East Asian multinationals in the Indonesian electronics industry

Abstract

In the low-end global electronics market, Indonesia is competing with many developing countries in the Asia Pacific. For its electronics industry to achieve the aims of sustainable growth and development, it seeks to be a competitive production platform for electronic products by inducing inflows of resources and technology through multinational enterprises and their suppliers to establish world-class manufacturing facilities. Competition between host countries for investment by multinational firms is subject to complex locational choice. On its own, the availability of cheap labour in a host country does not guarantee that the industry will develop successfully. Similarly, the presence of key global players may not by itself produce a more developed local industry. The critical factors that lead to industrial take-off and dynamic development of production must be uncovered through understanding the competitive behaviour of major investors, the regulatory framework and other factors that make up Indonesia's locational advantages and changing comparative advantage in world markets. This thesis focuses on the competitive behaviour of the principal East Asian multinationals in Indonesia and, in particular, the characteristics of parent firms and affiliates, foreign investment behaviour and other aspects of market servicing of Japanese and Korean multinational firms, the main investors in the Indonesian electronics industry. This study adopts a comprehensive approach to the analysis of the comparative performance of these multinational enterprises (MNEs). It combines the standard approach to the study of foreign direct investment (FDI) of how well the various theories explaining FDI fit the facts (micro approach), analysing the so called macro factors that explain FDI outflows and inflows (push and pull factors) and a case study approach of analysing the strategic management and organisation issues utilised by industries studies. The study illustrates the dynamic interplay between macro (locational) forces and micro (firm-specific) factors, drawing on the use of official statistics, survey data and interviews (case studies). These data sources, with careful a survey of theoretical and empirical writings on MNEs, lead to a rich description and analysis of the role of Japanese and Korean firms in Indonesia. The extant theoretical and empirical literature is surveyed and examines across several literatures, including MNE, FDI, strategy, location, development, trade and policy. The thesis is complex, balancing location, parent factors, affiliate characteristics, nationality and technology to uncover the intricacies of electronic sales and manufacturing to provide a dynamic element lacking from many MNE studies by explicitly dealing with time and path dependency. Using the ownership-internalisation-locational advantages paradigm as starting point and including other tools from international production and strategic management theory to suit the setting, this study attempts to address five basic issues: • the changes that occurred in the investment climate leading to remarkable investment surges at different periods by examining Indonesia's locational advantages; • whether there are significant differences in firm-level characteristics among subsidiaries manufacturing in Indonesia through a quantitative analysis of the Indonesian industry data; • the impact of changing international and home-country conditions on the way parent firms invest or expand operations overseas by analysis of the competitiveness of the electronics subsectors in their home countries and their regional production networks; • whether there are significant differences in parent-firm characteristics, their motivation and strategies in Indonesia by examining the profile of the principal firms, the entry timing of their affiliates and the results of company surveys of the relative importance of ownership, locational and internalisation advantages of Japanese and Korean firms in Indonesia; and • whether there are significant differences over time in the investment and other market servicing strategies of Japanese and Korean multinationals in Indonesia through case studies of five MNE groups for three decades from the 1970s. Many similarities but some important differences in the comparative characteristics and performance of MNEs from the two East Asian countries are uncovered in this study of their operations in Indonesia. However, a comparison of the Japanese and Korean firms suggests that country-of-origin differences do not significantly account for variations in the behaviour of MNEs after taking account of vintage or stage-of-development effects.