Upgrading the technological capabilities of foreign transnational subsidiaries in developing countries: The case of electronics in Thailand

Abstract

Although substantial research shows the importance of transnational corporations (TNCs) to export-led growth in some developing countries, it cannot be assumed that TNC subsidiaries will automatically upgrade their capabilities through time or in a uniform fashion. This paper explores the pattern and pace of a sample of exporting TNC subsidiaries operating in the electronics industry in Thailand, showing how the different architectures of global value chains (centralised versus decentralised) shaped the technological progress of subsidiaries in this country. The case evidence suggests a wide variety in upgrading through time, with some subsidiaries failing to develop capabilities and remaining as ‘assembly only’ plants. Other more dynamic plants developed process engineering and product design skills, investing heavily in capability building. One common determinant in capability building appears to be the overall technology strategy of the global value chain leader (or parent company). In those subsidiaries which did not upgrade beyond assembly, technology decisions and processes were tightly controlled within the parent headquarter locations in relatively centralised international value networks. By contrast, the more dynamic plants exercised more discretion over local capability building. The latter operated in relatively decentralised networks, more open to domestic policies to encourage upgrading. The study suggests that governments should tailor upgrading policies not only according to the approximate level of capabilities attained by local subsidiaries, but also according to how receptive subsidiaries are to upgrading, arguing that capability building and policy receptiveness go hand-in-hand. Other countries hoping to upgrade the quality of foreign direct investment might also wish to focus policies on the more technologically capable, ambitious and receptive categories of foreign subsidiary.