Transnational Corporations and Business Networks: An Asian Perspective (Routledge Advances in Asia-Pacific 9)

TRANSNATIONAL CORPORATIONS AND BUSINESS NETWORKS Drawing upon extensive field research in Hong Kong and South-east Asia, this book focuses on networks of business and personal relationships as a key means of transnational operations. The book highlights the role of Chinese business networks in facilitating the emergence of transnational corporations from an Asian newly industrialised economy—Hong Kong. Beginning with the observation that today’s global economy is increasingly made up of cooperative networks and alliances among transnational corporations, the book examines the emerging characteristics and competitive advantage of transnational corporations from Asian NIEs. A business network perspective is used to examine the organisation of transnational business activities through intra-firm, inter-firm and extra-firm networks. Based upon qualitative case studies, the book explains how Hong Kong firms organise their South-east Asian operations through the overseas Chinese Business and personal guanxi networks. This book is a timely theoretical and empirical contribution to the recent debate on the nature and operations of ‘bamboo networks’ within the global economy and their role in the rapid economic growth and regional integration among Asia-Pacific economies. Henry Wai-chung Yeung is Lecturer at the Department of Geography, National University of Singapore.

ROUTLEDGE ADVANCES IN ASIAPACIFIC BUSINESS 1. EMPLOYMENT RELATIONS IN THE GROWING ASIAN ECONOMIES Edited by Anil Verma, Thomas A.Kochan and Russell D.Lansbury 2. THE DYNAMICS OF JAPANESE ORGANIZATIONS Edited by Frank Jürgen Richter 3. BUSINESS NETWORKS IN JAPAN Supplier-customer interaction in product development Jens Laage-Hellman 4. BUSINESS RELATIONSHIPS WITH EAST ASIA The European experience Edited by Jim Slater and Roger Strange 5. ENTREPRENEURSHIP AND ECONOMIC DEVELOPMENT IN HONG KONG Tony Fu-Lai Yu 6. THE STATE, SOCIETY AND BIG BUSINESS IN SOUTH KOREA Yeon-ho Lee 7. TECHNOLOGICAL CAPABILITIES AND EXPORT SUCCESS IN ASIA Edited by Dieter Ernst, Tom Ganiatsos and Lynn Mytelka 8. INTERNATIONAL MANAGEMENT IN CHINA Cross-cultural issues Edited by Jan Selmer 9. TRANSNATIONAL CORPORATIONS AND BUSINESS NETWORKS Hong Kong firms in the ASEAN Region Henry Wai-chung Yeung

TRANSNATIONAL CORPORATIONS AND BUSINESS NETWORKS Hong Kong firms in the ASEAN Region

Henry Wai-chung Yeung

London and New York

First published 1998 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2005. “ To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to http://www.ebookstore.tandf.co.uk/.” Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1998 Henry Wai-chung Yeung All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Yeung, Henry Wai-Chung. Transnational corporations and business networks: Hong Kong firms in the ASEAN Region/Henry Wai-chung Yeung. p. cm. Includes bibliographical references and index. 1. International business enterprises—Asia, Southeastern. 2. Business networks—China—Hong Kong. 3. Business networks—Asia, Southeastern. 4. Corporations, Chinese—Asia, Southeastern. 5. Hong Kong (China)—Foreign economic relations—Asia, Southeastern. 6. Asia, Southeastern—Foreign economic relations—Hong Kong (China) I. Title. HD2901.Y48 1998 338.8′8–dc21 97–32751 CIP ISBN 0-203-01411-1 Master e-book ISBN

ISBN 0-203-33400-0 (Adobe e-Reader Format) ISBN 0-415-14016-1 (Print Edition)

To Wei Yu my beloved wife

CONTENTS

1 2 3 4

List of figures

viii

List of tables

ix

List of boxes

xi

Foreword

xii

Acknowledgements

xiv

List of abbreviations

xvii

The rise of the network transnational corporation: an introduction

1

The emergence of transnational corporations from Asian newly industrialised economies

26

Conceptualising transnational corporations as networks of governance structures

49

Hong Kong firms in ASEAN: business organisation and corporate strategies

72

5

The social organisation of business networks

121

6

The political economy of Hong Kong firms in ASEAN

160

7

Competing in the global Triad: competitive advantage and business networks

181

Understanding transnational corporations and business networks

209

Attributes of parent Hong Kong transnational and their ASEAN subsidiaries

222

Profiles of selected Hong Kong transnational corporations

224

8 Appendix 1 Appendix 2

Notes

238

Glossary

243

References

247

Index

279

FIGURES 1.1 The ASEAN Region

15

3.1 A network model of transnational corporations

56

3.2 A network spectrum of forms of organising production chains

61

4.1 Geographical origins of cumulative foreign direct investment in ASEAN-5 countries 4.2 Geographical origins of inflows of foreign direct investment into ASEAN-5 countries 4.3 Number of Hong Kong subsidiaries and/or affiliates in ASEAN

76 78 79

4.4 Hong Kong equity investment in Singapore, by industry, 1985–91

88

4.5 Hong Kong manufacturing investment commitments in Singapore, 1980– 93 4.6 Hong Kong’s equity investment in Singapore’s manufacturing sector

88 89

5.1 Intra-firm integration among HKTNCs in the ASEAN region

136

5.2 Intra-firm coordination among HKTNCs in the ASEAN region

137

5.3 Intra-firm control among HKTNCs in the ASEAN region

137

5.4 Frequency of visits by top executives from parent HKTNCs

140

5.5 Sources of technology and expertise among ASEAN subsidiaries of HKTNCs 5.6 Sources of finance among ASEAN subsidiaries of HKTNCs

142

5.7 Distribution of types of connections among HKTNCs in the ASEAN region

150

7.1 Relative market positions of parent HKTNCs and their ASEAN subsidiaries 7.2 Short-term profitability of individual ASEAN subsidiaries

185

7.3 Long-term profitability of individual ASEAN subsidiaries

187

7.4 Possession of competitive advantage as viewed by parent HKTNCs

188

8.1 The future of Hong Kong operations among HKTNCs

219

8.2 The future of South-east Asian operations by HKTNCs

220

143

186

TABLES 1.1 Stock of foreign direct investment by country and region, 1988–95

10

1.2 Inflows and outflows of foreign direct investment, 1987–95

13

1.3 Key macro-economic indicators for ASEAN-5 countries, 1965–96 1.4 Gross domestic product of Hong Kong at current prices by economic activity, 1970–94 1.5 Key macro-economic indicators for Hong Kong, 1961–95 2.1 Geographical distribution of outward foreign direct investment from Asian developing countries 2.2 Characteristics of TNCs from developing and developed countries: a comparative summary 3.1 A typology of network relations and the socio-spatial organisation of business and production 4.1 Foreign direct investment flows from Hong Kong into ASEAN-5 countries, 1965–97 4.2 Value of approved Hong Kong foreign investment projects in Indonesia by sector, January 1967–June 1994 4.3 Hong Kong manufacturing investment in companies in production by industry in Malaysia, 1975–94 4.4 Employment by Hong Kong manufacturing investment by industry in Malaysia as at 31 December 1991 4.5 Value of approved Hong Kong foreign direct investment projects in the Philippines by sector, 1972–87 4.6 Net flows of Hong Kong foreign direct investment to Thailand by sector, 1970–95 4.7 Ownership forms of Hong Kong transnational coporations in the ASEAN region 4.8 Corporate strategies of parent Hong Kong transnational corporations 4.9 Corporate strategies of Hong Kong transnational corporations by industry 4.10 Investment motivations of Hong Kong firms in the PRC 4.11 Average wage and salary costs of Hong Kong transnational corporations by host country and by industry 4.12 Motivations of Hong Kong transnational corporations in ASEAN by country and by industry 4.13 Importance of different conditions for ASEAN operations by Hong Kong transnational corporations 4.14 Importance of different conditions for ASEAN operations by country and by industry

16-18 20 22 28-32 34 64 77 80 83-84 84-85 85-86 90-91 92 94 95-96 100 101102 102104 104 10508

5.1 Ways of establishing successful ASEAN operations by Hong Kong transnational corporations 5.2 Mechanisms of control of ASEAN operations by Hong Kong transnational corporations 5.3 Channels of marketing and sourcing among Hong Kong transnational corporations in the ASEAN region 5.4 Importance of connections in the ASEAN operations of Hong Kong transnational corporations 6.1 Regulatory policies affecting foreign investment in ASEAN countries 6.2 Social and institutional mechanisms of ASEAN operations by Hong Kong transnational corporations: a summary 7.1 The competitive advantage of Hong Kong transnational corporations and their ASEAN subsidiaries (responses from parent Hong Kong transnational corporations) 7.2 The competitive advantage of the ASEAN subsidiaries of Hong Kong transnational corporations 7.3 World-class hotels owned and controlled by Hong Kong transnational corporations 7.4 The competitive advantage of Hong Kong transnational corporations in selected industries 8.1 Characteristics of Hong Kong transnational corporations: a summary

123 139 141 151 166 179

188 189 195197 206 210

BOXES 4.1 HKGuard and regional market expansion 4.2 Hutchison Whampoa and portfolio diversification 4.3 Financial services and the role of cost factors 4.4 Hong Kong textile and garment transnationals and the role of cost factors 4.5 Hong Kong electronics transnationals and market-driven transnational production 4.6 HKPartners and client-driven motives

97-98 99 109110 111-12 112-14 114-15

4.7 HKTech and government assistance from Singapore

116-17

5.1 HKArch and intra-firm control and coordination

144-46

5.2 HKToys and Chinese entrepreneurship

148-49

5.3 HKComputer and inter-firm networks in ASEAN

153-55

5.4 HKCarpet and inter-firm networks of personal and business relationships 6.1 HKTrading and political connections in Thailand

157-58

6.2 HKElectronics and political connections in Malaysia

170-71 172

6.3 Leading Hong Kong business people and the Suntec Project in Singapore 6.4 HKTrans and access to government contracts

172-74

7.1 Leading electronics Hong Kong transnational corporations

192-93

7.2 Leading hotel groups from Hong Kong 7.3 The competitive advantage of Peregrine Investments Holdings

176-77 194 203-06

FOREWORD The literature on transnational corporations is, at last, evolving away from conceptualisations based, implicitly or explicitly, on Western forms of organisation and behaviour. For far too long, the Western-centric view has been presented not as geographically and historically specific but as the norm from which all others are an aberration. The notion of the so-called ‘Third World multinational’, which began to gain currency in the late 1970s and early 1980s, reflected this perspective. Such firms, we were informed, were ‘unconventional multinationals’ with a set of organisational, behavioural and sectoral characteristics which applied to the group as a whole (regardless of which country it originated from). Such characteristics were contrasted with the ‘conventional’ multinationals originating in Western countries, notably the US. A similar, though less extreme, interpretation was often promulgated about the Japanese transnational corporation, which had become so visible during the late 1970s. But, as Henry Yeung demonstrates in this excellent addition to the literature, not only is the whole idea of ‘Third World’ transnationals as a distinct species heavily flawed but so, too, is the idea that TNCs originating from developing, non-Western economies can be understood only in terms of their degree of deviation from a developed country benchmark. The essence of this innovative book is that firms of all kinds, whatever their geographical origins, should be seen as complex relational (intra-firm) networks connected into a multiplicity of inter-firm and extra-firm networks. The author shows clearly that the network form of organisation is not the novel phenomenon it is so commonly presented as in the modern business literature but a generic form. Whereas the West seems just recently to have discovered networks as an organisational panacea, it is clear that such forms have long been the fundamental nature of business structures and relationships in Asia. Through a perceptive conceptualisation of networks and, especially, through a series of in-depth case studies of Hong Kong TNCs operating in the ASEAN region, Henry Yeung enriches our knowledge and understanding not only of this specific set of firms from one of the world’s most dynamic economies but also of business relationships in general. In particular, he demonstrates the fundamental significance of place in thedevelopment of particular forms of transnational organisation. Firms are produced and reproduced within the specific social and cultural contexts in which they are embedded. The currently fashionable notion of the ‘placeless’ transnational corporation is shown to be a myth. By focusing on the labyrinthine networks of the Hong Kong Chinese business networks he shows how a business form very different from conventional Western forms is able to develop into powerful, and geographically extensive, transnational corporations. This impressive book will, I am sure, find a wide readership across a range of disciplines, both within the business and management studies fields and in such social sciences as geography, sociology and economics. At a personal level it gives me enormous pleasure to write the foreword, for I cannot claim not to have a vested interest in both the book and its author. Henry Yeung came to work with me in the School of Geography at the University of Manchester in 1992 as a Ph.D. student with his first degree from the National University of Singapore. Although he will be embarrassed by

the description, he was a perfect graduate student, from whom I gained an enormous amount of knowledge of how Chinese business networks operate. He has already, in a very short time, begun to make a distinctive mark across several academic disciplines through a fast-growing set of papers in international academic journals. This book, I am sure, will add considerably to his reputation. Peter Dicken University of Manchester

ACKNOWLEDGEMENTS Writing acknowledgements is perhaps the greatest joy and most exciting moment to any would-be author. This book is largely a result of my doctoral research completed in December 1995 at the School of Geography, University of Manchester, England. As with virtually all books, many people have contributed to the production of this one. First and foremost, you wouldn’t be reading it had I not been receiving consistent guidance and unfailing encouragement from my Ph.D. supervisor, Professor Peter Dicken. I am forever indebted to him for years of support in both academic and non-academic matters. I am also very honoured to have him writing a most interesting foreword to this book. While conducting my research in Manchester, I benefited enormously from stimulating discussions with Jeff Henderson, Jamie Peck, Adam Tickell and Richard Whitley. My external examiner, Nigel Thrift from Bristol University, provided wideranging comments on the first product which have significantly improved this much revised version. I would also like to thank Anne Booth from SOAS, London, for providing the research contact with Thee Kian Wie in Indonesia, and Sum Ngai-ling and Bob Jessop for contacts with Liu Tsun Kie in Hong Kong. At the CSE Conference in Leeds in July 1993, I received very helpful comments on my theoretical reconceptualisation from my favourite ‘critical realists’: Andrew Sayer, John Lovering and Andrew Leyshon. Back at the National University of Singapore, I am particularly thankful to Associate Professors Ernest Chew, Victor R.Savage, Teo Siew Eng and Tong Chee Kiong for their support and encouragement in various official capacities. My other colleagues have also provided a critical source of support and, sometimes, refuge: T.C.Chang, Shirlena Huang, Philip Kelly, Lily Kong, Linda Low, Owyong Tuck Meng, K.Raguraman, Toh Mun Heng and Brenda Yeoh. In particular, Peggy Teo must be credited for being the very first person to suggest the topic ‘Third World multinationals’ to me. I am indebted to her for this enlightening suggestion. I am grateful to Lee Li Kheng for the three wonderful maps that appear in this book. Others in Singapore have always been very encouraging: Yew Seng, Felicia, Dawn, Sam, Michelle, Ben, Mok, Ai Lee, Teck Hai, Regina, Brennan, Eric, Poh Lin, Sok Mei and Alan. During my fieldwork in Hong Kong and South-east Asia from September 1993 to September 1994, I received a Visiting Scholarship from the Centre of Asian Studies, University of Hong Kong. I am grateful to the former Director of the Centre, Edward K.Y.Chen. During our conversations, Professor Chen made several critical and extremely path-breaking comments on my research methodology. Thanks should also be given to the secretarial staff at the Centre for their great assistance and support. In Hong Kong, my interviewees spared a lot of their precious time to entertain my ruthless questions. I am very thankful to David Chan, Liu Tsun Kie, How Yan Lai and others for arranging personal interviews with top executives. Otto Chan, Andy Chow, Judith Hollows, P.L.Lau, Lam Wai Ho, John Lee, Patrick Lee, Gordon Redding, Gilbert Wong, Teresa Wong, Wong Siu-lun and Yeung Yue Man were very supportive of my research.

In South-east Asia, I received a Visiting Associateship from the Institute of South East Asian Studies, Singapore. I am grateful to Joseph Tan for helpful discussions. In Indonesia, I was fortunate enough to have immense logistic support from Yeung Ching Yiu and L.Subianto. I also had the honour to meet personally Sanyoto Sastrowardoyo, State Minister for Investment and Chairman of the Capital Investment Coordinating Board, who generously supplied me with all information on Hong Kong investment in Indonesia. Ir. Sopehari Boedihidayat, Head of Data Processing Centre of the Board, helped generate necessary data. In Malaysia, Zainal Abidin Rosli from the Malaysian Industrial Development Authority kindly offered very important information on Hong Kong manufacturing establishments in Malaysia. I also had an informative exchange with Mohamed Ariff from Universiti Malaya. During my second visit to Kuala Lumpur, Ian Cheong and his parents provided the very hospitality to engender the success of my interviews. In Singapore, I am grateful to James Wong from the Department of Statistics for supplying me with detailed statistics on Hong Kong investment in Singapore’s service and commercial sectors. Wong Wee Kim, Head of the Strategic Planning Division of the Economic Development Board, also provided me with a detailed breakdown of Hong Kong investment commitment in Singapore’s manufacturing sector. In Thailand, Yosthawee Prasitsilp served as the de facto local guide and helped translate some materials collected from the Board of Investment. I am grateful to Kritsana Nilsri from the Board of Investment for her unpublished report on Hong Kong investment in Thailand. Finally, I would like to thank specifically Mr and Mrs Lo Song Leng, the National University of Singapore and the Developing Areas Research Group of the Institute of British Geographers for their generous financial support which has made possible the research for this book. Other people and institutions gave me much help at different stages of the ongoing research. Thanks to Eric Ramstetter, now at the International Center for the Study of East Asian Development, Japan, for generously offering me a nearly complete set of data on foreign direct investment in Thailand, Malaysia and the Philippines. Eric also helped provide research contacts in Thailand and Indonesia. He got me involved in the National Bureau of Economic Research conference in Washington, DC, from which I benefited enormously. Kris Olds, formerly from Bristol University and now a colleague of mine in NUS, has been a constant source of inspiration and encouragement. This book has benefited from our long-lasting collaboration in Chinese business research. Thanks also to Dennis Tachiki from the Sakura Institute of Research, Japan, for his Philippine data. Earlier versions of parts of this book have been published elsewhere. I am grateful to the following publishers for permission to reproduce some material from articles I previously published in their journals/books. Parts of Chapter 1 first appeared in Environment and Planning A (Pion, London), Vol. 26 (12), pp. 1931–56, 1994. Parts of Chapter 2 were extracted from articles published in Third World Quarterly (Carfax Publishing, Abingdon), Vol. 15 (2), pp. 297–317, 1994, and Journal of Asian Business (Association for Asian Studies, Michigan State University), Vol. 10 (4), pp. 17–58, 1994. Parts of Chapter 3 were first published in Progress in Human Geography (Edward Arnold, London), Vol. 18 (4), pp. 460–90 and Organization (Sage, London), Vol. 5 (1), pp. 101–28. Parts of Chapter 4 first appeared in Area (the Royal Geographical Society with the Institute of British Geographers, London), Vol. 27 (4), pp. 318–34, 1995;

ASEAN Economic Bulletin (Institute of South east Asian Studies, Singapore), Vol. 13 (1), pp. 74–94, 1996; The Pacific Review (Routledge, London), Vol. 9 (4), pp. 505–29, 1996; and the Singapore Journal of Tropical Geography (Department of Geography, National University of Singapore), Vol. 17 (1), pp. 66–82, 1996. Parts of Chapters 5 and 6 came from my papers in Economic Geography (Graduate School of Geography, Clark University), Vol. 73 (1), pp. 1–25, 1997, and Cooperative Strategies: Asian Pacific Perspectives, edited by Paul W.Beamish and J.Peter Killing, San Francisco: New Lexington Press, pp. 22–56, 1997. At one stage of the book’s publication, I was unfortunately caught in the ‘interregnum’ of my publisher, Routledge, because of its recent change in ownership. The book, as a result, reaches you only one year later. I am thankful, however, to both Alan Jarvis, my former editor, and Stuart Hay for their continual faith and confidence in the project. Although the manuscript was subsequently reviewed again, I owe much gratitude to all four anonymous reviewers for reading earlier versions of parts or the whole book. While I have not taken on board all of their comments and suggestions for obvious, and sometimes conflicting, reasons, I have seriously attempted to revise and restructure earlier versions, which has undoubtedly improved the quality of the final product. For this, I am deeply grateful to my editor, Stuart Hay, and the reviewers. As usual, all errors and/or misinterpretations in the book are my sole responsibility. Last but not least, my grandmother in China and my parents and brother in Hong Kong are a constant source of encouragement and motivation. I thank them for allowing me to live away from home for so many years. My wife, Wei Yu, and her family were extremely helpful throughout the research. Her lovely company during field research in Asia also sheltered me from alienation and ‘culture shock’ in host countries. To Wei Yu, I can offer nothing in return for your love and patience other than this tiny piece of work. Henry Wai-chung Yeung Singapore, September 1997

ABBREVIATIONS ASEAN BKPM BOI CEPT ESCAP FDI GATT GDCF GDP GNP HKFDI HKSAR HKTNCs MIDA MFN MFA NIEs OBOI OECD OEM PRC TNCs UNCTC UNCTAD WTO

Association of South East Asian Nations Capital Investment Coordinating Board, Indonesia Board of Investment, the Philippines Common Effective Preferential Tariff Economic and Social Commission on the Asia-Pacific Foreign Direct Investment General Agreement on Tariffs and Trade Gross Domestic Capital Formation Gross Domestic Product Gross National Product Hong Kong Foreign Direct Investment Hong Kong Special Administrative Region Hong Kong Transnational Corporations Malaysian Industrial Development Authority, Malaysia Most Favoured Nation Multi-Fibre Arrangement Newly Industrialised Economies Office of the Board of Investment, Thailand Organisation for Economic Cooperation and Development Original Equipment Manufacturer People’s Republic of China Transnational Corporations United Nations Centre on Transnational Corporations United Nations Conference on Trade and Development World Trade Organisation

1 THE RISE OF THE NETWORK TRANSNATIONAL CORPORATION An introduction Multinational networks were not altogether unknown a century ago but they were curiosities, mainly a few giant oil and mining enterprises, some insurance companies and a handful of firms in chemicals and electrical products. By contrast, in the 1990s multinational enterprises have become ubiquitous, providing the principal channels by which goods, services and technology cross international borders. (Vernon, 1993a:12)

Today, nobody denies the significance of transnational corporations (TNCs) and their networks of operations in the global economy. More than half of world trade occurs within and among these corporate entities. The value of the foreign production of TNCs now exceeds that of world trade by a considerable amount. In 1993, the sales of the foreign affiliates of TNCs alone accounted for US$6 trillion, compared with that of trade in goods and services of US$4.7 trillion (UNCTAD, 1996a:7). Some of the world’s largest TNCs (e.g. Royal Dutch Shell and General Motors) hold total capital assets and generate income comparable to the wealth of a number of national economies (e.g. Ireland or Colombia). From a humble beginning more than a century ago, many of today’s largest global TNCs have evolved and developed into dense spiders’ webs and highly sophisticated networks of cross-border operations. Their evolving corporate strategies and organisational capabilities have enabled them to transcend national boundaries and establish themselves in every corner of the global economy (Barnet and Cavanagh, 1994; UNCTAD, 1996b). Few countries in the world now do not host a diverse range of TNCs, for the cost of such ‘xenophobic’ behaviour and detachment from the world economy would likely jeopardise the welfare of the national economy. In order to understand and to explain the intricacies of this phenomenon of the international operations of national firms and the emergence of TNCs, researchers from various academic disciplines such as economics, international business, international political economy and economic geography have pursued serious studies of the TNC since the 1960s. Stephen Hymer, in his 1960 doctoral dissertation, made the pathbreaking point that the foreign operations of national firms must be understood in terms of their firm-specific monopolistic advantages. A few years later, Raymond Vernon (1966) brought our attention to the location-specific factors that had prompted American firms to locate their operations abroad through a series of product life-cycles associated with technological innovations. Another ten years down the road, Peter Buckley and Mark Casson (1976) conceptualised the TNC as a transaction-cost-economising entity. In

Transnational corporations and business networks

2

other words, national firms operate abroad primarily to internalise the costs of engaging in transactions with foreign third parties. An almost parallel theoretical development in economics was John Dunning’s (1977) eclectic approach to explaining TNC activities. His approach combined the three major strands of the theoretical literature: Hymer’s market power approach, Vernon’s location-specific factor approach and Buckley and Casson’s internalisation approach. Since then, the mainstream economic literature on international production and the globalisation of TNC activities has been dominated by variants of these four leading economic approaches.1 A rather later theoretical development occurred in American business schools, particularly associated with researchers from the Harvard Business School among whom Vernon was the leader. This group of business scholars relied substantially on developments in organisation theories. They argued that transnational operations constitute a form of organisational innovation and that they are dependent upon emerging corporate strategies and the organisational capabilities of national firms. Perhaps the most well-known proponent of this approach is Michael Porter, who, in his various works (1980, 1985, 1986, 1990), argues that TNCs succeed in operating abroad because of their competitive strategy and distinct competitive advantages. Later business scholars further developed the idea of ‘competitive advantage’ into such concepts as ‘core competencies’, ‘strategic capabilities’, ‘the transnational solution’ and so on (Prahalad and Doz, 1987; Bartlett and Ghoshal, 1989; Prahalad and Hamel, 1990; Hamel and Prahalad, 1994). While these two major groups of theorists (i.e. industrial economists and business scholars) have done much to inform our understanding of TNCs, they fall short on two specific grounds. First, they tend to work in isolation from theoretical advances in other disciplines. Economic theories of international production, therefore, rarely borrow from organisation theories and vice versa (see Dunning, 1993b; Ghoshal and Westney, 1993a). Theoretical developments have been largely confined within disciplinary boundaries. Economic theories of international production are very much economistic in nature; they tend to explain only the economic mechanisms of TNC operations, representing an ‘under-socialised’ view of the reality of international business (Granovetter, 1985). Similarly, organisation theories of international business concentrate primarily on the structures of organising transnational activities. Despite claims of universality and generality, their interpretations of the foreign operations of TNCs are at best transient and context-specific. Second, when these theories, based on the experience of American and British transnationals, are applied to emerging TNCs from the developing world, as manifested in the ‘Third World multinationals’ literature, the problem of Western-centric interpretations arises.2 Whereas TNCs from developed countries are given the arbitrary status of ‘mainstream’, ‘Third World multinationals’ are regarded as ‘deviants’ and ‘unconventional’. The deviations of ‘Third World multinationals’ are explained away by established economic theories of international production. Genuine developments of TNCs from developing countries are subsumed under the overarching explanatory power of these theories. The net result of this academic exercise is the production and perpetuation of misleading stereotypes. For example, ‘Third World multinationals’ are often seen as very small in their assets and sales, labour-intensive in their operations, low in technological capabilities and restricted in geographical coverage (Yeung, 1994a).

The rise of the network transnational corporation: an introduction

3

This book aims to accomplish two specific objectives. First, by building the theoretical and empirical connections between TNCs and business networks, I aim to transcend disciplinary boundaries and draw insights from international business, organisational sociology, international political economy and economic geography in order to develop a network approach to the understanding of TNCs and their foreign operations. As elaborated further in the next section, networks have become not only an all-embracing organisational structure for transnational activities today, but also the defining characteristics of TNCs. Second, I aim to provide a non-Western-centric account of the emergence of TNCs from an Asian Newly Industrialised Economy (NIE)—Hong Kong (HKTNCs). So much of the literature on TNCs has been written in the theoretical traditions of American and British business schools. But when the ideas are applied to the context of those Asian economies in which the Chinese business system prevails, they fail to explain transnational activities other than at a superficial and economic level. The main reason for this failure is that these Western-centric perspectives dichotomise the ‘economic’ from the ‘social’ (see also Thrift and Olds, 1996). They tend to impose historically and geographically specific theories on to the experience of Asian economies. This book therefore intends to deconstruct existing Western-centric perspectives and to rebuild a generic network perspective to take account of time—space specificities in transnational operations. Transnational corporations and business networks: some key issues Diverse forms of activities by transnational corporations In their early days of overseas operations (i.e. between the nineteenth century and the early 1960s), TNCs were typically engaged in foreign direct investment (FDI) as the main form of international involvement. Subsidiaries were largely wholly or majorityowned by parent companies in home countries. These overseas subsidiaries were oriented towards producing for local markets because one of the main reasons for their establishment was to circumvent import restrictions and protective tariffs. One exception was resource-oriented FDI through which foreign subsidiaries provided primary and intermediate inputs to production processes based in the home country. The organisational structure of TNCs in those days was rather simple, conforming to a multidomestic structure (Dunning, 1993a). Joint ventures were sometimes used when local restrictions prevented full access by the foreign firm. Cross-border mergers and acquisitions occurred occasionally to facilitate industry-wide consolidation in response to emerging competition. By and large, however, majority-equity ownership was used by early TNCs as the major vehicle to establish their foreign presence. Since the 1960s, two interesting developments in the global economy have transformed the ways in which transnational activities can be organised. Networks, as a distinct form of organisational structure, have become one of the most common means to coordinate and to configure the global operations of TNCs. Increasingly, we begin to witness the rise of the ‘network corporation’, the ‘network society’ and ‘alliance capitalism’ (Lewis, 1995; Castells, 1996; Dunning, 1997). First, the accelerated globalisation of economic activities and, subsequently, the arrival of global competition

Transnational corporations and business networks

4

have meant that it is insufficient for any TNC to remain multi-domestic in its market orientation. Growing integration and interdependence of the global economy have brought TNCs together to compete with each other head-on. The benefits arising from a more refined geographical division of labour and production within the TNCs have begun to outweigh the costs of being less responsive to local market conditions. The only viable solution, it appears, is to integrate a company’s operations globally, as major TNCs have accumulated enormous organisational capabilities over the past few decades. This tendency towards global integration effectively forces TNCs to coordinate and to control closely their formerly local market-oriented overseas affiliates. The resultant form of organisational structure looks more like a ‘net’ than a loose confederation of corporate entities that used to be the main form of international operations. There is, therefore, a greater tendency towards the formation of strong intra-firm networks to exploit the core competencies of the corporate group as a whole through an internally coordinated and differentiated organisational structure. There are also economic advantages associated with multinationality per se such as global scanning and sourcing capabilities and crossborder subsidisation. On the other hand, intensified global competition has not only squeezed the profit margins of existing goods and services provided by TNCs, but has also driven up the costs of producing new goods and services. Today, it costs up to several billions of dollars to produce new models of cars, passenger aircraft and other research-intensive products (e.g. pharmaceuticals). TNCs can no longer rely on their own resources to survive this ‘tyranny’ of global competition; they must pull together other firms, competitors or collaborators, to help them ride out unpredictable storms in the global economy. Again, this trend has led to the formation of a diverse range of inter-firm networks in the form of equity and non-equity arrangements (Contractor and Lorange, 1988; Buckley, 1994; Beamish and Killing, 1997). The proliferation of strategic alliances in the past two decades is perhaps the best testimony to this argument (Lorange and Roos, 1992; Gilroy, 1993; Faulkner, 1995). Other non-equity arrangements include cooperative agreements, international subcontracting, joint R&D collaboration and so on. A second important development in the global economy is technological change, On the one hand, technological innovations in biotechnology, information processing, electronics and computer technology have hastened the coming of global competition by shortening product life-cycles and reducing the effectiveness of national boundaries. This has the effect of promoting the formation of inter-firm alliances and business networks to diversify risks and to overcome competition. On the other hand, enabling technologies such as the Information Revolution have facilitated the global integration and coordination of TNC activities within intra-firm networks (Ashkenas et al., 1995; Castells, 1996). It is now easier not only for the headquarters to coordinate the disparate activities of overseas subsidiaries, but also for these very subsidiaries to feed back information to their headquarters. The almost real-time integration between sales and production at Benetton is an excellent example of how a global TNC can take advantage of technological innovations. Through both effects, the network form of transnational organisation has come to dominate today’s world of international business. I shall return to these different forms of organising international business in later parts of the book. Business networks as processes and relations

The rise of the network transnational corporation: an introduction

5

So far we have only dealt with the prevailing view that networks are the ‘new’ form of organising TNC activities (e.g. Bartlett and Ghoshal, 1989; Forsgren and Johanson, 1992a; Nohria and Eccles, 1992). A second important view of networks, which is central to the arguments of this book, is to interpret networks as ongoing processes and relations among actors and participants (Yeung, 1998a). I shall develop this notion in greater detail later in the book. It would be useful, however, to give a preview of this central idea of networks as ongoing processes and relations. One of the key ideas underscoring this notion is embeddedness, originally developed by economic sociologists (see Granovetter, 1985). By embeddedness, we mean that economic activities are also influenced by ongoing social relations, rather than solely governed by abstract economic rationality. There is, thus, a dialectical process between the ‘economic’ and the ‘social’ to generate empirical outcomes, be they market transactions or transnational operations. For example, a market exchange between a buyer (e.g. a reader) and a seller (e.g. a bookshop) involves not only an arm’s-length transaction (i.e. the act of purchase) but also a process of social relation (i.e. non-economic reasons for choosing a particular book and seller). In the context of industrial organisation, that process of social relation often influences the mode of transactions and governance structures (Granovetter, 1991). There are, therefore, non-economic logics to what appears to be a purely economic action. We need to understand both the economic and the non-economic rationality of any economic action (Zukin and DiMaggio, 1990a). Applied to the world of international business, this notion of embeddedness can be extended to mean that a TNC, like any other firm, is embedded in on-going networks of diverse relationships—economic, social, cultural and political. The TNC becomes a constellation of diverse relationships whereas the network provides the central dynamic to the functioning of TNC activities. These networks of relationships therefore perform their role as the key processes making transnational operations possible. In other words, TNCs are always engaged in different processes of network relationships in different historical and geographical contexts. Let me give an example of the ways in which network relationships differ under different historical contexts. Based on his detailed study of Western business history, Alfred Chandler (1990) has shown convincingly that the management of British firms was embedded in personal interests and relationships even up to the Second World War. This was a period in which networks served as processes and relations for the management of British firms. In more recent years, however, British firms, including British TNCs, have become much less personalised and rely more on professional management. They also initiate and participate in various interfirm networks of cooperative agreements and strategic alliances. From an historical perspective, there is a distinct transition from networks of relationships to the network form of organising economic activities among most British firms (Lane and Bachmann, 1996; Windolf and Beyer, 1996). In the case of British TNCs, their international operations have also evolved from being embedded in the personal relationships of the founders or their immediate families to being part of a much larger network of integrated operations regionally and globally. Network relationships have therefore given way to the network form in the organisational structure of transnational operations. This is not to say, however, that relationships are no longer important at all in shaping industrial organisation in many Western societies; indeed, many Western firms are still strongly embedded in their distinctive national structures (Pauly and Reich, 1997; Keller et al.,

Transnational corporations and business networks

6

forthcoming; Yeung, forthcoming f). But rather they are less relied upon and increasingly replaced by written contracts and other formal means of organising economic transactions among firms. To illustrate the geographical differences in the workings of network relationships, we look at the case of Chinese business firms and their transnational operations. Today, most Chinese business firms are still largely embedded in networks of business and personal relationships that will be examined in detail later in this book (see also Yeung, 1997a, 1997b). These business and personal networks of relationships are (1) socially specific because they are institutionalised in the Chinese business system and (2) geographically specific because they are primarily found among the overseas Chinese diaspora throughout the Asian region. The Chinese rely substantially upon personal and business relationships, as processes of business organisation, to engage in transnational operations. They tend to shy away from strategic alliances, but prefer to engage in informal and personal networks of inter-firm relationships. In this sense, the case of Chinese business firms contrasts nicely with typical Western firms in that the former rely upon networks as processes and relations whereas the latter rely upon networks as a form of organising economic activities. There are many social and cultural specificities in the different types of business networks and their transnational operations. In this book, I examine these specificities with reference to the case of TNCs from Hong Kong. Towards a broader definition of the transnational corporation The above conceptualisation of the TNC both as network forms of structures and as processes and relations of network structures has serious implications for our definition of the TNC. What exactly is a transnational corporation, given the diverse range of activities in which it is engaged? To begin with, there are several alternative types of economic definition of the TNC (Buckley and Casson, 1985): 1 an ‘operating’ definition: any firm that owns or controls income-generating assets in more than one country; 2 a ‘structural’ definition: multinationality is judged according to corporate organisation; 3 a ‘performance’ definition: some absolute or relative measure of international spread, e.g. number of foreign subsidiaries and percentage of sales accounted for by foreign sales; 4 a ‘behavioural’ definition: the corporation’s degree of geocentricity and spread. There are many problems associated with these different definitions of TNCs. First, as Cowling and Sugden (1987:57) argue, there has been ‘a tendency to simply provide a definition [of the TNC] without deriving it from first principles’ such as the theory of the firm. The definition of TNCs by the United Nations Economic and Social Council is an example of an influential definition devoid of its theoretical roots. TNCs are referred to as ‘all enterprises which control assets—factories, mines, sales offices and the like—in two or more countries’ (UNCTC, 1978:158). Second, for those definitions that are grounded in principles such as the theory of the firm, there is a problem of misguided focus. For example, following Coase’s (1937) view that the firm is the means of coordinating production without using market exchange, Buckley and Casson (1976) simply view the TNC as a firm in which the coordination of production without using

The rise of the network transnational corporation: an introduction

7

market exchange takes the firm across national boundaries. This emphasis on the dichotomy between market and non-market exchanges (i.e. types of exchange) has fundamentally overlooked the nature of exchange, which, according to Cowling and Sugden (1987), should form the essential elements in the definition of TNCs. The mature Coase, in his 1988 lecture, recognised the central importance of organisational coordination among firms, not just within the firm (quoted in Aoki, 1990). Third, it is clearly misleading to define firms, in particular TNCs, on the basis of purely legal definitions of firms’ boundaries and activities, e.g. the UNCTC (1978) definition, because the concern should be on the strategic role of firms as economic decision-making units (Whitley, 1992a). Taking these pitfalls of alternative definitions of TNCs into account, I shall follow Cowling and Sudgen’s (1987) and Dicken’s (1998) definitions of TNCs as strategic decision-making centres: 1 It effectively excludes portfolio investments that are not concerned primarily with coordinating and controlling the production chain. 2 It does not matter if there are market (e.g. subcontracting) or non-market (e.g. internal transfer) exchanges in the definition of TNCs in so far as the strategic decision-making remains within the TNC. The definition therefore identifies a spectrum of transnational involvement ranging from orthodox FDI to networks of inter-firm relations. 3 It is easier to identify whether an international involvement is directly concerned with the control of the production chain or not. For example, if a domestic firm engages in a contract to export its firm-specific advantages such as technological know-how to a foreign firm abroad in exchange for royalties (appropriated through whatever ways) without an explicit aim to control the production processes of the recipient, the domestic firm is not considered a TNC, because it is merely exporting its proprietary know-how just like any export product. It is possible, therefore, at least, to identify what constitutes a TNC by examining the nature of the exchange and production of goods and services. This element is particularly important in the definition of TNCs from developing countries because their transnational operations are often not as clearcut and straightforward as FDI projects by their counterparts from developed countries (see Chapter 2). 4 It implies that transnationalisation sometimes need not involve the export of financial capital at all because a TNC can exert its control over its foreign operations through other means such as technological, social and even political control. A TNC can enter into a joint venture without injecting any financial capital. It maintains its control through its technological supremacy, upon which its partner has to rely. Social control is another means of transnational operations. A TNC can effectively control a foreign firm through ongoing networks of business relationships in which the foreign firm is embedded. The foreign firm will lose its reputation and trust if it does not follow the decision-making of its ‘parent’ TNC. The control of a TNC can also be extended through its political power. Power relations are fundamental in the processes of transnational operations. The ability of a TNC to manipulate its political influence in the host country necessitates the local ‘subsidiary’ paying tribute to the former’s decision-making. Viewed in these ways, economic analyses of international

Transnational corporations and business networks

8

production based on aggregate FDI (financial capital) data face a serious problem of oversimplifying reality. A firm is the means of coordinating production from one centre of strategic decision making. A transnational is the means of coordinating production from one centre of strategic decision making when this coordination takes a firm across national boundaries. (Cowling and Sudgen, 1987:60) A firm which has the power to coordinate and control operations in more than one country, even if it does not own them. (Dicken, 1998:8) The idea of the TNC as a co-ordinator of transnational production is important. A firm would not be a TNC if it did not participate directly in the production chain that involves an ultimate transformation of inputs, through various stages of processing, into outputs of either intermediate or final products. The production chain includes not only the production of a particular product, but also the distribution, marketing and servicing of that product. This conception of the TNC as a strategic centre of control and coordination of economic activities across national boundaries is practical for several reasons: The notion of control is, nevertheless, still crucial to the definition of TNCs. The point was raised in early studies of American direct investments abroad (Hymer, [1960] 1976; Kindleberger, 1969). It fits well even in the so-called ‘flattened networks’ of industrial and business organisation. Some distinctions between several much-abused terms— ownership, influence and control—are necessary. Ownership refers to the amount of corporate stocks and shares owned legally by an individual or institutional investor. The extent of ownership by the latter category of investors has been increasing at an accelerated rate. Influence refers to the ability of individuals or institutions to affect the outcome of corporate decision-making, but it does not involve corporate governance. Control refers strictly to the corporate governance of particular business organisations by individual investors or institutions. It implies the exercise of power, not just the possession of power. Control takes many forms: either through capital (e.g. a wholly owned subsidiary), technology (e.g. proprietary technical know-how), production requirement (e.g. subcontracting) or labour (e.g. management). The case of transnational corporations from Hong Kong An additional component of the increasing geographical diversity of sources of FDI is the recent development of overseas direct investment by firms from the East and South East Asian NICs, notably South Korea, Taiwan and Hong Kong. As yet, the levels are relatively small but such small beginnings are almost certainly the harbinger of important future developments. (Dicken, 1993:29)

The rise of the network transnational corporation: an introduction

9

To date, the majority of the world’s largest TNCs have originated from advanced industrialised countries in North America, Western Europe and Japan. This observation is easily verified when one glances through the Fortune list of the top 500 largest TNCs worldwide. There is, however, a specific group of companies which, though having a long history of existence, have not been well recognised: TNCs from developing countries (Yeung, 1994b). For example, TNCs from Hong Kong, a tiny former British colonial island on the southern tip of the People’s Republic of China (PRC), have spearheaded a tremendous surge of regional investments and economic development. A reader, in particular one from the Anglo-Saxon world, may be surprised by the sheer volume of outward FDI from Hong Kong and the complex corporate strategies and mechanisms through which HKTNCs have established their transnational operations. Such surprises arise primarily because so much of the existing writing has concentrated on giant TNCs from the Triad regions of North America, Western Europe and East Asia. And yet few of them have addressed an emerging driving force in the global economy—the overseas Chinese networks of capital and their ‘motherland’—the PRC. The Asian Pacific region, in particular East and South-east Asia, is clearly one of the most dynamic regions in today’s world economy. The region also has the highest potential to dominate the market of the future. For example, in the next two decades or so, the PRC may probably replace the US as the world’s largest market. Within this remarkable growth region, Hong Kong-based companies and their allies from the Asian NIEs have proliferated rapidly in the past three decades to search actively for new markets and investment opportunities through transnational operations. In fact, HKTNCs have always been one of the most significant groups of TNCs from these vibrant Asian NIEs; they also have a long history of operations in the South-east Asian region (Yeung, 1994c, 1995b, 1996b). Their systematic neglect in the literature prompts an original inquiry in its own right. The study is particularly timely in view of the recent reversion of Hong Kong to the PRC as a Special Administrative Region (HKSAR). Before going into more substantive issues, however, it is useful to examine very briefly the global and regional contexts in which HKTNCs operate. The global and regional contexts The globalisation of economic activities Since the 1960s, the world economy has witnessed the accelerated globalisation of economic activities—a dynamic process sustained particularly by an enormous growth of FDI and cross-border operations by TNCs (Dicken, 1992a, 1993, 1998; Dunning, 1993a, 1993b, 1995a; UNCTAD, 1996b). This process of transformation is termed ‘global restructuring’ which redefines capital—labour relationships, and the role of the state, while furthering the asymmetrical interdependency of economic functions across national boundaries…[This global] restructuring ‘internal’ to the territorial unit has been combined with spatial (intra- and international)

Transnational corporations and business networks

10

shifts in investment (of practically all forms of capital) and a massive expansion of the radii of organizational control. (Castells and Henderson, 1987:1) Along with the growing role of TNCs, the UNCTC (1992a) has identified some other recent and long-standing developments: 1 increasing emphasis on market forces and a growing role for the private sector in nearly all developing countries; 2 rapidly changing technologies that are transforming the nature of international production and the organisation as well as the location of such activities; 3 the globalisation of firms and industries, whereby production chains span national and regional boundaries; 4 the rise of services to become the single largest sector in the world economy; 5 regional economic integration, involving the world’s largest economies as well as selected developing countries; 6 an increasing tendency towards developing intra- and inter-firm networks on a global and local scale; 7 the adoption of a global competitive strategy towards future development of TNCs and the world economy. Table 1.1 shows the global stock of FDI by country and region from 1988 to 1995. The outward FDI stock grew from a meagre US$129 billion in 1970 to US$1,146 billion in 1988 (UNCTAD, 1994: Table I.8). By 1995, it was estimated at some US$2.7 trillion. In other words, it had more than doubled during the period 1988–95. The US maintained its lead as the world’s largest investor, followed by Japan and the UK. The two other top five investors were France and Germany. Among these five leading world investors, France and Japan have experienced the greatest growth in their outward FDI during the past five years.

Table 1.1 Stock of foreign direct investment by country and region, 1988–95 (US$billion) Region/Country 1988 1989 1990 1991 1992 1993 1994 1995a Outward France 51 75 110 130 161 182 183 201 Germany 014 121 152 173 179 196 200 235 Japan 110 154 202 233 250 264 284 306 UK 185 194 229 232 221 247 281 319 US 346 390 432 467 489 539 610 706 World total 1,146 1,360 1,649 1,822 1,932 2,125 2,412 2,730 Inwardb Developed countries 961 1,148 1,374 1,485 1,520 – 1,729 1,933 Western Europe 447 561 745 825 838 – 972 1,088 North America 407 472 504 528 541 – 610 681

The rise of the network transnational corporation: an introduction

Other developed countries Developing countries Africa Latin America/ Caribbean East, South and SE Asia Western Asia The Pacific Central and Eastern Europe World total

11

106

116

125

132

141

–

147

164

33 98

38 105

40 116

42 131

46 149

– –

55 199

23 226

105

121

143

163

192

–

335

403

27 2 0.2

27 2 0.5

28 2 0.8

28 3 3

29 3 8

– – –

39 3 20

42 3 32

1,226 1,442 1,705 1,856 1,948

– 2,342 2,658

Source: UNCTAD (1994: Table I.8; 1996a: Annex tables).

Notes: The levels of worldwide inward and outward FDI flows and stocks should balance; however, in practice, they do not. The causes of the discrepancy include differences between countries in the definition and valuation of FDI; the treatment of unremitted branch profits in inward and outward direct investment; the treatment of unrealised capital gains and losses; the recording of transactions of ‘offshore’ enterprises; the recording of reinvested earnings in inward and outward direct investment; the treatment of real estate and construction investment; and share-in-equity threshold in inward and outward direct investment. a Based on preliminary estimates. b Note that in this as in some later tables not all columns add up to the total shown, owing to the effects of rounding. From merely US$51 billion in 1988, outward FDI stock from France had almost quadrupled to reach US$201 billion in 1995. During the same period, Japan’s outward FDI stock had almost tripled to reach US$306 billion in 1995. Table 1.1 also reveals important trends in inward FDI stock during the period 1988– 95. In 1988, some US$961 billion (78 per cent of the total) of global FDI stock went to developed countries, split equally between Western Europe and North America. Another US$265 billion (22 per cent) was taken up by developing countries, mainly in Latin America and the Caribbean and Asia. By 1995, this broad ‘global division of investment’ had not changed at all. Developed countries still attracted some 73 per cent of total global FDI stock (US$1,933 billion), whereas the share of developing countries increased to 26 per cent. There is, however, an important intra-group difference—the shares of Western Europe and Asia had increased significantly vis-à-vis their counterparts. From US$447 billion in 1988, Western Europe had received some US$1,088 billion by 1995, outpacing North America by a significant margin. One explanation for such differential growth of

Transnational corporations and business networks

12

inward FDI stock between the two continents is the role of Japanese FDI, which has surged tremendously since 1988 to penetrate into Western Europe. On the other hand, Asia had gained more inward FDI stock during the same period (from US$105 billion in 1988 to US$403 billion in 1995), compared with Latin America and the Caribbean. This difference in the growth of inward FDI stock between Latin America/the Caribbean and Asia clearly reflects their differences in economic dynamism during the past five years. In particular, the PRC, Asian ‘tiger’ NIEs and aspiring South-east Asian NIEs (e.g. Malaysia and Thailand) have certainly out performed their Latin American and Caribbean peers. Table 1.2 shows the inflows and outflows of FDI on the global scale. Both global FDI inflows and outflows had experienced very rapid growth during the late 1980s, registering up to 24 per cent growth between 1986 and 1990. The early 1990s, nevertheless, witnessed a slowing down of this growth process because of several unexpected historical events such as (1) the collapse of Japan’s ‘bubble economy’ and subsequently its recession since the late 1980s; (2) the Gulf War in 1990 and subsequent recession in the US and major OECD countries, and (3) political instability in the PRC in 1989 and the subsequent slowing down of its economic growth rates. By 1995, however, the global FDI outflows had more than recovered to the pre-1990 level at US$318 billion, of which about one-third was destined for the emerging markets in developing countries. During the early 1990s, developed countries continued to dominate both inflows and outflows of FDI. The share of developed countries in FDI inflows, however, had decreased from 84 per cent during the period 1986–90 to 65 per cent in 1995. Meanwhile, the share of FDI inflows by developing countries had increased from 26 per cent in the period 1981–5 and 16 per cent in the period of 1986–90 to 39 per cent in 1994. This impressive growth of FDI inflows aside, FDI outflows from developing countries remained consistently low throughout the 1980s at 2–3 per cent (between US$5 billion and US$18 billion). The 1990s, however, witnessed the rapid growth of FDI outflows from these developing countries. By 1995, some 15 per cent of the world’s FDI outflows (US$47 billion) originated from developing countries. This interesting pattern provides an important context for our understanding of FDI outflows from Hong Kong. Foreign direct investments in the Asia-Pacific economies At the regional level, Asia-Pacific economies captured some 39 per cent of total FDI inflows to developing countries during the period 1981–5. By 1992, this share had increased further to 53 per cent, clearly a reflection of the region’s rapid economic growth (UNCTC, 1992b: Table 8). Interestingly, a large proportion of these huge FDI inflows has been intra-regional (ESCAP/UNCTC, 1988; Ramstetter, 1991; Chen, 1993; Toh and Low, 1994; Blomqvist, 1995; Nomura Research Institute and Institute of South east Asian Studies, 1995). In particular, Japan has emerged as the leading investor within the region, followed by the US. Before early 1993, total cumulative Japanese investments in Asia amounted to US$60 billion, almost double the US commitments in the region (The Business Times, 22 September 1993). Asia has also become one of the major recipients of Japanese FDI in manufacturing industries. The annual share of Asia has soared from 17 per cent in 1988 to 33 per cent in 1993, while North America’s share has dwindled from 67 per cent to 37 per cent within the same period (Fukushima and Kwan,

The rise of the network transnational corporation: an introduction

13

1995:3). Other former colonial powers, such as the UK and the Netherlands, also have some stake in the region because of historical ties.

Table 1.2 Inflows and outflows of foreign direct investment, 1987–95 Developed countries Developing countries All countries Year Inflows Outflows Inflows Outflows Inflows Outflows Amount (US$billion) 1981–5 37 47 13 1 50 48 1986–90 130 163 25 6 155 168 1987 109 132 25 2 135 135 1988 131 162 28 6 159 168 1989 168 212 27 10 196 222 1990 170 223 34 18 204 204 1991 114 202 41 9 158 211 1992 114 181 50 21 168 203 1993 129 192 73 33 208 226 1994 133 191 87 39 226 230 1995 203 271 100 47 315 318 Share in total (%) 1981–5 74 98 26 2 100 100 1986–90 84 96 16 4 100 100 1991 74 96 24 4 100 100 1992 65 95 32 5 100 100 1993 62 85 35 15 100 100 1994 59 83 39 17 100 100 1995 65 85 32 15 100 100 Growth rate (%) 1981–5 1 3 −4 33 −0.1 3 1986–90 24 24 17 49 23 24 1991 −32 −17 25 −28 −22 −17 1992 −5 −12 32 33 −2 −11 1993 13 6 45 52 24 11 1994 3 −1 19 17 9 2 1995 53 42 15 22 40 38 Source: UNCTAD (1994: Table I.4; 1996a: Table I.1)

Notes: See Table 1.1.

Transnational corporations and business networks

14

In terms of recipients, the PRC has become a major magnet for FDI inflows in the region. The ASEAN region, as a whole, is also an attractive region to FDI inflows, particularly intra-regional flows. In fact, since the mid-1980s, there has been an increasing tendency for greater economic linkages between the NIEs and ASEAN countries. On a per capita basis, the NIEs were investing 33 per cent faster than the Japanese in the late 1980s (Guisinger, 1991:36). By 1990, the NIEs, as a group, constituted the largest investors in all ASEAN countries with the exception of Singapore (see Chapter 4). This is because the NIEs have become more developed, with human resources embodying higher skills and utilising more sophisticated technology. The ASEAN region The Association of South East Asian Nations (ASEAN) was established in August 1967. The original six member states were Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since July 1995, Vietnam has joined ASEAN as the seventh member state. Recently, Myanmar and Laos have joined ASEAN as its latest member states. The ASEAN region, as the key regional focus of this book (see Figure 1.1), has experienced rapid growth and economic development in the past two decades (Wong, 1979; Dixon, 1991; Rigg, 1991, 1997; Hoa, 1996; Jomo, 1997). ASEAN, as a regional grouping among its member states, has made remarkable progress towards more intragroup economic cooperation and political stability. It is also one of the most successful regional groupings in the global economy today. ASEAN countries are committed to the principle of ‘open regionalism’ through which the regional grouping will reinforce economic liberalisation and free trade both in the ASEAN region and in the global economy. In a state-of-the-art review of economic development in the ASEAN region, Hill (1994:834) concludes that ‘for all the problems, the ASEAN record (minus the Philippines) has been a very good one by the standards of both today’s industrial economies at a similar stage in their economic history and those of almost all other developing countries’. Table 1.3 presents some key macro-economic indicators of ASEAN countries from 1965 to 1996. During the period 1965–85, Singapore registered the highest average annual growth rate, at 7.6 per cent, compared with less than 5 per cent in four other ASEAN countries. Since 1985, the growth pattern has changed considerably. While Singapore has continued to enjoy relatively high annual growth rates since 1987, Indonesia, Malaysia and Thailand have also made significant progress in catching up as Asian ‘tigers’. Among all ASEAN countries, Thailand has registered the highest growth rates since 1987, followed closely by Malaysia and Indonesia. During the same period, the Philippines has shown positive growth figures, but it has remained largely underdeveloped. It is likely that Indonesia will overtake the Philippines, in terms of GNP per capita, in the near future. By then, the Philippines will have become the poorest country among all ASEAN member states. Another important observation is that Brunei and Singapore have a GNP per capita comparable to that of many developed countries in Western Europe (e.g. the UK).3 While Brunei owes much of its national wealth to natural resource exploitation (i.e. oil), Singapore has achieved its NIE status through a rapid process of industrialisation in the presence of foreign capital.

The rise of the network transnational corporation: an introduction

15

Figure 1.1 The ASEAN Region There is no doubt that FDI has played a significant role in the economic development of these ASEAN countries (Hill, 1990; Lim and Pang, 1991, 1994; Low and Toh, 1993). Malaysia, Singapore and Thailand have made almost quantum leaps in their economic development in conjunction with rapid inflows of FDI and TNCs (Natarajan and Tan, 1992). Though intra-ASEAN investment has been observed (Chia, 1993a; Singh, 1993; Blomqvist, 1995), it is not a very significant source of investment: ‘[i]ntra-ASEAN investments may in fact have taken more of a back place as compared with investments abroad made from the region’ (O’Brien and Muegge, 1987:193) At the same time, ASEAN member states have taken steps to liberalise intra-regional trade flows, with the inauguration of the ASEAN Free Trade Area (AFTA) in which zero tariffs on intraASEAN trade will be implemented over a period of fifteen years. In 1995, intra-ASEAN exports amounted to US$68.8 billion, out of which some US$56.3 billion were products under the Common Effective Preferential Tariff (CEPT) Scheme (ASEAN Economic Bulletin, March 1997:370). AFTA has since been perceived as an attraction to FDI inflows to the ASEAN region because of the greater prospect of regional market integration (Chia, 1993a). There was also an agreement among ASEAN member states in 1996 to establish an ASEAN Investment Area to promote regional investment initiative and to attract investments into and within the region. There are therefore intricate, and yet dynamic, relationships between trade and investment within the ASEAN region (Ariff and E.C.Tan, 1992).

Transnational corporations and business networks

16

Hong Kong: a dynamic economy From a fishing village and small port at the southern tip of the Ching dynasty in the nineteenth century, Hong Kong had been transformed into a major financial and commercial centre in the Asia-Pacific region by the late twentieth century, serving also as a major springboard to building further economic relations with

Table 1.3 Key macro-economic indicators for ASEAN-5 countries, 1965–96 Year Real GNP per Inflation Current Gross Gross capital GDP capita (%) A/C BOP national formation (% growth (US$) (US$b) savings (% GNP) (%) GNP) Brunei 1987 1.1 15,390 1.7 1.5 – – 1988 2.2 – 2.0 1.4 – – 1989 3.5 13,468 2.5 1.6 – – 1990 3.0 – 2.5 1.8 – – 1991 4.0 – 1.6 1.6 – – 1992 −1.1 – 1.3 1.5 – – 1993 −4.1 11,898 4.3 1.4 – – 1994 −2.0 – 3.0 1.0 – – 1995 2.0 – 6.0 0.6 – – 1996 3.0 – 3.4 0.7 – – Indonesia 1965–85 4.8 530 – – – – 1985 2.5 500 – – – – 1986 4.0 450 – – – – 1987 4.9 450 9.3 −2.1 32.5 32.8 1988 5.7 440 5.6 −1.4 31.7 31.9 1989 7.4 500 6.1 −1.1 35.3 36.5 1990 7.1 592 9.9 −2.4 37.1 38.0 1991 6.9 638 9.4 −4.1 35.4 37.3 1992 6.3 687 7.6 −3.7 37.3 37.7 1993 6.5 763 9.7 −3.4 38.0 37.3 1994 7.5 846 8.5 −2.9 38.7 34.3 1995 8.1 – 9.4 −8.7 32.0 37.8 1996 7.6 – 9.1 −7.3 – – Malaysia

The rise of the network transnational corporation: an introduction

1965–85 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Philippines 1965–85 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Singapore 1965–85 1985 1986 1987 1988 1989 1990 1991 1992 1993

17

4.4 −1.0 1.2 5.4 8.9 8.8 10.2 8.7 7.8 8.3 9.2 9.5 8.2

– 2,000 1,830 1,814 1,867 2,040 2,289 2,589 3,116 3,338 3,597 4,023 4,447

– – – −0.8 2.5 2.8 3.1 4.4 4.7 3.6 3.7 3.4 3.6

– – – 2.7 1.8 −0.2 −1.7 −4.2 −1.8 −2.5 −4.4 −7.5 −5.9

– – – 33.6 33.0 30.0 29.7 28.4 32.0 32.7 35.8 36.5 38.8

– – – 24.5 25.6 31.5 34.2 37.4 37.1 39.8 42.5 45.5 45.1

2.3 −4.3 1.4 4.6 6.4 5.6 2.5 −0.5 0.1 2.1 4.3 4.8 5.9

– 580 560 590 630 710 760 722 825 828 937 1,004 –

– – – 3.8 8.8 10.6 12.7 18.7 8.9 7.6 9.3 8.1 8.5

– – – −0.4 −0.4 −1.5 −2.7 −1.0 −1.0 −3.3 −3.2 −3.5 −2.7

– – – 14.9 18.0 19.7 16.2 16.4 14.7 14.6 15.0 – –

– – – 14.5 18.5 22.2 21.6 19.8 20.4 23.6 22.3 23.6 22.3

7.6 −1.6 1.8 9.5 11.1 9.2 8.3 6.7 6.0 9.9

– 6,911 6,766 7,940 9,070 10,450 12,433 15,289 17,208 19,142

– – – 0.5 1.5 2.4 3.4 3.4 2.3 2.4

– – 0.3 0.2 1.3 2.3 2.4 4.0 6.2 5.2

– 41.0 38.6 36.9 41.0 42.7 43.9 45.8 48.1 47.1

– 41.0 36.9 37.7 33.5 33.1 35.5 35.1 35.9 38.1

Transnational corporations and business networks

1994 1995 1996 Thailand 1965–85 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

18

10.0 8.9 7.7

19,740 – –

3.1 1.7 1.7

11.9 10.2 10.8

49.8 – –

32.3 – –

4.0 3.5 4.5 9.5 13.2 12.0 10.0 8.1 7.6 8.1 8.8 8.7 7.0

– 810 800 850 1,000 1,220 1,544 1,726 1,911 2,124 2,420 – –

– – – 2.5 3.8 5.4 6.1 5.7 4.1 3.3 5.0 5.8 4.2

– – – −0.3 −1.6 −2.4 −6.9 −7.7 −6.7 −6.9 −7.1 −11.5 −12.4

– – – 23.6 26.5 28.3 28.4 32.2 32.5 34.2 34.2 33.8 –

– – – 24.0 27.5 31.4 35.9 41.9 40.4 39.9 −39.2 −40.6 –

Sources: Data for 1965–86 (Guo, 1993: Table 2); data for 1987–90 (Ariff and J.Tan, 1992: Table 1); data for 1991–6 (Ministry of Finance, Malaysia, various years; Economist Intelligence Unit, 1995; International Monetary Fund, 1995). the PRC. This dynamic transformation of Hong Kong has been prompted by a continuation of global changes in the world economy and internal changes within Hong Kong and the PRC. Since the late 1940s, the Hong Kong economy has experienced drastic transformation and spectacular growth. The colony reoriented its entrepôt role in favour of export-oriented industrialisation after the rapid influx of industrialists and entrepreneurs from China in the late 1940s and the political embargo during the Korean War in the early 1950s (Choi, 1994). For example, during the peak of the Korean War in 1951, Hong Kong’s total exports were US$4.4 billion, of which 87 per cent were re-exports. By 1952, however, the US embargo had caused the total exports of Hong Kong to decrease to US$2.9 billion (Cheng, 1989:78). Industrialisation was seen as the only option to ensure a viable and relatively sustainable economy. After a decade of rapid industrialisation, manufacturing had become the leading sector of the economy by the 1960s. In 1970, for instance, the manufacturing sector contributed some 31 per cent to the GDP at current factor cost (see Table 1.4). Electronics and the textile and garment industries became the major pillars of Hong Kong’s manufacturing base. Henderson (1989, 1991b) has documented the emergence of Hong Kong’s semiconductor industry in the context of global economic restructuring and internal economic and technological transformations. He suggests that Hong Kong had emerged as the ‘core’ in a regional division of labour in the semiconductor industry by

The rise of the network transnational corporation: an introduction

19

the late 1970s. The textile and garment industries had been relatively underdeveloped before the influx of emigrant entrepreneurs from Shanghai and elsewhere in China (Wong, 1988). There were only forty-one garment factories in Hong Kong at the end of 1950, with a total employment of 1,944. With the contribution of Shanghainese emigrant entrepreneurs in machinery, capital, technological, managerial and marketing expertise since the late 1940s, Hong Kong’s textile and garment industries blossomed. At the end of 1960, there were 522 garment factories, a twelvefold increase over a decade. Total exports of garments in 1960 reached HK$ 1 billion: 35 per cent of the total domestic exports of Hong Kong (Lau, 1991:428). The Hong Kong government, in its review of post-war economic development, listed seven ‘interlocked’ and ‘reinforced’ factors that have helped to promote economic development (cited in Sit and Wong, 1989:43): (1) the existence of the free port and free trade; (2) a convertible currency and free movement of money; (3) the long accumulation of commercial and financial experience; (4) Hong Kong’s favourable location and good communications; (5) the hard work and entrepreneurial instincts of the population; (6) the flexibility of the labour market, and (7) government policies, including relatively low taxation and a prudent fiscal policy. The last factor seems to be perhaps most crucial in explaining Hong Kong’s success in changing from a fishing village to an Asian NIE. For the neoclassical economists (e.g. Chen, 1984; Cheng, 1995; Enright et al., 1997), there is no doubt that the key explanation of Hong Kong’s economic development and structural change is the role of laissez-faire capitalism in which the colonial state adopts a ‘positive non-intervention’ stance towards industrial and economic development (see Yeung, 1991). For example, the share of government expenditure has been stabilised at 7–8 per cent throughout the period 1961–94 (Chen, 1984:10; Census and Statistics Department, 1996). There are no foreign exchange controls, no foreign trade restrictions and there is a central banking system. The colonial state believed in neutrality in budgetary policy and in the inappropriateness of fiscal policy because of the openness of the Hong Kong economy and the high marginal propensity to import. This belief is explained by the perceived notion that any increase in government expenditure through fiscal policies will only increase output and employment in countries other than Hong Kong. Since the early 1970s, a process of deindustrialisation and industrial restructuring has transformed Hong Kong into a leading trading and financial centre. Some manufacturing activities, nevertheless, managed to maintain their role as leading industries of the economy (Chen and Li, 1991; Ho, 1992; Eng, 1997). The textile and clothing, electrical and electronics and precision instrument industries accounted for more than 75 per cent of domestic exports in 1988 and 1992 (Census and Statistics Department, 1993b: Table 6.8). As shown in Table 1.5, the colony had grown substantially over the period 1961–88, as indicated by an average GDP growth rate of 9.7 per cent. In 1992, the total GDP was US$96 billion and the GDP per capita was US$16,510. By 1995, these figures had increased further to US$142 billion and US$23,022 respectively. In terms of trade, Hong Kong was ranked twenty-seventh among leading world exporters in 1960. But by 1988 it had risen to tenth, after leading developed countries from Western Europe, North America and Japan (Ho, 1992: Table 1). Hong Kong’s prominent entrepôt role is evident in the consistent double-digit growth of its exports and imports over the period 1961–93. In 1995, the top three export partners of Hong Kong were the PRC (27 per

Transnational corporations and business networks

20

Table 1.4 Gross domestic product of Hong Kong at current prices by economic activity, 1970–94 (HK$ million) Economic 1970 1975 1980 1985 1990 1991 1992 1993 1994 activity Agriculture 1,127 1,087 1,109 1,238 1,432 1,441 1,468 1,612 1,596 and fishing (2.0) (1.4) (0.8) (0.5) (0.3) (0.2) (0.2) (0.2) (0.2) Mining 113 78 213 385 210 222 205 198 249 (0) and (0.2) (0.1) (0.2) (0.2) (0.0) (0.0) (0.0) (0.0) quarrying Manufa 17,416 20,879 30,549 53,071 92,241 94,491 99,764 94,294 87,354 cturing (31) (27) (24) (22) (17) (16) (14) (11) (9.2) Electricity, 1,127 1,397 1,703 6,665 12,612 13,463 15,637 17,588 22,175 gas and (2.0) (1.8) (1.3) (2.7) (2.3) (2.2) (2.1) (2.1) (2.3) water Constr 2,367 4,424 8,570 12,038 29,836 32,106 37,337 41,534 46,325 uction (4.2) (5.7) (6.7) (5.0) (5.6) (5.3) (5.1) (5.0) (4.9) Services 33,873 49,364 86,269 169,026 400,539 466,837 577,709 671,160 792,491 (67) (70) (75) (77) (79) (81) (83) (60) (64) Wholesale, 11,047 16,067 26,169 52,831 130,542 154,423 190,760 219,115 249,167 (20) (21) (20) (22) (24) (25) (26) (27) (26) retail, trade, restaurants and hotels Transport, 4,283 5,588 9,645 19,677 50,526 58,970 71,227 81,805 92,111 (8.1) (9.4) (9.7) (9.7) (9.9) (9.7) storage and (7.6) (7.2) (7.5) commu nication Financing, 8,398 13,195 29,292 39,589 111,825 140,072 178,923 212,681 253,795 (15) (17) (23) (16) (21) (23) (24) (26) (27) insurance, real estate and business services 10,145 14,514 16,066 41,979 80,334 93,601 110,703 126,649 150,593 Comm (18) (19) (13) (17) (15) (15) (15) (15) unity, (16) social and personal services Ownership – – 12,297 26,672 58,141 64,960 80,941 93,925 115,616 of (9.6) (11) (11) (11) (11) (11) (12) premises

The rise of the network transnational corporation: an introduction

Less imputed bank service charge GDP at factor costa

–

21

– −7,200 −11,722 −3,0829 –45,189 −54,846 −63,015 −68,790 (−5.6) (−4.8) (−5.7) (−7.4) (−7.5) (−7.6) (7.2)

56,361 77,616 128,413 242,423 536,870 608,560 732,120 826,386 950,191 (100) (100) (100) (100) (100) (100) (100) (100) (100)

Sources: Census and Statistics Department (1993a, 1996).

Notes: Percentages are in parentheses, a GDP figures for 1970 and 1975 are GDP at constant (1980) market prices. cent), the US (26 per cent) and Singapore (5.3 per cent), whereas the PRC (36 per cent), Japan (15 per cent) and Taiwan (8.7 per cent) dominated Hong Kong’s imports in the same year (Census and Statistics Department, 1996: Table 3.3). Since the late 1960s and early 1970s, service industries have dominated Hong Kong’s economy. Table 1.4 shows that in 1970 some 60 per cent of the GDP came from services. By 1994, the share of services in the GDP had increased to 83 per cent, including ownership of premises (12 per cent). In the same year, manufacturing’s share in the GDP had declined to a mere 9.2 per cent. In terms of industrial distribution, wholesale and trade (20 per cent) and community and social services (18 per cent) were the two largest service industries in 1970. Financial and business services came third, contributing 15 per cent of GDP in 1970. Over a period of two and a half decades, however, both wholesale and trade and financial and business services have grown substantially. By 1993, wholesale and trade (26 per cent) and financial and business services (27 per cent) had outpaced other economic activities to become the two leading industries of the colonial economy. There are several reasons to account for the unprecedented restructuring process in Hong Kong through which the service sector has come to dominate the export-oriented economy. First, some scholars argue that the lack of long-term investment in manufacturing and the under-provision of technological infrastructure in the past three decades have hindered further developments in the manufacturing sector (Chen, 1989; Yeh and Ng, 1994; Leung and Wu, 1995; Tuan and Ng, 1995a). Clothing, electronics, textiles, timepieces and plastics are the largest industries in the manufacturing sector. Together, they accounted for 64 per cent of gross output and 57 per cent of value-added in 1991 and 76 per cent of total domestic exports in 1992 (Eng, 1997:29). Compared with other Asian NIEs, the level of technological sophistication in Hong Kong’s manufacturing sector is relatively low. There is thus a strong need for the economy to restructure itself when more labour-intensive manufacturing activities in traditional industries (e.g. textiles and garments) have relocated their production facilities to countries within the region in response to escalating costs and the limited domestic market in Hong Kong (Sit and Wong, 1989; Thoburn et al., 1990; Yeung, 1994c, 1996a). The sectoral vacuum left by this ‘manufacturing retreat’ has been filled up quickly by

Transnational corporations and business networks

22

Table 1.5 Key macro-economic indicators for Hong Kong, 1961–95 Real growth rate Annual figures (US$) Indicator 1961– 1971– 1981– 1961– 1988a 1992 1995 71 81 8 88 GDP (at market 11.2 9.6 7.5 9.7 55.3bn 96.0bn 141.7bn prices) GDP per capita 8.5 6.9 6.1 7.3 9739.6 16,510 23,022 Gross capital 12.4 11.6 3.6 9.7 15.7bn 26.7bn bn formation Total exports 13.3 11.1 15.6 13.1 63.2bn 118.6bn 172.3bn Re-exports 11.0 17.3 23.6 16.5 35.3bn 88.6bn 142.6bn Domestic exports 13.9 9.1 9.8 11.0 27.9bn 30.0bn 29.7bn Manufactured 14.7 9.1 9.6 11.3 26.7bn 29.7bn 29.4bn exports Total imports 11.3 9.4 14.7 11.5 63.9bn 123.8bn 191.2bn Total labour force 3.0 4.6 1.5 3.2 2.81mn 2.45mn 3.0mn Manufacturing 3.7 3.1 −1.7 2.0 0.88mn 0.57mn 0.53mn Construction 3.8 8.2 3.99 5.4 0.24mn 0.23mn 0.23mn Financial 8.3 10.4 7.9 9.0 0.19mn 0.31mn 0.34mn Wage rate for 5.8 4.3 4.5 5.0 18.2 251 280 worker (day) Labour productivity 6.77 6.4 5.7 6.3 18,545.9 164,505 – (man year) Sources: Extracted from Ho (1992:22–3, Table 2.1); data for 1992 and 1994: Financial Times, 4 May 1993; Census and Statistics Department (1994, 1996); Economist Intelligence Unit (1995).

Note a The data are standardised into US dollars at a pegged rate of US$1=HK$7.8. emerging service activities, in which many Hong Kong firms are increasingly acquiring a firm-specific competitive advantage in the regional and, perhaps, global economy. n addition, this restructuring process results from the negative consequences of the Hong Kong government’s over-conservative land allocation policy and lack of plans on land production. On the one hand, the state legitimised its existence through massive public housing schemes (Castells et al., 1990). On the other hand, the then colonial state allowed private developers to speculate in commercial and residential property so much so that industrial users were disadvantaged and industrial development was jeopardised. A booming property market also encouraged property-owning industrialists to switch to property development instead of industrial development (Lui and Chiu, 1994). Comparing Hong Kong with other Asian economies, Yeh and Ng (1994:456) note that

The rise of the network transnational corporation: an introduction

23

‘unlike laissez-faire Hong Kong where a higher than desirable proportion of the economy’s investment goes into quick-return speculative economic activities, Japan, Korea, Taiwan, and Singapore have employed various instruments to channel capital for developing selected industries and effecting technological changes’. Second, the globalisation of economic activities has had a significant impact on Hong Kong’s industrial structure. While most developed countries (e.g. the US and Japan) have experienced a rapid outflow of foreign investment, Hong Kong has benefited from both the internationalisation of its domestic firms and the establishment of foreign firms. The rapid influx of foreign capital tends to speed up the process of restructuring in two ways. Firstly, it drives out traditional labour-intensive industries so that they must relocate elsewhere in order to survive intensified global competition. Foreign manufacturing firms in Hong Kong tend to be more capital-intensive and technologically sophisticated. Secondly, the presence of the regional headquarters of many leading global corporations in Hong Kong facilitates the emergence of a service-dominated economy. Hong Kong now hosts the largest number of regional headquarters in the Asia-Pacific. The functions of these regional headquarters are to coordinate production and/or marketing activities in the region and to serve as profit centres in their own right (Yeung, forthcoming d). Third, a more recent explanation of Hong Kong’s industrial restructuring argues that Hong Kong is no longer a manufacturing centre, but rather a coordinating centre for manufacturing in the South China economic zone. The rather open international market in the 1950s and 1960s offered enormous growth opportunities for Hong Kong industries. But the decline of this condition, coupled with rising labour costs, has forced local manufacturers to relocate elsewhere for a supply of cheaper labour, expansion of product markets and new bases for international competition (Eng, 1997). Local manufacturing firms have relocated their manufacturing activities to nearby China whereas their parent firms in Hong Kong remain as the management centre to coordinate increasingly complicated networks of production and activities. This process of ‘industrial hollowing’ has been taking place since the early 1980s and has been intensified since 1987 when the Pearl River delta and other special economic zones were opened in China (Tuan and Ng, 1995b; Ng and Tuan, 1996; cf. Enright et al., 1997). The trend has resulted in a drastic decline in manufacturing industries and the emergence of service activities in Hong Kong. Tuan and Ng (1995a: 72), for example, found that ‘Hong Kong has substituted exports from its cross-border operations for exports from local enterprises. A servicedominated economy with industrial management of plants crossing the border as a core of its manufacturing sector seems to be a fact today.’ The structure of the book The organisational logic of this book is simple. It starts with a theoretical reconceptualisation of TNCs as networks of governance structures and then describes the empirical world of HKTNCs and finally explains why and how such an empirical landscape of HKTNCs came into being. The first part of the book (Chapters 2–3) is concerned with the general and theoretical foundations of the book. Chapter 2 takes the broader emergence of TNCs from Asian NIEs as the starting point. It examines the global geography of FDI from developing countries and addresses specifically the

Transnational corporations and business networks

24

characteristics and competitive advantage of emerging TNCs from Asian NIEs. Following up the point that the role of business networks is important in our understanding of these emerging TNCs, Chapter 3 proposes a network perspective in the study of transnational operations. The TNC is seen as a transnational network governance structure which possesses causal power through multinationality and is capable of effecting changes and transformations in the global economy. The second part of the book (Chapters 4–7) contains four empirical chapters to illuminate the patterns and processes of HKTNCs in the ASEAN region. The materials presented are based upon the results of an empirical research into HKTNCs and their transnational operations in South-east Asia (Yeung, 1995a). Top executives from a total of 111 parent HKTNCs operating in South-east Asia were personally interviewed in Hong Kong. Executives from another sixty-three of their subsidiaries and/or affiliates in South-east Asia were interviewed in Indonesia, Malaysia, Singapore and Thailand. Some attributes of these parent HKTNCs and their South-east Asian affiliates are presented in Appendix 1, whereas the detailed company profile of each HKTNC cited in this book is summarised in Appendix 2. This unique database also contains interview transcripts of over forty parent HKTNCs and some of their subsidiaries and/or affiliates in South-east Asia. Chapter 4, by addressing the business organisation and corporate strategies of HKTNCs in the ASEAN region, aims to illuminate the empirical context of this study. Statistical data collected from official sources in host countries reveal that Indonesia, Singapore and Thailand are the leading South-east Asian destinations of outward investment from Hong Kong. Hong Kong has also been one of the three largest investors in Indonesia, Thailand and the Philippines. More than half the sample Hong Kong firms in South-east Asia are engaged in service industries. They are relatively large in terms of turnover, total assets and employment. The majority of these Hong Kong firms in Southeast Asia take the form of wholly or majority-owned subsidiaries. They are established to pursue the market- or marketing-related strategies of parent firms in Hong Kong. Cost factors and host government incentives play a relatively minor role in attracting Hong Kong investors to operate in South-east Asia. The ‘1997 question’ also makes relatively little impact on these Hong Kong firms at the corporate level. The next three core analytical chapters are concerned with a particular research question/theme in accordance with the network framework established in Chapter 3. (1) Why do HKTNCs invest in the ASEAN region? (2) How do they establish themselves in host countries? (3) What are the competitive advantages they possess in transnational operations? Chapter 5 focuses on the social organisation of business networks. Ongoing networks of personal and business relationships are found to be the causal mechanisms through which these HKTNCs have established their South-east Asian operations. The chapter takes on the role of intra-firm networks in explaining the processes and mechanisms of ASEAN operations by HKTNCs. Intra-firm networks of coordination and control within HKTNCs favour informality and entrepreneurship. The chapter also illuminates the role of guanxi or connections as a form of social organisation of inter-firm networks among HKTNCs in ASEAN. Chapter 6 examines the politics of ASEAN operations by HKTNCs. Extra-firm networks of HKTNCs, in the form of political connections and collective bargaining, work in such a way as to circumvent host country hostility and regulations. In Chapter 7 the competitive advantage of HKTNCs in the

The rise of the network transnational corporation: an introduction

25

regional and global economy is explained. It is found that personal and business networks have contributed to the competitive advantage of Hong Kong firms and enabled them to compete in the regional and global economy. In concluding the book, Chapter 8 compares the major findings of this study with previous studies/findings in the ‘Third World multinationals’ literature. It argues not only that this book has some interesting findings to offer, but also that they fundamentally challenge the conventional wisdom about ‘Third World multinationals’. This argument leads to some possible arenas for future interdisciplinary research collaboration. The chapter ends with implications with reference to three contemporary questions. (1) What are the essential bases for promoting the transnationalisation of domestic enterprises from developing countries or Asian NIEs? (2) Are host country policies in attracting foreign investments effective? (3) What will be the fate of Hong Kong and its TNCs after 1997?

2 THE EMERGENCE OF TRANSNATIONAL CORPORATIONS FROM ASIAN NEWLY INDUSTRIALISED ECONOMIES [T]he overseas Chinese discovered that a common background provided a basis for mutual trust and, therefore, presented an opportunity for business and trade throughout the region…The net result of these cross-border investment flows by the overseas Chinese community has been the rapid emergence of a new Chinese-based economy that is the epicenter for industry, commerce, and finance in South east Asia. (Weidenbaum and Hughes, 1996:16)

Although their emergence can be dated back to the turn of this century, transnational corporations (TNCs) from developing countries have rapidly proliferated only since the late 1970s. Today, a large proportion of these developing country TNCs originate from the four Asian Newly Industrialised Economies (NIEs)—Hong Kong, Singapore, South Korea and Taiwan. With the exception of the Korean chaebols or conglomerates, almost all these TNCs from Asian NIEs are controlled by the overseas Chinese. Among the top fifty TNCs based in developing countries in 1994, some twenty-three originated from these four Asian NIEs (UNCTAD, 1996a: Table I.13). The others in the league came from either the PRC or other NIEs in Latin America and South-east Asia (e.g. Brazil, Mexico, Malaysia and Thailand). At the top of the list are Daewoo (South Korea) and Hutchison Whampoa (Hong Kong). These Asian NIE TNCs are increasingly making a significant impact on the regional and global economy. As evident in the above quotation, the overseas Chinese and their mostly family-controlled TNCs have contributed to the formation of a large regional economy based in Asia. Their recent emergence therefore deserves much more attention than existing studies of so-called ‘Third World multinationals’ (e.g. Kumar and McLeod, 1981; Lall, 1983; Wells, 1983; Khan, 1986a; Tolentino, 1993; for a critique, see Yeung, 1994a). This chapter aims to provide an overview of the global geography of foreign direct investment (FDI) from developing countries to set the context within which TNCs from Asian NIEs emerge. It then ties together some related threads drawn from previous studies to present some common characteristics and competitive advantages of TNCs from Asian NIEs. The final section highlights the role of business networks in contributing to the competitive advantage and transnational operations of TNCs from Asian NIEs, in particular those controlled by the overseas Chinese.

