile experienced users split evenly. There the effortsindustry, less by the clothing and footwear to promote information technology andindustry advanced infrastructure have been started andA profile of the firms interviewed and whether the manufacturing sector is actively seeking toor not they employ time management techniques retain its competitiveness, yet the governmentis presented in table 8.2. We asked whether the has been less progressive than in Singapore andfirm employed logistics management-using Hong Kong in reforming the regulatorytechniques such as just-in-time or quick environment. Thus a combination of supply andresponse-or whether it was tied into any demand factors appears to influence the use ofelectronic data interchange networks. This time management.

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Time management tools enhance product degree of competition, importance of rapiddemand, market competitiveness, and product development, and the need to streamlineoperational integrity international operations. Marketing efforts byFrom a review of the responses to the value added service suppliers also influencequestionnaires and the views expressed in the decisions to adopt advanced infrastructureinterviews we can gain further insights into what services.the managers of these firms believe are theimportant determinants of the extent to which Sophistication of customers. Eleven oftheir firms employ logistics management and the twenty firms said their use (or intended use)other information technology-based of advanced infrastructure greatly depends onmanagement tools. The importance that the the demands of their customers. Even in themanagers interviewed assigned to external clothing and footwear industry, for example,requirements for employing tools such as just- firms indicated that time-to-market was criticalin-time and quick response are summarized in to customers in high-fashion or trendy markets.table 8.3a; table 8.3b provides a further Such customers presented the firms with precisebreakdown by industry. production and delivery specifications attainable

According to the manufacturers, only through advanced methods. Anotheravailability of value added services ranks as the example, mentioned in the electronics and automost important requirement, external to the components industries, was the extent to whichfirm, for employing modem logistics the product they produced was tied into globalmanagement techniques. Note here that both linkages with other components of largerjust-in-time and quick response are time- systems. The movement of specific items insensitive activities, requiring efficient these industries required extensive coordinationcommunications with a variety of suppliers, and timely deliveries.customers, and intermediaries along thedistribution chain. We thus can see the Market competitiveness. Firms,emerging link between the management tools particularly in Taiwan (China), becamethat firms adopt and the information interested in logistics technology due totechnology-based infrastructure available to increased industry competition. If advancedthem. This relationship is noteworthy because infrastructure techniques enable them to cutsuch tools, especially just-in-time, can be prices and gain a competitive edge over otherusefully adopted even in the absence of firms, they are keenly interested in tryingsophisticated communications technologies to them-especially if the initial investment is notmanage internal work processes for reducing too great. On the other hand, these same firmscosts and improving quality. Other important mentioned that for lower value added goods itconsiderations for adopting logistics was less likely that the savings from thesemanagement include the availability of qualified techniques would make a significant difference.human resources, followed by physical Firms producing higher value addedinfrastructure. goods, particularly in the electronics industry,

Incentives to use advanced also stressed the goal of keeping inventory costsinfrastructure for time management arise from down, while still being responsive to customerthe characteristics of the firm's products and needs. While it was not possible to quantifymarkets. Although all firms viewed advanced cost reductions achieved (in fact, nearly all ofinfrastructure as potentially important, them confessed that they did not know thedifferences in degree of use stem from the extent of these savings), they all agreed thatprecise nature of the products made and markets advanced infrastructure can produce significantserved by individual firms-such variations net savings.exist not only across but even within the Product development. The moreindustries studied. Relevant aspects of products progressive firms in each of the three industriesand markets include customer sophistication, are looking to advanced infrastructure to reduce

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their product-development time cycle. As reasons, such as not being totally convinced thatnoted, the firms interviewed had extensive these technologies will make a difference at thisglobal links with other firms. New product time given the nature of the products anddevelopment occurs within the dispersed markets, a number of other reasons were citedsubsidiaries of the firm, or in collaboration with by manufacturers for not being more activeallied firms, such as subcontractors or vendors, users of advanced infrastructure.As such, an individual enterprise may be calledon as part of a global team to help design, Incompatibility of the systems ordevelop, test, and deliver a new product to the technology. Since most of the service-relatedmarket as quickly as possible. Cutting this activities associated with advancedproduct-development time cycle by even a small infrastructure were developed in Westernpercentage (whether measured in months, environments and since the usefulness ofweeks, or even days-depending on the industry services depends heavily on being "userand product) can mean considerable market sensitive," difficulties have been encountered inadvantages. introducing the techniques and technologies into

local operations. For instance, a number of theStreamlined operations. The large basic application systems, such as electronic

