Multinational Enterprises ( MNEs ) perpendicular linkages: The experience of Vietnam after Maylaysia of Axele

1. Introduction

In the age of economic association and integrating, transnational endeavors ( MNEs ) take the portion of of import function for the local economic system. Axele Giroud ( 2007 ) demonstrated MNEs perpendicular linkages every bit good as their impacts on Vietnam and Maylaysia.

2. Analysis:

2.1 Project Rationale

a/ Research job:

This research aimed activities of transnational endeavors which influence on the host economic systems every bit good as the manner and scale exchange cognition between foreign spouses and local houses in both Malaysia and Vietnam. This conducts perceiving of reassigning cognition to local houses. Furthermore, the linkages of foreign purchasers and local providers have increased conveying about attending of policy shapers due to the of import function of them in developing of host states. One of the cardinal effects of the presence of foreign houses in host states is, hence, they impact on the potentially back uping industry, specifically on the upgrading of providers through linkages and related engineering transportation. Linkages by transnational endeavors in host economic systems have received considerable attending in the literature. This research besides indicates that that Malaysia is considered holding experience for foreign investing longer than Vietnam. It would be utile recommendations and practical experience for the passage nature of Vietnamese economic system.

b/ Discuss of its principle: c?? sa»Y phan tich ma»™t cach toan dia»‡n

-Aims:

In common with the survey of transnational houses in which they operate chiefly in either the electronics sector or in the fabrics and garment sector. These two industries are considered pillars in the economic systems of Southeast Asia states. Both Malaysia and Vietnam are recipient economic systems to a significant portion of foreign direct investing in these Fieldss. * The first research purpose is to measure the being and circumstance behind the transportation of cognition and engineering from transnational houses to their providers in Malaysia and Vietnam. * It presents the cognition exchange between foreign affiliates and their local providers, as this determines the possible acquisition and acquisition by local houses and therefore enhances the positive result of MNEs ‘ activities in host development economic systems. Table 2 summarises knowledge exchange, demoing the portion of houses prosecuting in transportation often with their local providers. * In add-on, this paper is to compare MNEs supply activities in Malaysia and Vietnam, with a focal point on the Vietnamese experience, the lessons that could be learnt from the Malayan instance and the possible benefits that could be obtained by the state ( and its houses ) from the development of MNE-supplier linkages. The consequences demonstrate the significant impact that foreign houses have in both states through their perpendicular linkages, with these increasing the longer foreign houses had been established in the economic system. Variations in the extent of cognition transportation were linked to the type of industry, the FDI experience of the host state, MNEs ‘ schemes and subordinate features and the province of the local provider base. While directors made no direct reference to the passage nature of the Vietnamese economic system, one can oppugn whether linkages would be more extended in a non-transition economic system at a similar degree of development ; and whether the experience of Malaysia can be replicated in Vietnam.

-Objective:

The aims of the paper are double: to show the possible for cognition transportation between transnational endeavors and their local providers in both Malaysia and Vietnam ; and to construct upon this treatment to propose avenues for Vietnam to maximise good linkages from MNEs.

-Question/ hypothesis:

The research is based on the hypothesis of the bing theoretical theoretical accounts, including the theoretical accounts developed by Markusen and Venables ( 1999 ) and Lin and Saggi ( 2005 ) , integrating engineering transportation to a twotier production construction ) , the paper makes the premise that multinationals have positive effects on the development of autochthonal houses through the creative activity of perpendicular linkages and sourcing of intermediate merchandises locally ( other effects notwithstanding ) , and besides assumes that the transnational engineering is superior to that of its rivals.

