Linkage Formation and Knowledge Transfer Between American Foreign Firm and its SMEs: A Case Study in Penang

 Chik, W. F. W. (2012). Linkage Formation and Knowledge Transfer Between American Foreign Firm and its SMEs: A Case Study in Penang. Persidangan Kebangsaan Ekonomi Malaysia ke VII (PERKEM VII), Transformasi Ekonomi dan Sosial Ke Arah Negara Maju, Ipoh, Perak, Malaysia.

  Abstract:
    For the past 40 years, it is widely recognized that FDI play an important role in economic development in Penang Malaysia. Penang success at attracting FDI in electrical and electronic industry broadly reflects to the earlier commitment of Penang State government in line with Malaysia industrial policy objectives on Export Oriented Industrialization Strategies. The electrical and electronic industry was chosen based on the industrialization model from Hong Kong focusing on labour incentive. At the same time, the contribution of local SMEs towards Malaysian economy has long been recognized. It is well noted in the literature that SMEs consist of 99.2% in Malaysia. Hence, the ability of local SMEs to forge linkage and absorb knowledge from foreign firm is of crucial importance. However, both American foreign firm and its local SMEs have different views on linkage as well as knowledge transfer. The objectives of this paper are two fold: First, we will explore the product, process, managerial and organizational, and ideology linkage from the perspective of American foreign firm and its local SMEs. Second, we will examine the implication of this linkage towards knowledge transfer process from the perspective of American foreign firm and its local SMEs. This paper argues that both American foreign firm and local SMEs have a different understanding and expectation towards linkage formation and knowledge transfer. Using one leading American foreign firm in the electronic industry and three supporting local SMEs as a case study in Penang, the analysis is based on the interviews with local sourcing manager in American foreign firm and three local SMEs owners, conducted between December 2010 and January 2011. The results from American foreign firm suggests that local SMEs are not yet ready to face a global challenge. There are relatively small in number, reluctant to invest for R&D is a great challenge in the future. Building up strong linkage with local SMEs is not always easy. As an American foreign firm, selection and monitor SMEs is always base on “lean transformation model” focusing on time, quality, and delivery. On the other way around, this study revealed that small economic of scale, uncertainty of government regulation, difficulties in loan approval, changes in strategies from American foreign firm are the hindrance factors for SMEs to forge a strong linkage with American foreign firm. To overcome economic of scale, few local SMEs set up their small manufacturing in China. In contrast this study also found out reverse knowledge transfer emerged from SMEs to foreign forms. This study concludes that linkage itself is a process. The process involve long term development of Malaysian SMEs. Economic development policies should continuously focus more on strengthening the relationship of foreign firms and local SMEs particularly on upgrading technological capability and R&D. This study has several limitation which is hoped to inspire future researcher in this field. First, this study does not fully take into a consideration other American foreign firms in Penang that could have a different type of linkage and knowledge transfer. Second, this study also did not examine in a broader perspective the effects of linkages and knowledge transfer between American foreign firm and SMEs from the governance perspective.


PKEM2012_3A1.pdf (application/pdf Object)