multinational firms interviewed indicated that data interchange, have been developed foran important reason for stepping up their use of English-speaking (or at least Western alphabet)advanced infrastructure was that their firm, users and for accounting and bookkeepingglobally, was becoming a "paperless" operation systems that are not used in certain economies.and that all offices and plants throughout the This limitation makes it difficult for theseworld would have to follow procedures techniques and technologies to be assimilated,established by headquarters. In a number of particularly among smaller firms or in placesthese cases corporate rather than customer where English is not a principal language.requirements were the main determinant for Similarly, databases are sometimes notemploying advanced infrastructure. compatible with these systems or often are not

as complete as the systems require. Also, whileMarketing by service providers. there are international standards (such as

Several of the firms in Hong Kong mentioned EDJFACT, the Electronic Data Interchange forthe initiatives taken by value added service Adrninistration, Commerce, and Transport, forproviders as an important factor leading to their electronic data interchange), they are notuse of advanced infrastructure. The rapidly universally accepted. Japan, for example, hasgrowing number of value added service its own electronic data interchange system. Itproviders sees a vast array of opportunities to can become a costly and lengthy procedure toapply advanced infrastructure and other reconcile such situations.business logistics techniques in helping step upthe productivity of firms. Given the Suspicion about governmentopportunity, these providers will aggressively involvement. Because of the predominance ofmarket their services and generate large benefits small firms with insufficient resources tofor their clients. develop the techniques themselves, government

is a logical source of support, especially in theStill, many industries do not-or cannot- pilot phases of developing or testinginvest in these tools management tools or systems applications. But

government initiatives are not always viewedThe interviews also provided insights into why favorably. Government involvement is usuallyadvanced management techniques and advanced best suited to providing basic infrastructure,infrastructure may not be as widely used or as since such infrastructure does not have thefully developed in some places or in certain strong service component associated withindustries. In addition to the more obvious advanced infrastructure. Government

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intervention does not create much of an associations, or supplementing the high researchimpediment in Hong Kong, where the and development costs of private firms.government minimizes its involvement, or in Conversely, the government should notSingapore, where the government has intervene unnecessarily-for example, byeffectively provided a variety of advanced restricting the entry of qualified internationalinfrastructure services. It presents more of a service providers. Of course, the governmentproblem in Taiwan (China), where the can provide advanced infrastructure servicesgovernment is still heavily involved in service- directly, as in Singapore.oriented activities that are part of advanced As we have seen, effective delivery ofinfrastructure but does not have a good track advanced infrastructure requires the operator torecord in delivering such services. The embrace the notion of customer service. This isTaiwanese situation is descriptive of most not a natural function for a government agencydeveloping economies. to undertake. The Government of Singapore

appears to be an exception. All the government-Lack of strong industry associations. run facilities and value added services in

As a substitute or a complement to government Singapore have been extremely progressive ininitiatives, industry associations are important to serving their markets. Even in Singapore,the formation of standards and industry-shared however, the importance of private initiative foractivities, such as research and development and advanced infrastructure services has beenlobbying for policy reforms. The restricted recognized. Singapore Network Services (SNS)development of industry associations in many is a private, for-profit, value added networkEast Asian economies limits diffusion of new service provider that was set up and initiallytechnologies. Industry associations enable supported by the government to develop systemsinformation diffusion. In many cases the slow applications for physical infrastructure. SNSrate of adopting advanced infrastructure seems was responsible for developing TradeNet andto result from insufficient information about the has now developed a host of other systems, suchpower and success of these techniques. More as AutoNet (for manufacturing), PortNet,information needs to be developed about the OrderNet, and many others. SNS was privatizedcosts and benefits of logistics management, after it developed some of the more importantadvanced infrastructure, and other technologies value added services. Moreover, while SNSin contexts that are relevant to specific local operates a host of electronic data interchangeconditions. This information must then be networks for local industries, it has awidely disseminated. cooperative relationship with foreign operators

for international services.Governments Must Actively Endorse-or Even Government policy should not restrictSupply-Advanced Infrastructure entry or operations of qualified internationalAdvanced infrastructure development is a service providers. Often these companies mayfunction of both the rate of technological be the most qualified to serve the local interests,development and the rate of deregulation. In the particularly in their international operations. Inless-industrialized world the application of Taiwan (China), for instance, the Telecominformation technology and other technologies Authority has had an ongoing battle with theand services that enhance the value of physical Legislature to restrict value added networksinfrastructure is often limited by outdated from operating in the local market, claiming thatregulations restricting their application. For the private providers pose security risks. This kindforward-looking government, establishing a of activity breeds frustration and undermines theregulatory framework that supports advanced communication between government agenciesinfrastructure development is a must. But the and private users that is needed to upgrade andgovernment also must intervene selectively in enhance physical infrastructure.other ways-for example, providing assistance An important example in this regard hasto small firms or those without industry been the attempt by Federal Express

