Determinants of Backward Linkages: The Case of TNC Subsidiaries in Malaysia

Abstract

This research focuses on the organizational linkages between transnational corporation (TNC) subsidiaries and local suppliers in the Malaysian electrical and electronics (EE) industry. Local suppliers, especially in host developing countries, are involved in the process of manufacturing either in sourcing parts or components, or manufacturing under sub-contracting arrangements, depending on a supplier's technological capability. TNC subsidiaries in the EE industry are major players in Malaysia's process of industrialization. Despite the significant contribution of TNCs, several weaknesses have been identified in inter-organizational relationships. Although various studies have identified weaknesses, there is also evidence of significant linkages between TNCs and local suppliers. Therefore, we try here to explore evidence of significant inter-organizational linkages between TNC subsidiaries and local suppliers and to configure factors affecting provision of backward linkages by TNC subsidiaries. We find that firm-level factors such as a subsidiary's level of autonomy and local sourcing rate, as well as environmental factors such as location aspects, are all positively related to the intensity of backward linkages.