Technological Capabilities and Value Chain of The Foreign Firms in Indonesia’s High-Tech Industries

Abstract

The main focus of this research is to examine whether acquiring external technological capabilities and internally developed technological capabilities increase value chain of the foreign firm within Indonesia’s high-tech industries context. Foreign firms usually have better resources in term of technology, human resources and capital, in order to develop technological capabilities internally by increasing their ownership. On the other hands, foreign firms may also access to available technology, innovation and new method in the market by paying amount of royalty. Based on resource-based theory, this research argues that royalty and foreign ownership will contribute to increase value chain of the firms. Using ordinary least square (OLS) with Stata software, results show that contribution of technological capabilities have different effect on value chain for both chemical & pharmaceuticals firms and motor vehicles & other transport equipment firms. Acquiring external technological capabilities has increased value chain of the firms in these 2 types of industries. Meanwhile, internally developed technological capabilities has decreased value chain of the firms in chemical and pharmaceuticals industries but it has increased in motor vehicles & other transport equipment industries. The implication of this study is to provide the insights that the effect of technological capabilities on firm’s value chain depends on the characteristics of industries. For chemicals & pharmaceuticals industries, dominant foreign ownership provides greater flexibility to develop resources so that it has its own capability to compete and have the option of not getting involved in the value chain. For motor vehicles & other transport equipment industries, Indonesia’s firm played more of a role as upstream producers, where the products are produced to support other industries.