The issue here, as Axele Giroud ( 2007 ) argued that it draws from bing literature on perpendicular linkages and the literature on local technological capablenesss ( Lall, 1996, 2002 ) . Numerous empirical surveies have been conducted on these subjects, with some writers analyzing the degree of local purchase by MNEs in host economic systems ( Belderbos, Capannelli, & A ; Fukao, 2001 ; Driffield & A ; Noor, 1999 ; GoA? roentgenium & A ; Ruane, 2001 ; McAleese & A ; McDonald, 1978 ; O’Farrell & A ; O’Loughlin, 1981 ; Turok, 1993 ; UNCTAD, 2001 ) and how these perpendicular linkages impact on specific industries ( Dries & A ; Swinnen, 2004 ; Kelegama & A ; Foley, 1999 ) , while others focus on the issue of MNE-supplier engineering and cognition transportation ( Blalock & A ; Gertler, 2003 ; Crone & A ; Roper, 2001 ; Giroud, 2003 ; Halbach, 1989 ; Ivarsson & A ; Alvstam, 2005 ; Supapol, 1995 ; UNCTAD, 2001 ; Wong, 1991 ) . Many surveies besides focus on the issue of wider engineering spillovers by transnational houses in host economic systems ( see for case, BlomstroA? m & A ; Kokko, 2001 ; BlomstroA? m et al. , 2000 ; GoA? roentgenium & A ; Strobl, 2001 ; GuA? nther, 2005 ; Javorcik, 2004 ; SjoA? holm, 1999, among others ) .

* Proposition 1. There is possible for cognition and engineering transportation from foreign

affiliates based in Malaysia and Vietnam to their local providers.

* Proposition 2. The nature of the relationship between foreign affiliates and their providers

alterations over clip.

* Proposition 3. Because Vietnam is a passage economic system, there is a difference in the degree of cognition and engineering transportation from MNEs depending on whether they are located in Malaysia or Vietnam.

Through repeated interactions with local providers, and the procedure of cognition and

engineering transportation, MNEs in host developing economic systems can lend to the

sweetening of local provider ‘s concern capablenesss and fight. Therefore, it is

proposed that in both economic systems:

* Proposition 4. MNEs ‘ cognition and engineering transportation to local providers contribute to the betterment of local providers ‘ capablenesss.

* In the context of developing economic systems, the argument originated with the demand to

understand whether MNEs did so create linkages with local houses, as opposed to

operating in enclaves, with no immediate connexions to the host economic system ( see Glass & A ;

Saggi, ( 2002 ) for a recent treatment on the part of Hirschman ‘s work ) . Linkages

can be loosely defined as direct relationships established by houses in complementary

activities, which are external to pure market minutess and indispensable to the operation

of any normal industrial market ( Lim & A ; Fong, 1982, p. 586 ) . Of the linkages created by

MNEs, the most of import 1s are those established with local providers of parts

constituents and services ( Lall, 1996, p. 60 ) . For this ground, perpendicular linkages have received

increased attending in the academic literature, with increasing Numberss of surveies

turn toing the issue of spillovers generated through perpendicular linkages.

* An implicit in premise behind cognition transportation happening between foreign houses

and local providers is that the providers ‘ capablenesss improve as a consequence of the interaction

with foreign clients. To measure this premise and step the impact of cognition

transportation activities on the capablenesss of local providers, directors were invited to supply

their perceptual experiences on how providers had improved as a consequence of covering with their house, utilizing a five-point evaluation graduated table ( runing from ‘significant betterment ‘ to ‘no betterment at all ‘ ) . The restriction of such a method is acknowledged, so, as a elaborate analysis of

single providers would supply a more nonsubjective and accurate appraisal of the impact of MNEs on providers. Such surveies have been conducted, but it was beyond the agencies and range of this peculiar research.