The emergence of transnational corporations from Asian newly industrialised economies

27

Global geography of foreign direct investment from developing countries Tolentino (1993:24–5) estimates that, in 1960, the stock of FDI originating from developing countries was about US$540 million (0.8 per cent of the total global FDI stock). By 1975, the figure had risen sharply to around US$3.3 billion, representing a 1.2 per cent share in the world stock of FDI and 13 per cent annual average growth since 1960. By 1989, FDI by developing countries had increased almost another twentyfold to US$62 billion (4.5 per cent of the global FDI stock), an annual average growth rate of 23 per cent from the 1975 base. Such an impressive annual growth rate was double that of developed countries (at 12 per cent). Adding this 1989 FDI stock to recent FDI outflows from developing countries (see Table 1.2), we arrive at a figure of US$229 billion by 1995 (or 8.4 per cent of global outward FDI stock). Some 73 per cent of this FDI from developing countries was invested during the 1990s, indicating the pace and magnitude of recent outward investment from developing countries. Meanwhile, the internationalisation of TNCs from developing countries has taken off since the early 1970s. By the early 1980s, such TNCs were spread over thirty countries around the world. Developing country TNCs originate primarily from the NIEs in Asia and Latin America, with the exception of Indian transnational (Yeung, 1994b). Previous studies emphasise that most of them are found in manufacturing sectors, whereas only a handful are engaged in service industries. Based on the best available country data, Table 2.1 presents the geographical distribution of outward FDI stock from ten Asian developing countries in various years. We shall examine FDI from emerging Asian NIEs more closely. In terms of total outward FDI stock, Hong Kong, with more than US$50.1 billion in 1993, was the leading investor from Asian developing countries (Yeung, 1994c, 1995b), followed by Singapore (S$36.9 billion or US$24.6 billion in 1995), Taiwan (US$10.3 billion in 1995) and South Korea (US$10.2 billion in 1995). Up to the early 1980s, Hong Kong had a direct equity stock overseas of between US$1.5 billion to US$2 billion, mainly in manufacturing (see p. 82). Of this, it is estimated that about US$600 million to US$700 million came from ethnic Chinese firms (Lall, 1986:3). By 1987, cumulative FDI from Hong Kong amounted to US$14 billion (Yeung, 1994a: Table 1). In 1982, the value of Singapore’s FDI within Asia was only US$469 million, out of which US$309 million went to Malaysia (Lim and Teoh, 1986:342). At the end of 1990, FDI by Singapore companies soared to S$7.5 billion or US$5 billion. Almost 90 per cent of this huge outward investment was made in the Asian region (Régnier, 1993:309; Kanai, 1993; T.Y.Lee, 1994; Yeung, 1998b). By 1995, the geographical destinations had been changed in favour of developed countries. Singapore’s total FDI stood at S$36.9 billion in 1995. Only 57 per cent of this total FDI from Singapore went to other Asian countries. By the late 1980s, South Korea and Taiwan had become another two fierce ‘tigers’ in the family of TNCs from developing countries (Jun, 1990, 1993; Chiu and Chung, 1993; C.H.Lee, 1994; Chang and Thomson, 1994; Lee and Beamish, 1995; Chow, 1996; Dent and Randerson, 1996; Hsing, 1997). Even TNCs from the PRC (Gang, 1992; Fung, 1996; Young et al., 1996) and Indonesia (Lecraw, 1993) have experienced a boom since the late 1980s. In Latin America, transnational corporations originate largely

Transnational corporations and business networks

28

Table 2.1 Geographical distribution of outward foreign direct investment from Asian developing countries (million; percentage of country total in parentheses) County Deve loped coun tries North America USA Canada Western Europe Belgium/ Luxem bourg France Germany Italy Nether lands Switze rland UK and Northern Ireland Other Aust ralasia Australia

Chinaa Hong Indiac Mala Pakistane Phili Sing South Tai Thai (US$) Kongb (US$) ysiad (US$) ppinesf aporeg Koreah wani landj (US$) (US$) (US$) (US$) (US$) (US$) (US$) 1,156 2,995 5.9 5.656 13 (5.7) 5.4 7,378 4.606 3,479 55,934 (67) (6.0) (7.) (31) (14) (20) (45) (34) (100) 256 (15) 239 (14) 17(1)

2,679 1.1 2,425 0.1 (0.1) (5.3) (1.4) (13) 2,229 1.1 2,228 0.1 (0.1) (4.4) (1.4) (12) 450 – 197 – (0.9) (1.1) 112 – 4.6 1,515 12 (5.4) (6.5) (6.1) (8.2) 0.9 – – – – (0.1) 27 (1.6) 25 (1.4) 7.2 (0.4) 5.6 (0.3) 11 (0.6) 7.3 (0.4)

28 (1.6) 803 (46) 760

–

5.4 (14) 5.4 (14) –

2,036 3,152 2,766 13,388 (5.5) (31) (27) (24) 2,036 2,707 2,706 13,173 (5.5) (26) (26) (23.6) – 445 60.1 214.80.4) (4.4) (0.6) – 3,844 1,055 559.4 4,978 (10) (10) (5.5) (8.9) – – 20.5 – – (0.2)

0.0 16 – (0.0) (0.1) – 0.4 59 0.6 (0.3) (0.6) (0.3) – – – –

–

–

–

–

–

0.0 (0.0) – 4.0 (5.3) –

–

64 – (0.3) 232 – (1.3) 1,100 11 (4.8) (6.0)

54 0.4 (0.2) (0.3) – 0.2 1,189 – (0.3) (6.5) – 0.2 1,161 –

– –

–

–

169 (1.7) – 287 (2.8) – 31.3 (0.3) 456 174 (1.2) (1.7) – 2.9 (0)

– 2,435 (6.6) –

953 (2.6)

– – 1,116

12.7 – (0.1) 44.6 2,811 (5) (0.4) – –

55 (0.5) 0.8 (0) 240 297.5 (2.3) (2.9)

130 (1.3) 171 (1.7) 167

148.8 (1.5) 40.8 (0.4) 40.8

269.7 (0.5) – 1,776 (3.2) 121.5 (0.2) – –

The emergence of transnational corporations from Asian newly industrialised economies

New Zealand Japan Deve loping countries Western Asia and Middle East Bahrain, Oman, UAE Iran Saudi Arabia Other Eastern Europe Latin America and the Caribbean Brazil Chile Mexico Nether lands Antilles Panama Other Oceania

(44) (0.3) (6.3) 7.1 – – 28 – (0.4) (0.2) 21 316 – 527 – (1.2) (0.6) (2.9) 575 47,146 70 11,329 215 (94) (33) (94) (92) (62)

–

(3.0) –

–

598 (1.6) 34 21,129 (86) (57)

(1.6) 3.7 (0.1) 228 (2.2) 5,619 (55)

29

(0.4) –

–

112.2 (1.1) 6,753 (66)

269.2 (0.5) 31,864 (57)

19 (1.1)

–

1.8 (2.4)

– 106 (47)

–

–

103 (1.0)

–

–

–

–

1.1 (1.4)

– 13 (5.9)

–

– 1.7 (0)

–

–

– 0.2 (0.1) 19 (1.0) 6.5 (0.4) 61 (3.5)

– –

– 0.4 (0.6) – –

– 2.0 (0.9) – 89 (39)

– –

– –

–

–

–

–

2.0 (2.6) – 0.1 (0.1)

–

–

–

– 0.2 (0.1)

8.6 (22)

– 0.3 (0) – – 33.1 – (0.3) – 67.9 – (0.7) – 489 – (4.8) – 337 2,702 (3.3) (26)

44 (2.6) 2.7 (0.2) 0.5 (0.1) –

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

0.6 (0.1) 13 (0.8) 15

–

0.1 (0.1) – –

–

–

7.8 (20) – 0.2 (0.1) 0.8 (2.0) – – –

–

–

0.2

– –

– – 825.3 (1.5)

19.8 – (0.2) 26.0 – (0.3) 65.7 44.1 (0.6) (0.4) – –

–

66.9 121.6 (0.7) (1.2) 159 2,536 (1.6) (25) 78.6 –

–

– – –

825.3 (1.5) –

Transnational corporations and business networks

Fiji Papua New Guinea Other Africa Egypt Kenya

(0.8) 2.9 (0.2) 1.7 (0.1)

(0.2) 0.1 (0.1) – –

10 (0.6) 94 (5.5) 5.9 (0.3) –

–

Liberia

4.4 (0.2) Mauritius 19 (1.1) Nigeria 8.7 (0.5) Senegal 0.1 (0.1) Seychelles – Sudan

–

–

–

–

–

–

(0.8) – 4.0 (0)

–

–

–

–

–

–

–

–

–

–

–

–

– 88 (39) 15 (38)

–

–

– – – –

0.1 (0.1) 6.4 (8.4) 9.4 (12) 2.0 (2.7) –

–

–

–

–

–

–

–

10 15 (38) (4.4) – –

43.4 (0.4)

31.2 – (0.3) – 266 95.2 (2.6) (0.9) – 50.5 – (0.5) – 1.5 – (0) – – 64.7 (0.6) – – –

–

–

–

–

–

–

–

–

–

–

0.6 (0.3) –

–

–

–

–

–

–

– 78 (34)

–

– – 49 – (2.9) 38 11,329 East, South 379 47,146 and South- (22) (94) (50) (62) east Asia Bangladesh 6.8 – 1.6 – (0.4) (2.1) Brunei – – – 2 (0.0) Darusalam China – 36,684 – 917 (73) (5.0) Hong 274 – 0.0 2,414 Kong (16) (0.0) (13) Indonesia – 1,442 10 593

Other

–

28 (36.7) – 0.9 (1.2) – 8.9 (12) – –

–

30

–

–

11 11 (27) (4.8) –

–

– 5.6 (14) –

–

1.0 4.8 (12) (0.4) – –

1.8 (0) 0.4 (0) –

– – – – –

– 120 – – (1.2) – 91.8 30.5 – (0.9) (0.3) 21,129 4,346 3,956 31,039 (57) (43) (38.6) (55) – 43.0 – – (0.4) 37 (0.1) 1.9 – – (0) 2.445 1,886 – 6,468 (6.6) (18) (12) 5.089 235 704 12,826 (14) (2.3) (6.9) (23) 3,448 946 371.1 2,410

The emergence of transnational corporations from Asian newly industrialised economies

Malaysia

1.2 (0.1) Pakistan 8.9 (0.5) Philippines 13 (0.7) Singapore 19 (1.1) South – Korea Sri Lanka 2.5 (0.1) Taiwan –

(2.9) (14) (3.2) 2,186 6.6 – (4.4) (8.7) 14 (0) – –

(9.4) (9.3) (3.6) 7,305 287 1,190 (20) (2.8) (12) – – 6.8 – (0.1) – 521 (1.4) 215 293.3 – (0.2) (2.9) 5.2 – – 54.4 293.5 (2.3) (0.5) (2.9) – – – – 6.7 (0.1) 0.4 – – 83.9 – (0.2) (0.8) – – 530 (1.4) 18.1 – (0.2) – – 860 (2.3) 156 621 (1.5) (6.1) – – 894 (2.4) 411 476.4 (4.0) (4.6) 9.4 0.0 (0.0) 8,359 – 22.8 (4.1) (23) (0.2) 4.5 (2.0) –

–

31

(4.3) 577.8 (1.0) –

301 0.2 858 – (0.6) (0.3) (4.7) 3,016 3.4 5,734 4,177 (6.0) (4.5) (31) (7.5) 162 – 41 – (0.3) (0.2) 162 4.2 – – (0.3) (5.5) 1,070 8.2 331 – (2.1) (11) (1.8) Thailand 52 2,109 – 214 – (3.0) (4.2) (1.2) Other 1.5 – 3.6 225 4,580 (0.1) (4.7) (1.2) (8.2) 1.5 – – 1,383 5,434 Other (7.5) (9.7) unallocated (0.1) countries Total 1,732 50,141 76 18,368 228 39 (100) 36,866 10,225 10,254 55,934 (100) (100) (100) (100) (100) (100) (100) (100) (100) Notes a Data are based on cumulative approved outflows from 1979–87 in millions of yuan. b Data have been obtained on the basis of inward stock attributed to Hong Kong up to 1993 in the various host countries. Source: Low et al. (1996: Table 2). c Data represent the value of Indian investments in joint ventures abroad in production or under implementation as at the end of 1988. d Data refer to Malaysian equity investment abroad from 1991 to September 1996. Source: Bank Negara, Malaysia (various years), Quarterly Bulletin, Kuala Lumpur: Bank Negara. e Data obtained on the basis of cumulative outflows from 1972 to 1988. f Data represent cumulative outflows of registered investments with the central bank of the Philippines from 1980 to 1988. g Data refer to the cumulative stock of Singapore’s direct equity investment abroad as at end of 1995. Source: Department of Statistics (1997b), Yearbook of Statistics Singapore, 1996, Singapore: DOS. h Data represent cumulative flows of realised investment abroad from 1968 to 1995. Source: Bank of Korea (1996), Overseas Direct Investment Statistics Yearbook,

Transnational corporations and business networks

32

Seoul: Bank of Korea. i Data refer to cumulative approved outward investment from 1952 to 1995. Source: Ministry of Economic Affairs, Taiwan (1996), Statistics on Outward Investment, Taipei: MEA. j Data represent cumulative net flows of Thai equity investment abroad from 1987 to September 1996. Source: Bank of Thailand (various years), Quarterly Bulletin, Bangkok: Bank of Thailand. Other sources: Tolentino (1993: Tables 10.1–8) and UNCTC (1992b: various country tables). from Argentina (Katz and Kosacoff, 1983), Brazil (Wells, 1988), Colombia, Mexico and Venezuela. Within the Asia-Pacific rim, a significant amount of investment from the four NIEs (Hong Kong, South Korea, Singapore and Taiwan) and India has gone to South-east Asia and the PRC. For example, from the early to mid-1980s there were slightly more than 1,000 subsidiaries and affiliates of intra-regionally based TNCs in the Asian region, with a total FDI stock of at least US$7 billion. About 93 per cent of this intra-regional FDI in Asia (US$6.5 billion) originated from six home countries: Hong Kong, Singapore, Taiwan, South Korea, Malaysia and India (ESCAP/UNCTC, 1988). As shown in Table 2.1, some 94 per cent of FDI from Hong Kong had gone to Asia by 1993. Tolentino (1993:337) also reports that in 1988, almost 92 per cent of Indian outward FDI in joint ventures was directed towards developing countries, particularly those with a substantial ethnic Indian community such as Malaysia, Indonesia, Thailand, Sri Lanka, Nigeria, Kenya and Senegal. Within the Latin American region, the same intra-regional orientation is revealed among Argentina, Brazil, Mexico and Venezuela. For example, Argentine firms have shown a voracious appetite for Brazil, Peru and Uruguay as their host countries. At the sub-national level, most transnational operations of developing country TNCs are concentrated heavily in the principal cities of host countries. This spatial bias is explained by the access to information, communication and transport, access to banking and financial services and political stability associated with these so-called ‘primate cities’. The investment incentives provided by host governments may sometimes be inherently and spatially biased towards large capital cities. In Indonesia, for example, two-thirds of the investors from developing countries have their plants located in Jakarta, compared with less than half of those from developed countries (Wells, 1981; Lecraw, 1992). There are only a few natural resource-based manufacturing firms planning to locate in the outer islands of Indonesia—Sumatra, Sulawesi, Kalimantan and East Java (Forbes, 1986). Investments in developed countries by developing country TNCs tend to be highly place- and purpose-specific (Yeung, 1994b). For example, San Miguel Corporation from the Philippines, established in 1890, expanded into the US with the acquisition of George Muehleback Brewery Company in Kansas City as early as 1937. This initial US investment was followed in 1939 by the acquisition of another brewery in San Antonio, Texas. These ventures were, however, divested in the late 1950s owing to the severe

The emergence of transnational corporations from Asian newly industrialised economies

33

competition posed by the emergence of larger national breweries in the US market (Tolentino, 1993:241). In order to understand the geography of Asian TNCs in developed countries, their investment purposes must be comprehended beforehand. These purposes are sometimes no different from those of developed country TNCs. TNCs from developing countries invest in their developed counterparts (1) to integrate forward in the production chain; (2) to gain marketing experience; (3) to enable technology transfer; (4) to reduce transport costs, and (5) to overcome rising protectionism. Most of these FDI flows are located in North America, Western Europe and Australia. Within these large geographical markets, operations are concentrated largely in services and high-technology sectors which are bounded in specific territorial complexes. Hong Kong and Singaporean bankers have established offices in London and New York, while Korean and Philippine construction firms are involved in contracts as far afield as the Middle East and Latin America (Lecraw, 1988). As for service investments, whereas South-east Asian investors made up some A$865 million (16 per cent) of total investment in Australia in 1983, some A$469 million would have gone into the real estate sector (45 per cent of total investment in that sector) (Forbes, 1986:110). Large property development TNCs from Hong Kong are particularly keen on the Canadian property market (Olds, 1995, 1999). Some high-technology industries from Asian countries are also spatially reproduced in various sun belts of the US and European countries, in particular the UK (The Wall Street Journal, 26 October 1994). For example, Hyundai, a South Korea chaebol, has invested in the Silicon Valley of California (US) for research and development, pilot production, transfer of technology and marketing (Linge, 1984:185; also C.H.Lee, 1994). Recently, its electronics division in the US has agreed to buy the NCR Microelectronics Production division of AT&T for more than US$300 million (The Wall Street Journal, 11 November 1994). By 1995, some 45 per cent of Korean FDI had gone to North America and Western Europe (Table 2.1). In 1996, the Korean conglomerate LG (Lucky Goldstar) announced plans to establish a new greenfield electronics manufacturing plant in Newport, South Wales. This project is expected to cost the LG Group £1.6 billion and generate some 6,100 jobs (Financial Times, 10 October 1996). Similarly, by 1995, only 39 per cent of Taiwanese FDI was directed to Asian developing countries (see Table 2.1), whereas in the 1960s and 1970s, more than 50 per cent of Taiwan’s FDI went to Indonesia, Malaysia, Singapore, Thailand and the Philippines (Tolentino, 1993:340–1). Main characteristics and competitive advantage of TNCs from Asian NIEs Given the rapid internationalisation of TNCs from Asian NIEs, it will be interesting to identify some common threads among these emerging TNCs in the regional and global market place. Based on existing studies, Table 2.2 presents a summary of the various characteristics and attributes of TNCs from Asian NIEs vis-à-vis their counterparts from developed countries (see Yeung, 1994b). These include (1) size of investment and sectoral distribution; (2) forms of ownership; (3) parent-subsidiary relationships; (4) capital and source of funding; (5) choice of technology; (6) methods of production and

Transnational corporations and business networks

34

marketing; (7) foreign trade orientation; (8) competition and collaboration, and (9) the role of the state. Size of investments Developing country TNCs may be small in total capital assets and employment size by world standards, but they may be very large locally and sectorally. In 1987, fifty-three out of the Fortune ‘overseas 500’ companies originated from developing countries (Shin, 1989:13). Fourteen of the world’s 500 largest industrial companies and thirty-five of the world’s largest banks were from East Asia in 1987. In 1986, the top thirteen largest financial companies from developing countries came from Asian countries outside Japan (Buckley and Mirza, 1988:52 and Table 5). Today, some of the largest TNCs from Asian NIEs (e.g. Daewoo, Hutchison Whampoa, CP Group and so on) have emerged as significant competitors in the regional and global economy. In terms of international employment size, small enterprises (up to 200 workers) constituted 53 per cent of all subsidiaries in Svetlicic’s (1986:77) study. These subsidiaries are by no means small in developing countries, since most domestic enterprises are small to medium enterprises (SMEs) employing a few hundred or less. In terms of its percentage share in host developing countries, UNCTC (1989:3) estimates that, in the PRC and Malaysia, half of inward FDI came from other developing countries. Hong Kong and Taiwan have been, respectively, the second and third largest investors in Indonesia and Thailand, next only to Japan (see pp. 83–8). Between 1967 and 1993, Japan and Hong Kong were the two largest investors in Indonesia, measured in terms of FDI stock. In Malaysia, Singapore has always been one of the largest investors in the manufacturing sector. Up to the late 1970s, Singapore was consistently the second largest foreign investor in Malaysia, its interests spread across a number of industries (Kanai, 1993; Régnier, 1993; Yeung, 1998c). In the early 1980s, Singapore was ranked as the largest investor in Malaysia (Lim and Teoh, 1986:344). In the late 1980s, both Taiwan (measured by FDI flows in 1990) and South Korea (measured by total FDI stock in 1987) became the top investors in Malaysia (UNCTC, 1992b: 161–5). From the early 1980s to the late 1980s, intra-regional FDI from East Asian NIEs amounted to more than two-thirds of the investment made by Japan

Table 2.2 Characteristics of TNCs from developing and developed countries: a comparative summary Key attribute TNCs from developing TNCs from developed countries countries Total stock: very large Size of Total stock: small; 8.4% of Firm assets: global dominance investment total world FDI stock Firm assets: small globally but Employment size: ranging from very large to small firms large locally Number of foreign Employment size: largely SMEs but some global firms subsidiaries: many Number of foreign subsidiaries: still small

The emergence of transnational corporations from Asian newly industrialised economies

35

Sectoral distribution

Sectoral distribution: labour- Sectoral distribution: capitalintensive manufacturing and intensive manufacturing and service industries; some in knowledge- and informationcapital-intensive industries intensive service sectors Forms of Minority equity joint ventures Majority equity or wholly ownership preferred owned preferred More wholly owned forms among NIE TNCs Parent-subsidiary Loose, fluid and informal; Tight control and centralised relationships autonomy to local partners coordination Capital and Home sources of capital: Largely from home and host source of capital and financial markets capital markets funding Local partners: usually in minority equity joint ventures Choice of Low cost of skilled manpower Largely capital-intensive operations technology Appropriate technology: Technology transplanted into downscaling of product overseas operations technology R & D located in home Localised technological countries innovation Production of mature and ‘old’ Staying ahead of the product Methods of life-cycle production and products marketing Appropriate products for local Western-centric products Integrated marketing channels consumption High reliance on third party distributors Trade orientation Largely export-promoting to Products and services mainly third countries for local sale Competition and Few in direct competition with Direct competition in mature product markets collaboration each other Cooperation with global TNCs Cooperation among global for marketing and technology TNCs in strategic alliances Indirect influence through Role of the state FDI restrictions in some fiscal and monetary measures countries, e.g. India Regulations to protect domestic Active promotion in NIEs: concept of ‘strategic industries’ TNCs against foreign competitors

(Guisinger, 1991; Blomqvist, 1995). In Indonesia and Malaysia, for example, total foreign investment stock from the NIEs topped the league (see p. 85). Another indicator of the size of developing country TNCs is the number of subsidiaries abroad. Chen (1981, 1983) and Wells (1983:9) suggest that in 1983, only six

Transnational corporations and business networks

36

out of 963 TNCs from developing countries would qualify if the Harvard definition of a ‘multinational corporation’ (TNC-equivalent) controlling more than six subsidiaries abroad was applied—two from India, two from Hong Kong, one from Colombia and one from Mexico. If the UNCTC’s (1978) less restrictive definition of TNCs (i.e. controlling one or more subsidiaries abroad) is adopted, there were already over 500 TNCs with more than 3,000 foreign affiliates from Asian developing countries alone by the end of the 1980s (UNCTC, 1989:3). Today the number must run to tens of thousands (see UNCTAD, 1996a). Sectoral distribution In terms of sectoral distribution, foreign investments and TNCs from Asian NIEs correspond neatly to their national competitive advantages. Widely cited examples are Hong Kong in the textile and garment industries and financial and business services, Singapore in airlines and transport, South Korea in construction, automobiles, footwear and electronics and Taiwan in the electronics and shipping industries. Many of these TNCs possess the capabilities to take on intense competition from giant developed country TNCs. For example, Singapore Airlines is well known as having the ‘youngest’ fleet and best service among all airlines in the world. Tapping its strong market position and financial background, Singapore Airlines has so much bargaining power that it can exchange aircraft orders for aerospace jobs with the world’s largest aircraft company. In order to secure market entry for its latest aircraft in the highly competitive global aerospace industry, Boeing has to trade off aircraft assembly jobs to Asian countries in exchange for orders. Boeing’s spokesman said that ‘it makes good business sense. About 70 per cent of our aircraft market is outside the United States. Nearly half our airplane sales last year [1994] were in Asia. In order to gain access and to develop long-term relations with customer countries it makes sense to share out the work’ (quoted in the Independent, 10 December 1995). The three Korean manufacturing giants and chaebol groups—Samsung, LG and Hyundai—have also achieved world class standards in several industries. The success story of Hyundai, a major Korean automobile producer, is interesting (Wade, 1990:310– 12). By 1986, the Hyundai Excel had become by far the best-selling new car import in American history, following earlier success in the Canadian market. In 1988, Hyundai produced 650,000 automobiles, half as many as Fiat and Renault, of which 63 per cent were exported. In response to the growing potential and capability of the Korean automobile industry, Ford and Chrysler rushed to establish joint ventures with Korean partners in order to catch up with GM’s existing joint venture with Daewoo. By the late 1980s, Hyundai had already set up a plant in Canada and R & D offices in the US. In the semiconductor industry today, Hyundai, together with other leading South Korean chaebols such as Samsung, has captured approximately 20 per cent of the worldwide market for DRAMs (Dynamic Random Access Memory) which used to be dominated by Japanese semiconductor firms in the 1980s (Angel, 1994:197). Although they do sometimes practise below-cost-price dumping of their semiconductor products, the key competitive advantage of these South Korean semiconductor manufacturers is their ability to tap into volume production of DRAMs, thereby achieving economies of scale (H.Lee, 1995).

The emergence of transnational corporations from Asian newly industrialised economies

37

Some Taiwanese computer and electronics TNCs, in particular Acer and Tatung, are no less successful than their Hong Kong, Korean and Singaporean equivalents. Acer started in 1976 with eleven employees and capital of US$25,000. As Taiwan’s flagship computer manufacturer, it opened a branch in Silicon Valley in 1984 to perform a key role in its R & D activities; it also has licensing agreements and joint ventures with a number of Japanese and American companies. In 1987, it successfully sold its thirty-twobit PC in the world market and became the first supplier, a month before IBM (Chang, 1990:13). By the end of the 1980s, Acer was supplying over 3 per cent of the total world market for IBM-compatible personal computers and about 6 per cent of the market for the more powerful machines based on Intel’s 386 microprocessor. This is only one of several achievements which place Acer only a few months to a year behind the state-of-the-art technologies. In 1988, Acer and Mitac (the second main computer firm in Taiwan) signed cooperative agreements with IBM to license IBM’s personal computer patents on a running royalties basis. In return, IBM received an initial fee plus the right to license Acer and Mitac patents on the same reciprocal basis (Wade, 1990:106–7). In 1990, Acer paid US$94 million for Altos, a Silicon Valley firm, to improve its distribution in America (The Economist, 16 November 1991). Acer has also formed alliances with Texas Instruments, with Daimler-Benz’s microelectronics subsidiary and with Smith-Corona. Recently, Stanley Shih, the founder of Acer, has branched out to promote the quality and image of Acer. He wants Acer to be the ‘Sony of Taiwan’. He has founded a Brand International Promotion Association in Taipei. Today, Acer is already one of the top ten largest PC manufacturers in the world. Forms of ownership The literature on ‘Third World multinationals’ has shown consistently that joint ventures with minority shares in the equity have been the preferred mode of market entry (see also Donckels and Lambrecht, 1995). For example, out of 602 manufacturing subsidiaries in Wells’s (1983:108) study, only fifty-seven were wholly owned by parent firms in developing countries. In Singapore during the early 1980s, the Koreans wholly owned only 161 out of their 243 subsidiaries, of which 134 were in the trading sector (Khan, 1986b:6). The same finding has been replicated in several recent studies (e.g. Han and Brewer, 1987; Wells, 1988; Brown, 1990; Lee and Beamish, 1995). This strong preference for joint ventures, however, does not necessarily imply that all TNCs from developing countries must be engaged in joint ventures. Even if joint ventures were preferred, the specific contractual relationships may be young and subject to change over time (see below). In order to provide a more permanent basis of transnational operations, many TNCs from developing countries may still employ the conventional forms of market entry such as vertical integration. For example, Euh and Min (1986), in their survey of fifty Korean firms in 1984, found 62 per cent of firms in wholly owned subsidiaries abroad, 18 per cent in joint ventures with majority holdings and only 20 per cent in joint ventures with minority holdings. This finding contrasts sharply with the case of Indian TNCs, which are largely engaged in joint ventures abroad (Agrawal, 1981; Lall, 1982a, 1982b, 1983, 1985; R.Lall, 1986; Riemens, 1989). Other studies of developing country TNCs have also discovered the extensive use of vertical integration among natural resource TNCs, e.g.

Transnational corporations and business networks

38

Argentine manufacturing and petroleum transnationals (Katz and Kosacoff, 1983), Brazilian iron and aluminium companies (Wells, 1988), Hong Kong’s furniture companies (Wells, 1978; Low et al., 1996) and Chinese family-owned TNCs from the Philippines (Bulcke and Zhang, 1995). Parent—subsidiary relations Interestingly, the kind of parent—subsidiary relationship in the forms of increasing global integration and coordination over time typically observed in developed country TNCs is insignificant among developing country TNCs. Instead, after the initial supply of core technology and management from the parent company in developing countries, foreign subsidiaries of developing country TNCs may usually be given more autonomy over time. Euh and Min (1986) observe, for example, that, among Korean manufacturing TNCs, only 50 per cent of parent firms had control over long-term planning. A recent study of the globalisation strategies of Korean electronics TNCs has found evidence of greater use of internalisation strategy and more integrated parent—subsidiary relations among giant Korean conglomerates (H.Lee, 1995). More than a decade ago, Wells (1984:141) correctly pointed out that ‘the parents of multinationals from developing countries are likely to make a major contribution to the subsidiary in the form of technology at the outset, but that they are unlikely to have the kind of continuing impact that has characterized some US-based multinationals.’ The parent-subsidiary relationship in developing country TNCs can thus be characterised as loose, fluid and informal. Unlike the stable relationship between parent companies and foreign subsidiaries in many developed country TNCs, this informal relationship among developing country TNCs is always in a state of flux and transformation. The topic, however interesting, has been seriously under-researched because most academic attention has been devoted to the issue of technology transfer (see below). The size and nature of transnational operations are suggested in the literature as two of the most important determinants of the extent of control by parent firms. Large capital investment usually drives parent firms to closer supervision. For example, a few Singaporean firms were engaged in majority-equity ventures in hotels and tourism with some Chinese village cooperatives in Guangdong Province, PRC. The former supplied not only capital but also managers. High-ranking executives from the Singaporean parent firms must pay frequent visits to their investment sites in the PRC. The Chinese village cooperatives, on the other hand, were responsible for settling the land required to build the hotel. Close supervision and control were maintained in this contractual relationship (Pang and Komaran, 1985). A similar extent of control is also found among Korean joint ventures in less developed countries (Lee and Beamish, 1995). The extent of control by parent firms may also depend on the nature of the project. In most ventures by TNCs from developing countries, foreign investors hold a minority of the equity and therefore may not be able to exercise full control over the venture (e.g. Indian joint ventures). Even in the case of majority equity investment by developing country TNCs, local partners may have more de facto control because of their intimate knowledge of the local operating environment, immediate access to information and the need to reduce the cycle time in the loop of decision-making.

The emergence of transnational corporations from Asian newly industrialised economies

39

Capital and source of funding Most developing countries adopt either a system of foreign exchange control or conservative banking practices. A well developed local capital market is virtually nonexistent except in certain more advanced developing countries such as Hong Kong and Singapore. Access to capital and finance represents a critical barrier to many foreign investment projects by developing country TNCs (e.g. the PRC and India). Alternative ways of financing transnational operations in many developing countries depend upon three factors: (1) the size of the project, (2) the nature of the project and (3) the availability of wealthy local partners. Empirical studies have shown that most foreign ventures are financed by domestic sources of capital which is paid either in cash or by way of a bank guarantee. In the case of South Korean TNCs (Euh and Min, 1986), manufacturing firms tend to use internal capital from the parent company, whereas in mining firms capital is obtained by borrowing from the Korean EXIM Bank. In the case of Singapore TNCs (Pang and Komaran, 1985), if the project is small in capital input, it is most likely to be financed through the company’s internal reserves. Conversely, if the project involves heavy capital outlay, the firm may resort to bank loans and guarantees. The same study also shows that Hong Kong firms are probably the least typical because most of them fund their projects from internal reserves. Local banks play a minor role in the transnationalisation processes of Hong Kong firms (see pp. 154–6). The nature of transnational ventures also matters in the choice of capital sourcing. If the project involves no equity holdings, this means that the TNC does not need to invest capital. Instead, other inputs into the non-equity contractual arrangement are required such as machinery and technological and managerial expertise. In conjunction with these non-equity forms of transnational operations, empirical studies have found occasional partnerships of Asian developing country TNCs with local capital. This is especially the case with Indian TNCs, which favour minority-equity joint ventures with local partners. Indian transnationals prefer to export their technological and managerial expertise rather than their scarce domestic capital. Their reluctance to invest capital abroad is a direct consequence of the strict foreign exchange controls imposed by the Indian government. A viable alternative is to rely upon host country capital. The availability of rich local partners becomes an important location-specific advantage to many Indian TNCs. In the case of TNCs from the PRC, access to host country financial and capital markets plays an important role in the decision to operate in a country. Hong Kong has traditionally been performing the role of intermediary between fund-seeking PRC TNCs and venture capitalists and financial institutions (Tseng, 1992; Chen and Wong, 1995; Fung, 1996; Low et al., 1996). There are now thousands of PRC enterprises operating in Hong Kong and more than a hundred of them are listed on the Hong Kong Stock Exchange and other major global stock markets. These enterprises are mostly state-owned or recently privatised trading and manufacturing companies. Choice of technology and capital—labour intensity The transfer of technology from developing countries has been a subject of considerable debate and research. Empirical studies have found that FDI by domestic enterprises is one specific way for developing countries to export their industrial technology, based on the concept of ‘revealed comparative advantage’ (Lall, 1980; Lee and Plummer, 1992). This

Transnational corporations and business networks

40

‘revealed comparative advantage’ varies from country to country in the developing world. Developing countries not only reveal markedly different ‘stocks’ of total technological capabilities, but also specialise in different industries and modes of technology exports. The ‘revealed comparative advantage’ of each developing country and its TNCs is manifested in three ways: (1) low cost of skilled manpower; (2) appropriate technology, and (3) ‘unpackaged’ nature of technology sales (Wells, 1983). In the non-industrial sector, South Korea dominates the construction industry by virtue of its success in the Middle East construction boom. By 1988, the highly competitive technological capabilities of seven Korean construction firms, for example, had enabled them to capture a greater share (US$5.4 billion) of the Middle East construction boom against world-class competition from ten French firms (US$5.3 billion) and twelve German firms (US$2.7 billion) (Fujita, 1990:44). India came next, though far behind South Korea, with Brazil very close to India. Direct investment in non-industrial activities is mainly the province of South Korean and Brazilian enterprises. Some Hong Kong TNCs are also important players in this sector, in particular banking and finance and hotels (see Chapter 7). In the industrial sector, the picture is much more mixed. India seems to be strong in project exports and Hong Kong in direct investment, with a roughly similar showing by South Korea, India and Brazil in disembodied technical and consultant service exports. Empirical studies argue that this ‘revealed comparative advantage’ of each Asian developing country and its TNCs is manifested in three ways: (1) low cost of skilled manpower; (2) appropriate technology, and (3) the ‘unpackaged’ nature of technology sales. First, developing country transnational can compete successfully with giant TNCs from developed countries because of the lower cost of skilled labour. For example, Kumar (1982:406) noticed in the early 1980s that it cost a US firm about US$100,000 to keep a middle level executive in Malaysia for a year, while the corresponding cost for an Indian firm was about US$20,000. Other costs in the form of fringe benefits, bonuses and subsidies were even lower among developing country TNCs. Wells (1978) also found among Hong Kong manufacturing multinationals that the salary structure of expatriate managers and technical specialists was more dependent upon variable bonus and less on fixed salary. In this way, the company could maintain a lower cost structure in order to compete successfully with local and developed country firms. Even in the 1990s, the salaries payable to senior executives among developing country TNCs are still considerably lower than those of expatriates from the Triad (i.e. North America, Western Europe and Japan). In the manufacturing sector, the lower labour cost structure of many developing country TNCs implies that a more labour-intensive production process is preferred (Wells, 1982). Highly labour-intensive production is also employed to relieve financial constraints, to reduce imports of capital-intensive inputs and to circumvent foreign exchange controls. This labour-intensive production process can be observed in many industries in which developing country transnationals have a significant stake. Examples are construction, electronics, footwear, textiles and toys in manufacturing industries and among banking, financial and stockbroking and shipping industries in services.1 Second, the use of ‘appropriate technology’ in the transnational operations of many Asian developing country enterprises enables them to compete with local and foreign firms by occupying a niche market. The literature shows that this ‘appropriate

The emergence of transnational corporations from Asian newly industrialised economies

41

technology’ is embodied in the form of locally adapted technology and machinery. The general trend for many Asian developing country TNCs is to learn more sophisticated process and product technology from licensing and joint-venture relationships with large TNCs from developed countries that reciprocally need a local partner in order to penetrate protected markets in some Asian developing countries. This sophisticated technology is then modified and adapted to local market and factor conditions. For example, Acma Electrical Industries, a Singaporean refrigerator manufacturer, originally acquired the technology from Sanyo and Frigidaire on the basis of a licensing agreement to manufacture refrigerators and air conditioners. Subsequently, the company established a small research and development unit, beginning with one full-time engineer assisted by personnel from other departments. By 1982, this department had expanded into a laboratory employing twenty-four Singaporean engineers, more than half with doctorates. The company now designs its own products and components, including moulds, dyes, cabinets and cooling systems, although it continues to import the compressor. A large proportion of the R & D department’s activities is geared towards making changes in their products to suit the requirements of their clients (Lim and Teoh, 1986). It should be noted that modification is mainly carried out on product technology and less on process technology. The typical method of modifying product technology is known as downscaling. Downsealing refers to a reduction in the scale of production technology so that a smaller operation can be maintained at the same level of technology. The reason for downscaling is that small home and host markets in developing countries do not allow the economies of scale required to maximise the potential of borrowed technology. Economies of scope are a more important consideration in the context of limited markets in developing countries. The reliance upon borrowed technology from developed countries of developing country transnationals can be shown with reference to their low level of research and development (R & D) expenditure. Data from the Harvard Multinational Enterprise project show that in the 1970s, about 58 per cent of the subsidiaries of firms from developing countries were in industries characterised by low R & D expenditure. Such industries accounted for only 30 per cent of subsidiaries of American TNCs and about 36 per cent of subsidiaries from other developed countries. Only 26 per cent of the subsidiaries of developing country TNCs were in high R & D industries, whereas the equivalent figures were 55 per cent and 52 per cent for the subsidiaries of US and other developed country TNCs respectively (Wells, 1983, 1986). Through downscaling, many developing country TNCs are able to adapt proprietary technology from developed country TNCs to their own firm-specific advantage. The first effect of this downscaling is a smaller scale of operations and a flexible technology for customised production. The outcome of the modifications should be a reduction in overcapacity in production facilities. Empirical studies have confirmed this estimated higher capacity utilisation (48 per cent) in developing country TNCs, compared with only about 26 per cent in TNCs from developed countries (Wells, 1983:22). Another consequence of downscaling is a higher degree of integration of operations by developing country TNCs with a local technological base. Thailand is a good example, in which developing country TNCs are able to operate their downscaled technology in parallel with local technology. Third, the transfer of technology from developing country TNCs is usually in ‘unpackaged’ form. Since small-scale operations, relative simple techniques and

Transnational corporations and business networks

42

customised flexible products characterise the technological choice of TNCs from developing countries, the transfer of the technology can be achieved without the massive package typically found among greenfield or turnkey projects from developed country TNCs. A recipient country therefore does not have to import a whole series of ‘redundant’ technology in order to complete the package deal. It benefits not only from a saving in unnecessary parts but also from customised product technology. Methods of production and marketing In the literature, TNCs from developing countries are characterised as specialists in the production of ‘old’ and mature products using batch-production methods. These products are meant specifically for local markets. In tropical countries, some developing country TNCs modify their product technology to produce so-called ‘tropical products’. For example, sun-fast dyes developed for tropical markets by Indian firms and certain appliances made by Brazilian TNCs are especially suitable for the humid markets of Africa (Khan, 1986b; C.Wells, 1988). Other products are tailored to lower-income segments of developing country markets. It should be noted, nevertheless, that many TNCs from developing countries may produce relatively high value-added products for North American and European markets. This high value-added aspect of developing country TNCs is often overlooked in the literature (see Chapter 7). The literature also argues that many developing country TNCs specialise in mature and low-technology products and, therefore, lack product differentiation and other elements of non-price competition such as brand names, continuous interaction with customers, design exchange, tailoring of products, technological linkages and extensive after-sales services, e.g. Indian multinationals (Lall, 1983; cf. R.Lall, 1986; Riemens, 1989). Developing country TNCs are also characterised as spending little on marketing and advertising (with the exception of some large service TNCs such as airlines, shipping companies and hotel operators). There is thus heavy reliance on third-party distributors for marketing. In order to gain a competitive advantage in the narrow niche markets which developing country TNCs are ‘permitted’ to enter, the literature argues, they have to rely upon lower prices as the basic tool of marketing and competition. This low-price marketing strategy further reinforces the allegation of exploiting lower costs of production among developing countries. The fundamental marketing strategy is based upon the ‘survival first’ principle rather than on competing for global markets among TNCs from developed countries.2 Taiwan’s indirect manufacturing investment in the PRC, for instance, is said to be a reflection of such ‘survival’ principles (Chiu and Chung, 1993). Foreign trade orientation FDI from developing countries can either be import-substituting or exportpromoting. In some cases, such operations cater for local markets. For example, in the noodle business some Chinese investors from Hong Kong set up their foreign operations in South-east Asia to supply ethnic food products to the Chinese community in the region. The primary orientation of these operations is to local markets. In some cases, however, enterprises from developing countries invest in other host countries in order to export to a third

The emergence of transnational corporations from Asian newly industrialised economies

43

country. Hong Kong’s textile and garment investment in South-east Asia and the Pearl River delta in the PRC (Leung, 1993; Chen and Wong, 1995) is best known for its aim of circumventing voluntary quotas and trade restrictions imposed by developed countries from North America and Western Europe (see p. 110). The relative share of these two contrasting orientations (i.e. investment for local markets and investment for exports) in the transnational operations of developing country TNCs is hard to assess. Some empirical evidence is in favour of the latter. For example, Svetlicic (1986:78) shows that third markets tend to absorb the largest share of the foreign sales of developing country TNCs. Local markets account for 25 per cent of sales while exports account for over 40 per cent . This export orientation can be attributed to several reasons. First, a great proportion of exports come from ‘quota jumping’ investments typically made by TNCs from NIEs, particularly Hong Kong. Second, TNCs from developing countries tend to invest in industries and sectors which are more export-oriented (e.g. manufacturing of mature products and service industries). For example, Chiu and Chung (1993) show that Taiwanese indirect investment in the PRC has a much higher export propensity than Taiwanese FDI elsewhere (e.g. in ASEAN countries). They attributed this phenomenon to three factors: (1) the PRC adopts a conservative policy towards FDI, prompting the so-called ‘two ends out’ policy (i.e. imported materials and exported products); (2) a lack of local support and linkages, and (3) the predominance of small and medium Taiwanese companies in the PRC means that large production support systems are absent. A caveat here is that this evidence is inconclusive and further research is needed. On the other hand, imports among developing country TNCs are attributed to machinery and inputs of production. Private sector subsidiaries usually import much more machinery from home countries (80 per cent) than public firms. Hong Kong TNCs (Wells, 1978, 1983; Chen, 1983) and Korean TNCs (Han and Brewer, 1987), for example, carry with them machinery and technology from parent companies in their transnational operations. Public sector TNCs from developing countries import machinery largely from developed countries (almost twice as much as private firms). Private subsidiaries, however, do not rely on local machinery at all, while public enterprises do (Svetlicic, 1986:78). In terms of production inputs, TNCs from developing countries import less than their counterparts from developed countries. Wells (1983:40) observes that factories in Thailand belonging to parent companies from other developing countries import only 39 per cent of their raw materials, whereas subsidiaries of TNCs from developed countries import 76 per cent. Even domestic Thai enterprises import more (65 per cent) than subsidiaries of TNCs from other developing countries. Patterns of competition and collaboration The patterns of competition and collaboration among developing country TNCs are said to be different from those of their counterparts from developed countries. Wells (1986) argues that both competition and collaboration with developed country TNCs are observed in the transnational operations of developing country TNCs. If there is any competition with existing TNCs from developed countries, it is mainly at the ‘tail’ of the product life-cycle, i.e. among mature products. Price competition becomes the single most important weapon in competing for the market of these standardised products.

Transnational corporations and business networks

44

Conversely, it is possible for developing country TNCs to collaborate with TNCs from developed countries in order to gain access to the latter’s technology, marketing skills and distribution networks through (1) joint ventures (the most common form); (2) informal production links; (3) vertical integration by large TNCs, and (4) non-equity participation (e.g. technology licensing). Some observers even go so far as to suggest that TNCs from developed countries should engage in joint ventures with their counterparts from the developing world more often, given the high degree of complementarity of their firm-specific assets (Connolly, 1984). On the other hand, it is argued that developing country TNCs do not normally compete with each other. They occupy rather different segments of an industry or a market. In most cases, firms from developing countries tend to complement each other. Empirical studies have shown that firms from many NIEs are not in direct competition with one another. Examples cited are Hong Kong and Singaporean firms (Pang and Komaran, 1985) and South Korean and Taiwanese firms (Levy, 1988; Levy and Kuo, 1991; Li, 1994; H.Lee, 1995). When comparing South Korean and Taiwanese firms in the manufacture of footwear, production of keyboards and assembly of personal computers, the former group of firms tends to specialise in high volume, high productivity manufacturing of standardised products, whereas the latter group is better at smaller niche markets that demand greater flexibility, customisation of products and rapid response. Another possible reason for this relative lack of direct competition among developing country TNCs is their reliance on price competition. Given the small niche markets and cut-throat pricing, it is unlikely that many competitors can survive at the same time in the same sector or industry. The role of the state The state is a potent influence in developing countries, particularly when it is actively pursuing either an import substitution or an export promotion policy. The state serves both as a constraint and as an enabling mechanism to the transnational operations of developing country TNCs (see Aggarwal and Agmon, 1990). In some instances, government restrictions are critical in guiding the nature of foreign operations by domestic enterprises. India is one such example. The restrictive policies of the Indian government in the past resulted in a strong preference for equity participation among Indian TNCs. These restrictions are evident in the following original government guidelines: 1 The Indian participant must undertake to supply at least some of the capital goods and know-how. 2 The Indian collaborator is normally expected to have a minority share-holding unless the foreign government and foreign party desire otherwise. 3 Indian participants in the joint ventures, in their collaboration agreements, must also provide for the training of the nationals of the country of destination of the FDI. Viewed in the context of these restrictions, FDI from India can be considered as ‘a disguised form of capital flight from India’ (Lall, 1986:89). Although these regulations have been partially liberalised over time, the basic rationale and FDI pattern remain largely unaltered today.

The emergence of transnational corporations from Asian newly industrialised economies

45

The role of the state also works the other way round: as a promoter of foreign investment. The case of South Korean construction firms is instructive because of their success in capturing a large share of the global market. The South Korean government designated the construction industry a ‘strategic industry’ (Ghymn, 1980; Westphal et al., 1984; Man and Brewer, 1987; Enderwick, 1991). Recent years have also witnessed the rise of some Turkish construction TNCs to compete with the monopoly of the Middle East market by the Koreans (Kaynak and Dalgic, 1992) and, likewise, the interest of Philippine construction TNCs in the Middle East market, prompted by vigorous promotion of the exports of Filipino manpower as a priority in the government’s 1974 labour policy (Tolentino, 1993). The raison d’être of these construction TNCs from developing countries is to nurture some ‘national champions’ to compete in the world market against giant TNCs from developed countries. The Philippine government grants special financial and tax incentives to domestic construction firms. Special industrial training is also provided by a government agency in former military bases. The information industry of Taiwan, as another example, has been classified as a ‘strategic industry’ since a series of institutional changes during the late 1970s and early 1980s (Chen, 1986; Chang, 1990). In May 1979 (during the second oil crisis), the Executive Yuan approved the ‘Science and Technology Development Programme’ in which the information industry was identified as a ‘strategic industry’. Two months later, the Institute of the Information Industry was established to help government formulate short- and long-term development plans for the information industry. In 1980, the Executive Yuan approved as official policy the ‘Ten Year Development Plan for the Information Industry, 1980–90’ which was prepared by the Council for Economic Planning and Development. By the late 1980s, several computer and electronics companies (e.g. Acer and Tatung) had emerged from Taiwan’s drive towards international recognition of its information industry—a reflection of the effectiveness of the official ten-year plan. In Singapore since 1993, the government has launched an aggressive regionalisation drive through which Singaporean firms are encouraged to invest in other Asian countries (Yeung, 1998b). This largely state-driven process is spearheaded by government-linked corporations (GLCs) such as Temasek Holdings, Singapore Technologies and Keppel Group. It is hoped that regionalisation will give Singapore’s economy an external wing in order to maintain its competitiveness in the regional and global economy. Explaining the inter-nationalisation of TNCs from Asian NIEs Studies of TNCs from Asian NIEs tend to explain their activities on the basis of two sets of factors: ‘push’ and ‘pull’ factors. ‘Push’ factors essentially refer to the ways in which domestic TNCs exploit their ownership-specific advantages by operating abroad. On the other hand, ‘pull’ factors are manifested in the exploitation of location-specific advantages of host countries by developing country TNCs.

Transnational corporations and business networks

46

‘Push’ factors: exploiting ownership-specific advantages One ‘push’ factor is to avoid domestic restrictions. As mentioned earlier, heavy home government restrictions have forced many Indian TNCs to operate abroad in order better to exploit their ownership-specific advantages. Another motivation is to make use of domestic technology and machinery. Many TNCs from developing countries are characterised as labour-intensive and low in capital input. Their only technological advantage is derived from their ability to downscale the mass-production technology transferred from developed countries. Developing country TNCs often find difficulty in licensing out this downscaled technology because of the absence of a well developed international market for such technology embodied in second-hand machinery. One feasible alternative is to exploit this technological advantage within the enterprise via transnational operations. Moreover, TNCs from Asian NIEs need to operate abroad to achieve product and technological innovation. It is quite true that many developing countries are still at an early stage of their learning curve of technological innovation. Neither do they possess the technological capability to compete with developed countries in the most sophisticated sectors (e.g. microprocessor chips, aerospace industries and so on). One advantage these developing countries do possess, however, is their remarkable willingness to learn from technological innovations in developed countries and adapt them to their own needs. The NIEs are certainly at the forefront of this outward movement to search for technological capability which is intended by the home governments to form the basis of national competitiveness in the global economy (e.g. Korean and Taiwanese TNCs in the electronics and automobile industries). Many developing country TNCs are also ‘pushed’ to operate abroad to exploit their local market knowledge of the developing world. The literature has attributed this rich local knowledge to the fact that many developing countries share a common history, ethnic origin, language, cultural heritage, customs and lifestyle. Domestic enterprises therefore possess an intimate knowledge of local markets in similar countries. The similar countries are usually situated within the same region (e.g. Hong Kong, India and Taiwan with South-east Asian countries) and most transnational operations of domestic enterprises are intra-regional in orientation. For example, food companies, such as Yeo Hiap Seng of Singapore, have pioneered and captured the non-carbonated and herbal drinks markets in Asia (Lim and Teoh, 1986). ‘Pull’ factors: exploiting location-specific advantages ‘Pull’ factors are also important motivations for the transnational operations of developing country TNCs. A ‘pull’ factor of transnational operations is to protect and/or penetrate foreign markets. For example, Wells (1983) found that almost 85 per cent of the subsidiaries created by TNCs from developing countries were preceded by exports to the countries concerned. This is particularly the case when manufacturing products from developing country TNCs are extremely vulnerable to deterioration in export markets because they are highly standardised with low-technology inputs and simple marketing techniques. In other cases, developing country TNCs are motivated to invest abroad to

The emergence of transnational corporations from Asian newly industrialised economies

47

penetrate foreign markets—as market-seekers. This motivation usually works hand-inhand with the limits of domestic markets and is a particularly important motivation for TNCs from Hong Kong (see pp. 118–25), Singapore (Yeung, 1998b), South Korea (C.H.Lee, 1994; H.Lee, 1995) and Taiwan (Chang, 1990). Another ‘pull’ factor is the search for lower costs. The availability of cheap labour elsewhere among developing countries becomes a strong motivation for TNCs from NIEs which are experiencing rising domestic production costs. For example, textiles and electronics HKTNCs have invested in Indonesia, Mauritius, the PRC, the Philippines, Sri Lanka and Thailand to take advantage of their cheap labour. This motivation, however, varies from country to country and from case to case. The availability of cheap labour becomes attractive only when the TNCs are competing on the basis of lower prices for their products (cf. Chapter 4). Gaining access to raw materials and inputs to production is another related ‘pull’ factor. This motivation is more effective in natural resource-based TNCs for which raw materials represent a substantial input to production. In order to secure access to raw materials, vertical integration is the most likely outcome in these industries, as predicted in economic theories of the TNC (see next chapter). The literature has shown evidence of some backward integration of Hong Kong furniture firms into the timber industry in Indonesia and Malaysia. Some Argentine natural resources TNCs are also involved in vertical integration into other Latin American countries primarily searching for raw materials. Faced with growing domestic political instability, many developing country TNCs are also motivated to invest abroad in order to reduce risk through diversification. Some HKTNCs and Latin American transnationals are clearly motivated by variants of this risk consideration. A related ‘pull’ factor is the advantages associated with multinationality in operations. By operating in different countries an enterprise can not only reduce the risk of operations but also experience a better potential to achieve economies of both scale and scope than by operating only in the home country. Empirical studies show that Singaporean TNCs take this advantage of transnational presence seriously (Aggarwal, 1987). A final ‘pull’ factor is to establish and make use of the ethnic and cultural links found within the region. The foreign operations of TNCs from Hong Kong, India, Singapore and Taiwan in South-east Asia are examples of this motivation. These transnationals enjoy advantages from the possession of local market knowledge, joint ventures with ethnic partners, higher trust mechanisms and lower information and transaction costs (see Chapter 5). For example, O’Brien (1980:304) observes that 46 per cent of the approved agreements on joint ventures from India pertain to countries where important positions in the economy are held by Indian migrants. The same motivation, nevertheless, plays a minor role in Latin America (Khan, 1986b:4) because of a lack of trust among extended families. The role of business networks From the above discussion of the nature and operations of TNCs from Asian NIEs and other developing countries, it appears that many empirical studies tend to explain the

Transnational corporations and business networks

48

concrete contexts under which these business organisations should transnationalise their production processes abroad (i.e. ‘push’ and ‘pull’ factors). But few succeed in explaining why and how these TNCs actually transnationalise, because they fail to identify and explain the causal link between their explanations and transnational operations by developing country TNCs. One key dimension of transnational operations today, as introduced in Chapter 1, is the role of cooperative agreements, strategic alliances and firm networks. Networks of inter- and intra-firm relations are likely to be prominent among TNCs from Asian NIEs precisely because of the cultural, ethnic, political and economic ties between their home and host countries. Although the literature points out a loose and fluid parent-subsidiary relationship between developing country TNCs and their foreign affiliates, this by no means undermines the significance of inter- and intra-firm networks as the fundamental basis of organising transnational operations. As argued in the next chapter, many of the ongoing inter- and intra-firm relationships among these TNCs are informal and socially embedded. These issues of network organisation and social embeddedness are nowhere featured in the literature. The neglect of the role of business networks in transnational operations reflects clearly the preoccupation of neoclassical economics with cost-efficiency arguments. Other dimensions of business organisations, such as culture, politics, social and spatial characteristics, are generally subsumed under economic issues. A fundamental problem with Western neoclassical economic theories is their reliance on static equilibrium analysis of an extremely dynamic process—transnationalisation. It is not difficult to explain the anatomy of TNCs from developing countries, based on a retrospective ‘snapshot’ approach. It is very problematical, nevertheless, to explain it as an ongoing process. A dynamic theory of transnational operations requires the examination of the relationship between different facets of capitalism. It also requires the reconciliation of surface manifestations of economic activities and deeper structural mechanisms and institutional changes (Yeung, 1998a). A plausible mechanism is predicated on the concrete operation of business systems in culturally specific settings. Business systems are socially and culturally reproduced and, hence, they are embedded in a specific time-space context (see Chapter 5). More socially and culturally sensitive theories are needed to unravel the complex mechanisms through which different business systems are operated. Business networks, indeed, can be a causal mechanism through which Asian firms operate across national boundaries. The emergence of the ‘bamboo network’ (Weidenbaum and Hughes, 1996) and ‘worldwide web’ (Kao, 1993) among Chinese business firms in Asia has provided a central organisational capability through which these ethnic firms compete with other global firms in the regional market place. These issues of transnational operations, business networks, social embeddedness, guanxi or relationships and Chinese capitalism present challenging analytical tasks for the following chapters of this book.

3 CONCEPTUALISING TRANSNATIONAL CORPORATIONS AS NETWORKS OF GOVERNANCE STRUCTURES we believe that the concept of a network, both as a metaphor and in terms of the tools and techniques of analysis it provides, reflects the nature and complexity of the multinational organisation and can provide a useful lens through which to examine this entity. (Ghoshal and Bartlett, 1993:79)

Having raised the issue of the role of business networks in transnational operations, there is a need to search for a theoretical framework to inform this study. A review of different theoretical perspectives in industrial and institutional economics and international business studies shows that virtually none of them is concerned with the two central theoretical categories in this study—business networks and personal relationships, although most of them supposedly explain aspects of transnational corporations (TNCs) and their cross-border operations. Following Stephen Hymer’s MIT doctoral dissertation in 1960, economic theories of international production have made a significant contribution to our understanding of the TNC by pointing out the difference between portfolio and direct investment and by explaining the economic rationale behind the formation of the TNC. Relying upon transaction cost economics and the eclectic paradigm, however, economic theories offer much less in explaining why and how transnational operations by ethnic Chinese business firms, for example, are driven less by transaction cost considerations than by network formations and cooperation strategies (Yeung, 1997a, 1997b, forthcoming e). Meanwhile, networks have recently received increasing attention in the international business literature. This body of literature, however, tends to describe the patterns of networks, rather than to explain their underlying socio-spatial organisation and embeddedness (Yeung, 1998a). Drawing upon insights from these various theoretical perspectives and spatial perspectives in economic geography, I propose a network perspective in this chapter to explain the ways in which transnational operations are established (Yeung, 1994d). I argue that TNC networks are empirically manifested and embedded in ongoing business and personal relationships, as in the case of Hong Kong TNCs (HKTNCs) and their operations in South-east Asia (ASEAN). Such a network approach avoids the academic straitjacket of cycle- or stage-related models of internationalisation in which TNCs are inevitably postulated to go through various stages of development during their internationalisation processes (e.g. Vernon, 1966; Dunning, 1986). Rather, the network approach developed in this book favours a dynamic contextual model of networks of transnational operations without a unilinear direction

Transnational corporations and business networks

50

which a particular TNC must go through in its processes of transnationalisation. Such a contextualised network construct also argues against ‘a mystification of networks as a new master paradigm and a universally applicable blueprint for economic success’ (Grabher, 1993b:23). The chapter starts with the leading theoretical perspective in the economics of TNCs—the transaction cost framework. It will be shown that this efficiency-based framework does not embrace the socio-cultural formation of TNCs and their business networks. The second section takes up the issue of the social embeddedness of firms and their networks. The idea of embeddedness, however, is mostly concerned with the firm as a unilocational entity. To theorise the organisational nature and social embeddedness of TNCs, the final section presents a network perspective on TNCs and their cross-border activities. Transaction cost framework and business networks Modern economic theories of international production owe their intellectual origin to Hymer ([I960] 1976), who first emphasised the oligopolistic behaviour of national firms in maintaining international operations. Hymer’s most significant contribution was his explicit recognition that the theory of foreign direct investment (FDI) belongs more to the theory of industrial organisation than to the theory of international capital movements (e.g. interest differential theory) because ‘[t]he theory of international operations is part of the theory of the firm’ (Hymer, [I960] 1976:27). Hymer later (1970) made the point that FDI has a dual nature: first as an instrument to transfer capital, technology and organisational skill from one country to another and, second, as an instrument to restrain competition between firms of different countries. His primary concern was to explain why national firms are involved in international operations. Since the 1970s, there have been two almost parallel developments in the market efficiency theory of the firm: transaction cost analysis and internalisation theory. The first development has been associated with explaining the existence of the firm in a domestic context: the ‘(new) institutional economies’ (Coase, 1937; Williamson, 1975, 1985, 1986, 1996; Chandler, 1977, 1990; Williamson and Winter, 1991). Coase (1937) argued that the economic activities of individuals in a capitalist economy could be coordinated in one of two ways: either by the price mechanism in the market or by planned and authority relations within the firm. The raison d’être for the existence of the firm vis-à-vis the market is the economies of minimising transaction costs (see also Demsetz, 1988; Aoki et al., 1990; Pitelis, 1993). Williamson (1975, 1985, 1986, 1996), in particular, defines the nature of the programmatic research as ‘transaction cost economies’. He goes one step further to explain the alternative ‘governance structures’ in coordinating economic activities and economising on transaction costs within the capitalist economic organisations. He suggests three broad types of governance structure: (1) the classical market based on non-transaction-specific investment; (2) an intermediate form where semi-specific investments or highly specific investments with low frequency are involved, and (3) a hierarchy structure where highly specific investments in mass production are necessary to facilitate transactions.

Conceptualising transnational corporations as networks of governance structures

51

A second, almost concurrent, development is concerned with firms in international contexts: ‘internalisation theory’ (Buckley and Casson, 1976, 1985; Rugman, 1981, 1982a; Casson, 1982a, 1983, 1987, 1992; Caves, 1982; Teece, 1985; Buckley, 1988, 1992; Hennart, 1991). On the basis of transaction cost arguments, internalisation theorists contend that the TNC basically functions as an internal market to overcome the costs involved in arm’s-length transactions in external markets: ‘[t]he firm, in short, is an alternative to a market’ (Rugman, 1982b:11). The underpinning notion of internalisation theory is that the net benefit from internalising an intermediate product market linking activities located in different countries is both a necessary and a sufficient condition for the existence of a TNC (Buckley and Casson, 1976). The TNC becomes ‘a device for reducing transaction costs by buying or by creating complementary assets in different nations and integrating their operations within a single unit of control’ (Buckley, 1992:62–3). The transaction cost framework, however, has paid little attention to how domestic firms internationalise their production and investment (cf. Buckley, 1990, 1992). It also offers no explanation of where firm-specific advantages are exploited. It has been argued, for example, that internalisation theory fails to analyse multinationality per se (Kogut, 1983; Ietto-Gillies, 1992) because it overlooks the issue of why the TNC must operate in a multiple of national territories and involve nationals from many countries. It should be noted that internalisation and internationalisation are not necessarily two sides of the same coin. There are some cases in which internationalisation can be viewed as a reaction to problems created by internalisation (e.g. internal conflicts within the parent TNC). There are also many potential advantages or economies that can be realised by transnational production, including global scale economies, global scanning capabilities and cross-subsidisation of markets (Ghoshal, 1987; Bartlett and Ghoshal, 1989). In addition, the transaction cost framework offers little understanding of the nature of intra- and inter-firm network relationships (cf. Johanson and Mattsson, 1987, 1988; Forsgren and Johanson, 1992a). Much of the transaction cost literature focuses on transaction modes and how the TNC can be the most efficient mode of executing transactions without engaging in an arm’s-length market. Dunning (1995b:463; original italics), for example, argues recently that ‘[u]ntil the late 1970s, scholars usually considered cooperative forms of organizing economic activity as alternatives to hierarchies or markets, rather than as part and parcel of an organizational system of firms, in which inter-firm and intra-firm transactions complement each other’. There is relatively little work on the different ways of organising transnationalisation such as joint ventures, cooperative agreements, strategic alliances and other non-equity forms of international production. The key concept of ‘hierarchy’, for example, which is so central to transaction cost analysis, has been questioned seriously (Hedlund, 1986, 1993; Lundvall, 1993; Dunning, 1995b, 1997) because the raison d’être of the TNC is, rather, best described in terms of ‘new’ advantages belonging to scale and scope (Chandler, 1990), interactive learning and operational flexibility (Kogut, 1993; Kogut et al., 1993; Lundvall, 1993). By the 1990s, the emergence of flexible production processes in an era of postFordism had not obliterated the need for transnational operations. Robertson and Langlois (1995:552) note that ‘in practice, the degrees of vertical integration available to producers are finely graded and may be chosen according to needs. There is no single degree of

Transnational corporations and business networks

52

integration, or form of firm or industrial organization that suits all purposes.’ It is more reasonable to expect today’s transnational landscape of production to be made up of a diverse range and form of organisations centred around networks. Vernon (1992:26) similarly observes that despite uncertainties emanating from these new forms of production, ‘it can be anticipated that transnational networks and trans-border alliances, already a major factor in international economic flows, will grow in importance’. There are, however, only a handful of economic studies addressing different forms of nonequity international involvement (e.g. Contractor and Lorange, 1988; Buckley, 1992, 1994; Dunning, 1995b, 1997; Beamish and Killing, 1997). These recent treatments of the ‘network’ form of organisation, however, tend to focus narrowly on economic returns and on economising transaction costs (e.g. Nooteboom, 1996; Park, 1996). The neglect of the social embeddedness of TNCs in the transaction cost framework also demonstrates its inherently economistic interpretation of firm dynamics. Despite the call to introduce social concepts such as culture, cooperation and trust into conventional economic analyses of the TNC (McClintock, 1988; Buckley and Clegg, 1991), few attempts have been made to address the social dimensions of economic institutions (e.g. Buckley and Casson, 1991; Casson, 1991, 1995; Williamson, 1993; Nooteboom, 1996). Among those economic studies of the social dimensions of the TNC, however, most analyses are narrowly based on economic considerations such as transaction costs and internalisation advantages. At their very best, they represent an ‘undersocialised’ view of economic action by TNCs (see Granovetter, 1985). These transaction cost economists (e.g. Casson, 1982b, 1990, 1991; Buckley and Casson, 1991) tend to view culture as another organisational product in the process of international production and this ‘product’ can be deployed like another other good or service to reduce transaction costs. Instead of adopting this overtly economistic view of culture and social relations, this book sees culture in the study of TNCs as both a socially organised process and a collectively validated product (also Van Maanen and Laurent, 1993). To elaborate on this process of socialisation of TNCs, we shall turn to the concept of embeddedness and social networks as advanced in economic sociology and organisation studies. Embeddedness and the social organisation of networks The late 1970s and early 1980s witnessed a period in which interest in the new economic sociology emerged as a response to the failure of neoclassical economics in explaining economic (social) action and rationality (Etzioni, 1988, 1993; Zukin and DiMaggio, 1990a; Etzioni and Lawrence, 1991; Granovetter and Swedberg, 1992; Holton, 1992; Smelser and Swedberg, 1994). The overriding concern with economic rationality in modern organisations represents an ‘undersocialised’ view of organisations (Granovetter, 1985). After all, modern organisations are both economising devices and power-laden entities. Economic perspectives are thus inadequate to capture the multidimensional nature of modern complex organisations (Perrow, 1986, 1990; Martin, 1993). There is thus a genuine attempt in the new economic sociology to theorise the relationships between modern economic organisations and ongoing social relations. Zukin and DiMaggio (1990b:2) note that the new economic sociology seeks ‘to accept the fallibility and flexibility of human action; to view social causation as contingent,

Conceptualising transnational corporations as networks of governance structures

53

path-dependent, and except at microscopic levels, irreducible to simple models of high generality; and to value carefully designed empirical research over ingenious mathematical models based on untested assumptions’. Following Karl Polanyi (1944), they view the economy as an outcome of social action rather than as a separate realm from social life. This notion of the social construction of the economy leads to an increasing concern with economic issues arising from everyday social life. The conceptual underpinning of the new economic sociology rests on the embeddedness of economic (social) action—the argument that ‘the behavior and institutions to be analysed are so constrained by ongoing social relations that to construe them as independent is a grievous misunderstanding’ (Granovetter, 1992a:53). Subsequently, economic action becomes embedded in ongoing networks of personal relationships rather than being carried out by atomised actors (Granovetter, 1985, 1991, 1992b; Abolafia and Biggart, 1991; Granovetter and Swedberg, 1992; Holton, 1992). Two examples are relevant to illustrate the embeddedness of economic action in networks of relations among social agency. In his study of non-contractual relations in American business, Macaulay (1963) found that many of the ongoing business relations did not rely on explicit formal contracts. Firms engaged in business with each other not simply on the basis of competitive market forces—the ‘invisible hand’. Many of the relations between business firms were non-contractual in nature, implying a substantial degree of trust and moral cohesive-ness between business firms as social actors. This example shows that economic action (or business in this case) is not determined by abstract economic rationality such as perfect competition and selfish behaviour. Very often, economic action is so embedded in ongoing social relations that market forces give way to social relations as a signal of economic (social) action. Because economic action is socially embedded, there is no way, the new economic sociologists argue, that economic action can be understood and attributed to economic rationality alone. To understand and explain economic action requires a proper appreciation of its social embeddedness. Another example is found in Clegg’s (1990) discussion of the Italian fashion company Benetton. The success of Benetton as a modern business organisation is explained with reference to its embeddedness in a set of social relations (e.g. subcontracting) that allow Benetton to innovate and exploit the advantages of flexibility in production and organisation: The Benetton we see is quite different if we look only at the focal firm or if we look more broadly at the social relations in which it is embedded. What makes Benetton possible, in part, is a sophisticated application of ‘telematics’ [computer applications in design, production and distribution] to enable a far more flexible manufacturing system than an older, labourintensive organization could have achieved. (Clegg, 1990:124) The new economic sociologists contend that ‘economic institutions do not emerge automatically in response to economic needs. Rather they are constructed by individuals whose action is both facilitated and constrained by the structure and resources available in the social networks in which they are embedded’ (Granovetter, 1991:78). This conceptualisation of economic institutions as social constructions represents a move from

Transnational corporations and business networks

54

the concern with the social origins of economic action to the social organisation of economic action (in the form of economic institutions), manifested in modern complex organisations (Perrow, 1986, 1990). The embeddedness approach contributes significantly to the study of business organisations (e.g. Whitley, 1992a, 1992b; Romo and Schwartz, 1995; Hollingsworth and Boyer, 1997). Recent applications of the ‘embeddedness approach’ are also found in the study of industrial networks (Grabher, 1993a; Uzzi, 1996), developing country firm formation (Granovetter, 1991) and regional development (Amin and Thrift, 1994a). Towards a network perspective on transnational corporations In view of the above discussion, much original theoretical, and empirical work is needed before we can arrive at a better appreciation of the workings of TNCs and their embedded network relations. The following reconceptualisation seeks to offer some insights into the nature and operations of network relations in the organisation of transnational operations. It also aims to examine the historical and social formation of network relations in conjunction with some recent concepts in economic sociology and organisational studies (Håkansson and Johanson, 1988, 1993; Ghoshal and Westney, 1993a). In particular, the concept of ‘embeddedness’ helps to revitalise network analysis by injecting social and historical dimensions into the study of transnational production systems in their time— space contexts. By recognising the cultural and social embeddedness of the formation of network relations and economic transactions, we can better understand the nature of production systems prevailing in different societies and localities. My network theory of transnational corporations is presented in the following sequence. The next section starts with a stylised network model of TNC operations. To elaborate further this network model, the second section addresses the role of business organisations as causal agencies in social and economic change. Business organisations produce concrete outcomes under the direction of their distinct ‘modes of rationality’. Because of these modes of rationality, business organisations are as much the prisoners of generative mechanisms as the producers of concrete outcomes—a process of structuration between agency and structure (see Giddens, 1984). Business organisations, however, are not the generative mechanisms themselves; they should rather be conceptualised as causal agents executing the ‘power’ embedded in these mechanisms. Next, the process of structuration is analysed in relation to ‘network relations’ as the generative mechanisms of transnational operations. The TNC is conceptualised as an inherently network governance structure. Various forms, functions and dynamics of network relations are examined after an exposition of the distinctive nature of network relations. The final section is concerned specifically with explaining the transnational operations of business organisations—the socio-spatial dynamics of transnationalisation. The notion of the ‘embeddedness’ of TNCs is further extended to discuss the articulation of generative mechanisms in different time-space contexts. The role of space in the production of TNCs and the role of TNCs in the production of space are also touched upon to demonstrate the intrinsic importance of space and place in understanding transnational operations.

Conceptualising transnational corporations as networks of governance structures

55

A network model of transnational corporations This book views the TNC and its network relations as a governance structure through which transnational operations are possible. A governance structure is conceptualised as the organisational forms and processes through which activities are directed in the transnational platform; it is simultaneously a state of being (form) and a state of becoming (process). A transnational platform refers to the geographical space in which transnational activities take place; it is both a medium of, and a constraint upon, TNC activities. Applied to the above discussion, the network structure of governance in international business can be interpreted as the organisational forms and processes through which transnational activities are directed across different fields in different geographical locations. The patterns and character of the connections between various relations in networks constitute their structures because ‘such structures are conditioned by technical and cultural factors, but, primarily, they are interactive, that is, they are formed and modified through interaction among the actors. The network structure is a result of history’ (Håkansson and Johanson, 1993:42). In Figure 3.1, a network model of TNCs is constructed to capture various dynamic moments in the processes of transnationalisation which are embedded in ongoing networks of social and business relations. The central tenet of the model maintains that the TNC does not exist in isolation from other powerful forces in the global economy: nation states, technological innovations (expressed through changing ‘global contexts’ in the outer rectangle) and spatial tendencies (expressed through ‘agglomeration and dispersion’). The TNC is internally related to these powerful global forces through a diverse set of evolving relationships such as coordination and configuration (within the TNC), competition and cooperation (between TNCs) and conflicts and negotiation (between TNC strategy and nation states). These processes of relationships form the fundamental bases of (1) intra-firm, (2) inter-firm and (3) extra-firm networks, expressed at various levels centred around the TNC. They produce empirical outcomes modified by different time-and space-specific contexts. The model therefore incorporates both historical and geographical dimensions into its understanding of the contemporary landscape of the global economy dominated by the worldwide operations of TNCs. If we look specifically at the TNC itself, its very raison d’être points to the simultaneous necessity of engaging in three types of network relations. Vertically at the intra-firm level, (1) in Figure 3.1, the TNC formulates its corporate strategy in order to coordinate and to configure its global operations that have spatial ramifications in terms of peculiar spatial organisation and embeddedness. For example, the emergence of global TNCs is supported by the increasing functional integration of their overseas activities. The choice of one location or country for a branch plant within the TNC’s global network of operations reflects not only its degree of coordination and extent of configuration, but also its spatial preferences. Today’s global TNCs are compelled to operate simultaneously in all Triad regions in order to compete more effectively in the global market place (Ohmae, 1985, 1990). These spatial tendencies, coordinated by different TNCs, interact with each other and reproduce themselves through processes of agglomeration and dispersion. The establishment of electronics assembly plants in Malaysia by one global TNC, for instance, tends to attract similar ‘follow-my-leader’ behaviour from other global TNCs (see also Knickerbocker, 1973). A process of spatial agglomeration is thus set in motion like a snowball effect until these global TNCs find it

Transnational corporations and business networks

56

uneconomic (e.g. too costly) or socially unacceptable (e.g. the branch plant syndrome) and politically unattractive (e.g. more restrictive state regulations to reduce labourintensive operations) to locate on the same

Figure 3.1 A network model of transnational corporations site, resulting in a tendency towards spatial dispersion (e.g. migration of some assembly plants from Singapore and Malaysia to Thailand and Indonesia). All these movements reflect the context-dependent nature of the coordination and configuration of TNC operations (John and Young, 1995). At the same time, the TNC is horizontally engaged in a diverse range of inter-firm networks, (2) in Figure 3.1. At the level of their corporate strategies, TNCs tend to compete and cooperate simultaneously with one another. A TNC today can no longer go it alone, so to speak, without an understanding of who are its competitors and what it can do to meet the global competition (Dunning, 1995b, 1997). Corporate strategies are fundamental to meeting global competition because the existence of imperfect markets allows some TNCs to earn abnormal profits through an appropriate combination of strategies. Two choices are open to TNCs at any moment in time: competition and cooperation. TNCs need to compete with one another because they need to capture market share and to dominate the industry in which their core capabilities are embedded. They also need to cooperate with one another when they realise their core capabilities are insufficient to support their strategic intent. Today, the development of many global products requires huge capital investment and technological inputs that these TNCs find it impossible to supply on their own. One of the best alternatives is to go into cooperative relationships through which all parties hopefully will win (Lorange, 1991; Lewis, 1995). Such an all-win strategy is sometimes embedded in structural necessity (e.g. in highly competitive and costly global industries such as automobiles, electronics and pharmaceuticals) and sometimes in ongoing networks of social and business relationships (e.g. in the Chinese business

Conceptualising transnational corporations as networks of governance structures

57

system; see Chapter 5). The adoption and evolution of these cooperative relationships must therefore be context-specific. Translated into spatial forms, this cooperative competition results in distinct structural changes locally and globally through continuous readjustments in corporate strategies (see Malnight, 1995, 1996). Today’s fierce competitors in the global market place may well become tomorrow’s friendly collaborators. TNCs therefore need to readjust their strategies and subsequent operations in the processes of internationalisation. In Figure 3.1, inter-firm network relationships (horizontal links between ‘strategy’) shape the outcome of intra-firm coordination and control (vertical links between ‘strategy’ and ‘spatial organisation’) because the reality of international business is as much about competition as about cooperation (Grandori and Soda, 1995; Smith et al., 1995; Beamish and Killing, 1997). The model in Figure 3.1 also explicitly incorporates the indispensable role of the state as both a regulator of and a facilitator of TNC activities. Nation states are key features of the global economy; they interact with TNCs through extra-firm networks (3) in what has commonly been known as processes of conflict and negotiation (between ‘nation state’ and TNC ‘strategy’). First, the state may enter into cooperative ventures directly with TNCs based upon formal relationships (e.g. the role of US defence contracts in the technological innovations of some large American TNCs) or informal relationships (e.g. the rent-seeking behaviour of politicians in some South-east Asian countries; see Chapter 6). Second, the state may negotiate with TNCs for better deals (i.e. maximising benefits) or more investment (i.e. state—state competition). Third, the state may enhance the competitive advantage of its home economy in attracting foreign investment through a variety of domestic policies (e.g. Singapore; see Dunning, 1995a). The state may also shape the spatial outcome of transnational operations through their direct policies, governing the agglomeration and dispersion of different TNCs (links between ‘nation state’ and ‘spatial organisation’ in Figure 3.1). As will be shown in Chapter 6, the regulatory regime of host countries plays a significant role in shaping the nature and outcome of transnational operations by HKTNCs. A final point in the model is that all these dynamic moments of transnationalisation embedded in network relations occur in historically and geographically specific contexts (the outer rectangle in Figure 3.1). This context may change at the local, regional or global level, affecting the dynamic power embedded in prevailing networks among nation states, TNCs and other causal agents in the global economy. Changes in local context may involve grass-roots political movements and labour mobility. Formation of regional blocs may change the regional context significantly and directly impinge on TNC operations (e.g. the effects of ‘Fortress Europe’ on the expansion of Japanese TNC operations in Europe; see Dicken, 1992b, 1992c). Finally, changing global contexts constituted by broader technological regimes and regulatory frameworks may impact on the spatial organisation of TNC activities (Dicken, 1992a). Let me now elaborate further these ideas of TNC strategy, networks and geographical embeddedness in the following sections. Business organisations as causal agents: modes of rationality Fundamentally, business organisations should be conceptualised as socioeconomic institutions of capitalism occupying a central position in control of productive and

Transnational corporations and business networks

58

transactional relations with other business organisations within and outside different industries. Under this broad definition, business organisations are viewed as ‘nodal centres’ embedded in uneven surfaces of network relations which are geared towards production, consumption and circulation; they serve as causal agents embedded in the underlying structural frameworks of the society and world economy (cf. Whitley, 1987; Clegg, 1990; Yeung, 1998a). The specific way in which business organisations are understood as causal agents is expressed in their modes of rationality. Business organisations are bounded by different modes of rationality which refer to ‘the attempts by agents to make sense of the potentially ambiguous, contradictory and uncertain nature of these available frameworks [structural mechanisms]’ (Clegg, 1990:7). Modes of rationality provide different organisational logics to understand the strategies undertaken by business organisations to make sense of their structural embeddedness in society and space and the changes in concrete contingency. There is never a single logic or rationality determining universally all economic outcomes. There is thus no a priori reason why transaction cost economies, for example, explain all forms and types of TNC activities. Many economic theories of business organisations and, more specifically in this context, TNCs are clearly guilty of economic determinism in analysing different organisational modes of rationality. Since business organisations are socially constructed (Granovetter, 1991, 1992b; Whitley, 1992a, 1992b; Schoenberger, 1997) and the social context differs in time and space, different economic outcomes of strategic actions performed by different business organisations are necessarily explained by their different modes of rationality. In analysing TNC operations, we have to accommodate multiple logics and rationality that range from the economic to the social and the political. We cannot subsume all economic activities under the ‘invisible hand’ of the economic, for such is the fundamental flaw of economic determinism. The recognition of different modes of rationality in different business organisations necessitates a sharpening of the analytical focus on the firm through an examination of the organisational and strategic modes of rationality responsible for organisational change (e.g. transnationalisation in Figure 3.1). Strategic modes of rationality interact with certain generative mechanisms (i.e. network relations in our model) at work within a broader context of contingency and change. In other words, corporate strategies do not work alone, but in conjunction with the causal mechanisms. Moreover, by virtue of the causal powers attached to the concept ‘modes of rationality’, organisational motivations and reasons are forcefully justified as having causal effect. Motivations and reasons constitutive of different modes of rationality are intrinsically mixed and relatively enduring because they are socially and culturally reproduced. National institutional structures also have an enduring influence on the behaviour of national firms (e.g. Whitley, 1992c; Whitley and Kristensen, 1995; Lane and Bachmann, 1996; Windolf and Beyer, 1996; Pauly and Reich, 1997; Keller et al., forthcoming; Yeung, forthcoming f). An organisation is unlikely to change its strategic action overnight, say from highly profit-oriented to one purely driven by social welfare. Modes of rationality may also be reproduced in organisational culture and human individuals—entrepreneurship. The rise and fall of many great business organisations, for instance, is evidently associated with eminent individuals and entrepreneurs (e.g. Henry Ford, Pierre S.du Pont, Alfred P.Sloan, Akio Morita, Konosuke Matsushita, Bill Gates and so on).

