My assignment is about the Axele Giroud analysis - an international business review on MNEs vertical linkages: The experience of Vietnam after Malaysia. I am going to analyse this review in the Part B accroding to 5 criterias, including Project Rationale, Literature Review, Paradigm and Design, Methods, Results and Presentation.
Malaysia and Vietnam: a development perspective
Relating to the my assignment's topic, it is neccessary to comprehend a brief summary about the Foreign Direct Investment (FDI) invetment in both countries.
As we know, attracting FDI is an indispensable part in the economic development strategy in any countries, especially in term of achieving benefit from foreign technology, capital and skills.
Malaysia had encouraged FDI since 1960s (Giroud 2007) and currently, Malaysia is one of the most successful Southeast Asian countries in attracting FDI. This is due to the fact that "Malaysia has always endeavored to maintain the competitiveness of FDI determinants like legal trade regime, legal infrastructure (FDI in Malaysia, http://www.tradechakra.com/economy/malaysia/fdi-in-malaysia-198.php).
In contrast, Vietnam became attractive for FDI until 1990s (Giroud 2007) and Vietnam has been quite sucessful in attracting FDI inflows since the inception of economic reform in 1986 after embarking on a path of reform, known as The Doi Moi policy. After that, Vietnamese economy had achieved a significant perfomance as one of the greatest growing economies in the world (Nguyen Ngoc Anh, Nguyen Thang, 2007).
However, the flow of FDI into Vietnam after Malaysia for 30 years, thus, the experence of attrative as well as getting benefit from MNEs is limited whereas Malaysia have been the successful case in this issues. Therefore, many experts have studied about the impact of MNEs on host countries, especially in demostrating the potencial for knowledge and technology transfer and the Axele Giroud 2007 is not an exeption.
B. CRITICAL REVIEW
Project Rationale
Problem
Realizing the problem is that the impacts of multinational enterprises (MNEs) on host economies have been studied carefully in the literature since the 1960s, but one aspect that still needs better understanding is the way foreign fimrs influence the development of local firms (Moran, 2005), through their local purchasing behaviour. It is the beneficial role of buyer-supplier linkages that have recently attracted increasingly growing attention of scholars and policy in host countries, especially in the tranference of knowledge and technology to local suppliers.
Aim
From the above problem, the author chosen Malaysia and Vietnam with the aim to compare MNEs supply activities in both countries, specially focus on Vietnam experience, and draw out the lessons from potential benefits that could be obtained by the country (and its firms) from the development of MNEs-supplier linkages in Malaysian. Malaysia is chosen because it is a neighbouring country and in the same region grouping of ASEAN. Moreover, MNEs have already developed substaintial vertical linkages with its supplier industries. Thus, the comparison with Malaysia is assessed to be useful.
Objective
As can be clearly seen from the review, the author provided with two objectives. The first is giving a desmonstration of the potential the knowledge transfer between multinationals and their suppliers in both Malaysia and Vietnam. Secondly, suggesting avenues for Vietnam to maximize beneficial linkages from MNEs after discussing the first objective.
However, the aims and objectives are seem to be corresponding. In addition, the second objective (suggesting avenues for Vietnam to maximize beneficial linkages from MNEs after discussing the first objective) has a larger meaning toward maximum intention. Thus, the objectives of this review are not appropriate for the aims.
Assumptions
Before writing the review, the author has studied many theoretical models that are relevant to the problem, (such as Markusen and Venables (1999) and Lin and Saggi (2005), in corporating technology transfer to a two-tier production structure), and the research based on the following assumptions.
Firstly, multinationals have positive effects on the development of indigenous firms through the creation of vertical linkages and sourcing of intermediate products locally (other effects notwithstanding);
Secondly, the multinational technology is superiror to that of its competitors;
The final is that the suppliers' capabilities improve as a result of the interaction with foreign customers behind knowledge transfer occuring between foreign firms and local suppliers
Hypothesis - 4 hypothesis
From the previous findings, the research asserted the vital role of local or national policies in terms of promoting not only local sourcing, but also the increasingly deep relationships between foreign and local firms. With this view, "Malaysia has adopted pro-active policies aimed at enhancing inter-firm linkages in the industrial sector (Jomo, 2001), and some regional initiatives have proved successful in encouraging training and human resource development, particularly in the electronics sector". Thus, two hypotheses are expected that: the first is there is potential for knowledge and technology transfer from foreign affiliates based in Malaysia and Vietnam to their local suppliers (proposition 1); the second is the nature of the relationship between foreign affiliates and their suppliers changes over time (proposition 2).
