Technical Change and Technical Adaptation of Multinational Firms: The Case of Taiwan's Electronics Industry

Abstract

It is well documented in the literature that multinational firms only make limited adaptations to local market conditions with regard to their choice of technology. For instance, W. Yeoman finds that most of the U.S. multinationals that he interviewed transferred their production process to overseas operations intact. H. Mason finds that in the Philippines and Colombia, U.S.-based multinationals tend to be somewhat more capital-intensive than their local counterparts. L. Wells finds similar evidence in Indonesia. S. Morley and G. Smith find that U.S. subsidiaries in Brazil, while employing a more laborintensive technology than the one that prevails at home, are nonetheless more capital-intensive than their Brazilian counterparts.' They also find that the adaptations made by these firms are due to the smaller market size in Brazil rather than a response to the availability of cheap labor in that country. While there are reasons to believe that greater labor intensity in developing countries is feasible and would be efficient,2 the question of why multinationals fail to exploit this possibility remains. J. Ahiakpor suggests that the seemingly inappropriate technology chosen by foreign firms may be a result of policy distortions.3 He finds that foreign firms in Ghana are less dependent on imported raw materials than the state-owned companies although they are more dependent than the local private firms. This appears to reflect the relative accessibility to foreign exchange allocations. Other authors suggest that technology choice by multinationals, whether appropriate or not, reflects rational decisions: the fact that multinationals do not fully adapt to local market conditions simply indicates that it is too costly and risky to do so. Morley and Smith argue that the search for information incurs