Claes Göran Alvstam

The Effect of Spatial Proximity on Technology Transfer from TNCs to Local Suppliers in Developing Countries: The Case of AB Volvo in Asia and Latin America

Abstract This article contributes to the limited number of studies on how agglomeration and spatial proximity contribute to the establishment of technology linkages between foreign transnational corporations and suppliers in developing countries. We use firm-level data, collected at the bus and truck plants of AB Volvo in Brazil, China, India, and Mexico, to analyze the extent to which “local” suppliers, located near the assembly plants, are in a better position than are other suppliers in the host country to take advantage of the technological assistance that Volvo provides as part of its ongoing business relations. Our analysis shows that many suppliers are provided with technological assistance, related both to “embodied” and “disembodied” forms of technology. Our main finding is that the higher transaction and communication costs that Volvo has to bear when interacting with nonlocal suppliers, compared to local suppliers, only marginally seem to affect the extent to which the suppliers are provided with technological assistance. However, geographic proximity is more crucial for opportunities for the suppliers to absorb external technology. Especially in China and India, but also in Brazil, local suppliers take advantage of their interaction with Volvo to a larger extent than do other suppliers. For many of the smaller domestic companies that make up the dominant share of Volvo’s local suppliers, low transaction and communication costs and the opportunity to interact regularly with Volvo are an important determinant of the successful absorption of external technology.

International technology transfer through local business linkages: the case of Volvo Trucks and their domestic suppliers in India

Using unique firm-level data from Volvo Trucks and their 64 manufacturing suppliers in India, this paper focuses on the significance of technology transfer from transnational corporations (TNCs) to their domestic suppliers in developing countries. Our case study shows that a relatively small number of international follow-source suppliers have captured a dominant part of Volvos local purchases of components, reducing the opportunities for domestic suppliers to forge business linkages with this foreign TNC. At the same time, the domestic suppliers, as well as the follow-source suppliers, seem to improve their internal capabilities from the technological assistance given by Volvo as part of their business relationships. Even a simple assembly operation by a TNC seems to generate important linkages and technological upgrading among domestic suppliers, thus enhancing their domestic and international market positions. Volvos technological assistance to domestic suppliers was also transferred down in the supply chain, contributing to long-term improvements among the smaller companies that make up the lower tiers of the Indian auto-component sector.Using unique firm‐level data from Volvo Trucks and their 64 manufacturing suppliers in India, this paper focuses on the significance of technology transfer from transnational corporations (TNCs) to their domestic suppliers in developing countries. Our case study shows that a relatively small number of international follow‐source suppliers have captured a dominant part of Volvos local purchases of components, reducing the opportunities for domestic suppliers to forge business linkages with this foreign TNC. At the same time, the domestic suppliers, as well as the follow‐source suppliers, seem to improve their internal capabilities from the technological assistance given by Volvo as part of their business relationships. Even a simple assembly operation by a TNC seems to generate important linkages and technological upgrading among domestic suppliers, thus enhancing their domestic and international market positions. Volvos technological assistance to domestic suppliers was also transferred down in the supply chain, contributing to long‐term improvements among the smaller companies that make up the lower tiers of the Indian auto‐component sector.

Learning from foreign TNCs: a study of technology upgrading by local suppliers to AB Volvo in Asia and Latin America

Our data from local suppliers to AB Volvos truck and bus-plants in Brazil, China, India and Mexico show that foreign TNCs contribute to technology-learning and improved adaptive technological capabilities, which help suppliers to expand businesses with domestic and international OEM-customers in many industries and markets. This support the evolutionary perspective that technology transfers from industrialised to developing economies are based on local inter-firm linkages arising from regular manufacturing activities of foreign TNCs. A policy lesson is that business-linkages with foreign TNCs with a low-volume demand for high-quality products can result in technology-upgrading among small local suppliers who make necessary learning-investments.