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Corporation to establish its Asia-Pacific hub in manufacturers to develop electronic dataTaiwan, China (Reinfeld 1992). The "hub and interchange on their own. Nevertheless, byspoke" system, pioneered and perfected by having automobile suppliers linked to anFederal Express, establishes the central location electronic data interchange system,or facility (the hub) within an air cargo shipping manufacturers can benefit and the industry itselfnetwork at which sorting and loading activities can become more appealing to foreign marketsare performed on freight moving between for higher value added products. Since the localvarious origins and destinations (the spokes). private value added service providers did notThe regional hub, which the company wants to have strong incentives in this fragmented marketestablish in Taiwan (China), could be the to develop electronic data interchange, it wasprimary routing for all intraregional flights in appropriate and useful for the government toAsia and, therefore, the principal facility for develop the service.sorting and transloading all air cargo within the Similarly, the technology used forregion. Under the proposed plan this hub would applications often requires large research andbe linked to almost every address in Pacific Rim development costs that the private sector, byand OECD countries within thirty hours and to itself, might not be willing to absorb. In suchnearly every other city, worldwide, within forty- cases it may be appropriate for government toeight to seventy-two hours. become involved through general funding

In order for Federal Express to be able support, initial development at one of its ownto proceed with its plans, it requires approvals institutes, or contracting of nongovernmentalfrom the Chinese government in several areas. organizations, such as polytechnics, toIn terms of space and facilities at the airport, undertake the research and development. Forthese approvals include parking for their example, the National Computer Board inaircraft, adequate maintenance and storage, and Singapore and the Institute for Informationsufficient warehouse, office, and canopy space. Industries in Taiwan (China) have initiated aIn terms of operations these approvals include host of information technology projects to helpfull access to a dedicated on-airport bonded local industries become more sophisticated inwarehouse and freight processing facility, full the use of advanced infrastructure and, hence,rights to conduct aircraft support and warehouse more competitive (on the National Computeroperations, airport and customs clearance Board in Singapore, see Wong 1992). Sinceservices available twenty-four hours a day, year- many private companies in Singapore andround, efficient and unencumbered customs Taiwan (China) are not large enough to take onclearance procedures, freedom to operate its such projects or lack the resources to employown radio dispatch and mobile data outside consultants, these government-fundedcommunications systems, and liberalization of agencies have played an important role ininternational intermodal trucking restrictions. developing and then transferring technology andAlthough the benefits of the hub appear applications to private operators.overwhelming, it has been difficult for Taiwan Finally, government may also be(China) to grant the approvals required by appropriately involved in service or applicationFederal Express to proceed with its plans. development in situations where there are so

Nevertheless, there are other important many potential participants that it requires thesituations where government involvement in the leadership and authority of government agenciesdevelopment of services and applications may to garner the cooperation needed to develop thebe not only appropriate, but essential. This type project. Consider, for example, the experiencesof government assistance is particularly with TradeNet in Singapore and TradeLink inimportant if the industries comprise primarily Hong Kong. In Singapore the government tooksmall companies or if they do not have strong the lead in organizing representatives of theindustry associations. In the case of Taiwan shipping community, the software industry,(China), the automotive industry lacks the kind large import and export manufacturers, theof competitiveness that would drive relevant government agencies, and so on. The

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system has been operating successfully for Access to Advanced Infrastructure Affectsseveral years. In Hong Kong TradeLink was left International Location Decisionsin the hands of the private sector and it has been The availability of advanced infrastructure is anunable to muster the cooperation needed to important consideration for firms as they makedevelop the project. It is not expected to expansion and location decisions and assess thebecome operational for another year or two. effects of their decisions on their ability to

