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Global Value Chains and Technological Capabilities: Analysing the Dynamics of Indonesia's Garments and Electronics Manufacturers

Kadarusman, Yohanes

[Thesis]. Manchester, UK: The University of Manchester; 2011.

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Abstract

The Indonesian manufacturing sector faces significant challenges in its attempt to upgrade and remain competitive in both domestic and global markets. Indonesian manufacturing firms are increasingly integrated into global markets via global value chain ties. Yet, little is known about how such involvement impacts upon the ability of Indonesian firms to upgrade. This study aims to understand the nature of upgrading processes within the Indonesian manufacturing sector through a comparison of the Indonesian garment and consumer electronics manufacturing firms. To gain a better understanding of upgrading processes, this study integrates the conceptual frameworks of technological capability (TC) and global value chains (GVC) in its analysis. While the GVC literature provides useful insights into the role played by global value chain leaders in assisting, or constraining, through the ways in which they govern value chain ties, the upgrading processes of local producers, the TC framework gives a valuable understanding of the role of capabilities of local manufacturing firms and their ability to undertake upgrading processes. By combining these two frameworks, this study asks the following question: what roles do governance and technological capability play in upgrading processes within the Indonesian garment and consumer electronics value chains?To address the research question, this study gathered both quantitative and qualitative data through surveys and in-depth interviews of Indonesian garment and consumer electronics firms. Firm level case studies are analysed to obtain detailed insights into the process and dynamics of upgrading, value chain governance and capability acquisition undertaken by Indonesian garment and consumer electronics manufacturing firms. Based on the evidence drawn from the survey and eleven case studies within the Indonesian garment and consumer electronics sectors, this study suggests that forms of value chain governance and types of technological capability both play important roles in upgrading processes. Furthermore, upgrading processes and dynamics take place not only in global value chains but also in domestic value chains. Insertion into domestic value chains may, in fact, promote the ability of some Indonesian garment and consumer electronics manufacturing firms to undertake functional upgrading. By demonstrating that the technological capability of the Indonesian garment and consumer electronics manufacturing firms can play an important role in upgrading especially when firms are engaged in domestic value chains but is less pronounced when firms are engaged through hierarchical ties into global value chains, the study provides a more dynamic perspective then standard studies on upgrading and value chain linkages. In terms of policy, this paves the way for a more active role of local manufacturing firms from developing countries to be recognised as contributing to upgrading processes.