* The chief premise underlying the analysis of cognition transportation from MNEs to local providers is that local houses will profit from interaction with foreign houses and better their ain concern capablenesss as a consequence. Although no fiscal informations on providers and their public presentation is presented, directors ‘ perceptual experiences ( as shown in Table 3 ) indicate important betterment in providers ‘ public presentation as a consequence of their regular concern with

foreign affiliates. This confirms Proposition 4. In the old subdivision, informations pointed to Malaysia ‘s experience with FDI, whereby foreign houses purchase more inputs locally, and besides prosecute more in cognition transportation activities. Table 3 reflects directors ‘ perceptual experience of the betterment of local providers after interacting with their houses. Following the discrepancy in buying forms and behavior, cardinal differences appear in provider betterment in Malaysia compared to Vietnam. A higher portion of directors reported that their local providers improved their public presentation after the foreign house conducted concern with them in Malaysia. Most betterments were achieved for cost, quality and bringing. Significant differences were confirmed statistically for all factors bar two.

2.2 Literature Review: tom ta??t y toan bai via??t = & gt ; critical/ support/ explain thoughts

a/ Justification of research through a critical rating:

– Contemporary subjects & A ; theoretical models:

* This paper focuses on the creative activity of linkages by MNEs in host economic systems. The two

common types of linkages created are perpendicular ( or rearward ) and horizontal ( frontward ) ( BlomstroA? m et al. , 2000 ; Caves, 1996 ; Dunning, 1993 ; Lall, 1996 ; RodrA±A? guez-Clare, 1996 ; UNCTAD, 2001 ; UNCTC, 1981 ) . Vertical linkages represent the dealingss established with provider houses, whereas frontward linkages comprise dealingss established with concern clients in the host economic system. The construct of linkages was foremost established by Hirschman ( 1958 ) , so used in firm-level surveies ( Lall, 1996 ; Lim & A ; Fong, 1982 ) .

* Empirical surveies concentrating on instance surveies and firm-level informations have shown that, with clip, linkages assist in upgrading domestic providers, through increased technological and other capablenesss and subsequent spillover effects on the remainder of the economic system ( Giroud, 2000 ; Kelegama & A ; Foley, 1999 ; Scott-Kennel, 2004 ; UNCTAD, 2001 ) . McAleese and McDonald ( 1978 ) found that perpendicular linkages increased over clip in Ireland, non merely because of the assorted production processing phases within foreign affiliates, but besides because foreign houses were acute to pull and develop local providers, local industrial policy, and independent developments originating out of the growing of the full fabrication industry.

* Pulling from these earlier surveies, one can reason that alteration occurs as a consequence of factors related to the MNE itself, the growing of the industrial base, and local or national policies. Host authoritiess see perpendicular linkages as good to the development of local providers, and hence an increasing figure of states have adopted policies to advance non merely local sourcing, but besides the deepening of relationships between foreign and local houses. Such linkage publicity policies are, of necessity, extremely context particular and demand to be adapted to the specific fortunes predominating in each host economic system ( UNCTAD, 2001, p. twenty-three ) . Malaysia has adopted pro-active policies aimed at heightening inter-firm linkages in the industrial sector ( Jomo, 2001 ) , and some regional enterprises have proved successful in promoting preparation and human resource development, peculiarly in the electronics sector.

* A figure of factors indicate that MNEs ‘ supply dealingss in Vietnam will differ from those in Malaysia. First, although both states engaged in economic liberalisation programmes in 1986 ( the New Development Policy in Malaysia and the Doi Moi policy in Vietnam ) , Malaysia had encouraged FDI since the late sixtiess and its success in pulling foreign investing is reflected in inward flows. Over 1986-91, the one-year mean FDI influxs were of US $ 1605 million in Malaysia, compared to US $ 68 million in Vietnam ( UNCTAD, 1998, p. 364 ) . In contrast, Vietnam became attractive for FDI in the 1990s. By 2004, FDI inward stock in the state reached US $ 29,115 million, up from US $ 20,596 in 2000 and US $ 1650 million in 1990 ( UNCTAD, 2005, p. 311 ) . Nevertheless, Malaysia has retained its differential advantage with FDI inward stocks of US $ 46,291 million in 2004, compared to US $ 10,318 in 1990. Malaysia ‘s experience with FDI pre-dates that of Vietnam, and its authorities has devised luxuriant policies to pull and to profit from FDI ( Giroud, 2003, p. 112 ) .