Beyond creating a fair playing field for deliver services. Survey findings indicate thatadvanced infrastructure service providers, advanced infrastructure is the most or secondgovernment must also provide a policy most important determinant of where a firmenvironment that actively supports the use and locates its regional headquarters, productionapplications of advanced infrastructure. This sites, and delivery systems.includes removing policy obstacles that hinder During the interviews we asked severalthe use of advanced infrastructure. For questions about the role of advancedexample, consider the automated warehouse infrastructure in a firm's future decision toestablished by Tait in Taiwan (China). Despite expand or relocate. We distinguished amongthe speed and efficiency with which the investments in regional headquarters and servicewarehouse can track and deliver goods, centers, factories, and sourcing operations. Weoperations are hindered because it cannot access wanted to determine how the relativecustoms officials on a twenty-four-hour basis. importance of advanced infrastructure and otherThis arcane policy indirectly affects advanced factors normally considered by decisionmakersinfrastructure because it slows service capacity. in such evaluations might be changing. The

Other examples of indirect policy obstacles results of the survey are summarized accordingmight include restrictions on owning a truck to the major focus of the investment (table 8.4a)line, on having a private warehouse at an and according to industry (table 8.4b).airport, or on granting a private radio frequency. Before reviewing these results it should

Outside of government, international be noted that important issues such asinstitutions can help set the standards needed to intellectual property protection, level ofoperate advanced infrastructure facilities and corruption, and political stability or nationalapplications. For example, electronic data security were not included among the factors weinterchange systems generally use EDIFACT asked the respondents to evaluate. Ourstandards, a system established by the United assumption was that these considerations areNations. Local and regional representatives always going to be of great concern and wemeet regularly to modify and refine EDIFACT wanted our focus to be on the tradeoffs thatstandards to make them more applicable for use firms would make on economic factors,in a particular industry or region. There are a assuming that the social-political conditions arevariety of other international organizations that acceptable.help set the standards needed for advanced The following observations of particularinfrastructure applications to function as note in table 8.4a. In choosing locations forefficiently as possible. These include the regional centers-whether headquarters,International Association of Travel Agents, the service, or design-firms assigned highestInternational Standards Organization, Intelsat, importance to advanced infrastructure. A closeand many others. Without the objective second in importance was the availability andoversight and coordination from these kinds of skill of an educated work force. The otherorganizations, service applications would factors were not assigned much importance,quickly become bogged down in conflicting except by two electronics firms who felt thatcomputer languages or incompatible formats ordinary infrastructure was very important, andthat would undermine the efficiency gains these a clothing manufacturer who felt that theapplications are intended to deliver. headquarters should be close to the market (see

table 8.4b).

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A couple of other noteworthy criteria Conclusionwere mentioned as important in choosing Companies worldwide are recognizing theregional headquarters, both of which are benefits they can derive from advancedimplicit in advanced infrastructure. These were infrastructure-lower inventory costs, greateravailability of a well-developed information productivity, shorter time to market, and fastertechnology infrastructure and a policy product design cycles. Forward-lookingframework that allowed critical information to governments are also acknowledging thesebe transmitted internationally without any trends and recognizing that advanceddelays or interference. infrastructure will be necessary for them to

In choosing production sites, the firms maintain global competitiveness. Governmentsaid that they would assign greatest importance strategies vary from the direct provision ofto cost of labor. While sixteen of the twenty services to the elimination of restrictions onfirms rated this factor as very important, nearly private provision.all indicated that availability of advanced Although the need for rapid advancedinfrastructure was already or soon to become the infrastructure development is recognized in eachfirst or second most important location of the economies discussed here-by both theconsideration. Again, depending on the private sector and the government-theparticular product or market, the tradeoff responses vary greatly. In Singapore both thebetween labor costs and logistics and government and the private sector vigorouslycommunication can vary significantly. The support the development of advancedimportant point is that as value of service- and infrastructure. In Hong Kong only certaintime-related criteria-product development segments of industry show much interest incycle and time to market-become increasingly advanced infrastructure. There are pockets ofimportant competitive factors, the importance of advanced infrastructure development in Taiwanlabor costs will diminish in relative importance. (China), but the government has yet to

Several criteria outside of advanced undertake the policy reforms required forinfrastructure were mentioned as important in comprehensive development.selecting future production locations. These Other Asian countries are beginning toincluded consideration of the regulations and recognize the need to be integrated with globalrestrictions on importing capital goods and networks. But they trail considerably in thereplacement parts, the availability of suitable development of advanced infrastructure. For alland compatible local partners, and (in the case countries, the ability to compete in globalof the clothing industry) the situation regarding markets now rests on the successfulquotas. development not only of basic infrastructure, but

Finally, in making sourcing decisions, also of advanced infrastructure.cost (of what is being sourced) is the mostimportant location consideration, according tothe firms interviewed. Advanced infrastructure,however, received a high score for this activityas well, particularly from firms for whichreliability and time-definite delivery areconsidered essential. In fact, one respondent inthe automobiles and auto parts industry said, "Inthe future, not having twenty-four-hour freightdelivery, say for fuel injection systems, will notjust be a limiter in choosing a place from whichto source, but a knockout."