Local Technology Linkages and Supplier Upgrading in Global Value Chains: The Case of Swedish Engineering TNCs in Emerging Markets

We complement the existing global value chain literature by presenting empirical evidence on technology upgrading among domestic suppliers operating in the less-investigated producer-driven engineering industries. Unique firm-level data from 22 Swedish manufacturing affiliates and their 1349 suppliers in China, India, Brazil and Mexico show that domestically-owned suppliers are generally provided with substantial technological support by their TNC customers as part of regular business relations. The transfer of product and process technology is especially facilitated through a combination of local business linkages, which enhance tacit learning, and global business linkages, where the management challenges related to operating global sourcing strategies enhance mutual commitments from both buyers and suppliers. Thus, rather than resulting in ‘captive’ governance structures, our findings suggest that in these types of value chain ‘developmentaly’ buyer-supplier relations are likely in many emerging markets, resulting in technological upgrading of less capable, domestic suppliers.

New technology development by Swedish MNEs in emerging markets: the role of co-location of R&D and production

Firm-level data from Swedish manufacturing MNEs show that their local R&D units in emerging countries now mainly develop new technology in co-location with manufacturing plants. This complements findings that co-located units have previously mainly locally adapted parent companies’ existing technology. This implies that co-located R&D units of Western MNEs in emerging countries now play a more important strategic role than was previously assumed, especially in China, India, and other Asian countries with large and growing markets, specific demand characteristics, strong domestic producers, rapid industrial and technological change, and a capability to develop and produce complex products and systems.

The ‘Hybrid’ Emerging Market Multinational Enterprise — The Ownership Transfer of Volvo Cars to China

This chapter deals with the issue of how the systematic process of comprehensive strategic asset-seeking FDI by emerging market firms through acquisitions of well-established developed market companies, possessing globally recognized brands and the latest technological capabilities, creates new categories of internationalized companies. It is argued that the catching-up process in order to reach ownership-specific advantages in the global marketplace, following the argument of Mathews (2002, 2006), as well as adopting the ‘springboard’ perspective — the ambition to use the foreign acquisition to strengthen its position at the domestic market (Luo and Tung, 2007; Ramamurti and Singh, 2009; Ramamurti, 2012; Williamson et al., 2013) — have together given rise to a new dimension of both the concept of ‘liability of foreignness’ (Miller and Eden, 2006: Miller et al., 2008; Zaheer, 1995, 2002; Zaheer and Mosakowski, 1997), and the ‘liability of outsidership’ (Johanson and Vahlne, 2009; Petersen and Seifert, 2013; Vahlne and Johanson, 2013; Yildiz and Fei, 2012). There is an increasing number of cases where a developed market firm becomes politically and commercially controlled by new domestic interests in an emerging market after a transfer of ownership, but, for historical and other reasons, is still considered as a foreign corporation, both by the domestic authorities in the new country, and in the eyes of the general public at the global level.

Japanese-Nordic Trade and Japanese Manufacturing in the Nordic Countries

This paper will describe and explain the pattern of Japanese manufacturing investment in the Nordic countries (Denmark, Finland, Norway and Sweden). In particular, it seeks to investigate whether the limited market size of these countries in Northern Europe gives rise to a different type of Japanese FDI from that establishing itself in other parts of Western Europe. Special attention will be paid to the issue of direct, as opposed to indirect, economic relations between Japan and the Nordic countries, in trade as well as in investment. It is assumed that the Nordic countries, when seen from the Japanese perspective, are not a priority area in the process of developing direct trade and investment relations within a single internal European market. Accordingly, indirect trade via larger countries in Western Europe is expected to grow at the expense of direct bilateral trade. On the other hand, the Japanese view of Europe as a single economic unit may also give rise to investment in the Nordic countries within special production niches, serving the entire European Union. Another objective of this paper will therefore be to establish the difference between trade and investment serving solely domestic Nordic markets, and those investments aiming at production for export to other European countries as well as to Japan.