How export and import platforms drive industry upgrading: five facts about emerging multinationals from southeast Asia

Abstract

This paper presents five facts of industry upgrading of emerging multinationals with and without foreign affiliates. This paper studies product and process innovation and investment in technologies and management practices as industry upgrading. Firm-level evidence from Indonesia, Thailand, the Philippines, and Vietnam suggests that there are not significant differences in innovation and investment between firms with foreign affiliates and firms without foreign affiliates, but there are sizable differences in organizational changes across locations of foreign affiliates. Firms’ self-reported buyer and supplier data also suggest spillover effects between downstream and upstream firms within a single global or local production chain. We establish five facts about intra-firm management practices and inter-firm relationships in production networks within southeast Asia as follows: (1) Firms are more likely to extend the geographic scope of their foreign platforms if they run both exporting and importing; (2) firm size and R&D sales ration play a role of foreign platforms in ASEAN, Europe, and the USA, but these have no effects on foreign platforms in east Asia; (3) emerging multinationals do not achieve product development if they have foreign platforms in east Asia while they achieve product development if they establish foreign platforms in Europe and the USA and (4) the type of organizational process improvements vary with locations of foreign platforms, i.e. foreign platforms in Europe and the USA can deliver knowledge about higher quality products instead of prohibiting new intermediate inputs; (5) emerging multinationals are more likely to share information with supplier for quality control within a production chain if they have foreign affiliates in Japan. These facts first serve as a basis of the intra- and inter-firm managerial practices of a global production chain in emerging markets.

Keywords:

• emerging multinationals
• foreign affiliates
• innovation
• supply chains
• trade

Acknowledgements

The paper benefited from numerous discussions with Yuji Akematsu, Patarapong Intarakumnerd, Ikumo Isono, Fukunari Kimura, Sunil Mani, and Masatsugu Tsuji. This project could not have been carried out without cooperation from the Center for Strategic and International Studies (CSIS) of Indonesia, the Philippine Institute for Development Studies (PIDS), the Sirindhorn International Institute of Technology (SIIT), Thammasat University of Thailand, and the Institute for Industry Policy and Strategy (IPSI), Ministry of Industry and Trade of Vietnam. Since this paper has also been written while Machikita was staying in the Asia Research Centre, Department of International Economics and Management, Copenhagen Business School, we express our regards for their research environment and hospitality. We are responsible for any errors that may remain.