Conceptualising transnational corporations as networks of governance structures

59

This conceptualisation of business organisations and TNCs as causal agents capable of effecting changes in the spatial organisation of the global economy thus relies more upon insights from organisational analyses of TNCs (e.g. the embeddedness approach) than upon abstract economic logics (e.g. the transaction cost framework). It also draws insights from the geography of business organisations in which the firm is regarded as spatially constituted and hence carries with it geographical specificities. Two implications emerge from this model of the firm and the TNC. First, the strategic role of business organisations as key actors or agents in the organisation of production should be clear (also Dicken and Thrift, 1992; Yeung, 1994d; Murdoch, 1995, 1997). We cannot understand the changing world economy without first understanding one of its major constituents—business organisations. Second, the model argues that business organisations such as TNCs are important not only in their own right, such is the argument of the firm-centred approach (e.g. economic theories of TNCs), but also in their structuration with causal mechanisms. A more comprehensive view of business organisations must therefore include their relationships with other institutions and structures. It is these relationships, expressed in both the forms and processes of networks, that constitute the main focus of this book. This need to adopt a network approach to the study of the world economy is real because the dynamic processes of global economic change are ‘less and less contained within national boundaries; they slice through them and transcend them in a bewildering array of relationships that operate at different geographical and organisational scales’ (Dicken, 1995:198). What then are networks? The nature of networks In abstracting its essence, a ‘business network’ can be defined as an integrated and coordinated structure of ongoing economic and non-economic relations embedded within, among and outside business firms. Actors in business networks are motivated by both economic goals (e.g. profit, market share, market control) and non-economic goals (e.g. power, sociability, approval, status, recognition, moral justification). No single universal logic can determine all concrete outcomes of network relations because these outcomes are necessarily contingent on time- and space-specific contexts. For example, Best (1990:16) compares the competitive practices of Ford and Nissan and concludes that the difference is that ‘the struggles over prices [in Nissan] go on within the context of a long-term relationship based upon established norms of mutual responsibility’. This is not to say, however, that economic (social) action is completely determined by networks of social relations. Rather economic relations should be envisaged as being embedded in networks that constrain and restrain pure economic forces. To a certain extent, economic forces do matter in explaining social (economic) action. Although this conceptual definition of a business network is necessarily broad, its concrete realisation can take a very specific form (e.g. strategic alliances). A (TNC) network is more than just an integrated structure because it is simultaneously a form of (international) business organisation and a process of organising (international) business. It is a nested structure with emergent power in an abstract sense: participants and agents in a network often benefit from ‘economies of synergy’ through which they can achieve what is impossible if they were to go it alone. These ‘economies of synergy’ are manifest

Transnational corporations and business networks

60

in information sharing, pooling of resources (capital, labour and technology), mutual commitments, strategic commonality, personal favours and so on. A simple example is how some HKTNCs, through their intimate network relationships in Asia, have competed successfully against major global firms in the regional market place (see pp. 214–23). Networks are also enduring structures embedded in social relations which last for a long time and are reproduced through mutual economic and non-economic benefits. Networks cannot, however, be deconstructed into social relations per se because networks represent the sum of all social relations focusing on a particular nodal point— the TNC in this case. All TNCs, irrespective of their country and social origins, must form all sorts of networks to compete successfully in their key market places. They interact with each other in similar networks for mutual benefit (e.g. strategic alliances or ethnic networks); they also compete against players from other networks (e.g. Intel versus Motorola in the production of computer chips). In this sense, the TNC is a nodal point on intricate inter- and extra-firm networks; it performs as a prime mover of ongoing networks. On the other hand, the TNC, encompassing a broad range of intra-firm control and coordination mechanisms, is simultaneously a network of dense intra-firm relationships. The ‘emergent power’ nature of networks also enables them to synergise more than the sum or totality of social relations within the TNC. Diversification into more product lines and business activities through mergers and acquisitions in the late nineteenth century, for example, gave many of today’s largest American TNCs ‘first mover’ advantages (Chandler, 1990). By combining organisational and technological capabilities arising out of diversified businesses, these American TNCs were able to take tremendous advantage of intra-firm networks on which product and functional synergy rested (e.g. Du Pont in the chemical industry). This unique attribute of the TNC (i.e. being simultaneously a nodal point on a network and a network structure in its own right) qualifies it to be examined at different levels of analysis, ranging from changes in the global economic context to intra-firm modes of rationality. Only in its concrete manifestation is a network an ongoing process of economic and non-economic relations, because these relations are subject to changes arising from forces of structuration. In other words, in a world of perfect information and perfect competition, networks are irrelevant because all economic transactions can be accomplished through arm’s-length markets. But such a perfect world has never existed and never will. Networks are therefore a necessary form and process to overcome imperfections in the world economy which are expressed as other enduring structures, e.g. nation states and their influence on TNC operations. To what extent are networks different from the commonly understood modes of organisation—markets and hierarchies? This is a question which has long puzzled organisational theorists and industrial economists (e.g. Powell, 1987, 1991; Thompson et al., 1991; Forsgren and Johanson, 1992b; Alter and Hage, 1993; Grabher, 1993a; Robertson and Langlois, 1995; Wible, 1995). This book argues that the idea of ‘networks’, in its general sense, may be used to embrace both markets and hierarchies (cf. Frances et al., 1991; Cooke and Morgan, 1993; Dunning, 1995b). Similarly, Grandori and Soda (1995:184) review studies of inter-firm networks and define such networks as ‘modes of organizing economic activities through inter-firm coordination and cooperation’. They argue that the attributes of a network are not necessarily

Conceptualising transnational corporations as networks of governance structures

61

‘intermediate’ or ‘hybrid’ as argued by Williamson (1975, 1985, 1986) or unique as argued by Powell (1987, 1991). Networks have different attributes that have varying degrees of mixes and intensities both in firms and in markets. Figure 3.2 shows that networks can be interpreted as the generic means through which business activities are coordinated and integrated along the production chain. Market transactions are often based on highly rigid and formalised networks of relationships. ‘Pure’ markets coordinate economic activities via Adam Smith’s ‘invisible hand’. The invisible hand performs its diligent role only as a ‘switching lever’ through which business units are linked with ‘hidden’ networks. Hierarchies of coordination are at the other end of the network spectrum. In their pure form, hierarchies are highly rigid and formalised networks relative to other organisational forms; the network relations are completely internalised within the firm. The fundamental difference between markets and hierarchies, from this network perspective, is that the former are a formalised network of inter-firm relations, whereas intra-firm relations characterise the latter. It should be noted that, in reality, pure market or hierarchical forms of organisation do not exist. Both markets and hierarchies are socially constructed (see Hodgson, 1988; Granovetter, 1991; Smart, 1995). There is thus always a diverse range of ways of organising the production chain on the basis of a continuum of networks. Business networks, like any other form of human networks, are essentially relational. Granovetter and Swedberg (1992:9) define networks as ‘a regular set of contacts or similar social connections among individuals or groups’. Business organisations are not simply ‘islands of planned coordination in a sea of market relations’ in the Coasian sense (Coase, 1937) because ‘[i]n practice, firms build wide and substantial barriers between themselves and such tempestuous seas by entering into all kinds of arrangements or deals with each other’ (Hodgson, 1988:209). Network relations are based on confidence, solidarity, trust mechanisms

Figure 3.2 A network spectrum of forms of organising production chains. Source: Yeung (1994d: Figure 1). and trustworthy behaviour among actors. These elements of atmosphere, trust, cooperation and social order/cohesion are the basic ingredients forming Durkheim’s ‘non-contractual basis of contracts’ (cited in Holton, 1992:189). Atmosphere, as a

Transnational corporations and business networks

62

product of social interaction, is an intangible aspect of a network relationship. It is highly specific in a relationship and can be different in different relationships even within the same network of social relations. The existence of trust is also very important in a network of business relationships because trust ‘is pivotal to the economy, and not merely to social relations’ (Etzioni, 1988:7). Trust can be defined as some sort of mutual understanding through which interacting parties in a group are expected to avoid opportunism and to promote welfare among members of the group/network. Trust is constitutive of social life because disputes and clashes can be effectively resolved through such shared understandings. Trust promotes cooperative relationships at all levels (Sabel, 1993; Smith et al., 1995). It is not subject to economic cost and benefit analysis (cf. Williamson, 1985, 1993; Nooteboom, 1996). Hosmer (1995:390–2) lists a number of conclusions regarding trust by scholars from a wide range of disciplines: 1 Trust is generally expressed as an optimistic expectation on the part of an individual about the outcome of an event or the behaviour of a person. 2 Trust generally occurs under conditions of vulnerability to the interests of individual and dependence upon the behaviour of other people. 3 Trust is generally associated with willing, not forced, cooperation and with the benefits resulting from that cooperation. 4 Trust is generally difficult to enforce. 5 Trust is generally accompanied by the assumption of an acknowledged or accepted duty to protect the rights and interests of others. If individual behaviour encompasses utilitarian motivations (i.e. it is to an individual’s benefit to behave in a trustworthy manner), the behaviour is better described as ‘calculation’ rather than trust. Kenneth Arrow (1974:23) writes that: Trust is an important lubricant of the social system. It is extremely efficient; it saves a lot of trouble to have a fair degree of reliance on other people’s work. Unfortunately, this is not a commodity which can be bought very easily. If you have to buy it, you already have some doubts about what you’ve bought. Promoting trust is both costly and time-consuming. A lack of trust, however, is even more costly still (see Lorenz, 1989, 1992). Trust commands a strategic importance in the analysis of economy and society because ‘it appears as an aspect of economic culture at the heart of economic relations, rather than as a mode of cultural expression, so to speak, outside the economy but impacting upon it’ (Holton, 1992:191). In trust relations, there are strong ties and weak ties. The literature of trust relations tends to emphasise strong ties in facilitating trust mechanisms. Strong ties are arguably constituted by family relations, kinship and religious affiliation.1 The resultant generalisation is that network relations can exist only in the situation of strong ties. This study does not accept the ‘strong ties’ version of network relations, because sometimes weak ties can be as effective as strong ties (see Granovetter, 1973). As I will show in Chapter 5, HKTNCs rely on personal relationships or guanxi as the primary mode of organising transnational intra- and inter-firm networks. Weak ties are particularly

Conceptualising transnational corporations as networks of governance structures

63

effective in business operations through appropriate institutions such as personal relationships, clan associations, chambers of commerce, informal industrial groups and so on. Weak ties of this sort can contribute as much to the formation of long-lasting network relations under the umbrella of a favourable atmosphere and trust mechanism (see Chapter 5). For example, Gulati (1995:105), in his study of more than 2,400 alliances formed among US, European and Japanese firms in the bio-pharmaceutical, new materials and automotive sectors between 1970 and 1989, concludes that ‘repeated ties between firms engender trust that is manifested in the form of the contracts used to organize subsequent alliances’. Firms that have prior ties with one another do not normally enter into equity-based alliances because they trust each other and such trust minimises the possibility of opportunistic behaviour on which transaction cost arguments rest. Trust relations can therefore substitute for hierarchical contracts based on equity ownership in many exchanges and serve as an alternative control mechanism. Power relations are endemic in all forms of network relations. It is these power relations that define the emergent powers of network relations. The organisation of production chains and production systems through business firms can therefore be conceptualised ‘as a complex set of networks of interrelationships between firms which have differing degrees of power and influence’ (Dicken and Thrift, 1992:285–6; original italics). To business firms, the possession of power can be expressed in terms of at least three forms: (1) market power (e.g. market share, sales volume and so on); (2) political power (e.g. special privileges from governments and access to politicians), and (3) network power (e.g. the leveraging capabilities of alliance firms). ‘Power relations’ refer to the quest for the possession of power by social agents in relation to one another. In this sense, the quest for power is not necessarily equal to the search for profit, though both may be interrelated. Another distinguishing feature of power relations is the notion of asymmetry. This asymmetry of power persists because those in the dominant position would like to protect the status quo, whereas subordinates would attempt to overturn the entire power structure. The unequal distribution and possession of power is thus an outcome of, and a condition of, the existence of power relations. The struggle for power by social actors in a complex web of power relations, however, does not preclude the possibility of peaceful coexistence which is embedded in cooperative network relations (e.g. cooperative Chinese business networks in Chapter 5; see Yeung, 1997b). In short, the major attributes of network relations elaborated in this chapter are summarised as follows: 1 Networks are necessarily relational: atmosphere, trust and social order/ cohesion. 2 Network relations are characterised by ‘cooperative competition’. 3 Participation in network relations is motivated by both economic and non-economic goals. 4 Emergent powers are present in network relations, not reducible to individual firms: control, power and strategic advantages. Forms of network relations in transnational operations Figure 3.1 shows that different forms of network relations provide the generative mechanisms of transnational operations. Although the TNC remains as the locus of ultimate control and decision-making, it is fully enmeshed in the existing fabric of society

Transnational corporations and business networks

64

and space in a historical continuum. At the abstract level, Table 3.1 analyses the (1) intrafirm, (2) inter-firm and (3) extra-firm dimensions of network relations in the organisation of transnational operations. Intra-firm networks This micro-dimension of network form of governance structure is one of the most neglected aspects in most studies of network organisations (e.g. Alter and Hage, 1993; Ghoshal and Bartlett, 1993; Grabher, 1993a). Hedlund (1986, 1993) challenges the conventional view of modern TNCs as hierarchies replacing markets. He proposes the concept of ‘heterarchy’ which is made up of several aspects of intra-firm relations: 1 Components of a heterarchy are related to knowledge, action and position of authority. 2 Units in a heterarchy may not be ordered along (1) and hence the rule is that orders do not coincide. The net result is that the apparently strange principle in heterarchy becomes ‘management by exception’ (Hedlund, 1993:230). 3 The order of a heterarchy will vary with time and circumstances and it will not necessarily be transitive but rather circular. 4 The relations between units may be of several kinds—multidimensionality. 5 Cohesion in a heterarchy is given and protected from mere anarchy by normative integration, i.e. through shared objectives and knowledge, a common organisational culture and symbolism. He concludes that the sum total of a heterarchy is ‘to create a situation where “management” is as much a horizontal as a vertical affair, and becomes part of every unit’s and individual’s task’ (Hedlund, 1993:231; original italics). Hedlund’s

Table 3.1 A typology of network relations and the socio-spatial organisation of business and production Network relations Category Intra-firm Inter-firm Extra-firm Firm-institution Firm-firm Nature Parent—subsidiary politics and transactional and relationship relationship: state institutional Internalised and non-state relationship operations: Contractual basis: proprietary rights and Externalised operations: economies direct business economies of scale Legal laws and of scope and joint production/ marketing enforcement Conflicts and Instruments Integration (horizontal Competition and negotiation cooperation and/or vertical) Political Co-ordination (loose Contracts and bargaining v. tight and centralised agreements Social regulation Flexible production v. dispersed) Internal arbitration of systems: just-in-time Propaganda

Conceptualising transnational corporations as networks of governance structures

Concrete dimensions

disputes: labour relations Transfer pricing Tentative full integration of R & D and production High quality at reasonable costs Decentralisation of production decisions

Organisational Quasi-integration forms Internalisation Multi-divisions Family business groups Conglomerates

65

strategy Close and long-lasting Power relations ties between producers more than monetary relations and users Quest for Networking to reap proprietary rights specialisation and Search for social coordination gains and political Long run and legitimacy cooperative subcontracting Government Joint ventures contracts Subcontracting Joint R & D Cooperative collaboration agreements Institutional Strategic alliances relationship, e.g. Licensing and memberships franchising Ethnic and personal networks Technology financing

Source: Yeung (1994d: Table 3). (1986, 1993) concept of ‘heterarchy’ has significant relevance to the intra-firm network relations in this study. Chapter 5 demonstrates that the mechanisms of transnational operations by HKTNCs at the intra-firm level do conform largely to aspects of a heterarchy, rather than a hierarchy. Intra-firm relations are the necessary ingredients of business operations because, in the process, different departments and subsidiaries/affiliates either ‘plug’ themselves or are ‘plugged’ into the existing network relations orchestrated by the head office. Intra-firm (internalised) corporate relationships are based on formal and informal contractual structures characterised by heavy reliance on internal arbitration of disputes. Formal intra-firm organisational structures facilitate vertical, functional decision-making and learning. Informal intra-firm networks, on the other hand, play an equally important role in promoting horizontal, cross-functional learning and decision-making. Whereas formal intra-firm networks can be thought of as the anatomy or skeleton of a TNC, informal, cross-functional networks with the TNC serve as the physiology or central nerve system through which decision-making and learning take place (Moran and Riesenberger, 1994). A high degree of integration (vertical and horizontal) and coordination is needed to enable successful cross-border operations. Parent companies have to integrate or disintegrate their overseas operations according to their long-term corporate strategy, be it transnational, regional or local. Intra-firm relations are also expressed in the

Transnational corporations and business networks

66

coordination of overseas units via network relations. Coordination can be organisational (tight or loose) and geographical (centralised or dispersed), but it varies in concrete form from one firm to another (see Table 3.1). Inter-firm networks Recently, the ‘embeddedness approach’ has been applied to the study of industrial networks (e.g. Grabher, 1993a; Amin and Thrift, 1994a). This approach is useful because ‘cooperating partners must find one another in a world of incomplete information, and this process of search is largely influenced by their primary relations with other firms as well as by the relations of other firms to one another’ (Grabher, 1993b:15). Network relations must necessarily be accomplished through inter-firm relations of externalised and institutional transactions and relationships (Alter and Hage, 1993; Cooke and Morgan, 1993; Ghoshal and Bartlett, 1993; Grandori and Soda, 1995). Firms come together into network relations by virtue of the fact that they simultaneously compete and cooperate with each other in local and transnational markets. Grandori and Soda (1995) propose the following mechanisms for coordinating interfirm networks: 1 communication, decision and negotiation mechanisms; 2 social coordination and control; 3 integration and linking roles and units; 4 common staff; 5 hierarchy and authority relations; 6 planning and control systems; 7 incentive systems; 8 selection systems; 9 information systems; 10 public support and infrastructure. It must be noted that these mechanisms are used under different circumstances for different inter-firm networks. For example, social networks among HKTNCs, as will be shown in Chapter 5, rely substantially on interpersonal communication and social coordination and control. On the other hand, more bureaucratic networks (e.g. trade associations and consortia) may require other coordination mechanisms such as planning and control systems, incentive systems and public support and infrastructure. The empirically realised forms of inter-firm network relations are, among others, joint ventures, subcontracting, cooperative and non-equity agreements, strategic alliances, licensing and franchising agreements, ethnic and personal networks and collaborative marketing and R & D and technology financing (see Figure 3.2). Among these various forms of inter-firm relations, strategic alliances have captured the most serious attention in recent research (see Lorange and Roos, 1992; Gilroy, 1993; Lewis, 1995). Strategic alliances are formed through various mechanisms such as complementary and stakeholder partnership, ‘opportunistic’ joint-venture and consortia and multiorganisational services alliances.

Conceptualising transnational corporations as networks of governance structures

67

Extra-firm networks Extra-firm relations, at the macro level, are perhaps the least well known and developed in the existing literature (see Table 3.1). The extra-firm dimension of network relations enriches the concept of networks as more than a set of power relations along the production chain, which incorporates only intra- and inter-firm relations. The concept of the production chain cannot fully capture the extra-firm dimension of network relations because this dimension is less concerned with production per se. Extra-firm relations refer to any relationship between the firm and other institutions embedded in society and space (see (3) in Figure 3.1). These other institutions include nation states, research institutions, non-profit and non-government organisations and other quasi-organisational forms. The extra-firm dimension of network relations has three intertwined aspects: (1) power rather than monetary relations; (2) the quest for proprietary rights, and (3) the search for social and political legitimacy. The first dimension specifies that many business organisations are interested primarily in gaining power from extra-firm relations, not merely monetary benefits. Such a motive is particularly prominent in intensified cooperation and negotiation between major business organisations and government authorities. Securing this dimension of extra-firm relations enables business organisations to dominate in inter-firm networks as well. There is thus a crucial link between inter-firm and extra-firm network relations (see case studies of HKTNCs in Chapters 5 and 6). Such a dimension of extra-firm relations can be manifested in government regulations which may be applicable to some, but not other, business organisations. A potential source of empowerment and leverage can also originate from differential government regulatory regimes. For example, Japanese automobile manufacturers in the European Community are relatively ‘protected’ from other Asian competitors who wish to share a stake in the European market (see Dicken, 1992c). The second dimension is equally important for many business organisations, in particular the TNC. Transnational operations are prompted by the quest for proprietary rights in the context of rapid technological and market innovations (see Cantwell, 1989, 1993). A TNC will not externalise its production system if it does not have firmly established access to network relations guaranteed by the protector of its proprietary rights. The absence of such relations (e.g. in developing countries) accentuates the need for the internalisation of all inter- and extra-firm relations into a vertically integrated transnational operation. Intra-firm network relations would supersede the other two facets of network relations if possible in an appropriate context. Many service TNCs owe their origins to such tendencies towards the internalisation of transnational markets in proprietary knowledge and skills. The third dimension of extra-firm relations is clearly related to the non-economic goal of business organisations mentioned earlier. One specific way of achieving that goal is to gain social and political legitimacy through ongoing extra-firm network relations. The ability of a TNC to gain political legitimacy constitutes one of its ‘political competences’ (Boddewyn and Brewer, 1994). This speculation is applied especially to TNCs where multinational operations are concerned. Many top executives of TNCs realise that economic goals cannot be pursued if they are not legitimised. Many TNCs are thus voluntarily engaged in a diverse range of activities and propaganda to seek social and political legitimacy for their transnational operations (e.g. see Reich, 1991, for charity work done by Japanese TNCs in the US). Extra-firm relations are empirically realised in

Transnational corporations and business networks

68

the forms of contracts, treaties and agreements with governments at local, regional and national level (e.g. defence research contracts, incentive packages and corporate taxes), joint R & D collaboration with research institutions and relations with other nongovernment organisations (e.g. various chambers of commerce as intermediaries in information communication). Among these concrete forms of extra-firm relations, the relation between TNCs and nation states is obviously the most studied and important nexus in the globalisation of economic activities (Stopford and Strange, 1991; Dunning, 1995a; Sally, 1995). The tendency in the late 1980s and 1990s in international business and relations is a growing interdependence between the state and the TNC. This growing interdependence occurs because ‘the rivalry between states and the rivalry between firms for a secure place in the world economy has become much fiercer, far more intense’ (Stopford and Strange, 1991:1). The relation between the state and the firm has become tripartite: TNC-state; TNC-TNC and state-state. For example, if relations between two countries, say Britain and Malaysia, turn sour, the relationship between the Malaysian government and British firms is affected. The geographical embeddedness of the TNC Another key argument of this book is that TNCs are embedded in network relationships defined and reproduced geographically. The ‘geographical dimension’ has rarely entered the calculus of most organisational theorists and industrial economists (cf. the product life-cycle model by Vernon, 1966). Ghoshal and Westney (1993b:11) remind us that ‘organisation theorists have ignored or underemphasised the case of diversified organisations whose various constituent units are located in different business or geographic contexts’. Although modern TNCs have extended their activities across national boundaries (Vernon, 1979; Ohmae, 1990, 1995; Reich, 1991), they are bound by network relationships that are constituted in specific localities. TNCs are therefore not ‘placeless’ monsters without their spatial roots; rather, they are deeply embedded in territorial complexes and national boundaries. The neglect of geography in international business studies (cf. Porter, 1990; Krugman, 1991, 1995) is dangerous because geography still matters in the constitution and reproduction of TNCs (see Dicken and Thrift, 1992; Dicken et al., 1994; Yeung, 1998a, forthcoming f). UNCTAD (1994:147), in its annual World Investment Report, states bluntly that ‘it is clear that geography still matters in attracting FDI, and that FDI can act as much to reinforce differences between countries as to reduce those differences’. To cite just one example, a recent study of the globalisation of technology has reinforced the importance of home countries in technological innovations (Cantwell, 1995; also Angel and Savage, 1996). Drawing on data from the US Patent Office on the shares of US patenting due to research conducted abroad by the largest nationally owned industrial firms, Cantwell (1995) notes that the foreign share of technological activity has rarely been greater than two-thirds and is usually much less. The main reason for such a geographical pattern is locational economies of integration and agglomeration which may occur in various centres and not exclusively in the home country, although the home base is still the most significant single such centre (Porter, 1990). He concludes that the national origins of TNCs have been, and continue to be, critical in determining the

Conceptualising transnational corporations as networks of governance structures

69

geographical and sectoral composition of their technological activity: ‘as a general rule the home country centre has been and remains the single most important site for the technological development of MNCs [multinational corporations]’ (Cantwell, 1995:163). Other studies have shown that the nationality and home bases of TNCs remain integral to their globalisation processes (Hu, 1992; Casson and Encarnation, 1994; Murtha and Lenway, 1994; Sally, 1995; Hirst and Thompson, 1996; Pauly and Reich, 1997; Keller et al., forth-coming; Yeung, forthcoming f). The network theory of TNCs in this book postulates that transnational operations represent a replacement of ‘spaces of firms’ by ‘spaces of network relations’ because, in an era of intensified globalisation of economic activities, a TNC does not simply transplant another operation in the host country. Each of these operations signifies a growing ‘colonisation of space’ by networked TNCs possessing the causal powers to enact such spatial changes (see Figure 3.1). In doing so, TNCs are business organisations firmly embedded in cross-border network relations. They tend to bring with them embedded network relations when they conquer different fragments of the production space. The net result of this process of ‘commanding space’ by TNCs is the gradual replacement of ‘spaces of firms’ by ‘spaces of network relations’. It is extremely important to understand this process, for it bears significant explanatory power. This book proposes three major ways in which such a process of networked space is sustained and reproduced through transnational operations (see Lefebvre, 1991): 1 the command of space in the ‘transnational power game’; 2 the spatial practices of TNCs and the production of ‘space of network relations’; 3 the territorial embeddedness of TNCs. As mentioned earlier, transnational operations are essentially mediated through network relations which are constituted, to a great extent, by power and power relations. In order to ‘play out’ and make use of competitors and opponents in existing network relations, different TNCs are actively searching for a ‘spatial fix’ to root their operations and to set up an offensive against potential enemies. In the process, TNCs must also safeguard collaborators operating in the same and/or cooperative networks against potential attack by other hostile opponents. The formation of cross-border strategic alliances is one clear example of this process of ‘cooperative competition’ that spans national boundaries. The reality of the territorial organisation of TNCs reflects a combination of three distinct actions: (1) intentional outcomes of individual decision-makers in TNCs; (2) unintentional results of collective efforts by myriad economic agencies, and (3) intentional regulation by nation states. The spatial strategies and practices of TNCs are also a powerful means of gaining strategic advantage over rival competitors. In the radical literature, four dimensions of spatial practice by capital are suggested (Gottdiener, 1987; Harvey, 1989; Lefebvre, 1991; Swyngedouw, 1992): (1) accessibility and distanciation; (2) appropriation and use of space; (3) domination and control of space, and (4) production and reproduction of space. In the business literature, Porter (1986, 1990) and Bartlett and Ghoshal (1989) have suggested four spatio-organisational strategies of TNCs: configuration, coordination, integration and responsiveness. As shown in Figure 3.1, the configuration of the production chain (or value chain), as a strategic aspect of intra-firm networks (1), results in a peculiar form of spatial organisation of production, whereas coordination extends the spatial and functional management of production. On the other hand, the

Transnational corporations and business networks

70

integration of transnational operations is achieved by the control and command of space, while local responsiveness is manifested in the spatial differentiation of production. These spatial strategies practised by TNCs result in the fragmentation and fission of space connected by flows of network relations. Configuration and coordination of transnational operations facilitate the annihilation of ‘spaces of firms’ by ‘spaces of network relations’, differentiated by fragments of ‘colonised space’ each occupied by dominant TNCs or coalitions of TNCs. This formation of a space of networked TNCs is manifested in Ohmae’s (1985) concept of ‘Triad power’ in which he argues that the global map has been fragmented into three centres of gravity in a complex ‘transnational power game’. These three fragments are ‘glued’ together via TNCs and their network relations, resulting in differentiated ‘spaces of network relations’ (e.g. American influence in Asia and Japanese influence in Europe). The greater the causal power of TNCs to achieve configuration and coordination, the greater is the extent of such processes of annihilation and fragmentation. On the other hand, TNCs are increasingly aware of the critical importance of integration and responsiveness in safeguarding their position in the ‘transnational power game’. This raises the key issue of the ‘territorial embeddedness’ of TNCs. The integral role of space and place in the production and reproduction of TNCs can be best captured in the notion of the territorial embeddedness of TNCs. The local embeddedness of network relations refers to the multi-dimensional intersections and transformations of extremely complex networks of firms contingently constructed and constituted in their original home countries as well as host countries. To show that TNCs are produced and embedded in specific localities requires one to delve into the relationship between network relations and localities. Network relations, in their abstract sense, are placeless although they produce ‘networked space’. But the concrete realisation of network relations must always be embedded in place. Because the ingredients and/or members of a particular network (e.g. ethnic groups, corporate firms of similar cultural background) are highly place-bound, networks and their relations are (re)constructed in localities and spread over space, orchestrated by TNCs. Geography therefore plays a crucial role in influencing the formation of networks. The geographical specificities of Chinese business networks, for example, will shape the core analytical arguments in later chapters of this book. In their transnational operations, all TNCs must also carry with them ‘local flavour’ in their organisation of production and exchange relations according to the business ‘recipes’ governing these place-specific and firm-specific characteristics (Whitley, 1992a, 1994). Business strategies are not ‘recipes’ for business success. Business organisations and their transnational activities are locally embedded because each activity must be grounded in a specific geographical location. There is always a ‘local content’ contained within each business unit (Dicken, 1994; Dicken et al., 1994). This local specificity of the TNC produces what Heenan and Perlmutter (1979) call ‘strategic predisposition’. No matter which part of the world the TNC is serving, it must plunge itself into a dense network of relations at the local level. TNCs are not ‘placeless’, but rather are deeply embedded within locales. Place is simultaneously a medium for, and a constraint on, TNC operations. This book recognises various ways in which TNCs and their network relations are locally embedded: business practice, local politics, daily socialisation and the social regulation sustained by local governments and markets. Chapter 5 addresses

Conceptualising transnational corporations as networks of governance structures

71

this idea of local embeddedness of TNCs more specifically in the context of Hong Kong firms in South-east Asia. Conclusion This chapter contends that network analysis, with its recent emphasis upon the embeddedness of economic action in networks of social relations, stands as a realistic alternative to the prevailing macro-economic interpretations of contemporary changes in the global economy, in particular the accelerated globalisation of TNCs. By paying special attention to the historical and spatial specificities of social formation, the proposed network analysis can avoid, to a great extent, the bias inherent in many existing theories of economic change and international production. It is perhaps time for a reconstruction of the geography of business organisations and international production on the basis of a network approach at the intra- , inter- and extra-firm levels and to examine the role of these network relations in understanding the economic landscape of the TNC (see Figure 3.1). In the following four empirical chapters (Chapters 4–7), this network perspective is applied to the understanding of the South-east Asian operations of HKTNCs. Major research questions are concerned with: 1 Their mode of rationality embodied in causal agency. Why do HKTNCs transnationalise their operations into South-east Asia? What motivates their transnational operations? To what extent is their mode of rationality a socio-cultural construction? How is (are) their mode(s) of rationality transformed and reproduced over time and space? 2 The generative mechanisms of their transnational operations. How do HKTNCs manage to operate abroad? How do their positions and involvement in network relations enable their transnational operations? How do these postulated network mechanisms ‘work’ in concrete circumstances? To what extent are these network relations embedded in Hong Kong and the South-east Asian region? 3 Contextual issues. What circumstances prompt their transnational operations in Southeast Asia? To what extent are these circumstances temporally and spatially specific? What is the relative balance of influence between local context and global change? Are these contingent circumstances peculiar to the case of HKTNCs? What are the relationships and mediations between these contingent circumstances and generative mechanisms? 4 The changing organisational map. What are the socio-spatial dynamics of their transnational operations? How far is there continuous articulation between TNC subsidiaries and local economies? What are the implications of these socio-spatial dynamics to a network theory of TNCs? Are network relations and socio-spatial embeddedness relatively enduring and stable over time?

4 HONG KONG FIRMS IN ASEAN Business organisation and corporate strategies Internationalization in the [South-east Asian] region can be described as a process of emerging strategies that lead a company to develop an organizational structure appropriate both to these strategies and to the market structure. (Jansson, 1994:97)

The book has so far established the theoretical underpinnings of this study by pointing out the emergence of transnational corporations (TNCs) from Asian Newly Industrialised Economies (NIEs) and underscoring the potential, and yet important, contributions of a network perspective on TNC operations. I now turn to an empirical application of these concepts in the context of outward direct investment and TNCs from Hong Kong (HKTNCs). To understand how the transnational involvement of Hong Kong firms operates through these intricate business networks, it is imperative to probe into the actors themselves. Through the use of descriptive statistics,1 this chapter argues that the transnational organisation of TNCs is strongly influenced by pre-existing spatial forms (see also pp. 75–8). The chapter begins with an historical geography of the global operation of HKTNCs. Not only is there a definite spatial bias of HKFDI flows towards member countries of the Association of South East Asian Nations (ASEAN), but also those pre-existing spatial forms tend to interact with FDI flows to produce a complicated economic landscape of HKTNCs in the ASEAN region. In practice, HKTNCs and their associated FDI flows constitute an important source of capital for ASEAN countries (Yeung, 1994c, 1995b, 1996a). The chapter also analyses some sectoral characteristics of HKTNCs in relation to the competitive advantage of different industries in different ASEAN countries. Various organisational forms of ASEAN operations by HKTNCs are then examined. Following this analysis, the chapter further illuminates the nature of corporate strategies within the TNC (intra-firm networks) and examines how these strategies, influenced by different historical and geographical circumstances, motivate HKTNCs to operate in specific countries within the ASEAN region. It describes what strategies (e.g. cost-oriented versus market-oriented) are being adopted and implemented over time by HKTNCs to establish themselves in the ASEAN region. It also explains why they have adopted such strategies and what are their motivations for transnational operations in the ASEAN region. Chapters 5 and 6 will explain how these strategies and motivations are realised through networks of personal and business relationships.

Hong Kong firms in ASEAN: business organisation and corporate strategies

73

Historical developments of Hong Kong TNCs and FDI In the Asia-Pacific region, Hong Kong has been the leading developing country, spearheading the international operations of domestic enterprises and capital. While foreign investments by TNCs based in other Asian NIEs had their roots in the late 1950s and thereafter, some large non-Chinese HKTNCs had emerged as early as the late nineteenth century, in particular those controlled by British capital in Hong Kong (Yeung, 1996b). Some of the British establishments were former colonial trading houses, known as hongs locally in Hong Kong and southern China (e.g. Jardine Matheson, Swire Group and Wharf Group). Some of these hongs and commercial firms had also made substantial overseas investment, mostly in the then imperial China and South-east Asia (e.g. Hongkong & Shanghai Banking Corporation). This is thus a historical period in which HKFDI resulted primarily from the colonial and expansionist tendencies of the British government and British-controlled HKTNCs. HKFDI in the ASEAN region was also controlled, to a large extent, by British colonial trading houses. From 1945 to the late 1960s, we begin to observe moderate changes in the composition of HKFDI in the ASEAN region. These changes were particularly prominent in terms of increasing ownership and control by indigenous Hong Kong firms. For example, some large textile companies from Hong Kong, owned and operated by emigrant industrialists who fled from Shanghai before the communist takeover of China in 1949, began to venture into South-east Asia and selected countries worldwide (e.g. South Africa). Some of their textile mills later became the pioneers of integrated textile mills in the host countries (e.g. Malaya). This was also the period in which Hong Kong experienced dramatic changes in its industrial structure and economic development (see pp. 17–25). Manufacturing industries came to the forefront of the domestic developmental agenda. These internal developments resulted in certain spin-offs of FDI from Hong Kong into the ASEAN region. Meanwhile, the imposition of voluntary quota restrictions on Hong Kong textile firms in the late 1950s and early 1960s by developed countries in Europe and America effectively induced many textile HKTNCs to venture into overseas locations where export quotas were available (Lui and Chiu, 1994). By the late 1960s, the Hong Kong government had already followed an exportoriented industrialisation strategy. Under a general laissez-faire approach to the economy, various liberal fiscal and monetary measures such as tax incentives and free capital mobility were implemented to stimulate industrial and economic development (Eng, 1997). These historically specific policies contributed to a spectacular process of industrialisation in Hong Kong which triggered off a strong centrifugal force—since the late 1960s and early 1970s, a number of HKTNCs have emerged and invested in other parts of the world. This was the first phase of major growth of outward FDI by HKTNCs. Manufacturing HKTNCs had a head start when textile and garment and electronics HKTNCs expanded into lower-cost production sites in South-east Asia and other developing countries because they felt the increasing pressures emerging from industrial restructuring in Hong Kong. This outward movement of manufacturing HKTNCs, in contrast to pressures from quota restrictions in the earlier phase, was primarily a spatial manifestation of ongoing restructuring within Hong Kong together with increasingly

Transnational corporations and business networks

74

open attitudes on the part of host ASEAN countries towards foreign investments. The ‘open door’ policy of the PRC government since 1979 has also attracted a huge influx of Hong Kong firms, ranging from large listed corporations to small family operators in all types of industries and sectors (see Thoburn et al., 1990; Leung, 1993; Ho and So, 1997). Another major wave of Hong Kong’s overseas investment has occurred since the early 1980s, when the future of Hong Kong became increasingly uncertain. The consolidation of the Sino-British Joint Declaration in December 1984 (Hong Kong Government, 1984) represented the single most clear-cut watershed in the historical development of HKTNCs and outward FDI flows from Hong Kong. Major companies in Hong Kong began to rethink their strategies for the next ten years and beyond 1997. Leading Hong Kong companies responded in diverse ways. A first signal of such strategic reorientation of corporate investment was evident in Jardine Matheson’s relocation of its holding company to Bermuda in 1984. Mr Simon Keswick, Chairman of the Jardine Matheson Group, announced on 28 March 1984 that ‘[w]hen we are competing in the market place for major long-term contracts, it is undoubtedly a disadvantage to have to deal with questions regarding the long-term future of Hong Kong. We want to put these questions behind us once and for all’ (quoted in The Economist, 31 March, 1984; see also Hong Kong Standard, 26 November 1982; South China Morning Post, 29 March 1984). This second phase of rapid growth and consolidation of HKFDI coincided with the rapid growth and further opening up of the ASEAN region to foreign investors. There was also a very diversified industrial structure of HKFDI in the ASEAN region in response to different factor endowments in different ASEAN countries (see below, p. 89). Between 1984 and 1988, the average outflows of Hong Kong FDI were US$2.5 billion, as compared with the average inflows of US$1.8 billion (UNCTC, 1992b:103). HKFDI outflow was largely biased towards intra-regional flows. More than two-thirds of HKFDI outflow went to East, South and South-east Asia, with another one-third to North America and Western Europe (see also Table 2.1). Within the Asia-Pacific region, a large proportion of HKFDI has now been invested in the PRC, in particular in Guangdong Province.2 In June 1991, up to US$16 billion of investment in Guangdong Province (80 per cent of total FDI in Guangdong) came from Hong Kong (The Economist, 16 November 1991). By September 1992, the total contracted FDI in the PRC was US$79 billion, of which just over US$25 billion had been realised. Other foreign investment projects were still in the process of being realised. Some US$67 billion may have originated from Hong Kong companies and their local partners in the PRC (Financial Times, 4 May 1993). By the end of June 1994, paid-in investment by Hong Kong entities in the PRC had reached a cumulative total of US$48 billion (Hongkong Industrialist, May 1995:11). South-east Asia, in particular the ASEAN countries, also captured a large share of these FDI outflows from Hong Kong. By the late 1980s, HKTNCs had established a strong foothold in many countries within the region (Yeung, 1994c, 1995b, 1996b). Hong Kong had become a net exporter of FDI. UNCTAD has (1996a: Annex Table 4) recently estimated that outward FDI stock from Hong Kong was US$9.4 billion in 1985 and had reached US$85 billion by 1995. By 1995, HKTNCs controlled more than 4,317 foreign affiliates in host countries (UNCTAD, 1996a: Table I.4).

Hong Kong firms in ASEAN: business organisation and corporate strategies

75

Organisational characteristics of Hong Kong TNCs Having set the historical context of HKTNCs and HKFDI, this section discusses specifically the following organisational characteristics of HKTNCs and HKFDI in the ASEAN region: (1) spatial organisation; (2) sectoral specialisation, and (3) organisational forms. The discussion is based on a detailed analysis of statistical data collected and compiled from various country sources as well as field survey data.3 Spatial organisation of Hong Kong TNCs in ASEAN Generally speaking, the spatial and temporal distributions of HKFDI and HKTNCs in different ASEAN countries are highly uneven. There was a sharp break in the continuity and growth of HKFDI in 1985–6. This phenomenon may be attributed to the sudden and unexpected collapse of the Hong Kong dollar on the foreign exchange markets and its subsequent recovery (pegged against the US dollar at HK$7.8 to US$1) after the conclusion of the Sino-British Joint Declaration in December 1984. In the post-1985 period, however, the inflow of HKFDI to ASEAN increased dramatically, especially in Indonesia, Singapore and Thailand. Recent trends in HKFDI show a further shift of FDI flows away from the PRC to the ASEAN region in view of two historically contingent phenomena: (1) the confidence crash after the Tiananmen Square incident in June 1989 and (2) the possible damage if the PRC loses its Most Favoured Nation (MFN) status in the Sino-American trade negotiations (Wong et al., 1991). Geographically, HKFDI inflow to the ASEAN region tends to be biased towards three ASEAN countries: Indonesia, Singapore and Thailand. Most HKFDI projects in Indonesia and Thailand are large in terms of capital commitment. In the first six months of 1990, the average value of approved projects in Indonesia was US$44 million, whereas the corresponding figure for Thailand was US$19 million (Federation of Hong Kong Industries, 1990:16). In the first three quarters of 1994 alone, Hong Kong had committed some US$5.7 billion in Indonesia, mainly from two wholly-owned mega-projects by Gordon Wu’s Hopewell (US$1.8 billion) in power generation and by Li Ka-shing (US$3.5 billion) in oil refining (The Straits Times, 1 August 1994; Far Eastern Economic Review, 1 September 1994). In terms of cumulative FDI (see Figure 4.1), Hong Kong has also been among the top three largest investors in Indonesia, the Philippines and Thailand, but recently it has fallen to fifth position in Singapore. Between 1967 and January 1997, Hong Kong invested some US$14.6 billion (8.3 per cent of total FDI) in approved projects in Indonesia, making Hong Kong the third largest investor after Japan (US$30 billion) and the UK (US$21.9 billion). In Malaysia, Hong Kong’s paid-up capital in approved FDI projects in the manufacturing sector as at 31 December 1994 was RM$637 million or US$256 million (4.2 per cent of the total). Hong Kong ranked only sixth after Japan, Singapore, the UK, Taiwan and the US. In the Philippines, Hong Kong firms invested up to US$233 million (6.3 per cent of the total) in cumulative foreign equity investment stock from 1965 to 1991. Because of the predominance of American and Japanese investments, HKFDI became the third largest source of FDI in the Philippines. In Singapore, Hong Kong’s cumulative foreign equity investment between 1981 and 1994 was S$5.0 billion, or US$3.3 billion (2.8 per cent of the total). During the same period,

Transnational corporations and business networks

76

Hong Kong stood as the fifth largest investor after Japan (S$16.9 billion), Switzerland (S$5.8 billion), the US (S$14.1 billion), the UK (S$9.1 billion). In Thailand, as the third largest investor after Japan (Bt$140 billion) and the US (Bt$86.7 billion), the cumulative net flows of HKFDI from 1965 to September 1996 amounted to Bt$73.4 billion or US$2.9 billion (15.1 per cent of the total). Table 4.1 presents the latest statistics on annual HKFDI flows into the ASEAN-5 countries since 1980. In Indonesia (see also Figure 4.2), HKFDI in approved projects in all sectors except oil, banking, non-banking financial institutions, insurance and leasing increased more than 1,000 times from US$6 million in 1980 to a record US$6 billion in 1994. HKFDI flows to Indonesia have enjoyed an accelerated rate of growth since 1987. In Malaysia, HKFDI in approved manufacturing projects has shown a similar pattern. In 1981, it was M$35 million, but decreased to M$9.5 million in 1984. In subsequent years, approved HKFDI rose significantly to a record high of M$601 million in 1991. The subsequent two years witnessed a low tide again in HKFDI inflows to Malaysia. But in 1994 the inflow of HKFDI to Malaysia experienced another boom, at M$874 million. For the Philippines, following a sharp rise in 1984 to P$168 million, HKFDI experienced a

Figure 4.1 Geographical origins of cumulative foreign direct investment into ASEAN-5 countries. Sources: as Table 4.1, expect (1) Malaysian data refer to total paid-up capital in manufacturing FDI projects in production at 31 December 1994, expect hotel and tourism projects (source: Malaysian Industrial Development Authority), (2) Philippines data refer to Central Bank of the Philippines data on cumalative foreign equity investment stock, 1965–91 (supplied by Eric Ramstetter, December 1993).

Hong Kong firms in ASEAN: business organisation and corporate strategies

77

Table 4.1 Foreign direct investment flows from Hong Kong into ASEAN-5 countries, 1965–97 (million) Co 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 untry 67– 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 80 Indo 89 6.0 20 23 12 63 59 14.8 13 25 40 99 27 1,0 38 6,0 1,7 1,1 3.7 nesia 0.9 0.2 3.7 5.0 2.2 .4 9.8 4.7 8.6 3.3 7.7 21 4.1 42 09 05 a (US$) Mala 16 – 35.1 4.9 49.6 9.5 18 27.5 27.8 29 35 37 60 78.6 93.8 87 17 11.8 NA ysia 4.5 .4 8.4 2.1 5.0 0.6 3.9 5.2 (RM$)b Philip 71.6 1.6 3.0 11.9 17.7 16 63 14 56 56 2,8 5, 22 32 22 7,6 53 7,3 NA 8.4 .0 6.4 9.6 4.1 90 064 3.5 3.1 0.6 07 3.2 86 pines (P$)c – 1,7 481 459 85 49 −4 −231 514 250 644 691 −34 336 499 −4 NA NA NA Sing 07 28 apore (S$)d Thai 2,6 1,1 32 59 87 35 64 95 79 2,7 5,7 6,9 11,5 14,5 4,8 8,0 6,9 5,0 NA land 45 14 3.3 3.5 0.8 1.7 9.0 5.7 6.2 95 16 44 66 49 98 04 48 62 (Bt$)e Notes a For Indonesia, data refer to FDI approvals in all sectors up to January 1997 by the BKPM. (1) Excluding oil, banking, non-banking financial institutions, insurance and leasing. (2) Investment value is total investment value of new project and expansion and change of status. Sources: Unpublished database generated by the Capital Investment Coordinating Board (BKPM), 15 June 1994; Bank Indonesia (1997), Indonesian Financial Statistics, 30 (4), pp. 148–9. b For Malaysia, data refer to foreign capital investment in approved projects up to July 1996. The figure of 164.5 refers to 1971–80. Source: Malaysian Industrial Development Authority (various years), Annual Report, Kuala Lumpur: MIDA. c For the Philippines, data refer to approved FDI flows in all sectors. Source: Board of Investment (various years), Annual Report, Manila: Board of Investment. d For Singapore, data refer to total equity investment of all companies from Hong Kong in all sectors up to 31 December 1994. Total equity investment refers to (1) their direct equity investment plus (2) their portfolio equity investment plus (3) their indirect equity investment. The figure of 1,707 represents stock. Sources: Department of Statistics (1992, 1997). e For Thailand, data refer to net flows of foreign direct investment in all sectors up to September 1996. Sources: Bank of Thailand (1996), Quarterly Bulletin, 36 (4), Table 47; unpublished memos from the Bank of Thailand, supplied by Eric Ramstetter, 20 October 1993.

Transnational corporations and business networks

78

Figure 4.2 Geographical origins of inflows of foreign direct investment into ASEAN-5 countries. Sources: as Table 4.1, except (1) Philippines data refer to inflows of foreign equity investment (see Figure 4.1), except data for 1996, which refer to approved foreign direct investment, (2) Singapore data are cumulative total foreign equity investment. temporary halt at P$63 million in 1985. The period 1987–90 was a golden era of HKFDI in the Philippines when the figures showed a historical upsurge to P$5 billion in 1990. Since then HKFDI into the Philippines has gone down to P$221 million in 1993, before regaining its all-time high at P$7.6 billion in 1994 and P$7.4 billion in 1996. In comparison, total equity investment from Hong Kong in all sectors in Singapore started modestly at S$148 million in 1970 and S$515 million in 1975 (Chia, 1993b: Table 8.5) and underwent steady growth in the 1980s, from S$1.7 billion in 1980 to S$5 billion in 1994, representing almost a thirtyfold jump over a period of two and a half decades (see also Figure 4.2). An equally striking growth rate has occurred in net HKFDI flows to Thailand from 1980 to 1996 (see also Figure 4.2). Although there was minor disruption in 1984, HKFDI inflows to Thailand increased forty-fivefold, from Bt$323 million in 1981 to a record high of Bt$14.5 billion in 1992. The figures for 1995–6 show a relative decline in HKFDI inflows to Thailand (see Table 4.1). In terms of the number of subsidiaries and/or affiliates, however, more HKTNCs prefer to operate in Singapore, Thailand and Malaysia. In Figure 4.3, among 111 HKTNCs interviewed in this study, ninety-two (83 per cent) of them have set up

Hong Kong firms in ASEAN: business organisation and corporate strategies

79

operations in Singapore. Thailand and Malaysia are the next favoured host countries, with respectively fifty-eight (52 per cent) and fifty-three (48 per cent) operations by these HKTNCs. Although Indonesia has attracted a large inflow of HKFDI over the past thirty years, not many HKTNCs have

Figure 4.3 Number of Hong Kong subsidiaries and/or affiliates in ASEAN. The total numbers of subsidiaries and countries of operation are greater than those of total HKTNCs in the sample (n=111) because each HKTNC may have more than one operation in any ASEAN country. Source: author’s survey. chosen to set up operations there. Existing projects are usually huge in the size of the investment. The Philippines has been attractive neither to HKFDI flows nor to HKTNCs. On the other hand, out of a total of 396 transnational operations by these 111 HKTNCs, 148 (37 per cent) have been established in Singapore, whereas another ninety-seven (25 per cent) and seventy-seven (19 per cent) have gone to Malaysia and Thailand respectively. These distinctive geographies of HKFDI and HKTNCs imply that large FDI flows do not necessarily involve a large number of HKTNCs. It is quite possible that Indonesia, for example, has attracted large amounts of HKFDI from a small number of HKTNCs (e.g. huge FDI inflows in the second half of 1994). Similarly, Singapore hosts the largest number of HKTNCs, although Hong Kong’s total equity investment in Singapore may not exceed that in Indonesia. This macro—micro contrast is interestingly intertwined with

Transnational corporations and business networks

80

the sectoral bias of HKFDI and HKTNCs. In other words, HKFDI appears to flow to ASEAN countries in order to capitalise on the comparative advantage of those countries in particular industries and sectors (Yeung, 1996a). Another observation is that some industries and sectors attract a much larger amount of HKFDI than others. It is necessary therefore to distinguish the extent of Hong Kong investment in the ASEAN region through both macro-FDI and micro-TNC data. Sectoral bias of HKFDI in ASEAN At a macro-level, HKFDI and HKTNCs exploit specific sectoral advantages offered in particular ASEAN countries (Yeung, 1996a). Indonesia and the Philippines, for example, offer greater competitiveness in resource-rich primary and labour-intensive manufacturing industries. In contrast, Malaysia and Thailand are more competitive in manufacturing industries that require higher technological and capital inputs. For Singapore, the prime mover of the economy is very similar to that of Hong Kong— commercial, financial and other service sectors. Since there are important sectoral distinctions in terms of capital inputs and profitability, large FDI projects in certain sectors taken up by HKTNCs do not necessarily imply that all other HKTNCs must follow and invest in large projects. Indonesia is such an example whereby it ranks low, jointly with the Philippines, in terms of the number of subsidiaries and/or affiliates controlled by HKTNCs. But in FDI terms, Indonesia stands out as one of the largest recipients of HKFDI because HKFDI projects in Indonesia are typically large and resource-oriented. An understanding of the sectoral patterns of HKFDI and HKTNCs would contribute much to resolving such an apparent contradiction. Table 4.2 presents the value of approved HKFDI projects in all sectors in Indonesia from January 1967 to June 1994. In cumulative terms from 1967 to 1993, approved HKFDI in Indonesia concentrated mainly in six industries: textiles (US$838 million), office building (US$792 million), paper (US$658 million), hotels and restaurants

Table 4.2 Value of approved Hong Kong foreign investment projects in Indonesia by sector, January 1967-June 1994 (US$ million) Sector Food crops Plant ation Livestock Fishery Forestry Mining Food Textiles

1967– 1967– 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 93b 93a 370.9 9.9 0.0 0.0 0.0 5.1 0.0 3.6 0.0 0.0 0.0 1.0 0.0 0.0 31.6 0.0 0.0 766.6 111.0 0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0 0.0 15.0 20.2 0.0

0.0

0.0 87.0

227.7 330.4 521.4 6,55 1.6 2,00 8.7 4,78 3.4

0.0 0.0 0.0 0.0

8.6 0.0 0.0 0.0

0.0 0.0 0.0 0.0

0.0 0.0 0.0 0.0

187.4 1.4 1.2 0.0 6.1

1.9 5.9 4.0 5.8 26.8 38.2 44.4 22.3

2.8

0.0 111.9

838.0 0.0 12.6 3.3 0.0

0.2 4.8 1.0 62.7 38.7 71.2 155.2 58.1 38.9 127.7 43.7

50.6 0.0 202.1 32.3

0.0 0.0 2.2 0.0

1.1 0.0 29.6 0.0

0.0 0.0 0.0 0.0

0.0 0.0 2.8 0.0

0.0 0.0 0.0 0.0

0.8 1.2 0.0 0.0

6.9 0.0 2.1 0.0

0.0 0.0 17.9 0.0

0.0 0.0 3.9 0.0

0.5 0.0 1.2 0.0

9.7 0.0 0.0 0.0

Hong Kong firms in ASEAN: business organisation and corporate strategies

Wood Paper

874.9 251.4 0.0 95.6 4.4 0.9 4,34 658.0 0.0 0.0 0.0 70.8 2.5 345.7 10.5 0.0 0.0 0.0 2.4

8.5 0.2 0.0 14.3 21.6 4.6 19.9 27.8 0.0 0.0 0.0 0.0 0.0 111.6 466.4 1.2

81

7.0 0.0

7.3 0.0

0.0 4.7

Pharma 0.0 0.0 0.0 0.0 4.8 1.4 0.0 0.0 0.0 0.0 0.0 ceuticals Chemi 13,82 604.0 0.0 6.4 40.7 0.0 4.3 0.0 0.0 0.0 49.7 84.8 47.8 13.5 102.0 13.9 0.0 cals 2.4 Non2,97 16.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.5 0.0 0.0 3.2 5.6 0.0 6.3 10.6 metals 3.2 Basic 4,55 596.0 0.0 0.0 0.0 0.0 594.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 metals 4.7 Metal 6,83 229.7 2.4 0.0 0.0 0.0 0.9 16.0 7.8 0.0 4.3 38.9 21.8 39.2 57.3 26.4 2.0 goods 5.8 Other 356.0 22.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 15.0 4.2 1.0 4.8 Indus tries Elect 2,276.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 – – – 0.0 0.0 rical, gas and water Constr 722.5 95.9 0.0 48.0 3.0 0.0 0.0 0.0 0.0 0.0 0.0 2.5 25.3 4.2 1.4 0.0 0.0 uction Trade 922.0 143.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.3 – – – 35.0 0.8 Hotels 7,46 605.7 0.0 0.0 0.0 0.0 21.9 0.0 0.0 46.0 91.0 0.0 70.4 0.0 302.7 0.0 0.0 and 1.0 restau rants Tran 1,60 8.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 6.0 1.0 0.0 10.5 sport 2.4 Real 1,90 142.6 0.0 5.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 33.5 50.0 83.0 110.0 1.5 and 3.2 indu strial estate 1,89 791.9 0.0 0.0 182.2 37.1 0.0 0.0 0.0 0.0 0.0 33.0 75.0 0.0 351.1 0.0 107.6 Office building 5.8 Other 1,175.7 113.4 0.0 0.0 0.0 0.0 0.0 28.9 0.0 0.5 0.0 0.2 7.0 26.2 37.9 56.5 0.2 services Total 67,6 5,721.4 6.0 200.2 233.7 125.0 632.2 59.4 14.8 139.8 254.7 408.6 993.3 277.7 1,021 384.1 395.0 24.6 Sources: Capital Investment Coordinating Board (BKPM) (1993), Statistics on Investment, Jakarta: BKPM. Capital Investment Coordinating Board (BKPM), unpublished data on Hong Kong Investment in Indonesia, 15 June 1994. Notes: Excludes oil, banking, non-banking financial institutions, insurance and leasing. Investment figures are numbers of new projects only and investment value of new projects and expansion. a All countries. b Honk Kong.

Transnational corporations and business networks

82

(US$606 million), the chemical industry (US$604 million) and the basic metal industry (US$596 million). These six industries alone (US$4 billion) accounted for 72 per cent of total HKFDI in Indonesia from 1967 to 1993 (US$5.8 billion). At the inter-sectoral level, two of the six industries belonged to services (i.e. office building and hotels and restaurants). They accounted for 24 per cent of total HKFDI whereas their manufacturing counterparts took up another 47 per cent. These observations conform broadly to Thee’s (1991, 1992: Table 7) study of cumulative realised FDI from Asian NIEs based on the Bank of Indonesia data. If all industries in Table 4.2 are aggregated according to their respective sectors, 7 per cent of total HKFDI went to the primary sector, 60 per cent to the manufacturing sector and 33 per cent to construction and services. At the intra-sectoral level, the top four manufacturing industries are related to resources abundant in Indonesia. For the textile industry, the availability of labour is an important factor, whereas the availability of natural resources is crucial to the chemical and basic metal industries. This finding confirms the earlier argument that HKFDI flows take place in Indonesia to exploit natural and labour resources (see also ESCAP/UNCTC, 1988). In selected industries, HKTNCs play a leading role when we measure their share of total FDI in an industry. A number of industries have more than 15 per cent of their total FDI from Hong Kong: e.g. livestock (22 per cent), forestry (39 per cent), textiles (18 per cent), wood (29 per cent), paper (15 per cent), trade (16 per cent) and office building (42 per cent) (cf. Thee, 1991, 1992). Out of these seven industries, livestock, forestry, wood and paper are related to natural resources, whereas textiles, trade and office building are driven by labour availability. In forestry and office building, HKTNCs play a dominant role as the leading investor in Indonesia. Table 4.3 shows manufacturing HKFDI in companies in production in Malaysia from 1975 to 1994.4 Between these years, the sectoral distribution of manufacturing HKFDI in Malaysia did not change much. The majority of HKFDI went into five industries: textiles, chemicals, electronics, food manufacturing and wood products. These five industries accounted for 94 per cent of total HKFDI in 1975, 89 per cent in 1985 and 87 per cent in 1994. It seems that there is only a slight tendency towards an increasing industrial diversification of HKFDI in Malaysia. In terms of industrial significance, HKTNCs have not been able to dominate any industry in Malaysia. Even in the textile industry, in which quotas for exports are the most important competitive advantage, HKFDI in 1994 accounted for no more than 15 per cent of total FDI in that industry (see also ESCAP/UNCTC, 1988: Chapter IV). In 1994, HKFDI in the electrical and electronic products industry represented merely 2.5 per cent of total FDI in that industry. This relative insignificance of HKFDI in the electronics industry (another major industry in Hong Kong) could be largely explained by the predominance of Japanese electronics manufacturers in Malaysia. The employment characteristics of manufacturing HKFDI in Malaysia by sector are examined in Table 4.4. Not surprisingly, the textile, electronics and wood industries emerged as the top three largest industries measured by during the entire 1970s the manufacturing sector was not much featured in HKFDI in the Philippines. In fact, it was agro-industries, mining and mineral and chemical industries that attracted most HKFDI. Since 1982, however, manufacturing industries have become the leading sector for HKFDI. In most years, the manufacturing sector took up more than 50 per cent of the total approved HKFDI inflow. Simultaneously, we see growing HKFDI in services and

Hong Kong firms in ASEAN: business organisation and corporate strategies

83

Table 4.3 Hong Kong manufacturing investment in companies in production by industry in Malaysia, 1975–94 (paid-up capital, RM$000) Industry 1975 1976 1977 1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1994a Food 22, 17, 20,2 22,7 27,4 18,9 22,7 32,3 38,5 34,2 31,3 27,282 108,038 109,301 1,303,489 manufac 051 332 56 91 50 04 53 88 83 95 22 turing Beverages 305 – 56 1,0 458 73,1 73,3 45,6 45,5 44,8 1,036 775 800 792 422,760 and 97 43 22 61 44 62 tobacco Textiles 52, 55, 92, 99,4 63,5 56,3 51,6 68,0 85,3 96,9 107,1 106,491 111,349 144,261 983,197 and 408 598 380 44 43 99 33 78 79 65 38 textile products Leathe – – – – 3 0 0 3 3 3 3 3 348 348 35,725 r/products Wood 8,116 9, 10, 8,6 6,9 3,2 4,108 6,4 10,4 25,9 30, 50,452 91,744 71230 501,400 /products 568 574 75 67 89 18 28 09 881 Furniture – – – – 100 100 100 105 105 105 105 605 610 626 106,852 and fixtures Paper, 553 405 565 806 1,1 7,8 7,9 7,746 2,2 1,111 1,964 2,458 1,491 3,489 142,260 printing 90 69 01 92 and publ ishing Chemical 19, 20, 22, 42,5 57,0 56,3 26,3 29,3 31,1 43,1 48,8 35,282 20,263 116,991 1,464,111 products 490 209 264 31 78 31 25 70 02 25 44 46 – – 24 245 254 274 498 541 220 210 210 228 228 860,783 Petro leum and coal Rubber 84 209 4, 6,9 868 1,0 834 2,407 3,3 3,3 13,3 12,909 14,896 18,288 483,927 products 086 51 02 97 77 12 Plastic 662 663 746 1,8 2,2 2,2 2,2 6,1 6,7 4,9 9,5 8,059 8,755 11,469 468,600 products 11 88 88 86 85 73 49 97 Non61 2, 899 1,9 3, 4,2 4,4 5,1 4,9 4,0 2,6 5,250 4,722 6,695 946,830 metallic 029 03 533 55 52 54 36 57 19 mineral products Basic 1,707 2, 34 4,0 320 320 386 343 1,3 1,8 4,5 4,312 4,894 3,906 731,158 64 45 33 metal 491 32 products Fabri 3, 5, 1,3 6,6 7,5 11,2 8,8 8,4 7,0 6,1 10,8 12,698 15,602 9,580 626,413 cated 780 279 61 52 69 72 96 69 87 41 47 metal products Mach 7 57 – 54 87 87 81 75 75 75 383 313 36 5,064 486, inery 841 manufa cturing Electrical 10, 10, 11, 17, 31, 33, 48, 43, 45, 77, 105, 129, 130, 113, 4,630

Transnational corporations and business networks

and electronic products Transport equip ment Scientific and measuring equipment Miscel laneous Total

616

788 413

3

53 2,586

–

60

–

–

– 980

119, 124, 174, 949 680 872

395 484 855 381 810 952 431 321

84

832

959 746

76 5,028 151 5,051 5,055 5,057 5,029 6,265 11,278 12,865

,781

16, 718

640 ,042

– 1,160 1,160 1,185 1,185 1,185 1,185 1,185 1,185 1,185 1,185

280 ,477

17 1,024 324 323

74 377 377 2,477 2,368 3,278 3,278 150,028

214, 210, 271, 258, 263 290, 351, 378, 259 385 003 291 ,024 180 061 042

411, 762

532, 637, 15,265, 063 195 674

Sources: Unpublished data supplied by Eric Ramstetter, 20 October 1993, 8 August 1997, and the Malaysian Industrial Development Authority (MIDA), 13 July 1994; MIDA (various years), Annual Report, Kuala Lumpur: MIDA. Notes: Without hotel and tourist projects. a All countries

employment figures. In the textile industry, some 34,395 people (37 per cent of the total) were employed by HKTNCs. This perhaps makes HKTNCs the largest employer in that industry. It also implies that textile factories established by HKTNCs in Malaysia would be largely labour-intensive in their operation because, in FDI terms, HKTNCs only took up 14 per cent of total FDI. Similar inferences can be extended to other industries in which the ratio of employment by Hong Kong is much greater than the ratio of FDI from Hong Kong (e.g. beverages and tobacco, leather products, basic metal products and transport equipment industries). Sectoral data on HKFDI in the Philippines are extremely deficient and hard to come by. Table 4.5 presents a truncated version of the value of approved HKFDI projects in the Philippines from 1972 to 1987. It is fairly obvious that

Table 4.4 Employment by Hong Kong manufacturing investment by industry in Malaysia as at 31 December 1991 Hong Kong investment All country investment Industry Local Foreign Total Local Foreign Total Food manufacturing 6,386 44 6,430 56,230 2,134 58,364 Beverages and tobacco 2,357 10 2,367 7,511 40 7,551 Textiles and textile 34,212 83 34,295 92,273 278 92,551 products Leather and leather 2,392 3 2,395 4,768 14 4,782 products Wood and wood 7,424 1,077 8,501 56,694 4,501 61,195

Hong Kong firms in ASEAN: business organisation and corporate strategies

products Furniture and fixtures Paper, printing and publishing Chemical and chemical products Petroleum and coal Rubber products Plastic products Non-metallic mineral products Basic metal products Fabricated metal products Machinery manufacturing Electrical and electronic products Transport equipment Scientific and measuring equipment Miscellaneous Total

85

196 1,269

0 1

196 1,270

7,534 23,842

84 92

7,618 23,934

3,126

16

3,142

19,176

132

19,308

– 6,332 1,083 2,452

– 7 4 38

– 6,339 1,087 2,490

2,810 43,231 22,970 26,310

171 335 101 635

2,981 43,566 23,071 26,945

2,514 3,859

8 8

2,522 3,867

13,538 26,140

102 182

13,640 26,322

462

0

462

14,444

137

14,581

20,207

81

5,560 42

26 0

1,372 101,245

20,288 211,046 5,586 42

26,098 15,190

5 1,377 22,477 1,411 102,656 692,282

1,016 212,062 128 75

26,226 15,265

126 22,603 10,283 702,565

Sources: Unpublished data supplied by the Malaysian Industrial Development Authority (MIDA), 6 December 1993; MIDA (1993), Statistics on the Manufacturing Sector: 1988–1992, Kuala Lumpur: MIDA.

Table 4.5 Value of approved Hong Kong foreign direct investment projects in the Philippines by sector, 1972–87 (P$000) Sector 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1982 1982 1984 1985 1985 1987 1987 HK HK HK HK HK HK HK HK HK HK HK Total HK HK Total HK Total Agro– 6,186 525 – 6,0 1,418 1,698 – – – – 305, 5,044 – 37,8 – 307 indu 62 007 87 ,752 stries Mining – – 6,287 – 5,6 – – – – – – – – – 22,8 – 44,9 and 05 24 52 min erals Proc essing indu

Transnational corporations and business networks

stries Chem – ical Indus tries Other 815 ma nufac turing Energy– related Public – utilities Const ruction Trade Other com merce Servic e trade Fina ncial insti’ tutions Real estate Other Ser vices Total

–

7,2 21

– 4,80 0

2,4 300 5,7 20 00

–

–

–

5, 402

86

–

–

– 3,3 276 20

– 245 1,3 200 00

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

– 200

–

–

–

–

–

–

–

–

–

–

– 140

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

– 3,000 607, 592 – 2,220 260, 213

6,1 14,0 3,4 16,7 86 33 60 43

3,8 38

81 5

–

–

–

–

–

4,7 158, 54, 1,85 445, 1,971, 55, 889 447 4,7 616 640 267 14

– 114, 713 – 50, 000

–

–

–

–

7,6 88 –

– 117, 391 – –

97 700 – 400 8, 23, ,053 600 547 – 105 – 5, – – 37, 6, 7,6 733 655 224 35 – – 205 115, 1,8 1,537 28, 5,796 283, 439 00 904 745 – 323, 170 – 18, 549

–

–

–

– 5,316

–

–

15, 700

– 4696

35, 6, 36, 872 790 006 1,9 6,108 407, 94, 615 60 034 562 ,441 –

–

2,2 7,0 200 105 11, 6,661, 168, 62, 43 00 027 716 393 092

2,4 567, 3,4 48, 588 18,1 678 21

Sources: National Economic Development Authority (1979), 1979 Philippine Statistical Yearbook, Manila: NEDA. Board of Investment (various years), Annual Report, Manila: BOI

commercial activities. In 1982, the service sector absorbed some P$5.6 million (51 per cent) of total approved HKFDI. Since then, the service sector has occupied consistently more than 12 per cent of total HKFDI in the Philippines. It would be fair to generalise that HKFDI in the Philippines has been small and lacking diversification. In the 1970s, HKFDI tended to concentrate on natural resource-rich industries (e.g. agro-industries, mining and chemicals). In the 1980s, however, the focus of HKFDI shifted to more manufacturing and service-based activities.

Hong Kong firms in ASEAN: business organisation and corporate strategies

87

In terms of industrial importance, it seems that HKFDI plays a very insignificant role as a form of FDI. This results from the overriding dominance of American and Japanese FDI in the Philippines (up to 69 per cent of total FDI in Figure 4.1). Among all industries and sectors, HKFDI contributes most in ‘Other services’, which refers to insurance, liaison offices, and technical, maintenance and management consultancy services. In 1987, for instance, HKFDI in ‘Other services’ was more than 15 per cent of total FDI in that industry. There is thus little doubt that the reluctance of foreign investors to invest in the Philippines reflects their pessimistic appraisal of the country’s long-term instability (Yeung, 1994c). The case of Singapore reveals a completely different picture as compared with Indonesia, Malaysia and the Philippines. Figure 4.4 depicts Hong Kong equity investment in Singapore by industry from 1985 to 1991. During this period, manufacturing HKFDI suffered a significant decline from a maximum of S$328 million (20 per cent of total HKFDI) in 1987 to a historical low of S$186 million (4.4 per cent of total HKFDI) in 1991. The main reason for such a drastic decline of manufacturing HKFDI in Singapore is the latter’s rapid pace of economic development, which has driven both costs and competition to a level unbearable to many manufacturing HKTNCs, in particular those in labour-intensive industries such as textiles and garments, toys and plastics. This argument is further validated in Figure 4.5, which shows Hong Kong’s manufacturing investment commitments in Singapore from 1980 to 1993. As early as 1963, HKFDI in Singapore’s manufacturing sector approximated 9 per cent of total manufacturing FDI. By the 1980s, however, HKFDI became relatively insignificant in Singapore’s manufacturing sector. Even at its zenith, HKFDI in the 1980s never exceeded 6 per cent of total manufacturing FDI. One particular explanation is the growing FDI from developed countries in Singapore’s manufacturing sector since the 1970s, in particular the US Japan and the UK (see Chia, 1993b; Pang, 1995). Figure 4.6 offers a detail breakdown of manufacturing HKFDI in Singapore as at 31 December 1994. Some 58.5 per cent of manufacturing HKFDI went into low capital intensity industries, in particular textiles and other manufacturing (e.g. toys). Alburo et al. (1992:290) argue that Hong Kong is the most important source of FDI among all NIEs in Singapore’s manufacturing sector, particularly in textiles and garments. In these two industries, HKFDI ranked third, next only to the US and Japan. Such prominence of HKFDI in textiles and garments is unlikely to be sustainable in the future, for two reasons (Yeung, 1994c). First, the textile and garment industries in Singapore already face severe pressure to restructure themselves by relocating their labour-intensive operations to other production sites in ASEAN (e.g. Indonesia’s Batam and Malaysia’s Johor state within the so-called Growth Triangle, Indonesia-Malaysia-Singapore). Second, the industry has also suffered from ever rising cost structures in Hong Kong, which is undergoing a rapid process of industrial restructuring (Ho, 1992; Ho and So, 1997). It is possible that the low-end textile and garment industries may be completely phased out from Singapore in the near future.

Transnational corporations and business networks

88

Figure 4.4 Hong Kong equity investment in Singapore, by industry, 1985–91. Total equity investment of all companies from Hong Kong refers to (1) their direct equity investment plus (2) their portfolio equity investment plus (3) their indirect equity investment. Source: Department of Statistics, unpublished data on Hong Kong investment in Singapore, 29 August 1994, Singapore: DoS.

Figure 4.5 Hong Kong manufacturing investment commitments in Singapore, 1980–93, in terms of fixed asset investment (S$ million). Sources: Economic Development Board, unpublished investment commitment data on Hong Kong, 9 July 1994, Singapore: EDB; Economic Development Board, Annual Report (various years), Singapore: EDB.

Hong Kong firms in ASEAN: business organisation and corporate strategies

89

Figure 4.6 Hong Kong’s equity investment in Singapore’s manufacturing sector at 31 December 1994 (S$ million). Source: Department of Statistics, Foreign Equity Investment in Singapore, 1987–1994 (1997), Singapore: DoS, Table 10. Table 4.6 reveals the net inflows of HKFDI to Thailand by sector in 1970, 1975 and from 1980 to 1995. In 1970, HKFDI was concentrated in three sectors: trade (Bt$28 million), industry (Bt$17 million) and construction (Bt$16 million). They represented some 87 per cent of total HKFDI flows in that year. The service sector as a whole constituted more than Bt$36 million (53 per cent) of total HKFDI in 1970. In 1980, the commercial and service sectors re-emerged as the leading recipients of HKFDI. The five major industries or sectors were financial institutions (Bt$231 million), trade (Bt$242 million), services (Bt$257 million), housing (Bt$126 million) and hotels (Bt$83 million). They amounted to Bt$938 million (84 per cent of total HKFDI) in that year. In the manufacturing sector, electrical appliances (Bt$204 million) and chemicals (Bt$84 million) were the leading industries for HKFDI in 1980. For the entire 1980s through to 1995, the service sector dominated the sectoral composition of HKFDI in Thailand. In 1992, HKFDI inflows into Thailand’s service sector were recorded at Bt$9.8 billion (63 per cent) of total HKFDI. Financial institutions (Bt$3.4 billion) and real estate (Bt$2.1 billion) became the top two largest recipients of HKFDI. Organisational forms of HKTNCs in ASEAN Appendix 1 summarises the size of turnover, fixed assets and employment among 111 headquarters and sixty-three ASEAN subsidiaries/affiliates of HKTNCs surveyed in this study. Broadly speaking, HKTNCs are large in terms of their turnover and fixed assets.

Transnational corporations and business networks

90

Table 4.6 Net flows of Hong Kong foreign direct investment to Thailand by sector, 1970–95 (Bt$ million) Sector

19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 70 75 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 0.0 0.4 5.0 0.0 11.5 0.0 0.0 0.0 0.5 28.1 5.0 13.6 −55.6 4.6 0.6 0.0 2.3 −0.7

Agric ulture Mining 0.1 and quar rying Oil explo 0.1 ration Other 0.0 mining Manufa 16.8 cturing Food 1.0 Textiles

0.2

2.0

1.0

0.7

3.0

27.9 27.1

1.4

5.1 26.7 29.7 173.3

0.0 21.6 −5.9

9.2

5.0

0.2

0.0

0.0

0.7

3.0

27.9 27.1

1.4

5.1 18.2 10.1

0.0 −1.7

0.0

8.9

5.0

0.0

2.0

1.0

0.0

0.0

0.0

0.0

0.0 23.3 −5.9

0.3

0.0

25 24 18 4.0 20 8.6 99 0.7

44 50 17 1.8 10 1.0 14 3.7

15 43 20 8.7 0.9

9.0

21 50.1 50

41 360.1 18 .9 3.1 5.1 2.3 39.6

27 31 2.8 9.3 3.9 16.8

5.3 −1.6 13.0

3.1 77.6 61.4

Chem 3.3 33.3 84.2 icals and paper Petro 0.0 0.0 0.0 leum products Meta 2.2 −8.3 0.3 l and nonmetallic Elect 3.2 0.5 204.1 rical appliances Mac 0.0 5.9 4.8 hinery and transport equip ment Const 0.3 0.1 3.7 ruction material Other 1.5 6.9 47.7 industry Cons 15.7 56.8 17.2 truction Services 36.4 −39.5 729.4

17.3 23.3 54.3

Trade Hotels and resta urants Transport and t ravel

0.0

0.0

8.5 19.6 173.3

29 154.4 88.1 465.6 1334 1564 1246 20 85 8.3 42 5.2 13.9 36.5 36.7 56.7 122.6 42.6 22.9 27.5 −13 3.8 21.6 26.0 −6.2 171.6 252.4 332.0 292.6 23 15 0.4 8.0 51.3 31.2 11.6 158.3 174.0 237.1 62.2 13 17 0.1 1.2 0.0

0.0

0.0

4.0 115.1

13.0

5.9

7.4 −34.7 15.3 57.5 44.2

10 22.2 4.5

15 24.0 1.9

14 1.0

27.5 26.8 47.2

45.7

7.2

1.0

1.7 399.5 359.1 221.6

71 177.8 9.9

55 6.9

14 50

34 2.3

0.3 126.5

1.0

9.0

0.0

1.3

3.4

4.3

43 8.9

0.0

37 −27 9.2 7.1

−7 6.0

5.8 23.9

5.3

5.2

2.5

6.6

1.8

0.0

20 17.6 5.6

0.0

49 5.2

20.5 22.7 23.3 106.8 366.7 525.6 596.3

39 0.9 12 05 81 52 10 93 25 4.7

25 25.6 637.0 4.2 72 613.5 1145 16 98 2322 3207 13 12 1425 760.2 92 13 145.6 67.9 8.7

14 8.1 30 6.2 44 54 23 00 14 6.7

51.3 115.0

7.6

6.2 15.4

1.6 15.9

8.8

0.0

0.0

0.0

0.0

66.5 48.3 −45.7 151.0 409.8 123.3 69.6 82.8 381.9 445.9

26 594.2 −125.5 57.7 742.4 227.8 1347 3851 5077 0.2 27.6 43.4 241.7 164.0 25 206.3 102.8 266.3 195.9 198.5 309.2 772.4 2189 1.2 0.0 5.0 83.4 61.4 44.7 −5.9 0.0 5.9 73.2 38.3 146.7 721.7 389.4

3.2 18.1 29.1

72.7

7.6 19.1

0.6

6.1

9.5 47.4 84.4 70.2 35.6 398.2

0.0

0.0

23 2.5

0.0

35.1

0.1

0.0

0.0

18 83.3 8.6

5.2 163.4 68.3

Hong Kong firms in ASEAN: business organisation and corporate strategies

Fina 5.5 −10 23 −17 −69.6 27 ncial insti 5.2 0.7 5.2 7.7 tutions Housing 0.0 0.1 125.6 5.9 0.0 90.7 and real estate Other 0.1 −0.9 18.9 9.0 14.8 24.8 services Others 0.0 0.0 0.0 0.0 0.0 0.0 Total

6 9.0

5 9.8

1,1 14

32 3.3

59 3.5

87 0.8

−24 −29 9.9 5.2

40 −19 4.9 9.9

68 8.0

51 0.0

59 5.0

33 56

91

33 92

0.0

0.0

35 4.0

5.0 36.1

0.0 62.7 88.5 1685

1 3045 427

10.5 35.1

21 43.8 44.8 126.2 .0 0.0 0.0 −1.7 −12 4.1 95 79 2,7 5,7 5.7 6.2 95 16

78 215.6 21 71.6 431.5 692.1 .0 5.5 57 16 46 5 33 22 .8 1.6 6.8 8.9 5.6 7.1 6,9 11,5 15,5 5,1 8,7 7,6 44 66 56 05 11 73

0.0

0.0

35 1.7

64 9.0

20 686.2 1538 2225 68

Source: Bank of Thailand, supplied by Eric Ramstetter, 20 October 1993, 8 August 1997.

Some forty-one HKTNCs interviewed (37 per cent) are public listed companies on the Hong Kong Stock Exchange. The domination of large firms among HKTNCs is furtherconfirmed by their employment figures. At the host country subsidiaries and/or affiliates end, this study finds that a majority of HKTNCs in ASEAN are relatively small operations. This observation indicates that to most HKTNCs, Hong Kong (and the PRC to a certain extent) remains as their centre of gravity and major operational concern. With the exception of only a handful of HKTNCs, the ASEAN region represents more a supplement to their core businesses already well established in Hong Kong than an independent profit centre capable of playing a leading role in the group’s operation. What then are the organisational forms of these ASEAN operations by HKTNCs? Table 4.7 summarises the ownership forms of ASEAN operations by HKTNCs. Similar to giant TNCs from developed countries, HKTNCs prefer wholly-owned subsidiaries over other forms of transnational operations (Yeung, 1995b). This finding significantly challenges the conventional wisdom in previous studies of ‘Third World multinationals’ (see Chapter 2). In particular, well known studies by Wells (1978) and Chen (1981, 1983) found HKTNCs to be more engaged in joint-venture operations (also Chia, 1993b; Lee and Beamish, 1995). Recent surveys of HKTNCs, however, suggest that at least 40 per cent of HKFDI projects in the PRC and elsewhere are wholly-owned operations (Federation of Hong Kong Industries, 1990:37, 1992: Chart 2.5). In Table 4.7, the proportion of wholly-owned subsidiaries for HKTNCs ranges from at least 49 per cent in Thailand to 87 per cent in Singapore. This inter-country variation points to their differences in political stability and regulatory regimes (see pp. 177–83). The relative lack of restrictions on foreign firms operating in Singapore certainly accounts not only for the large number of HKTNCs operating there but also for the very high proportion of wholly-owned subsidiaries. On the other hand, restrictive investment policies and an unstable political climate in both Indonesia and the Philippines contribute to fewer wholly-owned operations by HKTNCs. In fact, a majority of these wholly-owned operations exist in the commercial and service sectors because of their relatively smaller capital requirements and the lower risks involved. Because of this sectoral

Transnational corporations and business networks

92

Table 4.7 Ownership forms of Hong Kong transnational corporations in the ASEAN region Ownership form Indonesia Malaysia Philippines Singapore Thailand Wholly-owned 20 (57) 53 (75) 24 (69) 97 (87) 34 (49) Associate and 6 (17) 7 (10) 6 (17) 3 (3) 11 (16) affiliate Conglomerate 0 (0) 0 (0) 0 (0) 1 (1) 0 (0) Joint venture 8 (23) 10 (14) 4 (11) 7 (6) 22 (31) Subcontracting 0 (0) 0 (0) 0 (0) 0 (0) 1 (1) Cooperative 1 (3) 0 (0) 0 (0) 2 (2) 0 (0) agreement Technological 0 (0) 0 (0) 0 (0) 0 (0) 1 (1) licensing Representative 0 (0) 1 (1) 1 (3) 2 (2) 1 (1) offices Total 35 (100) 71 (100) 35 (100) 111 (100) 70 (100) Notes: Percentages in parentheses. Country figures are greater than the total HKTNCs in the sample because each HKTNC may have more than one operation in one or more ASEAN country. Source: Author’s survey. specificity in ownership forms and the under-representation of commercial and service subsidiaries in Indonesia and Malaysia, few Indonesian and Malaysian subsidiaries of HKTNCs are wholly-owned operations. Joint ventures are the next preferred form of transnational operations by HKTNCs. In most cases, the business partners are exclusively local businessmen. As is evident in Table 4.7, joint ventures are preferred particularly in Indonesia, Malaysia and Thailand in view of government regulations. Another major reason for joint ventures is the relationship with host country partners at business and personal levels. The next chapter is devoted exclusively to the explication of these complex webs of personal and business relationships. In the Malaysian manufacturing sector, for example, studies have shown that Hong Kong firms prefer to enter into joint ventures. In June 1979, some sixty out of seventy-eight Hong Kong firms in the Malaysian Industrial Development Authority (MIDA) directory of firms in production had foreign equity ownership of 50 per cent or less (Kulasingam and Tan, 1982: Table 11). In 1981, sixteen out of twenty-six Hong Kong projects approved by the Ministry of Trade and Industry were minority joint ventures (Kulasingam and Tan, 1982: Table 14). By 1984, however, data on the average foreign equity share in firms approved by MIDA and in production had shown that manufacturing HKTNCs held majority equity in all industries except paper (40 per cent), petroleum (45 per cent) and miscellaneous (46 per cent) (ESCAP/UNCTC, 1988: Table 4.18). This changing ownership pattern coincided with the relaxation of controls and regulations on FDI in Malaysia during the 1980s.