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Ashoka Mody is principal financial economist at the World Bank in Washington, D.C. WilliamReinfeld is director of strategic services for Greater China, Andersen Consulting. The conclusionsreached and views expressed in this paper are those of the authors and should not be attributed to theWorld Bank or Andersen Consulting.

References

Mody, Ashoka, and Carl Dahlman. 1992. "Performance and Potential of Information Technology:An International Perspective." World Development 20 (2): 1703-20.

Peters, Hans. 1992. "Service: The New Focus in International Manufacturing and Trade." PolicyResearch Working Paper 950. World Bank, Transport Division, Infrastructure and UrbanDevelopment Department, Washington, D.C.

Reinfeld, William. 1992. "Benefits to the Republic of China of an Air Cargo Transportation Hub."White Paper presented to the Republic of China by Federal Express.

Suri, Rajan. 1994. "Common Misconceptions and Blunders in Implementing Quick ResponseManufacturing." Paper presented at the SME AUTOFACT conference, November, Detroit.

Tan, Boon Wan, Eric Liu, Chu Wah, and Loh Chee Meng. 1992. "The Use of InforrnationTechnology by the Port of Singapore Authority." World Development 20 (2): 1785-96.

Wong, S. H. 1992. "Exploiting Information Technology: A Case Study of Singapore." WorldDevelopment 20 (2): 1817-28.

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TABLE 8.1 EAST ASIA SUPPORTS A NUMBER OF ADVANCED INFRASTRUCTURE NETWORKS

Type of operation General examples Specific examples Service providers

Cargo flows and *Integrated transport logistics *Flex (Fritz) Airlines, air expressfreight movement companies, freight

*Time-definite, door-to-door, *International priority service forwarders,express service (Federal Express) warehouse and

distributioncompanies

Terminal, facility, and -Electronic data interchange *TradeVan (Taiwan, China) Terminal operators,modal operations applied to cargo clearance at *TradeNet (Singapore) integrated service

terminals *TradeLink (Hong Kong) providers,government

*Intelligent warehousing *CDS/Tait facility agencies, steamship*Integrated intermodal (Taiwan, China) companiestransport systems *HACTL facility

(Hong Kong)

Inter- and * Electronic data interchange *OrderLink (Singapore) Value addedintraindustry applied to procurement and *EasyLink/iNet (Hong Kong) network vendors,communications production systems *Center Satellite Factory government

(Taiwan, China) agencies

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TABLE 8.2 TIME MANAGEMENT TOOLS ARE BECOMING MORE POPULAR

Automobiles orLocation Clothing orfootwear Electronics auto parts Total

Hong Kong 5 2 1 8

Singapore 0 3 1 4

Taiwan (China) 2 2 4 8

Total 7 7 6 20

Using logistics In place Starting In place Starting In place Starting In place Starting-Amanagement or to use to use to use to useelectronic datainterchange

Hong Kong 1 4 1 1 - l 2 6

Singapore - - 3 - 1 - 4 -

Taiwan(China) 1 1 1 1 2 2 44

Total . X . 2 5 5 2 3 3 10 10

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TABLE 8.3A VALUE ADDED SERVICES PLAY A BIG ROLE IN THE TAKEUP OF TIME MANAGEMENT TECHNIQUES

FACTORS CONTRIBUTING TO THE ADOPTION OF LOGISTICS MANAGEMENT TECHNIQUES, ALL FIRMS

Hong Kong Singapore Taiwan (China) Total

Factor H M L H M L H M L H M L Score Rank

Advanced infrastructurePhysical infrastructure 5 3 0 2 2 0 3 5 0 10 10 0 80 3Value added services 7 1 0 4 0 0 6 2 0 17 3 0 94 1

SupportRegulatory environment 0 2 6 1 1 2 2 6 0 3 9 8 39 6Human resources 4 4 0 3 1 0 5 3 0 12 8 0 84 2Government assistance 2 1 5 4 0 0 2 5 1 8 6 6 58 4Other 0 6 2 0 4 0 0 5 3 0 15 5 45 5

Note: Score based on firms' rankings of factors as being of high, medium, or low influence. Score = (number of high responses * 5) + (number of mediumresponses - 3).

