Problem Statement Competitiveness Analysis and Factors Affecting Trade Flow of Natural Rubber in International Market

5 Figure 3 shows some of the natural rubber producing countries in the world, with the majority of production being located on the Asian continent, especially in Southeast Asia. Currently, Thailand is the world’s largest producer of natural rubber producing 3.39 million tonnes in 2011. Indonesia is the second largest producer contributing around 27 of the world’s total natural rubber production. Malaysia produced 0.99 million tonnes and occupies the third rank in terms of production. India is the fourth largest producer of natural rubber in the world. In 2011, India produced 0.89 million tonnes of natural rubber, up from 0.85 million tonnes in the previous year. India contributes roughly 8 of the world’s natural rubber production. Other major producers include Vietnam and China, each contributing 7 to the world production. Meanwhile, in terms of consumption, China, the United States and India are the countries with the largest natural rubber consumption rate Figure 4. Overall, the increased consumption of natural rubber in Asia is due to the economic growth in this region which gives rise to the new natural rubber-based industries, for instance China and India. IRSG data showed that Chinas natural rubber consumption constituted 33 of the world’s total consumption in 2011, at 2.60 million tonnes. The USA surpassed India, as the second largest consumer of rubber at 1,029 thousand tonnes, followed by India at 958 thousand tones and Japan at 765 tonnes. Other major consuming countries include Malaysia, Indonesia and Thailand, which accounted for 26 of the world consumption of natural rubber. Figure 3 Natural Rubber Production 000 tonnes in 2011 Source: IRSG, 2011 Thailand, Indonesia and Malaysia differ in their individual export destinations. However, according to the IRSG data, these three producing countries all exported to ten primary importing countries. The primary importing countries are the USA, Japan, China, Singapore, Korea, Germany, Canada, India, Brazil and Belgium. As mentioned above, the competition between the main exporting countries is relatively high. Therefore, it is necessary for Thailand, Thailand 31 3394 Indonesia 27 2982 Malaysia 9 996 India 8 890 Vietnam 7 812 China 7 707 Others 11 1193 6 Indonesia and Malaysia to individually focus on improving the quantity and quality of the product in order to remain competitive in the international rubber trade. Figure 4 Consumption of Natural Rubber 000 tonnes in 2011 Source: IRSG, 2012 Based on this background information, some questions are raised relating to the trade flow and the competitiveness of the natural rubber sector in the international market. The research questions of the present study are: 1. What is the level of competitiveness of the three major exporters in the international market? Furthermore, how is this competitiveness measured? 2. What factors are affecting the trade flows of natural rubber in the international market?

1.3 Objective

According to the background information and problem statement, the aims of this research are: 1. To analyze the competitiveness and the level of competition of the three major exporters of natural rubber in the international market. 2. To identify the determinants that influence natural rubber export in international market.

1.4 Significance of the Research

The present study is expected to: 1. Provide input and information for trade policy relating to the international trade of natural rubber. China 33 3603 USA 9 1029 India 9 958 Japan 7 756 Thailand 4 480 Indonesia 4 442 Malaysia 4 402 Rep. of Korea 4 402 Others 26 2843 7 2. Increase knowledge in applied science, which has been obtained through analytical problem solving skills. 3. Develop and apply research results.

1.5 Scope of Research

In conducting the present research, a few limitations have been applied that aim to make the research more focused in achieving its goals. 1. The period of analysis is 11 years, from the year 2003 to 2013. 2. The type of rubber used in this analysis is natural rubber and gums, in primary forms, plates, etc. with the code 4001 and HS1992. 3. The independent variables that are used in this study are the production of natural rubber from exporting countries, real GDP of importing countries, remoteness, and the real exchange rate. 4. The dependent variable is the volume of exports of natural rubber from three main exporting countries. 5. The export destinations are the ten major importing countries that have the highest share of import from the three main exporting countries of natural rubber. 2 LITERATURE REVIEW

2.1 Competitiveness Analysis Method

Competitiveness is usually identified by productivity, which is the level of output produced for each unit of input used. Increasing productivity means increasing the number of physical inputs capital and labor, improving the quality of inputs used and improving the technology total factor productivity. Competitiveness can also be seen as the ability of a country to produce goods and services on an international scale through the mechanism of free and fair trade as well as maintaining and improving the real income in the long term. An analytical outlook on the competitiveness of a commodity can be determined from two indicators, comparative advantages and competitive advantages. Competitiveness can be analyzed by various methods of analysis. The method used must be in accordance with the specific purpose of research. Many methods can be used to calculate and to assess the competitiveness of agricultural commodities, such as Revealed Comparative Advantages RCA and the Policy Analysis Matrix PAM. The Policy Analysis Matrix PAM is an analysis method that uses three indicators, namely private profits, social or economic advantages, and a competitiveness analysis in the form of comparative and competitive advantages, as well as using the analysis of the impact of government policies on commodities. The Revealed Comparative Advantage RCA method can be used to measure the comparative advantage of a commodity in the current economic conditions, along with the scope of the macro-economy or in international trade. The RCA analysis method has been widely used by researchers in many previous studies. Previous research conducted by Hubbard, et al. 2008, used the