b/ Justification of undertaking through designation of Research Gap:

yet, the mechanisms through which perpendicular linkages take topographic point are still non good understood. While the survey of linkages is good established in the economic development literature ( Lin & A ; Saggi, 2005 ; Markusen & A ; Venables, 1999 ; RodrA±A?guez-Clare, 1996 ) , it has non been integrated to the full within the theoretical strands of multinationals ‘ activities ( Meyer,

2004 ) . *To day of the month, there has been no probe of the potentially good impact of MNEs on local providers through transportation of cognition and engineering in the specific instance of Vietnam.

c/ Contextualization of the research within modern-day literature

* The impacts of MNEs on host economic systems have been studied carefully in the literature

since the 1960s, but one facet that still needs better apprehension is the manner foreign houses influence the development of local houses ( Moran, 2005 ) , notably through their local

buying behavior. Buyer-supplier linkages have late attracted increasing attending

from bookmans and policy shapers because of the function they play in host states ‘ development, basically by back uping the local supply industry and reassigning cognition to local providers. Porter ( 1990 ) emphasises the cardinal topographic point of back uping industries in bring forthing competitory houses and states. With this in head, one of the cardinal effects of the presence of foreign houses in one sector in host states is, hence, the impact they potentially have on the supporting industry, and specifically the impact on the upgrading of providers through linkages and related engineering transportation. Linkages by multinationals in host economic systems have received considerable attending in the literature ( BlomstroA? m, Kokko, & A ; Zejan, 2000 ; Giroud, 2003 ; RodrA±A? guez-Clare, 1996 ; UNCTAD, 2001 ) , yet, the mechanisms through which perpendicular linkages take topographic point are still non good understood. While the survey of linkages is good established in the economic development literature ( Lin & A ; Saggi, 2005 ; Markusen & A ; Venables, 1999 ; RodrA±A?guez-Clare, 1996 ) , it has

non been integrated to the full within the theoretical strands of multinationals ‘ activities ( Meyer, 2004 ) . * The survey of the impact of FDI in a passage economic system such as Vietnam, which has received significant flows of foreign investing since the mid-1990s, provides utile penetrations into foreign houses ‘ dealingss with local providers. The paper analyses firm-level informations collected in Malaysia and Vietnam to, foremost, measure the being of engineering and cognition transportation from MNEs to local providers and, 2nd, to compare the experience of the two states. The comparing with Malaysia is peculiarly utile because it is a neighbouring state which is portion of the same regional grouping ( ASEAN ) as Vietnam but holding been host to FDI for far longer, MNEs have already developed significant perpendicular linkages with its provider industries ( Cantwell & A ; Iguchi, 2005 ; Driffield & A ; Noor, 1999 ; Giroud, 2003 ; Rasiah, 1995 ) . Other surveies have drawn upon the lessons that can be learnt by Vietnam from Malaysia in footings of economic development ( Mirza and Giroud, 2004 ) . * In a universe with imperfect competition and economic systems of graduated table, linkages have positive effects on the houses concerned through spillovers ( GoA? rg & A ; Ruane, 2001 ) . Local supply linkages forged by MNEs travel beyond monetary exchange and convey proficient, but besides informational, fiscal, organizational and managerial outwardnesss ( Crone & A ; Roper, 2001 ; Ivarsson & A ; Alvstam, 2005 ; Lim & A ; Fong, 1982 ; UNCTAD, 2001 ) . MNEs frequently engage in transportation activities so as to understate the monetary value of sourcing, and to increase competition in upstream industries ( Blalock & A ; Gertler, 2003 ) . Recent instance surveies discuss in great depth how MNEs engage in transportation activities that are good for the development of local providers. For case, Ivarsson and Alvstam ( 2005, p. 1340 ) explain that a significant proportion of the domestic providers, with the exclusion of Mexico, have been provided with technological aid by Volvo as portion of common concern relationships.

