Cooperation in Greater Mekong Sub-region (GMS): Implication and Lesson Learned for Indonesia’s Industrial Development

The progress of Greater Mekong Sub-region (GMS) is presumed to pose challenges and implications for Indonesia. This study has the aim to investigate the impact of the recent development of sub-regional cooperation and cross-border economic development within GMS on Indonesia’s industrial development. Using qualitative methods, this study analyzed some variables, i.e., the background of GMS cooperation, infrastructure and investment progress, and Indonesia’s related economic policies and development. Data and information were collected from many sources (i.e., statistical databases, articles, newspapers, websites, unand published documents, etc.) and presented qualitatively. This study found that GMS economic cooperation and development have lessons learned and implications for the industrial development in Indonesia. The efficiency of the service sector within GMS was contributed by the successful implementation of policies on infrastructure development since the beginning of the 1990s. The flying geese behavior and industrial fragmentation within GMS were contributed by a different stage of industrial development, different comparative advantage, and improvement of the service sector. The implication of GMS cooperation for Indonesia is the importance of public policy stability, more attractive investment of high-end products in GMS than Indonesia, and potential diminishing of Indonesia’s export.


Introduction
. Better development of GMS attracted an inflow of Foreign Direct Investment (FDI) into GMS before and after the outbreak of Covid-19 (Bloomberg News, 2020;Hoshi et al, 2019;Witchell & Symington, 2013). The improved infrastructures within GMS enabled fragmentation of foreign manufacturing companies from Thailand to other countries in GMS (Chen & Kwan, 1997;Oizumi, 2013) and establishments of Special Economic Zones (SEZs) in borderlands (Asia Perspective, 2019;Dutta et al, 2018;MekongInstitute, 2020), paving the way for cross-border trade.
Regarding industrial fragmentation, many experts discussed the topic concerning service sector improvement, international trade, and the location of manufacturing companies (Jones & Kierzkowski, 2000Baldone et al, 2001).

a. Industrial Development
In this section, author would cover manufacturing development and policies on industrial development. Industrial policies play significant roles in the evolution of industrial development. The manufacturing industry undergoes five stages of development, that is, introductory stage, import substitution stage, export stage, mature stage, and reverse import stage (Yamazawa, 1990). I n d u s t r i a l d eve l o p m e n t h a s t h re e dimensions, as follows: first, the growth dimension: industry-specific economic growth effect, world market size, market growth, and competitive pressure; second, pro-poor dimension: industryspecific employment effect and inclusive growth; third, environmental dimension: energy and material efficiency and resource development (Günther & Alcorta, 2011).
The other rationale of manufacturing development is its strategic roles: the first is the "engine of growth" that "the faster the rate of growth of the manufacturing sector, the faster will be the rate of growth of Gross Domestic Product/GDP" (Thirlwall, 2015), and the second is the ability to deal with the middle-income trap in developing countries (Yülek, 2018). Industrial development is fuelled by effective industrial policies. The industrial policies consist of the three layers, as follows: the first is the general industrial policy that is aimed at changing the production structure of the economy in favor of the manufacturing industry by channeling the government's selected budgetary and non-budgetary resources, and by channeling labor towards the manufacturing sector; the second is the sectoral industrial policy that is aimed at changing the sub-sectoral composition of the manufacturing sector to increase the value-added generated by the existing set of resources; the third is science, technology, and innovation policies that governments allocate budgetary funds to assist private firms' research and development activities to develop innovative products, processes, and technologies (Yülek, 2017(Yülek, , 2018. The industrial policies are then categorized into some purposes that are pertinent to the situation of least middle-income countries, that is, the import substituting industrialization, export-oriented industrialization, resource-based industrialization, export processing zones, and industrialization through innovation (Greenaway & Milner, 1993;Guadagno, 2015;Low & Tijaja, 2013).