Hong Kong firms in ASEAN: business organisation and corporate strategies

93

The influence of extra-firm relationships is particularly strong in the choice between associate/affiliate and representative office forms of transnational operations. In the former case, HKTNCs will gain management control without legal equity interests in host associates and/or affiliates because these industries and sectors are closed completely to foreign equity participation. For example, associated companies are common among foreign firms trying to operate in the Indonesian shipping and insurance businesses. Because foreign firms are not allowed to take up an equity interest in any Indonesian firm in these two industries, many HKTNCs can extend their well established operations into Indonesia only via a local partner who takes up a 100 per cent equity share. The HKTNC will provide management expertise and thus have de facto control of the company. There will sometimes be explicit arrangements, either legal contracts or personal agreements, to allocate management responsibility and the distribution of profits. The case of representative offices is rather similar to the business associate form of transnational operations. A typical HKTNC either finds it difficult to justify investing a large sum of money in order to serve a relatively small local market or realises that the local market has been closed to its direct operation. In the latter situation, the parent HKTNC will set up a representative office through existing operations in other businesses in the host country. For example, in Malaysia, the central bank—Bank Negera—has been very strict in recent years in granting licences to foreign firms offering corporate finance services because of the huge proliferation of merchant banks in the past few years and the subsequent instability in the merchant banking industry. Wardley (see Appendix 2), a reputable merchant bank based in Hong Kong, was not granted a licence to offer corporate financial services to its established clients from all over the world. Bank Negera specifies that all unlicensed merchant banks could set up a representative office only through their bank branches in Malaysia. These foreign merchant banks must serve their clients from branches outside Malaysia and the Malaysian representative offices are not allowed to conduct business, to attend meetings, to contact clients directly or to conclude corporate finance deals. Strategic predisposition of Hong Kong TNCs Corporate strategies refer to the specific ways through which companies seek to achieve their overall corporate objectives. They arise because, in a world of imperfect information and competition, a better way of acquiring and deploying resources (labour, capital and technology) can bring higher profitability to a specific firm. Corporate strategies serve to set the path and guide the growth and stabilisation of corporate activities (Chandler, 1962, 1977; Porter, 1980, 1985; Hamel and Prahalad, 1988, 1994). In other words, they provide the means (e.g. expansion into overseas markets) to an end (e.g. profitability). In Table 4.8, two key strategies employed by the corporate headquarters of HKTNCs are identified, both of which are related to markets or market presence: (1) keeping contact with customers (23 per cent) and (2) expansion and regionalisation of operations and marketing activities (23 per cent).

Transnational corporations and business networks

94

Table 4.8 Corporate strategies of parent Hong Kong transnational corporations Mfg Services Total Corporate strategy Freq. % Freq. % Freq. % Not available 3 7.1 7 10.1 10 9.0 Keeping in contact with customers 11 26.2 14 20.3 25 22.5 Trading with associated companies and local 1 2.4 3 4.3 4 3.6 partners Concentrating on the HK/PRC market 1 2.4 4 5.8 5 4.5 Expansion and regionalisation of operations 10 23.8 15 21.7 25 22.5 and marketing activities Teamwork and human resource development 2 4.8 3 4.3 5 4.5 Becoming the leading company in Asia or the 3 7.1 5 7.2 8 7.2 world Specialising in a niche market 1 2.4 6 8.7 7 6.3 Concentrating on core businesses 2 4.8 7 10.1 9 8.1 Emphasis on quality of service 2 4.8 2 2.9 4 3.6 Others 6 14.3 3 4.3 9 8.1 Total 42 100.0 69 100.0 111 100.0 Source: Author’s survey. among HKTNCs. The strategy of serving customers has an equal footing with the strategy of regionalisation of operations because the majority of large manufacturing HKTNCs are original equipment manufacturers (OEMs). They need to match closely the requirements of their customers in two ways (see case studies in this section). First, they may be required to diversify their production facilities away from Hong Kong and the PRC for strategic reasons, such as the Sino-American conflicts over human rights and Most Favoured Nation (MFN) status. This strategic imperative applies equally to both electronics and textile manufacturers from Hong Kong. Second, OEMs from Hong Kong in the electronics industries may find it imperative to follow their customers because most world electronics manufacturers have set up production plants in the ASEAN electronics ‘circuit’ since the late 1970s, in particular in Malaysia, Singapore and Thailand. Table 4.9 shows that such a customer-oriented strategy is particularly pronounced in the electronics (29 per cent), textile and garment (46 per cent) and miscellaneous industries (29 per cent). In service industries, this strategy of establishing a local presence gives the HKTNC a competitive advantage by comparison with other modes of serving foreign markets such as licensing, franchising and exporting. It is commonly adopted in business services (38 per cent), distribution (33 per cent), transport (22 per cent) and miscellaneous services (25 per cent).

Hong Kong firms in ASEAN: business organisation and corporate strategies

95

Table 4.9 Corporate strategies of Hong Kong transnational corporations by industry (%) Corporate ELE FOD MET MMS TEX BUS COM DIS FIN LEI SMS TRA strategy Keeping in 28.6 0.0 0.0 28.6 45.5 37.5 16.7 33.3 13.3 0.0 25.0 22.2 contact with customers 7.1 0.0 0.0 0.0 0.0 12.5 0.0 0.0 13.3 0.0 0.0 0.0 Trading with associated companies and local partners Concentrating 0.0 33.3 0.0 0.0 0.0 0.0 0.0 13.3 13.3 0.0 0.0 0.0 on the HK/PRC market Expansion and 21.4 33.3 25.0 14.3 36.4 37.5 16.7 33.3 13.3 40.0 25.0 11.1 regionalisation of operations and marketing activities 0.0 0.0 0.0 14.3 9.0 0.0 0.0 0.0 0.0 20.0 0.0 22.2 Teamwork and human resource development Becoming the 14.3 0.0 0.0 14.3 0.0 0.0 33.3 0.0 13.3 0.0 0.0 11.1 leading company in Asia or the world Specialising in 0.0 0.0 0.0 14.3 0.0 12.5 0.0 6.7 13.3 0.0 50.0 0.0 a niche market Concentrating 0.0 0.0 25.0 14.3 0.0 0.0 16.7 13.3 20.0 20.0 0.0 0.0 on core businesses Emphasis on 7.1 33.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 22.2 quality of service Others 21.4 0.0 50.0 0.0 9.0 0.0 16.7 0.0 0.0 20.0 0.0 0.0 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Transnational corporations and business networks

96

Source: Author’s survey.

Notes: ELE electronics and electrical manufacturing; FOD food manufacturing; MET metal manufacturing; MMS miscellaneous manufacturing; TEX textile and garment manufacturing; BUS business services; COM computer services; DIS distribution; FIN financial services, insurance and real estate; LEI leisure and tourism; SMS miscellaneous services; TRA transport. Meanwhile, many other HKTNCs have adopted a strategy of expansion and regionalisation of their operations and marketing activities in order to capture more market shares or to maintain their existing customers in the same markets and to diversify into other markets (Table 4.8). The market share strategy is pursued for several reasons. First, the domestic market in Hong Kong is too small to fuel the sustainable growth of most HKTNCs. Not only is there severe competition in local market expansion, but there are also limited market opportunities for local expansion. Overseas market penetration and expansion have become critically necessary to the long-term viability of these market-driven HKTNCs. Second, although most markets for manufacturing HKTNCs are overseas, in particular the US for garments and electronics products, recent economic recession in the US and growing concern over protectionism in the OECD countries have driven many HKTNCs to rethink their marketing strategies for the future beyond 1997. One tangible strategic option is to diversify their operations and to open up new markets abroad. It is well established by now that the Asia-Pacific region will be the major growth region in the next two to three decades. Many far-sighted HKTNCs have already tapped the potential of regional expansion (some as early as in the 1960s; see Yeung, 1996b) and, still, many others have begun to study this strategic possibility. Third, the need to maintain a regional and even global network of operations has been the strategic goal of many service HKTNCs in their globalisation drive. The competitive advantage of multinationality per se can be derived from an ability to serve customers by taking existing or newly developed relationships across borders and to outbid local competitors (see HKGuard in Box 4.1; also pp. 192–3). On the other hand, diversification of businesses is another important dimension in the expansion and regionalisation of HKTNCs. In this case, many HKTNCs choose to diversify their corporate headquarters’ portfolio and to establish ASEAN operations to serve special niches within their overall marketing strategies (see Hutchison Whampoa in Box 4.2). First of all, diversification into different products and/or services tends to complement the competitive advantage and organisational capabilities of the corporate group. By combining existing capabilities in production, finance, management and distribution, a firm can almost guarantee the instant success of the new product and/or service. There is also positive feedback from new learning and developments acquired through the process of horizontal expansion (different production chains) and vertical expansion (different stages of the same production chain). Chandler (1990) has clearly shown the advantages of such diversification in his review of the business history of the 200 largest firms in the US and Germany during the late nineteenth and early twentieth centuries. Another unusual reason for a diversification strategy is to raise the international profile of family-oriented businesses in Hong Kong, which are relatively unknown in international financial and consumer markets. This is an important consideration for those

Hong Kong firms in ASEAN: business organisation and corporate strategies

97

HKTNCs seeking international finance to support their overseas expansion. It would be extremely difficult for some HKTNCs to arrange equity

Box 4.1 HKGuard and regional market expansion HKGuard has grown from a small security services company in 1977 to a market leader in Hong Kong and South-east Asia (see Appendix 2). Its founding philosophy of quality, professionalism and reliability has remained unchanged. HKGuard now enjoys some 30 per cent of the security services market in Hong Kong. Another major player in Hong Kong takes up 40 per cent and the rest is split among smaller players. The market is therefore perceived to be rather saturated. Beginning in 1989, HKGuard’s regional expansion has shifted the focus of its business from Hong Kong alone to South-east Asia as a whole. This regional expansion will continue as the group responds to new market opportunities and customer demand. The Group Managing Director said that: We have gone overseas for several key reasons. (1) We have a number of customers who have gone Asia-wide. Those customers, when they move into a new country, would like to have the same support they have in Hong Kong and therefore we have them saying to us, ‘Why you are not in the Philippines? or ‘Why you are not in Taiwan or in Singapore?’ So that’s one of the driving forces—our customer base. We are very much a multinational-based company. (2) I want to provide our staff with promotion prospects because, in Hong Kong, this comes back to the other reason, which is that Hong Kong is a fairly small market. Therefore we’ve got some very good executives, but if the market can’t expand any more, then there is no room for these people to grow. But, by developing the group, we created the opportunity for people to be seconded overseas and to grow within the group. And therefore we didn’t lose that expertise to others—you know, they go off and form their own companies or they often join somebody else. Now they stay with us because there is an opportunity for them to grow. (Interviewed in Hong Kong, 25 April 1994) The Thai joint venture was formed with a reputable foreign businessman already in the security services for many years in Bangkok. The market potential of the Thai subsidiary is much greater than that of Hong Kong, given sufficient time for the local market to grow. The Managing Director of the Thai operation claimed that: Obviously we are much younger than Hong Kong. It’s also a much younger market place. Well, in time, we will be much larger than any of them because it’s a much bigger country. We are in a country the size of France and with a population of 60 million, I guess. In time, this could well be one of the major subsidiaries of the [HKGuard] Group. (Interviewed in Bangkok, 10 June 1994) The Singapore subsidiary again a joint venture has been operating in the highly

Transnational corporations and business networks

98

competitive local security services business for more than twenty years and has a very good client base. It looks after more than 65 per cent of all financial institutions in Singapore, including the central bank—the Monetary Authority of Singapore. The Singapore operation is also trying to expand into Malaysia and then into Indonesia in solid form over the next two to three years, according to the Singapore Managing Director: They [HKGuard] needed us badly because if they want to expand their business in this region, i.e. Malaysia and Indonesia, we have quite a bit of experience. We used to do some work in Malaysia and then in Thailand, Hong Kong and the Philippines. So we have quite a bit under our belt in that area. It’s the sort of expertise that [HKGuard] is looking for. (Interviewed in Singapore, 25 July 1994) finance in major international financial centres if they have no major ‘international assets’ on hand. This is particularly the case in a world of increasing reliance on ‘leverage’ as the key means of financing expansion through mergers and acquisitions (Haspeslagh and Jemison, 1991). This strategy has resulted in a series of major acquisitions of renowned enterprises by HKTNCs in the late 1980s such as New World’s takeover of Ramada, Jardine Matheson’s acquisition of Financial Guardian and SemiTech’s buying-out of Singer Sewing Machine in the US (South China Morning Post, 22 January 1990; Far Eastern Economic Review, 7 April 1994:73–4). Another example is Li Ka-shing’s involvement of his son, Victor Li, in developing the former Expo site in Vancouver into prime residential properties (see Olds, 1995, forthcoming). Raison d’être of ASEAN operations: minimising costs or maximising markets? Most studies of HKTNCs have adopted a ‘push and pull’ framework (e.g. Chen, 1981, 1983; Federation of Hong Kong Industries, 1990, 1992; Chen and Wong, 1995). On the one hand, they reveal that the ‘push’ factors for HKTNCs to invest abroad are high costs associated with labour inputs (either shortage or high turnover) and escalating costs of production expressed in high rents for industrial and commercial premises. On the other hand, the availability of low-cost labour, land and raw materials is the leading ‘pull’ factor. Panggabean’s (1990: Chapter 6) comparison of Hong Kong and US firms in Indonesia points to political stability and low labour costs as two dominant pull factors. In a follow-up survey in 1991 by the Federation of Hong Kong Industries (1992) of Hong Kong firms investing in the Pearl River delta in the PRC, geographical proximity was also cited as the leading ‘pull’ factor (97 per cent). A far less significant second factor was an attractive investment environment (13 per cent) and familiarity with the environment in the delta area (13 per cent). These ‘push’ and ‘pull’ findings are well rehearsed in Chen and Wong’s (1995) study of HKTNCs in the PRC (see Table 4.10).

Hong Kong firms in ASEAN: business organisation and corporate strategies

99

Box 4.2 Hutchison Whampoa and portfolio diversification Hutchison was formerly one of the largest British hongs (trading houses) in Hong Kong (see Appendix 2). It is at present controlled by Li Ka-shing and his Cheung Kong Holding. Like many other traditional British hongs (e.g. Jardine Matheson and Swire Pacific), Hutchison confronts the same conundrum of the ‘1997 question’ (see pp. 126– 9). The only sure way to hedge itself against Hong Kong’s shaky prospects with the resumption of the PRC’s sovereignty over the colony was to sell some of its huge portfolio of local assets and to increase investments elsewhere rapidly (The Economist, 26 August 1989). Hutchison already supplies 80 per cent of the mobile telephones sold in Hong Kong and has a 5 per cent interest in a British telecommunications company, Cable & Wireless, whose Hong Kong subsidiary has the local telephone monopoly. In recent years, Hutchison has also expanded aggressively into the telecommunications markets in Malaysia and Thailand through joint ventures with established local partners, following the increasing liberalisation of these ASEAN markets and the privatisation of formerly state-owned telecommunications enterprises (Priebjrivat and Rondinelli, 1994). In doing so, Hutchison wants to boost the proportion of its assets outside Hong Kong from 20 per cent in 1989 to at least 25 per cent by the early 1990s (The Economist, 26 August 1989:60). Another diversification strategy is to sell off some existing portfolios in Hong Kong. In order to nurture political ties with the PRC, Hutchison sold a 10 per cent stake in its Hong Kong Container Terminals to China Resources, a mainland state-owned company, in May 1989. Getting to know the colony’s future masters and, more important, giving them a seductive taste of Hong Kong’s riches may be Hutchison’s best hope of riding out the coming storms. These studies often fail to address the strategies of individual HKTNCs and the context in which their transnational decisions were made. For example, why do not these HKTNCs either set up their overseas operations earlier or diversify into other businesses? How do we explain those HKTNCs that invested well before the rise in production and labour costs in Hong Kong (i.e. before the early 1970s)? I argue that the motivations of HKTNCs and their transnational investment activities are highly sector-specific and context-dependent. This nature of investment motivations not only makes it extremely difficult to generalise about the causal factors, but also requires a much more contextsensitive approach to explaining the ASEAN operations of HKTNCs. In this section, three major issues in transnational operations are considered: (1) cost factors; (2) markets and marketing activities; (3) government incentives. Whenever possible, this section tries to provide an assessment of the relative importance of these three time—space-contingent factors through survey data, measured by mean scores, on the motivations of different HKTNCs operating in the ASEAN region. The role of cost factors Since the early 1970s, Hong Kong’s manufacturing industries have been seriously affected by an upsurge in the costs of production. These escalating costs are the result of a tight labour market, rising prices for industrial land and basic utilities in Hong Kong. In 1990, the Industry Department (1991) conducted a survey of some 6,991 manufacturers

Transnational corporations and business networks

100

Table 4.10 Investment motivations of Hone; Kong firms in the PRC Manufacturing Services Lower factor costs—labour, Serve the needs of customers with investment in land and capital the PRC Geographical and cultural Saturation of the Hong Kong market proximity Better local connections Tap the relatively cheap human resources in the PRC, as in computer programming and engineering industries Tap the PRC market Enjoy the FDI incentives offered by the PRC government Source: Adapted from Chen and Wong (1995: Table 11.4). in Hong Kong and concluded that labour shortage was the major constraint to the future development of industry in Hong Kong. For two of Hong Kong’s largest manufacturing industries, textiles and garments and electronics, the shortage of labour posed a serious challenge to their future growth. It must be noted, however, that although labour costs in all manufacturing industries had doubled, from HK$24 billion in 1982 to HK$54 billion in 1992, their share in total production costs remained at around 18 per cent (Hong Kong Government Industry Department, 1994: Table 2.8). As a percentage of value added in the manufacturing sector, labour costs accounted for 71 per cent in 1980. But by 1992 the percentage had decreased over time to 55 per cent. Labour costs are therefore not the only problem for Hong Kong’s manufacturers.5 On the other hand, the textile and garment industry also suffers from an additional constraint—the imposition of quota restrictions by major markets in the US and Europe since the late 1950s (Christerson and Appelbaum, 1995). Worrying over the possible demise of the Lancashire textile industry, Britain was the first country to impose voluntary quota restrictions on yarn and fabric products exported from Hong Kong during the late 1950s. By the early 1960s, the US and other European countries had followed suit. Since the late 1960s and early 1970s, both the garment and the knitting industries have had their quotas fixed under the Multi-Fibre Arrangement (MFA). Today, almost every textile product or garment exported from Hong Kong faces quotas. In 1993, more than 90 per cent of Hong Kong’s exports of textiles and clothing products to the US (more than 70 per cent in the case of the European Union) were subject to quantitative restrictions (Hong Kong Government Industry Department, 1994:41; Hong Kong Business, Annual 1995:66–8). In early 1994, there was even talk about imposing the quota system on exports of 100 per cent silk products. We now turn to the situation of HKTNCs operating in the ASEAN region. Table 4.11 shows the average wage and salary costs expressed as a percentage of total production costs. Generally speaking, responses from Hong Kong headquarters and ASEAN subsidiaries are consistent with each other. Labour costs account for some 35 per cent of the total production or operating costs of HKTNCs and their ASEAN subsidiaries. There are, however, inter-sectoral and inter-

Hong Kong firms in ASEAN: business organisation and corporate strategies

101

country differences in the cost structure. In the manufacturing sector, interestingly, labour costs may be as low as 9.5 per cent for most electronics subsidiaries and as high as 40 per cent in textile and garment subsidiaries. Labour costs are generally high in service subsidiaries, ranging from 15 per cent in leisure services to 50 per cent in computer services and transport. In terms of the country pattern of labour costs, subsidiaries in Singapore incur the highest proportion of labour costs (36 per cent and 39 per cent respectively). This generalisation, nevertheless, does not apply to all industries. Labour costs of manufacturing subsidiaries in Singapore tend to be the highest among all ASEAN countries. In the service sector, Singapore subsidiaries have the lowest labour costs in computer (34 per cent), financial (39 per cent) and leisure services (17 per cent), reflecting Singapore’s competitive cost advantage in these industries. Subsidiaries in Malaysia enjoy lower labour costs in electronics and miscellaneous manufacturing, whereas subsidiaries in Indonesia have the lowest labour costs in textile and garment manufacturing and transport services. Given the high proportion of production costs attributed to the ‘human’ component, does it inevitably mean that cost-saving factors are most important in motivating HKTNCs to operate in the ASEAN region? The short answer is ‘no’. In Table 4.12, cost saving reasons are shown to play an insignificant role in motivating HKTNCs to set up their ASEAN operations. In most industries and countries, cost saving reasons were cited by less than 25 per cent of respondents. In Singapore, for example, cost saving reasons were only given minor importance in the textiles (14 per cent) and miscellaneous services industries (14 per cent). In other ASEAN countries, cost saving reasons have some relevance mainly in the textile and garment and miscellaneous industries. The percentage of responses ranges from 50 per cent in miscellaneous industries in Malaysia to 0 per cent in both industries in the Philippines. These findings clearly show that cost saving is not a key motivation to the ASEAN operations of HKTNCs throughout manufacturing and service industries. When asked to assess the importance of a series of home country, host country and regional and global conditions in setting up their operations in individual ASEAN countries (see Table 4.13), most respondents also placed little

Table 4.11 Average wage and salary costs of Hong Kong transnational corporations by host country and by industry (% of total production costs) Average ELE FOD MET MMS TEX BUS COM DIS FIN LEI SMS TRA Total wage and salary cost Hong Kong survey Indonesia 17.5 NA NA 10.0 14.0 40.0 40.0 29.5 49.0 20.0 NA 31.7 30.9 Malaysia 13.0 NA NA 6.5 26.9 40.0 36.2 32.8 43.3 15.0 30.0 33.0 30.6 Singapore 36.7 15.0 30.0 24.2 40.5 46.4 34.2 37.1 39.4 16.7 30.0 44.2 36.2 Thailand 17.0 NA 30.0 11.8 25.0 58.8 40.0 33.8 45.8 33.3 22.5 41.0 33.1 Philippines 15.0 NA NA 16.5 21.8 40.0 50.0 25.0 49.0 37.5 30.0 50.0 34.8

Transnational corporations and business networks

Total ASEAN survey Indonesia Malaysia Singapore Thailand Philippines Total

102

19.8 15.0 30.0 13.8 25.6 45.0 40.1 31.6 45.3 24.5 28.1 40.0 33.1

NA NA 7.5 NA 11.0 NA 10.0 NA NA NA 9.5 NA

NA NA NA NA NA NA

5.0 NA 25.0 65.0 NA 31.7

NA 40.0 50.0 20.0 40.0 70.0 40.0 43.3 45.0 20.0 NA NA NA NA NA 26.7 41.1 55.0

NA 53.3 20.0 NA NA 39.4 NA NA NA NA 50.0 33.6 40.3 44.8 31.0 27.0 56.2 39.4 40.0 NA NA NA 30.0 29.2 NA NA NA NA NA NA 40.2 49.1 25.5 27.0 45.4 35.4

Source: Author’s survey.

Notes: ELE electronics and electrical manufacturing; FOD food manufacturing; MET metal manufacturing; MMS miscellaneous manufacturing; TEX textile and garment manufacturing; BUS business services; COM computer services; DIS distribution; FIN financial services, insurance and real estate; LEI leisure and tourism; SMS miscellaneous services; TRA transport. Table 4.12 Motivations of Hong Kong transnational corporations in ASEAN by country and by industry (%) Motivation ELE FOB MET MMS TEX BUS COM DIS FIN LEI SMS TRA Total Indonesia Important/potential 50.0 NA NA 16.7 25.0 25.0 0.0 40.0 15.4 0.0 50.0 33.3 24.5 growth region Serving clients 0.0 NA NA 0.0 0.0 50.0 75.0 0.0 53.8 0.0 25.0 50.0 37.7 with customised services Cost saving 0.0 NA NA 33.3 25.0 0.0 0.0 20.0 0.0 0.0 25.0 0.0 9.4 reasons Availability of 0.0 NA NA 16.7 25.0 0.0 0.0 0.0 7.7 0.0 0.0 0.0 7.5 quotas and tariff advantages Regional coverage 0.0 NA NA 0.0 25.0 25.0 25.0 40.0 23.1 100.0 0.0 17.7 17.0 of operations Other 50.0 NA NA 33.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.9 Malaysia Important/potential 10.0 NA 100.0 25.0 14.3 20.0 10.0 22.2 25.0 50.0 42.9 41.7 25.3 growth region Serving clients 30.0 NA 0.0 25.0 7.1 40.0 70.0 33.3 37.5 50.0 42.9 25.0 33.0 with customised services

Hong Kong firms in ASEAN: business organisation and corporate strategies

103

Cost saving 0.0 NA 0.0 50.0 21.4 0.0 0.0 0.0 6.3 0.0 14.3 0.0 7.7 reasons Availability of 0.0 NA 0.0 0.0 28.6 0.0 0.0 0.0 6.3 0.0 0.0 8.3 6.6 quotas and tariff advantages Regional coverage 20.0 NA 0.0 0.0 0.0 40.0 20.0 22.2 18.8 0.0 0.0 16.7 15.4 of operations Other 40.0 NA 0.0 0.0 28.6 0.0 0.0 22.2 0.0 0.0 0.0 8.3 12.1 Singapore Important/potential 38.9 50.0 40.0 30.0 28.6 28.6 9.1 16.0 31.6 20.0 42.9 35.7 28.4 growth region Serving clients 38.9 25.0 60.0 10.0 0.0 42.9 72.7 40.0 36.8 40.0 42.9 28.6 37.6 with customised services Cost saving 0.0 0.0 0.0 10.0 14.3 0.0 0.0 4.0 0.0 0.0 14.3 0.0 2.8 reasons Availability of 0.0 0.0 0.0 10.0 14.3 0.0 0.0 0.0 5.3 0.0 0.0 7.1 2.8 quotas and tariff advantages Regional coverage 0.0 0.0 0.0 0.0 14.3 21.4 18.2 12.0 15.8 20.0 0.0 14.3 11.3 of operations Other 22.2 25.0 0.0 40.0 28.6 7.1 0.0 28.0 10.5 20.0 0.0 14.3 17.0 Motivation ELE FOD MET MMS TEX BUS COM DIS FIN LEI SMS TRA Total Thailand Important/potential 33.3 100.0 0.0 37.5 40.0 33.3 0.0 37.5 35.7 50.0 37.5 42.9 34.1 growth region Serving clients 16.7 0.0 20.0 25.0 0.0 33.3 75.0 25.0 35.7 0.0 37.5 21.4 26.1 with customised services Cost saving 16.7 0.0 40.0 25.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.1 reasons Availability of 8.3 0.0 20.0 12.5 20.0 0.0 0.0 0.0 7.1 0.0 0.0 7.1 6.8 quotas and tariff advantages Regional coverage 8.3 0.0 0.0 0.0 20.0 33.3 25.0 12.5 14.3 50.0 0.0 21.4 14.8 of operations Other 16.7 0.0 20.0 0.0 20.0 0.0 0.0 25.0 7.1 0.0 25.0 7.1 9.1 Philippines Important/potential 100.0 NA 0.0 25.0 50.0 20.0 0.0 0.0 23.1 0.0 66.7 30.0 29.2 growth region

Transnational corporations and business networks

Serving clients with customised services Cost saving reasons Availability of quotas and tariff advantages Regional coverage of operations Other

104

0.0 NA 100.0 25.0 33.3 40.0 50.0 0.0 46.2

0.0 0.0 30.0 31.3

0.0 NA

0.0

0.0 0.0 0.0

0.0 33.3 0.0

0.0 33.3 0.0 4.2

0.0 NA

0.0 25.0 0.0 0.0

0.0 0.0 7.7

0.0 0.0 0.0 4.2

0.0 NA

0.0

0.0 NA

0.0 25.0 16.7 0.0

0.0 0.0 40.0 50.0 66.7 23.1 100.0 0.0 40.0 27.1 0.0 0.0 0.0

0.0 0.0 0.0 4.2

Source: Author’s survey.

Notes: ELE electronics and electrical manufacturing; MMS miscellaneous manufacturing; TEX textile and garment manufacturing; BUS business services; COM computer services; DIS distribution; FIN financial services, insurance and real estate; LEI leisure and tourism; SMS miscellaneous services; TRA transport. Table 4.13 Importance of different conditions for ASEAN operations by Hong Kong transnational corporations: mean scores (1=very important; 5=not important at all) Conditions of ASEAN operations In’sia M’sia S’pore Thai Phil. Home country conditions Political uncertainty 4.7 4.4 4.3 4.4 4.8 Diversification of risks/business 4.1 3.8 3.7 3.5 3.8 High costs of operations 4.1 3.7 4.0 3.7 4.0 Technological upgrading/transfer 4.8 4.8 4.6 4.6 4.9 Intensified competition 4.6 4.3 4.2 4.2 4.6 Limited domestic market 4.6 4.4 4.1 4.2 4.7 Host county conditions Political stability 3.4 3.1 3.1 3.2 3.2 Government incentives/regulations 4.0 3.9 4.2 3.9 4.1 Lower costs of operations 3.4 3.5 4.1 3.5 3.7 Marketing strategies 2.3 2.5 2.2 2.6 2.7 Availability of skilled labour 4.2 4.2 3.9 4.2 4.0 Availability of cheap labour 4.1 4.2 4.5 4.0 4.2 Availability of raw materials and/or intermediate 4.5 4.7 4.6 4.5 4.9 products Clients are located there/availability of markets 1.0 1.0 1.0 1.0 1.0

Hong Kong firms in ASEAN: business organisation and corporate strategies

Local, regional and global conditions Growing international competition in your industry Tariffs and quotas imposed by countries of import Tapping potential market from regional economic cooperation Improvement in transport and communication facilities Greater prospect of regional growth More firms investing overseas Geographical advantages/presence

105

3.36 3.8 3.9 4.2 2.4 2.9

3.6 4.5 2.3

3.7 3.8 4.1 3.9 2.5 2.7

3.8

3.8

3.4

3.6 3.6

2.4 4.5 1.0

2.9 4.5 1.8

2.3 4.5 1.6

2.5 2.6 4.3 4.3 2.0 1.0

Source: Author’s survey. importance on the costs of operations. Indeed, measured in mean scores (1 =very important; 5=not important at all),6 cost factors such as high costs of operations in Hong Kong and lower costs of operations in ASEAN countries never score below 3.4 in Table 4.13 (i.e. not very important). This value (3.4) refers to the mean score given to the role of lower costs of operations in the Indonesian ventures of HKTNCs. It should be emphasised, however, that there are again important inter-sectoral and inter-country differences, as is evident in Table 4.14. Cost factors do not really matter so much in the operations of HKTNCs in Singapore (at least above 2.9 in mean scores) because the TNCs

Table 4.14 Importance of different conditions for ASEAN operations by country and by industry: mean scores (1=very important; 5—not important at all) Condition ELE FOD MET MMS TEX BUS COM DIS FIN LEI SMS TRA Indonesia Political uncertainty 4.5 NA NA 4.0 4.5 5.0 5.0 4.8 5.0 5.0 4.5 4.5 in Hong Kong High costs of 4.5 NA NA 1.7 3.0 5.0 4.0 5.0 4.6 5.0 3.0 3.8 operations in Hong Kong Political stability in 3.0 2.0 NA 2.3 3.0 4.7 4.5 2.8 3.6 4.0 1.0 4.0 Indonesia Host government 2.5 2.0 NA 3.3 4.0 4.7 4.5 4.5 4.0 4.0 NA 4.8 incentives and regulations Lower costs in 2.0 3.0 NA 1.3 3.0 4.0 4.5 3.0 4.4 4.0 2.5 3.3 Indonesia Marketing strategies 1.5 1.0 NA 3.7 3.0 1.3 1.0 1.3 2.7 2.0 2.5 3.5

Transnational corporations and business networks

Location of clients NA and markets Tariffs and quotas 1.5 Regional market 1.5 growth Malaysia Political uncertainty 3.4 in Hong Kong High costs of 2.7 operations in Hong Kong Political stability in 2.4 Malaysia Host government 3.0 incentives and regulations Lower costs in 2.3 Malaysia Marketing strategies 2.5 Location of clients 1.0 and markets Tariffs and quotas 4.7 Regional market 3.7 growth Singapore Political uncertainty 4.3 in Hong Kong High costs of 3.8 operations in Hong Kong Political stability in 2.1 Singapore Host government 3.0 incentives and regulations Lower costs in 4.1 Singapore Marketing strategies 1.1 Location of clients and 1.0 markets

106

NA NA NA NA 1.0 1.0

NA 1.0 NA NA 1.0

NA NA 2.7 NA NA 2.0

1.0 5.0 4.5 3.0 2.3 2.0

4.0 5.0 5.0 5.0 5.0 1.3 2.7 1.0 4.0 3.5

NA 5.0 3.5

4.8 5.0 4.4

4.4 4.6 4.5 4.3 4.4

NA 5.0 1.5

3.0 5.0 4.0

5.0 4.3 5.0 3.3 3.1

NA 5.0 3.0

2.9 4.7 3.0

3.2 3.4 3.0 2.0 3.3

NA 5.0 2.0

4.3 4.7 4.8

4.2 3.7 4.0 4.5 3.9

NA 5.0 3.5

2.1 4.3 3.8

3.6 4.3 3.5 3.5 3.7

NA 1.0 3.5 4.0 1.3 1.4 NA NA NA NA 1.0 1.0

1.8 2.7 1.5 2.0 2.9 NA 1.0 NA NA 1.0

NA 5.0 3.5 NA 2.0 2.5

1.3 5.0 4.8 4.1 2.3 2.2

5.0 5.0 5.0 5.0 4.6 1.4 2.6 3.5 2.8 3.4

4.8 4.3 3.7

4.4 4.0 4.5

4.3 4.7 4.5 4.3 4.4

4.3 4.0 2.9

3.8 4.5 4.2

4.8 4.1 4.8 3.3 3.6

5.0 3.0 2.7

3.2 3.6 3.3

3.3 3.3 2.5 1.0 3.2

5.0 4.0 3.6

4.2 4.3 4.8

4.6 4.3 3.3 5.0 4.2

5.0 4.3 3.9 4.0 4.3 4.2 4.3 4.2 3.5 3.5 3.9 3.0 1.3 3.7 2.2 2.4 1.8 1.6 2.1 3.0 2.5 3.1 NA NA 1.0 NA 1.0 1.0 NA 1.0 NA NA 1.0

Hong Kong firms in ASEAN: business organisation and corporate strategies

Tariffs and quotas 3.9 Regional market 1.3 growth Thailand Political uncertainty in 3.3 Hong Kong High costs of 3.3 operations in Hong Kong Political stability in 3.0 Thailand Host government 3.0 incentives and regulations Lower costs in 2.0 Thailand Marketing strategies 2.3 Location of clients and NA markets Tariffs and quotas 3.5 Regional market 1.8 growth Philippines Political uncertainty in 5.0 Hong Kong High costs of 5.0 operations in Hong Kong Political stability in 2.0 the Philippines Host government 5.0 incentives and regulations Lower costs in the 4.0 Philippines Marketing strategies 1.0 Location of clients and NA markets Tariffs and quotas 5.0 1.0 Regional market

107

5.0 4.3 3.1 2.0 5.0 4.8 4.5 4.8 5.0 5.0 4.8 2.0 2.3 2.4 3.0 2.4 2.2 2.3 2.1 3.5 2.8 2.9

5.0 3.0 4.0 5.0 4.8 5.0 4.7 5.0 4.8 4.4 4.5 5.0 1.0 1.8 3.8 4.8 4.0 4.8 4.3 5.0 2.8 3.3 5.0 1.0 3.0 2.8 4.0 4.5 3.5 3.6 2.8 1.8 3.4 5.0 1.0 2.5 3.8 4.3 4.5 4.5 4.6 4.5 4.7 3.9 5.0 1.0 2.8 2.8 4.0 4.5 3.8 4.6 4.0 2.6 4.0 1.0 3.5 4.0 4.0 2.5 1.0 1.3 2.3 3.5 2.2 2.8 NA NA 1.0 NA 1.0 1.0 NA 1.0 NA NA 1.0 5.0 2.0 2.5 1.3 5.0 4.5 4.3 5.0 4.3 5.0 4.6 1.0 2.5 2.0 4.0 2.5 2.0 1.7 2.1 3.3 2.4 3.4

NA NA 4.5 5.0 5.0 5.0 4.0 5.0 5.0 4.5 4.5 NA NA 2.0 3.3 5.0 3.0 5.0 4.2 5.0 2.0 4.0 NA NA 3.0 2.3 4.7 5.0 2.0 3.6 2.5 4.0 3.0 NA NA 2.5 3.3 4.7 5.0 4.5 4.3 4.5 4.0 4.3 NA NA 2.0 2.8 4.0 5.0 1.5 4.4 4.5 2.5 4.5 NA NA 4.5 3.5 1.3 1.0 3.0 2.7 3.5 2.5 2.5 NA NA 1.0 NA 1.0 NA NA 1.0 NA NA 1.0 NA NA 1.5 1.0 5.0 5.0 1.0 5.0 3.5 5.0 5.0 NA NA 1.5 4.0 2.3 1.0 2.0 2.7 2.5 2.5 2.8

Transnational corporations and business networks

108

growth Source: Author’s survey.

Notes: ELE electronics and electrical manufacturing; FOD food manufacturing; MET metal manufacturing; MMS miscellaneous manufacturing; TEX textile and garment manufacturing; BUS business services; COM computer services; DIS distribution; FIN financial services, insurance and real estate; LEI leisure and tourism; SMS miscellaneous services; TRA transport. have already internalised the cost factor before making the decision to establish there or they have divested if they feel the costs of operating in Singapore are too high. Cost factors are also insignificant in food, electronics and all service subsidiaries throughout the ASEAN region (see Sun Hung Kai in Box 4.3), except some electronics subsidiaries in Thailand (mean score 2.0), distribution services in the Philippines (mean score 1.5) and miscellaneous services in Indonesia (mean score 2.5), Thailand (mean score 2.6) and the Philippines (mean score 2.0). But compared with market- and marketing-related motivations discussed in the next section, these mean scores are much less important. Even if cost factors are relatively more significant in metal, miscellaneous and textile manufacturing subsidiaries, their importance varies from country to country. In Table 4.14, for example, the importance of cost factors to metal manufacturing subsidiaries is substantiated only in Thailand (mean score 1.0), not in Malaysia (mean score 5.0) or Singapore (mean score 4.3). For miscellaneous manufacturing subsidiaries, cost factors are significant only in Indonesia (mean score 1.3) and the Philippines (mean score 2.0). In the textile and garment industries, in which cost factors are alleged to be the most important determinant in previous studies, cost factors represent no more than a mean score of 2.1 in Malaysia and over 3.0 in all other ASEAN countries. Cost factors must be balanced against other critical criteria such as product quality and labour discipline (see Esquel and Unisouth in Box 4.4). It should be recognised, nonetheless, that the availability of quotas (and tariffs) does play a significant role in motivating many textile and garment HKTNCs to set up their factories in the ASEAN region. As shown in Tables 4.12 and 4.14, the factor is rather important for all ASEAN subsidiaries of textile and garment HKTNCs. The role of markets and marketing If cost-related factors are relatively insignificant in prompting the ASEAN operations of HKTNCs, what accounts for their ASEAN operations? From the above discussion so far, it appears that market and marketing-related motivations play a dominant role. Most HKTNCs tend to adopt a pro-market strategy either to keep closer contact with customers and/or to expand into new markets by ‘diversification through local specialisation’. To evaluate the relative importance of these two market-related corporate strategies, we refer back to Table 4.12. It is obvious that both strategic motivations, expressed in (1) important or potential growth region, (2) serving clients with customised services and (3) regional coverage of operations, account for more than 70 per cent of total responses. Similarly, back in Table 4.13, marketing strategies, location of clients and markets and

Hong Kong firms in ASEAN: business organisation and corporate strategies

109

geographical presence are the most important conditions for HKTNCs to operate in the ASEAN region. Their mean scores range from 1.0 for the location of clients to over 2:0 for marketing strategies and regional market potential. In terms of sectoral distribution, Table 4.12 shows that market-related motivations have driven HKTNCs in virtually all industries and sectors to establish ASEAN

Box 4.3 Financial services and the role of cost factors Sun Hung Kai was founded in 1969 at a time when Hong Kong’s economy was expanding rapidly and the stock exchanges were being used increasingly as a source of finance (see Appendix 2). Since then the company has grown with Hong Kong and the emerging markets of Asia. As the region developed, the company adapted from simple beginnings to become a sophisticated enterprise which now specialises in financial services on a global basis. The company redefined its strategy in 1986 with the specific objective of strengthening the core business in Hong Kong and expanding selectively in the Asia-Pacific region. It has achieved a geographical diversification of earnings to optimise the returns from different markets and has succeeded in diversifying from a predominantly Hong Kong-based stockbroking house to a financial services institution with a strong regional presence and providing value-added financial products and services. As a premier financial house from Hong Kong, Sun Hung Kai has expanded into the ASEAN region to attract more funds from South-east Asia to invest in Hong Kong and the PRC. On the operational side, however, the local presence of the company in order to serve its networks of customers means that local offices must be maintained at virtually any cost. According to one board director from Sun Hung Kai: Financial services are different from manufacturing industries. What matters in a country is whether it gives you the licence to operate and whether it welcomes your operation. The investment must also be right. Costs do not matter so much because we need to be there to collect information and conduct research; we have to meet our clients and stockbrokers too. Conversely, since we have operations in almost all South-east Asian countries, should we move some of our operations like invoicing to the Philippines? We won’t. Each operation is independent in its own right. They have to be there. (Interviewed in Hong Kong, 21 March 1994) His view was echoed by the local managing director in Singapore: The presence—mainly to have a presence in this part of the world. Because if you sell Singapore-Malaysian shares, say in London and New York, and you don’t have an office in Singapore-Malaysia, how can you call yourself an expert in this area? So we need to have a presence here; so we need to have local knowledge, local contact. The broking business is very competitive. If you are already dealing, you depend on other brokers for providing the information. The client can always deal with the other broker directly There is no reason to deal through you You have to ask

Transnational corporations and business networks

110

him also. But here we have our own view that, if we stay here, we want to establish here. We have our own house views on particular sectors, particular stocks. So that’s mainly why we have to have a presence here. (Interviewed in Singapore, 28 July 1994) This situation is common in service industries when market-related motivations play a much more important role than cost factors alone. operations. Table 4.14 spells out significant sectoral differences in market-related conditions. For example, the role of market and marketing is relatively less important in miscellaneous and in textile and garment manufacturing subsidiaries because their major markets are outside the ASEAN region. In Table 4.12, client-driven motives have been predominant in the operations of HKTNCs in Indonesia (38 per cent), Malaysia (33 per cent), Singapore (38 per cent), the Philippines (31 per cent) and to a lesser extent in Thailand (26 per cent). Chapter 5 will examine in detail how these client-driven motives are embedded within wider personal and business relationships between Hong Kong suppliers and their overseas customers (see HKComputer in Box 5.3). In general, customers are concerned with certain issues: (1) reliability of products and services; (2) delivery of products and services, and (3) costs of products and services. Inferring from earlier discussions, cost factors tend to be less important an issue. Most customers are extremely concerned with the reliability and delivery of products and services because many HKTNCs are either OEM manufacturers or customised service providers. In the case of OEM manufacturers such as garments (see Box 4.4) and electronics, major customers come from North America and Western Europe; they prefer their Hong Kong suppliers to reduce the risk of ‘putting all their eggs in one basket’ and to diversify their manufacturing facilities throughout the region. Similar market orientation is observed in the involvement of electronics HKTNCs in the ‘ASEAN integrated circuit’ (Chaponniere, 1984; see ASM and HKPrecision in Box 4.5).7 In the service sector, local market exploration and serving clients are equally important motivations for the ASEAN operations of HKTNCs (Yeung, forthcoming a).8 Because substantial trust and relationships have been developed with existing customers, it is only logical for service HKTNCs to follow their clients and set up in the ASEAN region (see HKPartners in Box 4.6). Regionalisation of operations is another major market-related motive in the ASEAN operations of HKTNCs. Specialising in niche markets is made possible through geographical expansion. The motivation of multinationality has been a cornerstone in service industries to capture emerging regional markets (see Table 4.12). The importance of this motivation can be ascertained in Table 4.13 in which geographical presence has been cited as one of the most important conditions in the ASEAN operations of HKTNCs. The mean scores range from 1.0 in Indonesia and the Philippines to 2.0 in Thailand. In Table 4.14, regional

Hong Kong firms in ASEAN: business organisation and corporate strategies

111

Box 4.4 Hong Kong textile and garment transnationals and the role of cost factors Case study 1 As one of the largest garment manufacturers in Hong Kong, the Esquel Group is a HKTNC with a worldwide reputation for quality and specialised customer service (see Appendix 2). Since its inception, Esquel has striven to be a top-quality manufacturer of pure cotton and cotton apparel. Esquel is also investing in its own spinning, weaving, knitting, dyeing and accessories manufacturing factories. These factories help ensure the quality of product that buyers such as Polo Ralph Lauren, Tommy Hilfiger, Nordstrom and Marks & Spencer have come to expect. Under the control of the Hong Kong headquarters, Esquel’s production network extends to the countries of the Pacific Rim, the Caribbean and the islands of the Indian Ocean. Being a Shanghainese by origin, Sam Yang, director of Esquel Group and brother of the founding chairman, commented on the role of cost factors in establishing the group’s overseas operations: Lower cost is one thing; it’s always important. But since we are making quality garments, so we very much emphasise the quality itself. So it’s just not the word ‘cheap labour’ that we emphasise in our policy—making quality goods. So the labour force, the people’s concept/consciousness, is very important to us. So cost, yes, cost is important, but on the other hand, no matter how inexpensive it is, who cannot make the quality that we always demand, then we will not go there. Just like some of the countries, we won’t go there because we cannot really say we will be able to maintain the given quality. For the same reason, we are now going into vertical—in the sense we start from yarn all the way to finished garments vertically. (Interviewed in Hong Kong, 22 March 1994) Case study 2 As a mid-range textile HKTNC in terms of size, Unisouth has been one of the earliest textile HKTNCs (see Appendix 2). Its main markets are the US and Europe. In 1975, it went into partnership with an Indonesian to set up PT Eratex Djaja, a listed textile company in Indonesia which is now 40.5 per cent owned by Unisouth. PT Eratex’s main business is making jeans for Levi Strauss. A director of Unisouth, Julian Wong, recalled the reasons why they set up the Indonesian operation: At that time, there were few Chinese investors from Hong Kong because the government was rather hostile to the Chinese. But since the establishment of a new government [under President Suharto], we thought the conditions at that time were changing rapidly, which posed a significant opportunity for us. There was also little development in its textile industry. So we invested in Indonesia with great caution; we brought in our old machinery in order to test out the place. The investment was quite low at that point in time Over time our

Transnational corporations and business networks

112

business becomes better and we put in more investment. The main thing is that the place has a lot of potential because of its huge population base. Initially we wanted our textile products to be for both exports and domestic market. However, because the domestic market at that time was rather limited, we relied purely on exports and by now, our operation remains largely export-oriented. But that’s still the right thing to do. We have about 20 per cent of the domestic market. (Interviewed in Hong Kong, 8 April 1994) When asked about the role of cost factors in setting up the Indonesian operation, Mr Wong further explained that: Actually not at that point in time: when we made the decision at that point in time, it was not because manufacturing cost in Hong Kong was too high, but because of growth reasons. I think it’s more to do with the fact that at that time, Hong Kong already had a quota system for textiles. So growth in Hong Kong became difficult and we decided to find a place to expand the base. Indonesia was then selected on that basis. Certainly on cost—cost was very cheap compared to Hong Kong at that point in time. But the risk factor at that point in time was considered very high; the cost factor itself did not drive us there—it’s the market potential. (Interviewed in Hong Kong, 8 April 1994) Apart from the above operations, Mr Liu, the founder of Unisouth, has an interest in another listed HKTNC, Unitex, a knitting factory making garments for such well known names as The Gap and The Limited stores in the US. market growth has been an attractive condition to HKTNCs in almost all manufacturing industries, except the textile and garment industries. In the service sector, regional market growth is attractive to business, computer and financial services and distribution and, to a lesser extent, leisure, miscellaneous and transport services (see Sun Hung Kai in Box 4.3). The case of transport services is ironic because presumably most transport services would prefer to operate in a region with strong growth potential. In the case of transport HKTNCs (e.g. freight forwarding), however, their major customers originate from North America and Europe (see also HKTrans in Box 6.4). They are therefore more concerned with the growth potential of those Triad regions than the ASEAN region. For other services, the prospect of larger market share through regionalisation has been an important driving force behind their transnationalisation in the ASEAN region (Yeung, forthcoming a).

Box 4.5 Hong Kong electronics transnationals and market-driven transnational production Case study 1 In Singapore, the Hong Kong-listed ASM Pacific Technology is investing about US$33 million to build a fully integrated manufacturing plant which houses its

Hong Kong firms in ASEAN: business organisation and corporate strategies

113

product development, assembly and marketing operations. One key reason for such a huge investment is to take advantage of the boom in the semiconductor assembly industry in the region, in particular Malaysia, Singapore and Thailand. Patrick Lam, Group Managing Director, said that ‘It has always been our corporate strategy, if justifiable, to have manufacturing and product development capabilities close to our customers and markets’ (quoted in The Straits Times, 11 December 1989). Another top executive from ASM in Singapore added that: Singapore operation, as one of the arms of the group, serves the Southeast Asian territory. It’s important to be closer to our customers, especially on the equipment side, because customers look for more than just a piece of equipment. They are also looking for support for the equipment from the manufacturer. Proximity to customers facilitates communication between our engineering team and customers. This brings us to the idea of linkage. Of course the future growth of the group was one important consideration in setting up the Singapore operation a few years back. But the most important reasons are firstly to be closer to our customers and market place and secondly to extend resource supplies to our R & D activities. (Interviewed in Singapore, 19 July 1994) The manufacturing facility in Singapore would enable ASM to enhance its marketing capability and better serve its customers in the region, particularly in Malaysia, the world’s largest semiconductor assembler and the third largest exporter of semiconductors after the US and Japan. The group sells about 8 per cent of its output in Singapore and Malaysia. Its main markets in the region are Malaysia, the Philippines and Taiwan. Case study 2 HKPrecision was the brainchild of a local entrepreneur who had established the lead frame manufacturing capability of ASM Pacific (see Appendix 2). While the German holding company transfers its technology to the Far East operations, the local partner, as the Group Managing Director, manages the operations throughout the region. Customisation is the group’s key competitive strategy. The Group Managing Director explained: The question is that our business strategy is to see ourselves as a smallscale organisation in each location to serve individual customers, customer-based. Our direction is to serve customers next door, besides the new technology of chemical milling. For all those conventional and medium-level chemical products, we will leave them to local production. High-end stamping is still kept in Hong Kong because experienced people are there. Most difficult parts are produced in Hong Kong, but our customers are not in Hong Kong. Singapore starts with etching and serves all customers. (Interviewed in Singapore, 18 August 1994)

Transnational corporations and business networks

114

In order to produce lead frames for its leading customers locally, the Hong Kong office has decided to set up manufacturing facilities in Singapore and Malaysia. The main reason for setting up the Singapore operation was to provide customised lead frame products to Sumiko, its single largest customer in Singapore. Sumiko takes up 90 per cent of its output and the rest goes to AT&T and others. In fact, Sumiko has poured in some equity share in HKPrecision’s Singapore operation. The former also processes products from HKPrecision’s subsidiary in Singapore and exports to the Taiwanese market. In Malaysia, HKPrecision’s subsidiary sells more than 80 per cent of its output to Siemens and the rest to Motorola and SGS Thomson: At the beginning, Sumiko was our customer in Singapore. So when we relocated here in Singapore, it’s mainly to serve this customer. We felt that it would be rather risky just to relocate for one customer here. But the customer wanted it. They said: ‘Okay, as a goodwill gesture, we’ll put in a 10 per cent shareholding.’ So at the beginning, it was 10 per cent owned by Sumiko…The Malaysian operation is mainly to serve Siemens, because Siemens in Europe is a customer of [our German parent company]. Since they relocated their manufacturing to Malaysia, we said: ‘Okay, just follow the customer. It’s quite okay.’ Before setting up in Malaysia, Germany had already been supplying to Siemens in Europe. But little was supplied from Hong Kong. In Europe, [our German parent company] supplies direct to Siemens in Malaysia. So the customer pushed them and said, ‘Look, you’ve got a factory in Hong Kong. Why not supply us from Hong Kong?’ At the time, we thought that if we were to increase the capacity of production in Hong Kong, we would rather put up the capacity in Malacca. That’s why the decision was made to set up another plant in Malacca. (Interviewed in Singapore, 18 August 1994) Why do Europeans want to buy from the company, given that the lead frame industry is almost monopolised by the Japanese (90 per cent of the world’s market)? The Group Managing Director thought that, at an equal price, HKPrecision will have priority over Japanese suppliers in supplying to European and American customers because many customers prefer to spread the risk, instead of buying solely from Japan (see Angel, 1994). There is thus specialisation within each market segment, i.e. a niche market.

Box 4.6 HKPartners and client-driven motives HKPartners is a long established architectural and engineering company with a significant regional presence in Asia. A partner and director at Hong Kong headquarters feels that personal relationships with clients have been critical to successful projects because the business is about professionalism: We have to work in the area where we work It’s almost impossible for us

Hong Kong firms in ASEAN: business organisation and corporate strategies

115

to do work offshore and bring it onshore; it doesn’t work for professional business. You have to be where your people are. Unlike a manufacturing business, where we go to Malaysia and produce cheaply and then export to Hong Kong, you can’t do it with professionalism…You are on the back of investors; somebody here decides to invest in a country; they don’t trust others because they are not familiar with them and they may want us to represent them and provide professional services. So we tend to go with established clients to new countries. We don’t go into a new country, put up a board and say, ‘Here we are,’ because we could be there for ten years and nothing would happen. The only way you can go into a country is on the back of a job. So it’s not the same situation as manufacturing, where you go and look for cheap labour [sic]; you look for market, you try and market your services. As a professional, you can’t go into a country and market your services; it doesn’t work. Build up relationships which make it work. (Interviewed in Hong Kong, 11 March 1994) Architectural projects often require close interactions between the designer and the contractor. It is thus impossible to serve existing customers from the home base, i.e. Hong Kong. The choice is either to forgo the customer or to set up overseas office to serve the client. There could be no compromise in most cases. As shown in Chapter 5, personal relationships and the historical trajectories of these relationships play a paramount important role in enhancing successful overseas operations for these clientdriven HKTNCs. The role of government incentives The issue of host country investment incentives in attracting foreign investors has been a subject of considerable debate in the literature. The basic question is whether investment incentives are really effective in shaping decisions by TNCs (UNCTC, 1992b; Sumantoro, 1993). After a decade of observation, many researchers conclude that investment incentives, in their general forms, are insignificant in attracting inward FDI (e.g. Taniuchi and Inouchi, 1992; Chen, 1993; Dicken, 1993; Yeung, 1996c; Hsing, 1997) because when one country offers something, other countries will follow suit. Chia (1993a:69), for example, concludes that ‘because of its general availability, the significance of the tax incentive now lies more in its absence than presence, as countries without the incentive are perceived to be less friendly towards FDI’. In this sense, host country governments are often ‘locked in’ by the offer of investment incentives which have become a ‘symbolic commodity’ rather than anything having significant economic influence. Table 4.13 offers some insights into the role of host government incentives in the ASEAN operations of HKTNCs. It is clear that in no countries do the mean scores reach a significant level (i.e. below 3.0). There are no major inter-country differences in Hong Kong investors’ perception of the role of investment incentives. At the inter-sectoral level (see Table 4.14), the role of investment incentives is largely idiosyncratic and important

Transnational corporations and business networks

116

only in electronics (mean score 2.5) and food (mean score 2.0) subsidiaries in Indonesia, miscellaneous manufacturing subsidiaries (mean score 2.0) in Malaysia, metal (mean score 1.0) and miscellaneous (mean score 2.5) manufacturing subsidiaries in Thailand and miscellaneous manufacturing subsidiaries in the Philippines (mean score 2.5). It is interesting to note that despite its well known incentive scheme, investment incentives are least important in attracting HKTNCs to operate in Singapore (see Table 4.14). Very often, it is the regulatory regime and institutional support that make a significant impact on the choice of host countries (see HKTech in Box 4.7).9 The ‘1997 question’ and Hong Kong TNCs HKTNCs and their overseas operations provide a unique case study of the interaction between polity, economy and society in a setting characterised by political underdevelopment and uncertainty (Henderson, 1991a; McMillen and Degolyer, 1993). The Sino-British Joint Declaration concluded between the British and the Chinese in 1984 specified that on 1 July 1997 Hong Kong would revert to the PRC as a Special Administrative Region. Everything in Hong Kong after the Chinese takeover would remain unchanged for fifty years. This so-called ‘1997 question’, however, allegedly created much fear among Hong Kong citizens. Most citizens felt neglected in the political process and increasingly alienated politically because the political system did not provide effective outlets for appreciating and respecting their opinions (Lam and Lee, 1993; Sum, 1995). When crisis set in, they tended to ‘vote’ by action: businessmen opted to ‘vote with their money’ by investing in overseas ventures (Lam, 1990) and professionals opted to ‘vote with their feet’ by emigrating abroad, particularly to Canada and the US (Wong et al., 1994). At the corporate level, existing studies have found contradictory evidence. According to a survey of 191 manufacturing Hong Kong firms having offshore operations in 1990 (Federation of Hong Kong Industries, 1990:30), only seventeen of the 107 companies interviewed regarded the 1997 political problem as a major consideration when they decided to invest offshore. In the same survey, only three respondents claimed that emigration was one of the main factors when

Box 4.7 HKTech and government assistance from Singapore HKTech (Appendix 2) and its operation in Singapore provides an example of the role of government assistance in transnational operations. The Economic Development Board of Singapore had in fact maintained contact with the company long before it decided to establish a manufacturing plant in Singapore a few years ago. The Finance Director recalled that: Many years ago, the Economic Development Board of Singapore first approached us; they introduced the local environment to us; we thus had certain materials on file. About four to five years ago, we thought of branching out to set up other overseas foot-holes besides our existing operation in Hong Kong We chose Singapore after some brief sorting out

Hong Kong firms in ASEAN: business organisation and corporate strategies

117

We approached people from EDB again and they immediately gave us much assistance. They advised us to prepare a proposal; gave us much guidance so that we could obtain ‘pioneer firm’ status. There are mainly several advantages associated with this status: first, pioneer status comes with tax holidays, more assistance in looking for land and some advantages in technical projects. They gave us much assistance in this respect. Wishing to start our operation as soon as possible at the beginning, we leased two flats about 15,000 square feet. So we started to operate after few months. At that time, the main functions were marketing and research and development; production was minimal then. Over time, local buyers began to contact our company and our image was there—we thus have one more contact point for marketing. And then we asked for land from EDB and began to plan for the building. Meanwhile, we strengthened our activities step-by-step in our leased facility—more staff employed, more production, some assembly for metal part fabrication. After operating for two more years in leased facility, our building was erected and we moved over. By now, everything has been settled. (Interviewed in Hong Kong, 2 March 1994) The General Manager of the Singapore operation also expressed the feeling that: I think the government plays a very important role in our setting up, in particular high-tech companies like us. First of all, they give us material support through tax holidays. However, tax holidays are not so important compared with other support in the form of promoting and supporting high-tech industries. When we face problems, we will discuss the matter with government bodies and get their support in resolving the case. This is very important—for example, when we need to apply for an Employment Pass for our overseas employees, we will face difficulties. But when we talk to EDB, they will give us full support in obtaining the passes. Very soon, they will present a case for us to the Immigration Department by passing on the information and explaining to the department that Singapore needs the expertise of these overseas employees. This is very important support, often more important than tax incentives. (Interviewed in Singapore, 19 July 1994) they considered investing overseas. Similar findings were ascertained in a follow-up survey in 1991 (Federation of Hong Kong Industries, 1992). In yet another official study, however, 1997 was found to pose uncertainty for manufacturers in Hong Kong. According to the Industry Department’s (1991) survey, 1997 stood as the boundary beyond which few respondents liked to make firm projections. The study concluded that

Transnational corporations and business networks

118

political and economic stability has become the key factor affecting the future of Hong Kong’s manufacturing industries. In this study of HKTNCs operating in the ASEAN region, the ‘1997 question’ does not appear to have prompted a massive exodus of investment capital from Hong Kong. In Table 4.13, political uncertainty in Hong Kong was given only minimal importance by respondents (mean score >4.3) in their ASEAN operations. One interpretation of this finding is that since the majority of HKTNCs in the study had already regionalised and some even globalised their operations, their risks and exposure in Hong Kong had been significantly reduced through successful diversification (e.g. Hutchison in Box 4.2). In other words, they had already ‘digested’ the issue of political uncertainty in Hong Kong’s future. For example, Dr Sohmen, Chairman of Worldwide Shipping, said that: It’s just a question of whether Hong Kong is becoming too small a place for 5.5 million people to make a lot of good investments. Li Ka-Shing, Jardines, Hongkong Bank, us—we all want to grow. So naturally a lot of these companies look overseas, not because they are worried about Hongkong but simply because there are not enough investment opportunities.10 (Singapore Business, October 1988:20) In the immediate aftermath of the Tiananmen Square incident in June 1989, Li Ka-shing, the leading businessman in Hong Kong, stated, ‘I was of course saddened [by the incident]. But, as a Chinese, China is my motherland. I love my country and my people, therefore no matter what happened, I am still willing to work for the future of my country’ (quoted in Hong Kong Standard, 21 November 1989). Today, Li’s flagship company, Cheung Kong Holdings, has remained firmly incorporated in Hong Kong, while hundreds of Hong Kong companies have registered their holding companies in tax havens round the world. Almost a year after the Tiananmen Square incident, Philip Tose, Chairman of the Peregrine Group, expressed the view on the rivalry between Singapore and Hong Kong as the financial centre of the Far East that ‘[i]n fact I believe Singapore is going to play a much bigger role in the financial services industry in Asia. But funnily enough it is not because of 1997, but is actually because of the wealth creation in ASEAN over the last two to three years’ (quoted in South China Morning Post, 14 May 1990). Conclusion This chapter has shown that HKTNCs, as an emerging force in the global economy, have been spearheading cross-border operations from Asian developing economies to the ASEAN region since the turn of the century. Such an outward movement of HKTNCs and their associated FDI flows has accelerated since the 1980s, so that today Hong Kong has become one of the leading investors in Indonesia, Singapore and Thailand. Based on primary and secondary data, this chapter has revealed that since the 1980s, the ASEAN region has served as an attractive host region to HKTNCs in its own right.11 At the same time, HKFDI inflow has been a major source of foreign investment in some, but not all,

Hong Kong firms in ASEAN: business organisation and corporate strategies

119

ASEAN countries. The geographical distribution of these FDI inflows in the ASEAN region, nonetheless, is far from even. Indonesia, Singapore and Thailand are the three major recipients of HKFDI in ASEAN. The growth of HKFDI in the ASEAN region is by no means consistent, either. This chapter identifies the period 1985–6 as the major break in the continuous growth of HKFDI in the ASEAN region. The chapter has also revealed a clear sectoral bias in the ASEAN operations by HKTNCs towards the commercial and service sectors and, to a certain extent, labourintensive manufacturing industries. This sectoral bias reflects the comparative and competitive advantages of ASEAN countries in both the commercial/service and the manufacturing sectors, given their lower labour costs (except Singapore), export incentives and rapidly growing service economy. Many host ASEAN states also play a leading role in attracting the inflows of HKFDI. For ownership patterns, original survey data have shown that wholly owned subsidiaries are the predominant mode of ASEAN operations by HKTNCs. A variety of other transnational forms have been recognised in this study, namely associates/affiliates, joint ventures, cooperative agreements, subcontracting, technological licensing and representative offices. The choice of these transnational forms is found to be dependent on host country regulations as well as ongoing network relations between HKTNCs and other local firms (see Chapters 5 and 6). On the other hand, corporate strategies and investment motives are two sides of the same coin. An investment decision is always made up of a complex mixture of conflicting strategies and motives. The strategies and motives constitute the modus operandi of business organisations because they direct the business organisations towards achieving specific organisational goals12—they represent different ‘modes of rationality’ in modern complex organisations to justify organisational behaviour (see pp. 63–5). In accordance with the overall argument of this book that the explanation of the modus operandi of the TNC cannot be reduced to transaction cost economising considerations alone, this chapter has taken the first step to outline a framework for understanding the corporate strategies and motives of HKTNCs in their time-space contexts. It is found that HKTNCs from both the manufacturing and the service sectors tend to pursue a strategy of market orientation in that they want to be in closer contact with key customers and/or they want to expand their existing operations in order to capture greater market share in the host countries. One can interpret this strategy as market maximisation and, in doing so, cost factors are significantly downplayed in decisions to operate in the ASEAN region. Not surprisingly, this study finds that cost factors are quite important conditions only in certain industries (e.g. metal, miscellaneous and textiles manufacturing) and certain ASEAN countries (e.g. Indonesia, Thailand and the Philippines). The issue of quota restrictions in the textile and garment industries is also much more complex than is commonly appreciated in the literature. In particular, Hong Kong, as the largest quota holder in the world, has become the de facto control centre of the world’s textile and garment trade (Yan-lai How, 1994: personal communication; see also pp. 206–8). This controlling power of Hong Kong has given its domestic textile and garment companies a strong impetus and financial support to establish abroad. Markets and marketing activities are found to be the most important conditions shaping the ASEAN operations of HKTNCs. These conditions are manifested in at least two ways. First, many HKTNCs establish manufacturing or service operations in the

Transnational corporations and business networks

120

ASEAN region to serve existing customers. Second, many HKTNCs see ASEAN operations as an opportunity to diversify and expand their existing portfolio of activities through niche specialisation in the local markets. Through a multinational network of local specialisation, these HKTNCs gain substantial competitive advantage even over giant competitors from the Triad regions (see pp. 214–15). Another key finding of the chapter is that investment incentives are of little interest to HKTNCs not because these incentives are not generous. Rather, it is because investment incentives have become ‘symbolic commodities’ that make an impact only in their absence. Another perplexing question confronting most HKTNCs and their entrepreneurial executives is the future of Hong Kong beyond 1997. This study, echoing some earlier surveys conducted in Hong Kong, finds that the issue is not important at the corporate level. This is attributed to the early internalisation of the issue over the past ten years since the Sino-British Joint Declaration in 1984. Having gone a long way to clarify the key dimension of transnational operations, namely corporate strategy and its relation to investment motives, this chapter has raised another crucial question in the understanding of the ASEAN operations of HKTNCs: if these HKTNCs are driven by market-related circumstances, how do they establish their ASEAN operation? What is the role of personal and business relationships in these market-oriented transnational operations? To answer these questions, we shall turn to the next two core analytical chapters.

5 THE SOCIAL ORGANISATION OF BUSINESS NETWORKS [T]he overseas Chinese have developed one particular form of organization—the family business—and kept to it. Admittedly there are refinements of it, a wide range of sizes and technologies in use, a great variety of products, services, and markets, and an adventurous set of new variations on how to spin it out to larger and larger size, but certain common denominators seem never to be departed from. It remains in essence a family fortress, and at the same time an instrument for the accumulation of wealth by a very specific set of people. It is guarded against incursions from outside influence, and its workings are not publicly known. It is usually run nepotistically, with a benevolent paternalism throughout. Much of its effectiveness derives from intense managerial dedication, much of its efficiency from creating a work environment which matches the expectations of employees from the same culture. It is, in a very real sense, a cultural artifact. (Redding, 1990:3)

This chapter and Chapter 6 explore the embedded relationships between business and social networks and the South-east Asian (ASEAN) operations of Hong Kong transnational corporations (HKTNCs). Together, they seek to explain, via the network framework elaborated in Chapter 3 (pp. 58–78), the processes and mechanisms through which HKTNCs establish their ASEAN operations. The key to understanding this network perspective is that transnational business organisations and their structures largely serve to implement, but not necessarily to follow, corporate strategies (cf. Chandler, 1962; Limlingan, 1986). This happens because the final outcomes of transnational strategies are influenced by myriad powerful forces such as the state and other TNCs (see Figure 3.1). Although the previous chapter has set out the role of market and marketing-related strategies in explaining why HKTNCs extend their operations into the ASEAN region, it is far from clear how such strategies are accomplished and implemented. Central to my argument in this and the next chapter, therefore, is the notion that market and market-related strategies can be implemented through networks of personal and business relationships. Because these network relationships are socially and geographically embedded, they presuppose corporate strategies. It is necessary for us to understand these network relationships in order to appreciate fully the nature and impact of the corporate strategies discussed in Chapter 4. Together, both chapters validate empirically the idea that the TNC, as a network governance structure and a complex web of social and business relations, is engaged in cross-border operations through its pre-existing and/or newly developed relations. This

Transnational corporations and business networks

122

view challenges conventional economic theories of international production which conceptualise the TNC as a transaction cost-economising institution.1 The chapters are built on two key theoretical themes: (1) the social organisation of Chinese business, in this chapter, and (2) the politics of regulatory regimes, in the next chapter. These institutional and organisational settings define the operational constraints under which power relations among TNC networks can be exercised. Hamilton et al. (1990:107) argue that ‘an adequate theory of business groups needs to go beyond narrowly defined economic and political dimensions to include institutional and organizational features of the host societies’. In particular, both the social organisation of Chinese business and the politics of regulatory regimes tend to interact with network relationships of HKTNCs at three distinct levels (see Figure 3.1):2 1 intra-firm networks: family and entrepreneurship; 2 inter-firm networks: friendship and partnership; 3 extra-firm networks: intermediaries and political connections. Table 5.1 summarises various network relationships through which HKTNCs have established their ASEAN operations. Responses from the headquarters of HKTNCs show that some 58 per cent of the respondents chose to set up their ASEAN operations through relationship-based mechanisms: (1) personal relations (18 per cent); (3) suitable local partners (25 per cent) and (4) intra-firm personnel transfer (15 per cent). While the first two mechanisms are largely inter-firm relationships, intra-firm coordination and control constitute the third mechanism. Another 17 per cent of respondents have entered into important relationships with (2) local government institutions (extra-firm networks). At the micro intra-firm level, coordination and control of networks within HKTNCs are best achieved through trusted family members and close personal associates. Transnational operations are one of the key means to contain entrepreneurship and personal interests within the ‘corporate family’. There is thus a need to enlarge the concept of ‘Chinese family business’ because the ‘family’ in Chinese business today includes not only blood-related family members, but also close friends and associates (see also Greenhalgh, 1994; Whyte, 1996). In fact, as this and the next chapters unfold, we will find that Chinese business, in its contemporary variant, relies less on relatives and kin than on personal friends and associates. It is also imperative to examine how power relations are manifested in the processes of controlling transnational operations. Transnational operations are impossible if they are devoid of power and control. In fact, the element of control is the key to any definition of the TNC and FDI (see pp. 7–9). Based on this causal link between power and control, this chapter sheds light on the nature of power and control in transnational operations through intra-firm network relationships (Marschan et al., 1996; Yeung, forthcoming b). At the inter-firm level, the question of ethnicity has come to the forefront of discussion because Chinese business networks are socially and culturally specific and because Hong Kong is predominantly a Chinese society. One will notice many similarities of transnational experience among minority ethnic groups throughout the world. It is

The social organisation of business networks

123

Table 5.1 Ways of establishing successful ASEAN operations by Hong Kong transnational corporations Response from headquarters % Mechanisms of ASEAN operations Frequency 1 Personal relations are important in establishing 20 18.0 overseas operations 2 Stimulation, guidance and assistance from local 19 17.1 government institutions 3 Able to find a suitable local partner/person to set up 28 25.2 the operation 4 Sent someone over to set up the operation 17 15.3 5 A well developed corporate procedure to set up 6 5.4 overseas operations 6 Decision or suggestions from major client 2 1.8 7 Long history of operation 3 2.7 8 Direct merger or acquisition 6 5.4 9 Branch out from existing operations in ASEAN 4 3.6 Unknown 6 5.4 Total 111 100.0 Source: Author’s survey. therefore possible to extend this analysis of transnational operations to the case of the Jews or the Indians or other minority ethnic groups. More specifically, one predominant mode of business organisation in Asia has been the capitalism of the overseas Chinese (Hamilton, 1996b; cf. Dirlik, 1997). This form of social and business organisation of transnational production has spearheaded the rapid diffusion of economic activities and intra-regional foreign direct investment (FDI) flows among various Asia-Pacific countries in which the Chinese have significant control in the economic realm. Kao (1993:32; emphasis added) rightly points out that ‘cross-border investments alone are responsible for turning the de facto network of loose family relationships into today’s Chinese commonwealth’. Examples of such countries in which Chinese business operates are Indonesia, Hong Kong, Malaysia, the Philippines, the PRC, Singapore, Taiwan, Thailand and Vietnam. In this chapter, I argue that the Chinese tend to cultivate personal relationships or guanxi so much so that they tend to personalise their economic relations through business networks. Chen (1995:59; original italics) makes a similar point: Guanxi plays an extremely important role in the Chinese business world. As most of the Chinese family businesses are small and managed by core family members, they are heavily dependent on business opportunities and credit lines provided by their guanxi network. No company in the

Transnational corporations and business networks

124

Chinese family business world can go far unless it has a good and extensive guanxi network. This drive towards personal relationships and network formation has been termed ‘the spirit of Chinese capitalism’ (Redding, 1990) or ‘the spirit of Chinese entrepreneurship’ (Chan and Chiang, 1994): For many generations, emigrant Chinese entrepreneurs have been operating comfortably in a network of family and clan, laying the foundations for stronger links among businesses across national borders. (Kao, 1993:24) To understand the structural outcomes of cross-border cooperative ventures, it is necessary to understand the network relationships and structural ties constitutive of these ventures. Chen (1976) argues that overseas Chinese business adaptation processes and organisational rules at the various levels tend to show ‘structural consistency’. The emphasis of this chapter is on the structural strength (or weakness) of network ties among business people from Hong Kong and their host country partners and/or collaborators. Sceptics may question whether there is anything unique in Chinese business because presumably many Western small family firms have also existed for centuries (see Grieco, 1987; Chandler, 1990; Kotkin, 1992; Wortman, 1994; Kets de Vries, 1996; Windolf and Beyer, 1996). Corporate growth in Britain during the nineteenth century and the early twentieth century has been said to fall under the rubric of ‘personal capitalism’ in which corporate governance was controlled by the personal interests of the founders and their immediate families rather than professional managers acting on behalf of shareholders as was the case in the US and Germany (Chandler, 1990). What then is peculiar in the Chinese business system? The main argument for the distinctiveness of the Chinese business system is that it retains its characteristics even on a very large organisational scale. In the English-speaking business world, family businesses tend to break down and be replaced by public ownership and professional management when they grow beyond a certain size.3 However implicit the differences are, it is not the intention of this book to contrast different business systems, e.g. Chinese business versus Western business.4 Rather, it is the social and institutional contexts of Hong Kong and South-east Asia that underscore my arguments. It suffices to note that any TNC embedded in these contexts, be it Chinese or non-Chinese, will tend to embody some common social and organisational characteristics. Such TNCs also tend to transnationalise through similar processes and mechanisms.5 It becomes extremely important to address both the causal mechanisms at work (i.e. network relationships) and the social and institutional contexts through which these network relationships operate. As an introduction, both chapters flow in two broadly similar ways: (1) from abstract to concrete, and (2) from micro to macro. They start with general discussion of each type of network relation as unfolded in the context of Hong Kong and the ASEAN region. They then focus specifically, through quantitative analyses and qualitative case studies, on how these relations are manifested in the ASEAN operations of HKTNCs. This chapter starts by unpacking guanxi or relationships as the central principle in the social organisation of Chinese business. I argue that guanxi, to the Chinese, is always multi-

The social organisation of business networks

125

dimensional and situational; it is embedded in the social, psychological and cultural realms of the overseas Chinese. The second section examines the issue of coordination and control within Chinese business firms. It then analyses relevant quantitative information and qualitative case studies of HKTNCs and their intra-firm networks. There follows a discussion of the role of intra-firm networks in internalising entrepreneurship. The final section examines the role of business and personal networks in the ASEAN operations of HKTNCs. Some case studies are presented to offer more in-depth insights into the workings of inter-firm networks as one of the causal mechanisms of transnationalisation. The social organisation of Chinese business In most Asian economies, the concrete operation of international business activities takes place in business systems unique to major ethnic groups (e.g. the Chinese and the Indians). These business systems are socially and culturally reproduced and hence are embedded in specific time-space contexts (Hamilton, 1991a, 1996a; Biggart and Hamilton, 1992; Hamilton and Biggart, 1992; Whitley, 1992a, 1992b, 1994; Wilkinson, 1996; Yeung, 1998a). In other words, culture and society always interact to produce a distinctive ‘way of business’ that in itself evolves over time. This ‘way of business’ must also embed itself in a specific historical period and geographical context. Amin and Thrift (1994b) have called this local embeddedness of business institutions ‘institutional thickness’. To them, a local institutional thickness is defined as ‘the combination of factors including inter-institutional interaction and synergy, collective representation by many bodies, a common industrial purpose, and shared cultural norms and values’ (Amin and Thrift, 1994b:15). They have also identified four dimensions of ‘institutional thickness’: 1 strong institutional presence; 2 high levels of interaction among the institutions in a local area; 3 development of sharply defined domination and coalitions through collective representation; 4 development of mutual awareness. Based on these criteria, I argue that the Chinese business system is institutionally ‘thick’. It is perhaps one of the most institutionalised systems in global business, giving rise to what Kao (1993) has coined ‘the worldwide web of Chinese business’ and ‘the Chinese commonwealth’.6 It should be noted, however, that in the case of HKTNCs, not only Chinese businessmen are embedded in complex networks of personal and business relationships, but also long-time foreign businessmen who have embedded themselves in the peculiar social and organisational settings of doing business in Hong Kong and the ASEAN region. The Chinese business system, as a peculiar mode of social organisation of business practices in which most HKTNCs are embedded, has traditionally been built upon inter-personal trust relations and family and business networks.