Furthermore, it is clear that MNE's supply relations in Vietnam differ from those in Malaysia with the detailed data and statistics about the FDI flow into both countries. To be more specific, the time that Malaysia has encouraged FDI since the late 1960s while Vietnam in 1990s and this marked the Vietnam transition from a centrally planned economy to a market economy as well as lacked of experience of market capitalism. As a result, it is expected that Because Vietnam is a transition economy, there is a difference in the level of knowledge and technology transfer from MNE's depending on whether they are located in Malaysia and Vietnam (Proposition 3); and the Proposition 4 is MNEs' knowledge and technology transfer to local suppliers contribute to the improvement of local supplier's capabilities.
Literature Review
The Giroud research has been implemented with a wide range of contemporary studies and given logical arguments with theoretical framewoks focusing on its main purpose. Therefore, through the review, it is cleary easy to collect relevant datas about the impact of MNEs on host economies problem and the clarity of ideas are acquired.
Right concepts
It is very essential to know whether the deï¬ned problem has already been solved, status of the problem, techniques that are useful to investigate the problem and other related details (S. Rajasekar, P. Philominathan, V. Chinnathambi, 2006). According to this theory, we can see that the author has been done the literature research basing on a large number of previous findings since 1960s and empirical studies which are extremely related to the problem.
With the research's problem, the need of understanding about the impact of MNEs on host economies through their local purchasing behaviour as well as buyer-supplier linkages is clearly shown with the definitions of two type of linkages. The concept exhibits about the vertical linkages (or backward) which represents the relations established with supplier firms while horizontal linkageg (forward) comprise relations established with business customers in the host economy.
Other concepts which are useful rationales connecting to the research's aim: Vertical linkages have received increased attention in the academic literature, with increasing numbers of studies addressing the issue of spillovers generated through vertical linkages; Linkages have positive effects on the firms concerned through spillovers; MNEs engage in tranfer activities that are beneficial for the development of local suppliers; Malaysia's experience in adopting policies aimed at enhancing inter-firm linkages in the industrial sector
Gaps
According to the (http://www.smu.ca/administration/library/litrev.html March 3, 2009), it is particularly important to represent the gap in knowledge which the research aims to fill because of needing to convince the reader that there is an opening in the area of study. Therefore, based on review of relevant literatures, the author point out existent issues (gaps) which have been relevant to the proposed problem and cause a lot of difficulties to cunduct the research.
Firstly, although multinational linkages have received considerable attention in the literature in host countries (Blomstrom, Kokko, and Zejan, 2000; Giroud, 2003; Rodriguez-Clare, 1996; UNCTAD, 2001), the mechanisms throuh which vertical linkages take place are still not well understood. Secondly. the study of linkages is well established in the economic development literature, it has not been integrated fully within the theoretical strands of multinationals' activities (Meyer, 2004). Finally, there has been no investigation of the potentially beneficial impact of MNEs on local supplier through transfer of knowledge and technology in the specific case of Vietnam.
Up to date
In terms of doing literature review, it is really important to have a diversified source which should be updated, precise information. In this research, Giroud collected datas from a variety of previous findings which related to the beneficial MNEs in host countries in general as well as Malaysia and Vietnam in particular. The statistics about the Characteristics of MNEs in Malaysia and Vietnam in 1996 is an example for this issue. It seems to be out of date and may be influence the accuracy of the research.
Paradigm and Design:
Paradigm
According to Geoff Wheeler and Steve Carter (P.19, 2010), at the research strategy lever, such as suvery, case study, ect. and the lever ò quantitative and qualitative data gathering and methods, eg. Interview, questionare, etc, mixed approaches may be adopted. Thus, it can be seen from the Giroud review, the author applied the realist approach in his research.
In the view of epistemology, the research debated the nature of the potencially beneficial for knowledge transfer between multinationals and their suppliers in both Malaysia and Vietnam as well as drawing the sucessfull experiences of MNEs-supplier linkages in Malaysia for Vietnam. In addition, the research based on demonstrable information which are determined through observation and/or experimentation from previous studies.
Besides that, in terms of ontology, Giroud (2007) clearly defines the relationship with supplier firms with the definition of vertical linkages and forward linkages which are necessary to any normal industrial market.