b. F l y i n g G e e s e P a t t e r n , P r o d u c t i o n Fragmentation, and FDI
The evolution of manufacturing industries is pertinent to the concept of "flying geese pattern" that was first developed by Akamatsu (1962) and then developed by other economists such as Yamazawa (1990) and Kojima (2000). The evolution of the manufacturing industry is also related to industrial fragmentation. Thus, FDI is induced not only by the nature of the industry in the origin country but also by efficiency and potential market in the host country. Author would explain the fragmentation in a later paragraph.
In describing the pattern, Akamatsu (1962) had two arguments: the first is "wild geese fly in orderly ranks forming an inverse V, just as airplanes fly in the formation"; the second is "the flying pattern of wild geese is metaphorically applied to three-time series of inverted-V curves denoting respectively import, domestic production, and export of the manufactured goods in less-advanced countries". Kojima (2000) implied the relationship between flying geese pattern, FDI, and industrial development.
Based on Yamazawa (1990), Akamatsu (1962, Kojima (2000), author then re-illustrated interplay among stages of industrial development, flying geese pattern, and investment frontier in Figure 1. The concept works as follows: the first is companies in country X import product A in period 1 (stage 1 for industry A). The second is in period 4, country X's companies get lost the comparative advantage of product A (mature stage of industry A) but gain the comparative advantage of product B. Thus, country X's companies produce product B (industry B is at stage 2-3) and relocate production facilities of product A to country Y (industry A is at stage 2-3 in country Y). Now, country X is renamed as lead goose and country Y is renamed as follower goose. The FDI flows from lead goose to follower goose to produce product A. The companies from lead goose invest financial capital and transfer their technologies and managerial resources to the company in follower goose. Product A produced in follower goose then are sold in the domestic market and exported to lead goose (reverse import by country X). The third is in period 6, product A, which is produced by country X's companies get lost its comparative advantage in country Y (industry A is at stage 4 in country Y). Country X's companies then relocate production facilities of product A from country Y to country Z, that is, followed by financial capital investment and transfer of technologies and managerial resources in country Z (industry A is at stage 2-3 in country Z). The fourth is country X's companies in country Z produce product A and then country X imports product A from country Z (reverse import of product A by country X). Because product B gets lost its comparative advantage in country X (industry B is at stage 4 in country X), then country X's companies relocate production facilities of product B to country Y that is followed by investing financial capital and transferring its technologies and managerial resources in country Y (industry B is at stage 2-3 in country Y). The fifth is country X's companies in country Y produce product B and then Country X imports product B from country Y (reverse import of product B by country X). Moreover, companies in country X gain the comparative advantage of product C (industry C is at stage 2-3 in country X).
The first to the fifth process above can be iterated for the next products.
It is supposed that flying geese pattern fragments manufacturing industry from the origin country to other countries. Industrial Source: Reconstructed by author based on Yamazawa (1990), Akamatsu (1962), and Kojima (2000) fragmentation refers to the division of "previously integrated production block" into some separated "production blocks" or "fragments" in the domestic or international market, enabled by efficiency of "service link" (due to improvement of ICT and transportation infrastructure) and efficiency of labor cost (Jones & Kierzkowski, 2000. As a result, a firm can handle the newly disintegrated blocks and supply inputs to other firms (Jones & Kierzkowski, 2018). Alternatively, the parent company can establish new branches to handle the new blocks in different geographical areas (Kimura & Ando, 2005).

c. Sub-regional Economic Cooperation and Development
The sub-regional cooperation has different names, that is, "cross-border economic development", "sub-regional economic zones", "natural economic territories", and "extended metropolitan regions" (Guo, 2015;Tang & Thant, 1994). The sub-regional economic cooperation was fueled by "geographical proximity", "complementarity in economic structures", "outward-looking" approach of development, Cold-

d. Policy Change and Stability
To comprehend stability and change of industrial policy and sub-regional economic cooperation, it is essential to view the theory of Advocacy Coalition Framework (ACF), proposed by Weible and Jenkins-Smith (2016) and Sabatier (1987). The ACF distinguished between major and minor policy change (Weible & Jenkins-Smith, 2016), as follows: firstly, the minor policy change is the changes in the secondary aspects of the policy subsystem, such as how a policy instrument is designed to achieve a particular goal; secondly, the major policy change is the change of the direction or goals of the policy subsystem as they bear on the policy core and deep core beliefs of the coalitions.
Weible and Jenkins-Smith (2016)  lastly, secondary aspects are instrumental decisions and information searches necessary to implement policy core beliefs.