Transnational corporations and business networks

126

The nature of guanxi or relationships Studies of Chinese business have consistently shown the role of networks in the social organisation of Chinese business. What is less clear is the notion of ‘networks’ itself. What constitutes Chinese business networks? What are the social and cultural foundations of these networks of relationships? Menkhoff (1993:3) writes that ‘the conceptual clarification of the term “network” is often neglected in studies on Chinese entrepreneurship in South-east Asia’. We need to address these inadequacies in the literature by unpacking the concept of ‘network’ and the social organisation of Chinese business. The work of anthropologists and sociologists is extremely helpful here. Yang’s (1988, 1989, 1994; also Smart, 1993, 1995) concept of the ‘gift economy’ is illuminating because it explains why networks are preferred in Chinese societies. Yang further defines the ‘gift economy’ as consisting of ‘the personal exchange and circulation of gifts, favours and banquets and…the art of guanxi exchange lies in the skilful mobilization of moral and cultural imperatives such as obligation and reciprocity in pursuit of both diffuse social ends and calculated instrumental ends’ (Yang, 1989:35; original italics). Guanxi as relationships and/or social connections is based on ‘pre-existing relationships of classmates, people from the same native-place, relatives, superior and subordinate in the same workplace, and so forth, incorporating them into its own operation’ (Yang, 1988:411). Put in another way, the ‘gift economy’ provides the institutional mechanism to organise Chinese capital and to facilitate the formation of business networks. In a similar vein, Hamilton (1991b:48) argues that ‘kinship and native place collegiality constitute an “institutional medium” out of which people create organized networks. In this regard, kinship and collegiality in China play roles analogous to those played by law and individuality in the West, but with very different developmental trajectories and outcomes.’ Guanxi, or relationships, is central to Chinese networking strategies because it is ‘a commonality of shared identification’ (Jacobs, 1979:242). How does this ‘commonality’ come about? Guanxi or relationships is embedded within a multi-dimensional matrix which functions as a sort of ‘atmosphere’ to engender the growth and solidarity of ongoing relationships within personal and business networks. For a better understanding in this study, guanxi or relationships can be divided into seven key components: (1) trust, (2) loyalty, (3) obligation and reciprocity, (4) credibility and reputation, (5) reliability, (6) respect and (7) sentiment. It must be emphasised here that there are no particularistic laws in Chinese societies governing guanxi or relationships because they are necessarily vague, personal and even secretive. A potent social means of control is ‘face’ (mian tze) or the possibility of losing one’s relationships. To a Chinese, human existence means maintaining and developing relationships. If a Chinese loses ‘face’, it is likely that his/her relations with the rest may be jeopardised, resulting in severe social and psychological consequences (Redding and Ng, 1982; Redding and Wong, 1986; Hwang, 1987; Redding, 1990; Chen, 1995). How can guanxi or relationships be developed? What are their social and cultural bases? First, trust or xin must be one of the foremost important dimensions in any human relationship, Chinese or non-Chinese. Gambetta (1988:x; also Hosmer, 1995) remarks that ‘in the social sciences the importance of trust is often acknowledged but seldom

The social organisation of business networks

127

examined, and scholars tend to mention it in passing, to allude to it as a fundamental ingredient or lubricant, an unavoidable dimension of social interaction, only to move on to deal with less intractable matters’. The following aims to unpack the notion of ‘trust’ in Chinese business. Trust is internal to the parties concerned and thus is different from credibility and reputation, which are largely externally defined and objectified. The importance of trust in Chinese business is unquestionable (Redding, 1990, 1995; Wong, 1991; Mackie, 1992a, 1995; Kao, 1993; Menkhoff, 1993; Chan and Chiang, 1994; Luo and Chen, 1997), not to mention its role in all businesses (Sullivan and Peterson, 1982; Dyer and Ouchi, 1993; Fukuyama, 1995). But what is intriguing about Chinese business is the overwhelming importance of trust in corporate governance. Reflecting on corporate governance in the Hong Kong Chinese family company, Tricker (1992:15) argues that ‘[t]he Chinese family-based company is jealous of its business secrets and relies on trust, not the law, in its business dealings’. International business trust depends on the length of a relationship, long-term communicative interaction, personal contacts, mutual interest and dependence, the familiarity of business associates and so forth (Menkhoff, 1993). In a typical Chinese family firm, a non-Chinese professional manager cannot expect the same level of trust he or she would enjoy as a family member in the company (Kao, 1993). Why is trust so important in business, particularly in Chinese business? Kao (1991:69) remarks that ‘businessmen would not sign a contract without personal trust. A contract without the existence of “trust” is merely a piece of paper.’ As mentioned in Chapter 3 (p. 68), trust serves as the ‘glue’ in business relationships, bringing transactional parties together to engage in mutually beneficial activities. Wong (1991) differentiates between three types of trust: 1 general trust versus technical trust versus fiduciary trust; 2 personal trust versus system trust; 3 particularistic trust versus universalistic trust. He argues that ‘business trust as found in late traditional China was personal and particularistic in nature. Through contacts with the West, system trust and universalistic trust have been established in Hong Kong and in overseas Chinese communities, thus providing a congenial environment for entrepreneurship to grow’ (Wong, 1991:15). As will be shown in Chapter 6 (e.g. the Suntec case in Box 6.3), personal trust among individuals within HKTNCs is based less on kinship, regional ties and other particularistic ties than on business relationships and personal contacts, i.e. personal trust. Second, loyalty, or yi qi, is also crucial to developing relationships in Chinese societies. Loyalty is the key to long-standing relationships which in turn can be transformed into obligation. For example, Redding (1990:97–8) found that a very successful manufacturer in Hong Kong did not want to bypass his existing agents, who had been serving his exports well from the very beginning. The manufacturer rejected offers from overseas customers of direct deals and preferred to rely on his agents to export to these customers because of the long-standing relationship developed between the manufacturer and his agent. It should be noted that loyalty often originates from unequal power relationships between parties of superiors and subordinates.7 From the superior’s point of view, a subordinate is loyal if he/she remains faithful. But from the subordinate’s perspective, the superior is obliged to treat him/her well. Power relationships help differentiate between loyalty and obligation.

Transnational corporations and business networks

128

Third, obligation and reciprocity or yi wu in Chinese social relationships can be traced back to the Chinese virtue of jen, i.e. humanness. Traditional Confucian teaching favours love of one another and thus is against individualism (Chen, 1976; Redding, 1990; Hamilton, 1991b, 1996a; Smart and Smart, 1993; Whyte, 1996). Chan and Chiang (1994:354) note that ‘The mutuality of obligations in business relations that is enmeshed in a “custom of cooperation” marks out the distinctive cultural way of doing business among Chinese entrepreneurs’. In fact, obligation and reciprocity have been the social basis of group formation in Chinese business (Chen, 1976). Economic relationships tend to reproduce and fortify the solidarity of social groups. Chinese businessmen are characterised as ‘don’t demand cash, but operate on credit’. Strong obligatory behaviour promotes guanxi very well, as will be seen in the case of HKTNCs below. Fourth, Chinese relationships are based on credibility and reputation or xin yong. As mentioned earlier, the social sanction for lack of credibility is ‘losing face’. This is a very powerful means of safeguarding the interests of the parties involved in the relationship. For the discredited, it is very unlikely that they will be accepted for developing further relationships within the same group. This effective social exclusion of the discredited from business and personal networks works well as a non-contractual basis of Chinese business. For instance, Hamilton (1991b:61) observes that ‘in China, the network-based market economy rested on reciprocal relationships. The ethics of these relationships formed the rules of the economic game, so to violate the relationships, and hence to seek unfair advantage, was to jeopardize one’s credibility in the marketplace, which was tantamount to financial ruin.’ Fifth, in relation to credibility and reputation, reliability or ker kao is also a key ingredient in relationship formation. A reliable person can command trust. He/she may be seen as loyal, which contributes to his/her reputation. Reliability is vital in business relationships because, very often, ethnic Chinese business firms depend on each other in complex interlocking directorates and networks. If one key firm in this network fails to deliver, it is likely that the entire network will suffer. Reliability is therefore the key to the longevity of business networks. For example, a large property developer may obtain a bank loan based on relative trust because the deal is introduced by a personal friend who acts as an intermediary and ‘collateral’ on the basis of trust. If later the developer fails to repay the loan, for whatever reason, this will jeopardise not only relations between the developer and his/her friend, but also the relationship between the banker and his/her friend. A three-party network alliance breaks down because one party is unreliable. This is, of course, only a hypothetical case. In reality, the directions of change in the relationship can be diverse, depending on circumstances such as the reason why the developer fails to repay the loan or the obligation (favour) the banker’s friend owes to the developer and vice versa. Finally, the last two elements of relationships are rather intangible and abstract: respect (juan jong) and sentiment (gan qing). Respect originates from the Chinese virtue of li, i.e. good manners and gentlemanly conduct. Power relations tend to enter this game of respect. It could be argued that the Chinese are relatively more submissive to seniority and power (see HKToys in Box 5.2). Power is also influential in relationships. Power tends to command relative trust when a subordinate feels ‘honoured’ to be involved in the networks of high-power parties. For example, in the relationship between Ferdinand Marcos, the former President of the Philippines, and his crony businessmen (many were

The social organisation of business networks

129

Chinese Filipinos), we would expect due respect be paid to Marcos while relative trust would be bestowed on these cronies of Marcos. Together with jen, li or manner in Chinese culture calls for respect and obligation. In other words, there is always this notion of the ‘gift economy’ when the Chinese are involved in endless spiders’ webs of reciprocity and favours. Primarily because of obligation and favours, the Chinese like to talk about sentiment through which long-lasting relationships are much more treasured than short-term purpose-specific relationships. To sum up, guanxi or relationships in Chinese social organisation are often talked about but, in fact, are very difficult to deconstruct and understand because the key ingredients of guanxi are so complex and intertwined. Although this section has attempted to tease out some elements of ongoing guanxi, it is by no means exhaustive and comprehensive. There are many ways of looking at guanxi and our understanding of them is still shallow. What this section intends to show is the complex ways in which these elements of guanxi are embedded within each other. For example, trust does not necessarily come with respect and sentiment and vice versa. A long-time partner may no longer command trust and respect if he/she has cheated before. But members of his/her networks may still feel sentimental towards him/her, given their past experience of working together. It is better to treat these ingredients of guanxi or relationships as the ‘atmosphere’ within which relationships grow and are sustained over time and stretched over space. The importance of cultivating relationships in Chinese business If guanxi or relationships are so complex and multi-dimensional, why are they important in the Chinese business system? In Chinese business, relationships are seen as a means to an end: Chinese businessmen find it advantageous to rely on particularistic ties in their local and overseas business activities because of the restrictive institutional context in the ASEAN region. Wong (1988:109) argues that ‘particularistic ties and multiplex relationships are likely to figure prominently in situations of imperfect competition.’ Redding (1990:34) also cautions that ‘explaining networking in terms of purely ethnic reasons would be simplistic. There are reasons of hard economic and business expediency as well as ethnic loyalties behind much of this behavior.’ He further suggests a set of institutional influences on the overseas Chinese: 1 They have commonly lived in social environments which were resentful of them and at times openly hostile, thus forcing them defensively to rely on their own resources. 2 This in turn has caused a heightened sense of cooperation within the overseas Chinese group generally. 3 This has further reinforced the natural tendency to identify with China and to derive a cultural identity from it. 4 The formative experience of moving countries was often a time of great family hardship and fostered values related to economic survival, such as a work ethic, thrift and pragmatism. These are natural extensions of traditional Chinese folk values. In the context of the ASEAN region, imperfect competition arises mainly from institutional barriers (Limlingan, 1986; Yoshihara, 1988, 1995; Chen, 1995; Yeung, 1997a, forthcoming e). As will be shown in Chapter 6, host ASEAN governments (except

Transnational corporations and business networks

130

Singapore) have historically been hostile towards the ethnic Chinese. Relationships based on particularistic ties function as a means to achieve ‘closure’ to outside competitors and to overcome their peculiar form of insecure psyche, known variously as ‘the siege mentality’ (Yoshihara, 1988; Redding, 1990), ‘the refugee mentality’ (Kotkin, 1992),8 ‘the trader’s dilemma’ (Menkhoff, 1993) and ‘the stepping stone syndrome’ (Yee, 1989). Closely knit networks provide one of the best ways to overcome these institutional barriers and the personal psyche of fear and insecurity. Such networks are based on personal relationships, centred particularly around the family and its immediate circle of social actors (e.g. close friends). These ‘family members’ command the absolute trust vital to survive the formative years of living abroad in hostile host countries (e.g. Braadbaart, 1995). The Suntec project discussed in the next chapter (see Box 6.3) is clearly an example of ‘close friend networks’ which increase their social recognition and political bargaining power in the host country. Meanwhile, HKTrans in Box 6.4 has to rely on political connections in Indonesia and Malaysia in order to penetrate freightforwarding markets which are mostly closed to foreign capital participation. Apart from falling back on trusted family members, the overseas Chinese in Southeast Asia also rely on family business as a natural extension of the entrepreneur’s strategies of ‘family-isation’ (Chan and Chiang, 1994:297) through which ‘outsiders’ are socialised into the family to form an exclusive and elitist inner circle of relations: Clear boundaries are drawn between those business members who are in the family, and therefore are more trusted, those who are not, and therefore cannot be totally or readily trusted but must be co-opted gradually by the family-ization process and through marriage alliances. (Chan and Chiang, 1994:354; original italics) Because of this strategy of ‘family-isation’, the Chinese effectively build a strong fortress, through networks of personal and business relationships, against possible hostile actions by individuals or states in host countries. This mode of social organisation is sometimes criticised as inward-looking, particularly from the viewpoint of host countries (e.g. Mahathir, 1970). But it is also one of the strongest competitive advantages of Chinese business in an era of turbulence and changes (see Chapter 7; also Yeung, forthcoming c). In the final analysis, guanxi or relationships in the social organisation of Chinese societies are embedded in trust, loyalty, obligation and reciprocity, credibility and reputation, reliability, respect and sentiment. These elements of guanxi are not subject to economic cost and benefit analysis.9 In order to overcome formidable institutional barriers in host countries, the overseas Chinese seek to cultivate personal and business relationships. Over time, networks of relationships are created and sustained by generations of the overseas Chinese. The key process of this network formation is ‘family-isation’ in which selected ‘outsiders’ are socialised into the ‘family’. Such a process enables these ‘outsiders’ to be trusted, which proves to be vital to further development in network relationships.

The social organisation of business networks

131

The nature of business systems in Hong Kong In Hong Kong, the Chinese business system is the dominant mode of business operations. The spirits and ethos of capitalism in Hong Kong have produced socially, culturally and politically specific business systems (Lau and Kuan, 1988; Wong, 1988, 1993, 1995; Redding, 1990, 1995, 1996; Whitley, 1992a). Chinese industrialists in Hong Kong are known for their entrepreneurship and higher propensity to engage in risky business and overseas ventures. The arrival of industrialists and entrepreneurs from mainland China after the communist takeover in 1949 contributed significantly to the rapid process of industrialisation and economic development in Hong Kong (Wong, 1988, 1991; Lau, 1991; Ho, 1992; Redding, 1994). During the late nineteenth century, South-east Asia had absorbed many Chinese outward migrants. This minority group of the overseas Chinese (except Singapore, where the Chinese have remained the major ethnic group) has maintained its century-long contacts and relations with its contemporaries elsewhere in the Asia-Pacific region. These contacts and relations form the organisational basis of ethnic Chinese business firms. In South-east Asia, a similar high level of entrepreneurship among the ethnic and family-based Chinese business networks is widely observed. This phenomenon partially accounts for the dominance of the overseas Chinese in the business and commercial sectors of most South-east Asian economies. In Hong Kong, business firms are commonly organised and managed in three ways (Yeung, 1995b): as a (1) family business; (2) professional business, or (3) shareholder business. First, the family business has been the predominant mode of business organisation among Hong Kong’s Chinese families which emigrated from the PRC over the past fifty to sixty years. After emigrating to Hong Kong, many of these firstgeneration Chinese entrepreneurs set up their businesses and they grew over time. Today, most of these Hong Kong firms, in particular those in the manufacturing sector, are still controlled by family members—sons, brothers and, to a lesser extent, nephews. Small and medium-sized establishments are also likely to be family-operated and together they form dense networks of subcontracting activities in Hong Kong (Sit et al., 1979; Sit and Wong, 1989; Redding, 1994; Eng, 1997). Gender bias towards male heirs in family business has always provided the logic of Chinese family business. Redding (1990:116) observes that ‘[f]or the overseas Chinese, the personalized organization, run paternalistically and with ownership overlapping normally onto one or two families, is still perfectly normal, and it is the neutral bureaucracy under public ownership and professional management which is the deviant and almost nonexistent case.’ This family-oriented type of business organisation, for example, is widely found among several of the largest textile and garment manufacturers from Hong Kong— namely Esquel Group, Fang Brothers, Lai Sun Group, TAL Apparel, Wing Tai Garment, Yangtzechiang Garment and so on. Most of these textile and garment manufacturers have internalised their capital and expertise within the ‘family’—a family mode of intra-firm coordination and management. Only a few of them have gone public, because of the enormous advantages associated with family ownership and control. Being a Shanghainese by origin, Mr Sam Yang, director of Esquel Group and brother of the founding chairman (see Box 4.4 and Appendix 2), commented that:

Transnational corporations and business networks

132

Of course, if it’s a private company, there are certain ways that a private company operates when a public company cannot. Private companies, to a certain extent, can go to a place and lose money for five years. With a public company you can hardly do that. Other shareholders will say, ‘What are you doing?’ I will think we have an advantage in that we can make long-term plans which some of the public companies cannot because their shareholders would question them. (Interviewed in Hong Kong, 22 March 1994) A second type of Hong Kong firm is known as the ‘professional business’ in which the funding and capital come from non-executive members of the company and the business is largely run by professional executives. This mode of business organisation is best manifested in large publicly listed service companies. One example is First Pacific Company (see Appendix 2; also Limlingan, 1986; Sato, 1993). Besides diverse investment interests in Hong Kong, the company also owns substantial interests in major listed companies in the Netherlands (e.g. Hagemeyer), the Philippines (e.g. Metro Drug) and Thailand (e.g. Berli Jucker). The company’s majority shareholder is Liem Sioe Liong, founder and chairman of Indonesia’s largest private business conglomerate—the Liem Group. Since its incorporation in 1988, First Pacific Company has been managed by professional executives. Mr Manuel Pangilinan, the present Group Managing Director, is a Filipino and none of the top executives comes from Indonesia (Far Eastern Economic Review, 17 November 1994:85–6). This professionally based form of business organisation stands in sharp contrast to those family-controlled manufacturers and public companies from Hong Kong. The third way of running a Hong Kong firm is by shareholders’ participation in which the majority shareholder will usually become Managing Director or Chief Executive Officer (CEO) and Chairman of the Board of Directors (e.g. HKTrans in Box 6.4). This mode of business organisation differs little from its Western counterparts. What is peculiar in Hong Kong is that, to a large extent, business companies still tend to be family-oriented. No empirical studies, however, have been conducted on the extent and distribution of these three forms of business organisation in Hong Kong. Among the HKTNCs interviewed in this study, it seems that the family business is largely confined to the manufacturing sector, whereas professional and shareholder businesses are found throughout all sectors. Arguably, even a shareholder business may one day be turned into a family business when the majority shareholder retires or relinquishes his/her control of the company to children. It is thus interesting to examine below, based on detailed empirical materials, the nature of intra-firm control and coordination and inter-firm cooperation among HKTNCs operating in the ASEAN region. Control and coordination in Chinese business firms Intra-firm organisation of control and coordination is an important nexus for understanding the operations of ethnic Chinese business firms. Redding and Wong (1986:272) define organisation structure as ‘the relatively enduring pattern of relationships among units of individuals inside an organization’. Several key features of

The social organisation of business networks

133

Chinese organisational structures are as follows (see Redding and Wong, 1986; Wong, 1988; Redding, 1990, 1995, 1996; Hamilton, 1991b; Greenhalgh, 1994): 1 centralisation of power through the dominance of family ownership and control; 2 small size and relatively simple organisational structuring; 3 normally focused on one product or market; 4 lack of vertical integration and low level of specialisation; 5 less standardisation of activities and fewer routine procedures—‘management by persons’ rather than ‘management by rules’; 6 relative lack of ancillary departments, e.g. R & D and marketing; 7 strong overlap between ownership and control; 8 linked with the environment, with personalised networks; 9 normally very sensitive to matters of cost and financial efficiency; 10 commonly linked, strongly but informally, with related and legally independent organisations handling key functions such as parts supply or marketing; 11 relatively weak in terms of creating large-scale market recognition for own brands, especially international brand names; 12 subject to limitations of growth and organisational complexities; 13 a high degree of strategic adaptability. Centralisation of power through the dominance of family ownership and control is the defining characteristic of ethnic Chinese family firms. This centralisation of power is found in the ‘centripetal authority’ around founders or core family members (Tong, 1991). It is a kind of ‘entrepreneurial familism’ (Wong, 1988) in which the family serves as the basic unit of economic competition. For example, Wong (1988) found that among Shanghainese cotton spinners in Hong Kong, most have the internal regulation that if family members want to dispose of their shares, they must offer them to existing shareholders first. This rule is also common among HKTNCs surveyed in this study (e.g. HKToys later in this chapter). The processes of management within the Chinese family firm are equally intriguing. First, leadership and decision-making are didactic, i.e. directive and authoritarian. Absolute trust is exercised by the head of the corporate ‘family’ and his/her decisions must be taken on board seriously. This phenomenon has led some observers of Chinese business to comment that Mr Big, the fictitious founder and chairman of Company Big, would dominate the boardroom, sometimes at the expense of a large number of minority shareholders (Hong Kong Business, November 1992). But one advantage of this management by authority is that decision-making is more efficient and flexible. The firm is thus more responsive to market fluctuations (see also the example of Esquel in Box 4.4). Second, management control in archetypal Chinese family firms is often exercised through nepotism (kinship employment ranked in the order of family—kin—lineage— clan) and obligation networks, non-objective performance assessment (loyalty more than efficiency) and paternalism (centralisation of ownership and control through inhibition of class consciousness among the workers because relationships are personalised). It should be noted, however, that these characteristics are ideal-typical. In reality, we often find a mixture of management styles with varying degrees of control. In Chapter 6 (e.g. the

Transnational corporations and business networks

134

Suntec case), we shall see how personal relationships, not kinship or even regional ties to a certain extent, have become the social foundation of Chinese business. Nepotism is less common today, at least insofar as HKTNCs and their ASEAN operations are concerned (cf. Smart and Smart, 1991, 1993; Bulcke and Zhang, 1995). Wong (1988:141, original italics), in his study of emigrant Shanghainese cotton spinners in Hong Kong, found that ‘[t]he Hong Kong Chinese entrepreneurs are nepotistic mainly with respect to persons of their own jia [family], and much less so regarding kin network, lineage, or clan members.’ Some spinners even made it a rule not to employ relatives because of worries over internal power struggles to control the company or lack of confidence felt by highcalibre employees. Although no studies have been undertaken to quantify the effect of professionalism on the breakdown of Chinese family firms, it is reasonable to postulate qualitatively that, over time, Chinese family firms tend to give way to professional management at the level of day-to-day operations. Most leading HKTNCs are now run by professional managers who are socialised into the ‘corporate family’. Mr Big, however, still exercises his influence over key strategic decisions. Wong’s (1985, 1988) evolutionary model of the Chinese family firm seems to be valid. He argues that, beyond a certain size, professional management is coopted into the family firm to deal with increasingly complex operations. But to what extent such a trend is permanent is still an open question. For example, I will later present two case studies of HKTNCs which are owned and managed by the family (i.e. HKToys and HKCarpet). In the case of HKCarpet (see Appendix 2 and later in Box 5.4), the Tso family has never given up its ownership and control of the company ever since its inception in 1956. Today, key management posts have been passed on to the second generation, i.e. Mr Tso Jr, who is the Managing Director of the company. Interestingly, two of its ASEAN partners have also adopted the same strategy in prolonging and reproducing their family businesses. The Thai family has seen the continuation of ownership and control in the hands of the second generation. Similarly in Indonesia, the local partner and her immediate family members have taken the full responsibility of the local manufacturing operation. Despite the perpetuation of all these families at least in the near future, HKCarpet, as a group, has been an extremely profitable operation. It is also a world market leader in the business of carpet manufacturing, with worldwide renowned brand names. There are thus no inherent reasons why Chinese family firms cannot grow beyond a certain size (see Limlingan, 1986; Wong, 1988; Yeung, 1997c).10 HKCarpet is publicly listed on the Hong Kong Stock Exchange and has worldwide manufacturing and distribution operations. Arguably, the issue at stake is the strength and capabilities of the network relationships of these Chinese family firms, not inherent limits in the system itself (see Chapter 7 for an expanded argument). Mechanisms of intra-firm networks At the theoretical level, intra-firm networks in TNCs are governed by control and coordination (see pp. 70–2). There is a continuum of control in decision-making and power relations, varying from centralisation at one end to decentralisation at the other. The key to fixing a point on such a continuum is the relationship between me subsidiaries

The social organisation of business networks

135

and the headquarters. If their guanxi or relationship is weak, it is likely that centralisation will follow. For example, a professional employee may be recruited locally to set up a subsidiary. If the headquarters has relatively little experience of this local manager through prior relationships, it is unlikely that he or she will be socialised into the ‘family’. Rather, the family will exercise greater control through inspection, auditing and reporting mechanisms. On the other hand, if the local manager is trusted for various reasons (e.g. prior working experience in the headquarters or personal contacts or close friends and so on), it is very likely that he or she will be included in the ‘family’. The subsequent intra-firm network between the headquarters and local subsidiaries tends to be closely knit, although decision-making may be largely decentralised (see also Marschan et al., 1996). Take HKComputer (see Box 5.3) as an example. All its four ASEAN general managers have the full trust of the Group Managing Director, Mr John, in Hong Kong because all these country managers, with the exception of Mr Louis in Thailand, worked at the Hong Kong headquarters for at least five years. Throughout this long period of observation and intra-firm relationships between Mr John and his employees, a significant relationship of trust and credibility has been developed.11 In fact, Mr John himself favours a strongly entrepreneurial approach to operating the HKComputer Group. He wants all country managers to manage the business as if it were their own business. Decision-making is thus largely decentralised and country managers make important decisions as long as they ‘make sense’. These managers communicate often with Mr John over the phone or during periodic visits. There is thus simultaneously a high degree of coordination and integration among the ASEAN operations and a low level of control and centralisation. Over time, relationships between the headquarters and subsidiaries may be strengthened or may deteriorate, depending on contingent circumstances. In the first case, the local manager may develop his or her relationships with the ‘corporate family’ over time (e.g. HKComputer). Alternatively, in the second case, the local manager may damage the relationship when he or she performs badly by whatever measures are expected by the headquarters. The point is that intra-firm networks, although enduring like any other networks, are dynamic over time and flexible over space. They may change with changing circumstances and can be stretched to coordinate and control subsidiaries and/or affiliates in different geographical locations. In this study, survey data reveal interesting patterns of intra-firm control and coordination among HKTNCs and their ASEAN subsidiaries. Figures 5.1 and 5.2 show that both the headquarters and the ASEAN subsidiaries tend to agree on the fact that there is a high degree of integration and coordination among them. This evidence points to the existence of strong, and possibly cohesive, intra-firm networks for most HKTNCs and their ASEAN operations. These highly coordinated and integrated intra-firm networks contribute significantly to the competitive advantage of these HKTNCs in the regional and global economy (see Chapter 7). For example, HKTrans (see Box 6.4 in the next chapter) has every weapon it needs to compete with large freight-forwarding TNCs worldwide which may not have access to local markets in South-east Asia. Because of its intra-firm organisational capabilities in penetrating several ASEAN countries which supply raw materials and finished products (e.g. electronics products from Malaysia) to the world market (especially the US), HKTrans is able to compete effectively with large

Transnational corporations and business networks

136

TNCs from North America and Europe by providing the link and bridging the transport gap between the East (suppliers) and the West (customers). This unique strength embedded in intra-firm networks, however, is also contingent on and complemented by the ability of HKTrans to enter into all kinds of extra-firm network relationships in Indonesia and Malaysia, as will be described in Chapter 6 (pp. 191–4). On the other hand, Figure 5.3 shows that HKTNCs and their ASEAN operations have different perceptions of the extent of intra-firm control. While there are almost 50 per cent of headquarters reporting controlling their ASEAN subsidiaries, few subsidiaries agree with the view that they are controlled by the headquarters in Hong Kong. Most ASEAN subsidiaries and/or affiliates believe that they are more autonomous. This reflects a perception gap between key executives presiding over the headquarters and local managers in charge of ASEAN subsidiaries. The headquarters tend to think that they are in firm control of their ASEAN operations, given their direct investment and/or shareholding arrangements. Often, they send expatriate staff from Hong Kong to

Figure 5.1 Intra-firm integration among HKTNCs in the ASEAN region. Source: author’s survey.

The social organisation of business networks

137

Figure 5.2 Intra-firm coordination among HKTNCs in the ASEAN region. Source: author’s survey.

Figure 5.3 Intra-firm control among HKTNCs in the ASEAN region. Source: author’s survey.

Transnational corporations and business networks

138

manage their ASEAN operations. By using their own people from the ‘corporate family’, top executives in Hong Kong feel they have a presence in ASEAN subsidiaries. From the ASEAN subsidiary’s point of view, local managers tend to think that they are less controlled by Hong Kong per se. This apparently contradictory evidence can be explained by three reasons. First, the local managers/directors interviewed may be sent by Hong Kong to either wholly-owned subsidiaries or joint ventures, i.e. they are ‘family’ members. HKTNCs tend to shy away from employing professional executives in the local labour market. This can be explained by the preference for prior relationships developed between the top management in Hong Kong and whoever is taking charge of local operations. For example, all HKComputer’s ASEAN general managers were hand-picked by Mr John in the UK and Australia. They were given substantial autonomy in exercising managerial control, although there was tight intra-firm network coordination through frequent meetings and visits by Mr John. Second, because fewer local partners were successfully interviewed by the author, the responses in Figure 5.3 tend to be biased towards views given by executives sent out by the headquarters in Hong Kong. There are, however, cases in which even local partners felt there was little control by their Hong Kong headquarters. For example, in the case of HKCarpet, both Indonesian and Thai families were interviewed during the fieldwork. They noted that Mr Tso and his HKCarpet exercised little control over the management of local operations. He tended to take a more cooperative and participative approach to local operations. In fact, Mr Tso’s presence was mainly felt during board meetings. But on top of that, Mr Tso gave virtually complete autonomy to both local families in running the operations. Third, and related to the second reason, most local partners in joint-venture operations tend to be ‘sleeping partners’. By definition, they are not involved in the management and control of local operations, which are in the hands of ‘family members’ most likely sent over from Hong Kong.12 HKTrans (see Box 6.4) is an example. While the local partner in Malaysia, MalayTrans, has entered into inter-firm relationships with HKTrans, the latter has de facto control of the Malaysian operation. From the viewpoint of these ‘sleeping partners’, HKTNCs have effective control of their ASEAN operations by placing ‘family’ members in the ASEAN operations. In the final analysis, it all boils down to the phenomenon of two sides of the same coin—intra-firm network relationships. What then are the mechanisms of control, if any? Table 5.2 presents some ideas on these different mechanisms of control. Three major control mechanisms are employed by HKTNCs: periodic report (23 per cent), periodic inspection (19 per cent) and cost control (18 per cent). Responses from ASEAN subsidiaries largely conform to the headquarters’ view, except that the latter do not see periodic inspection as a major control mechanism. Figure 5.4 elaborates on the issue of the frequency of visits by top executives from the headquarters in Hong Kong. It appears that most top executives from parent HKTNCs visit their ASEAN subsidiaries from between once a month to once every six months. These visits are not frequent, considering the geographical proximity of ASEAN countries (within a three-hour flight). A tentative conclusion from the data is that ASEAN subsidiaries are controlled less through frequent visits by top executives than through periodic reports and budget approvals. On the other hand, data on channels of marketing and sourcing seem to show that ASEAN subsidiaries are relatively autonomous. In Table 5.3, both marketing and

The social organisation of business networks

139

sourcing activities for ASEAN subsidiaries are conducted at the local level. This finding is confirmed by qualitative information obtained from personal interviews. For example, ASEAN country managers in the HKComputer Group (see Box 5.3) conduct marketing activities at the individual country level. There may be intra-group marketing coordination which is largely related to strategic decisions such as the range of software available and the standard of services. But the decision on what particular software to market or which industries to serve rests completely on local country managers. The Singapore office, for instance, started off as the acquisition of a computer system for banking clients. Then it went into providing computer solutions to manufacturing and other service companies across a wide range of industries. The General Manager in Singapore even made a concerted effort with his colleague in Malaysia, Mr Andy, to

Table 5.2 Mechanisms of control of ASEAN operations by Hong Kong transnational corporations Headquarters Subsidiaries Mechanisms of control Frequency % Frequency % 1 Production and marketing planning from 20 8.6 9 6.1 headquarters 2 Inventory and quality control by 9 3.9 1 0.7 headquarters 3 Cost control by headquarters 42 18.0 34 23.1 4 Provision of broad guidelines by corporate 21 9.0 11 7.5 groups 5 Centralised decision-making from 18 7.7 6 4.1 headquarters 6 Employment of expatriate managers 12 5.2 4 2.7 and/or executives 7 Periodic inspection by top management 43 18.5 6 4.1 executives from headquarters 8 Periodic report of local managers to 54 23.2 40 27.2 headquarters 9 Corporate sourcing of information from 2 0.9 0 0.0 headquarters 10 Mutual exchange of information 9 3.9 19 12.9 11 Annual meetings 3 1.3 17 11.6 Total responses 233 100.0 147 100.0 Source: Author’s survey.

Note: The total number of cases exceeds the sample size (N=111) because up to three responses were allowed in the survey.

Transnational corporations and business networks

140

serve clients having business in both countries. The Malaysian office serves Singapore clients who have gone into Malaysia. Similarly, the Singapore office serves Malaysian clients who have gone into Singapore. All these decisions and parameters of operations are defined by country managers locally, with the understanding of Mr John in Hong Kong. As shown in Figure 5.5, the main source of technology or expertise in running the ASEAN operations of HKTNCs also originates from local subsidiaries. But we must be cautious in interpreting this finding because, in fact, most technology and expertise is either transferred or locally adapted from parent HKTNCs. It is particularly interesting to note that key manufacturing technologies tend to originate from parent HKTNCs and/or advanced economies. For example, HKCarpet (see Box 5.4) started its ASEAN operations by injecting the technological know-how of carpet manufacturing. But over time, its ASEAN operations have moved up the learning curve and, today, most of them have either mastered the technology or purchased the necessary machinery direct from Japan or the US. Take the Thai operation as an example. It used to produce only handtufted carpets for customised markets, e.g. hotels throughout Asia, but in recent years

Figure 5.4 Frequency of visits by top executives from parent HKTNCs. Source: author’s survey. it has gone into the growing mass consumer market through mechanisation. It was one of the pioneers in using Axminster automated machines for carpet manufacturing in Thailand. It has its own R&D department and has been using CAD/CAM technologies in the design and manufacturing of carpets. In terms of technology, the Thai operation is completely autonomous from Hong Kong, although there is close interaction among various subsidiaries to enhance the overall ‘core competencies’ of the group (see Chapter 7).

The social organisation of business networks

141

Other than technology transfer, mostly for manufacturing operations, parent HKTNCs also transfer managerial expertise to local ASEAN subsidiaries. ASEAN operations, nevertheless, tend to control one key area of expertise which is particularly important for service industries—local marketing expertise. Take the case of HKTrading (see Box 6.1). The main contributions of the Hong Kong headquarters to its Thai operation are the sole distributorship awarded by Toshiba and AT&T and the establishment of efficient accounting and management information systems by the controller sent to Thailand. The Thai managing director, however, has been able to take the company forward by providing important contacts in the government which have enabled both the purchase of its present office building and government purchase contracts for Toshiba office equipment and AT&T telephone systems. From a marketing point of view, the role of the Thai managing director is critical to the success of HKTrading in Thailand (see a similar case in HKTrans in Box 6.4). It can therefore be concluded that, over time, there is very

Table 5.3 Channels of marketing and sourcing among Hong Kong transnational corporations in the ASEAN region Headquarters Subsidiaries Channels Frequency % Frequency % Marketing 1 Through central marketing department at 5 4.5 12 19.0 headquarters 2 Through local marketing department in 77 69.4 51 81.0 subsidiaries and affiliates 3 Through subcontracting independent 1 0.9 0 0.0 marketing services in Hong Kong 4 Through subcontracting independent 11 9.9 0 0.0 marketing services in ASEAN 5 No such marketing activities 17 15.3 0 0.0 Sourcing 1 Through central corporate sourcing from 10 9.0 14 22.2 headquarters 2 Through local production and supply 49 44.1 36 57.1 departments in subsidiaries and affiliates 3 Through subcontracting independent 1 0.9 0 0.0 suppliers in Hong Kong 4 Through subcontracting independent 8 7.2 0 0.0 suppliers in ASEAN 5 No such sourcing activities 43 38.7 13 20.6 Total 111 100.0 63 100.0 Source: Author’s survey.

Transnational corporations and business networks

142

little intra-firm control by the headquarters from Hong Kong through marketing, sourcing and technology. Finance is the primary mode of intra-firm control exercised by parent HKTNCs. Figure 5.6 illustrates that the overwhelming majority of ASEAN subsidiaries are financed by the headquarters in Hong Kong, in particular wholly-owned operations. Virtually all capital investments originate from the internal capital reserves of the parent HKTNC. A crude generalisation is that many HKTNCs still live in the tradition of Chinese business in which finance is always tightly controlled by the head of the family. The existence of financial control has been cited by many scholars as the key to the success of the overseas Chinese (e.g. Limlingan, 1986; McVey, 1992a; Chan and Chiang, 1994; Braadbaart, 1995). Despite a significant number of joint ventures in this study (see p. 102), financial control still lies with HKTNCs, not with their local partners. This further reinforces the idea that ‘money matters’ in the Chinese business system. All ASEAN operations, whether wholly-owned or joint ventures, must periodically report their financial performance to the headquarters in Hong Kong. In the case of some wholly-owned operations, sales and production figures must be reported on a monthly or even weekly basis. But it must be noted that

Figure 5.5 Sources of technology and expertise among ASEAN subsidiaries of HKTNCs. Source: author’s survey.

The social organisation of business networks

143

Figure 5.6 Sources of finance among ASEAN subsidiaries of HKTNCs. Source: author’s survey. top executives in Hong Kong pay relatively little attention to these sales figures as long as they meet the minimum performance requirements. HKArch is a typical case in which a trusted member was sent over to set up a business in the host country (Box 5.1). Mr Tan was given complete autonomy in running the Singapore office. Although the initial capital investment came from HKArch, the Singapore office is now responsible for its own profit and loss. It has established itself quickly as a profit centre independent of HKArch. This does not mean, however, that HKArch has lost control of its Singapore office. Instead, both operations are closely integrated and coordinated through personal trust relationships between Mr Lee and Mr Tan. In order to serve projects secured through inter-firm connections with HKProperty and SINLand, HKArch must coordinate its intra-firm networks well enough to serve its friends/clients with the highest possible standard of professional services. It is to this end that a computerised design system connected to modems is installed in the Singapore office so that it can receive and transfer computerised architectural drawings almost in real time. Meanwhile, the Singapore office is governed by a complicated budget because there are two separate companies, one of which is owned by Mr Tan. Mr Lee in Hong Kong controls the operation of the other architectural firm. The role of entrepreneurship To appreciate fully the nature of transnational operations and the dynamics of intra-firm networks, one must also look into the issue of entrepreneurship, which expresses the passion of these highly creative entrepreneurs in engaging in overseas ventures. Linking

Transnational corporations and business networks

144

culture, values and entrepreneurship, the existing literature places great importance on the role of entrepreneurship in the economic success of the overseas Chinese in general (Limlingan, 1986; Wong, 1988; Mackie, 1992a, 1992b, 1995; Chan and Chiang, 1994; East Asia Analytical Unit, 1995; Whyte, 1996) and the Hong Kong Chinese in particular (Siu and Martin, 1990). This section, as the first step in moving beyond simple economic analysis of transnationalisation, deals with the entrepreneur—the central actor in any human and business relationship. If transnationalisation is validated as a constellation of networks of personal and business relationships, we must be concerned with the actors within these structural networks. The requisite entrepreneurship for transnational operations is defined as a pro-business readiness to undertake calculated ventures across borders under reasonable risks and uncertainties.13 Studies of entrepreneurs behind HKTNCs have revealed the importance of personal history and embedded interests in their transnational operations (e.g. Tseng, 1992; Siu and Tseng, 1992; Chan, 1995). For many Hong Kong Chinese entrepreneurs, international business is a new discipline. Historically and culturally, imperial China was relatively frugal and self-centred in its economic relations with the outside world. The contemporary Chinese people, however, are experienced migrants and tend to form socially organised networks to provide emotional and personal support. To a Chinese

Box 5.1 HKArch and intra-firm control and coordination In a period of fifteen years, HKArch (Appendix 2) has developed into one of the largest and most established architectural TNCs from Hong Kong. It has also been one of the earliest architectural firms working on projects in the PRC since 1979. The Singapore office of HKArch was established in 1991 as a response to specific projects. The founding chairman and sole proprietor of the group in Hong Kong, Mr Lee, has close connections with a director of one of the largest property development firms in Hong Kong (HKProperty) whose sister company is a leading property developer in Singapore (SINLand). Because of this connection, HKArch has done a lot of work for HKProperty in Hong Kong. One day, the director from HKProperty met Mr Lee and asked him to set up an office in Singapore to serve the sister company (SINLand) in Singapore and related projects in the PRC. Mr Lee recalled: Some of our customers asked us to go over. We set up overseas operations because we don’t want all our activities in Hong Kong and China alone. Even when we ignore the political factor, the economic risk is still substantial if we don’t diversify…We have had this idea of overseas operation for a long time—since seven or eight years ago—but four years ago we had a chance to realise it. We had some clients in Hong Kong who originated from Singapore. When we had casual chats, they asked us whether we are interested in operating in Singapore as well. So that is how we went. They gave the project to us. (Interviewed in Hong Kong, 8 March 1994) Although the contact had been made, the main difficulty was how to set up an office in Singapore because HKArch did not have any existing operations in Singapore and Mr

The social organisation of business networks

145

Lee himself was refused an architect’s licence to practise in Singapore. Subsequently, he sent a Singaporean, Mr Tan, who had been working in their Hong Kong office, to set up the Singapore office. Through two years of experience working with the parent company in Hong Kong, Mr Tan, now the director of the Singapore office, had developed a very strong personal trust relationship with the directors in Hong Kong. He reasoned: Yes, definitely, trust has to be formed before anybody goes into business together, whether in the same place or in different places. I think a big proportion of the operation is based on trust. Yes, it’s true. Well, I didn’t do anything behind [Mr Lee’s] back, as I think I could. I could set up another company and all the jobs would move to that company. [He] would never know about it. I’ve never done …Yes, I think the partner in Hong Kong has to know the person who will take charge. At the same time, the associate company has to know that the principal company will actually look after his interests financially as well as give a certain amount of support. (Interviewed in Singapore, 18 July 1994) The trust and confidence between the Hong Kong head office and Mr Tan is substantial. Clearly, the Hong Kong office has ruled out the possibility of relying upon other executives recruited locally in Singapore because prior trust relationships serve the company much better than relying upon alternative sources of personnel. Trust relationships therefore tend to narrow down the choice of intra-firm personnel transfer and justify preferential reliance upon specific personnel in the processes of transnationalisation. Trust elements also form the ‘non-contractual basis of contracts’, in Durkheim’s terminology (cited in Holton, 1992:189). A strong bond within the corporate ‘family’, for example, exists between Mr Tan and his chairman, Mr Lee. Mr Tan continued to explain how such a personal bond enables a closer intra-firm relationship and defies the use of elaborate contractual arrangements in the Singapore operation: There is always this nagging feeling of suspicion that will still be there. You know, in Hong Kong our operation is very cautious. Unless you really know the person very well, then otherwise the partnership will form on a different basis. Like, for example, there may be a lot of legal writings in the lawyer’s office and more frequent contact…It [the Singapore operation] is on some kind of contractual basis, but not so explicit. It’s kind of loose, partially based on understanding and partially on written agreements. But the written agreement is still quite loose, subject to a certain amount of interpretation…They [the directors in Hong Kong] have to feel that the person to whom they entrust the running of the operation is trustworthy and loyal and has the drive to make the company work. (Interviewed in Singapore, 18 July 1994) This case study shows that intra-firm personal trust relationships are coupled with inter firm project relations to prompt transnational ventures

Transnational corporations and business networks

146

in professional business services entrepreneur, setting up an overseas venture is very challenging, but the social significance of network exploration and formation makes the venture attractive in its own right. This observation applies to ethnic link-based investments by Chinese businessmen, particularly in their home towns in the PRC (see Federation of Hong Kong Industries, 1992: Chapter 16; Hsing, 1996, 1997). Another element of Chinese entrepreneurship rests on the greater possibility of internalising overseas markets. Within the overseas Chinese psyche there is a deep-seated and culturally embedded desire for self-ownership and autonomy in decision-making (Bond, 1986; Redding, 1990). Although the family serves as a significant binding and centripetal force, as will be evident later, Chinese entrepreneurs prefer to be their own boss. There is a famous Chinese proverb: ‘Better to be the beak of a cock than the rump of an ox’ (cited in Wong, 1988:101). It is not surprising that the overseas Chinese are well known for their entrepreneurial spirit. A rule of thumb in Chinese entrepreneurship is that a senior (sometimes a former employer) is obliged to help a junior to set up his/her own business if the latter proves to be sufficiently entrepreneurial: When guanxi links two persons of unequal rank or social status, the weaker side usually expects more help than he or she can reciprocate in equal terms. (Chen, 1995:53) This unwritten ‘cultural rule’ is unthinkable in Western business because of culturally embedded individualism and competitive behaviour (Hamilton, 1991b, 1994, 1996a).14 In Chinese business, such mutual obligation and help pay off in both directions. To a senior Chinese businessman, helping his/her juniors to set up their own businesses means that effectively new inter-firm network relationships can be formed instantly. To a junior former employee, assistance from his/her senior represents a golden opportunity to be his/her own boss. Instead of a vertical intra-firm network when a junior works for a senior, now a former junior enters into cooperative inter-firm network relationships embedded in prior personal relationships or guanxi with his/her senior. If their businesses are complementary, this newly formed inter-firm network tends to benefit both parties. For example, with the help of his/her former employer, a junior forms a new company to supply components to his/her senior. Since the relationship has been built on solid trust and obligation, this new customer-supplier relationship tends to work better than arm’slength contractual arrangements because the supplier (the junior) knows exactly what the customer (the senior) needs and is willing to pay. The supplier may also be willing to shoulder some research and development costs because of confirmed orders from good obligatory relationships. To the customer, helping the supplier to spin off, in return, benefits his/her existing business. If their businesses are competitive (i.e. in the same line of business), however, the junior tends to shy away from direct competition with his senior who has helped set up the new company. Instead, they would more or less work together to compete with ‘outsiders’. Cooperative strategies tend to underscore this

The social organisation of business networks

147

infinite creation of new firms (usually small) and inter-firm networks in Chinese business (Yeung, 1997b). On the other hand, personal sentiments and loyalty may facilitate developing interpersonal relationships. In this case, if a senior does nothing to ‘contain’ the ever-growing desire to be one’s own boss, he/she is likely to lose a brilliant, and yet loyal, employee. Transnational operations through intra-firm networks can be a very effective means to internalise the entrepreneurship of key personnel in the ‘family’. It not only offers an opportunity for a trusted employee to test his/her business ideas, with the backing of his/her senior, but also fulfils the need of the company to penetrate overseas markets or to diversify into other related businesses.15 It is an equally mutually beneficial mechanism of strengthening intra-firm networks, rather than spinning off into relatively more remote interfirm relationships as described above. The case study of HKToys examines how a senior tried to internalise the entrepreneurship of key personnel within the company by venturing into Singapore. The case of HKToys and its SINToys operation (see Box 5.2) shows how Chinese entrepreneurship must be nurtured over a long period of time. It can be inferred that had Mr Chiu not been entrusted with and given the opportunity to set up SINToys, he might have gone into business on his own in Hong Kong sooner or later. Transnational operations therefore could be a potent mechanism to internalise entrepreneurship within the firm (and the ‘family’). This internalisation strategy is based not on transaction costseconomising considerations, but rather on the cultural embeddedness of Chinese entrepreneurship. As shown in the case of HKToys, other contextual issues are important triggers. The 1967–8 riot in Hong Kong prompted Mr Chan to diversify his toy manufacturing into Singapore, a place which used to welcome labour-intensive manufacturing to relieve its rising unemployment in the 1960s. Mr Chiu’s capability, entrepreneurship and trustworthiness were also key contingent factors enabling the successful operation of SINToys, as well as the help of the Economic Development Board in granting SINToys Pioneer status. All these historically contingent conditions provided a solid basis for the entrepreneurship of Mr Chan and Mr Chiu. A tentative conclusion from this micro-analysis of Chinese entrepreneurship is that the mechanisms of transnational operations must be understood in their totality, encompassing rationality and personal interests at the individual entrepreneur level and network ties at the structural organisational level. Guanxi and inter-firm networks The role of ethnic ties and, specifically, the role of family ties is important not only in identifying opportunities for trade and investment but in the operation and maintenance of international business activities …But, for the smaller and more recent Third World investor firms, ethnic contacts continue to be of fundamental importance as regards the extent and form of their initial foreign involvement. (Tolentino, 1993:237)

Transnational corporations and business networks

148

Wong (1991:24) contends that Chinese ‘entrepreneurs tend to dominate the market by activating particularistic ties such as regional networks rather than by building large, impersonal corporations’. Because of this tradition of family linkages and network relations, Chinese businessmen find it more rational to

Box 5.2 HKToys and Chinese entrepreneurship Founded in 1951, HKToys is a family business owned by its founding chairman, Mr Chan, who was a Teochew emigrant from China in the 1940s (see Appendix 2). In 1967, HKToys expanded into Singapore to incorporate SINToys, which went into production in 1968. The key person in the establishment of SINToys was Mr Chiu, who is now the Managing Director of SINToys. Mr Chiu was born in China and is also himself a Teochew. He also emigrated to Hong Kong in the 1940s, undergoing his school life in Hong Kong. He had met Mr Chan even before the establishment of HKToys when Mr Chan was working for his relative’s company in Hong Kong in the late 1940s. Several years later, Mr Chan founded HKToys and Mr Chiu was invited to work for HKToys. Regional ties among Teochews are claimed to be the strongest among the Hong Kong Chinese (yi wu, or obligation, on p. 139). Through years of hard work for HKToys, Mr Chiu had gained absolute trust from Mr Chan, who later sent Mr Chiu, together with some technicians, to establish SINToys as a joint venture with HKToys’ local agent in Singapore. Mr Chiu recalled the early days: I came over to set up this factory from scratch…At that time, we had three people from Hong Kong altogether, including myself. I was in charge of administrative work, i.e. overall management. We had a factory manager to take care of technical questions. Another member of staff from Hong Kong was deputy factory manager, something like that. It would be difficult to find staff with similar expertise here in Singapore. We did have some business with Singapore because we exported some toys to Singapore previously. At the beginning, we started as a joint venture with a local trading company which used to be our agent in Singapore. We were the majority shareholder and they the minority. They took care of local marketing because, given so many years of experience, marketing in other countries would be taken care of by our operations in Hong Kong. You know, when we first came to this country, we were not familiar with the people and the legal environment. It would certainly be better if we could venture with someone we know as a local partner. That’s why we invited our local agent to come into a joint venture. Later on, since both were doing different types of business, we bought back all the shares of the company and the factory became 100 per cent owned by us. (Interviewed in Singapore, 13 July 1994) Today, Mr Chiu has been granted Singaporean citizenship and his children have all been brought up in Singapore. The initial entrepreneurial move to Singapore, despite great uncertainties in the 1960s, when both Hong Kong and Singapore suffered from labour unrest (see Yeung, 1996b), finally paid off when SINToys was awarded pioneer status and was proud to be one of the earliest toy manufacturers in Singapore Today Mr

The social organisation of business networks

149

Chiu owns 15 per cent of SINToys while the remaining 85 per cent is owned by Mr Chan and his family. Most of the shareholders from the early days have withdrawn because, through reinvestment over the years, few dividends were paid to individual shareholders. From HKToys’ perspective, SINToys was not only a means of diversification from politically unstable Hong Kong during the mid-1960s, it was also a means of promoting entrepreneurship within the company because upward mobility opportunities could be created through new (overseas) ventures. Even today, the family tradition and ‘familyisation’ are still very pervasive in the group as a whole. Educated in American universities, Mr Chan Jr, son of Mr Chan and Deputy Managing Director of HKToys, noted that: It’s still a family business. In fact, the atmosphere of a family business is still very strong…You know, the major difference between Chinese companies and foreigners’ companies is that the latter are very much like a system. It’s not that our companies do not have a system. We still have a very strong Confucian tradition. That is seniority: you will have seniority if you are the father. Your followers who have sacrificed a lot during the development of the company will be treated as seniors. There is such a thing as ‘seniors’…We are close together because we are of the same blood. But we also treat our managers as family members. Family orientation is our organisational culture. As I mentioned earlier, we follow the Confucian tradition. If you work here, you command ‘respect’. I wonder whether such a thing as ‘respect’ exists in American companies! Our family attitude to this company is to treat everyone as our own. (Interviewed in Hong Kong, 20 January 1994) exploit these relations across space to become transnational operations.16 One would therefore expect a greater extent of transnational operations among those Chinese firms controlled either by family members or by entrepreneurs with extensive overseas networks. Figure 5.7 and Table 5.4 show the distribution and importance of different types of connections among HKTNCs in their expansion processes into the ASEAN region. Two major sources of connections emerge: (1) business connections (81 per cent of total responses) and (2) family connections (25 per cent of total responses). The overwhelming predominance of business connections is also confirmed by responses from ASEAN subsidiaries. In terms of the importance of different types of connections (see Table 5.4), survey data show that personal contacts (mean score 1.2–1.7) and trading and business partners (mean score 1.3–1.7) clearly stand out in the category of ‘business connections’. Surprisingly, actors along the production chain such as customers, suppliers and

Transnational corporations and business networks

150

Figure 5.7 Distribution of types of connections among HKTNCs in the ASEAN region. Up to three responses were allowed in the survey. Source: author’s survey. subcontractors are given less importance (mean score 2.5 for the headquarters) in the ASEAN operations of HKTNCs. One explanation for their relative insignificance is that these relationships are more formal and based on established criteria such as formal contracts and agents (see Lewis, 1995). It is difficult to obtain a ‘favour’ or to develop personal relationships in these ‘arm’s-length’ transactional ties. On the other hand, survey data on family connections (see Table 5.4) confirm the earlier argument (e.g. Wong, 1988; Mackie, 1992a, 1995; Menkhoff, 1993; cf. Smart and Smart, 1991, 1993) that kinship and siblings are relatively less important in initiating the ASEAN operations of HKTNCs. Rather, it is close friends (mean score 1.3–2.0) who are socialised into the ‘family’ and instrumental in these cross-border operations. For example, in the case of the Suntec project (see Box 6.3), none of the shareholders is related to another through kinship. They are a group of close friends working as a giant ‘Hong Kong corporate family’. Only Frank Tsao, the Suntec Chairman, has involved his elder son, Calvin Tsao, in designing the blueprint for the project. Even so, none would dispute Calvin’s unique contribution to the project, given his professional expertise. The Suntec project therefore represents an interesting amalgamation of all three types of network relationships: intra-firm father-and-son ties, interfirm friendship and extra-firm bargaining relationships. It is thus necessary to attend to all three levels of network relationships in unravelling the stories behind the ASEAN operations of HKTNCs.

The social organisation of business networks

151

Table 5.4 Importance of connections in the ASEAN operations of Hong Kong transnational corporations: mean scores (1=very important; 5=not important at all) Headquarters Subsidiaries Type of connection Mean Cases Mean Cases score score 1 Business connections NA 90 NA 45 a Personal contacts 1.7 18 1.2 27 b Trading and business partners 1.7 36 1.3 16 c Industrial and commercial associations 5.0 2 3.0 1 d Customers, suppliers and subcontractors 2.5 26 1.6 16 e Shareholders from host countries 1.0 1– 0 2 Political connections NA 5 NA 5 a Personal contacts with government 1.3 4 1.0 5 officials b Special access to government 2.0 1 NA 0 c Contracts from host governments NA 0 NA 0 d Importance of political presence NA 0 NA 0 3 Family connections NA 28 NA 4 a Relatives 2.5 4 1.7 3 b Close friends 2.0 8 1.3 4 c Kinship groups 2.0 2 NA 0 d Clan associations NA 0 NA 0 4 Social connections NA 4 NA 2 a Ethnic groups 2.0 2 NA 0 b Religious groups NA 0 NA 0 Total sample HKTNCs – 111 – 63 Source: Author’s survey.

Note: Up to three responses were allowed in the survey. Another interesting finding is that regional clan associations, ethnic ties and religious ties are relatively insignificant in the transnational operations of HKTNCs. Even in the case of the Shanghainese in the Suntec project, they do not dominate because they share their financial power and property development expertise with Cantonese business magnates such as Cheng Yu Tung, Li Ka-Shing and Lee Shau-kee. Regional ties, even among these most senior businessmen still alive in Hong Kong, are weakened over time and replaced by inter-personal relationships. All this points to the important fact that the concept of ‘family’ in Chinese business must be enlarged to include more than relatives, siblings and

Transnational corporations and business networks

152

kin. Friendship, based on personal and business guanxi or relationships, commands a far more important position in inter-firm networks among HKTNCs. It appears that inter-firm network relationships among HKTNCs are predominantly cooperative and mutually beneficial, albeit shaped by unequal power relations over time (Yeung, 1997b). Redding (1991:41, also 1995) points out that ‘the large structures of cooperation needed for an economy to flourish and to manage economic exchanges are reliant on a peculiarly effective mechanism for inter-firm linkages’. But how are these cooperative relationships manifested in the ASEAN operations of HKTNCs? To what extent do they show characteristics of Chinese business relationships as described earlier? These are pertinent, but difficult, questions that require much more theoretical and empirical research than this book can provide. The following sections outline two main mechanisms through which HKTNCs enter into cooperative relationships with host country partners and/or business associates: (1) complex shareholding and (2) interpersonal relationships in joint ventures. Complex shareholding to overcome equity ownership regulations As will be shown in Chapter 6, host ASEAN countries tend to impose arbitrary restrictions on the equity ownership of foreign investment which contradict the profitmaking goals of private businesses. As a result, most TNCs try to circumvent such restrictions through various means of equity shareholding arrangements. One of the most common forms of such arrangements, known as ‘dummy’ shareholding, is practised extensively in Indonesia, Malaysia and Thailand, in particular through inter-firm networks of Chinese capital.17 This practice is known locally as the ‘Ali-Baba’ system in Malaysia and as the ‘straw man’ practice in Thailand. In Malaysia, for example, the bumiputra Malays act as the front man, ‘Ali’, to register the company and take up the position of majority shareholders. The Chinese, as the real owners—‘Baba’—are registered as ‘minority’ shareholders. In return for the Malays’ ‘service’ they are paid directorship fees, but they exercise no real power in running the company. Meanwhile, if the guanxi or relationship between the Chinese and the Malay partners is good (i.e. loyal and trustworthy), this nominal ‘Ali Baba’ system is maintained. If their relationship is shallow, say because they do not have prior cooperative experience and possess only relative trust, the Chinese ‘Baba’ may require the Malay ‘Ali’ to take up a ‘loan’ from the Chinese equivalent to the monetary value of equity shareholding that the Malay ‘Ali’ has legally registered under his/her personal interests. In this way, the risk of cheating by the Malay partner is hedged by his ‘indebtedness’ to the Chinese ‘Baba’. Another method is selling non-voting shares to local bumiputra partners so that, on paper, the Malay ‘Ali’ holds a majority of equity shares whereas in practice the Chinese ‘Baba’ has effective control of the company. These methods of inter-firm collaboration in circumventing host country regulations on ethnic equity ownership are particularly effective and widely practised in Indonesia, Malaysia and Thailand. The case of HKTrans in Chapter 6 is instructive (see also Box 6.4). The company’s partner in Malaysia, MalayTrans, acts as ‘Ali’ to take up the role of majority shareholder and to get the group involved in lucrative government contracts. HKTrans is the ‘Baba’ which actually controls the Malaysian operation in spite of its minority shareholding position. Such an inter-firm network relationship is based upon reputation and obligation.

The social organisation of business networks

153

While HKTrans is a reputable foreign partner because of its worldwide network of operations, MalayTrans is a reputable company in the local business community. On the other hand, the case of HKElectronics (see Box 6.2) is not an ‘Ali Baba’ system because the local partners, though not participating in day-to-day management, have invested up to 30 per cent equity in the Malaysian plant. They are also represented on the main board of HKElectronics. Sometimes joint ventures are formed between foreign and local Chinese firms. The local partner sees great advantage in having ‘foreign’ participation because joint ventures with ‘foreign’ capital are seen as an effective way of corporate expansion previously denied under stringent ethnic economic policies in home countries. In Malaysia, for example, local Chinese manufacturing firms are largely constrained by the Industrial Coordination Act, 1975 (see Jesudason, 1997). They are eager to team up with foreign firms, particularly ethnic Chinese business firms with prior business or personal relationships, in order to apply for new licences to engage in manufacturing production. It is therefore in both parties’ interest to enter into cooperative ventures. Similarly, many service HKTNCs need well connected local partners to secure government contracts (e.g. HKTrans in Box 6.4). Another possible form of inter-firm network emanates from active participation on the part of local partners in both parent HKTNCs and ASEAN subsidiaries. These network relations are relatively more formal than personal friendship as the basis of transnational ventures. Most likely, the original HKTNC is not family-controlled and thus all shareholders contribute to successful operations abroad through their individual business contacts and connections. The level of coordination would likely be much greater than in family-controlled businesses because absolute trust and ethnic affiliations determine family-inspired overseas ventures. But when operations are created at the level of business connections, i.e. at the inter-firm level, not only trust and reputation are important, but business complementarity and operational coordination are also cornerstones of successful transnational operations. HKComputer (see Box 5.3) provides an illuminating case study because of its unique three-party joint venture.18 What is at stake, in this case, is the role of Mr Chen, who is an ethnic Thai Chinese and well respected businessman in the local business community. In fact, Mr Chen is not involved in the management of HKComputer Group. His shareholding in the group in Hong Kong is more a form of portfolio investment than a direct investment. He has relinquished control of the group to Mr John, the founder and expert in computer business. Even IBM has little intervention in the operation of the group. In order to establish the

Box 5.3 HKComputer and inter-firm networks in ASEAN HKComputer is a computer software service company (see Appendix 2). In a period of ten years, HKComputer has grown from a predominantly local company with five employees to Asia’s leading supplier of mid-range software solutions, computer consulting and training services. Today, it operates in six countries within the region, boasting a turnover of US$35 million (1993) and employing more than 250 staff. In this case, a client-based corporate strategy in its processes of transnational operations is clearly evident from the mission statement of the company: ‘HKComputer aims to be

Transnational corporations and business networks

154

your business partner of first choice.’ To implement this corporate strategy, the role of the New Zealander Managing Director, Mr John, is to put the regionally oriented strategy in place, while respecting the opinions of individual country general managers. These managers do not own any significant equity shares in the company. But they are fully entrusted to set up each individual country operation in collaboration with their local partners to serve local and region-wide clients. All country managers have been working for the company for a long time and all of them worked in Hong Kong for more than five years except the general manager in Thailand. This form of intra-firm coordination resembles very much Hedlund’s (1986, 1993) concept of ‘heterarchy’ in which individual country general managers are given substantial autonomy in decision-making and the running of the operation. In order to comply with the OBOI regulation in Thailand, the Thai operation is owned 49 per cent by the HKComputer Group and 51 per cent by Mr Chen, a majority shareholder in the HKComputer Group and a director of Bangkok Bank (one of the largest private Asian banks outside Japan), and his two brothers. One of the two brothers became the majority local shareholder because he wanted the experience of developing a software house. The role of the Thai was instrumental in the setting-up phase but, over time, he has come to play a mainly advisory role in the running of business activities. Mr John, Group Chairman and Managing Director, said that the connections of the Chen brothers were not used in running the business: Believe it or not…you find very influential businessmen…often won’t use their connections unless you prove you are successful. They’re not going to recommend us and find that we are too small. They’ll leave us alone to grow. It didn’t help to start; it’s starting to help now, though. (Interviewed in Hong Kong, 24 March 1994) Mr Louis, General Manager of HKComputer in Thailand, also pointed out that: We all agree that, because they [the Chen brothers] are such a significant family in Bangkok, it’s not wise for them to be involved directly in recommending or trying to push a decision one way or the other. They are also quite a long way removed from the decision-making process because they are just so senior and they are too high-profile. They would compromise themselves if they were to say, ‘Buy this because I say so.’ Then it would reflect badly on their name if the solution didn’t work or whatever. They restrict themselves to advice when I ask them. They are happy to let me run their business and it seems to work well. (Interviewed in Bangkok, 7 June 1994) It seems very much the case that the Chen brothers would not wish to involve themselves too much in the ‘personalisation’ of the business, representing a relatively more formal approach to inter-firm networks.

The social organisation of business networks

155

A more interesting case is the group’s Malaysian operation because it originated from close and symbiotic relationships between shareholders as well as customers in inter-firm networks. Because HKComputer specialises in IBM systems and IBM has a 25 per cent stake in the group, the then Managing Director of IBM Hong Kong/China, Mr Lee, introduced Mr John (HKComputer) to Mr Ismail, Managing Director of MalayComp, which has been IBM’s sole distributor in Malaysia. IBM favoured such a joint venture between both of its distributors because HKComputer could establish itself much faster and would have a better chance with a recognised local business partner. Both companies in Malaysia are also complementary as regards business platforms. Mr John again commented that: The Malaysian relationship—legally you can be in Malaysia and own 100 per cent of the operation as an overseas business, which we did for several years. It didn’t seem to work. We were legal, but the business didn’t seem to work. We evaluated along with IBM and decided to invite [MalayComp] to take 30 per cent, which used to be the old rule in Malaysia. And since they took the 30 per cent the business has boomed. You don’t have to do it, but people felt more comfortable when they saw that we have a local business partner. (Interviewed in Hong Kong, 24 March 1994) Mr John’s remarks were confirmed by his general manager in HKComputer Malaysia, Mr Andy: It gave us a level of credibility. If we just walk into the country as a subsidiary of a Hong Kong-based company, regardless of the fact that there is IBM ownership, it would have been hard to establish ourselves. But the fact that [MalayComp] then entered into partnership gave us credibility from the day we opened at all. (Interviewed in Kuala Lumpur, 11 August 1994) In brief, the HKComputer case is embedded in trust relationships among suppliers and customers, i.e. between IBM, HKComputer and local partners. It is an inter-firm business relationship that evolves over time and develops into eventual strategic partnership. group’s Thai office, Mr John had serious discussions with Mr Chen and reached an agreement that Mr Chen and his brothers should take up a majority shareholding in the Thai operation. Such a complex shareholding structure is based upon trust, credibility and reliability relationships among the parties involved. There is no doubt that all three shareholders in HKComputer have strong trust in each other. Such a trust relationship is founded on the credibility of Mr Chen as a reputable banker in Thailand. Meanwhile, both trust and credibility combine to enable the Chen brothers to be recognised as reliable local partners. Such personal and business relationships are extremely complex and simultaneously embedded in each other.

Transnational corporations and business networks

156

Once again, the Chen brothers are ‘sleeping’ partners in the Thai operation. Their involvement in the Thai office is limited to a form of portfolio investment. It must be noted, however, that the Chen brothers’ position as the majority shareholders was absolutely vital to the establishment of the Thai office. Under the Office of the Board of Investment regulations, foreign participation in Thailand’s computer services can take place only in the form of minority joint ventures. By working out an effective, and yet complicated, shareholding arrangement, HKComputer has not given up its control of the Thai operation to any ‘outsider’. It is one of the most peculiar forms of internalisation practice in any transnational operations, albeit under extreme state regulations and institutional barriers. On the other hand, IBM played an instrumental role in HKComputer’s operation in Malaysia. Through IBM’s inter-firm network relationship with MalayComp, HKComputer was able to find a suitable local partner. Again, the three key elements of relationships are evident: trust, credibility and reliability. A simple 70–30 per cent shareholding was arranged between HKComputer and MalayComp, although, as Mr John remarked, it was not required under the investment law. The contribution of MalayComp is not so much its 30 per cent equity participation as its reputation in the local computer market, as argued by Mr John and Mr Andy. Such network participation in shareholding, because of IBM’s link with both HKComputer and MalayComp, has turned out to be the most effective way of establishing HKComputer in Malaysia. It also continues to strengthen inter-firm ties between HKComputer and IBM and between MalayComp and IBM. Inter-personal relationships and inter-firm networks This section takes its examples from indigenous Chinese family firms among HKTNCs. Chinese family-based HKTNCs tend to operate in ASEAN countries through a combination of complex inter-personal relationships and inter-firm cooperation. Founders and owners of many of these family-controlled HKTNCs will first exploit their personal networks when going transnational. This tendency works in two directions. Either the owner will approach personal friends or business associates whom he or she trusts and has known for a long period of time (anywhere from ten to forty years), or alternatively that person will approach the owner and ask for joint-venture collaboration in a particular host country. In the latter situation, the level of trust and business goodwill of the initial party will be assessed. Normally, personal friends will be preferred to ‘newcomers’, i.e. complete strangers introduced by business associates or friends. Because personal friends can originate from the host country, transnational operations are often motivated by personal relationships rather than purely abstract economic cost and benefit factors. The actual process of establishing oneself in the host country will also take place via personal networks of friends and associates. HKCarpet (see Box 5.4) operates in the most traditional mode of Chinese business by virtue of its nearly complete dependence on inter-personal relationships in forming interfirm networks of transnational operations.19 Mr Tso, the founder and Chairman of the group, has activated his personal ties with the Shanghainese. HKCarpet represents an older generation of ethnic Chinese HKTNCs because of its heavy reliance on regional ties in transnational operations. Most of HKCarpet’s ASEAN operations were established

The social organisation of business networks

157

before 1970. These ASEAN operations were based on either inter-family or interpersonal relationships. Both Philippine and Singapore operations were established by close personal friends of Mr Tso. Indonesian and Thai operations were partnerships with established local families whom Mr Tso had come to know for a very long time. The role of the Jewish family in Hong Kong was also very important to the successful establishment of the Philippine operation because they both relied on the same local partner. The personal relationship between the Tso family and the Jewish family was based on their encounter during the Japanese occupation of Hong Kong in the Second World War. The Jewish family was subsequently sent to a Japanese camp in Shanghai, where they may have met Mr Tso and his family. The post-war period witnessed the return of the Jewish family to Hong Kong to take over their hotel and infrastructural business. The same period also saw the emigration of the Tso family to Hong Kong and the establishment of HKCarpet. Their possible prior personal relationships in Shanghai, much embedded in mutual obligation and warm sentiments, were developed further into significant inter-firm business relationships in Hong Kong. In fact, the Jewish family has always been a significant shareholder in the HKCarpet Group, but it is not involved in the management and control of HKCarpet. Meanwhile, there are significant complementarities between HKCarpet and the hotel business of

Box 5.4 HKCarpet and inter-firm networks of personal and business relationships Today, Hong Kong is no longer the manufacturing base for HKCarpet (see Appendix 2). All its carpet manufacturing facilities have already been relocated to the ASEAN region and elsewhere. Hong Kong now performs the role of marketing, R & D and coordinating centre of HKCarpet’s world carpet manufacturing activities. Except in Singapore, all ASEAN operations are joint ventures. Ethnic and business connections are the single most important mechanism through which HKCarpet set up its ASEAN operations. As the present Managing Director, the son of the founder and Chairman of HKCarpet—Mr Tso—explained: Typically, the connections are made through friends, referrals. That’s very important…I think a partner can make or break a venture. In almost all these countries, at the time when we went into most of these countries, the structure, the system, the laws were all not very clear. So you rely on your local partner to tell you everything about the market, take care of the venture and hopefully not cheat you. So that’s why the local partner is very important…Well, for us, we were not in the carpet business at the very beginning. You just find someone, through other connections, who has other ventures with other people, who has proved to be reliable. All you need from them is their financial support and their business contacts in their countries to set up a new plant…Typically, either we would know them or we would have close associates who would know them. In any event, the key is to make sure that whoever we pick has a reputation in the local community. Trust and reputation are most important. (Interviewed in Hong Kong, 12 April 1994) Interviews with several directors of HKCarpet’s ASEAN operations offer further

Transnational corporations and business networks

158

insights into the complex ethnic relationships between the group’s chairman, a Shanghainese, and his ASEAN associates. Some twenty years ago, the Philippine operation was set up by a Shanghainese, Mr Chan, who went to Hong Kong in the late 1940s and had been a long-time friend of the Chairman—Mr Tso. Through his personal connections with a reputable Jewish family in Hong Kong who owned large hotel chains and public utility companies, Mr Tso was able to find a local partner who was also a partner in an existing five-star hotel of the Jewish family in the Philippines. Mr Tso Jr, the Managing Director in Hong Kong, said that ‘we both relied on the same person because he was reliable. You know then if someone already has the experience that he’s a good person’ (interviewed in Hong Kong, 12 April 1994). So relative trust has been developed through relationships of reliability and reputation. Several years later, the Indonesian operation was established by an Indonesian family who had long been an associate and friend of Mr Tso and the founder of the Philippine plant—Mr Chan. This venture was basically a ‘family’ business. Mr Chan went to Indonesia to assist in the whole process of establishing the Indonesian plant. The Singapore operation was set up in 1968 by another Shanghainese who had emigrated from Shanghai to Hong Kong and then from Hong Kong to Singapore in the early 1960s. This Singaporean was a good friend of the chairman in Hong Kong such that a present director of the Singapore operation recalled that: The first partner of [Mr Tso] in Singapore was a gentleman…from Hong Kong; he’s a Shanghainese. But he settled in Singapore. So I think that’s how he started. He [Mr Tso] knew people already in the country. So he said: ‘Come, why don’t we do business together?’ …It’s quite different [from those Western firms]. It’s very important because there is already this element of trust. If you want to set up an operation in a foreign country, it pays to help if you have a friend staying in the foreign country, knowing what the pitfalls are, rather than going to an independent firm and saying, ‘Can you do me a market survey of what it would be like for me to set up a factory in such-and-such place?’ But if it’s your old personal friends and contacts, I think the trust is there and the information will be more reliable. (Interviewed in Singapore, 15 July 1994) It is obvious from HKCarpet’s operations in Indonesia, the Philippines and Singapore that close friendship is the key determinant of transnational operations. Personal trust of ‘family’ members centred around the founding chairman himself provides a solid foundation for an intricate inter-firm network of joint ventures. the Jewish family. Its five-star hotels need high-quality carpets that HKCarpet is well positioned to supply. In fact, HKCarpet is a world-class carpet manufacturer which supplies high-quality and customised carpets not only to top hotels, but also to royal families in Thailand and some Middle East countries.

The social organisation of business networks

159

On the other hand, Mr Tso has also known his local partner in the Thai operation for a very long time. At the beginning, HKCarpet provided technological and managerial support for carpet manufacturing, whereas the Thai family put in equity investment. Over time, technology transfer has taken place effectively. Today, the Thai family is directly involved in the management and even control of the Thai operation. It is also a very reputable family in Thailand. Other than the carpet business, Mr Tso has also entered into cooperative joint ventures with the Thai family in property development and other manufacturing operations in Hong Kong and the PRC. Because of these complex interfirm relationships between the Tso family and the Thai family, Mr Tso trusts the Thai family completely in managing the Thai operation. Interestingly enough, the Thai operation even has its own brand names which compete with the group brand name based in Hong Kong. Such inter-firm cooperative competition looks contradictory, but in fact it is mutually beneficial because it strengthens the group’s competitive position through product differentiation and parallel marketing strategies. Conclusion This chapter has attempted to unravel the complex processes of transnational operations within the firm itself. It has found that the transnational operations of Hong Kong firms can be accomplished through developing intra- and inter-firm networks embedded within peculiar Chinese business systems. This network embeddedness is institutionalised through the central role of the ‘family’ and carefully orchestrated processes of control and coordination. These mechanisms of intra- and inter-firm networks are very much outcomes of ongoing relationships or guanxi among key actors within and between HKTNCs. They cannot be understood through a direct application of neoclassical transaction cost analysis because these social processes are often complex and opaque to pure economic analysis. The chapter has also pointed out that entrepreneurship is an important dimension of transnationalisation. As conceptualised in Chapter 3 (pp. 63–5), the TNC has a modus operandi which is embedded in key entrepreneurs. It is this entrepreneurial dimension which often determines the success or failure of foreign ventures. In the case of HKTNCs, it appears that entrepreneurship is carefully nurtured and promoted through continuous expansion of the corporate empire. In this way, many potential entrepreneurs are internalised within the intra-firm networks of the TNC. This process of internalising entrepreneurship is determined by ongoing relationships or guanxi between the senior and the aspiring junior of the TNC. These relationships or guanxi, however, can also bring disparate firms together to form cooperative inter-firm networks which underpin the social organisation of Chinese business.

6 THE POLITICAL ECONOMY OF HONG KONG FIRMS IN ASEAN As with much political economy, studies of investment switches and the international or regional divisions of labour that they create often tend to be pursued only at the aggregate level. We know relatively little about the social processes and networks that facilitate the transactions on which such economic transformations are based, in spite of the potential significance of these networks for the analysis of development prospects in many ‘third world’ societies. (Henderson, 1991a:176; emphasis added)

After the above examination of the internal organisation of Hong Kong transnational corporations (HKTNCs) operating in South-east Asia (ASEAN) through intra- and interfirm networks, this chapter is concerned with their external dealings. I argue that at the macro extra-firm level, regulatory barriers and institutional opportunities in host ASEAN countries are important because they tend to induce HKTNCs to enter all sorts of extrafirm political relationships. These regulatory barriers arise from unique historical and social contexts, in particular the suspicion among many host ASEAN countries (except Singapore) of foreign capital, including overseas Chinese capital. Coupled with heavy bureaucracy, these institutional barriers and regulatory regimes have effectively driven HKTNCs to enter into extra-firm relationships in order to establish or to protect themselves in the host countries. Regulatory institutions in ASEAN countries, however, are not always detrimental to foreign participation in domestic economies. In Singapore, for example, foreign capital has always been given strong institutional support by the government. As shown in Chapter 4 (p. 88), HKTNCs have established a strong presence in Singapore. There are, nevertheless, important power relations between HKTNCs and regulatory institutions in Singapore that one must appreciate (see case studies in this chapter). Given the contextual importance of institutional settings, this chapter starts with a detailed examination of the institutional frameworks of Hong Kong (for outward investment) and ASEAN countries (for inward investment).1 It then looks at the politics of ASEAN operations by HKTNCs and offers some case studies of extra-firm relationships between HKTNCs and host country nation states. A neoliberalist political economy and the development of firms in Hong Kong One distinctive feature of post-war political development in Hong Kong prior to reunification with the PRC in July 1997 was the role of ‘big business’ in politics. To a large extent, the pursuit of neoliberal economic policies (or ‘positive non-intervention’) by the colonial government implied that the state had ceded its power of influencing the possible trajectories of economic development to all extra-state forces. In Hong Kong’s

The political economy of Hong Kong firms in ASEAN

161

case, these forces were local big business (Henderson, 1991a, 1991b; Wong, 1993; Choi, 1994). Henderson (1991a) identifies five key attributes of the political process under colonial rule in Hong Kong: 1 political control through the colonial bureaucracy in league with leading business corporations; 2 the power of politics as the preserve of banking and commercial interests, not manufacturers; 3 open recognition of the strong influence of big business over state policy; 4 the polity remaining undemocratic; 5 little opposition to the status quo. For example, Davies (1989:48) found that, in 1965, some 37 per cent of the seats of all the Councils (Executive, Legislative and Urban) were occupied by businessmen, the largest majority being British expatriates. The British taipans used to have a powerful voice in the economic policies of the Hong Kong government. By 1986, professionals and labour representatives held the same number of seats as business interests in the Councils. This increasing professionalisation of the polity and the economy, however, did not undermine the role of big business in Hong Kong’s politics. It merely reinforced the rise of Chinese capital, which replaced British capital as the leading force in the then colonial economy (G.K.K.Wong, 1991). In a survey conducted between 1988 and 1989, Wong (1993:505) found that the majority of 2,239 local graduates (59 per cent) in Hong Kong thought that business leaders in Hong Kong had too much influence in political affairs. The neoliberalism of Hong Kong’s economic policies serves as the prima facie evidence for such an interpretation: that the dynamics of Hong Kong firms owe much to neoliberal economic policies. One clear example is the government’s high land price policy, which explains the rapid rags-to-riches performance of leading Chinese property magnates in Hong Kong. Virtually all of them gained their fame and wealth in the property booms of the 1970s and 1980s. The same period also witnessed the accelerated expansion of Chinese business empires in Hong Kong and elsewhere in the region (see also pp. 82–3; Yeung, 1996b). The development of the Hong Kong Stock Exchange and rapid turnover of capital in the property markets enabled some of the largest property HKTNCs to diversify into overseas hotel chains and other property-related projects (Go and Pine, 1995; Mitchell, 1995; Olds, 1995; see also pp. 208–11). At the same time, the general economic boom in Hong Kong led to the proliferation of corporate entities which later turned into HKTNCs through establishing overseas subsidiaries. Another key element in the government’s neoliberal economic policies manifested itself in the state’s weakness in negotiating for the welfare of local manufacturers (mainly over the issue of quota restrictions on Hong Kong’s textile and garment exports) and in providing the critical support needed to enhance the competitiveness of Hong Kong’s manufacturing industries (mainly in electronics and other technology-driven industries; see Yeh and Ng, 1994; Leung and Wu, 1995; Tuan and Ng, 1995a; Lui and Chiu, 1996). An official from the Industry Department argued that the Hong Kong government, though generally supportive of industrial development in Hong Kong through infrastructural and information support, was not taking an interventionist stance towards manufacturers (Yeung, 1991). Rather, the government’s role was to help manufacturers

Transnational corporations and business networks

162

overcome their problems in a market-driven process of industrial restructuring and adjustment. Chapter 4 has detailed the impact of these ‘handicapped’ economic policies which effectively forced Hong Kong manufacturers to relocate their production facilities across the border to the PRC and the ASEAN region. For example, in the textile and garment industries, the quota system imposed by leading developed countries since the early 1960s became the de facto extra-firm constraint that influenced the transnational processes of HKTNCs in these two industries (Sung, 1985; Lau, 1991; Lui and Chiu, 1994). For other high-tech industries, the lack of concerted government effort to promote R & D, or to coordinate technological development and industrial restructuring, resulted in tremendous centrifugal tendencies for Hong Kong firms to relocate their operations, particularly labour-intensive assembly operations, to other countries within the region. This ‘positive non-intervention’ attitude of the Hong Kong government contrasted sharply with those of the Japanese, Taiwanese and Korean governments, which have consciously sought to promote ‘national champions’ and to allow industrial restructuring through selective relocation abroad (see Amsden, 1989; Wade, 1990; Henderson and Appelbaum, 1992). It remains unclear therefore how the inadequacy of Hong Kong’s manufacturing industry can best be met elsewhere by host countries. This section provides some case studies of the symbiotic extra-firm relationships between ASEAN countries eager in developing their local industrial base by attracting foreign TNCs and manufacturing HKTNCs looking for overseas diversification and expansion opportunities because of severe domestic constraints in markets and labour (e.g. HKElectronics in Appendix 2). On the positive side, the ‘triumph’ of the neoliberalism pursued by the Hong Kong government was manifested in its minimal restrictions on outflows of investment by HKTNCs. The then colonial government, unlike national governments in Taiwan and South Korea, not only did not impose foreign exchange controls but also did not require HKTNCs to register their overseas investment operations with government authorities. This totally ‘open’ outward investment policy provided a very favourable institutional setting for the extremely high mobility and volatility of Hong Kong capital, comparable to any world cities in the Triad countries. This is also one of the main reasons why HKFDI has much deeper historical roots than FDI from other Asian NIEs (Yeung, 1996b). In the final analysis, the issue of the regulatory regime is rather implicit under the traditionally neoliberal economic role of the Hong Kong government. This chapter argues that it was the neoliberal positive non-intervention that offered vital opportunities to the massive growth of major cash-rich property HKTNCs and impeded seriously the longterm viable growth potential of Hong Kong as a centre of production. Both state policyrelated effects tended to prompt HKTNCs, whether in services or in manufacturing industries, to seek overseas markets through transnational operations. The politics of transnational operations in ASEAN The institutional settings of ASEAN countries have received considerable academic attention (e.g. Suehiro, 1985; Robison, 1986; Yoshihara, 1988, 1995; Jesudason, 1989; Rodan, 1989; Laothamatas, 1992; Fitzgerald, 1994; Sekiguchi, 1995). Among the

The political economy of Hong Kong firms in ASEAN

163

ASEAN-5 countries, only Singapore has seriously sought partnership with foreign firms throughout its modern history of industrialisation, albeit at the expense of local Chinese entrepreneurs to a certain extent (Tan, 1991). Chia (1993a:68) remarks that ‘Singapore’s policy is conspicuous not so much because of its wide range of investment incentives but because of the general absence of restrictions and performance requirements and the consistency of policy direction over time.’ The rest of the ASEAN-5 countries, quite rightly at times, held an antagonistic view of foreign capital which radically undermined their attraction as potential host countries for transnational operations. It is only since the 1980s that foreign investment has been seen as beneficial to each country’s industrialisation and economic development processes. Learning from the experience of Singapore and recognising the danger of relying upon domestic ethnic Chinese capital, these ASEAN countries have shown a voracious appetite for inward FDI flows in the past ten years or so. Not only have ‘sleeping’ investment boards in individual ASEAN countries been awakened by new investment flows, but ASEAN itself, as an institutional platform for regional economic cooperation, has also been active in promoting inward investment to the region as a whole. After the first consultative meeting on the promotion of FDI in ASEAN countries in Jakarta in February 1993, a memorandum was signed among top investment authorities from each ASEAN member state, laying the institutional foundations for sustainable cooperation in inward investment promotion (ASEAN Economic Bulletin, July 1993:98–9). This move towards concerted efforts in attracting inward investment is unprecedented, although it must be noted that many ASEAN countries are still competing with each other in practice through various investment promotion marketing strategies (Wells and Wint, 1993). Regulatory authorities among ASEAN countries During the early days of their political independence, all ASEAN countries set up their respective state institutions to take charge of investment promotion and approval procedures. All of these have a similar responsibility—to promote inward FDI through various incentives packages. Chapter 4 (pp. 125–6) has noted, however, that investment incentives are not very effective in attracting inward investment of HKTNCs (see also Yeung, 1996c). The main reason is that investment incentives are conspicuous only in their absence, not in their presence. In the case of Singapore’s Economic Development Board (EDB), it has a dual role—to promote both inward and outward investment (Mirza, 1986; Dicken and Kirkpatrick, 1991; Perry, 1992, 1995; Low et al., 1993; Régnier, 1993; Yeung, 1998b). Since its establishment in 1961, Singapore’s EDB has been wooing investors from all over the world. Singapore now prides itself on attracting high valueadded and high-technology investment mainly from developed countries (see p. 97). During 1985–7, as much as 26 per cent of Singapore’s gross domestic capital formation (GDCF) originated from inward FDI flows. The figure would be much greater if other forms of equity investment were included. Today, some 70 per cent of Singapore’s exports and 40 per cent of its employment are directly or indirectly attributed to foreign TNCs (Yeung, 1994c:1945; see also Low et al., 1996).