Examples of how linkages profit local providers are found in the electronics industry across East Asia ( Hobday, 1995 ) , whereby foreign affiliates initiate supply relationships with local houses and better their quality, productiveness, and merchandise diverseness. Foreign affiliates, likewise to other final-good manufacturers help convey forth a greater assortment of specialised inputs, therefore bring forthing a positive outwardness to other final-good manufacturers ( RodrA±A?guez-Clare, 1996, p. 853 ) . MNEs create demands for local inputs, strengthen the fight of local providers through local outwardnesss ; and these providers, in bend, bring forth forward linkages in the economic system. This paper, in common with the theoretical account developed by Markusen and Venables ( 1999 ) , assesses first and second-order perpendicular linkages effects. MNEs ( or concluding good manufacturers ) purchase intermediate goods, this allows local providers to profit from economic systems of graduated table and to cut down their costs. Both inter- and intra-sectoral effects are generated. Adding the premise thatMNEs ‘ engineering is superior to that of houses in host economic systems ( see Lin & A ; Saggi, 2005 ) , the chance of engineering transportation from MNEs to local houses enhances farther the positive impact on host economic systems.

* Second, Vietnam ‘s economic environment reflects the passage from a centrally planned economic system to a market economic system. Both private and stateowned houses face a deficiency of experience of market capitalist economy. Private houses are besides frequently subjected to an unfavorable environment of prejudiced inducements and regulations with regard to finance, investing, revenue enhancement and trade ( Giroud, 2005, p. 40 ) . Despite the positive alterations introduced with the Enterprise Law in 2000, it is expected that the degree of fight of local providers in Vietnam differs from that of providers in Malaysia, and later the type of relationships established by foreign houses with their providers in both economic systems differs.

2.3 Paradigm and Design

a/ Justification of undertaking ‘s Research Paradigm and Design:

a1/ Research Paradigm:

– Positivism:

+ Deductive

+ Quantitative

+Momothetic

a2/ Research Design:

comparative design

Dinh nghia, dan giai

b/ Consideration of Epistemological, Ontological, Methodological, and Design issues:

tham khao

2.4 Methods

a/Justification of informations aggregation methods chosen:

a1/ Primary informations aggregation methods

questionnaires

interviews

Observation, conversations

A semi-structured questionnaire was used to interview directors in Malaysia and Vietnam,1 the aim of the study being to analyze the activities performed by transnational houses and assess perpendicular linkages established in the host economic system. Vertical linkages in the questionnaire were defined to include both backward and forward linkages ( this terminology2 is used likewise by other writers such as Belderbos et al. , 2001, GuA? nther, 2005 ) , but this paper focuses on backward linkages and related cognition and engineering transportation. 49 interviews conducted in Malaysia and Vietnam during 2002 are analysed. Table 1 summarises some of the cardinal features of the sample for the recent survey, and provides a comparing with a similar earlier survey conducted by the writer of transnational houses in the electronics/electrical sectors in Malaysia in 1996 ( Giroud, 2003 ) .

The sample reflects the industrial composing of both states, with a prejudice towards electronics/electrical in Malaysia ( see Table 1 ) . While the Textile and garment industry developed in Malaysia in the seventiess, portion of it has now relocated to lower-cost production location, including Vietnam. For many old ages the fastest turning activity in Malaysia has been the Electronics and electrical industry. In contrast, the Textile and garment industry remains prevailing in Vietnam and its exports are 2nd merely to those from the petroleum oil sector. For ASEAN as a whole, over 1995-2004, the cardinal beginning puting regions/ states were the EU ( 29.3 % ) , the USA ( 17.3 % ) , ASEAN ( 13.0 % ) , Japan ( 13.7 % ) , and the Asiatic NIEs ( 8.2 % ) .3 Foreign houses interviewed in the study reflect this composing, every bit good as the comparative significance of textiles/garments and electronics/electrical in Malaysia and Vietnam. Reflecting the FDI experience of both states, MNEs have been in operation in Malaysia for longer and are, hence, larger in size and more frequently entirely owned compared to those in Vietnam.

