Upgrading the technological capabilities of foreign transnational subsidiaries in developing countries: The case of electronics in Thailand

Abstract

Although substantial research shows the importance of transnational corporations (TNCs) to export led growth in some developing countries, it cannot be assumed that TNC subsidiaries will automatically upgrade their capabilities through time or in a uniform fashion. This paper explores the pattern and pace of a sample of exporting TNC subsidiaries operating in the electronics industry in Thailand. The analysis reveals a wide variety in capability building approaches through time, with some subsidiaries failing to develop capabilities and remaining as 'assembly only' plants. Other more dynamic plants developed process engineering and product design skills, investing heavily in capability building. One common determinant in capability building appears to be the overall technology strategy of the parent plant. In those subsidiaries which did not upgrade beyond assembly, technology decisions and processes were tightly controlled within the parent headquarter (HQ) locations. By contrast, the more dynamic plants exercised more discretion over local capability building. The latter were relatively decentralised and more open to policies to encourage upgrading. The study suggests that governments should tailor upgrading policies not only according to the approximate level of capabilities attained by local subsidiaries, but also according to how receptive firms are to upgrading, arguing that capability building and policy receptiveness go hand-in-hand. Other countries hoping to upgrade the quality of foreign direct investment might also wish to focus policies on the more technologically capable, ambitious and receptive categories of foreign subsidiary.3

Firm Behaviour and the Introduction of New exports: Evidence from Brazil

“…They found that these relationships help exporters in developing countries to lower entry costs and act as instruments for information, technology diffusion and access to industrial networks. Hobday and Rush (2007) analysed the role of FDI in building export capabilities of subsidiaries in Thailand. They found that some subsidiaries upgraded capabilities while others remained as assembling plants.…”

Internationalization Process and Technological Capability Trajectory of Iguaçu

“…Therefore, this paper uses a different perspective. The framework used by the authors to understand the technological trajectory performed by Iguaçu is similar to other studies in emerging economies of different industries such as Software (Rousseva, 2008), LCD-LED (Xie and Wu, 2003;Xie, 2004;Chuang, 2008), communications (Marcelle, 2005), electronics (Kim, 1997;Ariffin and Bell, 1999;Ariffin and Figueiredo, 2004;Hobday and Rush, 2007;and others), manufacture (Karaoz and Albeni, 2005;Chen, 2009;Nan, 2011 and others). All this studies focus high technologybased industries, and the international literature presents scarcity of empirical evidence in low-medium technologybased industries.…”

How Does The Milk Processing Industry in Indonesia Develop Their Technological Capability?

“…Kim (1997) describes technological capacity as the ability to make effective use of technological knowledge in an effort to assimilate, use, adapt and change existing technologies, with the resulting expectations of technological developments, new products and processes to respond the changes in the economic environment. Meanwhile, Hobday & Rush (2007) define it as knowledge, skills and organizational skills accumulated, which enable the company to acquire, develop and use technology to achieve competitive advantage. Both definitions refer to the importance of using knowledge as a central element of technological capability.…”

“…Basant & Chandra (2002) examine the technological capabilities of the manufacturing industry in India, finding that companies use value chains to develop products and process technology. Hobday & Rush (2007) have researched the improvement of technological capabilities in transnational corporations in developing countries, such as Thailand, in particular software companies. Hobday and Rush explain that a major factor in local capability development was the TNC's overall corporate strategy and, in particular, the way in which Thai subsidiaries fitted into global division of corporate.…”