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TABLE 8.3B FACTORS CONTRIBUTING TO THE ADOPTION OF LOGISTICS MANAGEMENT TECIINIQUES, BY INDUSTRY

Ihorig Kotig Singapore Taiwan (Chini(a) Total responses

Industry anidfactor if Al L H M L 1H1 M L 1! Al L

Clothing and footwearAdvanced infrastructure

Physical infrastructure 3 2 - 2 - - 5 2Value added services 4 1 - 2 - - 6 1

SupportRegulatory environment - 1 4 - 2 - - 3 4Human resources 2 3 - I I - 3 4 -Governmnent assistance I 1 3 - 2 - 1 3 3Other - 3 2 - 2 - - 5 2

ElectronicsAdvanced infrastructure

Physical infrastructure I I - 2 1 - - 2 - 3 4 -Value added services 2 - - 3 - - 2 - - 7 - -

SupportRegulatory environment - - 2 - 1 2 2 - - - 1 6Huian resources 2 - - 2 1 - I I - 5 1 1Government assistance - - 2 3 - - I I - 4 1 2Other - 2 - - 3 - - I I - 6 1

Automobiles and auto partsAdvanced infrastructurePhysical infrastructure I - - - I - 1 3 - 2 4Value added services I - - I - - 2 2 - 4 2

SupportRegulatory environment - I - I - - 3 1 - 4 2Human resources - I - I - - 3 1 - 4 2Government assistance - - I I - - 1 2 1 2 2 2Other - I - - I - - 2 2 - 4 2

Note: Score knsed on firns' rankings of factors as being of high, medium, or low influence. Score = (number of high responses 5) + (number of nicdiumresponses - 3).

TABLE 8.4A ADVANCED INFRASTRUCTURE HELPS ATIRACT INDUSTRY

Factors contributing to firms' location choice, by major activity

Very ModeratelyActivity andfactor important important Score Rank

Regional headquarters and serviceAdvanced infrastructure 9 - 45 1Ordinary infrastructure 2 - 10 4Cost of labor - 2 6 5Other costs - - 0 -

Manpower (availability and skill) 5 6 43 2Distance from market 1 2 11 3Entry to local market - - 0 -

Other 2

ProductionAdvanced infrastructure 11 6 73 2Ordinary infrastructure - 3 9 7Cost of labor 16 3 89 1Other costs 3 9 42 5Manpower (availability and skill) 9 5 60 4Distance from market 2 6 28 6Entry to local market 9 6 63 3Other 3

SourcingAdvanced infrastructure 8 5 55 2Ordinary infrastructure 1 5 20 4Cost of labor - - 0Other costs 11 6 73 1Manpower (availability and skill) - - 0Distance from market 2 8 34 3Entry to local market - - 0

Note: Score based on firms' rankings of factors. Score = (number of "very important" responses '5) + (number of'moderately important" responses * 3).

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TABLE 8.4B FACTORS CONTRIBUTING TO FIRMS' LOCATION CHOICE, BY INDUSTRY

Automobiles andClothing andfootwear Electronics auto parts

Factor V M Score V M Score V M Score

Regional headquarters and serviceAdvanced infrastructure 4 - 20 5 - 25Ordinary infrastructure - - 0 2 - 10Cost of labor - 2 6 - - 0Other costs - - 0 - - 0Manpower (availability and skill) 3 1 18 2 5 25Distance from market 1 - 5 - 2 6Entry to local market - - 0 - - 0

ProductionAdvanced infrastructure 4 1 23 4 2 26 3 3 24Ordinary infrastructure - 2 6 - 1 3 - - 0Cost of labor 7 - 35 3 3 24 6 - 30Other costs - 3 9 - 4 12 3 2 21Manpower (availability and skill) 4 1 23 5 2 31 - 2 6Distance from market - 3 9 2 3 19 - - 0Entry to local market - 2 6 3 4 27 6 - 30

SourcingAdvanced infrastructure 2 3 19 4 1 23 2 1 13Ordinary infrastructure 1 1 8 - 2 6 - 2 6Cost of labor - - 0 - - 0 - - 0Other costs 4 1 23 4 2 26 3 3 24Manpower (availability and skill) - - 0 - - 0 - - 0Distance from market - 2 6 2 3 19 - 3 9Entry to local market - - 0 - - 0 - - 0

Note: Score based on firms' rankings of factors. V very important, M = moderately important. Score = (number of "veryimportant" responses - 5) + (number of "moderately important" responses - 3).

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