320
AFRICA
’
S SILK ROAD
:
CHINA
AND INDIA’
S NEW ECONOMIC FRONTIER
At the other extreme are Chinese firms like their Indian (and European)
counterparts, African markets account for about 30–40 percent of total inputs purchased. But Chinese firms indicate they buy 55 percent
of their inputs in China, almost twice the level purchased in Africa,
whereas Indian(and European) firms purchase an almost equivalent level of inputs in their home markets as they do in Africa.
Extent and Geographic Distribution of Intraindustry and Network TradeThe intensity of intraindustry and network trade being undertaken by firms operating in Africa can be gauged across several dimensions. One is the extent to which firms engage in vertical integration—that is, the buying and selling of outputs or inputs by different business units that operate
under one corporate roof, resulting in common ownership and control.
This practice is in contrast to “arms-length transactions where the buying and selling of outputs or inputs is done with independent and privately owned corporate entities. Worldwide, firms generally engage in vertical integration (as opposed to transacting in the open market) when they want to avert undue exposure to market risks or there are genuine technical economies of scale (or economies of scope) that can be realized by combining successive stages of the production process in a single corporate unit. The latter condition is often largely determined by the basic technology underlying the industrial production process in question. A classic
case is manufacturing steel, where it would make little economic sense to have
TABLE 6.7
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