Transnational corporations and business networks

164

Changing regulatory issues in ASEAN countries With the exception of the predominantly Chinese city-state of Singapore, the postindependence ASEAN region was full of sentiment against foreign and Chinese capital (Mackie, 1988; Yoshihara, 1988, 1995; Dixon, 1991; McVey, 1992a). During the 1960s, virtually all ASEAN countries were in their embryonic stage of industrialisation and development. Foreign capital was needed insofar as it could contribute to employment. Domestic sectors, particularly agriculture and services, were mostly closed to foreign participation in order to protect the basic livelihood of indigenous nationals. It should be noted that, even during this period, anti-Chinese sentiments were rather deeply rooted in Indonesia and the Philippines (Robison, 1986; Mackie, 1988; Suryadinata, 1988; McVey, 1992a). In Thailand, the Chinese were able to assimilate into the Thai economy and SinoThai businesses experienced rapid growth under their political, and often de facto military, patronage (Suehiro, 1985, 1992; Mackie, 1988). In Malaysia, the Chinese managed to establish themselves in a more favourable political and ethnic climate under the political coalition between the Chinese and the Malays during the existence of the National Front (Jesudason, 1989, 1997). In Singapore, Chinese capital faced serious competition from foreign TNCs entering one of the most open economies in the region. Although all the investment boards had been established by the 1960s, few of them had explicit visions and strategies of luring foreign investors because of stifling domestic economic problems and political instability. It would be reasonable to argue that, during this period, impediments to foreign investment in the host ASEAN countries originated not from the regulatory regime per se, but rather from the still underdeveloped ASEAN economies themselves. Nevertheless, the 1970s saw the emergence of a major ethnic backlash against the Chinese in Indonesia, Malaysia and, to a lesser extent, in the Philippines and Thailand. The regulatory regime during this decade was much more restrictive. Domestically, there was major pressure to allow a greater share for indigenous people, known as the pribumi in Indonesia and the bumiputra in Malaysia, of the national economic wealth. In Malaysia, for example, the New Economic Policy (NEP) was officially launched in 1970 with two key objectives: (1) to eradicate poverty in general and (2) to strike a better balance in the ethnic distribution of wealth (Jesudason, 1989; Yasuda, 1991; Cleary and Shaw, 1994; Taylor and Ward, 1994). In order to achieve the latter objective, the Industrial Coordination Act, 1975, required all manufacturing establishments above a certain registered capital threshold to be licensed under the Ministry of Trade and Industry. The initial minimum threshold for shareholders’ funds was M$ 100,000, but it was raised to M$250,000 in 1977 in an amendment to the Act and subsequently increased further to M$2.5 million. It was hoped that, through restricting both Chinese and foreign equity ownership, the bumiputra ownership of the Malaysian corporate sector could be eventually increased from 2.6 per cent in 1970 to 30 per cent in 1990. In 1970, foreign equity accounted for over 60 per cent of the total share of capital in Malaysia, particularly in agriculture, mining, trade and manufacturing. By 1980, this figure had fallen to 48 per cent in response to the New Economic Policy (Kulasingam and Tan, 1982:6). In 1985, foreign ownership of equity was 26 per cent. But bumiputra ownership was only 18 per cent of corporate equity because a significant amount of equity had been transferred to

The political economy of Hong Kong firms in ASEAN

165

trust agencies initially established by the government to own equity for eventual transfer to bumiputra individuals. By 1990, foreign ownership of share capital had been reduced further to 25 per cent and the bumiputra ownership was 20 per cent (Malaysian Government, 1991: Chart 1–5). With the exception of Singapore, all ASEAN countries followed an inward-looking approach to industrialisation. The oil boom during the early 1970s provided sufficient foreign exchange to cash-starved countries such as Indonesia and Malaysia to fuel their huge national development budgets and import-substitution industrialisation strategies. In the Philippines, the Marcos government favoured ‘crony capitalism’ rather than promoting inward investment. In Thailand, a military coup d’état created much instability at the expense of foreign investment. In Singapore, foreign TNCs continued to enjoy encouragement from the government. The rapid pace of industrial restructuring under way in Singapore, however, effectively forced labour-intensive and low-tech manufacturing to relocate elsewhere in the region (Yeung, 1994c). New investment projects in labour-intensive and low-tech manufacturing were explicitly discouraged. Since the 1980s, the attitudes of these ASEAN-4 countries have changed towards more vigorous promotion of inward investment. The ethnicity issue has not disappeared completely but, rather, has been supplemented by an increasing influx of foreign capital.2 After decades of debate on the role of foreign capital in economic development, these ASEAN countries are finally convinced that they must either progress and industrialise with the participation of foreign capital, as in Singapore, or wither into serious domestic instability arising from the pursuit of the ethnically biased economic policies that have plagued their economies. Take the Malaysian example again: instead of putting the oil money into development projects, the government had spent billions of dollars on acquiring major foreign interests in the country (e.g. Guthrie and Sime Darby) and redistributing their equity shares to the bumiputra Malays. There was little investment in new industrial production or economically productive sectors. The New Economic Policy also stifled the industrial development of domestic Chinese capital because of the restrictive Industrial Coordination Act and the political uncertainty perceived by the Malaysian Chinese. There is strong evidence to suggest that the majority of Malaysian Chinese investment during the 1970s had gone into ‘quick money’ sectors such as properties and financial investments. Current regulatory climate in the ASEAN region FDI approvals and regulations in different ASEAN countries significantly shape the orientation and processes of transnational operations in the region. In most ASEAN countries, restrictive regulatory regimes represent the single most serious obstacle to transnational operations (see Table 6.1). Generally speaking, in Indonesia, Malaysia, the Philippines and Thailand, local participation in the form of equity ownership is required in most industries, except under specific conditions such as investment in export processing zones (EPZs) or special development zones outside primate cities.3 Typically, a foreign firm must team up with a local partner in order to get its investment application approved by the respective board of investment. In the case of Indonesia, for example, the BKPM is only part of the government’s regulatory system. Most large foreign manufacturing firms also have to obtain licences from the Departments of Industry,

Transnational corporations and business networks

166

Labour, Trade (both internal and external), and the Environment, together with the central bank (Bank of Indonesia), the taxation office, urban planning authorities and the minor tiers of government (e.g. provincial government authorities) (see Hill, 1988). In addition, many investment boards have enforced a policy of indigenisation of foreign investment so that over a period of time after its initial inception (e.g. ten years), the local equity shareholding in an FDI project must be increased to

Table 6.1 Regulatory policies affecting foreign investment in ASIAN countries Policies Indonesia Malaysia Singapore Thailand Philippines 100% No specific 51% Thai 30% Ownership 100% requirement ownership bumiputra restrictions ownership in foreign ownership agriculture except in prohibited in equity required in some sectors and services allowed in the early all areas not Majority most sectors in which 1970s; at specified on licences are foreign Some least 1% Indonesian exemptions granted to ownership in the ‘negative foreign firms manufacturing list’ equity now if at least Some Some sectors 50% output on the basis allowed if sectors more than for exports of some closed to criteria, e.g. 51% of output closed to and foreign foreign employing at stockbroking exported investors Some sectors participation firms least 350 closed to Malaysians foreign No sectors investment closed to foreign investment No specific Some sectors Foreigners Fiscal All foreign Foreign may invest requirements are open to incentives projects must firms can up to 40% of start without Foreign firm foreign seek investment incentives can start approval enterprise and approval capital without from the is not fiscal BKPM without incentives necessary seeking BOI approval Technology Localisation Well laid out No specific No specific Protection transfer and of senior guidelines requirements requirements for Government- Some training management for intellectual Lack of technological sponsored incentives for property R&D screening of agreements training rights activities technological Protection given for through some labour Expatriates patents and licensing for

The political economy of Hong Kong firms in ASEAN

Domestic trade

arrangements intellectual Expatriates property allowed up rights Expatriates to certain allowed up number to certain number Prohibited No such restriction

Domestic Prohibited borrowing

No such restriction

167

skills Protection for intellectual property rights

trade marks allowed Protection for intellectual property rights (Patent Act, 1992)

No such restriction

No such restriction

No such restriction

No such restriction

Local content requirements Prohibited for equity purposes

Sources: Indonesia (Hill, 1988:145–9); Malaysia (Ariff, 1991:21; Business International, 1991); Singapore; Thailand (Business International, 1991) and the Philippines (Business International, 1991). a certain level, usually above 50 per cent. In this way, these nation states aim to achieve not only technology and expertise transfer through FDI projects, but also domestic control of the corporate sector. This policy is most consistently implemented in the case of Malaysia. For example, since 1970, greater emphasis on joint ventures has been reflected in the Malaysian government’s ‘new’ industrial policy which is in accordance with its national policy of indigenisation. Under the bumiputra policy, foreign investors are obliged to take local Malay partners and, sometimes, to employ bumiputra workers. The relationship between ethnicity, the state and TNCs is very intricate and complex in Malaysia (Jesudason, 1989). On the other hand, some industries and sectors in Indonesia are completely closed to foreign participation under the notorious ‘negative list for investment’. These are usually domestic industries that are small-scale and labour-intensive or service industries, e.g. contracting services in forest logging, casinos and gambling, the utilisation and cultivation of sponges, transport services, retail and advertising and the mass media in Indonesia (Capital Investment Coordinating Board, 1993). In the latest Indonesian investment deregulation package offered by the BKPM in June 1994, the mass media and public utilities were opened to foreign firms participating in joint ventures with local partners (The Straits Times, 3 June 1994; Far Eastern Economic Review, 1 September 1994). Other service industries remained closed to foreign investment. In Singapore, practically all industries and sectors are open to foreign investors. There are still some sectors that are relatively protected from full-scale foreign participation, e.g. stockbroking. In order to trade in shares and stocks on the stock exchange of Singapore, any stockbroking firm must obtain a full member licence from the monetary authorities (the central bank). With very few exceptions, foreign firms are not normally granted full licences, in order to protect domestic stockbroking firms—an infant industry argument. In fact, there are less than ten full member licences given to foreign broking

Transnational corporations and business networks

168

firms (including the recently collapsed Baring’s Bank from England). Instead, many foreign stockbroking firms are granted half-licences so that they can only act as intermediaries between their clients and local stockbroking firms. These foreign firms must not conclude any trading deal or contract which remains under the control of local stockbroking firms. This indirect regulation puts foreign stockbroking firms in a very difficult situation in competing with local firms (see the case of Peregrine entering into joint ventures with reputable local partners in the next chapter).4 These restrictions and regulations aside, foreign firms can, in effect, invest and establish themselves in most host ASEAN countries without going through boards of investment (e.g. Singapore and Thailand). The main drawback is that they do not enjoy investment incentives and privileges. Even in Malaysia, a foreign firm can set up a manufacturing plant or a service company without applying for approval from the Malaysian Industrial Development Authority (MIDA). But, for manufacturing plant, prior approval must be sought under the mandatory Industrial Coordination Act, 1975, whereas a service company must be registered with the Registrar of Companies. Most investors, in particular large TNCs from developed countries, still prefer to go through host country investment boards, not because of the incentive packages, but because of the convenience and protection available under these investment incentive schemes. For example, a BOIpromoted Hong Kong firm in Thailand suffered from low-price imports from other countries (dumping). The Thai Board of Investment acted immediately and imposed duties and surcharges to protect the Hong Kong company, which is now enjoying good profitability.5 Case studies of Hong Kong firms in ASEAN At the macro-level, there appear to be many institutional hurdles to be surmounted in order for a TNC to establish itself in the host ASEAN countries. The question remains whether these regulations are effective in practice. Existing evidence seems to suggest that, because of connections and coalitions between top government officials and businessmen, actual regulations and restrictions have effectively been circumvented through successful cultivation of extra-firm relationships at the micro-level. Chinese businessmen, in particular, are keen to cultivate political relationships with government officials. Such an argument defies the contractual basis of transnational operations and is particularly relevant to ASEAN countries such as Indonesia, Malaysia, Thailand and the Philippines. Yoshihara (1988; also Mackie, 1995) has labelled those capitalists trying to establish political connections for business advantage ‘rent seekers’. One of the bestknown ‘families’ of ‘rent seekers’ is that of Ferdinand Marcos, the former President of the Philippines, and his cronies (see Hawes, 1987, 1992; Dixon, 1991; Doner, 1992). A decade ago, Yoshihara (1988:88) observed that ‘rent-seeking is by far more pervasive in South-East Asia today, and there are no indications (at least for the immediate future) that it will decline’. He gave three main reasons for such opportunistic behaviour: 1 the circulation of oil money has enabled politicians to invest heavily in business; 2 the failure to integrate the overseas Chinese into the host countries has led many Chinese businessmen to resort to ‘back-door’ transactions; 3 the weakness of indigenous capitalists and opportunities untapped by market forces.

The political economy of Hong Kong firms in ASEAN

169

Drawing on qualitative information collected during fieldwork in Asia in 1994 (see Yeung, 1995a), this section presents several case studies of HKTNCs in order to understand the complex extra-firm political relationships in their successful establishment and operations in the ASEAN region. This study has identified several ways in which HKTNCs secure favourable extra-firm relationships with host nation states: (1) government assistance and direct involvement; (2) strong bargaining power of the TNC, and (3) political connections to access government contracts. Government assistance and direct involvement Government assistance and even direct involvement may be crucial in establishing a company’s market significance in the host ASEAN countries. In the case of HKTNCs, Singapore prides itself on providing positive government assistance to prospective foreign investors through various Ministries (see HKTech in Box 4.7). Such direct government assistance is not common in those ASEAN countries characterised by heavy bureaucracy. One way of building up extra-firm relationships in these host countries is to coopt influential politicians into the local subsidiary (see HKTrading in Box 6.1) or to activate whatever political connections are available to the parent HKTNC (see HKElectronics in Box 6.2). In HKTrading’s case, Thailand is a lucrative market because of its rapid economic development and severe bottlenecks in telecommunications equipment and supplies in recent years (Priebjrivat and Rondinelli, 1994). The chairman was very confident in marketing and distributing Toshiba successfully in Thailand, following success in Hong Kong and Singapore. Instead of marketing from his Singapore office, which had already gone through a phase of massive expansion locally, he set up an entirely new operation in Bangkok. His deep acquaintance with trading business in Thailand led him to believe that the best way to overcome host country regulations and bureaucracy was to coopt an exsenior Thai official, who is now the local managing director. This former civil servant played an important role in the establishment of the Thai office. First, trading business is not generally open to foreign capital participation because it is reserved to the Thai. By taking over a key management post, rather than acting as a ‘sleeping partner’, in order to fulfil the shareholding requirement, he justified the case of HKTrading in Thailand, because its Thai office now has a Thai partner. Second, by virtue of his ties with senior Thai officials, the Thai managing director helped secure a land purchase in Bangkok. HKTrading, having strong expertise in property investment in Hong Kong and elsewhere in Singapore and Canada, was able to build its own office premises in central Bangkok. Third, the Thai had good connections with the Revenue Department so that he could help the financial controller tackle some urgent tax issues by introducing further political contacts, typically through informal social events such as dinners and gatherings. While the former Thai politician is not a ‘sleeping partner’ in HKTrading’s operation in Thailand, the local partners of HKElectronics (Box 6.2) do not take up any executive portfolio in its Malaysian plant. They are ‘sleeping partners’ in most cases and are mainly responsible for taking HKElectronics through state regulations in Malaysia. In particular, the son of the Prime Minister and a Chinese Malaysian property developer helped select the location of the

Transnational corporations and business networks

170

Box 6.1 HKTrading and political connections in Thailand HKTrading is one of the largest HKTNCs specialising in the distributive trade and services (see Appendix 2). It has been the sole distributor for Toshiba, among more than fifty internationally renowned products, in Hong Kong since the day of its establishment. Recently, it has set up an office in Bangkok, which provides an interesting example of how extra-firm relationships work in conjunction with the Chairman’s personal relationships with a number of key personnel in Thailand. A former high-ranking civil servant, the present Thai Managing Director and his local connections have been instrumental in the growth of the Thai office. The Financial and Administrative Controller of the Thai operation stated: Our Chairman has some very good and helpful colleagues who have the right connections in Thailand. He also personally knows of some lawyers here in Thailand. Together, they arranged for the registration of the company, import procedures, initial capital injection and shareholding. At the same time, he managed to arrange the distributor deal with Toshiba. We started the marketing side of the operation…The present Thai Managing Director started to help us out ever since he retired from the government civil service many years ago…I think personal connections had been already in existence before we set up this office. The present Managing Director has been a long-time close friend of our Chairman, who also has many friends here in Thailand. I am now beginning to realise that he does have many friends here, in particular during recent dinners with all those friends he had asked out. Because he has so many friends here, it would be very much easier and more convenient for him to conduct his business. (Interviewed in Bangkok, 9 June 1994) What tangible benefits does HKTrading enjoy through coopting a retired civil servant and building up strong political connections? Some insights are given again by the Financial Controller: For example, we have some friends who work in the Revenue Department of the government. If we have queries concerning tax issues and we followed the normal procedure to make such enquiries, it would be very time-consuming and troublesome. So we had a dinner with them and got our queries fully clarified over the meal, since they are very senior in the department. We felt more confident too by virtue of their seniority in the government…We have connections too with banks. You know, business is extremely fast-moving and full of constraints. Because the system is not well developed, we face many delays in conducting our business. For instance, we wanted to tender for a government project. We received

The political economy of Hong Kong firms in ASEAN

171

the documents today and were supposed to send in our tender by tomorrow morning. We might send our staff to type the letter of guarantee in the bank. It’s very easy because we know the bank so well. We try to help each other. (Interviewed in Bangkok, 9 June 1994) The access of HKTrading to banking in Thailand reinforces the role of Chinese businessmen in manipulating creditworthiness through connections with bankers (see Limlingan, 1986). manufacturing plant in a suburb of Kuala Lumpur. This assistance is potentially very important because not only does it affect the smooth operation of the factory in terms of transport and labour supply, but also locating outside Kuala Lumpur greatly reduces production costs. It is also likely that he obtained approval of the project from MIDA and subsequently the award of pioneer status which again helped lower costs and increase the profitability of the Malaysian operation. His political power is demonstrated by the presence of the Minister of Trade and Industry during the opening ceremony of the Malaysian plant. It must be noted that a number of other ‘high-powered’ HKTNCs have coopted senior host country civil servants in order to circumvent cumbersome host country regulations and, sometimes, hostile investment climate. These ‘political patrons’ often play a relatively insignificant role in the day-to-day management of the overseas operations, except that they help at the start-up stage to secure critical licences and approvals. But, beyond that, these ‘political patrons’ contribute relatively little to the management and control of local subsidiaries. They have effectively relinquished their control to the parent HKTNCs in management and technical aspects of the operation. On the other hand, these ‘political patrons’ are mostly personal friends or associates of key executives/shareholders in those parent HKTNCs. By contributing their political connections, they also benefit personally from investment opportunities. Strong bargaining power of the HKTNC The bargaining power of a HKTNC can place the firm in a favourable position in dealing with host country governments. There is thus always a two-way flow in the non-zero-sum bargaining game between the TNC and the nation state (see pp. 74–5). In practice, it is quite possible for both players to gain from the transnational game, depending on the information flows between them. The lack of prior extra-firm connections with host nation states tends to engender suspicion in a game setting which may likely result in mutually harmful outcomes. The ability of a prospective TNC to convince the host nation state of the possibility of mutual gain is critical to a successful transnational venture. On the other hand, bargaining between the TNC and the state can encompass both investment projects and other intangible benefits. In the case of the Suntec Group (Box 6.3), through carefully engineered bargaining processes, Singapore gained from having Asia’s largest convention centre built there, further strengthening its international competitive

Transnational corporations and business networks

172

Box 6.2 HKEIectronics and political connections in Malaysia HKEIectronics is an OEM manufacturer for such large cordless cellular phone companies as AT&T (see Appendix 2). The son of HKEIectronics’ founder and Chairman has good connections with one of the sons of the Malaysian Prime Minister because they both once worked for Salomon Brothers, an international stockbroking company in the US, for many years. They were good friends and, since then, strong friendship and personal trust have developed. When HKEIectronics wanted to expand into the ASEAN region to produce cordless and cellular telephones, they were looking for a plot of land in a good place to set up a manufacturing plant. HKEIectronics finally decided to set up in Malaysia because it was thought that the Prime Minister’s son could help overcome the hurdles in application approval. HKEIectronics’ Executive Vice President in Hong Kong explained: Well, basically, let’s take the choice of location, let’s take the approval in Malaysia in itself: in Malaysia unfortunately you got to learn the rules of Malaysia. I set up a plant in 1978 but then you still got a little bit of niches you got to cross over. (Interviewed in Hong Kong, 7 April 1994) The Malaysian, together with a reputable local property developer, subsequently took up 30 per cent of the equity of the Malaysian plant and became its first chairman. He is also on the board of directors in Hong Kong now. Although the Malaysian partners are not involved in day-to-day operations, they do give advice on what should or should not be done in Malaysia. During the set-up phase they facilitated the initial choice of factory location and gave advice on the local situation. Possibly because of these extra-firm connections, the Malaysian operation has been granted pioneer status in Malaysia, suggesting great regard by the Malaysian Industrial Development Authority. advantage as the information centre of the region. The political importance of the Suntec project can be seen in the keen interest of top leaders from the Singapore government, e.g. Lee Kuan Yew (now Senior Minister), Ong Teng Cheong (now President) and Dr Richard Hu (now Finance Minister). Through a mutually agreeable bargaining process, Singapore also gained from the relocation of the operational headquarters of leading HKTNCs such as Frank Tsao’s International Maritime Carriers (IMC).

Box 6.3 Leading Hong Kong business people and the Suntec Project in Singapore In October 1985, Suntec Investment Pte Ltd was incorporated in Singapore. With authorised capital of S$100 million, it serves as an investment vehicle for a group of leading Hong Kong businessmen (The Straits Times, 19 December 1986). Among these Hong Kong businessmen are Cheng Yu Tung (Chairman), Li Ka-shing, Run Run Shaw, Jack Tang, Frank Tsao (Vice-chairman) and Robert Wang (Company Secretary). Being Cantonese, Cheng and Li controlled two of the largest property development companies in Hong Kong New World and Cheung Kong respectively Shaw a Shanghainese is

The political economy of Hong Kong firms in ASEAN

173

well known for his entertainment businesses throughout Asia, including Television Broadcasts Ltd in Hong Kong. Another Shanghainese, Frank Tsao, owns one of the world’s largest shipping fleets—International Maritime Carriers (IMC). Jack Tang is the owner of one of the largest textile companies in Hong Kong—South Sea Textiles. Robert Wang is an established and well connected lawyer with many firms in Singapore and Hong Kong. Several other directors are also engaged in the textile trade. From the list of major shareholders alone, one must realise the immense corporate and finance power embodied in Suntec Investment, which is essentially the formation of a close ethnic clique and ‘good friends’. Formed as a second base for these Hong Kong businessmen, many of Suntec’s investments are linked with the directors’ individual businesses. In December 1986, Suntec Investment held its first annual general meeting in Singapore. These Hong Kong businessmen (fourteen of them) also had lunch and an evening cocktail, with the then Second Deputy Prime Minister, Ong Teng Cheong (now Singapore’s President), and Finance Minister, Richard Hu, respectively, as guests of honour. The level of the political connections is beyond the imagination of any individual corporate entities. For the next two years, Suntec Investment remained apparently silent on the surface. But in fact it was preparing to bid for the largest private property development project ever in Singapore—the S$1.7 billion convention centre. In December 1988, Suntec Investment was awarded the project and it had earlier incorporated Suntec City Development Pte Ltd in August 1988, chaired by Frank Tsao (The Straits Times, 23 December 1988; Singapore Business, February 1989:22). During the first three years of its existence, Suntec Investment was, to most observers, all talk and no action. It was obvious, however, by 1988 that the convention project would go to Suntec. Two other bids by Far East Organisation (the largest property developer in Singapore) and the Kuok group (the largest group from Malaysia) were more or less losers. The new corporate entity, Suntec City Development, also managed to pull in several other reputable Hong Kong businessmen as shareholders: Chow Wen-hsien, Chow Chung-kai, King Sieh-Ting, Lee Shau-kee, Li Daksum and Anthony Yeh. Being Shanghainese, both Chows are owners of Winsor Industrial Corporation, a large Hong Kong textile multinational. Anthony Yeh, another Shanghainese, owns one of the world’s largest carpet companies based in Hong Kong. All of them are known to be connected with Frank Tsao among the Shanghainese clique in Hong Kong. Lee Shau-kee, another property magnate from Hong Kong, is a good friend of Li Ka-shing and Cheng Yu Tung. In sum, the Suntec project has been known as a project of ‘close friends’. Most of these leading Hong Kong businessmen are either engaged in similar businesses or have been close friends for a long time. This close-knit network of friendship and regional ties (among the Shanghainese) further increased the bargaining power of the group in bidding for the convention project. What is the political significance of the Suntec project? Again, the inauguration of Suntec City Development in December 1988 received red carpet treatment when Lee Kuan Yew, then Singapore’s Prime Minister, met the group and expressed great interest in their investment because it was the largest private property project ever in Singapore. Numerous senior government figures also graced the cocktail party, including Philip Yeo, Chairman of the Economic Development Board Speaking at the project’s ground

Transnational corporations and business networks

174

breaking ceremony in December 1989, Mah Bow Tan, the then Minister of State, said that ‘Singapore offers many investment and joint-venture opportunities for Hong Kong businessmen. The complementarity of interest and roles is exemplified by the Suntec City project, the first major investment in the Republic by a Hong Kong consortium’ (quoted in Suntec Newsletter, June 1992:3). Perhaps the best indicator of the politics of the Suntec project is the identity of the Chairman—Frank Tsao himself. Frank Tsao’s personal investment in South-east Asia started as early as 1958, when he pioneered the very first integrated textile mill in Malaysia, later partially sold to the Winsor Group controlled by the two Chows (shareholders in Suntec). In 1973 Tsao, having a strong foothold in the worldwide shipping business, helped the Malaysian government to set up its national shipping company (Forbes, August 1992:40–5). For his distinctive contributions to the Malaysian shipping industry, Tsao was made Tan Sri in 1973, i.e. a knighthood was conferred on him, by the Sultan of Malaysia. Similarly, Tsao helped the Thai government to revitalise its troubled national shipping company in 1987. He even sent his second son, Frederick Tsao, to chair the Thai shipping company. Today, the Tsao family owns assets worth more than HK$1 billion in Malaysia alone. Frank is also a personal friend of Dr Mohammed Mahathir, the Prime Minister of Malaysia since independence (Capital, June 1994:80). In short, before being involved in the Suntec project, Frank Tsao was well connected with the Malaysian and Thai governments through his contributions to the shipping industries of both countries. Prior to the Suntec project, Tsao already knew Lee Kuan Yew, the former Prime Minister of Singapore. In fact, during Singapore’s recession in 1986, Mr Lee invited Tsao to ‘pull together’ his friends and resources to help develop Singapore (Capital, June 1994:80–1). Frank Tsao’s involvement in Singapore also deserves special attention because he has not only successfully brought close friends together in the billion-dollar Suntec project, but has also brought major strategic business advantages to his own company, IMC (Singapore Business, July 1994:26–30). In fact, Frank Tsao employed his elder son, Calvin Tsao, as the design architect of the Suntec City project. Suntec’s design was one of the main criteria on which the Urban Redevelopment Authority evaluated various proposals. Calvin Tsao has worked for the celebrated architect I.M.Pei for seven years and now co-owns the architectural firm Tsao & McKown, based in New York—the main force behind Suntec City’s design. In 1992, Frank Tsao decided to move the operational headquarters of his IMC to Singapore in response to persistent government persuasion (The Straits Times, 6 March 1992; Singapore Business, July 1994:28). IMC was also first to qualify for Approved International Shipping Enterprise (AIS) status in Singapore. The government’s AIS scheme grants special tax incentives to approved companies to own and operate vessels out of the Republic. Meanwhile, the strong connections of Frank Tsao and the bargaining power of the Suntec group enabled them to be included in the scheme of Corporate Special Holding Companies (CSHC) introduced in 1986. From the Suntec consortium’s point of view, it gained from a lucrative investment and diversification opportunity and increasing exposure in Singapore, paving the way to future involvement in the prosperous country and the fast-growing region. In fact, many

The political economy of Hong Kong firms in ASEAN

175

of these top businessmen from Hong Kong had already been investing heavily in Singapore and other ASEAN countries. Many of them are also well known and connected with the local business community: 1 Cheng Yu Tung’s New World has invested in a number of hotels throughout the ASEAN region (see also Chapter 7). 2 Run Run Shaw and his brother’s Shaw Organisation is one of the largest cinema operators in Singapore. He is also involved in large property developments in Malaysia and Singapore. 3 Frank Tsao is well known for revitalising and resurrecting national shipping lines controlled by both the Malaysian and the Thai governments. 4 Chow Wen-hsien and Chow Chung-kai are deeply involved in developing the textile and garment industries in Malaysia. In fact, they were the pioneers of both industries in Malaysia during the 1960s. 5 Li Dak-sum’s Roxy-Sharp has invested heavily in manufacturing Sharp’s electronics products in Malaysia. 6 Anthony Yeh’s Tai Ping Carpets has a long history of carpet manufacturing throughout the entire ASEAN region. What makes this group of top Hong Kong businessmen so special in this case is their enormous bargaining power by virtue of their business muscle. The Suntec project is effectively the brainchild of a dense and close-knit set of inter-firm Chinese business networks which possess great power to bargain with the host country of Singapore. This set of networks is predicated on strong inter-personal relationships so much so that the Suntec project has become the business ‘hobby’ of close friends, the majority of whom are Shanghainese. But the fact that well known Cantonese businessmen such as Cheng Yu Tung, Li Kashing and Lee Shau-kee are involved as heavily suggests a movement away from pure regional ties in the conduct of Hong Kong business. Instead, there is greater embeddedness in personal ties among Hong Kong businessmen, irrespective of their regional ties. We should not, however, lose sight of the significance of regional ties (e.g. the Shanghainese, the Teochews and so on) in the conduct of Chinese business (see also the case studies below). In return for their investment in the Suntec project, some of these Hong Kong businessmen also gained from specific ‘1997 protection schemes’ such as the scheme for Corporate Special Holding Companies (CSHC) introduced in 1986. Political connections to access government contracts Host country regulations governing market access, particularly to lucrative government contracts, have induced some HKTNCs to go into partnership with politically powerful local business groups. The basic idea behind these cooperative joint ventures or agent schemes is the fact that the HKTNC benefits from the political connections of host country partners whereas the latter enjoy the capital, technology and worldwide networks offered by foreign investors. In the case of HKTrans (see Box 6.4), it has a worldwide network of freight-forwarding operations that MalayTrans can never match. It is therefore in the best interest of MalayTrans, which has a very strong local presence in Malaysia, to team up with HKTrans to explore further global market opportunities. From HKTrans’s point of view, the cooperative joint venture with MalayTrans gives access to host

Transnational corporations and business networks

176

government contracts which would otherwise be beyond their reach. In fact, as the Regional Managing Director explained, access to government contracts has been the key reason for the group to enter into cooperative joint ventures with reputable local partners in Indonesia and Malaysia. Viewed from the network approach underpinning this book, access to government contracts has provided the institutional means for the raison d’être of its Malaysian and Indonesian operations. HKTrans is able to enter into extra-firm network relationships with host country governments through a political intermediary (e.g. MalayTrans) which simultaneously performs the role of business partner. The case reveals not so much direct political connections, as in HKTrading or HKElectronics, but rather HKTrans’s capability to become involved in transnational extra-firm networks through local partners.

Box 6.4 HKTrans and access to government contracts As one of the largest freight forwarders from Hong Kong, HKTrans has a global network of operations spanning some thirty countries (see Appendix 2). At the same time, it continues to develop new market opportunities and creates means to add value to its customers’ businesses. Because HKTrans specialises mainly in air freight forwarding of electronics and garment products from Asia to North America, it has an extensive presence in the PRC, Hong Kong and South-east Asia. Market access in South-east Asia has been difficult because freight forwarding is on the negative investment list in Indonesia and Malaysia. Foreign companies must enter into minority joint ventures if they want to take up local contracts, especially government contracts. In view of these regulations and potential local markets, HKTrans entered into a joint venture with one of the largest transport groups in Malaysia in 1993—MalayTrans. The group co-founder and Regional Managing Director (South-east Asia) explained: They are one of the five licensed container trucking companies. You know, there are only five in Malaysia that can actually transport containers. And three of them are government-owned. The one we work with is privately owned, or publicly listed, I should say. [MalayTrans] is also involved in heavy transport, warehousing, distribution—things like that. They have a forwarding division as well. And so what we did was to merge our two forwarding divisions together. And we created a big entity; and we feel their strength in a lot more contacts and introductions to business within Malaysia. And our strength is of course our multinational network of offices and agents. So they have offices in Penang, Butterworth, Port Klang, Subang and so on. (Interviewed in Singapore, 19 August 1994) Because of MalayTrans’s connections with the Malaysian government, HKTrans expects to be able to enter into lucrative government contracts for transport business. The Regional Managing Director for South-east Asia commented again: The [Malaysian] law may be such that you can have only a minority [shareholding] But it only relates to customs broking and if you want to

The political economy of Hong Kong firms in ASEAN

177

get involved in government-related cargo. [I]n freight forwarding, you can have 100 per cent foreign ownership, but you cannot do customs broking and a lot of other things you cannot do. So that’s why we run for the joint venture [with MalayTrans]. Well, the joint venture really was primarily due to our hunch that they have some rather special contacts and those special contacts would lead us to some rather important business. And he [Chairman of MalayTrans] has good contacts in the government, at the highest possible level. Some—but we are waiting for the big one, which I think may come about. But I can’t say what it is—something very interesting we are waiting for. (Interviewed in Singapore, 19 August 1994) Although the Malaysian operation is a joint venture, HKTrans basically controls it and relies on the local partner mainly for introductions to important business deals: They [MalayTrans] don’t run the business; we run the business ourselves. Then we are just waiting for those introductions. When they give us the introductions, we then sit in on the negotiations and conclude the business. You can’t get through the door with somebody unknown there. You must have a very good understanding with your joint-venture partner, whatever the situation, who’s in the driving seat, because if you don’t have trust and synergy and mutual understanding, no joint venture can ever work. We have to have mutual understanding and they are nice people around us. (Interviewed in Singapore, 19 August 1994) In Indonesia, HKTrans has also entered into a joint venture in order to open doors to both private and public business: Indonesia is a much more difficult place to operate, through joint ventures, through partners. So it’s really a special place. I think, if you have a really well connected partner, they could probably open some very interesting doors. But there’s the question of finding that partner. We are satisfied with the arrangement that we have now, with our joint-venture partner. (Interviewed in Singapore, 19 August 1994) It should also be noted that these cooperative joint ventures are often based on strong elements of trust and prior personal relationships between major shareholders or owners (see pp. 165–73). Without embedding gains from political connections in personal relationships it would be a very risky business, because the foreign investor might lose everything and find it impossible to resort to legal action because such action would destroy the potential for further business activities in the host country. But in the case of

Transnational corporations and business networks

178

HKTrans, it has relatively little experience of some of its local partners. For example, it was approached by MalayTrans to enter into a joint venture at a time when the Regional Managing Director knew very little about MalayTrans. He supposed MalayTrans had heard of his company through the media. In this case, HKTrans secured the deal through its reputation and competitive strength. It represents a more formal approach to transnational joint-venture operations. In fact, the Regional Managing Director himself is an English expatriate, although the other two group co-founders are ethnic Chinese. All three of them were former colleagues in one of the largest freight-forwarding groups in Europe during the 1970s. It is therefore to be expected that the group is managed more like a professional business than a typical Chinese family business (see pp. 143–5). Conclusion HKTNCs tend to enter into all kinds of extra-firm network relations in order to circumvent host country regulations and to take advantage of ‘rent seekers’ in the bureaucracy.6 These extra-firm relationships are often embedded in complex inter-firm networks of personal and business relationships. It would be erroneous to view each type of network relationship in isolation from the others. This chapter, for the sake of simplicity in presentation, has addressed only the extra-firm network relationships of HKTNCs and their ASEAN operations through the lens of government assistance and involvement, bargaining power relations and access to government contracts. These network mechanisms or ‘political competences’ (Boddewyn and Brewer, 1994) have enabled HKTNCs to establish themselves in the ASEAN region, irrespective of their investment motivations (as outlined in Chapter 4). Together with Chapter 5, this chapter has shown that Chinese business networks, embedded in the social organisation of ‘institutional thickness’ and host country regulatory regimes, explain reasonably well the processes and mechanisms of transnational operations by HKTNCs in the ASEAN region. This finding contradicts the prevailing negative perception of the ability of Chinese family firms to expand into overseas markets because of inherent constraints within the family. It reinforces Wong’s (1988:151) argument that ‘there is nothing inherent in the Chinese family structure to limit the size of an enterprise’. In this study, there is nothing in the Chinese business structure that inhibits the growth of their transnational operations (e.g. HKCarpet and HKToys). Rather, Chinese business structures, particularly their emphasis on networks of personal and business relationships, tend to facilitate transnational operations by providing the ‘institutional thickness’ and social organisation of transnational capital. Such support is carried mainly through the following network relationships (see Table 6.2): 1 intra-firm control and coordination through ‘family-isation’ and the internalisation of entrepreneurship; 2 inter-firm relations with host country partners through complex shareholding arrangements and with personal friends through joint ventures; 3 extra-firm relations with nation states through bargaining power relations and with ‘rent seekers’ within the state bureaucracy through political connections and access to government contracts.

The political economy of Hong Kong firms in ASEAN

179

Table 6.2 Social and institutional mechanisms of ASEAN operations by Hong Kong transnational corporations: a summary Network relations Category Intra-firm Inter-firm. Extra-firm Nature Control Family and Regulation Coordination kinship ‘Siege mentality’ ‘Family-isation’ Complex State assistance Mechanisms Financial control shareholding Bargaining and Personal trust Reliance on local compromising Internalisation of capital Political connections entrepreneurship Inter-personal guanxi Organisational Wholly-owned Joint ventures Agent forms subsidiaries Associated Cooperative companies agreements HKElectronics Examples of HKArch HKCarpet HKTrading HKTNCs HKComputer HKComputer Suntec project HKToys HKTrans HKTech Suntec project HKTrans It is useful, at this juncture, to link up the discussion of corporate strategies of HKTNCs in Chapter 4 with the main arguments put forward in these three chapters. As is evident from these chapters, market and market-related business strategies favoured by HKTNCs (see pp. 118–25) can be socially and institutionally supported by business networks and personal connections in a predominantly Chinese business system throughout the Southeast Asian region. Without such system support based on relationships among the actors, the business strategies of HKTNCs could not be implemented because the host country markets are ‘closed’ by virtue of various institutional barriers. This book argues that networks of personal and business relationships serve as the social and institutional mechanisms through which transnationalisation strategies can be realised. A related point is that structures do not necessarily follow the strategies depicted in American management literature (e.g. Chandler, 1962, 1977). This study seems to suggest a reverse process in which the marketing strategies of HKTNCs tend to follow and be supported by prevailing social and institutional structures. Both chapters have also shown that Chinese business is largely about guanxi and connections. They have taken a first step to unpacking these ‘mythical’ relationships to search for their social and cultural foundations. A related conclusion follows: transaction cost economics fails to explain the fact that transnational operations, as an economic phenomenon in most cases, are socially and culturally embedded in dense networks of personal and business relationships. It neither informs us about the underlying mechanisms of transnational operations, nor appreciates the socio-cultural significance of

Transnational corporations and business networks

180

different business systems. For example, the transaction cost interpretation predicts that high transaction costs lead to more incentives to internalisation or transnational operations (see Chapter 3). As a result, high trust in a business system should effectively reduce transaction costs and thereby incentives to internalisation. What we observe in the case of HKTNCs, instead, is an increase in cross-border operations under high-trust environments. This counter-argument is particularly valid because of the local embeddedness of HKTNCs in the Chinese business system. Similar to business systems in many minority ethnic groups throughout the world (e.g. the Jews and the Indians), Chinese business has socially and culturally specific modes of rationality. It is concerned as much with cooperation as with competition; it works in networks and groups rather than individual business firms. It differs fundamentally from Anglo-Saxon business systems in which competition and individualism are held to be the vanguard of industrial capitalism (Chandler, 1990; Hamilton, 1991b, 1994). Before I conclude the book, it is helpful to link up the discussion of the networks of HKTNCs and their emerging competitive advantage in the regional and global market place in the following chapter.

7 COMPETING IN THE GLOBAL TRIAD Competitive advantage and business networks By the early twenty-first century, the Chinese global tribe likely will rank with the British-Americans and the Japanese as a driving force in transnational commerce. (Kotkin, 1992:9) The challenge for the Chinese businessmen is to gain a foothold in an increasingly global economy while still retaining the Chinese business ethos. (Chan and Chiang, 1994:357)

The preceding three chapters have detailed the strategies and network mechanisms of the South-east Asian (ASEAN) operations of Hong Kong transnational corporations (HKTNCs). This penultimate chapter poses another very important question: what is the competitive advantage, if any, of HKTNCs? Some answers to this question have already been implicitly discussed in earlier chapters, but now they are explicitly exemplified in this chapter. The existing literature on ‘Third World multinationals’ provides very little insight into the competitive advantage of these emerging corporate entities from the developing world (see Chapter 2; Yeung, 1994a). A few of those studies that examine competitive advantage tend to adopt a comparative management perspective which is inherently Western-centric and biased towards large TNCs from the Triad. The end result is the lack of a clear understanding of the importance of these emerging developing country TNCs, in particular those from the Asian Newly Industrialised Economies (NIEs), in the regional and global economy (see Yeung, 1994b). This chapter examines the competitive advantage of HKTNCs in their own right. In other words, we are not so concerned with comparing the external attributes of HKTNCs with their counterparts from advanced industrialised countries (the comparative management approach). Rather, we want to reveal the internal features of these HKTNCs which contribute to their distinctive competitive advantage.1 Competitive advantage arises only when there is competition in specific markets. If such competition does not exist, the concept of ‘competitive advantage’ ceases to be meaningful. In the service sector, the Asian market is the platform on which most service HKTNCs compete with other companies (Yeung, forthcoming a). In the manufacturing sector, both Asian and American markets are key arenas of competition for HKTNCs because of the large trade flows between the two continents. Despite these sectoral differences in competitive markets, the evaluation of the competitive advantage of any business firm must encompass more than the criteria described in most business strategy books (e.g. Porter, 1980, 1985, 1986) such as costs, assets, profitability, brand names, product differentiation and so on. No doubt these criteria are useful means to evaluate the

Transnational corporations and business networks

182

‘competitiveness’ of HKTNCs vis-à-vis their competitors in market success. But it is also important to address the intangible sources of competitive advantage such as core competencies (e.g. Prahalad and Hamel, 1990; Hamel and Prahalad, 1994) and organisational capabilities (e.g. Harvey and Jones, 1992) because they offer substantial advantages in capturing the market of the present and the future. This chapter focuses on firm-specific competitive advantages2 which, in theoretical terms, emanate from the three dimensions of network relationships already discussed in Chapters 5 and 6: (1) intra-firm control and coordination, (2) inter-firm cooperation and (3) extra-firm political relationships. A closer look at the Chinese business system reveals that network relationships serve as the organisational foundation and competitive advantage of Chinese-owned HKTNCs (see also Bulcke and Zhang, 1995; Yeung, 1998c, forthcoming c). This enormous advantage and power embedded within social and business networks enables emerging Chinese firms to compete successfully in the regional and global economy both in its present form and in its future existence. Kao (1993) remarks that most TNCs today, whether large or small and American or European, must take ‘the Chinese commonwealth’ seriously. Chinese capital and wealth have increasingly become the fourth global economic power outside the Triad comprising American, European and Japanese capital. The chapter is organised into three major sections. The first section starts with an analysis of the reasons why the increasingly important role of TNCs from developing countries and Asian NIEs has been systematically neglected in the literature. Its main message is that such neglect is no longer acceptable in view of the rapid internationalisation of large companies from these Asian NIEs. This general argument is then substantiated by an empirical analysis of the emerging competitive advantage of HKTNCs, based on survey data. It is followed by a descriptive analysis of leading HKTNCs from three industries in Hong Kong that have achieved worldwide success— garments and textiles, electronics, and hotels. Conventional criteria, such as costs of production, product/service quality and technology, are used to demonstrate their apparent competitive advantage. The penultimate section examines, in greater depth, the ‘hidden dimension’ of the competitive advantage of HKTNCs and connects with the arguments raised in Chapters 5 and 6. The case of Peregrine Investments Holdings, as an exemplar of financial HKTNCs and an industry leader in Hong Kong and the region, is chosen to illustrate the importance of business networks and personal relationships in competing for the future. It is speculated that the competitive advantage of ethnic Chinese business firms is embedded in their particular organisational capabilities. This section thus opens up interesting windows for future research. Bias in comparative management studies In the past two decades, the emergence of large and influential TNCs from Asian NIEs has increasingly caught the attention of executives and researchers worldwide. With the exception of Korean TNCs, most Asian NIE TNCs are ethnic Chinese business firms controlling such diverse manufacturing industries as garments, toys, watches and, to a certain extent, personal computers (Kotkin, 1992; Weidenbaum and Hughes, 1996). An interesting question arises from this observation. Why has academic research been rather

Competing in the global Triad: competitive advantage and business networks

183

slow in recognising the importance of these Asian NIE TNCs in the regional and global economy? What are the institutional barriers blocking such vital, yet timely, recognition? Arguably, there is an inherent Western bias in the American comparative management approach and ‘Third World multinationals’ literature (Yeung, 1994a). In the first place, scholars often argue for the hegemony and efficiency of American (or Western) TNCs on the basis of some ethnocentric criteria such as the delegation of authority, separation between ownership and management and long-range planning. Such bias emerges from an essentially positive (which it is) study which is turned into normative conclusions (which is better) (Limlingan, 1986). The comparative management approach is exemplified in Redding and Pugh’s (1986) study of the extent of formalisation in Japanese and Chinese organisational structures. They compared these Japanese and Chinese organisational characteristics with the Aston data bank, in which the results of large-scale surveys of Western organisations were stored. Such a comparative approach is, in fact, laudable in its present form. But once this comparative analysis of organisational structures (a positive study) is stretched to explain the alleged ‘weaknesses’ of one management system (e.g. the Chinese) or to trumpet another management system (e.g. the American), one falls into a serious trap of overgeneralisation. For the purposes of this study, the key objection is based on the premature conclusion that the Chinese managerial system (and Chinese business organisations for that matter) is inherently inferior to Western management systems—a result of the legacy of the comparative management approach. I argue that such a conclusion has underestimated the historical and social formations of managerial systems because the main yardstick used in the comparative management approach is narrowly defined economic efficiency—a direct off-spring of neoclassical economics. This approach, as exemplified in the ‘Third World multinationals’ literature (see Yeung, 1994a), has also obscured the internal strength of different managerial systems, be they Chinese, American or Japanese. To take an example, we look at the role of family management in the growth and expansion of ethnic Chinese business firms. Some studies of Chinese family firms have argued, from a comparative management perspective, that the organisational capabilities or competencies of these family-based firms are inadequate and need to be ‘modernised’ along the lines of Western management systems.3 If not, then it is claimed that there are inherent limits to the growth and expansion of Chinese family firms (e.g. Redding, 1980, 1990; Granovetter, 1991; Kao, 1993; Fukuyama, 1995). Redding (1990:176) remarks that: The first professionally managed and publicly owned Chinese multinational is still waiting somewhere in the shadows, and may, in any case, be a fantasy of minds which assume all enterprises contain the same essential dynamics, and are not really cultural artifacts. (Redding, 1990:176) Such a notion is unsubstantiated, as is shown later in this chapter. Limlingan (1986) criticises Redding’s (1980) assertion that Chinese firms would not grow into large-scale business enterprises because of the competitive disadvantage inherent in the Chinese managerial system:

Transnational corporations and business networks

184

My thesis is that while Redding was justified in pinpointing the existence of a distinct and identifiable system, he was not justified in citing the alleged inherent advantage of the Western managerial system to the Chinese managerial system. (Limlingan, 1986:132) To Limlingan (1986), the key distinction between the family corporation and the Chinese managerial system is that the structure of the Chinese Managerial System is not entrepreneurial or administrative but rather entrepreneurial and administrative. Such a duality of structure can be traced to the strong belief of Chinese businessmen that entrepreneurship is a family or stockholder function while administration can be a professional management function. (p. 144; emphasis omitted)

The competitive advantage of Hong Kong firms The objective of this section is to unravel the prowess of leading HKTNCs in the regional and global economy and to deconstruct misleading stereotypes in the ‘Third World multinationals’ literature.4 Because so much has been written in the literature on the alleged weaknesses of TNCs from developing countries, I shall concentrate on ‘industrial champions’ to offer a more balanced view. Most of the HKTNCs reviewed are leading regional or global companies in their respective industries. One must also bear in mind the small size of the Hong Kong economy, which means that, in relative terms, many of these HKTNCs have made remarkable vis-à-vis giant TNCs from the Triad countries (see also Enright et al., 1997). The section starts with an analysis of the competitive advantage of HKTNCs and their ASEAN subsidiaries and/or affiliates as reported in the survey. It then presents some case studies of leading HKTNCs from three industries in Hong Kong: garments and textiles, electronics, and hotels. Taken together, they describe, rather than explain, the apparent and conventional elements of the competitive advantage of HKTNCs in the regional and global economy. In this study, two conventional proxies are used to indicate the competitiveness of HKTNCs: (1) relative market position and (2) profitability. Relative market position refers to three geographical scales as perceived by the company in question: global, regional and local. Whether a HKTNC is a global or regional or local company depends on its subjective evaluation of its market share and other criteria such as distribution networks and transnational operations.5 The inference drawn from such a geographical classification of market position is about the competitiveness of HKTNCs in an ex post sense. In other words, only if a HKTNC is competitive or possesses some competitive advantages is it able to sustain its market position.6 Figure 7.1 shows the relative market position of HKTNCs and their ASEAN subsidiaries. At the group level (represented by responses from the headquarters), virtually all HKTNCs in this study are either major regional (48 per cent response; N=53) or global companies (51 per cent response; N=56). This finding reinforces arguments in Chapter 4 (pp. 118–25) that HKTNCs tend to

Competing in the global Triad: competitive advantage and business networks

185

transnationalise to implement market or marketing-related strategies. Market position therefore mirrors the extent and success of transnationalisation. At the subsidiary level, the proportion of global operations has dropped significantly: only 35 per cent of ASEAN operations (N=22) rate themselves as a major global company in terms of market position, whereas up to 62 per cent (N=39) prefer to label themselves as a major regional company. On the whole, Figure 7.1 reveals that there are almost as many parent HKTNCs which are major global companies in their own right as those which are major regional players. Market position and market share, however, are inadequate stand-alone indicators of the competitiveness of business firms. I have also employed profitability, both in its short-term and in its long-term predictive variants, as another key indicator of the competitiveness of HKTNCs. The rationale here is that if a HKTNC is not competitive in the future (e.g. not perceived to possess any core competence), it will not expect higher profitability in both the short-term and the long-term future.7 As shown in Figure 7.2, the ASEAN operations of HKTNCs are largely profitable in the short term. On the whole, 75 per cent of all ASEAN operations are found to be quite profitable or very profitable in the short term. There are, however, significant inter-country variations. Malaysian operations are most profitable, since 86 per cent (N=42) of operations report

Figure 7.1 Relative market positions of parent HKTNCs and their ASEAN subsidiaries. Source: author’s survey.

Transnational corporations and business networks

186

Figure 7.2 Short-term profitability of individual ASEAN subsidiaries. Source: author’s survey. above-average profitability. Operations in Singapore yield the least profitability in the short term. Only 63 per cent (N=52) of all operations in Singapore report being quite profitable or very profitable. These short-term profitability statistics demonstrate that HKTNCs tend to compete much more successfully in countries in which there is an emerging market and economic development has recently taken off. How about the long-term prospects of profitability for the ASEAN operations of HKTNCs? Figure 7.3 indicates that in all ASEAN countries the long-term prospect for HKTNCs is rather optimistic. Eighty-three per cent of all ASEAN operations are expected to be quite profitable or very profitable in the long term. This figure shows an improvement over the figure of 75 per cent in the short term. At the individual ASEAN country level, subsidiary operations in Thailand and the Philippines are most optimistic about their long-term future potential when the proportion of responses for above-average profitability increases from 75 per cent (N=38) to 88 per cent (N=44) for Thai operations and from 69 per cent (N=20) to 79 per cent (N=23) for Philippine operations. Indonesian operations, though rather profitable in the short term (81 per cent response), have the least optimism. Only a 3 per cent increase in response is observed in their above-average profitability in the long term. Are HKTNCs and their ASEAN operations really competitive? Figure 7.4 shows that the overwhelming majority of HKTNCs in this study, both parent headquarters and ASEAN subsidiaries, believe that they possess some form of competitive advantage over their competitors. What then are the sources of the competitive advantage enjoyed by some HKTNCs and not by their competitors? Table 7.1 presents a detailed breakdown of the various sources of competitive advantage possessed by HKTNCs and their ASEAN subsidiaries. At the group level (under the column ‘Headquarters’), better product quality and services are clearly the most important source of competitive advantage for both parent HKTNCs and their ASEAN subsidiaries (see also the case studies in the following subsections). They are cited by 18 per cent of all 111 parent HKTNCs (N=38). A closely

Competing in the global Triad: competitive advantage and business networks

187

related source of competitive advantage is better reputation, cited by 11 per cent of all 111 parent HKTNCs (N=23). Integrated networks of operations come only third. At the ASEAN subsidiary level (see columns for subsidiaries in Table 7.1), organisational network structures, as exemplified in the vertical and horizontal integration of business, is the most cited source (19 per cent of all responses) of the competitive advantage and superior performance of ASEAN operations. Better product quality and services come second as the most important source of competitive advantage (14 per cent), followed by possession of specialised materials and resources (11 per cent). At the inter-country level (Table 7.2), too, there are no major differences in the sources of competitive advantage of ASEAN subsidiaries. While integrated networks of customers and offices are most cited, better product quality and services and the possession of specialised materials and resources are two very important sources of the competitive advantage of ASEAN operations. It is

Figure 7.3 Long-term profitability of individual ASEAN subsidiaries. Source: author’s survey.

Transnational corporations and business networks

188

Figure 7.4 Possession of competitive advantage as viewed by parent HKTNCs. Source: author’s survey.

Table 7.1 The competitive advantage of Hong Kong transnational corporations and their ASEAN subsidiaries (responses from parent HKTNCs) Headquarters Subsidiaries Competitive advantage Frequency % Frequency % 1 Lower costs of production 7 3.3 9 2.4 2 Higher technological edge 16 7.6 31 8.3 3 Better managerial expertise 19 9.0 30 8.0 4 Better marketing expertise 9 4.3 35 9.4 5 Special contacts and connections 14 6.6 26 7.0 6 Greater personal familiarity and 17 8.1 18 4.8 experience 7 Possession of specialised 17 8.1 42 11.2 materials/resources 8 Better product quality and services 38 18.0 52 13.9 9 Better reputation 23 10.9 23 6.1 10 Greater financial assets 15 7.1 22 5.9 11 Vertical and horizontal integration of 19 9.0 72 19.3 business 12 Access to specialised or established 11 5.2 14 3.7 markets 13 Flexible strategy and operations 6 2.8 NA NA

Competing in the global Triad: competitive advantage and business networks

Total

211 100.0

189

374 100.0

Source: Author’s survey.

Note: Total number of cases exceeds sample size (N=111) because up to three responses were allowed in the survey. Table 7.2 The competitive advantage of the ASEAN subsidiaries of Hong Kong transnational corporations Competitive advantage Insia Msia Sing Thai Phil Total 1 Lower costs of production 0 1 3 5 0 9 2 Higher technological edge 5 10 11 8 2 31 3 Better managerial expertise 5 6 7 7 5 30 4 Better marketing expertise 5 6 12 7 5 35 5 Special connections 5 8 7 4 2 26 6 Greater personal familiarity and 4 4 5 3 2 18 experience 7 Possession of specialised materials/ 6 8 14 7 7 42 resources 8 Greater financial assets 4 5 5 5 3 22 9 Better product quality/services 7 11 19 9 6 52 10 Proximity to the market 0 0 1 0 0 1 11 Integrated network of customers/offices 11 14 18 16 13 72 12 Access to specialised markets/products 2 4 4 3 1 14 13 Better reputation/image 3 5 6 5 4 23 14 Very mature or established operations 1 3 5 2 1 12 15 Tariff and tax advantages 0 0 0 1 0 1 16 No obvious competitors 0 1 1 1 1 4 Source: Author’s survey.

Note: Total number of cases exceeds sample size (N=111) because up to three responses were allowed in the survey. also interesting to note that very few HKTNCs and their ASEAN subsidiaries perceive lower costs of production as a distinct source of competitive advantage (see Table 7.1). This finding substantiates earlier arguments on the corporate strategy and investment motivations of HKTNCs in Chapter 4 and contradicts the low-price-competition argument in the ‘Third World multinationals’ literature (see pp. 145–6). To sum up this section, HKTNCs are mostly global or regional players in terms of their market position. Their ASEAN operations enjoy a healthy profit performance in both the short-term and long-term future. What accounts at least partially for this success and the performance of HKTNCs in the global and regional economy is their

Transnational corporations and business networks

190

competitiveness expressed in terms of their competitive advantage vis-à-vis competitors worldwide. Three key sources of the competitive advantage of HKTNCs are (1) quality product and reputable services; (2) integrated networks of operations and (3) the possession of specialised materials and resources. The next subsection presents some case studies of leading HKTNCs in order to assess qualitatively how these sources of competitive advantage enhance their regional and global market positions. A tale of leading Hong Kong firms from three industries Hong Kong: the global garment and textile centre Hong Kong was one of the largest global garment and textile manufacturing centres in the past. Its role has now been transformed into that of a major co-ordinator of the global networks of garment manufacturing facilities owned and controlled by leading garment and textile HKTNCs. The knitted and woven clothing manufacturing and trading sector is a major contributor to Hong Kong’s GDP. It accounted for 26 per cent of the gross output and 25 per cent of the value added of all manufacturing industries in 1992 and 32 per cent of domestic exports, 12 per cent of re-exports and 33 per cent of manufacturing employment in 1993 (Hong Kong Government Industry Department, 1994:31–4). These industries from Hong Kong occupy a leading position in global clothing exports. Increasing domestic exports, rapidly growing re-exports and control of manufacturing and exports on every continent has enabled Hong Kong to gain a larger share of the fastgrowing export trade during the past decade (Hong Kong Government Industry Department, 1996). According to the Hong Kong Industry and Technology Development Council’s (1992) report, Hong Kong accounted for 12 per cent of the US$25 billion world exports of clothing in 1980. But by 1990 this figure had almost doubled to 20 per cent of the US$100 billion global market for clothing. Hong Kong has now penetrated four of the world’s major garment markets: the US, Germany, the UK and Japan (see Hong Kong Business, Annual 1995:66–8). Hong Kong is the leading supplier of imported clothing to the US and the UK and the second leading supplier of imported clothing to Germany. With total exports of US$14 billion in 1990, Hong Kong was at the top of the world’s league of clothing exporters, followed by Italy (US$9.4 billion), South Korea (US$9.1 billion), the PRC (US$6.1 billion) and Germany (US$5.6 billion). The textile industry, once the most prominent and dynamic sector of Hong Kong’s economy (Wong, 1988), remains a major employer and producer. It has four main sectors: spinning, weaving, knitted fabric manufacturing and finishing. In terms of its global market share, Hong Kong was the world’s third largest exporter of textiles in 1990, including re-exports. Germany and Italy were at the top of the league. One observation, however, is that the domestic market has always been the largest buyer of Hong Kong’s textiles and the PRC has been the major market for domestic exports of textiles. What, then, accounts for such an important global role played by Hong Kong in the garment and textile industries? This study points to the competitive advantage of HKTNCs which have firmly established themselves in the global market for garments

Competing in the global Triad: competitive advantage and business networks

191

and textile products. Box 4.4 has already introduced the family-owned Esquel Group (garments) and Unisouth (textiles). The key competitive strength of the Esquel Group is its quality products and services. In another family-owned and family-managed integrated textile and garment HKTNC, TAL or Textile Alliance, technology and quality are also cornerstones of its success in the global garment market (see Appendix 2). With a production of 2.4 million dozens of garments for export per year, TAL and its group of companies are major manufacturers in the South-east Asian region. The group’s major market is the US, in which the group claims to manufacture one out of every seven men’s shirts sold in the US market (Yan-lai How, 1994: personal communication). The balance of its products go to Canada, Europe, Japan and Australia. TAL manufactures for well known labels such as Phillips-Van Heusen, Liz Claiborne, Polo Ralph Lauren, Giorgio Armani, Perry Ellis, Izod, Valentino, London Fog, Henry Grethel, Evan Picone, Donna Karan and others. On the retail side, several garment HKTNCs managed to establish themselves as the dominant players in local retail markets throughout the Asian region. Examples are Esprit Asia, Giordano, Fang Brothers’ Toppy, Episode, Jessica and Excursion, G2000, Theme and so on. These apparel retail chains are extremely successful in Hong Kong, Malaysia, Singapore, South Korea, Taiwan, Thailand and even the PRC. Take Esprit Asia as an example (see Appendix 2). It is a retailer and wholesale distributor of high-quality fashion products sold at competitive prices under the internationally known Esprit brand name. The Esprit image, which has been developed and promoted by the Esprit Global network (including Esprit Asia), is of active people with a young outlook, who live and dress in an individualistic, fun and fashionable way. The Esprit image is reflected in all aspects of Esprit Asia’s operations, including the products sold, the design of its retail outlets, its advertisements and its corporate culture. Esprit Asia has established an extensive retail and wholesale distribution network in Asia since it commenced operations in 1981. In developing this business, Esprit Asia has always endeavoured to ensure that the Esprit image is promoted in every aspect of the sale, distribution and marketing of Esprit products. Hong Kong: the global producer of specialised electronics products Another vital manufacturing industry in Hong Kong is electronics. In the Hong Kong Industry Development Board’s (1991) report on the electronics industry during the period 1988–9, the industry was portrayed as growing, but more slowly than those of Taiwan and South Korea. There are marked differences in the approaches taken by electronics manufacturers in other Asian Tigers and HKTNCs: 1 Hong Kong’s move into the PRC is dictated more by the need to gain access to lowcost Chinese labour than by seeking markets. 2 Hong Kong continues to be at the low end of the consumer electronics market and there is very little shift to higher-technology products (Yeh and Ng, 1994; Leung and Wu, 1995; Tuan and Ng, 1995a). 3 Hong Kong continues to be heavily dependent upon imported components as opposed to developing a local component industry.

Transnational corporations and business networks

192

Against this pessimistic picture of Hong Kong’s electronics industry, this book argues that there are emerging electronics HKTNCs which are capable of manufacturing worldclass products (see also Hong Kong Government Industry Department, 1996). As described in Box 7.1 and earlier boxes, some of these industrial leaders are ASM Pacific Technology and HKPrecision (see Box 4.5) in the manufacturing of lead frames for semiconductor manufacturers, Astec in power supply, Johnson Electric in electric motors, Elec & Eltek and Wong’s International in printed circuit board (PCB) manufacturing, Gold Peak in battery manufacturing, HKElectronics (see Box 6.2) in manufacturing portable and cellular phones and Varitronix International in LCD displays. Hong Kong: the global hotel owner Owning hotels was never a ball game for Chinese business firms in Hong Kong before 1980. In fact, only two major hotel operators existed in Hong Kong prior to the 1970s: Hong Kong & Shanghai Hotels and Mandarin Oriental International. Both hotel groups are well connected with Jewish and British capital in Hong Kong. Hong Kong & Shanghai Hotels is owned by the Kadoorie family, which has extensive business links with Swire Pacific and other leading Hong Kong companies. Mandarin Oriental International is owned by Jardine Matheson and belongs to part of Jardine’s business empire in Hong Kong. It was not until the property boom in Hong Kong during the 1970s that many leading Chinese property developers had made their fortunes. The 1970s witnessed the

Box 7.1 Leading electronics Hong Kong transnational corporations Astec (see Appendix 2) It is the world’s leading supplier of electronic power conversion products and also provides a wide range of electronic components primarily for the information technology market. Astec develops and manufactures on three continents and serves markets throughout the world. Its success is based on the close relationship it maintains with customers (compared with ASM and HKPrecision in Box 4.5). This interaction takes place throughout Astec, including manufacturing, engineering and sales office environments, as well as at customers’ locations. Johnson Electric (see Appendix 2) The first Hong Kong manufacturer of electric motors. The availability and low cost of the Johnson motor, together with its quality, allowed the local toy industry to evolve and helped launch the entire industry in Hong Kong. In the 1970s, the company diversified into the design and manufacture of a.c. motors for use in household appliances. Public listing in 1984 enabled the company to expand further through automation and computerisation. Johnson is now the world’s second largest maker of micro-motors, after Japan’s Mabuchi Motors (Far Eastern Economic Review, 7 April 1994:70–1). Despite its family ownership (60 per cent) and control of management, Johnson has evolved into a true TNC with worldwide production facilities and marketing offices. As early as 1982, Johnson succeeded in capturing orders from its Japanese competitors. It was committed to an order of 1 million motors for hair dryers from a US company. Today, Johnson’s customers include such automobile giants as Toyota and Japanese subcontractors who supply the likes of Hitachi, Matsushita and Sharp.

Competing in the global Triad: competitive advantage and business networks

193

Elec & Eltek (see Appendix 2) The company is one of the world’s leading printed circuit board (PCB) manufacturers, priding itself on being the first Hong Kong company to produce double-sided PCBs. It now supplies 0.5 per cent of all multi-layered and doublesided PCBs in the world (Economic Digest, 18 May 1992; Hong Kong Business, August 1993:24). In 1980, the company took an industry lead in Hong Kong by developing the more sophisticated multi-layered PCBs to meet customers’ changing needs. It has a strong client base for PCB products, including AST, Adaptec, Conner Peripherals, Digital, Hewlett Packard, IBM, ICL, Maxtor, NCR, NEC, Olivetti, Telefunken, Texas Instruments and Western Digital. It has also won awards from many of these leading customers. Gold Peak (see Appendix 2) Starting as a family business in a twenty-worker factory, the GP group has now become a truly global HKTNC with production facilities strategically located all over the world (South China Morning Post, 25 February 1994:15–18). It is one of the world’s top ten leading suppliers of speciality batteries and a major supplier of electrical installation products in Asia. In 1996, its share of the global market for batteries was 9 per cent. It also had a 60 per cent share of the battery market in the PRC and a 10 per cent share in Russia (The Straits Times, 26 September 1996). It is also the largest manufacturer of car audio equipment in Hong Kong and the PRC. Other than being a leading OEM supplier, the group is actively promoting its branded products in Asia. Based in Asia and equipped with an extensive manufacturing and marketing network, the group is favourably positioned to expand further globally, with particular emphasis on the Asia-Pacific region. The core competence of the group rests in its ability to position itself in a niche market and, over time, build its capabilities to serve that end. Varitronix (see Appendix 2) Since its inception, Varitronix has been a researchdriven company, supplying quality mass-market LCDs as well as custom designing and manufacturing sophisticated commercial, industrial and military display modules, assemblies and systems. It has prospered by displaying responsiveness to customers’ requirements, flexibility in production techniques and constant innovation in adapting and creating LCD technologies. Varitronix is now a world-class supplier to such prestigious clients as Mercedes-Benz, Ferrari, Hasselblad, TGV trains in France and Ericsson mobile phones (Hong Kong Business, November 1992:24–30). Of the eight original founding directors, seven are researchers or academics of some sort. The company enjoys much flexibility over its competitors because it can be very responsive to specialised customer requirements. Other than flexibility, unity in management is a key competitive advantage. Dr C.C.Chang, Chairman and a former engineering lecturer in the Chinese University of Hong Kong, noted that ‘We haven’t had a management change in fourteen years and we’re very proud of that fact. We were all from academic backgrounds, we were friends before, and we have a strong sense of purpose’ (quoted in Hong Kong Business, November 1992:28). transfer of corporate control of Hong Kong’s economy from dominant British hongs (e.g. Jardine Matheson and Swire Pacific) to giant Chinese property companies such as Li Kashing’s Cheung Kong, Cheng Yu Tung’s New World, Lee Shau-kee’s Henderson Land and Kwok brothers’ Sun Hung Kai. The late 1970s also saw the takeover of some former British hongs by cash-rich Hong Kong Chinese businessmen, e.g. Wharf Group by the

Transnational corporations and business networks

194

late Y.K.Pao and Hutchison Whampoa by Li Ka-shing. Some of these property magnates have increasingly been interested in expanding their corporate empires by acquiring hotels throughout the world, e.g. New World and Wharf. Meanwhile, new hotel operations have emerged since the late 1970s, e.g. Regal International and Shangri-La International (see Go and Pine, 1995). Box 7.2 and Table 7.3 summarise the information on some of the leading world hotels owned by HKTNCs. Apart from these seven key hotel owners from Hong Kong, many

Box 7.2 Leading hotel groups from Hong Kong Hong Kong and Shanghai Hotels Established in 1866 in Hong Kong by the Kadoorie family, the group owns Peninsular hotels in Asia and the US. The company has a long history of and experience in managing high-class hotels. Mandarin Oriental International Established in 1963, it was demerged from Hongkong Land in 1987 and has always been a hotel flagship company under the Jardine Matheson group. Its Mandarin Oriental hotels in Asia have won many awards for being the Best Hotel in Asia. New World Development Co. Controlled by Cheng Yu Tung and his family, the group has emerged as one of the largest property development companies in Hong Kong since the 1970s and 1980s. It diversified into hotels by acquiring New World Hotels in 1976 and, more than a decade later, Ramada Hotels in 1989. Wharf Holdings The group has a long history of operations in Hong Kong, dating back to 1886. It was taken over by the late Y.K.Pao in 1980 and is now the largest landlord in Hong Kong. It has acquired Omni Group and its Omni Marco Polo and Omni Prince chains of hotels in the US and Asia. Hopewell Holdings Hopewell was established in 1969 by the Wu family. It has been extensively involved in infrastructural construction projects in the PRC. It has also made some investments in hotels, although construction remains its core business. Regal Hotels International Acquired in 1981 by Y.S.Lo and his company, Century City Holdings. Lo now controls some 171 hotels in the US and tens of others in Hong Kong and elsewhere (Hong Kong Business, June 1993:20–6). The three biggest hotel owners from Hong Kong—Regal, Wharf and New World—together control more than 250 hotels in the US and many others in Asia and Europe. Shangri-La International Acquired by the Malaysian Chinese ‘sugar king’, Robert Kuok, during his expansion into Hong Kong in the 1970s, the group has expanded significantly from five hotels in 1978 to twenty in 1992 and was aiming for thirty in 1995 (Executive, April 1993:14). other hotels in Asia are either owned by local companies or franchised to local operators (e.g. Hyatt, Holiday Inn and so on). Business networks and the hidden dimension of competitiveness The above analyses and case studies have shown that HKTNCs are capable of competing in the regional and global economy. Their competitive advantage

Competing in the global Triad: competitive advantage and business networks

195

Table 7.3 World-class hotels owned and controlled by Hong Kong transnational corporation HKTNC Hotel Location No. of Total Rooms revenue ($mn) 1992 Hong Kong and Peninsular Hong Kong 156 320 (HK$) Shanghai Hotels Kowloon Hotel Hong Kong 737 598 (HK$) Peninsular New USA 242 275 (US$) York Peninsular Beverly USA NA NA Hills Peninsular Manila The NA NA Philippines Palace Hotel, Beijing PRC NA 29 (RMB$) 1993 (US$) Mandarin Oriental Mandarin Oriental Hong Kong 542 60 International Excelsior Hong Kong 905 50 Oriental, Bangkok Thailand 393 39 Mandarin Oriental, Philippines 464 20 Manila Mandarin Oriental, Indonesia 446 20 Jakarta Mandarin Oriental, Macau 433 18 Macau Oriental Singapore 517 30 Mandarin Oriental, USA 158 9 San Francisco Hotel Bela Vista Macau 8 0.4 Phuket Yacht Club Thailand 110 NA Baan Taling Ngam Thailand 49 NA Mandarin Oriental Mexico 316 NA (1994) Landmark Hotel, Indonesia 150 NA Surabaya New Thai Island Thailand 40 NA Resort Mandarin Oriental Malaysia 628 NA (1997)

Transnational corporations and business networks

New World Development Co.

New World Hotels

Hong Kong PRC South-east Asia Macau N. America

196

1,936 3,984 319

1993 NA NA NA

394 21,861

NA NA

Ramada International Hotels Stouffer hotels Europe/Mid 12,481 East Renaissance hotels Latin 4,063 America Ramada hotels Asia 3,580 Australia 1,994 Wharf Holdings

Omni Hongkong Hotel Omni Marco Polo Hotel Omni Prince Hotel Omni Marco Polo Hotel Omni Houston Hotel Omni Parker House Omni Berkshire Place Omni Richmond Hotel Omni Ambassador East Omni Mandalay Hotel Dunfey San Mateo Hotel

Hopewell Holdings Grand Hotel Excelsior Kowloon Panda Hotel

Hong Kong

718

Hong Kong

440

Hong Kong Singapore

402 603

USA USA USA

381 550 450

USA

375

USA

300

USA

420

USA

300

Hong Kong

NA

Hong Kong

NA

NA NA NA NA 1992 HK$1.7 billion

1993 HK$210 million

Competing in the global Triad: competitive advantage and business networks

Regal Hotels International Holdings

Richfield Hotels (171 hotels) Regal Hotels (4 hotels)

USA

33,350

NA

Hong Kong

2210

NA

NA 900

NA NA

NA NA NA NA NA NA

NA NA NA NA NA NA

PRC Regal Germany (20 Canada hotels) Europe Shangri-La Shangri-La Hong Kong International Group Malaysia Singapore Philippines PRC

197

Sources: Company annual reports, various years. rests with such conventional criteria as product and service quality, reputation and expertise in specific areas. These ‘objective’ criteria are commonly used in the comparative management approach to evaluate the advantage of one group of companies over another. Because the criteria are largely descriptive, however, they do not provide ready insights into the reasons why these companies possess any such advantage in the first place. Are they products of mere ‘historical accident’ or are they embedded in distinctive organisational capabilities which in turn originate from peculiar business systems? To explain the origin and the formation of the competitive advantage of Asian firms, particularly ethnic Chinese business firms, we need to probe more deeply the ‘hidden dimension’—their business networks and intricate webs of personal relationships which contribute to their organisational capabilities and core competencies. These conceptual tools help us understand not only competition in the present, but also competition in the future (e.g. Hamel and Prahalad, 1994), because such competitive advantage is sustained and reproduced through network relationships over time and space. We are therefore more interested in the emerging competitive advantage than in successful formulas of the past. Such a forward-looking approach overcomes some weaknesses identified in earlier approaches, e.g. focusing on comparing the competitive advantage of firms in the markets of the past and present. This section starts with some theoretical analyses of the ‘hidden’ dimension of the competitive advantage of ethnic Chinese business firms, substantiated with evidence drawn from various case studies in this book and secondary sources. It then presents the case of Peregrine, a renowned financial HKTNC in Asia, to cross-examine some speculative points raised in this section.

