Technological Learning and Innovations of Manufacturing Firms in ASEAN
Patarapong Intarakumnerd, Ph.D.
National Graduate Research Institute for Policy Studies (GRIPS)
Since 2008, the Economic Research Institute of ASEAN and East Asia (ERIA) has annually commissioned ASEAN-wide studies on innovation situation and key issues concerning in innovations, namely impacts of agglomerations of firms, production linkages, university-industry linkages, and cross-region movement of engineers. Surveys of 100-150 respondent firms in each key production area of ASEAN countries have been carried out annually. These areas are Greater Jakarta (Jabodetabek), the Philippine’s CALABARZON, the Greater Bangkok, Hanoi and Ho Chi Minh City. The survey results show the followings:
- Regarding product innovation, 60-80 percent of firms were able to change the design of existing product. 20-50 percent of firms were able to develop new products based on ‘existing’ technologies. Nonetheless, much less could develop and/or sell new products based on ‘new’ technologies. Most markets of these new products are domestic ones, except in the case of Philippines whose sizable markets are also in other ASEAN countries. Penetration to advanced-country markets in East Asia, Europe and the US is still difficult, demonstrating the limit of ASEAN’s innovations.
- Regarding process innovation, more than 70-80 percent of the firms were able to buy new machine and/or improve existing ones and/or introduce new know-how on production methods. The main thrusts of process innovations are reducing labour inputs, raw materials and energy usages.
- As for sources of innovation of these ASEAN’s firms, internal sources within firms are quite important. Linkages with local industrial customers were very important in Vietnam, moderately important in Thailand and Indonesia, and not so important in the Philippines. In earlier surveys (2008-2009), transnational corporations (TNCs) customers were relatively less significant, except in the case of the Vietnam where MNCs located far-away places like East Asia, the United States and Europe were more important than those within the country. Nonetheless in more recent surveys (2010-2011), TNCs customers located within countries have been increasingly significant sources of innovation and became more important than local customers. This demonstrates that ASEAN firms have been better integrated in global production network and value chains. The flows of information and knowledge between ASEAN’s local firms and TNCs have increased.
- Final consumers are considered as important external sources for upgrading and innovation, while competitors, buyers and trading firms have been increasingly less important in recent surveys.
- On the other hand, universities and public research institutes have increased their significance as sources of innovations in recent surveys. Coincidentally, number of R&D performing firms in ASEAN (both local firms and TNCs’ subsidiaries) has increased remarkably after 2005. University-industry collaboration became stronger because substantial number of firms has increased their technological capabilities to the level of R&D where they can work better with university professors and researchers. ASEAN’s government pressures and incentives on universities to collaborate more with the industry might somewhat contribute to the increase of university-industry linkages as well.
- Econometric analysis of the studies also confirms significant relation between internal capability of firms and external linkages (with aforementioned actors). External linkages enhance firms’ internal capability and vice versa, though this does not always lead to innovation.
- More than 70 percent consider pubic financial support and tax breaks somewhat useful or definitely useful for innovation and upgrading
- Recruiting mid-career engineers is important for innovation.
Apart from surveys, case studies on firms in ASEAN countries have been conducted in electronics, automotive, machinery, and resource-based industries. Malaysia has been included.
In automotive sector, many TNCs’ subsidiaries are passive learners because no ‘independence’ in strategy formulation technology selection, building up core capability, with exception in Thailand and Vietnam. Local firms can be divided into two groups: a) those relying on make from orders of ‘senior’ foreign partners and customers and b) those trying to develop their own strategy and actively enhance capacity to absorb and upgrade imported technologies. Large volume and demanding export markets and local content requirements imposed by government were helpful in firms’ innovation and upgrading. University-industry links are much better in Thailand, followed by Indonesia and Malaysia.
In electronics industry, innovations are mostly incremental and new to the firms. Penang is relatively more advanced, as there have been more design and development activities and a few cases of radical innovations, while activities in other ASEAN’s locations are generally assembling. Customers are the major external source of knowledge, whereas in-house R&D is very important internal source. The roles of TNCs as lead firms bring in technology and markets are critical. Interestingly, the roles of an intermediary, namely Penang Skills Development Centre (PSDC) has been very prominent in initiating and enforcing linkages between local firms and TNCs through training and business matching schemes. Universities and public research institutes are much less significant. Nevertheless, it is starting to change in Penang where firms have been increasing their R&D activities.
In machinery industry, generally ASEAN firms have low technological and innovative capability due to insufficient interactive learning between producers and users beyond providing market information. Demands for improved machinery have been there, but customers prefer imported machine. Therefore, linking with TNCs as ‘demanding’ customers is critical for local innovations and upgrading. Roles of finance and knowledge intensive service providers such as testing, consultancy are significant. Parent companies played important roles in subsidiaries’ innovations, while suppliers’ roles were crucial for subsequent improvements. Universities and research institutes have been less important, but can help to strengthen ‘absorptive capacity’ of local firms.
ASEAN firms are doing relatively well in resource-based industries. The success of Malaysia’s palm oil and natural rubber industries is well known globally in terms of export drive, productivity increase, and R&D. The competitive strength of the industry relies on innovations both in the upstream and downstream sub-sectors. Innovation success by firms was supported by government policy agencies, state-own enterprises, universities, industrial associations and very importantly, governmental sector-specific institutes, which carry out sector-specific promotion and research activities. Export demand plays a very crucial role in industrial and technological upgrading. For frozen seafood industry, several Thai multinationals with R&D, own brands, and international distributional channels are doing very well. There are rather sector-specific policies and supports from various government and private-sector agencies, as well as universities and research institutes. Vietnam is also catching up fast.