Foreign Firms, Technological Capabilities and Economic Performance

Foreign Firms, Technological Capabilities and Economic Performance

Evidence from Africa, Asia and Latin America

Rajah Rasiah

This book employs novel techniques to compare technological capabilities and economic performance in seven countries at varying stages of industrial development: Brazil, Costa Rica, Indonesia, Kenya, Malaysia, South Africa and Uganda. The author uses a methodology drawn from the technology capability framework, but extensively adapts and simplifies it to extract common cross-industry parameters for statistical analysis. He employs the framework to compare the technological, local sourcing and performance dynamics of foreign and local firms in a variety of industries.

Chapter 6: Economic performance, local sourcing and technological intensities in Malaysia

Rajah Rasiah

Subjects: business and management, international business, development studies, development economics, economics and finance, development economics, innovation and technology, innovation policy


Rajah Rasiah and Ganesh Rasagam 6.1 INTRODUCTION Foreign direct investment (FDI) has played a major role in Malaysia’s industrial development, especially in the expansion of manufactured exports since the early 1970s. Although specific instruments such as the Industrial Coordination Act of 1975 were introduced to shield foreign participation – including non-indigenous investment – in inward industries, generous incentives have targeted export-oriented manufacturing firms since the Investment Incentives Act of 1968, but especially following the opening of free trade zones in 1972 (Rasiah, 1993). From a focus on just investment and employment, the government shifted incentives to stimulate upgrading and higher-value-added activities from the 1990s. Considerable changes have since occurred in the technological dynamics of firms, as both foreign affiliates and local firms transformed operations to meet external competition and benefit from the incentive structure offered by the government. The successful development of a dynamic cluster in the state of Penang, which includes a range of local supplier firms, is now well documented (Rasiah, 1994, 1995, 1996, 2002b; Best and Rasiah, 2003; Narayanan and Lai, 2000; Mohd Nazari, 2001; Ariffin and Bell, 1999; Ariffin and Figuiredo, 2003). Related work on other industries has been scarce, although Capanelli (1999) examined supplier networks involving Japanese firms’ sourcing of auto parts, and Belderbos et al. (2001) analysed linkages generated by Japanese investment in a number of countries that included Malaysia. Hobday (1996) studied innovation activities of multinationals in Malaysia. Although several studies have used dynamic methodologies to assess links between foreign...

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