Design
Using the comparative design, Giroud (2007) illustrates clearly about the review's purposes and information related to the problems. It is obviously acknowledge about the differences of the business environment in general and MNEs' supply relations in particular of both countries. These are shown in the time of receiving FDI, the benefits from MNEs in Malaysia for a long time and from that, providing the sugget avenues for Vietnam to maximize the benefit of linkages from MNEs such as the need to reforming of competitive environment as well as policies for MNEs operation in Vietnam.
Mixed Method
As said in the Paradigm part, the research utilized the realistic method which both shares philosophical aspects with positivist, and acknowledges the importance of understanding people's socially constructed interpretations and meanings while seeking to understand broaders social forces, structures or process that influence and perhaps even constrain, the natura of people's view and behaviours (Geoff Wheeler & Steve Carter, P.13).
Also, with the mixed method, the review used both quantitative and qualititative approach to collect data. The paper use many datas from primary sources through inverviews (semi-structred quetstionare), suvery and in terms of the secondary sources, the paper utilized the information from ASEAN Statistical yearbook 2005.
Besides, using Positivist (mainly quantitative), the research used longtitudinal studies such as a seme-structured questionare used to interview managers in Malaysia and Vietnam (Mirza et al., 2003) to examine the activities performed by MNEs and assess vertical linkages established in the host economy while a similar study was impleneted in Malaysia in 1996 "a comparision with a similar earlier study conducted by the author of multinational firms in the electronics/electrical sectors in Malaysia in 1995. (Giroud 2003). It means that using the study in Malaysia in 1996 to comapre to the characteristics of MNEs in this country and Vietnam in 2002 (The table 1 in this research, (Giroud, 2007)
In interpretivism approach (mainly qualitative), the author use the case of Malaysia in the period between 1996 and 2002 to indicate that knowledge transfer activities have changed in nature overtime as well as represent positive correlations for knowledge transfer activities with the number of years spent by foreign firms in the host country.
With the above methods utilized in the Axele Giroud (2007), it can be said that all the datas and explainations are strongly related to the research's problem. However, the limitation of its methods is that it only focuses on the two industries of textlile and electronic whereas MNEs firms includes a great range of industries. Therefore, it may be not reflect the real situation fully, leading to subjective evaluation.
Result and Presentation
The impact of MNEs on host countries have been a increasingly growing subject in globalization and studied in many researches. In case study of Malaysia and Vietnam, the Giroud achieved the aim of assessing the existence of technology and knolwdge transfer from MNEs to local suppliers as well as cormparing the experience of the two countries.
Also, this paper are extremely useful for many countries in the region of Southeast Asia as well as a number of Central Asian economies,for which the FDI experience has only just been initiated. (Giroud 2007)
Furthermore, the research solved almost gaps shown above. The paper indicated about the mechanism through which vertical linkages are still not understood. Therefore, Giroud (2007) suggest that "Vietnamese economic and political systems need to be considered to design an effective promotion programmer of vertical linkages", including promoting its competitive environment as well as considering to the enhancement of domestic firms capabilities, for both SOEs and non-SOEs in order to strengthen the potential for linkages and spillovers by MNEs.
Giroud also marked that his review is the first research investigating about the impact of MNEs on local suppliers through knowledge and technology transference in Vienam.
However, the integration within the theoretical strands of multinationals' activities seems to be unclear explained in the research.
In terms of using structure, the paper is not-well organized. It is not in the following order and makes readers confusing such as the hypothesis, which was placed in part 2 - literature but explained until part 5 and 6. Moreover, the aims and objectives of this research are not appropriate with their main function; therefore, readers seem not to distinguish them.
In addition, although the part 7 - discussion contained a large overview of the development perspective in Malaysia and Vietnam, especially Vietnam that the paper aims to focus most but in my opinion, this part should be placed in the beginning of the research. Before reading this analysis, readers need to understand clearly about the perspective of the development of MNEs linkages both countries, especially relating to the main purpose of the research.
Furthermore, the language of the Giroud (2007) is professional with appropriate terminologies.
C. CONCLUSION
With the Giroud review, we can perceive more clearly about the impacts of multinational enterprises (MNEs) on host economies, especially the potential for knowledge and technology transfer in Malaysia and draw the lessons that could be learnt from it for Vietnam.
In addition, this paper also valuable for Vietnam where the competitive environment and legal trade regime remain insufficient to reform the business environment and policies to attract more FDI enterprises.
