The Effect of Spatial Proximity on Technology Transfer from TNCs to Local Suppliers in Developing Countries: The Case of AB Volvo in Asia and Latin America

Abstract

In the recent literature within the field of economic geography, both in its traditional meaning and in the "new economic geography" connotation, much attention has been paid to the effect of spatial proximity on how firms and regions absorb, generate, and disperse technological competence (Feldman 1994(Feldman , 1999 Abstract: This article contributes to the limited number of studies on how agglomeration and spatial proximity contribute to the establishment of technology linkages between foreign transnational corporations and suppliers in developing countries. We use firm-level data, collected at the bus and truck plants of AB Volvo in Brazil, China, India, and Mexico, to analyze the extent to which "local" suppliers, located near the assembly plants, are in a better position than are other suppliers in the host country to take advantage of the technological assistance that Volvo provides as part of its ongoing business relations. Our analysis shows that many suppliers are provided with technological assistance, related both to "embodied" and "disembodied" forms of technology. Our main finding is that the higher transaction and communication costs that Volvo has to bear when interacting with nonlocal suppliers, compared to local suppliers, only marginally seem to affect the extent to which the suppliers are provided with technological assistance. However, geographic proximity is more crucial for opportunities for the suppliers to absorb external technology. Especially in China and India, but also in Brazil, local suppliers take advantage of their interaction with Volvo to a larger extent than do other suppliers. For many of the smaller domestic companies that make up the dominant share of Volvo's local suppliers, low transaction and communication costs and the opportunity to interact regularly with Volvo are an important determinant of the successful absorption of external technology.

Foreign direct investment and local linkages: An empirical investigation

“…Spillovers result from pressure on domestic firms to improve quality, reliability or cost competitiveness. Affiliates may make an active contribution to domestic firm development through assistance or resource transfer, although fewer studies extend their analysis to include such transfers (Halbach 1989, Wong 1992, Crone/Roper 2001, Giroud 2003, UNCTAD 2001, Scott-Kennel 2004, Ivarsson/Alvstam 2005.…”

The embeddedness of transnational corporations in Chinese cities: Strategic coupling in global production networks?

“…TNCs' local embeddedness is also conditioned by their comparative advantages and R&D strategies. On one hand, the literature maintains that the collaboration between TNCs and domestic firms is constrained by the technology gap between domestic firms and TNCs since technological learning is not easy and requires the ability to absorb sophisticated technologies (Ivarsson & Alvstam, 2005b;Sun, Zhou, Lin, & Wei, 2013). Moreover, one of the competitive cores from the perspective of TNCs is their superior technological capability and R&D capacity.…”

Export intensity and marketing in transition economies: Evidence from China

“…Much of this work is focused on mature economy firms (e.g., Cornish, 1997;Lublinski, 2003;Potter et al, 2002) or on the transfer of technical know-how (Cui et al, 2006;Ivarsson & Alvstam, 2005;Potter et al, 2002;Young & Lan, 1997). For instance, in a study of 389 suppliers from four transition economies, Ivarsson and Alvstam (2005) found that component suppliers in developing countries were able to advance their production activities through supplying to a transnational corporation. Potter et al (2002) also reported positive relationships between inward foreign direct investment and both local firms' production technology and market competitiveness in their UK study.…”

“…This has created an incentive for domestic firms to upgrade their production and marketing skills. For production processes, foreign technology embodied in capital equipment and machinery is widely recognized as being essential and has been the focus of much scholarly interest (Chuang & Hsu, 2004;Feinberg & Majumdar, 2001;Ivarsson & Alvstam, 2005;Wright, Filatotchev, Buck, & Bishop, 2002;Young & Lan, 1997). However, much less attention has been given to the complementary issue of how firms upgrade their marketing know-how.…”

“…Hence, whether different types of know-how and forms of technology can be transferred from advanced to emerging economies is a theme that has been explored in the literature on economic development (UNCTAD, 2001), economic geography (Cornish, 1997;Ivarsson & Alvstam, 2005;Potter, Moore, & Spires, 2002;Tokatli & Kizilgün, 2004), regional studies (Lublinski, 2003;Young & Lan, 1997), and international business (Cui, Griffith, Cavusgil, & Dabic, 2006;Ellis, 2003;Feinberg & Majumdar, 2001;Ghoshal & Bartlett, 1988;Harrison, 1994). Much of this work is focused on mature economy firms (e.g., Cornish, 1997;Lublinski, 2003;Potter et al, 2002) or on the transfer of technical know-how (Cui et al, 2006;Ivarsson & Alvstam, 2005;Potter et al, 2002;Young & Lan, 1997). For instance, in a study of 389 suppliers from four transition economies, Ivarsson and Alvstam (2005) found that component suppliers in developing countries were able to advance their production activities through supplying to a transnational corporation.…”