External Leveraging and Technological Upgrading Among East Asian Firms in the US

Abstract

This paper examines the innovation strategies driving Asian firms' investment in the US based on the resource-based model of knowledge. Specifically, it is shown that Asian firms' competitive advantage revolves around their ability to capture rents through a series of technological and marketing capabilities that collectively constitute the firms' knowledge resource base. The process of learning is documented by shedding light on the major sources of knowledge acquisition that enhance technological capabilities internally and externally. Specifically, this empirical research, based on a large-scale quantitative survey of Taiwanese, South Korean, and Singaporean firms in the US that was conducted between 2003 and 2004, shows that the firms in industrializing Asian economies (henceforth the IAFs) are directly investing in the US and setting up R&D operations there to acquire knowledge that enables them to become more innovative. A variety of technology sourcing strategies practiced among these IAFs was found, depending on their firm-specific variables (e.g. size and sector) and their prior technological capabilities. The types of technology and knowledge sources also go beyond conventional technological know-how to embrace the entire production chain from manufacturing technologies to expertise in marketing and distribution.

Acknowledgements

This is a revised version of a paper presented earlier at the Annual Meeting of the Association of American Geographers, Denver, USA, 5–9 April 2005. The authors are grateful to the discussant, Dr Susan Walcott, and the participants for their helpful comments. In addition, the authors wish to thank two referees for their constructive comments which led to significant improvement of the paper. The authors would also like to thank the following funding agencies for supporting the research on which this paper is based: the National Science Council in Taiwan (NSC 92-2415-H-002-020-SSS), the Programme for Globalization Studies of the Institute for Advanced Studies in Humanities and Social Sciences at the National Taiwan University, the National Science Foundation (award no: BCS-0137045) and the National University of Singapore Academic Research Fund (R-109-000-050-112). The authors take responsibility for all errors and/or mistakes.

Notes

1. Poon and Thompson (2003) explore the relationship between the embeddedness of technology-oriented functions among different types of foreign subsidiaries in Asian cities, and make a distinction between developmental subsidiary, which actively exploits location-specific advantages and pursues R&D activities in host locations, and quiescent subsidiary, which rarely develops new products and less than often engages in R&D activities in host localities. Their study shows that different types of foreign subsidiaries create divergent types of technological linkages to developing countries. For a similar empirical study, see Ivarsson and Alvstam (2004) on technology transfer in India through the investment of Sweden's Volvo.

2. However, foreign companies that are located in export processing zones purchased less than those outside, and thus transferred less technology to local suppliers (Schive, 1990).

3. The different stages do not necessarily describe all Asian countries. As demonstrated by Hobday (2002), while the OEM system dominates Taiwanese and Korean firms, TNC-led growth is more important in Singapore and Malaysia. Nevertheless, all of these three stages in various sequences represent the major technology strategies adopted by latecomer firms to compete in the global economy.

4. Ernst (2002) shows that overwhelming reliance on OEM renders South Korean PC companies incapable of launching their own brand name products in direct competition to the world market leaders.

5. The design part in the ODM model is defined as the deliberate conceptualization of a product to achieve certain desirable performance characteristics (Forbes & Wield, 2000). More importantly, the design prototype and functional requirement are mainly designated by the key buyers, rather than by the ODM makers.

6. As observed by Lin (2000), in a mode of learning by doing, a producer does not design the product and may not bear the related technological knowledge and skills before undertaking the production. In a mode of learning for doing, however, a producer will be the designer of a product or the so-called fast follower. It therefore has to acquire to a certain degree the related technologies and skills even before the phase of product design. From the late 1980s onward, formal and specific R&D units and design teams were gradually organized among leading Asian firms.

7. Hobday et al. (2004) have posed this issue as an innovation dilemma. Hobday questions if the latecomer firms should compete as R&D and brand leaders in the international stage or if they should continue with their tried and tested formula of low cost catch up to enhance competitiveness.

8. More specifically, an ordered probit regression may be expressed as: y _i * = x _i β _i + ε _i where x _i is a vector of explanatory variables, β _i is a column vector of parameters to be estimated with the first element being the intercept, y _i * is the latent variable and ε _i is the random error term which is assumed to follow a normal distribution. The ordered probit model is derived from a measurement model where the latent variable, which ranges from − ∞ to ∞, is mapped to an observable variable y such that the extreme interval categories ϕ₀ = −∞ and ϕ _j = ∞.

9. For example, a sample of Taiwanese companies that have R&D activities in the US include Multitech (Acer), Plus & Plus (America Research Corporation), Mitac, Tatung, and Advanced Data (see Liu, 1987).

10. According to Bell and Pavitt (1993, p. 163), technological capabilities consist of the resources needed to generate and manage technical change, including skills, knowledge and experience, and institutional structures and linkages.

11. Authors' interview with Min Wu, 26 September 2001 and 9 July 2004.

12. Authors' interview with C.-C. Huang, 21 September 2004.

13. Authors' interview with Rober Tsao, 25 November 2001.

14. Bobo Wang, President of Microtek, commented on his company's participation in the acquisition of Mouse Systems: “This deal provides a good example of how local manufacturers can enter the international market by acquiring worthwhile foreign companies, technologies and sales channels. Our strategy is to produce, through acquisition, products which can rank Microtek among the top three in those specific fields worldwide, and thus guarantee competitiveness and profitability” (quoted in Peng, 1990, p. 16).

15. Authors' interview with Stan Shih, 16 June 2002.

16. The Singaporean company is given a fictitious name to protect its anonymity. All information presented is based on authors' interviews in the US and Singapore.

17. An interesting comparison is Sony's recent decision to promote the president of its US operation to Sony's CEO in March 2005.