It is next to impossible to discuss the dynamism of local entrepreneurship in Southeast Asia without discussing its relationship with foreign capital. Foreign joint ventures have been the major form of international linkage in Southeast Asia, transferring technology and skills to local investors. Foreign firms acted as catalysts, and their role has diminished over time as local firms have gained access to the same international networks, skilled personnel, equipment, and information. Critical to this process has been the role of Japan and other Asian investors, who tend to behave quite differently from European and U.S. investors.
The story of foreign investment has been one of continual change. For example, in 1974 in Malaysia, foreign firms produced nearly 50 percent of manufacturing output, and made up 11 percent of firms. Ten years later, this had dropped to 7.6 percent of firms, and 35 percent of output. In part this was a response to the NEP which led many British firms to withdraw from Malaysia. But the same phenomenon has also been observed in Thailand. In the mid-1960s, Japanese companies owned most of the textile industry in Thailand, but by the 1980s, most were owned by Thai firms.
Foreign investors need incentives to source their component supplies locally, and Southeast Asian governments have been actively promoting joint ventures as a mechanism for the transfer of skills. For garments, the skills are relatively easy to transfer. Skill requirements are higher in electronics, but many Malaysian firms are now exporting indirectly through supplying components to foreign assemblers. In Indonesia, domestic entrepreneurs "thrived" by entering joint ventures with foreign firms in "textiles, electronics, glass manufacture, pharmaceuticals, and finance." Ownership data don't always reflect local-foreign linkages. For example, economist Hal Hill notes that in Indonesia, "most firms in the manufacturing sector have some kind of commercial involvement with foreign parties", either through subcontracting or marketing arrangements.
More than other nationalities, Japanese firms are likely to be the partners in these foreign linkages, and Japanese firms are not only more likely to enter into joint ventures, they are more likely to be using technology that is transferable to partners at the skill levels present in Southeast Asia. Japan has a long presence in Southeast Asia (and a brief presence in Africa). Trading firms such as Mitsubishi had already established outposts in Southeast Asia by 1917. Because Japan has been such an active trading partner in Southeast Asia, when local traders decided to move into industry, they frequently did so with assistance from their Japanese distributors, much as Nnewi traders in Nigeria did later with their Taiwanese distributors. For example, Thai trading groups in the 1950s and 1960s moved into manufacturing under ISI policies, producing the same products they had formerly been importing. About a third of the 211 industrial firms owned by the major trading groups were joint ventures with foreign firms; of these, 80 percent were with Japanese firms.
Japanese firms often entered into joint ventures as minority partners, often with Chinese businessmen who "provided important distribution networks which were vital for the Japanese because they were newcomers and specialized in consumer goods." Yet government actions to promote indigenous interests in Malaysia led to a drop in Chinese participation in these joint ventures. Between 1970 and 1975, 40 percent of Japanese investment was in joint ventures with Chinese firms, and 18 percent with state enterprises or Malay firms. By 1976-1980 with more emphasis by the government on Malay participation, joint ventures with Chinese firms dropped to 29 percent, and ventures with Malay interests (including the state) rose to 54 percent.
Japanese investment tends to come in waves, whenever the yen is highly valued, making exports from Japan itself uncompetitive. The problems Japan has experienced over the past several years have also led to a fall off in new joint venture investment. Although Japanese firms had started to invest in Subsaharan Africa, their moves were tentative. For example, not one of the auto assembly firm joint ventures in Nigeria were with Japanese firms, whereas Japanese firms dominate auto assembly in Southeast Asia. Africa has been far more likely to receive investment from Europe and the U.S., and firms from these countries, the U.S. in particular, seem far more likely to remain wholly owned, and to invest only in high capital, extractive ventures.
By: Deborah Bräutigam Local Entrepreneurship in Southeast Asia and Subsaharan Africa: Networks and Linkages to the Global Economy School of International Service American University Washington, DC
To learn more about this author, visit United Nations University's Website.
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