Technology transfer through OFDI: the case of Indonesian natural resource-based MNEs

Abstract

This article discusses technology transfer through outward foreign direct investment (OFDI) by Indonesian natural resource-based multinational enterprises (MNEs), including motives of OFDI and modes and path of technology transfer through OFDI. First, the motives of OFDI by Indonesian MNEs are to: (i) have a better position in controlling the market, (ii) make the production centre closer to the market, (iii) develop brand image in foreign market, and (iv) exploit resources in host countries and encourage MNEs to be more innovative. Second, the modes of technology transfer are through: (i) on-the-job training, (ii) assigning staff overseas, (iii) regular meetings, and (iv) appointing talented management. Third, technology transfer corresponds to objectives of MNEs’ expansion and its network evolution. Its path follows the S-curve of technology transfer through OFDI. It implies that Indonesian government policies should (i) encourage firms to attain high innovative capability by providing investment fund for joint R&D on the national champion project, overseas market intelligence for OFDI, and co-investment on the strategic project for OFDI, and (ii) maintain a conducive investment climate, stable economic growth, and high consumer demand to drive local firms to become MNEs by facilitating the establishment of cluster and MNEs’ network.