Transnational corporations and business networks

198

The ‘hidden’ competitive advantage of ethnic Chinese business firms In Chapter 5, networks of personal and business relationships were found to be the key mechanism through which HKTNCs establish their ASEAN operations. This chapter argues that these personal and business networks also provide the organisational capabilities which enable HKTNCs to compete with other TNCs on a worldwide basis. What then are these organisational capabilities embedded in personal and business networks among predominantly ethnic Chinese business firms? Firms are involved in complex webs of network relationships because they want to benefit from cooperation with each other (Yeung, 1997b; see also Dunning, 1995b, 1997). Because of this quest for mutual benefits through cooperation in network relationships (see pp. 62–3), discrimination against ‘outsiders’ is justified and widely practised. In other words, network relationships function as a means of achieving ‘closure’ to outside competitors (see p. 142). Networks of personal and business relationships are the primary means of sustaining competitive advantage in Chinese-dominated economies in Asia, notably Hong Kong, Singapore, Taiwan and the PRC (Hamilton, 1991a). The ‘closed’ nature of the Asian market makes it very difficult for ‘outsiders’ or foreigners to penetrate even though they may offer the most competitive prices or quality products (The Economist, 26 November 1994:17; Braadbaart, 1995). There are two aspects to these protective networks of personal and business relationships. First, they serve to protect insiders against any possible encroachment by outsiders. In competing with outsiders for market access, an insider has the distinct advantage of good relationships or guanxi based on those elements analysed in Chapter 5 (pp. 137–41). Second, personal or business networks provide the organisational capabilities necessary to enter the regional and global economy. A multi-locational network of operations strengthens the TNC in competing with uni-locational or local firms. It is particularly important if the TNC manages to achieve ‘first mover’ advantage (see Chandler, 1990). Once established, these networks tend to perpetuate and reproduce themselves over time and space, which makes it very difficult for newcomers or outsiders to replicate them. Together, both aspects of network relationships can be the key organisational capabilities and core competencies of participating actors/firms. In this study, network relationships give rise to the competitive advantage of HKTNCs by protecting them against outside competitors and strengthening them through multinationality (Yeung, forthcoming c). If markets in Asia are still very much ‘closed’, many HKTNCs enjoy a de facto competitive advantage because of their relatively long history of embeddedness in complex personal and business networks. What then are the organisational bases of this competitive advantage? First, long-term mutual commitments based on obligations of reciprocity in network relationships reduce uncertainties in business transactions (Kuo, 1991). It is easier for ethnic Chinese business firms to achieve innovative efficiency by a constant process of fission and re-fusion into more and more smaller firms organised within complex webs of network relationships (Eng, 1997). Personal relationships or guanxi result in efficiency, flexibility and informality of operations. Redding (1991:45) notes that ‘[i]n a particular year, a single company will begin the manufacture of wigs, plastic flowers, watches, or telephones; a year later there will be hundreds of companies

Competing in the global Triad: competitive advantage and business networks

199

doing the same, each locking on to and expanding the complexity of the core network.’ Chapter 5 (pp. 156–60) has shown how transnational operations can be made possible through such an innovative process of fission and re-fusion (e.g. the case of HKToys in Box 5.2). The willingness of former employers to help their employees set up their own businesses or ‘quasi-autonomous’ businesses (e.g. HKArch in Box 5.1 and SINToys in Box 5.2) is instructive. Because such a process is based on networks of personal relationships, at any time a business group can activate a dense network of related firms to compete for jobs or contracts (Redding, 1994; Yeung, 1997b). An example is the Suntec Group in Singapore (see Box 6.3) in which the Chairman, Frank Tsao, activated his son, Calvin Tsao, and his private architectural firm, to draft the contract-winning design blueprint for Suntec City. Second, through personal and business networks, better information resources can be shared and business opportunities maximised. Both mechanisms tend to offer ‘first mover’ advantage. When investment opportunities arise, insiders are often given exclusive rights to participate in the projects. Such early access to information can prove to be vital in competing against outsiders because business is often about information and opportunities. Moreover, information is equally vital in markets in which rules and regulations are not transparent. ‘Insider information’ can make or break a business venture. Perhaps one of the least transparent business environments in Asia is the PRC. The ‘open door’ policy of the PRC since 1979 has attracted many foreign firms interested in sharing the economic wealth of this the world’s largest emerging market. There are, however, as many foreign companies which fail to establish themselves as those which succeed. Those that fail have failed because they do not understand the market as well as their competitors. They tend to overlook crucial aspects of establishing relationships with the state and consumers. Information is crucial in understanding the Chinese market and establishing a relationship with the right person. The former Prime Minister and now Senior Minister of Singapore, Lee Kuan Yew, in his keynote address to the second World Chinese Entrepreneurs Convention, held in Hong Kong in 1993, identified guanxi or personal relationships as an important advantage that overseas Chinese should make use of in order to compete with Western rivals for business in the PRC (see also Weidenbaum and Hughes, 1996). He argued that guanxi ‘can make up for a lack in the rule of law, and transparency in rules and regulations. This guanxi capability will be of value for the next 20 years at least’ (quoted in Far Eastern Economic Review, 2 December 1993:17; see also The Business Times, 6 December 1993). In this respect, leading HKTNCs are proud of their congenial relations with top Chinese officials. They are often able to bypass the bureaucracy because of their direct access to top officials in Beijing. Two specific examples are relevant here. In the first case, Peter Woo8 and his flagship companies—Wharf Holdings and Wheelock & Co. (see Appendix 2) have striven hard to become a modern-day compradore in order to bridge the gap between Western firms and business in the PRC (Far Eastern Economic Review, 23 December 1993:38–9; Forbes, January-February 1994:22–5). In Woo’s opinion, the PRC is too big for anyone to go it alone. Mainland investment is all about partnerships, pooling resources to help the PRC develop. He found Western firms very inefficient and bureaucratic in making deals:

Transnational corporations and business networks

200

Western businessmen go to [Beijing] when they want to do deals in China. But when I go to the US, I rarely go to Washington…Western companies take a long time to make decisions; they need a lot of lawyers. The bureaucracy is too heavy for this part of the world, overseas Chinese know not to create such deterrents. (Quoted in Far Eastern Economic Review, 23 December 1993:39) The competitive advantage offered by his companies when going into partnerships to invest in the PRC is that ‘We have the ability to network, we have good people, we can give others credibility’ (quoted in Far Eastern Economic Review, 23 December 1993:39). In fact, Woo personally went to Beijing to meet Li Peng, the Premier of the PRC, in early 1992, after which his billion-dollar property development project in Wuhan was given the green light. Since then, his Wuhan project has been very smoothly implemented. Woo remarked that ‘as long as Li Peng agrees, you can go ahead with your plan’ (quoted in Economic Digest, 1 February 1993:13). In the second case, the importance of personal relationships with Chinese officials has undermined the role of legal contracts in doing business in the PRC. Li Ka-shing, a leading Hong Kong businessman who has invested billions of dollars in the PRC, has been able to go ahead with his US$1.2 billion Oriental Plaza in Beijing, which has displaced the American symbol, McDonald’s, on exactly the same site (The Economist, 26 November 1994:86). McDonald’s was first granted a twenty-year land use agreement for the site of its hamburger restaurant, the biggest of its kind in the world, at one of Beijing’s busiest cross-roads. But Li’s multi-billion project appeared to be a grander idea for that street corner and got approval and backing from top officials. Much of the area surrounding McDonald’s has already been demolished to make way for Li’s Oriental Plaza. Although McDonald’s contract gave it the right to land, Beijing promised a place in the new building when it was completed by 1997. Meanwhile, McDonald’s was requested to remove itself for the time being. It had no alternative if it wanted to carry out its ambitious plans for expansion in Beijing and elsewhere in the PRC because antagonising Beijing’s authorities would do little to serve that goal. This case clearly shows that legal contracts are simply a piece of paper when they compete with personal relationships in doing business in the PRC. That explains why the success of many HKTNCs in cultivating such personal relationships has enabled them to gain substantial leverages over Western firms, at least in the short term. Third, guanxi-based creditworthiness (xin yong) enhances the ease of capital formation (Lin, 1991; Braadbaart, 1995; Mitchell, 1995). Mackie (1992b:173) argues that ‘[t]he wider network of overseas Chinese investment is a source of support for those powerful enough to have access to it’. In his study of Chinese and pribumi (indigenous people)managed engineering firms in Indonesia, for example, Braadbaart (1995:193) concludes that ‘a number of Chinese managers could profit from assets such as previous trade experience, financial resources and customer networks built up in an earlier phase, all of which facilitated the expansion of their enterprise.’ Mitchell (1995) also notes that in the era of worldwide deregulation of finance, which has resulted in the ‘deterritorialisation of credit’ and greater reliance on personal contacts both within and outside the banking industry, Chinese businessmen are far in advance of their Western counterparts because they are able to rely on previously established personal relationships that already form the core of their informal credit networks. The Suntec City project in Chapter 6 (Box 6.3)

Competing in the global Triad: competitive advantage and business networks

201

again provides a relevant example. Because of close relationships among a small number of shareholders, Suntec City Pte Ltd has no problem in being recognised as the financial pool of leading Hong Kong businessmen. Similarly, several shareholders from the Suntec Group have also participated in a privately funded urban mega-project in Vancouver, on the former site of World’s Fair Expo ’86 (Mitchell, 1995; Olds, 1995, forthcoming).9 Another clear advantage of such informal networks of credit and capital is the longterm perspective of investment. Both the Suntec and the Vancouver projects cost billions of dollars in paid-up capital. They would have cost shareholders from Hong Kong much more had they had to go it alone and borrow from banks and other financial institutions in order to finance the projects. Instead, they relied on personal and informal credit networks to reduce both interest costs and long-term risks. Going back to the Suntec case again, the Hong Kong consortium had virtually no competitors in winning the largest private property investment project ever in Singapore. Two other bidders, Robert Kuok from Malaysia and Far East Organisation from Singapore, were well connected with some shareholders in the Suntec Group. Their presence was practically ‘for show’, to raise ‘competition’ while in fact the latter two groups already knew they would lose to the Hong Kong consortium. Because of its financial muscle and expertise in property development, the Hong Kong consortium could offer the highest bid and a superior design blueprint, thanks to Calvin Tsao’s work. It is very tempting to ask why there were no other major international property development companies bidding for the Suntec project—Asia’s largest convention and exhibition centre. The project must be lucrative enough to lure leading Hong Kong businessmen to band together. The fundamental answer lies in the consortium’s financial strength and network relationships, which proved to be a formidable ‘fortress’ against Western companies of similar strength and power. It also had strong bargaining power leveraged against the state and other commercial institutions (see Box 6.3). It must be noted, however, that the Suntec Group has secured only the overall development and management contract; it has also subcontracted out major construction jobs to world-class firms from South Korea and the Triad countries. Finally, once established, this ethnic-based, particularistic exchange network has a tendency to preserve itself as a ‘closed’ system and to protect and perpetuate an existing monopoly. This argument is nowhere better exemplified than by the overseas Chinese in South-east Asia. McVey (1992b:21) observes that ‘South east Asian Chinese entrepreneurs also used the links of relationship and trust created by the overseas Chinese Diaspora to found trading and financial networks which covered South east Asia, Taiwan, Hong Kong, and eventually the general Pacific rim.’ In virtually all South-east Asian countries (except Singapore), the Chinese are a minority ethnic group, yet they control the bulk of the economic activity and of the wealth of the South-east Asian nations (East Asia Analytical Unit, 1995; Mackie, 1995; Hodder, 1996; Weidenbaum and Hughes, 1996). Why are Western firms unable to gain as much from the economic pie as the overseas Chinese? One only plausible explanation is the inherent competitive strength of Chinese business networks. In Malaysia, for example, the competitive advantage of Chinese businesses in the commercial sector is derived from their control of the urban distributive networks, not to mention their control of other forms of credit and industrial networks. In 1985 the ethnic-centric national government wanted to bypass Chinese wholesalers by importing mandarin oranges direct from the PRC. But this ill-fated move

Transnational corporations and business networks

202

was a disaster because of the strong network relationships established for decades between the overseas Chinese in Malaysia and their trading partners in southern China (Jesudason, 1989; Kuo, 1991). Relationship-based ties among the overseas Chinese diaspora thus perpetuate the competitive strength of ethnic Chinese business firms and enable them to compete in the world market. In the final analysis, Chinese personal and business networks provide HKTNCs with the organisational capabilities and core competencies to leverage enormous competitive advantage over their world competitors. By effectively excluding ‘outsiders’ from business deals and contracts, these Chinese networks not only safeguard the interests of ‘insiders’ but also reproduce themselves over time and space. The inherent competitive advantage of HKTNCs is not technology or capital or even products/services per se, but their intangible network relationships and cooperative synergy, which many Western firms have grave difficulty in matching (Yeung, 1997a, 1997b). Such a distinct competitive advantage is particularly relevant in economies or markets in which information is asymmetrical and rules and regulations are vague and opaque. In many Asian economies to date, such unique characteristics prevail. Even in established markets in developed countries, the overseas Chinese diaspora has succeeded in establishing itself. It is so successful that some fear ‘reverse colonisation’ by overseas Chinese capitalism (Kotkin, 1992)! Hong Kong: the financial centre of Asia Today, few observers would deny the importance of Hong Kong as the leading Asian financial centre outside Tokyo. The rapid development of financial markets in Hong Kong has facilitated the emergence of indigenous financial HKTNCs which are engaged in providing all forms of financial services, from investment holding, securities, commodities and foreign exchange brokerage, securities, equity derivatives to commodity dealing and merchant banking. Some of these financial HKTNCs have emerged as leading financial service companies in Asia, extending their networks of offices throughout the region to serve everdemanding clients. Some of them also follow their clients and go transnational. The most reputable financial HKTNCs include Peregrine Investments Holdings, Sun Hung Kai & Co., Wardley, CEF and Crosby Securities. Chapter 4 (Box 4.3) presented the case of Sun Hung Kai & Co. This section examines another rising star in Hong Kong’s financial community—Peregrine Investments Holdings (see Box 7.3). Peregrine is a typical case in which a HKTNC has achieved superior support from networked shareholders and local joint-venture partners. Perhaps one may even argue that these network relationships are particularly important in financial services per se.10 Peregrine’s case serves to show the strength of overseas Chinese networks of capital and the role of financial institutions in advancing the interests and competitive advantage of members within the network. In fact, the success of Peregrine has shown that strong embeddedness in network relationships contributes not only to the competitive advantage of the nodal centre within the network (i.e. Peregrine), but also to successful business operations among other ‘hidden’ members within the network. Once the snowball effect has been set in motion, it reproduces itself quickly.

Competing in the global Triad: competitive advantage and business networks

203

Box 7.3 The competitive advantage of Peregrine Investments Holdings From a humble start in 1988, Peregrine has become one of the largest and most reputable merchant bankers in Asia (Appendix 2). It has grown from scratch into a securities powerhouse with assets of more than US$1 billion (Far Eastern Economic Review, 9 May 1996:70–5). With a global network of thirty-five offices in 1996, it lead-managed equity transactions which have raised over US$2 billion for Asian companies, making it the best book runner of Asian equity issues. It also has the world’s largest team dedicated to the international sale of Asian securities. Such phenomenal success can be attributed to nothing other than its superior relationships with the top echelon of Hong Kong’s business community, key politicians all over Asia and outstanding local partners in its countries of operation. The Peregrine group is headquartered in Hong Kong and has, through its subsidiaries and associated companies, regional offices in most countries in Asia. The group influences and actively participates in the management of its associated companies. The group’s strategy for its regional offices is for such offices to be in a position to conduct a local investment banking and securities business and to work with Hong Kong and other offices of the group in generating and executing international and cross-border transactions. Consistent with this strategy, a subsidiary or associated company of the group is a member of the local stock exchange in most of the countries in which the group’s subsidiaries or associated companies have offices. An executive director of the group emphasised the paramount important role of local partners in overseas operations, irrespective of equity ownership arrangements: the idea is that Peregrine brings the financial expertise to manage these companies and the industrial companies bring a good sense of the local business scene in each of the countries…The idea of a minority or majority percentage is not the main question for us; the main question is that Peregrine should manage the company with its financial expertise and secondly we should have chosen good partners. And in some countries we have minority percentages; in other countries we have majority percentages. It doesn’t matter. (Interviewed in Hong Kong, 15 March 1994) Because of its eighteen founding shareholding companies and reputable local partners, the group is able to build up significant relationships with existing and potential clients which give rise to its distinctive competitive advantage. It has exploited the ‘network’ concept from both fronts. First, it managed to establish its regional network of operations to serve clients from existing networks and to serve customers in host countries. The strength of the Peregrine group is predicated on its local presence through extensive networks of partnership. For example, a director in Indonesia commented that: I see our role as basically stand alone i e we rely on Peregrine for

Transnational corporations and business networks

204

distribution through their international network, but we don’t rely on their expertise. We have to stand alone in terms of producing business. We don’t believe in people parachuting in from overseas and doing business that way. Peregrine is successful by having a local presence with staff, with professionals, as now we are doing. This idea, as the Americans are fond of, of basing people in Hong Kong and Singapore and then parachuting in, just doesn’t work, particularly doesn’t work in an environment like Indonesia where you have to be very careful as to the type of business you take on and it’s very difficult to recognise quality business from non-quality business if you are not living here and don’t have the contacts in the local market. (Interviewed in Jakarta, 27 June 1994) Peregrine’s local partner in Indonesia, Gunung Sewu, is a very reputable conglomerate, comprising more than twenty companies with approximately 18,000 employees and involved in a variety of business activities such as real estate, agribusiness, manufacturing, financial services, information technology and retailing. Reflecting on the joint-venture relationship and how it has helped Peregrine establish itself in Indonesia, the director in Indonesia reflected that: Well, they love to help us. The joint venture is for us to expand our business. They are in financial investment but there are spin-off opportunities for our partners here in the sense that, through contacts, Peregrine can introduce them to new business activities with some of Peregrine’s clients quite separate from this joint venture. So it’s been useful to them. In the same way, it’s been useful in terms of broadening business here. They promote Peregrine Sewu in the market to their friends. They were very welcome. That has helped us develop our reputation and our access in the market. Obviously we have to do things properly. But at least they can promote us. They can direct us to business…I think it’s quite hard [without a local partner], you know. Presumably, if you do it 100 per cent, you could hire someone who is as well connected in terms of knowing the local market. I don’t think that is [possible]. If there was a deeper pool of expertise here in terms of investment banking, then maybe we could go that route. But because there is not, it’s not appropriate, I think, to have somebody who is just well connected. You know, at the senior position, people in an investment bank have to all be working; and they have to know the business and they have to contribute. It will be more satisfactory if a local partner has size who can direct you towards business. (Interviewed in Jakarta, 27 June 1994)

Competing in the global Triad: competitive advantage and business networks

205

Second, the Peregrine group has developed extensive networks of personal and business relationships which form the core competencies of the group. The ability to develop the group’s activities in the major countries of Asia has been considerably enhanced by the core strategy of establishing partnerships with prominent industrial and business entities (Annual Report, 1993): 1 The PRC: Scriven Trading (a company owned by the Beijing municipal people’s government), Beijing Zhenyang Industry Development Corporation and Ananda Holdings. 2 The Philippines: three prominent business leaders—John Gokongwei Jr, Alfredo Ramos and Ambassador Alfonso Yuchengco. 3 Indonesia: the Gunung Sewu Group. 4 South Korea: major local manufacturing companies—Dong Bang Corporation, Eagon Industrial Co., Taihan Sugar Industrial Co., Korea Green Cross Corporation, Dongshin Foods Co. and Ilshin Spinning Co. 5 Vietnam: Dai Nam Co., whose shareholders have powerful connections with Vietnamese leaders (Nguyen Trung True) and businessmen in Malaysia (Dato’ Tan Chin Nam). 6 Australia: John Reid, one of Australia’s most experienced and respected business leaders. 7 India: ITC Classic Finance, one of the highest market capitalisation and extensive distribution networks in India. 8 Malaysia: three local Malaysian shareholders. 9 Thailand: Nithipat Public Co., the Thai Wah Group, Srithai Superware Co., Dararassamee Co. and Osothsapha Holdings Co. The group’s Asian partners provide an important insight into and understanding of local markets and allow rapid market penetration. These partners often assist in the development of local businesses and participate in certain of the group’s investments. This network gives the group a strength and breadth which few other regional investment banks can match. One senior staff member from Peregrine commented that they have ‘serious, deep relationships throughout Asia’ with key figures such as Li Ka-shing, Gordon Wu, CITIC Pacific managers and the generals who rule Myanmar. When CITIC decided to buy a stake in Hongkong Telecom in 1993, it called Morgan Stanley for advice on the financing. However, CITIC’s stake in Peregrine automatically qualified the latter to have a role in the deal, ending Morgan Stanley’s hopes of an exclusive role (Far Eastern Economic Review, 9 May 1996:72). Philip Tose, Chairman of Peregrine, further added that the Peregrine way is to ‘sit down over a cup of tea with the top guy. There isn’t documentation; the deal is done’ (quoted in The Economist, 12 November 1994:24). For example, when Li Kashing’s Cheung Kong Holdings decided on a huge share placement in Hong Kong in early 1996, the plan was declined by Morgan Stanley after twenty minutes of evaluation. But when Cheung Kong went to Peregrine (Li is a large shareholder in Peregrine), the smaller but much more aggressive Hong Kong broker met its match Without hesitation Peregrine stepped in to assume the risk and

Transnational corporations and business networks

206

lead-manage the US$679 million deal (Far Eastern Economic Review, 9 May 1996:70). It must be noted, however, that failures in network relationships can sometimes have detrimental effects on the principals and agents. Peregrine has been discredited partly for unethical business practices which agonise other financial houses in Hong Kong and Asia. It appears therefore that network relationships, if exploited too ruthlessly, can bring disaster to the firm in question.11

Conclusion This chapter, through analyses of survey data and case studies of leading HKTNCs in three industries, has shown that HKTNCs can be important players in both the regional and the global economy. Table 7.4 summarises the key competitive advantage of leading HKTNCs in their respective industries. The findings in this chapter contradict the prevailing misleading stereotypes in the ‘Third World multinationals’ literature that TNCs from developing countries are inherently weak and unable to compete with their developed country counterparts. In particular, HKTNCs are highly competitive in such manufacturing industries as garments, textiles and electronics and in such service industries as hotels and banking and finance. The key competitive advantage underscoring their global performance is embedded in their distinct organisational capabilities and core competencies. For manufacturing HKTNCs, product quality and innovation seem to be the most important edge. In the hotel business it appears that financial muscle, secured through networks of informal credit, is the critical determinant of the success of any hotel groups in riding out turbulence in the global hotel business during the past decade. In service industries, personal relationships and business networks are the leading edge that financial HKTNCs enjoy over their regional and global competitors.

Table 7.4 The competitive advantage of Hong Kong transnational corporations in selected industries Industry Leading HKTNCs Ownership Competitive advantage Garments Esquel Group Yang family Quality products and labels TAL Apparel Lee family Regional networks of production facilities Horizontal and vertical integration of the chain Textiles Unisouth Public and Liu First mover into Indonesia family Electronics ASM Pacific Public and Niche market in lead professional frame HKPrecision Private partners Relationships with customers

Competing in the global Triad: competitive advantage and business networks

Astec

Public and professional

Johnson Electric Elec & Eltek

Wang family Public and professional Wong family Public and Lo family

Wong’s Int’l Gold Peak

HKElectronics Varitronix International Hotels

Hong Kong & Shanghai Hotels Mandarin Oriental New World Wharf Hopewell Regal Shangri-La

Banking and finance

Peregrine Investments Sun Hung Kai Wardley Ltd

Public and professional Public and professional

207

Relationships with customers Industrial leadership Industrial leadership Product innovations Wide range of products Industrial leadership Networks of production Relationships with customers Flexibility and innovation

Industrial leadership Kadoorie family Reputation and connections Long experience Public and Reputation and long Jardine experience Cheng family Reputation and connections Pao family Reputation and connections Wu family Reputation and connections Lo family Financial expertise Kuok family Reputation and management Public and Reputation and professional connections Fung family Reputation and connections Private and Support from Hongkong professional Bank

This chapter has also examined the competitive advantage of HKTNCs in their own right. This approach differs significantly from the comparative management approach, in which ethnic Chinese business firms are compared with their Western counterparts and any difference is used to explain why the former are thought to be more inferior. This

Transnational corporations and business networks

208

chapter has shown that although the competitive advantage of HKTNCs is apparently manifested in their quality products and services and technology, these conventional criteria of competitive advantage do not explain the origin of such advantage. This chapter has therefore explored the ‘hidden dimension’ of the competitive advantage of HKTNCs—their organisational capabilities and core competencies embedded in networks of personal and business relationships which protect them from outsiders’ competition. These personal and business networks serve to reinforce mutual obligations by reducing uncertainty, providing ‘insider’ information and creating an informal credit pool. Once established, this competitive advantage through relationship networks tends to be perpetuated over time and space. It also provides the organisational basis for HKTNCs to compete for the future market. Being speculative by nature, this chapter intends to open up some new windows on research opportunities. Much more empirical research is needed in order to arrive at a comprehensive (and comparative?) understanding of the competitive advantage of business organisations.

8 UNDERSTANDING TRANSNATIONAL CORPORATIONS AND BUSINESS NETWORKS Yet it would be folly on the part of enterprises or governments to assume that the endemic tensions associated with their relationships will go away. The communications revolution is inexorably intertwining national economies, confusing national identities and redefining the limits of national sovereignty. As governments try to apply unilateral responses to their emerging problems, they stand an excellent chance of damaging both their own national interests and the interests of the multinational enterprises on which they depend. The challenge is to find the multilateral approaches that can reduce the inescapable tensions to manageable proportions. (Vernon, 1993b:24)

Challenging the myth of ‘Third World multinationals’ The study on which this book is based emanated from dissatisfaction with the ‘Third World multinationals’ literature, in particular previous research on transnational corporations from Hong Kong (HKTNCs). It asks two basic empirical research questions: why do HKTNCs invest in the South-east Asian (ASEAN) region and how do they manage to establish and operate their ASEAN operations? The existing literature lacks concrete and convincing answers to these questions. Instead, the literature is atheoretical, relying on ‘pseudoconcrete’ analysis such as the ‘push and pull’ factors framework—it overlooks the socio-spatial formations of the causal mechanisms through which HKTNCs establish their ASEAN operations. It also ignores the historically specific contexts in which these causal mechanisms are enacted. Underpinned by a network perspective, this book has argued that the causal mechanisms of transnationalisation are simultaneously embedded in networks of personal and business relationships at three distinct levels: (1) intra-firm networks; (2) inter-firm networks, and (3) extra-firm networks. The firm, in this case the TNC, has become effectively the de jure locus of power and decision-making within complex corporate webs of control and coordination. This network perspective on business organisations and TNCs fundamentally advocates the idea that the TNC is a transnational governance structure and that its embedded networks empower it to draw upon various relationships, personal or business or whatever, to perform the ‘transnational act’. The TNC is thus not so much a transaction-cost-economising entity as a network co-ordinator in charge of the worldwide web of relationships and transnational operations.

Transnational corporations and business networks

210

Utilising data collected from intensive and extensive field research, this book has examined, in some detail, the nature and spatial organisation of HKTNCs and their transnational operations in the ASEAN region. Table 8.1 provides a summary of the major findings in this study and compares them with previous studies of HKTNCs. An historical geography of HKTNCs showed that while the ASEAN region has always been an attractive host region to HKTNCs, investment by HKTNCs also constitutes a major source of foreign investment in the host ASEAN countries. In particular, Indonesia, Singapore and Thailand have attracted a large share of outward investment from Hong Kong. Hong Kong has also been among the top three investors in Indonesia, Thailand and the Philippines. These findings contrast with earlier studies which have overemphasised Hong Kong investment in the PRC. In sectoral terms, at least 67 per cent of Hong Kong’s affiliates in each ASEAN country are engaged in either commercial or service activities. This is a significant finding because virtually all earlier studies reviewed are concerned with manufacturing HKTNCs only. Another key finding is that HKTNCs in the sample survey are generally large in terms of their turnover, fixed assets and employment. More than half of the sampled HKTNCs in ASEAN countries are wholly- or majority-owned subsidiaries. This finding contradicts earlier studies of HKTNCs, which noted that a majority of HKTNCs were joint-venture operations. This discrepancy in ownership forms of HKTNCs can be explained by the increasingly sophisticated organisational capabilities possessed by HKTNCs and their ASEAN operations over time and space. Through both survey data and a series of case studies, the book has addressed the question of why HKTNCs invest in the ASEAN region. It was found that the investment motives of HKTNCs coincide with their overall corporate strategies of market development and geographical presence through keeping contacts with customers and the expansion and regionalisation of operations and marketing activities. Specifically, HKTNCs invest in ASEAN countries because they are motivated by the importance and potential growth of the region, serving clients with customised services and the regional coverage of operations. Contrary to earlier studies, cost factors and host government incentives only play a minimal role in motivating HKTNCs to invest in the ASEAN region. Another important finding is that, at the corporate level, most HKTNCs invested overseas not because of the controversial ‘1997 question’. Rather, the impact of the ‘1997 question’ was felt more at the individual entrepreneurial level where many Hong Kong residents were seeking foreign passports.

Table 8.1 Characteristics of Hong Kong transnational corporations: a summary Category Attributes of HKTNCs in ASEAN Previous studiesa Large investment in the Historical Significant investment in Indonesia, PRC since 1979 geography Singapore and Thailand Decreasing importance Top three investor in Indonesia, of ASEAN Thailand and the Philippines Surge in the 1980s Sector Majority commercial and services Mainly manufacturing industries Size Medium to large firms Small and medium firms

Understanding transnational corporations and business networks

Ownership

Majority wholly or majority owned

Corporate strategy Investment motivations

Market development and presence Regionalisation of operations Significant market-related motives: serving clients, local market presence and growth region Insignificant cost factors Insignificant government incentives

Role of 1997

Insignificant at the corporate level Significant at the individual level Significant political connections Immense bargaining power

Extra-firm networks Intra-firm networks Inter-firm networks Competitive advantage

Promotion of entrepreneurship Reliance on personal relationships to control and coordinate Cooperative rather than competitive Coopting into the ‘corporate family’ Strong inter-personal and business relationships Networks of personal and business relationships Worldwide web of Chinese capital

211

in the PRC Mainly joint-venture operations Cost minimisation Cost savings, e.g. the PRC Availability of labour Availability of government incentives Geographical proximity Inconclusive Significant political connections, e.g. the PRC Informal and fluid Competitive Formal relationships Low costs Price competition High turnover

a Sources: Luey (1969); Wells (1978); Mun (1979); Chen (1981, 1983); Federation of Hong Kong Industries (1990, 1992); Thoburn et al. (1990, 1991); Lau (1991); Sit (1991); Smart and Smart (1991); Siu and Tseng (1992); Leung (1993); Chen and Wong (1995); Mitchell (1995). The book has also been concerned with the ways through which HKTNCs establish their ASEAN operations. It was found that transaction cost economics does not explain the modus operandi of HKTNCs. Rather, HKTNCs are embedded in a perpetual tendency to cultivate complex networks of personal and business relationships. At the intra-firm level, HKTNCs rely on control and coordination mechanisms to expand into the ASEAN region. These mechanisms and rules are, nonetheless, never overtly strict and they are always subject to individual interpretation. The finding seems to support the notion of fluid intra-firm coordination and control in previous studies of HKTNCs. Entrepreneurship is the key to intra-firm networks among HKTNCs. Through the successful promotion within the firm, via overseas operations, of personnel with

Transnational corporations and business networks

212

potential, many HKTNCs succeed in internalising entrepreneurship. Personal relationships have become the de facto control mechanism of their ASEAN operations. This finding confirms earlier studies in which TNCs from developing countries were postulated as having informal and fluid intra-firm relationships. At the inter-firm level, personal and business relationships play an even greater role in the choice of joint-venture partners, access to markets and business deals. The concept of the ‘family’ and the process of ‘family-isation’ underscores the raison d’être of the Chinese business system in which most HKTNCs and their inter-firm networks are embedded. Through successfully cultivated personal and business relationships, key companies and/or personnel are coopted into the ‘family’ to overcome the formidable difficulties posed by hostile host countries. The ‘corporate family’ therefore serves as a ‘fortress’ to defend HKTNCs against potential encroachment from hostile ‘outsiders’. The social organisation of HKTNCs further reinforces the notion of cooperation in interfirm relationships. Such cooperative networks are possible because they are embedded in peculiar social and cultural practices that transcend time—space boundaries. The cooperative nature of inter-firm networks in this study stands in sharp contrast with earlier studies which found HKTNCs to be competitive and reliant on formal relationships. In the case of HKTNCs in ASEAN, inter-firm networks enable (1) complex shareholding arrangements to overcome host country regulations and hostile takeovers by competitors and (2) further strengthening of inter-personal guanxi or relationships. At the extra-firm level, host ASEAN nation-states pose a significant challenge to HKTNCs and their operations. With the exception of Singapore, most host country nation-states in the ASEAN region are keen on regulating foreign investment and, in some countries, regulatory objectives are infused with ethnic sentiment. While these regulatory objectives and ethnic policies may be laudable in their own right, major loopholes and contradictions occur during their implementation. HKTNCs therefore respond to these extra-firm challenges by getting plugged into powerful and, sometimes, highly sensitive political networks in most host ASEAN countries. The reliance on political connections with high-ranking officials and/or military personnel in securing contracts and investment permits is apparent in some cases. In other cases, some HKTNCs have shown immense power in bargaining with host country governments for contracts and assistance. Such delicate and, sometimes, intractable extra-firm networks are particularly relevant to the experience of ASEAN operations by HKTNCs. These findings on extra-firm network relationships reinforce earlier studies of HKTNCs in the PRC. In conclusion, the preceding chapters have shown that, in order to understand why and how HKTNCs invest and establish in the ASEAN region, it is inadequate to examine merely the ‘push’ and ‘pull’ factors that are usually found in statistical analyses of survey and FDI data. This book has contended that it is imperative to understand the strategic orientations of HKTNCs because they are causal agents capable of effecting changes and transformations in the global-local economies. This book has also argued that it is insufficient to explain only the reasons for transnational operations; their causal mechanisms are equally important in enhancing our understanding of the practice of international business. A network perspective can offer a revealing lens through which we can better appreciate the intricate workings of various personal and business relationships in the transnationalisation processes of Hong Kong firms. Such networks of

Understanding transnational corporations and business networks

213

relationships among HKTNCs are embedded in their particular social and cultural milieu—the Chinese business system. The network approach to the study of transnationalisation in this book thus challenges essentially economistic and Western-centric ‘models’ of international production by shifting the focus of explanation from transaction cost economising to the ongoing sociospatial embeddedness of the TNC. This view of business networks and transnational operations, however, does not preclude the role of economic benefits (e.g. markets, profits and diversification) and costs (e.g. cost reduction and minimisation) in the calculus of transnational entrepreneurs—such is the ‘oversocialised’ view of economic action (Granovetter, 1985; see also Dirlik, 1997). Rather, this book has found that those so-called economic ‘factors’ are necessarily contingent historically and geographically in that the same set of economic ‘advantages’ are not always replicated elsewhere. Network relations are held to be the underlying causal mechanisms of transnational operations that transcend time-space contexts, irrespective of their contingent economic motivations. In the final analysis, to understand and to explain the intriguing landscape of HKTNCs and their ASEAN operations, we must transcend unduly academic dualism which often dichotomises concepts into their polar extremes (see Alatas, 1995; Murdoch, 1997). Instead, we must enter the realm of duality and dialectics where there is always an interaction between opposing ideas—the economic as well as the social, the temporal as well as the spatial, the agency as well as the structure, the firm and the market and so on. A major implication of this book concerns the issue of ‘Third World multinationals’. To what extent is the prevailing view on ‘Third World multinationals’ a myth? Biased by an implicit comparative management framework, the literature is guilty of reinforcing misleading stereotypes that TNCs from developing countries are typically small, lowtech, rely on price competition, lack marketing and managerial expertise and so on (see Yeung, 1994a, 1994b). Such Western-centric biases arise from the imposition of Western values and standards on emerging TNCs from developing countries. It is a legacy of the American comparative management approach in which differences between management systems are sought and explained on the basis of the superiority of one form of management system over another. In the ‘Third World multinationals’ literature, these allegedly ‘unconventional multinationals’ are compared with their Western predecessors, i.e. American and European TNCs. Any difference is measured against standard criteria imposed by Western theorists. The final conclusion is that these ‘Third World multinationals’ are ‘unconventional’ (e.g. Giddy and Young, 1982), ‘uncompetitive’ (e.g. Wells, 1983) and, to a large extent, ‘contradictory’ (e.g. Heenan and Keegan, 1979). As shown in this book, these misleading stereotypes no longer hold in reality (see also Ulgado et al., 1994). They are self-destructive because they are products of time- and space-specific observations. An in-depth analysis of the competitive advantage of HKTNCs reveals that TNCs from developing countries, particularly the Asian NIEs, are an increasingly potent force in the regional and global economy. We must understand the organisational capabilities and core competencies of any TNCs in their own right, i.e. in their peculiar social and institutional contexts. We will lose sight of their emerging power if we force upon them criteria developed in other social and institutional contexts. ‘Third World multinational’ is no longer a valid concept not only because multinationals are so diverse in their origins, organisational forms and global reach, but also because the concept itself is fundamentally mythical (Yeung, 1994a). We will do them much greater

Transnational corporations and business networks

214

justice if we tear down the division and description of TNCs by the level of development in their home countries. In an era of rapid economic change and technological transformation, a truly global TNC can emerge from virtually any country and thus ‘Third World multinationals’, as a special species of the capitalist firm created by misleading stereotypes, should cease to exist, now and in the future. Extending the research agenda First and foremost, this book has raised an important theoretical issue—whether networks can serve as a causal explanation of the transnational operations of domestic firms. Although it has managed to explain the role of personal and business networks as processes of transnational operations in the context of HKTNCs in the ASEAN region and to refute simple economistic explanations of these processes of transnational operations, relatively little has been said about the theoretical differences between networks as governance structures (forms) and networks as ongoing relations (processes). This structure-relation dichotomy can potentially contribute much to resolving the existing confusion in the literature on what essentially constitute networks and what are their social, economic and institutional foundations (Nohria and Eccles, 1992). In this book, Chinese business networks have been theorised as ongoing personal and business relationships that provide the institutional medium for the transnational operations of ethnic Chinese firms. But to what extent do these Chinese business networks differ from structural networks in Western business systems (e.g. cooperative agreements and strategic alliances)? To resolve this apparent puzzle requires much more original theoretical work into the nature and organisation of business networks in different business systems. Second, this book has not addressed the impact of HKTNCs on either home or host countries, although some related points are implicitly addressed in the preceding chapters. In fact, this general malaise is common in the literature. Very few studies address the impact of TNCs in the Asia-Pacific region and ASEAN specifically (e.g. ESCAP/UNCTC, 1985, 1988; Douglass, 1991; Natarajan and Tan, 1992). One particularly interesting line of inquiry is the impact of personal and business networks. These networks form the building blocks of this book. But their impact has not been addressed explicitly. For example, questions can be raised about the impact of these networks on host country business communities. This book does raise the point that the formation of such networks is, to a certain extent, attributable to hostile host country environments. But is this not a chicken-and-egg question? Could it be that the transplantation of Chinese business networks to South-east Asian countries has heightened those countries’ hostility? Or could it be that the overseas Chinese gang together in order to overcome host country hostility? If transnational operations are essentially a phenomenon of networking, what are its impacts on this hostility, so entrenched in South-east Asia historically? Would it be legitimate to call for what S.L.Wong et al. (1994) refer to as the ‘moral economy of network capital’? They observe that, in the attempt to optimise benefits, actors would have to be calculative in manipulating relations in their favour. Must network relationships therefore be necessarily inward-looking and even ethnocentric? This book can therefore be criticised

Understanding transnational corporations and business networks

215

for its lack of countervailing examples in which reliance upon networks of personal and business relationships has brought organisational disaster to Chinese business firms, in particular HKTNCs. To what extent would such reliance bring more benefits than costs to the transnational operations of Chinese business firms? These are very important questions in our understanding of the global and regional success of Chinese business operations. These tricky questions bring us to the third grey area in this book—the lack of a developmental view of HKTNCs and ethnic Chinese business firms specifically. Because of the inherent constraint of the research design and resources, the book has provided only a cross-sectional view of the state of HKTNCs and their ASEAN operations. It has not addressed the evolution of network relationships over time. Can network relationships be changed? If so, in what ways, and how are they changed? We need to understand the internal and external dynamics of network relationships and their outcomes over time and space. This book is concerned mainly with the spatial and social dimensions of network relationships. It devotes relatively little attention to the historical development of network relationships, which potentially gives rise to alternative interpretations of the processes and mechanisms of transnational operations by HKTNCs (e.g. Chan, 1995). The literature on Chinese business systems has shown that ‘[w]hile second- and thirdgeneration Chinese still respect the family enterprise, these younger entrepreneurs have absorbed other values as well’ (Kao, 1993:30). We need to pay serious attention to the question of succession in Chinese family businesses (Wong, 1988; Mackie, 1992a; Handler, 1994; Wortman, 1994; Brown, 1995; Yeung, 1997c). We also need to know more about the lasting role of personal relationships in transnational operations—their ‘elasticity’ and the extent to which they can be stretched over time and space. Fourth, this book has raised an implicit question which remains unanswered: to what extent are non-Chinese business firms embedded in the peculiar Chinese business system? Throughout the book, a number of non-Chinese HKTNCs have been encountered and incorporated into the main arguments (e.g. HKGuard in Box 4.1 and HKComputer in Box 5.3). They tend to portray a mixture of business characteristics, blending East and West. An interesting question would be: to what extent are these nonChinese businessmen and their firms locally embedded in the social and institutional settings of Hong Kong as well as of host countries? Do we expect all non-Chinese business firms in Hong Kong to behave differently from their Chinese counterparts? Do we observe that, over time, these non-Chinese business firms learn how to embed themselves in the local way of business (or the ‘mode of rationality’ in theoretical terms)? These are certainly legitimate questions which demand further rigorous research. They have serious implications for the conceptualisation of business systems and the interaction between such systems over time and space. On the other hand, we must ask whether the Chinese business system is distinctive in its own right. Will there be convergence between the business practices and organisations of different business systems over time? This issue of the distinctiveness of business systems brings us back to the lack of a developmental view of the Chinese business system in this book. We need therefore much more future research into the dynamics of the Chinese business system and the globalisation of different business systems (e.g. transplants of Japanese business organisations in the US; see Elger and Smith, 1994).

Transnational corporations and business networks

216

Finally, this book, in its empirical guise, represents only a single economy—Hong Kong. To what extent are the findings generalisable to other overseas Chinese businesses? Or do all overseas Chinese conduct their businesses in the same way in the first place? It is necessary, therefore, to broaden the sampling base of this study to encompass TNCs from Singapore, Taiwan and other Southeast Asian countries whose leading TNCs are largely controlled by Chinese family business (see Yeung and Olds, forthcoming). One interesting line of research would be to group TNCs from these Asian countries together and then subdivide according to the dominance of the overseas Chinese. Is the reliance on network relationships’ more likely among the overseas Chinese who are a minority in their host country (e.g. Indonesia)? On the other hand, is there a greater tendency towards professionalisation among TNCs from Chinesedominated countries in Asia (e.g. Hong Kong and Singapore)? Another possible issue concerning the generalisation of the findings is the industry and sector specificity of the role of personal and business relationships in transnational operations. For example, some researchers argue that network relationships are more pertinent to rapidly changing industries (e.g. strategic alliances in the global high-tech industries) and personalised service industries (e.g. the financial sector). This issue of industry and sector specificity is not satisfactorily addressed in this book, despite some hints in Chapters 5 and 7. In the final analysis, these are all interesting, and yet very important, questions clearly begging for answers not provided by this book. Growing national firms from Asian economies Another major implication of this book concerns the experience of growing TNCs from other Asian countries, in particular Singapore, because of the great similarities between the two city states. Since the late 1980s, the Singapore government has been actively promoting the regionalisation of domestic enterprises (Kanai, 1993; Régnier, 1993; Yeung, 1998b). Various state incentives and assistance are provided to stimulate the regionalisation process. At the end of 1995, Singapore’s equity investment abroad stood at US$25 billion (The Straits Times, 15 March 1996). This figure represents a 150 per cent increase over that for 1990 (US$9.8 billion). The issue at stake is: what are the essential ingredients of a successful Singaporean TNC? Can it be state-driven in the long term? One key finding of this study is that transnational operations are not necessarily driven by domestic state policies. They are very much an outcome of individual entrepreneurship and network relationships. If this conclusion is correct, state-driven transnational operations (e.g. in Singapore) tend to be transient because they may not be sustainable in the long term. Entrepreneurship and network relationships cannot be economised, as has been so clearly shown in this book. Rather, they must be nurtured in their peculiar social and institutional ‘greenhouse’ or ‘thickness’. In the case of Singaporean TNCs, the lack of entrepreneurship and network relationships presents itself as the most difficult challenge to the government’s regionalisation effort. Although the state has acted as a ‘pseudo-entrepreneur’ in both internal and external economic activities for decades, it is questionable whether Singapore has sufficient entrepreneurship, at least in the short term, to fuel the regionalisation drive. Régnier (1993:312) remarks that ‘very few Singaporeans of the

Understanding transnational corporations and business networks

217

younger generation identify themselves today with the overseas Chinese aim of being one’s own boss…Singapore governmental agencies may provide the best assistance, but with very scarce results, if local entrepreneurs are deprived of the basic mentality and willingness to go for adventure and risk-taking abroad’. An article in Singapore Business Yearbook 1990 (p. 49) also notes that: One of the biggest obstacles home-grown Singapore MNCs will face in the globalisation drive is the limited supply of managerial and administrative expertise. These companies will have to overcome Singapore’s historical lack of strong industrialists and entrepreneurial talent, experience and initiative—a result of conscious economic policies designed to import the skills, technology and market base Singapore needed via foreign manufacturing investments. It would be critical for the Singapore government to rethink its basic strategy in promoting the regionalisation of domestic firms. Findings from this study tend to suggest that it is more important to get the immaterial spirit right (i.e. entrepreneurship) than to provide tangible economic incentives that do not stimulate much entrepreneurship. Attracting inward investment into ASEAN A final implication of this book is concerned with nation states’ efforts in attracting inward investment. Dunning (1993c:25) notes that ‘much remains to be done to educate policy makers about the implications of the global economy—and especially the increasing role of international business activities for domestic economic governance’. This book has shown that HKTNCs are not motivated to invest in ASEAN countries because of host country government incentives. It appears that the investment climate is a much more significant consideration to these important players in host countries. Dunning (1991:315) also rightly observes that ‘the world is continually throwing up new challenges and openings for multinational companies; and because of this, countries that wish to attract such institutions into their midst will have to abide by the rules of the game and provide them with the right kind of investment climate’. Today, the key issues for host countries are how to market them to foreign investors (Wells and Wint, 1993) and how to resolve tensions between nation states and TNCs (Dicken, 1992b, 1994; Vernon, 1993b). Findings from this study imply that ASEAN nation states should not commit themselves unnecessarily to huge investment incentives, because incentives alone do not attract foreign investment per se. Rather, it is the cooperative investment climate that eradicates the ultimate hindrance to foreign capital (Yeung, 1996c).1 Vernon (1993a:14) foresees that ‘[n]ational systems of regulation run the high risk of strangling the egg-laying goose; only a cooperative approach among governments stands much chance of producing an environment in which the potential of the multinational structure is fully realized’. Chapter 6 demonstrated how restrictive national regulatory frameworks actually work against the national interest when they induce Hong Kong Chinese investors to enter into all sorts of cooperative network relationships to safeguard their own group interests. A more cooperative state-TNC

Transnational corporations and business networks

218

relationship would certainly benefit the host country much more than is the case now. When the threats of hostile takeover and government intervention are eliminated through more cooperative and transparent state policies, TNCs are likely to coopt more local partners into the ‘corporate family’ and, therefore, localise the benefits of their transnational operations. Meanwhile, it is important for host ASEAN countries not to trade off their national economic sovereignty for foreign capital. There are already indications of increasing tension in some host ASEAN countries with regard to foreign investment. For example, in Indonesia, Thee (1994:141) cautions that ‘it appears unlikely that any Indonesian government can afford to ignore the abiding, widespread national aspiration to become “master in one’s own house”’. This book has shown too that business and ethnicity are intricate mirror images—they cannot be dealt with in isolation from each other. A more cooperative host ASEAN government should adopt a more assertive approach, not coercive measures, as is the case now, to resolve issues embedded in the businessethnicity nexus. Mutual respect is perhaps the best approach to cultivate and to nurture a successful state-TNC relationship in the long-term future. ASEAN nation states need to adopt long-term and sustainable foreign investment policies because FDI and its potential benefits are long-term effects and not quick returns (Fujita, 1990). The fate of Hong Kong and its firms after 1997 Implications aside, any forward-looking book must address pressing issues in the future. To conclude, this book examines the future of Hong Kong and its TNCs after 1997. The aim here is not to rehearse some groundless speculation, but to assess realistically alternative scenarios for a credible future. On the future of Hong Kong beyond 1997 there are two schools of thought: the optimists (e.g. Ledic, 1989) and the pessimists (e.g. Henderson, 1991a). The issue at stake here rests on the question: is there any middle ground in the debate about the future of Hong Kong? It appears that both optimists and pessimists have something interesting to say about the future of Hong Kong. But, rather than pointing out issues for further investigation, they seem to be more interested in speculative fortune-telling. To strike a useful middle ground, we need to address several pressing issues within the context of Hong Kong beyond 1997. First, this book has already identified the overwhelming dominance of commercial and service HKTNCs in ASEAN operations. Is the trend towards manufacturing decline inevitable in Hong Kong? What are the possibilities of revitalising Hong Kong’s manufacturing industries, in particular those with a strong international foothold? There is no doubt that industrial restructuring has serious implications for Hong Kong’s industrial development (Lo, 1985; Ho, 1992; Tuan and Ng, 1995a, 1995b; Eng, 1997). There is clearly a case for a comprehensive industrial policy if Hong Kong is to maintain its global competitiveness and position (Federation of Hong Kong Industries, 1990, 1992; Hong Kong Government Industry Department, 1991; Leung and Wu, 1995).2 Case studies in this book have revealed that the key competitive advantage of Hong Kong’s garment, textile and electronics industries is their organisational capabilities in transnational networks and core competencies such as technological innovations and quality products and services. Future industrial policy in Hong Kong should therefore

Understanding transnational corporations and business networks

219

continue to focus on developing the core competencies of manufacturing firms and enhancing their organisational ability to compete in the regional and global economy. Second, the emergence of HKTNCs in the regional and global economy has equally interesting implications for the future of Hong Kong. In the manufacturing sector, it is likely that Hong Kong will survive as the centre for coordinating and controlling worldwide production facilities, while retaining some high-end production in Hong Kong. The trend towards overseas expansion is well established and irreversible (see Federation of Hong Kong Industries, 1990). In Figure 8.1, some 45 per cent of responses (N=53) predicted that they would continue to expand into the PRC in the near future. Another 17 per cent wanted to focus specifically on Hong Kong and the PRC. Together, more than 62 per cent responding HKTNCs wanted to expand further into markets in Hong Kong and the PRC. On the ASEAN side, Figure 8.2 shows that over 50 per cent of respondents (N=55) would like to expand their existing operations in Southeast Asia. There is thus an enormous potential for South-east Asia to capture increasing outward investment from Hong Kong in the post-1997 era. In brief, manufacturing HKTNCs will increasingly find it an attractive proposition to enhance their competitive advantage by relocating low-end production abroad through transnational operations and to develop new organisational capabilities by competing for the future through intensive research and development, the development of own brand names and the broadening of global distribution networks. It is likely that the service sector will continue to lead the Hong Kong economy. There is nothing fundamentally wrong with this approach to economic growth. But the key issue is whether the growth of service industries can

Figure 8.1 The future of Hong Kong operations among HKTNCs. The total number of responses was 53 out of a sample of 111 HKTNCs. Source: author’s survey.

Transnational corporations and business networks

220

Figure 8.2 The future of South-east Asian operations by HKTNCs. The total number of responses was 55 out of a sample of 111 HKTNCs. Source: author’s survey. complement manufacturing development, rather than displace it. This book has shown that service HKTNCs have dominated transnational operations from Hong Kong firms (see also Yeung, forthcoming a). Is this a healthy trend? Would it be better if these service HKTNCs had focused their attention on Hong Kong alone? Earlier chapters of the book pointed out that Hong Kong is simply too small a market to accommodate thousands of service firms that are ambitious to become leading regional or global players. The trend towards transnational operations to capture more market share and to serve existing customers will persist beyond 1997. What remains critical is the effort needed to retain the role of Hong Kong as the headquarters of these beneficial developments (cf. the case of Switzerland), rather than to ‘hollow out’ the economy by unnecessary speculation and ill-fated policies. A more genuine effort to embed HKTNCs in the local networks of personal and business relationships will be useful. The role played by key businessmen and industrial associations can be more instrumental in promoting the industrial clustering of key enterprises within the context of Hong Kong (cf. Porter, 1990; Enright et al., 1997). In that way, it is interesting to note that the competitive advantage of HKTNCs will be intimately intertwined with the competitive advantage of Hong Kong. The future of Hong Kong will become the future of its business firms and vice versa (cf. Reich, 1991). Third, and perhaps more important, Hong Kong’s unprecedented growth owes much to international trade, not to international direct investment. Its future will be heavily shaped by changing international trade regimes and regulatory frameworks. On the one hand, the eventual phasing out of the Multi-Fibre Arrangement (MFA) in the next ten years and the inclusion of textiles under the Uruguay Round of the GATT to be implemented under the auspices of the World Trade Organisation (WTO) would seem to herald a better future for Hong Kong, at least as far as some of its export-dependent manufacturing industries are concerned (Hong Kong Business, Annual 1995:66–8). On the other hand, the past decade has seen the demise of protectionism and the rise of multilateral trade relationships. In recent years, the US has consistently failed to win the ‘human rights’ issue in its trade relations with the PRC, indicating the overwhelming importance of maintaining congenial trade relations with potentially the largest market in the world. Hong Kong is ideally situated in this trade network because both the US and

Understanding transnational corporations and business networks

221

the PRC have been Hong Kong’s largest trade partners in recent decades. HKTNCs are also well positioned to take advantage of the post-1979 ‘open door’ policy of the PRC. In fact, the dynamism of the Asian Pacific region as a whole has itself been turned into a key competitive advantage of indigenous firms to resist any foreseeable protectionism in North America and ‘Fortress Europe’ (Ramstetter, 1993). In the final analysis, as long as HKTNCs continue to pursue relentlessly their aggressive marketing strategies and insofar as Hong Kong maintains its role as the leading entrepôt and financial centre of the Asian region, the future remains bright for Hong Kong, its indigenous business firms and the people who stay beyond 1997.

APPENDIX 1 ATTRIBUTES OF PARENT HONG KONG TRANSNATIONALS AND THEIR ASEAN SUBSIDIARIES AND/OR AFFILIATES

Attributes Turnover Less than HK$ 1 million HK$ 1–9 million HK$10–49 million HK$50–99 million More than HK$100 million NA Total Fixed assets Less than HK$ 1 million HK$ 1–9 million HK$ 10–49 million HK$50–99 million More than HK$ 100 million NA Total Employment Less than 50 50–99 100–199 200–499 500–999 1,000–1,999 2,000–4,999 5,000–9,999 More than 10,000 NA Total

HKTNCs ASEAN subsidiaries and affiliates % Case % Case 0 1 7 8 94 1 111

0 0.9 6.3 7.2 84.6 0.9 100

8 19 20 3 1 12 63

12.7 30.2 31.8 4.8 1.6 19.1 100

4 8 13 6 71 9 111

3.6 7.2 11.7 5.4 64.0 8.1 100

21 20 9 0 1 12 63

33.3 31.8 14.3 0 1.6 19.1 100

5 5 14 17 15 7 15 18 15 0 111

4.5 4.5 12.6 15.3 13.5 6.3 13.5 16.2 13.5 0.0 100

23 10 5 10 6 5 1 2 0 1 63

36.5 15.9 7.9 15.9 9.5 7.9 1.6 6.2 0 1.6 100

Appendix 1: attributes of parent Hong Kong transnational and their ASEAN subsidiaries

Source: Author’s survey.

223

APPENDIX 2 PROFILES OF SELECTED HONG KONG TRANSNATIONAL CORPORATIONS

Companya Main businesses history HKArch Established in Architectural, engineering and 1979, the company has development developed into consultancy a niche market firm solely owned by its founding chairman, an architect himself HKCarpet Established in Manufacture, import, export and 1956 by a Shanghainese sale of carpets, entrepreneur trading of interior furnishings, who is investment and extensively connected with property holding leading Jewish and Chinese businessmen in Hong Kong, the group is now owned by a Chinese family and another Jewish family and managed by the chairman’s son

Sales value

Profit

Total assets

No. of Country of staff operationsb

NA

NA

NA

240 for S, T, PRC, group UK

I, M, S, T, HK$258 HK$38 HK$867 200 million million million (HK) P, US, Fr, UK, NZ, (31/12/92) (31/12/92) (31/12/91) and 8,000 PRC (group)

Appendix 2: profiles of selected Hong Kong transnational corporations

HKComputer US$35 Consulting and Founded in 1983 by three business solutions million (1993) in computer parties: Mr software, mainly John (New Zealander), Mr specialising in Chen (a Thai IBM systems Chinese and director of Bangkok Bank) and IBM; the company is owned 25% by IBM, 75% by Mr John and Mr Chen. Mr John is chairman and managing director of the holding company HKElectronics HK$976 Established in Development, manufacturing and million 1971, this (30/6/93) listed company distribution of telecommunication is one of the products; some leading medical products electronics manufacturers and vehicle monitoring from Hong systems Kong, specialising in OEM manufacturing, e.g. for AT&T cordless phones. The founding chairman is still chief executive

NA

US$3 million (1993)

225

I, M, S, T, 120 (HK) PRC, Ma and 250 (group)

HK$90 HK$445 3,000 M, PRC million million (group) (30/6/93) (30/6/93)

Appendix 2: profiles of selected Hong Kong transnational corporations

officer of the holding company HKGuard US$100 Established in Security, telecommunication million 1977, the (1993) company is a and building market leader in automation Hong Kong. It systems, security has also gone guards, security through several transport, investigation and changes of hands in terms security courier services of ultimate owners. It has been majorityowned by a large conglomerate company based in Hong Kong since the end of 1992. But the present CEO has remained in office throughout the two decades Esquel Group Founded by Manufacturing of US$300 Yang Yuen top quality pure million Lung, a cotton and chief (1993) Shanghai value cotton industrialist, in apparel 1978, the company is now managed by his daughter (managing director) and elder brother (director). It is

226

NA

US$28 million (1993)

1,600 S, T, P, (HK) Ta, Ma, UK, US and 4,200 (group)

NA

Over US$15 million (1993)

Over M, S, P, 30,000 Sri, (Group) PRC, Mau, Jam, Ta, UK US

Appendix 2: profiles of selected Hong Kong transnational corporations

227

still very much a family business First Pacific US$2,787 US$128 US$448 1,200 Established in Marketing and million million million (group) distribution; 1988, the commercial and (31/12/92) (31/12/92) (31/12/92) company investment started with majority capital banking; real estate consulting investment from Liem Sioe and investment; communications Liong, chairman of the Indonesian Liem Group and First Pacific Group. The company, however, is managed by professional managers who have little equity stake Gold Peak Industries Group HK$93 HK$2.4 7,000 Established in Manufacturing and HK$2 billion million billion (group) 1964 by the late marketing C.P.Lo, Gold batteries, car audio (31/3/93) (31/3/93) (31/3/93) Peak was products, electrical professionalised wiring accessories, in 1984 by telephone going public. accessories, and By now, only parts and one family components member remains fulltime, Victor Lo, who chairs and manages the now global

I, M, S, T, P, Aus, Ne

D, K, I, T, Sri, Ger, Pol, It, PRC, S, M, US, Fr, Can, Ta, Aus

Appendix 2: profiles of selected Hong Kong transnational corporations

228

group Hongkong and Shanghai Banking Corporation (HSBC) NA HK$2,189 HK$105 54,408 I, M, P, Established in Banking and finance; issuing million billion (group) S, T, and 1865, the (1991) (1991) many HSBC Group bank other has been the countries leading Asian bank outside Japan. The group holding company has been incorporated in the UK since 1993 and is still very much controlled by British capital HKTrans I, M, Freight-forwarding HK$618 HK$39 HK$240 150 The company was founded in services, including million million million (HK) S, T, air and sea freight (1993) (1993) (1993) and 300 Aus, 1982 by three (Group) US, ex-colleagues in forwarding sea—air Can, a large freight- combination Ta forwarding TNC services, exhibition based in Europe. forwarding, international By now the household removals, company has courier and cargo extensive express, air operations chartering and worldwide, insurance brokerage including the ASEAN region. It is managed closely by the three founding majority shareholders. In

Appendix 2: profiles of selected Hong Kong transnational corporations

May 1992 the company was publicly listed on the Hong Kong Stock Exchange Astec International Founded in 1971, Astec is now the world’s largest manufacturer in electric power supply and is primarily listed on the London Stock Exchange. Its production facilities and customers span different continents and countries worldwide Elec & Eltek Established in 1971, the company is the leading PCB manufacturer from Hong Kong, chaired and managed by its founder, David So. Its management is professionalised and no shareholders hold more than 20% of the

Manufacturing in electric power supply

229

£291 £15 £108 11,000 UK, million million million (group) Fr, (31/3/93) (31/3/93) (31/3/93) G, It Mex, US, PRC, Jap, S, M

HK$1.1 HK$130 HK$1.1 1,500 T, Electronics billion million billion (HK) US, manufacturing; PRC PCBs, switchgear, (30/6/93) (30/6/93) (30/6/93) and 3,000 OEM computer (group) manufacturing, and telecommunications equipment

Appendix 2: profiles of selected Hong Kong transnational corporations

230

shares Esprit Asia HK$769 HK$106 HK$136 1,570 K, S, Founded in 1974 Manufacturer, million million million (group) T, originally as a wholesaler and Ta, business vehicle retailer of garments; (30/6/93) (30/6/93) (30/6/93) PRC, importer and for Michael Aus exporter Ying (present chairman and CEO), Susie Tompkins and Douglas Tompkins (founders of Esprit in the US), the group has now a large number of retail outlets in Asia. It is also one of the most successful mid-range apparel retail chains in Asia HKPartners I, M, HK$20 300 Architectural and HK$200 NA Established in million million (HK) S, T, 1868 in China, the structural, Ta, (1993) and company is owned mechanical and (1993) Ma 542 electrical by six current (group) directors who are engineering professional architects themselves. These directors come from different ethnic and national backgrounds HKPrecision Manufacturing of US$73 NA US$29 300 S, M Established in million million (group) 1984, the company lead frame for integrated circuits (1993) (1993) is a major manufacturer of

Appendix 2: profiles of selected Hong Kong transnational corporations

lead frames for integrated circuits. It is a 40–60 joint venture between an entrepreneurial Hong Kong resident and his German parent holding company HKTech Design, Established in 1975, the company production and is a major listed marketing of machines, tools electronics manufacturer from and materials for semiconductor Hong Kong. Its market spans the packages Triad regions HKToys Plastic toys, Established in electronic toys, 1951 by the present chairman, dolls and games it is a family business and controlled by family interests. The company manufactures for its own brand names as well as OEM orders. It also has marketing facilities in major markets HKTrading Founded in 1966, Investment the company has holding company grown into a major with subsidiaries conglomerate in involved in the Hong Kong with marketing, three public listed installation and

231

HK$700 HK$73 HK$383 million million million (1992) (1992) (1992)

Over S, J, 2,000 PRC (group)

HK$300 NA million (1993)

3,000 S, (group) PRC, US UK

HK$60 million (1993)

HK$665 HK$260 HK$4,960 2,160 S, T, million million million (group) Ca, (1993) (1993) (1993) PRC, US, Ma, V

Appendix 2: profiles of selected Hong Kong transnational corporations

companies on the maintenance of Hong Kong Stock electrical Exchange equipment, the servicing and leasing of motor vehicles and in property development Hutchison Whampoa Reorganised Container terminal US$2.9 in 1977, this owner and operator; billion (1992) food and food traditional British hong processing; hotels; coal merchant; is now a major pillar of property investment and development; the Hong Kong Stock toiletries and Exchange and cosmetics; controlled by telecommunications; Li Ka-shing’s China trader; retailer; electricity flagship generation; oil and company, Cheung Kong gas Holding. The management consists of professional managers who have been around in Hong Kong for a long time, although the Chinese tycoon and his son chair the board Johnson Electric Established in Design, manufacture HK$1.5 1959 by and marketing of billion

US$939 million (1992)

US$9 billion (1992)

HK$370 HK$2.1 million billion

232

13,000 I, M, S, (group) T, P. PRC, major markets in Asia, Europe and America

700 (HK)

T, US, SW,

Appendix 2: profiles of selected Hong Kong transnational corporations

Wang Seng micro-motors Liang, Johnson was the first manufacturing operation of its kind in Hong Kong. Although it was listed on the Hong Kong Stock Exchange in 1984, the company is still firmly controlled by the Wang family, with the son Patrick Wang as managing director Peregrine Investments Holdings Established in Investment holdings, securities, 1988, the commodities and group is foreign exchange backed by brokerage, eighteen securities, equity leading industrial and derivatives and commercial commodity dealing, companies as merchant banking and financial founding shareholders, services including Hutchison Whampoa, Hopewell Holdings,

(1993)

(1993)

(1993)

233

and PRC 7,800 (group)

HK$11.4 HK$1 HK$7.3 700 PRC, billion billion billion (group) Aus, I, (31/12/93) (31/12/93) (31/12/93) Ind, K, M, My, P, S, T, V, US, UK

Appendix 2: profiles of selected Hong Kong transnational corporations

CITIC and Yue Xiu. The group has been involved in extensive business activities with these shareholders, reflecting the relationship of confidence and trust between the parties. The group was liquidated on 12 January 1998 Sun Hung Kai & Co. Established in Investment holdings, finance, 1969, the company is a securities and major local commodity dealing player in the property and investment markets. It is also a major regional player, ranked 667 among the top 7,500 companies in Asia in 1991 Textile Alliance Ltd (TAL) Established in Textile and 1946 as South garment China Textile by manufacturing Lee Chen Che,

US$103 million (1993)

US$3.5 billion (1993)

US$51.5 US$697 million million (1992) (1992)

NA

US$319 million (1991)

234

Over I, M, S, 600 T, P (group) UK, US

2,000 (HK) and 15,000

M, T, Ta, S

Appendix 2: profiles of selected Hong Kong transnational corporations

who emigrated to Hong Kong from Shanghai in 1945 and is well known as the pioneer of Hong Kong’s textile industry, TAL is one of the largest vertically integrated textile and garment operations in the region. It is still privately owned by the Lee family and managed by his sons Unisouth Holdings Textile and HK$164 Established in screw million 1949 as South Textiles by Jerry manufacturing; (31/3/93) H.T.Liu and his investments elder brother, H.K.Liu, the company went public and was renamed Unisouth in 1974. The company is now chaired and managed by Jerry Liu, who is the largest single shareholder Varitronix Established in Manufacturer of HK$200 1978 by a group LCD million of academics technologies for (30/6/93)

235

(Group)

HK$23 HK$870 1,300 I, million million (HK) Sri, US, (31/3/93) (31/3/93) and 6,500 Can, (Group) PRC

HK$72.3 HK$214 1,200 M, million million (Group) UK, (30/6/93) (30/6/92) US

Appendix 2: profiles of selected Hong Kong transnational corporations

custom from Hong designing and Kong’s universities, the sophisticated commercial, company is research-driven industrial and military display and modules, professionally run. It was listed assemblies and systems on the Hong Kong Stock Exchange in July 1991 Wardley Merchant Established in banking, fund 1981, the company is the management and brokerage merchant banking arm of services the Hongkong & Shanghai Bank. The company is largely dominated by British expatriates Wharf Holdings Property Established in 1886, Wharf is one investment, of the oldest hongs hotel in Hong Kong. In investment, 1980 the late Sir public Yue-Kong Pao led transport, terminal a takeover of Wharf overnight operation, warehousing from Jardine Matheson. Since and then, Wharf has investment been controlled by the Pao family, including his sonsin-law. After Pao’s death in

236

PRC

I, HK$46 HK$438 HK$49 534 billion million billion (HK) M, T, S, (31/12/92) (31/12/92) (31/12/92) and 1,839 Jap, (Group) Bah, L

HK$4.4 HK$2.4 HK$59.3 11,500 S, P, billion billion billion (Group) US, (31/12/92) (31/12/92) (31/12/92) PRC

Appendix 2: profiles of selected Hong Kong transnational corporations

237

September 1991 his second son-inlaw, Peter Woo, formally took control of the company. In 1985 Wharf acquired another traditional British trading house, Wheelock Marden, and restructured it as the holding company for all the companies in the Pao empire, including several listed companies such as Lane Crawford, Marco Polo and Wharf Sources: Author’s survey and various company reports.

Notes a Some names are fictitious to preserve anonymity. b Aus Australia, B Bangladesh, Bah Bahamas, Can Canada, D Denmark, Fr France, G Germany, I Indonesia, Ind India, It Italy, Jai Jamaica, Jap Japan, K Korea, L Luxembourg, M Malaysia, Ma Macau, Mau Mauritius, Mex Mexico, My Myanmar, Ne Netherlands, NZ New Zealand, P Philippines, Pol Poland, PRC China, S Singapore, Sri Sri Lanka, Sw Switzerland, T Thailand, Ta Taiwan, UK Britain, US United States, V Vietnam.

NOTES 1 THE RISE OF THE NETWORK TNC 1 Recently, a relatively new and innovative economic approach to international production is concerned with the technological innovations of TNCs—the technological competence approach proposed by John Cantwell (1989). Its uniqueness rests on the ability to combine insights from organisation theories and the economics of technology. 2 One exception here, of course, is the economic theory of Japanese TNCs as propounded by Kiyoshi Kojima (1973, 1978), Terutomo Ozawa (1979) and others. This context-specific theory is a macro-economic theory because it explains the outflow of foreign direct investment from Japan. It does not, however, explain the formation and mechanisms of inter-firm networks among Japanese TNCs (cf. Gerlach, 1992). 3 In fact, the OECD announced in May 1995 that, by 1996, both Brunei and Singapore would have ‘graduated’ from its list of recipients of official development aid which is extended only to developing countries.

2 THE EMERGENCE OF TNCs FROM ASIAN NIEs 1 See pp. 89–101 for the sectoral specialisation of Hong Kong investments in Southeast Asia (also Yeung, 1996a). 2 See Chapter 4 for an evaluation of this argument in the context of HKTNCs and Chapter 7 for the regional and global competitiveness of HKTNCs.

3 CONCEPTUALISING TNCs AS NETWORKS OF GOVERNANCE STRUCTURES 1 Dodgson (1993) argues a case for inter-organisational trust in sustaining technological collaboration because these collaborative activities often fail when inter-personal trust relationships break down with the departure of key personnel in the companies concerned.

4 HONG KONG FIRMS IN ASEAN 1 Two sources of empirical data are consulted. First, there are primary data on HKTNCs obtained through comprehensive corporate surveys conducted both in Hong Kong and in four ASEAN countries. These data, both in quantitative and in qualitative terms, form the basis of analyses and interpretations in the following four chapters (see Yeung, 1995a). Second, in order to set these analyses and interpretations in their macro-economic contexts, secondary data on HKFDI are presented and described in this chapter. The key methodological benchmark underpinning this chapter is triangulation—it is hoped that both primary firm-level data and secondary HKFDI data complement each other in enhancing understanding of the spatial organisation of HKTNCs and their FDI in the South-east Asian (ASEAN) region. 2 One cautionary note is important here. Hong Kong investments in the PRC are a post-1979 phenomenon, whereas Hong Kong has invested elsewhere in the Asia-Pacific region since the turn of the century (Yeung, 1996b). Official statistics published by the Chinese authorities must also be regarded with scepticism. First, they consist only of approved or contracted statistics. The proportion of contracted FDI realised in the PRC can be as low as 30 per cent. For example, in contracted terms, cumulative FDI in the PRC was US$294 billion in the ten years

Notes

3

4

5

6

7

8

9 10

11

12

239

to 1995, of which only US$90 billion was realised (Ng, 1996). Second, although Hong Kong takes up more than 60 per cent of the total FDI in the PRC, it is unlikely that all of it originates from companies headquartered in Hong Kong (see Low et al., 1996). Rather, it is often PRC and foreign companies that invest in the PRC through their offices in Hong Kong (Fung, 1996). This observation applies in particular to the case of Taiwanese investors (Chiu and Chung, 1993). Third, a majority of these investments may be short term in their scope and business horizons, given their general motives of exploiting lower labour and land costs and investment incentives. Three chronic problems can be identified with the FDI database on Hong Kong (e.g. Figure 4.1 and Table 4.1). First, the data may be denoted in entirely different currencies, posing grave problems in measuring the actual amount of FDI against a constant year and currency. Without standardising the data, it is impossible to make inter-country and inter-temporal comparisons of aggregate FDI patterns. Second, different criteria are used in the compilation of the data set. Third, there is a problem in interpreting the country of origin, since it is not clear from the database how much HKFDI actually originates from Hong Kong (Low et al., 1996). Some may be FDI from third countries that is simply routed via subsidiaries in Hong Kong (e.g. Taiwan) or from the PRC to take advantage of investment incentives. To my knowledge, no data have been collected on HKFDI in Malaysia’s non-manufacturing industries, probably because they are not centralised and coordinated under the authority of the Malaysian Industrial Development Authority (MIDA). In such sectors as wholesale/retail and financial/business services, labour costs as a percentage of value added had increased dramatically over the period 1980–92 from respectively 42 per cent to 52 per cent and 18 per cent to 32 per cent (Hong Kong Government Industry Department, 1994: Table 2.21). Escalating labour costs pose a problem as much to Hong Kong’s manufacturers as to the service sector. The use of mean scores is very relevant to the following discussion, for several reasons. First, respondents were given a clear instruction to state the role of a particular condition or factor in relation to their other ASEAN operations. The measurement therefore fulfils construct validity. Second, for simplicity in presentation, these mean scores can be aggregated from all responses. This outward expansion of manufacturing HKTNCs resembles the concept of ‘triangle manufacturing’ and buyer-driven global commodity chains (Gereffi, 1994) which allows many HKTNCs to move beyond OEM production to original design and product development through transnational operations in ASEAN countries. In Dunning and Norman’s (1987) study, for example, it was found that the need for a personal presence and the existence of a large market were the two most important factors that ‘pulled’ TNCs in the business services sector to operate directly in the UK. These business service TNCs were engineering consultancy, management and related business services, computer and information technology services and manufacturing-related services. Ironically, the ‘cost of exporting’ was rarely mentioned in their survey of 120 business services TNCs in the UK. Does it mean, therefore, that internalising transaction costs was never a serious consideration among these service TNCs? Chapter 6 provides a detailed discussion of the various aspects of regulatory regimes in ASEAN countries and their impact on the transnational operations of HKTNCs. Interestingly, Worldwide Shipping moved its operational headquarters from Hong Kong to Singapore in July 1995. The main reason was to service its worldwide fleet of oil tankers, which primarily stopped over in Singapore. It must also be pointed out that up to 80 per cent of HKFDI went to the PRC during the 1980s (see Low et al., 1996). In absolute terms, however, the ASEAN region gained more HKFDI in the 1980s than in the decades before. This sense of direction provided by corporate strategies has been coined ‘strategic architecture’

Notes

240

by Hamel and Prahalad (1994).

5 THE SOCIAL ORGANISATION OF BUSINESS NETWORKS 1 Some empirical studies of TNCs in South-east Asia have adopted a network approach (e.g. Ghauri, 1989; Jansson, 1989, 1994), but they rely considerably on transaction cost interpretations of the role of network relationships in facilitating the processes of transnationalisation. They tend to overlook the role of political, ethnic and personal network relationships and emphasise more formal relationships with customers, suppliers, sellers and distributors. Other empirical studies have taken up the role of networks and relationships in outward investment by indigenous Chinese firms from Hong Kong (e.g. Goldberg, 1985; Smart and Smart, 1991, 1993; Mitchell, 1995; Olds, forthcoming) and elsewhere (e.g. Hsing, 1996, 1997; Bulcke and Zhang, 1995; Yeung, forthcoming e). 2 Because of this complex interaction among different levels of network relationships, substantial cross-references in analysis are used in both chapters—in particular, to qualitative case studies presented in various boxes. 3 There are, of course, certain exceptions to this observation such as the Walton, Mars and Du Pont families in the US and other top families in the Forbes list of the world’s billionaires. 4 See Chapter 7 for a critique of the Anglo-Saxon comparative management approach, which tends to conflate the issue of what different management systems there are (positive issue) with which system is better (normative issue). 5 There are case studies of non-Chinese HKTNCs in this chapter to illuminate the issue of the local embeddedness of TNCs (see also Dicken et al., 1994). 6 The complex and extensive interpenetrations of overseas Chinese business networks and entrepreneurs among various Asian countries have been well recorded in the literature (Chen, 1976; Wu, 1983; Lim and Gosling, 1983; Redding, 1990; Hamilton, 1991a; Menkhoff, 1993; Chan and Chiang, 1994; Brown, 1995; Chen, 1995; East Asia Analytical Unit, 1995; Suryadinata, 1995; Hodder, 1996; Weidenbaum and Hughes, 1996; Hsing, 1997; Olds, forthcoming). 7 This sense of loyalty is broadly similar to that in the customer-supplier relationship of Japanese keiretsu (see Gerlach, 1992). 8 Interestingly, Kotkin (1992) has used the same argument to underscore the worldwide success of several other diaspora groups such as the Jews and Indians. 9 See Gambetta (1988) for a similar argument against ‘economising on trust’ as a generalisable strategy. 10 There is a sharp division in the literature over the size limit to Chinese family firms. Some scholars believe that the reliance on family members to take over top management in Chinese business effectively places an upper limit on the firm’s expansionary trajectories (e.g. Redding, 1980, 1990; Granovetter, 1991; Kao, 1993; Chen, 1995; Fukuyama, 1995). 11 Information from personal interviews with all four country general managers in Indonesia, Malaysia, Singapore and Thailand. 12 This probably explains why they were unavailable for interview. 13 See DiConti (1992) for an exceptional study of how entrepreneurs obtain their training through transnational operations in Mexico and Canada. The study is, however, inadequate in linking entrepreneurship and the social and institutional organisation of transnational operations. 14 Many authors emphasise that contracts still play the most important role even in cooperative ventures among Western firms (see Willcocks and Choi, 1995). 15 Chapter 4 has already provided some examples in which HKTNCs set up their ASEAN operations to internalise expertise and entrepreneurship (see Box 4.1). 16 See Bulcke and Zhang (1995) for another example of how Chinese business networks can

Notes

241

provide the institutional medium through which Chinese family-owned firms in the Philippines engage in transnational operations (see also Yeung, forthcoming e). 17 See Olds (forthcoming) for a detailed case study of the use of the shifting shareholding as a strategy to extend social relations among Hong Kong property investors in Vancouver, Canada. 18 The intra-firm network aspect of the HKComputer Group has already been discussed earlier in this chapter. 19 The intra-firm network aspect of the HKCarpet Group has already been examined earlier in this chapter.

6 THE POLITICAL ECONOMY OF HONG KONG FIRMS IN ASEAN 1 Henderson and Appelbaum (1992) and Henderson (1993) have proposed the conceptualisation of national political economies in East Asia along a continuum of rational (market versus plan) and ideological (market versus plan) political economy. Hong Kong lies somewhere between market rational and plan rational political economy, whereas many ASEAN countries are considered ‘plan rational’ in that ‘state regulation is supplemented by state direction of the economy’ (Henderson, 1993:88). 2 Ironically, a large proportion of this foreign capital comes from ethnic Chinese societies, e.g. in Hong Kong, Taiwan and Singapore (see pp. 85–8). 3 Take Indonesia as an example. Indonesian foreign investment policies were liberalised at times in response to difficulties in economic development (e.g. in the late 1960s and mid-1980s). The entire 1970s witnessed a much more restrictive attitude to foreign investment by the BKPM. Since the late 1980s, these policies have been liberalised again to woo foreign investors. In June 1994 the Indonesian government announced a further relaxation of its investment policies so that foreign firms can own virtually 100 per cent of the equity and are required to divest only at least 1 per cent after sixteen years (The Straits Times, 3 June 1994). The long-term effects of these changes on inward FDI remain to be seen. 4 Information from an interview with the deputy managing director of the Singapore office of a leading Hong Kong stockbroking TNC on 18 July 1994. 5 Interview with director of the Thai Board of Investment in Hong Kong, 25 March 1994. 6 For related studies of HKTNCs and their political connections in the PRC, see Thoburn et al., (1991), Federation of Hong Kong Industries (1992), Chen and Wong (1995). Other studies have addressed the role of political power relations in transnational operations (see Priebjrivat and Rondinelli, 1994; Hsing, 1996, 1997; Yeung, 1998b, forthcoming e).

7 COMPETING IN THE GLOBAL TRIAD 1 An implicit assumption here is that HKTNCs do possess some forms of competitive advantage. This assumption is reasonable, given the continued success of HKTNCs in the regional and global economy (Enright et al., 1997). 2 This chapter is certainly not about the competitive advantage of the nation as a whole (cf. Porter, 1990) or about the relationship between national competitive advantage and the TNC (cf. Dunning, 1993a, 1993b, 1995a). 3 This is the approach most often found in the comparative management literature, which tends to pick up particular dimensions of one managerial system (e.g. the Chinese family business) to be compared with another (American or European public companies). The problem of such an approach is that it tends to misattribute the lack of competitiveness of Chinese family firms to these particular dimensions (e.g. family ownership and control) while neglecting the contribution of other dimensions (e.g. business networks and relationships) to the success of Chinese business. 4 Since this book is concerned with HKTNCs per se, the chapter does not include leading TNCs

Notes

5

6

7

8 9 10

11

242

from Taiwan, South Korea, Singapore and other Asian developing countries (see Yeung, 1994b). But the general implication is still applicable—that is, TNCs from Asian NIEs and developing countries are no longer as powerless as they used to seem. They are capable of competing with world-class TNCs in the regional and global economy (see Chapter 2). Financial and time constraints on the scale of this research and data problems preclude the possibility of using relatively more objective measures such as regional and global market share, profitability index and so on. This argument has an interesting parallel with Hymer’s notion of oligopolistic advantage (see p. 54), although this book is as much about inter-TNC competition as about TNC-local firm competition. Of course, other time-space-specific conditions may affect future profitability (e.g. political stability and world market growth). But since this chapter is concerned with the inherent competitive advantage of HKTNCs, it is appropriate to focus on the relationship between expected profitability and competitive advantage. Woo is the second son-in-law of the late Sir Yue-kong Pao, who was at one time (the 1970s) the largest shipowner in the world. They are Li Ka-shing, Lee Shau-kee and Cheng Yu Tung (see Box 6.3). The importance of network relationships in financial services can also be observed among Western firms, e.g. venture capitalists in the US (Fried and Hisrich, 1995) and financial houses in the City of London (Thrift and Leyshon, 1992; Thrift, 1994; Tickell, 1996; Clark, 1997). But it must be emphasised that network relationships are found across different sectors and industries in the Chinese business system. They are less unique to financial services alone. On 12 January 1998, Peregrine Investment Holdings Ltd announced that it was filing for liquidation, making it the latest casualty of Southeast Asia’s economic meltdown (Asia Inc, Dec. 1997/Jan 1998 29–32). Peregrine fell victim to a single massive bad loan in Indonesia and it was undone by the very practice it came to personify—highly risky ventures, questionable partners and reliance on personal, often political, connections.

8 UNDERSTANDING TNCs AND BUSINESS NETWORKS 1 For example, despite its generous incentives, the well publicised Operational Headquarters Scheme (OHQ) in Singapore (see Dicken and Kirkpatrick, 1991; Perry, 1992, 1995; Low et al., 1993; Régnier, 1993; Yeung, forthcoming d) has met with limited success. No more than fifty foreign TNCs had been awarded OHQ status in Singapore by the end of 1994. More likely, these foreign TNCs were drawn to Singapore because of its generally conducive investment climate rather than by generous financial incentives. 2 There is a counter-view which believes Hong Kong can survive as the coordinating and control centre of the Southern China Economic Zone beyond 1997. If that is the case, the manufacturing sector becomes insignificant to the future of Hong Kong (Ng and Tuan, 1996; Enright et al., 1997). Without disagreeing completely with this assertion, I favour a high-tech and high valueadded growth path for the future of manufacturing industries in Hong Kong.

GLOSSARY Affiliate enterprise An incorporated or unincorporated enterprise in whose management a foreign investor has an effective voice. Such an enterprise may be a subsidiary, associate or branch (UNCTC, 1992b:47). Associate enterprise An incorporated enterprise in the host country in which an investor, together with its subsidiaries and associates, owns a total of at least 10 per cent, but not more than half, of the shareholders’ voting power. The figure may be less than 10 per cent if there is evidence of an effective voice in management (UNCTC, 1992b:47). Branch enterprise An incorporated enterprise in the host country which is one of the following: (1) a permanent establishment or office of the foreign investor; (2) an unincorporated partnership or joint venture (defined below) between the foreign director and one or more third parties; (3) land, structures (except structures owned by government entities), and/or immovable equipment and objects directly owned by a foreign resident; (4) mobile equipment (such as ships, aircraft, gas or oil drilling rigs) operating within a country other than that of the foreign investor for at least one year (UNCTC, 1992b:47). Business systems Distinct sets of social and institutional organisations of business activities and economic transactions that are necessarily embedded in different capitalist societies and localities. Causal mechanism An abstract and underlying structure that is internally related to and capable of affecting empirically observable concrete events. It possesses causal power that may or may not be exercised, subject to time-and space-contingent contexts. Chaotic conception A bad abstraction which is based upon a non-necessary relationship and divides the indivisible by failing to recognise a necessary relationship. Developing countries The definition of ‘developing countries’ in this book follows the UNCTAD (1994) classification of the world into developed, developing and least developed countries. It should be noted, however, that the UNCTAD classification is problematical because it relies on GNP/ GDP statistics. Although they are included in the category of ‘developing countries’, Asian Newly Industrialised Economies (NIEs) are discussed as a separate group because, on a per capita income basis, all Asian NIEs have matched such developed countries as the UK. Embeddedness The notion that the behaviour of individuals and institutions is constrained by ongoing social relations. Economic action becomes embedded in ongoing networks of personal relationships rather than being carried out by atomised actors. The local embeddedness of transnational corporations refers to the multi-

Glossary

244

dimensional intersections and transformations of extremely complex networks of firms contingently constructed and constituted in their original home countries as well as in their host countries. Family-isation A process in Chinese social organisation through which ‘outsiders’ are socialised into the family to form an exclusive and elitist inner circle of relations. Foreign direct investment An investment involving a long-term relationship and reflecting a lasting interest of a resident entity in one economy (direct investor) in an entity resident in an economy other than that of the investor (UNCTC, 1992b:45). The direct investor’s purpose is to exert a significant degree of influence on the management of the enterprise resident in the other economy. Foreign direct investment involves both the initial transaction between the two entities and all subsequent transactions between them and among affiliated enterprises, incorporated or unincorporated. Foreign direct investment may be undertaken by individuals, as well as by business entities. Foreign direct investment flows For associates and subsidiaries, foreign direct investment flows consist of the net sales of shares and loans (including non-cash acquisitions against equipment, manufacturing rights, etc.) to the parent company plus the parent firm’s share of the affiliate’s reinvested earnings plus total net intercompany loans (short- and long-term) provided by the parent company (UNCTC, 1992b:45). For branches, foreign direct investment flows consist of the increase in reinvested earnings plus the net increase in funds received from the foreign direct investor. Foreign direct investment flows with a negative sign (reverse flows) indicate that at least one of the components in the above definition is negative and not offset by positive amounts of the remaining components. Foreign direct investment stock For associate and subsidiary enterprises, it is the value of their share of the capital and reserves (including retained profits) attributable to the parent enterprise (this is equal to total assets minus total liabilities), plus the net indebtedness of the associate or subsidiary to the parent firm (UNCTC, 1992b:45). For branches, it is the value of fixed assets and the value of current assets and investments, excluding amounts due from the parent, less liabilities to third parties. Governance structure The organisational forms and processes through which business or social activities are directed. Guanxi Refers to ongoing personal relationships in the Chinese context. It is always multi-dimensional and situational; it is embedded in the social, psychological and cultural realms of the Chinese. Guanxi or relationships function as a sort of ‘atmosphere’ engendering the growth and solidarity of ongoing relationships within personal and business networks. Holding company A corporation that owns voting stock in another corporation and is able to influence its board of directors, and therefore control its policies and management. A holding company need not own a majority of the shares of the corporation or be involved in activities similar to those of the company it holds shares in (UNCTC, 1992b:48).

