Technology transfer through OFDI: the case of Indonesian natural resource-based MNEs

Abstract

This article discusses technology transfer through outward foreign direct investment (OFDI) by Indonesian natural resource-based multinational enterprises (MNEs), including motives of OFDI and modes and path of technology transfer through OFDI. First, the motives of OFDI by Indonesian MNEs are to: (i) have a better position in controlling the market, (ii) make the production centre closer to the market, (iii) develop brand image in foreign market, and (iv) exploit resources in host countries and encourage MNEs to be more innovative. Second, the modes of technology transfer are through: (i) on-the-job training, (ii) assigning staff overseas, (iii) regular meetings, and (iv) appointing talented management. Third, technology transfer corresponds to objectives of MNEs’ expansion and its network evolution. Its path follows the S-curve of technology transfer through OFDI. It implies that Indonesian government policies should (i) encourage firms to attain high innovative capability by providing investment fund for joint R&D on the national champion project, overseas market intelligence for OFDI, and co-investment on the strategic project for OFDI, and (ii) maintain a conducive investment climate, stable economic growth, and high consumer demand to drive local firms to become MNEs by facilitating the establishment of cluster and MNEs’ network.

Keywords:

• OFDI
• SIS
• technology transfer
• network evolution
• policy

Acknowledgements

This article is derived from the authors' research report entitled ‘Technology transfer through OFDI: case of selected Indonesian natural resource-based industry’, IDE-JETRO/ERIA Project, 2012. We are fully indebted to Professor Patarapong Intarakumnerd for his substantial contribution in improving our research report. The research was conducted by the support of the research grant from the IDE-JETRO/ERIA Project for which we are very thankful.

Notes

1 Collection of data and information focused on three aspects: (i) the evolution of the company's internal and external network expansion from domestic firm to global player, (ii) modes and path of technology transfer from Indonesian MNEs to overseas subsidiaries and local players, and (iii) types of technological capabilities transferred, including creative, productive, organizational, and managerial capabilities.

2 The phases of network evolution are initiating, developing, expanding, deepening and widening, and integrated network. The levels of MNEs’ objectives to expand are foreign marketing, own marketing, assembly affiliate, R&D affiliate, and product affiliate. All five phases of network evolution and five levels of MNEs’ objectives refer to the network approach to multinational firms according to Dunning and Lundan (2008, pp. 213–227).