a2/ Secondary informations aggregation methods:

Literature, literature hunt, usage of literature, carry oning a literature hunt, larning Centre, citing?

b/ Analysis

phan tich theo Quantititive, qi tiet, dan chung

The methodological attack adopted in this paper starts by mensurating the stock of cognition in a foreign subordinate by look intoing the transportation of assorted advanced production, managerial or organizational methods.4 This rating assesses 19 transportation patterns concentrating on a scope of production and preparation issues, and foreign affiliates ‘ directors were asked to bespeak the extent to which the foreign house was involved in cognition transportation activities to local providers. Directors discussed with the research workers the interactions with providers that led to knowledge transportation. Such transportations can subsequently back up local providers in their betterment of competencies and capablenesss. Foreign affiliates interact with their providers deliberately ( for case through specific preparation offered to providers ) or by the way ( by manner of regular meetings and communications ensuing in cognition acquisition by the providers ) . Transfer activities5 comprise merchandise and procedure engineering related to the fabrication of stuff inputs for the subordinate ( 11 points ) , and cognition transferred through preparation ( 8 points ) ( for full inside informations on each point, delight see Giroud, 2003, pp. 217-225 ) . Questions targeted the possible impact of the MNEs on the proficient and production efficiency of providers, with some consideration to the possible alteration in organizational and strategic orientation included within the preparation transportation activities.

b1/ Justification of informations analysis and or reading methods chosen:

reading: univariate/ bivariate/ multivariate analysis

c/ Consideration of Impact an Access issues:

An implicit in premise behind cognition transportation happening between foreign houses

and local providers is that the providers ‘ capablenesss improve as a consequence of the interaction

with foreign clients. To measure this premise and step the impact of cognition

transportation activities on the capablenesss of local providers, directors were invited to supply

their perceptual experiences on how providers had improved as a consequence of covering with their house, utilizing a five-point evaluation graduated table ( runing from ‘significant betterment ‘ to ‘no betterment at all ‘ ) . The restriction of such a method is acknowledged, so, as a elaborate analysis of

single providers would supply a more nonsubjective and accurate appraisal of the impact of MNEs on providers. Such surveies have been conducted, but it was beyond the agencies and range of this peculiar research.

2.5 Consequences and Presentation

a/ Appropriate Criteria applied to measure comparative value and context of consequences:

b/ Presentation, usage of structuring and look throughout:

c/ Use of linguistic communication throughout

Dien giai & A ; ap dung vao Bai

* The consequences demonstrate the significant impact that foreign houses have in both states through their perpendicular linkages, with these increasing the longer foreign houses had been established in the economic system. Variations in the extent of cognition transportation were linked to the type of industry, the FDI experience of the host state, MNEs ‘ schemes and subordinate features and the province of the local provider base. While directors made no direct reference to the passage nature of the Vietnamese economic system, one can oppugn whether linkages would be more extended in a non-transition economic system at a similar degree of development ; and whether the experience of Malaysia can be replicated in Vietnam.

* The analysis of the information shows that locally-owned providers in Vietnam do non yet profit from foreign house ‘s superior engineering and managerial expertness to the same extent as those in Malaysia. Levels of backward linkages remain little, and small cognition is being shared by foreign houses with local providers. The treatment highlighted some issues related to the passage nature of Vietnam that might explicate these limited linkages. Although some of the issues discussed are common to other developing economic systems, the demand to develop farther the local supply industry and specifically the private sector is more acute in passage economic systems such as Vietnam.

3. Decision