The Bartlett School of Planning


Zaenal Arifin

Research subject

FDI Spillovers and Industrial Upgrading of Local Firms in the Automotive Global Value Chains

Primary supervisor: Dr Jung Won Sonn
Secondary supervisor: Dr Tommaso Gabrieli
Starting date: March 2018
Projected completion date: March 2022
Sponsor: Indonesian Endowment Fund for Education (LPDP)

Multinational Companies (MNCs) through their Foreign Direct Investment (FDI) have long been recognized as having direct and indirect impacts on domestic companies in developing economies. Different streams of literature have explored the direct contributions of MNCs; yet, the indirect impacts that can be attributed to FDI spillovers for indigenous enterprises are less well-defined. In this regard, the FDI framework generally emphasizes the idea of firm productivity changes; while the Global Value Chain (GVC) theory introduces a more specific concept, i.e. ‘industrial upgrading’. It is defined as the movement of native firms into more value-added activities within the value chain and consists of four trajectories, namely process, product, functional and interchain upgrading. However, unlike the GVC governance model that has received in-depth analysis by GVC scholars, the industrial upgrading notion has been partially addressed; thus less adequate to capture the actual occurrence of industrial upgrading.

There are some research gaps in previous industrial upgrading studies that are predominantly found in the context of the Producer-Driven Chain (PDC) industries managed by MNC affiliates and located in emerging countries. This study fills in the gaps through the empirical investigation of industrial upgrading of domestic suppliers in the automotive GVC, which is one of the most capital and technological intensive of PDC industries. To achieve this, the study develops an integrated theoretical framework that systematically links together FDI, GVC, Political Economy, and other pertinent literature as well as conducts the firm-level surveys across automotive clusters in Indonesia, and applies the mixed method of quantitative and qualitative analysis.

The purpose is elaborated into three detailed objectives. First, explicate mechanisms through which the establishment of vertical business linkages between global manufacturers and local subcontractors lead to their industrial upgrading dynamics. Second, disentangle effects perceived by native suppliers following their accomplishment of each pathway of industrial upgrading. Third, ascertain determinants at the micro, meso, and macro levels that allow various patterns of industrial upgrading are likely to materialize.