Channel for Vertical Spillovers: The Effect of MNCs Training Activities in Stimulating Local Suppliers Innovative Capacity

Channel for Vertical Spillovers: The Effect of MNCs Training Activities in Stimulating Local Suppliers Innovative Capacity

Abd Rahim Jaguli (Universiti Utara Malaysia, Malaysia)
DOI: 10.4018/978-1-4666-9806-2.ch006
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Abstract

The objective of this study was to fill a research gap, where the channels through which technology and knowledge were transferred remained unexplored in the existing Foreign Direct Investment (FDI) knowledge transfer literature. A case study method was adopted as it is appropriate for exploring the complex process of knowledge transfer. The findings obtained from the case studies were able to demonstrate a positive relationship between MNCs and local innovation where knowledge and technology can be diffused through training programmes offered by MNCs to local suppliers. It provides an understanding as to the extent to which MNCs, through linkages with local firms, may facilitate the innovation activities of said local firms. Policy implications are subsequently discussed and future research suggestions are then put forth.
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Introduction

Researchers have long been focused on the study of Foreign Direct Investment (FDI) as the main vehicle for technology and knowledge spillovers (Branstetter, 2000; Keller & Yeaple, 2003; Giroud, 2003; Ivarsson & Alvstam, 2005; Liu & Buck, 2007; Blalock & Simon, 2009; Liu, Wang & Wei, 2009; Du, Harrison, & Jefferson, 2011; Hale & Long, 2011). Knowledge spillover from Mutinational Fims (MNC) to local firms were created through inter-firm relationship with indigenous firms (buyer-seller) relationship (Javorcik, 2004; Ivarsson & Alvstam, 2005; Giroud, 2007; Ivarsson & Alvstam, 2009 and 2011). The transfer of knowledge takes place through the demonstration effect (Kokko, 1992; Wang & Blomström, 1992), labor movement between firms (Fosfuri, Motta, & Ronde, 2001; Glass & Saggi, 2002; Meyer, 2004; Spencer, 2008) and the transfer of knowledge from MNCs to their suppliers (Ivarsson & Alvstam, 2009 & 2011). Moreover, business transaction between MNCs’ subsidiaries and local firms may also vital in increasing the likelihood of knowledge and technology spillovers (Blalock & Gertler, 2008; Keller & Yeaple, 2009; Blalock & Simon, 2009).Through this vertical relationship MNCs may encourage technology and knowledge sharing between their subsidiaries and suppliers workers through labor training, innovations, quality management, production process, managerial skills and manufacturing management systems (Agosin & Mayer, 2000; Ivarsson & Alvstam, 2005; Giroud, 2007).

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