New Places But Old Spaces: Knowledge Hierarchies Among Asian Small and Medium Size Enterprises Abroad

Abstract

Small and medium size enterprises (SMEs) play a critical role today in Asian regional production. However, their long-term viability depends on innovation drawing on local as well as global knowledge flows. In this paper, I ask whether firms moving to new production sites abroad have penetrated new spaces of information and knowledge. Japanese and Korean SMEs manufacturing abroad retain a static comparative advantage in sub-contracting for larger home country firms where accumulated knowledge is sufficient today for cost efficient production. They remain tied largely to knowledge hierarchies at home dominated by larger firms. Weak ties to the local business context abroad, however, deprive them of new learning advantages critical for flexible specialization. Lacking entrée to the learning environment of their offshore production sites, Asian SMEs often remain offshore factories rather than international firms participating in global learning environments. They find themselves in new geographical places but old cognitive spaces, confined to static rather than dynamic comparative advantage.