Methods
This paper aims to discuss the implication of the recent development of sub-regional The qualitative information was taken from initial sources and paraphrased by author.
Another qualitative information was taken from initial sources and then author enriched the data by compiling new information from new sources.
The other qualitative data was compiled and (re) classified into relevant components/variables.
Author also identified some information from various sources, compiled it, and paraphrased it. The necessary picture was added to provide clear information about the discussed subjects.
Author transformed some statistical data into arguments. Then qualitative and statistical data were interpreted in line with the proposed research questions.
The second is the political meaning of the river and sub-region: a) the river is the political borders as the potential of latent conflict; b) Mekong sub-region having conflict potential has been unified into more positive cooperation; c) GMS is the access point to the South China Sea (Irewati & Raharjo, 2018;Rahman, 2018;Nufus & Luhulima, 2018;Raharjo, 2018;Pudjiastuti, 2018). The third is the economic meaning of the river and sub-region: a) potential of natural resources of the Mekong River gives incentives for the countries within the subregion to cooperate under economic corridors and some other cooperation; b) GMS is the access point to investment and trading traffic to the global market through Southeast Asia (Irewati & Raharjo, 2018;Rahman, 2018;Nufus & Luhulima, 2018;Raharjo, 2018;Pudjiastuti, 2018).

b. Business Environment and Investment
Countries within GMS (mainly Thailand and Vietnam) successfully improved the business environment to maintain current FDI and invite more incoming FDI. As showed by the Ease of Doing Business (EoDB) rank, Thailand was able to maintain a business environment with top 30 EoDB global rank for more than ten years (World Bank, n.d.-a).
Vietnam was also able to improve its business

c. Flying Geese to and Industrial Fragmentation within GMS
The foreign companies collocated their production and logistics facilities with more than one country within GMS to avoid supply chain risks and gain comparative advantages. Tongurai and Fujioka (2017) found the phenomenon of supply chain diversification from Thailand to other countries within GMS ("Thailand-plus-one strategy") before the Covid-19 pandemic, cited in  (Kojima, 2000;Kosai & Tho, 1994). It also confirmed the phenomenon of "China-plus-one strategy" (Witchell & Symington, 2013). Second, the Japanese manufacturing industries fragmented their production blocks not only from Thailand to other GMS countries, as found by Nippon Express (2021), but also from Vietnam to other countries within the sub-region (JETRO, 2020;Hoshi et al, 2019). The findings also confirmed that Japanese companies maintain a Thailand-plus-one strategy, as suggested by Tongurai and Fujioka (2017), and Oizumi (2013). Even the Japanese companies also considered the Vietnam-plus-one strategy.
However, the Vietnam-plus-one strategy was still supported by little evidence and thus needs further investigation. Flying geese pattern during Covid-19 outbreak drove transfer of resources by companies from lead geese to follower geese, as suggested by Kojima (2000). Moreover, the flying geese pattern during the outbreak was supported by the government. Japan's Government financed the companies to diversify their supply chain and to GMS (JETRO, 2020).
Finally, flying geese to and industrial fragmentation within GMS before and during Covid-19 pandemic were contributed by "comparative advantage" (Kojima, 2000) of GMS countries due to efficiency of "service link" and "labor cost" (Jones & Kierzkowski, 2000, and "business environment" (Bénassy-Quéré et al, 2005;Yülek, 2017Yülek, , 2018. In this case, the successful implementation of GMS projects and the development of cross-border SEZs played the important role in improving the comparative advantage of GMS.

a. Policy Change of Infrastructure policies for Economic Development
The lesson learned is related to the change of infrastructure policies for economic development. The reason to relocate to the capital city is to accelerate regional development in Indonesia and to reduce the ecological and economic burden of Jakarta (ELiraz, 2020; GoI, 2020a; Lyons, 2019). Regional inequality in Indonesia was severe for many years with the domination of the Java region. Statistical data (BPS, 2017(BPS, , 2020 showed that the Java region increasingly shared Gross Regional Domestic Products/GRDP (59% in 2019 increasing from 57% in 2013) to national GDP and manufacturing value added Even if Indonesia's policy on regional development underwent the change of policy Source: Compiled by author based on data from Tongurai and Fujioka (2017); JETRO (2020); Hoshi et al (2019)  improving sub-regional security by economic cooperation; 2) improving economic development through infrastructure development; 3) improving welfare.

