Uneven Paths of Development

Uneven Paths of Development

Innovation and Learning in Asia and Africa

Banji Oyelaren-Oyeyinka and Rajah Rasiah

This book focuses on what can be learned from the complex processes of industrial, technological and organizational change in the sectoral system of information hardware (IH). The IH innovation system is deliberately chosen to illustrate how sectors act as seeds of economic progress. Detailed firm-level studies were carried out in seven countries, three in Africa (Nigeria, Mauritius and South Africa) and four in Asia (China, Taiwan, Malaysia and Indonesia).

Chapter 3: Low Value-Added Operations in Indonesia

Banji Oyelaren-Oyeyinka and Rajah Rasiah

Subjects: development studies, development economics, economics and finance, development economics, economics of innovation, innovation and technology, economics of innovation

Extract

INTRODUCTION Indonesia managed to stimulate information hardware (IH) manufacturing on a significant scale from the late 1980s following the spillover effects of the Plaza Accord when the Northeast Asian firms began a wave of relocation to the whole of developing Southeast Asia.1 Although this wave slowed down owing to overheating and a lack of institutional support for upgrading in Malaysia and Thailand, and the emergence of China as an attractive site, IH manufacturing has continued to grow in economies such as the Philippines, Vietnam and Indonesia. Indonesia’s huge labour force, especially the concentration in Java and the coordination offered by Temasik Holdings, which enjoys the lease of the export processing zone in Batam, has helped attract labour-intensive assembly activities such as printed circuit boards, component assembly and consumer electronics to Indonesia. In addition, a handful of local Indonesian firms have also emerged to assemble brand-less cheap computers for the local market. Indonesian regulations on foreign direct investment (FDI) were for many years restrictive (see Panglaykim, 1983; Hill, 1995, 1996; Sjoholm, 1999, 2002; Blomstrom and Sjoholm, 1999; Dhanani, 2000; Okamoto and Sjoholm, 2003). Indonesia has become more liberal following the financial crisis of 1997–98, albeit at a time when the political risks have risen. Total foreign ownership was prohibited until the inclusion of Batam in the Singapore–Johor–Rhiau (SIJORI) growth triangle in 1989. Foreign ownership regulations in the rest of Indonesia became more liberal following the 1997–98 financial crisis. Basic infrastructure coordination – access to shipping...

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