Knowledge transfer and technological upgrading of foreign affiliates in Indonesia: firm level analysis

Abstract

Knowledge transfer is an essential process to generate the capacity of technological advancement for industrial development in developing countries. This paper aims to explore the role of knowledge transfer and learning process to support the improvement of technological capabilities of local suppliers. By using a sampling method of 26 multinational companies (foreign affiliates) in machinery and electrical components sector in Indonesia, several possible determinants pursuing knowledge transfer activities are analysed. The size of the sample is limited by the data collection. This study confirms findings that the possibility of knowledge transmission for local suppliers does exist, particularly for joint venture firms and those who have export activities. The foreign affiliates with research and development divisions are more likely to transfer knowledge to local firms. To explore in detail, two case studies were selected from the sample to describe how knowledge transfer activities managed among partners. It suggested that knowledge transfer as an effort of upgrading technology dependent on the learning experience between firm development and external source of knowledge. A process to formalise knowledge transfer relationships with equal benefits between sender and recipient is a key.