• The magnitude of perceived threat:
conflict is high risk and latent • Proper scope: government funding with large share • Orientation on policy conflict: 1) economic development; 2) regional economic equality; 3) national independence; • The magnitude of perceived threat: 1) no attention to Jakarta's condition; 2) less issues on government debt b. Later belief No change • Proper scope: government and more emphasis on private funding • Orientation on policy conflict: 1) ecological burden and unsustainability of Jakarta; 2) paradox between comprehensive regional economic development and Borneo economic development (distortion of regional development); 3) national economic independence; • The magnitude of perceived threat: 1) Jakarta's condition was the most serious and paid attention; 2) serious debt problem 3. Secondary aspects a. Initial action Development of infrastructure enabling economic development *The initial refers to the beginning of GMS cooperation and the latter refers to the current development of the cooperation **The initial refers to the early time of Joko Widodo's First Term (2014 and the latter refers to his later time of first and second term (2019)(2020)(2021)(2022)(2023)(2024). Source: Developed by author from many sources (ADB, 2018a(ADB, , 2018bJanitra, 2020;Suwiknyo & Margrit, 2019;Ekayanta, 2019;ELiraz, 2020;, 2016GoI, 2015bGoI, , 2020aKusuma, 2019;INDEF & Jakarta Post, 2020;Guild & Chen, 2019;Lyons, 2019;Sabatier, 1987).
Beliefs GMS* Indonesia** 1. Deep core beliefs a. Initial belief The interplay between sub-regional security and means, it involves the change in deep core beliefs, policy core beliefs, and secondary aspects. With the changes, the acceleration of the eastern part of Indonesia will cause Borneo-centric economic development because of infrastructure development and the increasing population in the new city (INDEF & Jakarta Post, 2020). It means that the regional development policies implicitly underwent a major change from equally regional development to Borneo-centric development ( Table 3).
The major change of policies on promoting regional development was asserted by Ekayanta it is better for GoI to focus on policies balancing regional development, instead of building the new capital city.  (Anwar, 2020).

b. Preference of Inflow of FDI
Even if outside-Java region has contributed 53% of national FDI in 2020, increasing from 39% in 1994 (BPS, 1996(BPS, , 2021, the investment in the region will be more attractive for the resource-

Market to South and Southeast Asia
The GMS countries will potentially have self-sufficiency, especially for consumer goods.
As a result, manufacturing companies within GMS will mostly import inputs from outside. In other words, Indonesia will possibly export most of the materials for industrial inputs to the sub-region.
Moreover, a reduction of the export of Indonesia to South Asian Countries will possibly take place. Some facts strengthen these arguments.

Conclusions
In this section, author discusses the major findings of the study and some recommendations. will potentially exacerbate Indonesia's regional disparities. GMS is more attractive for FDI than Indonesia, especially most of outside-Java regions with a lack of infrastructure. The export share of high-end products of Indonesia to GMS and South Asia will potentially diminish because GMS countries produce more competitive products and have closer proximity to South Asia. As a result, Indonesia will potentially export most of the raw materials and intermediate goods into GMS.
Departuring from the aforementioned findings, this paper suggests some improvements to deal with the challenges, as follows. First, set up more stable policies on regional development. Fourth, it is essential to optimize current subregional cooperations. Sub-regional cooperation is important to promote export-oriented policy and interconnection of sub-regional supply-demand.
Indonesia is currently involved in some subregional cooperations such as Sijori-GT, IMT-GT, and BIMP-EAGA (Nakayama, 2018). Building cross-border infrastructure networks mainly among members of the sub-regional cooperation will enable Indonesia to integrate into regional and global production network. The optimization of sub-regional cooperations will enable Indonesia to balance regional development and to build regional production basis. It will take place by the development of SEZs in border areas.
This to conduct further research on the success and failure of sub-regional economic cooperation, as classified by Guo (2015).

Acknowledgment
Author thanks JICA for the opportunity to participate in the 2021 Knowledge Co-creation Program on "Building a Sustainable and Reliable Logistics System in Asia". Author learned much about development of logistics in GMS from the program. Author also thank to Mr PJA for his direction during data preparation.