Glossary

245

Joint venture A joint venture involves shareholding in a business entity having the following characteristics (UNCTC, 1992b:47–8): (1) the entity was established by a contractual arrangement (usually in writing) whereby two or more parties (the venturers) contributed resources towards the business undertaking; (2) the venturers have joint control over one or more activities carried out according to the terms of the arrangements and none of the individual investors is in a position to control the venture unilaterally. A joint venture may take one of the following three forms. (1) Jointly controlled entity: the joining together of two or more enterprises, resulting in the creation of a third enterprise in order to undertake a specific business venture. It is not a continuing relationship like a partnership. A jointly controlled entity is established under a contractual arrangement whereby the parties to the agreement contribute resources towards the business undertaking. Both parties have control over the activities carried out according to the terms of the agreement and no party can control the joint venture unilaterally. (2) Jointly controlled assets: the coordinated use of parts of venturers’ existing enterprises to work on a common project. Such a joint venture does not form any separate entity, and operates with a loose organisational structure. The assets and expertise of each partner remain under the direct control of that partner. (3) Jointly controlled operation: the contribution of resources by venturers to a joint-venture project which is managed either by one of the venturers or by a joint management team. In such a venture, a joint venture agreement defines the terms of the project, and each venturer possesses an undivided interest in the assets of the project. Modes of rationality The specific way in which business organisations are understood as causal agents. Business organisations are bounded by different modes of rationality which refer to ‘the attempts by agents to make sense of the potentially ambiguous, contradictory and uncertain nature of these available frameworks’ (Clegg, 1990:7). Modes of rationality provide different organisational logic to understand the strategies undertaken by business organisations to make sense of their structural embeddedness in society and space and the changes in concrete contingency. There is never a single logic or rationality determining universally all economic outcomes. Network relations A business network is an integrated and coordinated structure of ongoing economic and non-economic relations embedded within, among and outside business firms. Parent enterprise An incorporated or unincorporated enterprise (or group of enterprises) which has a direct investment enterprise operating in a country other than that of the parent enterprise (UNCTC, 1992b:47). Subsidiary enterprise An incorporated enterprise in the host country in which another entity directly owns more than half the shareholders’ voting power, or is a shareholder in the enterprise, and has the right to appoint or remove a majority of the members of the administrative, management or supervisory body (UNCTC, 1992b:47).

Glossary

246

Third World multinationals See ‘Transnational corporations from developing countries’. Transnational corporations The definition of transnational corporations (TNCs) in the literature is extremely confusing and variegated. Some definitions use the number of overseas subsidiaries as a threshold to distinguish TNCs from other types of firms (e.g. the definition by the Harvard project). Other perceptive researchers have defined TNCs as ‘the means of co-ordinating production from one centre of strategic decisionmaking when this coordination takes a firm across national boundaries’ (Cowling and Sudgen, 1987:60) and ‘a firm which has the power to coordinate and control operations in more than one country, even if it does not own them’ (Dicken, 1998:8). UNCTC (1992b:46) defines a transnational corporation as an enterprise, irrespective of its country of origin or its ownership, including private, public or mixed, comprising entities in two or more countries, regardless of the legal form and fields of activity of these entities, which operates under a system of decision-making centres, in which the entities are so linked, by ownership or otherwise, that one or more of them may be able to exercise a significant influence over the activities of others and, in particular, to share knowledge, resources and responsibilities with the others. In this definition, the term ‘entities’ refers to both parent enterprises and other enterprises. This book defines TNCs as business organisations which seek control of and power over one or more foreign subsidiaries and/or affiliates through cross-border networks of economic and non-economic relations both inside and outside the production chain. Transnational corporations from developing countries Domestic enterprises headquartered in developing countries which strategically control assets and/or exert influence on the decision-making process of one or more cross-border subsidiaries and/or affiliates. Transnational platform The space in which transnational activities take place. It is both a medium for and a constraint on the activities of transnational corporations. Transnationalisation A dynamic process in which TNCs are engaged in a diverse range of cross-border network relations and operations. There are really serious problems and confusion of definitions in the literature. The term ‘transnationalisation’ has been used synonymously with ‘globalisation’ and ‘internationalisation’. These three terms, however, can mean very different processes and consequently different forms of economic organisation. Globalisation is a much broader and global process of transnational operations which are highly integrated over space and time. Internationalisation, on the other hand, seems to occupy a position somewhere between transnationalisation and globalisation. Triad A term popularised by Ohmae (1985; 1990) to represent the global significance of three key regions/countries in the world economy: North America, Western Europe and Japan. These regions/countries form a tripartite grouping in terms of their wealth and their degree of transnationalisation.

REFERENCES Abolafia, Mitchel Y. and Biggart, Nicole Woolsey (1991), ‘Competition and markets: an institutional perspective’, in Amitai Etzioni and Paul R.Lawrence (eds.), SocioEconomics: Toward a New Synthesis, Armonk, NY: M.E.Sharpe, pp. 211–31. Aggarwal, Raj (1987), ‘Foreign operations of Singapore industrial firms: a study of emerging multinationals from a newly industrialized country’, in M.Dutta (ed.), AsiaPacific Economies: Promises and Challenges, Research in International Business and Finance, Vol. 6 (B), Greenwich, CT: JAI Press, pp. 253–65. ——and Agmon, Tamir (1990), ‘The international success of developing country firms: role of government-directed comparative advantage’, Management International Review, Vol. 30 (2), pp. 163–80. Agrawal, Ram Gopal (1981), ‘Third World joint ventures: Indian experience’, in Krishna Kumar and Maxwell G.McLeod (eds.), Multinationals from Developing Countries, Lexington, MA: B.C.Heath, pp. 115–31. Alatas, Syed Farid (1995), ‘The theme of “relevance” in Third World human sciences’, Singapore Journal of Tropical Geography, Vol. 16 (2), pp. 123–40. Alburo, Florian A., Bautista, C.C. and Gochoco, M.S.H. (1992), ‘Pacific direct investment flows into ASEAN’, ASEAN Economic Bulletin, Vol. 8 (3), pp. 284–308. Alter, Catherine and Hage, Jerald (1993), Organizations Working Together, Newbury Park, CA: Sage. Amin, Ash and Thrift, Nigel (eds.) (1994a), Globalization, Institutions, and Regional Development in Europe, Oxford: Oxford University Press. ——and Thrift, Nigel (1994b), ‘Living in the global’, in Ash Amin and Nigel Thrift (eds.), Globalization, Institutions, and Regional Development in Europe, Oxford: Oxford University Press, pp. 1–22. Amsden, Alice (1989), Asia’s Next Giant: South Korea and Late Industrialization, New York: Oxford University Press. Angel, David P. (1994), Restructuring for Innovation: The Remaking of the US Semiconductor Industry, New York: Guilford Press. ——and Savage, L.A. (1996), ‘Global localization? Japanese research and development laboratories in the USA’, Environment and Planning A, Vol. 28, pp. 819–33. Aoki, Masahiko (1990), ‘The participatory generation of information rents and the theory of the firm’, in Masahiko Aoki, Bo Gustafsson and Oliver E.Williamson (eds.), The Firm as a Nexus of Treaties, London: Sage, pp. 26–52. ——, Gustafsson, Bo and Williamson, Oliver E. (eds.) (1990), The Firm as a Nexus of Treaties, London: Sage. Ariff, Mohamed (1991), The Malaysian Economy: Pacific Connections, Singapore: Oxford University Press. ——and Tan, Joseph L.H. (1992), ‘Introduction’, ASEAN Economic Bulletin, Vol. 8 (3), pp. 251–7.

References

248

——and Tan, Eu Chye (1992), ‘ASEAN-Pacific trade relations’, ASEAN Economic Bulletin, Vol. 8 (3), pp. 258–83. Arrow, Kenneth J. (1974), The Limits of Organization, New York: Norton. ASEAN Economic Bulletin, Singapore, various issues. Ashkenas, Ron, Ulrich, Dave, Jick, Todd and Kerr, Steve (1995), The Boundaryless Organization: Breaking the Chains of Organizational Structure, San Francisco, CA: Jossey-Bass.

Bank Indonesia (1997), Indonesian Financial Statistics, Vol. 30 (4), pp. 148–9. Bank of Korea (1996), Overseas Direct Investment Statistics Yearbook, Seoul: Bank of Korea. Bank Negara, Malaysia (various years), Quarterly Bulletin, Kuala Lumpur: BNM. Bank of Thailand (various issues), Quarterly Bulletin, Bangkok: Bank of Thailand. Barnet, Richard J. and Cavanagh, John (1994), Global Dreams: Imperial Corporations and the New World Order, New York: Simon & Schuster. Bartlett, Christopher A. and Ghoshal, Sumantra (1989), Managing Across Borders: The Transnational Solution, London: Century Business. Beamish, Paul W. and Killing, J.Peter (eds.) (1997), Cooperative Strategies, three volumes, San Francisco, CA: New Lexington Press. Best, Michael H. (1990), The New Competition: Institutions of Industrial Restructuring, Cambridge: Polity Press. Biggart, Nicole Woolsey and Hamilton, Gary G. (1992), ‘On the limits of a firm-based theory to explain business networks: the Western bias of neoclassical economies’, in Nitin Nohria and Robert G.Eccles (eds.), Networks and Organizations: Structure, Form, and Action, Boston, MA: Harvard Business School Press, pp. 471–90. Blomqvist, Hans C. (1995), ‘Intraregional foreign investment in East Asia’, ASEAN Economic Bulletin, Vol. 11 (3), pp. 280–97. Board of Investment, the Philippines (various years), Annual Report, Manila: BOI. Boddewyn, Jean J. and Brewer, Thomas L. (1994), ‘International-business political behavior: new theoretical directions’, Academy of Management Review, Vol. 19 (1), pp. 119–43. Bond, Michael Harris (ed.) (1986), The Psychology of the Chinese People, Hong Kong: Oxford University Press. Braadbaart, Okke (1995), ‘Sources of ethnic advantages: a comparison of Chinese and pribumi-managed engineering firms in Indonesia’, in Rajeswary Ampalavana Brown (ed.), Chinese Business Enterprise in Asia, London: Routledge, pp. 177–96. Brown, Rajeswary Ampalavana (1990), ‘Chinese business and banking in South East Asia since 1870’, in Geoffrey Jones (ed.), Banks as Multinationals, London: Routledge, pp. 173–90. ——(ed.) (1995), Chinese Business Enterprise in Asia, London: Routledge. Buckley, Peter J. (1988), ‘The limits of explanation: testing the internalisation theory of the multinational enterprise’, Journal of International Business Studies, Vol. 19 (2), pp. 181–93. ——(1990), ‘Problems and developments in the core theory of international business’, Journal of International Business Studies, Vol. 21 (4), pp. 657–65.

References

249

——(1992), Studies in International Business, London: Macmillan. ——(ed.) (1994), Cooperative Forms of Transnational Corporation Activity, United Nations Library on Transnational Corporations, Vol. 13, London: Routledge. ——and Casson, Mark C. (1976), The Future of the Multinational Enterprise, London: Macmillan. ——(1985), The Economic Theory of the Multinational Enterprise: Selected Papers, London: Macmillan. ——(1991), ‘Multinational enterprises in less developed countries: cultural and economic interactions’, in Peter J.Buckley and Jeremy Clegg (eds.), Multinational Enterprises in Less Developed Countries, London: Macmillan, pp. 27–55. ——and Clegg, Jeremy (1991), ‘Introduction and statement of the issues’, in Peter J. Buckley and Jeremy Clegg (eds.), Multinational Enterprises in Less Developed Countries, London: Macmillan, pp. 3–23. ——and Mirza, Hafiz (1988), ‘The strategy of Pacific Asian multinationals’, Pacific Review, Vol. 1 (1), pp. 50–62. Bulcke, Daniel Van Den and Zhang, Hai-yan (1995), ‘Chinese family-owned multinationals in the Philippines and the internationalisation process’, in Rajeswary Ampalavana Brown (ed.), Chinese Business Enterprise in Asia, London: Routledge, pp. 214–46. Business International (1991), Investing and Sourcing Sites: Asia/Pacific in the 1990s, Research Report No. Q113, Vol. II, Hong Kong: Business International. The Business Times, Singapore, various issues.

Cantwell, John (1989), Technological Innovation and Multinational Corporations, Oxford: Basil Blackwell. ——(1993), ‘Technological competence and evolving patterns of international production’, in Howard Cox, Jeremy Clegg and Grazia Ietto-Gillies (eds.), The Growth of Global Business, London: Routledge, pp. 19–37. ——(1995), ‘The globalisation of technology: what remains of the product cycle model?’, Cambridge Journal of Economics, Vol. 19, pp. 155–74. Capital, Hong Kong, various issues. Capital Investment Coordinating Board, Indonesia (1993), Indonesia: A Brief Guide for Investors, 1993, Jakarta: BKPM. Casson, Mark C. (1982a), ‘Transaction costs and the theory of the multinational enterprise’, in Alan M.Rugman (ed.), New Theories of the Multinational Enterprise, London: Croom Helm, pp. 24–43. ——(1982b), The Entrepreneur: An Economic Theory, Oxford: Basil Blackwell. ——(ed.) (1983), The Growth of International Business, London: Allen & Unwin. ——(1987), The Firm and the Market: Studies in Multinational Enterprise and the Scope of the Firm, Cambridge, MA: MIT Press. ——(1990), Enterprise and Competitiveness: A Systems View of International Business, Oxford: Clarendon Press. ——(1991), Economics of Business Culture: Game Theory, Transaction Costs and Economic Performance, Oxford: Clarendon Press.

References

250

——(1992), ‘Internalization theory and beyond’, in Peter J.Buckley (ed.), New Directions in International Business: Research Priorities for the 1990s, Aldershot: Edward Elgar, pp. 4–27. ——(1995), Entrepreneurship and Business Culture: Studies in the Economics of Trust, Aldershot: Edward Elgar. ——and Encarnation, Dennis (eds.) (1994), Does Ownership Matter? Japanese Multinationals in Europe, Oxford: Oxford University Press. Castells, Manuel (1996), The Rise of the Network Society, Cambridge, MA: Basil Blackwell. ——and Henderson, Jeffrey (1987), ‘Techno-economic restructuring, socio-political processes and spatial transformation: a global perspective’, in Jeffrey Henderson and Manuel Castells (eds.), Global Restructuring and Territorial Development, London: Sage, pp. 1–17. ——Goh, L. and Kwok, R.Y.W. (1990), The Shek Kip Mei Syndrome: Economic Development and Public Housing in Hong Kong and Singapore, London: Pion. Caves, Richard E. (1982), Multinational Enterprise and Economic Analysis, Cambridge: Cambridge University Press. Census and Statistics Department, Hong Kong (1993a), Estimates of Gross Domestic Product 1966–1992, Hong Kong: Government Printer. ——(1993b), Annual Digest of Statistics: 1993 Edition, Hong Kong: Government Printer. ——(1994), 1992 Survey of Industrial Production, Hong Kong: Government Printer. ——(1996), Annual Digest of Statistics: 1996 Edition, Hong Kong: Government Printer. Chan, Wellington K.K. (1992), ‘Chinese business networking and the Pacific Rim: the family firm’s roles, past and present’, Journal of American East Asian Relations, Vol. 1 (2), pp. 171–90. ——(1995), ‘The origins and early years of the Wing On Company group in Australia, Fiji, Hong Kong and Shanghai: organisation and strategy of a new enterprise’, in Rajeswary Ampalavana Brown (ed.), Chinese Business Enterprise in Asia, London: Routledge, pp. 80–95. Chan, Kwok Bun and Chiang, See-Ngoh Claire (1994), Stepping Out: The Making of Chinese Entrepreneurs, Singapore: Simon & Schuster. Chandler, Alfred D., Jr (1962), Strategy and Structure: Chapters in the History of Industrial Enterprise, Cambridge, MA: MIT Press. ——(1977), The Visible Hand: The Managerial Revolution in American Business, Cambridge, MA: Harvard University Press. ——(1990), Scale and Scope: The Dynamics of Industrial Capitalism, Cambridge, MA: Harvard University Press. Chang, Kang-tsung and Thomson, Curtis N. (1994), ‘Taiwanese foreign direct investment and trade with Thailand’, Singapore Journal of Tropical Geography, Vol. 15 (2), pp. 112–27. Chang, Tung-lung (1990), ‘The Competitive Strategies of Firms in their Internationalization Process: The Case of Taiwanese Firms in the Information Industry’, unpublished Ph.D. thesis, George Washington University, Ann Arbor, MI: UniversityMicrofilms International .

References

251

Chaponniere, Raphael (1984), ‘The electronics industry in ASEAN—issues and perspectives’, ASEAN Economic Bulletin, Vol. 1 (2), pp. 136–51. Chen, Che-hung (1986), ‘Taiwan’s foreign direct investment’, Journal of World Trade Law, Vol. 20, pp. 639–64. Chen, Douglas C. (1976), ‘Social and Economic Relations of Overseas Chinese Business’, Ph.D. dissertation, University of Oregon, Ann Arbor, MI: University Microfilms International. Chen, Edward K.Y. (1981), ‘Hong Kong multinationals in Asia: characteristics and objectives’, in Krishna Kumar and Maxwell G.McLeod (eds.), Multinationals from Developing Countries, Lexington, MA: D.C.Heath, pp. 79–99. ——(1983), Multinational Corporations, Technology and Employment, London: Macmillan. ——(1984), ‘The economic setting’, in David G.Lethbridge (ed.), The Business Environment in Hong Kong, second edition, Hong Kong: Oxford University Press, pp. 1–51. ——(1989), ‘Hong Kong’s role in Asian and Pacific economic development’, Asian Development Review, Vol. 7 (2), pp. 26–47. ——(1993), ‘Foreign direct investment in East Asia’, Asian Development Review, Vol. 11 (1), pp. 24–59. ——and Li, Kui-Wai (1991), ‘Industry development and industrial policy in Hong Kong’, in Edward K.Y.Chen, Mee-Kau Nyaw and Teresa Y.C.Wong (eds.), Industrial and Trade Development in Hong Kong, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 3–47. ——and Wong, Teresa Y.C. (1995), ‘Economic synergy—a study of two-way foreign direct investment flow between Hong Kong and mainland China’, in The New Wave of Foreign Direct Investment in Asia, Singapore: Nomura Research Institute and Institute of Southeast Asian Studies, pp. 243–77. Chen, Min (1995), Asian Management Systems: Chinese, Japanese and Korean Styles of Business, London: Routledge. Cheng, Danny W.L. (1989), ‘The aspect of international commercial relations’, in Alex Y.H.Kwan (ed.), Hong Kong Society, Hong Kong: Writers’ & Publishers’ Cooperative, pp. 73–90. Cheng, L.K. (1995), ‘Strategies for rapid economic development—the case of Hong Kong’, Contemporary Economic Policy, Vol. 13 (1), pp. 28–37. Chia, Siow Yue (1993a), ‘Foreign direct investment in ASEAN economies’, Asian Development Review, Vol. 11 (1), pp. 60–102. ——(1993b), ‘Foreign direct investment in the Singapore economy’, in Ippei Yamazawa and Fu-Chen Lo (eds.), Evolution of Asia-Pacific Economies: International Trade and Direct Investment, Kuala Lumpur: Asian and Pacific Development Centre, pp. 183– 232. Chiu, Lee-in Chen and Chung, Chin (1993), ‘An assessment of Taiwan’s indirect investment towards mainland China’, Asian Economic Journal, Vol. 7 (1), pp. 41–70. Choi, Alex Hang-Keung (1994), ‘Beyond market and state: a study of Hong Kong’s industrial transformation’, Studies in Political Economy, Vol. 45 (1), pp. 28–65.

References

252

Chow, Peter C.Y. (1996), ‘Outward foreign investment and export structure: a case study of Taiwan’s FDI in Malaysia’, Journal of International Trade and Economic Development, Vol. 5 (2), pp. 183–205. Christerson, Brad and Appelbaum, Richard P. (1995), ‘Global and local subcontracting: space, ethnicity, and the organization of apparel production’, World Development, Vol. 23 (8), pp. 1363–74. Clark, Gordon L. (1997), ‘Rogues and regulation in global finance: Maxwell, Leeson and the City of London’, Regional Studies, Vol. 31 (3), pp. 221–36. Cleary, Mark and Shaw, Brian (1994), ‘Ethnicity, development and the New Economic Policy: the experience of Malaysia, 1971–1990’, Pacific Viewpoint, Vol. 35 (1), pp. 83–106. Clegg, Stewart R. (1990), Modern Organization: Organization Studies in the Postmodern World, London: Sage. Coase, Ronald H. (1937), ‘The nature of the firm’, Economica, Vol. 4 (4), pp. 386–405. Connolly, Seamus G. (1984), ‘Joint ventures with Third World multinationals: a new form of entry to international markets’, Columbia Journal of World Business, Vol. 19 (2), pp. 18–22. Contractor, Farok J. and Lorange, Peter (eds.) (1988), Cooperative Strategies in International Business: Joint Ventures and Technology Partnerships between Firms, Lexington, MA: Lexington Books. Cooke, Philip N. and Morgan, Kevin (1993), ‘The network paradigm: new departures in corporate and regional development’, Environment and Planning D: Society and Space, Vol. 11, pp. 543–64. Cowling, Keith and Sugden, Roger (1987), ‘Market exchange and the concept of a transnational corporation: analysing the nature of the firm’, British Review of Economic Issues, Vol. 9 (2), pp. 57–68.

Davies, Stephen N.G. (1989), ‘The changing nature of representation in Hong Kong politics’, in Kathleen Cheek-Milby and Miron Mushkat (eds.), Hong Kong: The Challenge of Transformation, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 36–76. Demsetz, Harold (1988), Ownership, Control, and the Firm: The Organization of Economic Activity, Vol. I, Oxford: Basil Blackwell. Dent, Christopher M. and Randerson, Claire (1996), ‘Korean foreign direct investment in Europe: the determining forces’, Pacific Review, Vol. 9 (4), pp. 531–52. Department of Statistics, Singapore (1992), Foreign Equity Investment in Singapore, 1980–1989, Singapore: DOS. ——(1994), Unpublished Data on Hong Kong Investment in Singapore, Singapore: DOS. ——(1997) Foreign Equity Investment in Singapore, 1987–1994, Singapore: DOS. Dicken, Peter (1992a), Global Shift: The Internationalization of Economic Activity, second edition, London: Paul Chapman. ——(1992b), ‘International production in a volatile regulatory environment: the influence of national regulatory policies on the spatial strategies of transnational corporations’, Geoforum, Vol. 23, pp. 303–16.

References

253

——(1992c), ‘Europe 1992 and strategic change in the international automobile industry’, Environment and Planning A, Vol. 24 (1), pp. 11–32. ——(1993), ‘The growth economies of Pacific Asia in their changing global context’, in Chris Dixon and David Drakakis-Smith (eds.), Economic and Social Development in Pacific Asia, London: Routledge, pp. 22–42. ——(1994), ‘Global-local tensions: firms and states in the global space-economy’, Economic Geography, Vol. 70, pp. 101–28. ——(1995), ‘How the world works’, Review of International Political Economy, Vol. 2 (1), pp. 197–204. ——(1998), Global Shift: Transforming the World Economy, third edition, London: Paul Chapman. ——and Kirkpatrick, Colin (1991), ‘Services-led development in ASEAN: transnational regional headquarters in Singapore’, Pacific Review, Vol. 4 (2), pp. 174–84. ——and Thrift, Nigel (1992), ‘The organization of production and the production of organization: why business enterprises matter in the study of geographical industrialization’, Transactions, Institute of British Geographers, New Series, Vol. 17, pp. 279–91. ——Forsgren, Mats and Malmberg, Anders (1994), ‘The local embeddedness of transnational corporations’, in Ash Amin and Nigel Thrift (eds.), Globalization, Institutions, and Regional Development in Europe, Oxford: Oxford University Press, pp. 23–45. DiConti, Michael A. (1992), Entrepreneurship in Training: The Multinational Corporation in Mexico and Canada, Columbia: University of South Carolina Press. Dirlik, Arif (1997), ‘Critical reflections on “Chinese capitalism” as paradigm’, Identities, Vol. 3 (3), pp. 303–30. Dixon, Chris (1991), South East Asia in the World Economy, Cambridge: Cambridge University Press. Dodgson, Mark (1993), ‘Learning, trust, and technological collaboration’, Human Relations, Vol. 46 (1), pp. 77–95. Donckels, Rik and Lambrecht, Johan (1995), ‘Joint ventures: no longer a mysterious world for SMEs from developed and developing countries’, International Small Business Journal, Vol. 13 (2), pp. 11–26. Doner, Richard (1992), ‘Politics and the growth of local capital in Southeast Asia: auto industries in the Philippines and Thailand’, in Ruth McVey (ed.), Southeast Asian Capitalists, Ithaca, NY: Cornell University Southeast Asia Program, pp. 191–218. Douglass, Mike (1991), ‘Transnational capital and the social construction of comparative advantage in Southeast Asia’, Southeast Asian Journal of Social Science, Vol. 19 (1– 2), pp. 14–43. Dunning, John H. (1977), ‘Trade, location of economic activity and the MNE: a search for an eclectic approach’, in B.Ohlin, P.O.Hesselborn and P.M.Wijkman (eds.), The International Allocation of Economic Activity, London: Macmillan, pp. 395–418. ——(1986), ‘The investment development cycle and Third World multinationals’, in Khushi M.Khan (ed.), Multinationals of the South: New Actors in the International Economy, London: Frances Pinter, pp. 15–47.

References

254

——(1991), ‘Some concluding remarks’, in Peter J.Buckley and Jeremy Clegg (eds.), Multinational Enterprises in Less Developed Countries, London: Macmillan, pp. 313– 21. ——(1993a), Multinational Enterprises and the Global Economy, Reading, MA: Addison-Wesley. ——(1993b), The Globalization of Business, London: Routledge. ——(1993c), ‘Towards a new partnership?’, International Economic Insights, Vol. 4 (4), pp. 23–5. ——(1995a), ‘The global economy and regimes of national and supranational governance’, Business, and the Contemporary World, Vol. 7 (1), pp. 124–36. ——(1995b), ‘Reappraising the eclectic paradigm in an age of alliance capitalism’, Journal of International Business Studies, Vol. 26 (3), pp. 461–91. ——(1997), Alliance Capitalism and Global Business, London: Routledge. ——and Norman, George (1987), ‘The location choice of offices of international companies’, Environment and Planning A, Vol. 19, pp. 613–31. Dyer, Jeffrey H. and Ouchi, William G. (1993), Japanese-style partnerships: giving companies a competitive edge’, Sloan Management Review, Vol. 35 (1), pp. 51–63.

East Asia Analytical Unit (1995), Overseas Chinese Business Networks in Asia, Parkes, NSW: Department of Foreign Affairs and Trade. Economic Development Board, Singapore (various years), Annual Report, Singapore: EDB. Economic Digest, Hong Kong, various issues. The Economist, London, various issues. Economist Intelligence Unit (1995), EIU Country Report, London: EIU. Elger, Tony and Smith, Chris (eds.) (1994), Global Japanization? Transnational Transformation of the Labour Process, London: Routledge. Enderwick, Peter (1991), ‘Service sector multinationals and developing countries’, in Peter J.Buckley and Jeremy Clegg (eds.), Multinational Enterprises in Less Developed Countries, London: Macmillan, pp. 292–309. Eng, Irene (1997), ‘Flexible production in late industrialization: the case of Hong Kong’, Economic Geography, Vol. 73 (1), pp. 26–43. Enright, Michael, Scott, Edith, and Dodwell, David (1997), The Hong Kong Advantage, Hong Kong: Oxford University Press. ESCAP/UNCTC (1985), Transnational Corporations from Developing Asian Economies, Bangkok: ESCAP/UNCTC Joint Unit. ——(1988), Transnational Corporations from Developing Asian Economies: Host County Perspectives, Bangkok: ESCAP/UNCTC. Etzioni, Amitai (1988), The Moral Dimension: Toward a New Economics, New York: Free Press. ——(1993), ‘Normative-affective choices’, Human Relations, Vol. 46 (9), pp. 1053–69. ——and Lawrence, Paul R. (eds.) (1991), Socio-economics: Toward a New Synthesis, Armonk, NY: M.E.Sharpe. Euh, Yoon-dae and Min, Sang H. (1986), ‘Foreign direct investment from developing countries: the case of Korean firms’, Developing Economies, Vol. 24 (2), pp. 149–68.

References

255

Executive, Hong Kong, various issues.

Far Eastern Economic Review, Hong Kong, various issues. Faulkner, David (1995), International Strategic Alliances: Co-operating to Compete, London: McGraw-Hill. Federation of Hong Kong Industries (1990), Hong Kong’s Offshore Investment: A Survey on Hong Kong’s Industrial Investment in Overseas Countries, Hong Kong: Federation of Hong Kong Industries. ——(1992), Hong Kong’s Industrial Investment in the Pearl River Delta: 1991 Survey among Members of the Federation of Hong Kong Industries, Hong Kong: Federation of Hong Kong Industries. Financial Times, London, various issues. Fitzgerald, Robert (1994), The State and Economic Development: Lessons from the Far East, London: Frank Cass. Forbes, Hong Kong, various issues. Forbes, Dean (1986), ‘Spatial aspects of Third World multinational corporations’ direct investment in Indonesia’, in Michael Taylor and Nigel Thrift (eds.), Multinationals and the Restructuring of the World Economy: The Geography of Multinationals, Vol. 2, London: Croom Helm, pp. 105–41. Forsgren, Mats and Johanson, Jan (eds.) (1992a), Managing Networks in International Business, Philadelphia: Gordon & Breach. ——(1992b), ‘Managing internationalization in business networks’, in Mats Forsgren and Ian Johanson (eds.), Managing Networks in International Business, Philadelphia: Gordon & Breach, pp. 1–16. Frances, Jennifer, Levacic, Rosalind, Mitchell, Jeremy and Thompson, Grahame (1991), ‘Introduction’, in Grahame Thompson, Jennifer Frances, Rosalind Levacic and Jeremy Mitchell (eds.), Markets, Hierarchies and Networks: The Coordination of Social Life, London: Sage, pp. 1–19. Fried, Vance H. and Hisrich, Robert D. (1995), ‘The venture capitalist: a relationship investor’, California Management Review, Vol. 37 (2), pp. 101–13. Fujita, Masataka (1990), ‘TNCs from developing countries’, CTC Reporter, No.30 (autumn), pp. 42–5. Fukushima, Kiyohiko and Kwan, C.H. (1995), ‘Foreign direct investment and regional industrial restructuring in Asia’, in The New Wave of Foreign Direct Investment in Asia, Singapore: Nomura Research Institute and Institute of Southeast Asian Studies, pp. 3–39. Fukuyama, Francis (1995), Trust: The Social Virtues and the Creation of Prosperity, London: Hamish Hamilton. Fung, K.C. (1996), ‘Mainland Chinese investment in Hong Kong: how much, why, and so what?’, Journal of Asian Business, Vol. 12 (2), pp. 21–39.

Gambetta, Diego (ed.) (1988), Trust: Making and Breaking of Cooperative Relations, Oxford: Basil Blackwell.

References

256

Gang, Ye (1992), ‘Chinese transnational corporations’, Transnational Corporations, Vol. 1 (2), pp. 125–33. Gereffi, Gary (1994), ‘The organization of buyer-driven global commodity chains: how US retailers shape overseas production networks’, in Gary Gereffi and Miguel Korzeniewicz (eds.), Commodity Chains and Global Capitalism, Westport, CT: Praeger, pp. 95–122. Gerlach, Michael L. (1992), Alliance Capitalism: The Social Organization of Japanese Business, Berkeley: University of California Press. Ghauri, Pervez N. (1989), ‘Global marketing strategies: Swedish firms in South East Asia’, in Erdener Kaynak and Kam-Hon Lee (eds.), Global Business: Asia-Pacific Dimensions, London: Routledge, pp. 261–74. Ghoshal, Sumantra (1987), ‘Global strategy: an organizing framework’, Strategic Management Journal, Vol. 8, pp. 425–40. ——and Bartlett, Christopher A. (1993), ‘The multinational corporation as an interorganizational network’, in Sumantra Ghoshal and D.Eleanor Westney (eds.), Organization Theory and the Multinational Corporation, New York: St Martin’s Press, pp. 77–104. ——and Westney, D.Eleanor (eds.) (1993a), Organization Theory and the Multinational Corporation, New York: St Martin’s Press. ——(1993b), ‘Introduction and overview’, in Sumantra Ghoshal and D.Eleanor Westney (eds.), Organization Theory and the Multinational Corporation, New York: St Martin’s Press, pp. 1–23. Ghymn, Kyung-il (1980), ‘Multinational enterprises from the Third World’, Journal of International Business Studies, Vol. 11 (2), pp. 118–22. Giddens, Anthony (1984), The Constitution of Society: Outline of the Theory of Structuration, Cambridge: Polity Press. Giddy, Ian H. and Young, Stephen (1982), ‘Conventional theory and unconventional multinationals: do new forms of multinational enterprise require new theories?’, in Alan M.Rugman (ed.), New Theories of the Multinational Enterprise, London: Croom Helm, pp. 55–78. Gilroy, Bernard Michael (1993), Networking in Multinational Enterprises: The Importance of Strategic Alliances, Columbia: University of South Carolina Press. Go, Frank M. and Pine, Ray (1995), Globalization Strategy in the Hotel Industry, London: Routledge. Goldberg, Michael A. (1985), The Chinese Connection: Getting Plugged in to Pacific Rim Real Estate, Trade, and Capital Markets, Vancouver: University of British Columbia Press. Gottdiener, M. (1987), ‘Space as a force of production: contribution to the debate on realism, capitalism and space’, International Journal of Urban and Regional Research, Vol. 11 (3), pp. 405–16. Grabher, Gernot (ed.) (1993a), The Embedded Firm: The Socio-economics of Industrial Networks, London: Routledge. ——(1993b), ‘Rediscovering the social in the economics of interfirm relations’, in Gernot Grabher (ed.), The Embedded Firm: The Socio-economics of Industrial Networks, London: Routledge, pp. 1–31.

References

257

Grandori, Anna and Soda, Giuseppe (1995), ‘Inter-firm networks: antecedents, mechanisms and forms’, Organization Studies, Vol. 16 (2), pp. 183–214. Granovetter, Mark (1973), ‘The strength of weak ties’, American Journal of Sociology, Vol. 78 (6), pp. 1360–80. ——(1985), ‘Economic action, and social structure: the problem of embeddedness’, American Journal of Sociology, Vol. 91, pp. 481–510. ——(1991), ‘The social construction of economic institutions’, in Amitai Etzioni and Paul R.Lawrence (eds.), Socio-economics: Toward a New Synthesis, Armonk, NY: M.E.Sharpe, pp. 75–81. ——(1992a), ‘Economic action and social structure: the problem of embeddedness’, in Mark Granovetter and Richard Swedberg (eds.), The Sociology of Economic Life, Boulder, CO: Westview Press, pp. 53–81. ——(1992b), ‘Problems of explanation in economic sociology’, in Nitin Nohria and Robert G.Eccles (eds.), Networks and Organizations: Structure, Form, and Action, Boston: Harvard Business School Press, pp. 25–56. ——and Swedberg, Richard (eds.) (1992), The Sociology of Economic Life, Boulder, CO: Westview Press. Greenhalgh, Susan (1994), ‘De-orientalizing the Chinese family firm’, American Ethnologist, Vol. 21 (4), pp. 746–75. Grieco, Margaret (1987), Keeping it in the Family: Social Networks and Employment Chance, London: Tavistock Publications. Guisinger, Stephen (1991), ‘Foreign direct investment flows in East and Southeast Asia: policy issues’, ASEAN Economic Bulletin, Vol. 8 (1), pp. 29–46. Gulati, Ranjay (1995), ‘Does familiarity breed trust? The implications of repeated ties for contractual choice in alliances’, Academy of Management Journal, Vol. 38 (1), pp. 85–112. Guo, Jiann-jong (1993), ‘The role of Taiwan in the Asia-Pacific community’, in KuangSheng Liao (ed.), Politics of Economic Cooperation in the Asia-Pacific Region, Hong Kong: Chinese University of Hong Kong, pp. 105–29.

Håkansson, Håkan and Johanson, Jan (1988), ‘Formal and informal cooperation strategies in international industrial networks’, in Farok J.Contractor and Peter Lorange (eds.), Cooperative Strategies in International Business: Joint Ventures and Technology Partnerships between Firms, Lexington, MA: Lexington Books, pp. 369– 79. ——(1993), ‘The network as a governance structure: interfirm cooperation beyond markets and hierarchies’, in Gernot Grabber (ed.), The Embedded Firm: The Socioeconomics of Industrial Networks, London: Routledge, pp. 35–51. Hamel, Gary and Prahalad, C.K. (1988), ‘Creating global strategic capability’, in Neil Hood and Jan-Erik Valne (eds.), Strategies in Global Competition, London: Croom Helm, pp. 5–39. ——(1994), Competing for the Future: Breakthrough Strategies for Seizing Control of your Industry andCreating the Markets of Tomorrow , Boston, MA: Harvard Business School Press.

References

258

Hamilton, Gary G. (ed.) (1991a), Business Networks and Economic Development in East and South East Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong. ——(1991b), ‘The organizational foundation of Western and Chinese commerce: a historical and comparative analysis’, in Gary G.Hamilton (ed.), Business Networks and Economic Development in East and South East Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 48–65. ——(1994), ‘Civilizations and the organization of economies’, in Neil J.Smelser and Richard Swedberg (eds.), The Handbook of Economic Sociology, Princeton, NJ: Princeton University Press, pp. 183–205. ——(1996a), ‘Competition and organization: a re-examination of Chinese business practices’, Journal of Asian Business, Vol. 12 (1), pp. 7–20. ——(1996b), ‘Overseas Chinese capitalism’, in Wei-ming Tu (ed.), Confucian Traditions in East Asian Modernity: Moral Education and Economic Culture in Japan and the Four Mini-Dragons, Cambridge, MA: Harvard University Press, pp. 328–42. ——and Biggart, Nicole Woolsey (1992), ‘Market, culture, and authority: a comparative analysis of management and organization in the Far East’, in Mark Granovetter and Richard Swedberg (eds.), The Sociology of Economic Life, Boulder, CO: Westview Press, pp. 181–221. ——, Zeile, William and Kim, Wan-Jin (1990), ‘The network structures of East Asian economies’, in Stewart R.Clegg and S.Gordon Redding (eds.), Capitalism in Contrasting Cultures, Berlin: de Gruyter, pp. 105–29. Han, Min C. and Brewer, Thomas L. (1987), ‘Foreign direct investments by Korean firms: an analysis with FDI theories’, Asia-Pacific Journal of Management, Vol. 4 (2), pp. 90–102. Handler, Wendy C. (1994), ‘Succession in family business: a review of the research’, Family Business Review, Vol. 7 (2), pp. 133–57. Harvey, Charles and Jones, Geoffrey (eds.) (1992), Organisational Capability and Competitive Advantage, London: Frank Cass. Harvey, David (1989), The Condition of Postmodernity: An Enquiry into the Origins of Cultural Change, Oxford: Basil Blackwell. Haspeslagh, Philippe C. and Jemison, David B. (1991), Managing Acquisitions: Creating Value through Corporate Renewal, New York: Free Press. Hawes, Gary (1987), The Philippine State and the Marcos Regime, Ithaca, NY: Cornell University Press. ——(1992), ‘Marcos, his cronies, and the Philippines’ failure to develop’, in Ruth McVey (ed.), Southeast Asian Capitalists, Ithaca, NY: Cornell University Southeast Asia Program, pp. 145–60. Hedlund, Gunnar (1986), ‘The hypermodern MNC—a heterarchy?’, Human Resource Management, Vol. 25, pp. 9–35. ——(1993), ‘Assumptions of hierarchy and heterarchy, with applications to the management of the multinational corporation’, in Sumantra Ghoshal and D.Eleanor Westney (eds.), Organization Theory and the Multinational Corporation, New York: St Martin’s Press, pp. 211–36. Heenan, David A. and Keegan, Warren J. (1979), ‘The rise of Third World multinationals’, Harvard Business Review, January-February, pp. 101–9.

References

259

——and Perlmutter, H. (1979), Multinational Organisational Development: A Social Architecture Perspective, Reading, MA: Addison-Wesley. Henderson, Jeffrey (1989), The Globalisation of High Technology Production, London: Routledge. ——(1991a), ‘Urbanization in the Hong Kong-South China region: an introduction to dynamics and dilemmas’, International Journal of Urban and Regional Research, Vol. 15 (2), pp. 169–79. ——(1991b), ‘The political economy of technological transformation in the Hong Kong electronics industry’, in Edward K.Y.Chen, Mee-Kau Nyaw and Teresa Y.C.Wong (eds.), Industrial and Trade Development in Hong Kong, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 57–115. ——(1993), ‘The role of the state in the economic transformation of East Asia’, in Chris Dixon and David Drakakis-Smith (eds.), Economic and Social Development in Pacific Asia, London: Routledge, pp. 85–114. ——and Appelbaum, R.P. (eds.) (1992), States and Development in the Asian Pacific Rim, Newbury Park, CA: Sage. Hennart, Jean-François (1991), ‘The transaction cost theory of the multinational enterprise’, in Christo N.Pitelis and Roger Sugden (eds.), The Nature of the Transnational Firm, London: Routledge, pp. 81–116. Hill, Hal (1988), Foreign Investment and Industrialization in Indonesia, Singapore: Oxford University Press. ——(1990), ‘Foreign investment and East Asian economic development’, Asia-Pacific Economic Literature, Vol. 4 (2), pp. 21–58. ——(1994), ‘ASEAN economic development: an analytical survey—the state of the field’, Journal of Asian Studies, Vol. 53 (3), pp. 832–66. Hirst, Paul and Thompson, Grahame (1996), Globalization in Question: The International Economy and the Possibilities of Governance, Cambridge: Polity Press. Ho, Kong Chong and So, Alvin (1997), ‘Semi-periphery and borderland integration: Singapore and Hong Kong experiences’, Political Geography, Vol. 16 (3), pp. 241– 59. Ho, Yin-Ping (1992), Trade, Industrial Restructuring and Development in Hong Kong, London: Macmillan. Hoa, Tran Van (ed.) (1996), Economic Developments and Prospects in the ASEAN: Foreign Investment and Growth in Vietnam, Thailand, Indonesia and Malaysia, London: Macmillan. Hodder, Rupert (1996), Merchant Princes of the East: Cultural Delusions, Economic Success and the Overseas Chinese in Southeast Asia, Chichester: Wiley. Hodgson, Geoffrey M. (1988), Economics and Institutions: A Manifesto for a Modern Institutional Economics, Cambridge: Polity Press. Hollingsworth, J.Rogers and Boyer, Robert (1997), Contemporary Capitalism: The Embeddedness of Institutions, Cambridge: Cambridge University Press. Holton, Robert J. (1992), Economy and Society, London: Routledge. Hong Kong Business, Hong Kong, various issues. Hong Kong Government (1984), A Draft Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the

References

260

People’s Republic of China on the Future of Hong Kong, Hong Kong: Government Printer. Hong Kong Government Industry Department (1991), Survey on the Future Development of Industry in Hong Kong, Hong Kong: Industry Department. ——(1994), Hong Kong’s Manufacturing Industries, Hong Kong: Government Printer. ——(1995), Report on Techno-economic and Market Research Study on Hong Kong’s Electronics Industry 1993–1994, Hong Kong: Government Printer. ——(1996), 1995 Techno-economic and Market Research Study on Hong Kong’s Textile and Clothing Industries, Hong Kong: Government Printer. Hongkong Industrialist, Hong Kong, various issues. Hong Kong Industry Development Board (1991), Techno-economic and Market Research Study on Hong Kong’s Electronics Industry 1988–1989, Hong Kong: Industry Development Board. Hong Kong Industry and Technology Development Council (1992), Techno-economic and Market Research Study on Hong Kong’s Textiles and Clothing Industries 1991– 1992, Hong Kong: Industry and Technology Development Council. Hong Kong Standard, Hong Kong, various issues. Hosmer, Larue Tone (1995), ‘Trust: the connecting link between organizational theory and philosophical ethics’, Academy of Management Review, Vol. 20 (2), pp. 379–403. Hsing, You-tien (1996), ‘Blood thicker than water: interpersonal relations and Taiwanese investment in Southern China’, Environment and Planning A, Vol. 28, pp. 2241–61. ——(1997), Making Capitalism in China: The Taiwan Connection, New York: Oxford University Press. Hu, Yao-Su (1992), ‘Global firms are national firms with international operations’, California Management Review, Vol. 34 (2), pp. 107–26.. Hwang, Kwang-kuo (1987), ‘Face and favour: the Chinese power game’, American Journal of Sociology, Vol. 92 (4), pp. 944–74. Hymer, Stephen H. [1960] (1976), The International Operations of National Firms: A Study of Foreign Direct Investment, Cambridge, MA: MIT Press. ——(1970), ‘The efficiency (contradictions) of multinational corporations’, American Economic Review, Vol. 70 (2), pp. 441–8.

Ietto-Gillies, Grazia (1992), International Production: Trends, Theories, Effects, Cambridge: Polity Press. Independent, London, various issues. International Monetary Fund (1995), International Financial Statistics, Washington, DC: IMF.

Jacobs, J.B. (1979), ‘A preliminary model of particularistic ties in Chinese political alliances: Kan-ch’ing and Kuan-hsi in a rural Taiwanese township’, China Quarterly, Vol. 78, pp. 237–73. Jansson, Hans (1989), ‘Internationalization processes in South East Asia: an extension or another process?’, in Erdener Kaynak and Kam-Hon Lee (eds.), Global Business: Asia-Pacific Dimensions, London: Routledge, pp. 78–102.

References

261

——(1994), Transnational Corporations in Southeast Asia: An Institutional Approach to Industrial Organization, Aldershot: Edward Elgar. Jesudason, James V. (1989), Ethnicity and the Economy. The State, Chinese Business, and Multinationals in Malaysia, Singapore: Oxford University Press. ——(1997), ‘Chinese business and ethnic equilibrium in Malaysia’, Development and Change, Vol. 28 (1), pp. 119–41. Johanson, Jan and Mattsson, Lars-Gunnar (1987), ‘Inter-organizational relations in industrial systems: a network approach compared with the transactions-cost approach’, International Studies of Management and Organization, Vol. 17 (1), pp. 34–48. ——(1988), ‘Internationalization in industrial systems: a network approach’, in Neil Hood and Jan-Erik Vahlne (eds.), Strategies in Global Competition, London: Croom Helm, pp. 287–314. John, Caron H. and Young, Scott T. (1995), ‘Functional coordination within the global firm’, International Business Review, Vol. 4 (3), pp. 341–54. Jomo, Kwame Sundaram (1997), Southeast Asia’s Misunderstood Miracle: Industrial Polity and Economic Development in Thailand, Malaysia and Indonesia, Boulder, CO: Westview Press. Jun, Yongwook (1990), ‘Korean overseas investment: patterns, characteristics, and strategic behaviours’, Asia-Pacific TNC Review, Vol. 7, pp. 53–65. ——(1993), ‘The emerging pattern of Korea’s foreign investment in the Asia-Pacific region and its implications for regional cooperation’, in Ippei Yamazawa and Fu-Chen Lo (eds.), Evolution of Asia-Pacific Economies: International Trade and Direct Investment, Kuala Lumpur: Asian and Pacific Development Centre, pp. 117–46.

Kanai, Takao (1993), ‘Singapore’s new focus on regional business expansion’, Nomura Research Institute Quarterly, Vol. 2 (3), pp. 18–41. Kao, Cheng-shu (1991), ‘“Personal trust” in the large businesses in Taiwan: a traditional foundation for contemporary economic activities’, in Gary G.Hamilton (ed.), Business Networks and Economic Development in East and South East Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 66–76. Kao, John (1993), ‘The worldwide web of Chinese business’, Harvard Business Review, March-April, pp. 24–36. Katz, Jorge and Kosacoff, Bernardo (1983), ‘Multinationals from Argentina’, in Sanjaya Lall, The New Multinationals: The Spread of Third World Enterprises, Chichester: Wiley, pp. 137–219. Kaynak, Erdener and Dalgic, Tevfik (1992), ‘Internationalization of Turkish construction companies: a lesson for Third World countries’, Columbia Journal of World Business, Vol. 26 (4), pp. 60–75. Keller, William W., Pauly, Louis W., Reich, Simon and Doremus, Paul N. (forthcoming), Multinationals and the Limits of Globalization, Princeton, NJ: Princeton University Press. Kets de Vries, Manfred F.R. (1996), Family Business: Human Dilemmas in the Family Firm, London: International Thomson Business Press. Khan, Khushi M. (ed.) (1986a), Multinationals of the South: New Actors in the International Economy, London: Frances Pinter.

References

262

——(1986b), ‘Multinationals from the South: emergence, patterns and issues’, in Khushi M.Khan (ed.), Multinationals of the South: New Actors in the International Economy, London: Frances Pinter, pp. 1–14. Kindleberger, Charles P. (1969), American Business Abroad, New Haven, CT: Yale University Press. Knickerbocker, Frederick T. (1973), Oligopolistic Reaction and Multinational Enterprises, Boston: Harvard Business School. Kogut, Bruce (1983), ‘Foreign direct investment as a sequential process’, in Charles P. Kindleberger and David B.Audretsch (eds.), Multinational Corporations in the 1980s, Cambridge, MA: MIT Press, pp. 38–56. ——(1993), ‘Learning, or the importance of being inert: country imprinting and international competition’, in Sumantra Ghoshal and D.Eleanor Westney (eds.), Organization Theory and the Multinational Corporation, New York: St Martin’s Press, pp. 136–54. ——, Shan, Weijian and Walker, Gordon (1993), ‘Knowledge in the network and the network as knowledge: the structuring of new industries’, in Gernot Grabber (ed.), The Embedded Firm: The Socio-economics of Industrial Networks, London: Routledge, pp. 67–94. Kojima, Kiyoshi (1973), ‘A macroeconomic approach to foreign direct investment’, Hitotsubashi Journal of Economics, Vol. 14 (1), pp. 1–21. ——(1978), Direct Foreign Investment: A Japanese Model of Multinational Business Operations, London: Croom Helm. Kotkin, Joel (1992), Tribes: How Race, Religion and Identity Determine Success in the New Global Economy, New York: Random House. Krugman, Paul R. (1991), Geography and Trade, Cambridge, MA: MIT Press. ——(1995), Development, Geography, and Economic Theory, Cambridge, MA: MIT Press. Kulasingam, M. and Tan, Siew Ee (1982), Changing Patterns of Foreign Investments in Malaysia: Determinants, Issues and Implications, Discussion Paper No. 9, School of Social Sciences, Universiti Sains Malaysia. Kumar, Krishna (1982), ‘Third World multinationals: a growing force in international relations’, International Studies Quarterly, Vol. 26 (3), pp. 397–424. ——and McLeod, Maxwell G. (eds.) (1981), Multinationals from Developing Countries, Lexington, MA: D.C.Heath. Kuo, Eddie C.Y. (1991), ‘Ethnicity, polity and economy: a case study of the Mandarin trade and the Chinese connection’, in Gary G.Hamilton (ed.), Business Networks and Economic Development in East and South East Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 155–75.

Lall, Rajiv B. (1986), Multinationals from the Third World: Indian Firms Investing Abroad, Delhi: Oxford University Press. Lall, Sanjaya (1980), ‘Developing countries as exporters of industrial technology’, Research Policy, Vol. 9 (1), pp. 24–52. ——(1982a), ‘The emergence of Third World multinationals: Indian joint ventures overseas’, World Development, Vol. 10, pp. 127–46.

References

263

——(1982b), Developing Countries as Exporters of Technology: A First Look at the Indian Experience, London: Macmillan. ——(1983), The New Multinationals: The Spread of Third World Enterprises, Chichester: Wiley. ——(1985), ‘India’, in John H.Dunning (ed.), Multinational Enterprises, Economic Structure and International Competitiveness, Chichester: Wiley, pp. 309–35. Lam, Danny Kin-Kong (1990), ‘Hongkong Chinese emigration and investment patterns in response to the 1997 problem’, Journal of Northeast Asian Studies, Vol. IX (1), pp. 60–79. Lam, Jermain T.M. and Lee, Jane C.Y. (1993), ‘Allegiance, apathy or alienation? The political culture of functional constituency voters in Hong Kong’, in Donald H. McMillen and Michael E.DeGolyer (eds.), One Culture, Many Systems: Politics in the Reunification of China, Hong Kong: Chinese University Press, pp. 95–120. Lane, Christel and Bachmann, Reinhard (1996), ‘The social constitution of trust: supplier relations in Britain and Germany’, Organization Studies, Vol. 17 (3), pp. 365–95. Laothamatas, Anek (1992), Business Associations and the New Political Economy of Thailand: From Bureaucratic Polity to Liberal Corporatism, Boulder, CO: Westview Press. Lau, Ho-Fuk (1991), ‘Development process of the Hong Kong manufacturing companies: with special reference to the garment firms’, in Edward K.Y.Chen, Mee-Kau Nyaw and Teresa Y.C.Wong (eds.), Industrial and Trade Development in Hong Kong, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 427–44. Lau, Siu-kai and Kuan, Hsin-chi (1988), The Ethos of the Hong Kong Chinese, Hong Kong: Chinese University Press. Lecraw, Donald J. (1988), ‘Third World multinationals in the service industries’, in Peter Enderwick (ed.), Multinational Service Firms, London: Routledge, pp. 200–12. ——(1992), ‘Third World MNEs once again: the case of Indonesia’, in Peter J.Buckley and Mark Casson (eds.), Multinational Enterprises in the World Economy: Essays in Honour of John Dunning, Aldershot: Edward Elgar, pp. 115–33. ——(1993), ‘Outward direct investment by Indonesian firms: motivation and effects’, Journal of International business Studies, Vol. 24 (3), pp. 589–600. Ledic, Michèle (1989), ‘Hong Kong and China—economic interdependence’, Pacific Review, Vol. 2 (2), pp. 141–50. Lee, Chol and Beamish, Paul W. (1995), ‘The characteristics and performance of Korean joint ventures in LDCs’, Journal of International Business Studies, Vol. 26 (3), pp. 637–54. Lee, Chung H. (1994), ‘Korea’s direct foreign investment in Southeast Asia’, ASEAN Economic Bulletin, Vol. 10 (3), pp. 280–96. Lee, Honggue (1995), Globalization, foreign direct investment, and competitive strategies of Korean electronics companies’, in The New Wave of Foreign Direct Investment in Asia, Singapore: Nomura Research Institute and Institute of Southeast Asian Studies, pp. 64–86. Lee, Kuen and Plummer, Michael G. (1992), ‘Competitive advantages, two-way foreign investment, and capital accumulation in Korea’, Asian Economic Journal, Vol. 6 (2), pp. 93–114.

References

264

Lee, Tsao Yuan (1994), Overseas Investment: Experience of Singapore Manufacturing Companies, Singapore: McGraw-Hill. Lefebvre, Henri (1991), The Production of Space, translated by Donald Nicholson-Smith, Oxford: Basil Blackwell. Leung, Chi-kin (1993), ‘Personal contacts, subcontracting linkages, and development in the Hong Kong-Zhujiang Delta region’, Annals of the Association of American Geographers, Vol. 83 (2), pp. 272–302. ——and Wu, Chung Tong (1995), ‘Innovation environment, R & D linkages and technology development in Hong Kong’, Regional Studies, Vol. 29 (6), pp. 533–46. Levy, Brian (1988), ‘Korean and Taiwanese firms as international competitors: the challenges ahead’, Columbia Journal of World Business, Vol. 23 (1), pp. 43–51. ——and Kuo, Wen-jeng (1991), ‘The strategic orientations of firms and the performance of Korea and Taiwan in frontier industries: lessons from comparative case studies of keyboard and personal computer assembly’, World Development, Vol. 19 (4), pp. 363–74. Lewis, Jordan D. (1995), The Connected Corporation: How Leading Companies Win through Customer-Supplier Alliances, New York: Free Press. Li, Peter Ping (1994), ‘Strategy profiles of indigenous MNEs from the NIEs: the case of South Korea and Taiwan’, International Executive, Vol. 36 (2), pp. 147–70. Lim, Linda Y.C. and Gosling, L.A.Peter (eds.) (1983), The Chinese in Southeast Asia, Singapore: Maruzen Asia. ——and Pang, Eng-Fong (1991), Foreign Direct Investment and Industrialization in Malaysia, Singapore, Taiwan and Thailand, Paris: OECD. ——(1994), ‘The Southeast Asian economies: resilient growth and expanding linkages’, in Southeast Asian Affairs 1994, Singapore: Institute of Southeast Asian Studies, pp. 22–33. Lim, Mah-hui and Teoh, Kit-fong (1986), ‘Singapore corporations go transnational’, Journal of South East Asian Studies, Vol. 17 (2), pp. 336–65. Limlingan, Victor Simpoa (1986), The Overseas Chinese in ASEAN: Business Strategies and Management Practices, Manila: Vita Development Corporation. Lin, Pao-an (1991), ‘The social sources of capital investment in Taiwan’s industrialization’, in Gary G.Hamilton (ed.), Business Networks and Economic Development in East and South East Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 94–113. Linge, Godfrey J.R. (1984), ‘Developing-country multinationals: a review of the literature’, Pacific Viewpoint, Vol. 25 (2), pp. 173–95. Lo, John (1985), ‘The 1997 issue and Hong Kong’s industrial policy and industrial development, with special reference to electronics’, in Y.C.Jao, Chi-Keung Leung, Peter Wesley-Smith and Siu-lun Wong (eds.), Hong Kong and 1997: Strategies for the Future, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 293–301. Lorange, Peter (1991), ‘Creating win-win strategies for joint ventures’, CTC Reporter, No.31, pp. 8–12. ——and Roos, Johan (1992), Strategic Alliances: Formation, Implementation, and Evolution, Oxford: Basil Blackwell.

References

265

Lorenz, Edward H. (1989), ‘Neither friends nor strangers: informal networks of subcontracting in French industry’, in Diego Gambetta (ed.), Trust: Making and Breaking of Cooperative Relations, Oxford: Basil Blackwell, pp. 194–210. ——(1992), ‘Trust, community, and cooperation: toward a theory of industrial districts’, in Michael Storper and Allen J.Scott (eds.), Pathways to Industrialization and Regional Development, London: Routledge, pp. 195–204. Low, Linda and Toh, Mun Heng (1993), ‘ASEAN 1993–94’, in Regional Outlook: Southeast Asia 1993–94, Singapore: Institute of Southeast Asian Studies, pp. 37–61. ——, Ramstetter, Eric D. and Yeung, Wai-chung Henry (1996), Accounting for Outward Direct Investment from Hong Kong and Singapore: Who Controls What?, Working Paper No. 5858, Washington, DC: National Bureau of Economic Research. ——, Toh, Mun Heng, Soon, Teck Wong, Tan, Kong Yam and Hughes, Helen (1993), Challenge and Response: Thirty Years of the Economic Development Board, Singapore: Times Academic Press. Luey, Paul (1969), ‘Hong Kong investment’, in Helen Hughes and P.S.You (eds.), ForeignInvestment and Industrialisation in Singapore , Canberra: Australian National University Press, pp. 112–39. Lui, Tai Lok and Chiu, Stephen (1994), ‘A tale of two industries: the restructuring of Hong Kong’s garment making and electronics industries’, Environment and Planning A, Vol. 26 (1), pp. 53–70. ——(1996), ‘Merchants, small employers and a non-interventionist state: Hong Kong as a case of unorganized late industrialization’, in John Borrego, Alejandro Alvarez Bejar and K.S.Jomo (eds.), Capital, the State, and Late Industrialization: Comparative Perspectives on the Pacific Rim, Boulder, CO: Westview Press, pp. 221–46. Lundvall, Bengt-Åke (1993), ‘Explaining interfirm cooperation and innovation: limits of the transaction-cost approach’, in Gernot Grabher (ed.), The Embedded Firm: The Socio-economics of Industrial Networks, London: Routledge, pp. 52–64. Luo, Yadong and Chen, Min (1997), ‘Does guanxi influence firm performance?’, Asia Pacific Journal of Management, Vol. 14 (1), pp. 1–16.

Macaulay, Stewart (1963), ‘Non-contractual relations in business: a preliminary study’, American Sociological Review, Vol. 28, pp. 55–67. McClintock, Brent (1988), ‘Recent theories of direct foreign investment: an institutionalist perspective’, Journal of Economic Issues, Vol. 22, pp. 477–84. Mackie, Jamie A.C. (1988), ‘Changing economic roles and ethnic identities of the Southeast Chinese: a comparison of Indonesia and Thailand’, in Jennifer W.Cushman and Gungwu Wang (eds.), Changing Identities of the Southeast Asian Chinese since World War II, Hong Kong: Hong Kong University Press, pp. 217–60. ——(1992a), ‘Overseas Chinese entrepreneurship’, Asian-Pacific Economic Literature, Vol. 6 (1), pp. 41–64. ——(1992b), ‘Changing patterns of Chinese big business in Southeast Asia’, in Ruth McVey (ed.), Southeast Asian Capitalists, Ithaca, NY: Cornell University Southeast Asia Program, pp. 161–90.

References

266

——(1995), ‘Economic systems of the Southeast Asian Chinese’, in Leo Suryadinata (ed.), Southeast Asian Chinese and China: The Political-Economic Dimension, Singapore: Times Academic Press, pp. 33–65. McMillen, Donald H. and DeGolyer, Michael E. (eds.) (1993), One Culture, Many Systems: Politics in the Reunification of China, Hong Kong: Chinese University Press. McVey, Ruth (ed.) (1992a), Southeast Asian Capitalists, Ithaca, NY: Cornell University Southeast Asia Program. ——(1992b), ‘The materialization of the Southeast Asian entrepreneur’, in Ruth McVey (ed.), Southeast Asian Capitalists, Ithaca, NY: Cornell University Southeast Asia Program, pp. 7–33. Mahathir, bin Mohammed (1970), The Malay Dilemma, Singapore: Asia Pacific Press. Malaysian Government (1991), Sixth Malaysia Plan 1991–1995, Kuala Lumpur: National Printing Department. Malaysian Industrial Development Authority (1993), Statistics on the Manufacturing Sector: 1988–1992, Kuala Lumpur: MIDA. ——(various years), Annual Report, Kuala Lumpur: MIDA. Malnight, Thomas W. (1995), ‘Globalization of an ethnocentric firm: an evolutionary perspective’, Strategic Management Journal, Vol. 16, pp. 119–41. ——(1996), ‘The transition from decentralized to network-based MNC structures: an evolutionary perspective’, Journal of International Business Studies, Vol. 27 (1), pp. 27–42. Marschan, Rebecca, Welch, Denise and Welch, Lawrence (1996), ‘Control in less hierarchical multinationals: the role of personal networks and informal communication’, International Business Review, Vol. 5 (2), pp. 137–50. Martin, Rodericj (1993), ‘The new behaviorism: a critique of economics and organization’, Human Relations, Vol. 46 (9), pp. 1085–101. Menkhoff, Thomas (1993), Trade Routes, Trust and Trading Networks—Chinese Small Enterprises in Singapore, Saarbrücken, Germany: Breitenbach. Ministry of Economic Affairs, Taiwan (1996), Statistics on Outward Investment, Taipei: MEA. Ministry of Finance, Malaysia (various years), Economic Report, Kuala Lumpur: MOF. Mirza, Hafiz (1986), Multinationals and the Growth of the Singapore Economy, London: Croom Helm. Mitchell, Katharyne (1995), ‘Flexible circulation in the Pacific Rim: capitalism in cultural context’, Economic Geography, Vol. 71 (4), pp. 364–82. Moran, Robert T. and Riesenberger, John R. (1994), The Global Challenge: Building the New Worldwide Enterprise, London: McGraw-Hill. Mun, Kin-Chok (1979), ‘Hong Kong investment in East Asia: underlying pattern and motivation’, Proceedings of the Academy of International Business, Asia-Pacific Dimensions of International Business, pp. 494–502. Murdoch, Jonathan (1995), ‘Actor-networks and the evolution of economic forms: combining description and explanation in theories of regulation, flexible specialization, and networks’, Environment and Planning A, Vol. 27, pp. 731–57. ——(1997), ‘Towards a geography of heterogeneous associations’, Progress in Human Geography, Vol. 21 (3), pp. 321–37.

References

267

Murtha, Thomas P. and Lenway, S.A. (1994), ‘Country capabilities and the strategic state: how national political institutions affect multinational corporations’ strategies’, Strategic Management Journal, Vol. 15 (1), pp. 113–29.

Natarajan, S. and Tan, Juay Miang (1992), The Impact of MNC Investments in Malaysia, Singapore and Thailand, Singapore: Institute of Southeast Asian Studies. National Economic Development Authority, the Philippines (various years), Statistics Yearbook, Manila: NEDA. Ng, Allan (1996), Investment Opportunities in China, paper presented at the ESU seminar on ‘Singapore and Emerging Asian Markets: Economic Outlook and Investment Opportunities’, 9 February 1996, Marina Mandarin, Singapore. Ng, Linda Fung-Yee and Tuan, Chyau (eds.) (1996), Three Chinese Economies—China, Hong Kong and Taiwan: Challenges and Opportunities, Hong Kong: Chinese University Press. Nohria, Nitin and Eccles, Robert G. (eds.) (1992), Networks and Organizations: Structure, Form, and Action, Boston, MA: Harvard Business School Press. Nomura Research Institute and Institute of Southeast Asian Studies (1995), The New Wave of Foreign Direct Investment in Asia, Singapore: Nomura Research Institute and Institute of Southeast Asian Studies. Nooteboom, Bart (1996), ‘Trust, opportunism and governance: a process and control model’, Organization Studies, Vol. 17 (6), pp. 985–1010.

O’Brien, Peter (1980), ‘The new multinationals: developing country firms in international markets’, Futures, Vol. 12 (4), pp. 303–16. ——and Muegge, Herman (1987), ‘Prospects for intra-ASEAN investment’, ASEAN Economic Bulletin, Vol. 4 (2), pp. 190–6. Ohmae, Kenichi (1985), Triad Power: The Coming Shape of Global Competition, New York: Free Press. ——(1990), The Borderless World: Power and Strategy in the Interlinked Economy, London: Collins. ——(1995), The End of the Nation State: The Rise of Regional Economies, London: HarperCollins. Olds, Kris (1995), ‘Globalization and the production of new urban spaces: Pacific Rim mega-projects in the late twentieth century’, Environment and Planning A, Vol. 27, pp. 1713–43. ——(forthcoming), Globalization and Urban Change: Capital, Culture and Pacific Rim Megaprojects, New York: Oxford University Press. Ozawa, Terutomo (1979), Multinationalism, Japanese Style: The Political Economy of Outward Dependency, Princeton, NJ: Princeton University Press.

Pang, Eng Fong (1995), ‘Staying global and going regional: Singapore’s inward and outward direct investments’, in The New Wave of Foreign Direct Investment in Asia,

References

268

Singapore: Nomura Research Institute and Institute of Southeast Asian Studies, pp. 111–29. ——and Komaran, Rajah V. (1985), ‘Singapore multinationals’, Columbia Journal of World Business, Vol. 20 (2), pp. 35–43. Panggabean, Baringin M. (1990), ‘A Study of Foreign Direct Investment in Indonesia’s Manufacturing Industries: Joint Venture Strategies of Hong Kong and US Firms Compared’, Ph.D. dissertation, George Washington University, Ann Arbor, MI: University Microfilms International. Park, Seung Ho (1996), ‘Managing an interorganizational network: a framework of the institutional mechanism for network control’, Organization Studies, Vol. 17 (5), pp. 795–824. Pauly, Louis W. and Reich, Simon (1997), ‘National structures and multinational corporate behavior: enduring differences in the age of globalization’, International Organization, Vol. 51 (1), pp. 1–30. Perrow, Charles (1986), Complex Organizations: A Critical Essay, third edition, New York: Random House. ——(1990), ‘Economic theories of organization’, in Sharon Zukin and Pa ul DiMaggio (eds.), Structures of Capital: The Social Organisation of the Economy, Cambridge: Cambridge University Press, pp. 121–52. Perry, Martin (1992), ‘Promoting corporate control in Singapore’, Regional Studies, Vol. 26, pp. 289–94. ——(1995), ‘New corporate structures, regional offices and Singapore’s new economic directions’, Singapore Journal of Tropical Geography, Vol. 16 (2), pp. 181–96. Pitelis, Christo N. (ed.) (1993), Transaction Costs, Markets and Hierarchies, Oxford: Basil Blackwell. Polanyi, Karl (1944), The Great Transformation, New York: Holt Rinehart. Porter, Michael E. (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: Free Press. ——(1985), Competitive Advantage: Creating and Sustaining Performance, New York: Free Press. ——(ed.) (1986), Competition in Global Industries, Boston: Harvard Business School Press. ——(1990), The Competitive Advantage of Nations, London: Macmillan. Powell, Walter W. (1987), ‘Hybrid organizational arrangements: new forms or transitional development?’, California Management Review, Vol. 30 (1), pp. 67–87. ——(1991), ‘Neither market nor hierarchy: network forms of organization’, in Grahame Thompson, Jennifer Frances, Rosalind Levacic and Jeremy Mitchell (eds.), Markets, Hierarchies and Networks: The Coordination of Social Life, London: Sage, pp. 265– 76. Prahalad, C.K. and Doz, Yves (1987), The Multinational Mission: Balancing Local Demands and Global Vision, New York: Free Press. ——and Hamel, Gary (1990), ‘The core competence of the corporation’, Harvard Business Review, Vol. 90 (3), pp. 79–91. Priebjrivat, Vuthiphong and Rondinelli, Dennis A. (1994), ‘Privatizing Thailand’s telecommunications industry: a case study of politics and international business’, Business and the Contemporary World, Vol. 6 (1), pp. 70–83.

References

269

Ramstetter, Eric D. (ed.) (1991), Direct Investment in Asia’s Developing Economies and Structural Changes in the Asia-Pacific Region, Boulder, CO: Westview Press. ——(1993), ‘Asian multinationals in the world economy’, International Economic Insights, Vol. 4 (4), pp. 19–22. Redding, S.Gordon (1980), ‘Cognition as an aspect of culture and its relation to management process: an exploratory review of the Chinese case’, Journal of Management Studies, Vol. 17 (2), pp. 127–48. ——(1990), The Spirit of Chinese Capitalism, Berlin: De Gruyter. ——(1991), ‘Weak organizations and strong linkages: managerial ideology and Chinese family business networks’, in Gary G.Hamilton (ed.), Business Networks and Economic Development in East and South East Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 30–47. ——(1994), ‘Competitive advantage in the context of Hong Kong’, Journal of Far Eastern Business, Vol. 1 (1), pp. 71–89. ——(1995), ‘Overseas Chinese networks: understanding the enigma’, Long Range Planning, Vol. 28 (1), pp. 61–9. ——(1996), ‘Societal transformation and the contribution of authority relations and cooperation norms in overseas Chinese business’, in Wei-ming Tu (ed.), Confucian Traditions in East Asian Modernity: Moral Education and Economic Culture in Japan and the Four Mini-dragons, Cambridge, MA: Harvard University Press, pp. 310–27. ——and Ng, Michael (1982), ‘The role of “face” in the organizational perceptions of Chinese managers’, Organization Studies, Vol. 3 (3), pp. 201–19. ——and Pugh, Derek S. (1986), ‘The formal and the informal: Japanese and Chinese organization structures’, in Stewart R.Clegg, Dexter C.Dunphy and S.Gordon Redding (eds.), The Enterprise and Management in East Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 153–67. ——and Wong, Gilbert Y.Y. (1986), ‘The psychology of Chinese organisational behaviour’, in Michael Harris Bond (ed.), The Psychology of the Chinese People, Oxford: Oxford University Press, pp. 267–95. Régnier, Philippe (1993), ‘Spreading Singapore’s wings worldwide: a review of traditional and new investment strategies’, Pacific Review, Vol. 6 (4), pp. 305–12. Reich, Robert B. (1991), The Work of Nations: Preparing Ourselves for Twenty-first Century Capitalism, London: Simon & Schuster. Riemens, Patrice J.H. (1989), On the Foreign Operations of Third World Firms: A Study about the Background and the Consequences of ‘Third World Multinationals’, Amsterdam: Koninklijk Nederlands Aardrijkskundig Genootschap, Universiteit van Amsterdam. Rigg, Jonathan (1991), Southeast Asia: A Region in Transition, London: Unwin Hyman. ——(1997), Southeast Asia: The Human Landscape of Modernization and Development, London: Routledge. Robertson, Paul L. and Langlois, Richard N. (1995), ‘Innovation, networks, and vertical integration’, Research Polity, Vol. 24, pp. 543–62. Robison, Richard (1986), Indonesia: The Rise of Capital, Sydney: Allen & Unwin.

References

270

Rodan, Gary (1989), The Political Economy of Singapore’s Industrialization: National State and International Capital, London: Macmillan. Romo, Frank P. and Schwartz, Michael (1995), ‘The structural embeddedness of business decisions: the migration of manufacturing plants in New York State, 1960–1985’, American Sociological Review, Vol. 60, pp. 874–907. Rugman, Alan M. (1981), Inside the Multinationals: The Economics of Internal Markets, London: Croom Helm. ——(ed.) (1982a), New Theories of the Multinational Enterprise, London: Croom Helm. ——(1982b), ‘Internalization and non-equity forms of international involvement’, in Alan M.Rugman (ed.), New Theories of the Multinational Enterprise, London: Croom Helm, pp. 9–23.

Sabel, Charles F. (1993), ‘Studied trust: building new forms of co-operation in a volatile economy’, Human Relations, Vol. 46 (9), pp. 1133–70. Sally, Razeen (1995), States and Firms: Multinational Enterprises in Institutional Competition, London: Routledge. Sato, Yuri (1993), ‘The Salim Group in Indonesia: the development and behaviour of the largest conglomerate in Southeast Asia’, The Developing Economies, Vol. 31 (4), pp. 408–41. Schoenberger, Erica (1997), The Cultural Crisis of the Firm, Oxford: Basil Blackwell. Sekiguchi, Sueo (1995), ‘DFI and technology transfer in East Asia: policies and their consequences’, in Toshihiko Kawagoe and Sueo Sekiguchi (eds.), East Asian Economies: Transformation and Challenges, Singapore: Institute of Southeast Asian Studies, pp. 104–38. Shin, Mann-Soo (1989), ‘The Internationalization of Korean Firms and its Impact on Managerial Sophistication’, Ph.D. dissertation, University of Illinois at Urbana— Champaign, Ann Arbor, MI: University Microfilms International. Singapore Business, Singapore, various issues. Singapore Business Yearbook 1990, Singapore: Singapore Press Holdings. Singh, M.Santokh (1993), ‘Dynamics of integrating foreign direct investment into the ASEAN economy’, in E.W.Schamp, G.J.R.Linge and C.M.Rogerson (eds.), Finance, Institutions and Industrial Change: Spatial Perspectives, Berlin: de Gruyter, pp. 204– 20. Sit, Victor F.S. (1991), ‘Hong Kong’s industrial out-processing in the Pearl River Delta of China’, in Edward K.Y.Chen, Mee-Kau Nyaw and Teresa Y.C.Wong (eds.), Industrial and Trade Development in Hong Kong, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 559–77. ——and Wong, Siu Lun (1989), Small and Medium Industries in an Export-oriented Economy: The Case of Hong Kong, Hong Kong: Centre of Asian Studies, University of Hong Kong. ——, Wong, Siu Lun and Kiang, T.S. (1979), Small Scale Industry in a Laissez-faire Economy: A Hong Kong Case Study, Hong Kong: Centre of Asian Studies, University of Hong Kong. Siu, Wai Sum and Martin, Robert G. (1990), Entrepreneurship of Hong Kong, Working Paper No. MS90039, Business Research Centre, Hong Kong Baptist College.

References

271

——and Tseng, Choo-sin (1992), ‘Internationalization of small business in Hong Kong: a case study approach’, Proceedings of the ENDEC World Conference on Entrepreneurship, 11–14 August 1992, Marina Mandarin, Singapore, pp. 55–8. Smart, Alan (1993), ‘Gifts, bribes, and guanxi: a reconsideration of Bourdieu’s social capital’, Cultural Anthropology, Vol. 8 (3), pp. 388–408. ——(1995), ‘The Social Construction of Markets in China: State and Society in Transformation’, unpublished manuscript. Smart, Josephine and Smart, Alan (1991), ‘Personal relations and divergent economies: a case study of Hong Kong investment in South China’, International Journal of Urban and Regional Research, Vol. 15 (2), pp. 216–33. ——(1993), ‘Obligation and control: employment of kin in capitalist labour management in China’, Critique of Anthropology, Vol. 13 (1), pp. 7–31. Smelser, Neil and Swedberg, Richard (eds.) (1994), The Handbook of Economic Sociology, Princeton, NJ: Princeton University Press. Smith, Ken G., Carroll, Stephen J. and Ashford, Susan J. (1995), ‘Intra- and interorganizational cooperation: toward a research agenda’, Academy of Management Journal, Vol. 38 (1), pp. 7–23. South China Morning Post, Hong Kong, various issues. Stopford, John and Strange, Susan (1991), Rival States, Rival Firms: Competition for World Market Shares, Cambridge: Cambridge University Press. The Straits Times, Singapore, various issues. Suehiro, Akira (1985), Capital Accumulation and Industrial Development in Thailand, Bangkok: Chulalongkorn University Social Research Institute. ——(1992), ‘Capitalist development in postwar Thailand: commercial bankers, industrial elites, and agribusiness groups’, in Ruth McVey (ed.), Southeast Asian Capitalists, Ithaca, NY: Cornell University Southeast Asia Program, pp. 35–63. Sullivan, J. and Peterson, R.B. (1982), ‘Factors associated with trust in JapaneseAmerican joint ventures’, Management International Review, Vol. 22, pp. 30–40. Sum, Ngai-Ling (1995), ‘More than a “war of words”: identity, politics and the struggle for dominance during the recent “political reform” period in Hong Kong’, Economy and Society, Vol. 24 (1), pp. 67–100. Sumantoro (1993), ‘Investment incentives and controls’, in Euston Quah and William Neilson (eds.), Law and Economic Development: Cases and Materials from Southeast Asia, Singapore: Longman, pp. 259–73. Sung, Kayser (1985), ‘Trading on from 1997, with special reference to Hong Kong’s textile agreements’, in Y.C.Jao, Chi-Keung Leung, Peter Wesley-Smith and Siu-lun Wong

(eds.), Hong Kong and 1997: Strategies for the Future, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 305–24. Suryadinata, Leo (1988), ‘Chinese economic elites in Indonesia: a preliminary study’, in Jennifer W.Cushman and Gungwu Wang (eds.), Changing Identities of the Southeast Asian Chinese since World War II, Hong Kong: Hong Kong University Press, pp. 261–88. ——(1995), Southeast Asian Chinese and China: The Political-economic Dimension, Singapore: Times Academic Press.

References

272

Svetlicic, Marjan (1986), ‘Multinational production joint ventures of developing countries, their economic development and specific features’, in Khushi M.Khan (ed.), Multinationals of the South: New Actors in the International Economy, London: Frances Pinter, pp. 67–87. Swyngedouw, Erik A. (1992), ‘Territorial organization and the space/technology nexus’, Transactions, Institute of British Geographers, New Series, Vol. 17 (4), pp. 417–33.

Tan, Hock (1991), ‘State capitalism, multinational corporations and Chinese entrepreneurship in Singapore’, in Gary G.Hamilton (ed.), Business Networks and Economic Development in East and South East Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 201–16. Taniuchi, Mitsuru and Inouchi, Masatoshi (1992), ‘Foreign direct investment in the Asia Pacific region—its recent dynamic developments and some issues’, in Changing Patterns of Foreign Direct Investment in the Pacific Region, Tokyo: Japan Committee for Pacific Economic Outlook, pp. 1–32. Taylor, Michael and Ward, Marion (1994), ‘Industrial transformation since 1970: the context and the means’, in Harold Brookfield (ed.), Transformation with Industrialization in Peninsular Malaysia, Kuala Lumpur: Oxford University Press, pp. 95–121. Teece, David J. (1985), ‘Multinational enterprise, internal governance and industrial organization’, American Economic Review, Vol. 75, pp. 233–8. Thee, Kian Wie (1991), ‘The surge of Asian NIC investment into Indonesia’, Bulletin of Indonesian Economic Studies, Vol. 27 (3), pp. 55–88. ——(1992), ‘The investment surge from the Asian newly industrialising countries into Indonesia’, Asian Economic Journal, Vol. 6 (3), pp. 231–64. ——(1994), ‘Intra-regional investment and technology transfer in Indonesia’, in IntraRegional Investment and Technology Transfer in Asia: A Symposium Report, Tokyo: Asian Productivity Organisation, pp. 137–66. Thoburn, John T., Chau, Esther and Tang, S.H. (1991), ‘Industrial cooperation between Hong Kong and China: the experience of Hong Kong firms in the Pearl River Delta’, in Edward K.Y.Chen, Mee-Kau Nyaw and Teresa Y.C.Wong (eds.), Industrial and Trade Development in Hong Kong, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 530–58. ——, Leung, H.M., Chau, Esther and Tang, S.H. (1990), Foreign Investment in China under the Open Policy: The Experience of Hong Kong Companies, Aldershot: Avebury. Thompson, Grahame, Frances, Jennifer, Levacic, Rosalind and Mitchell, Jeremy (eds.) (1991), Markets, Hierarchies and Networks: The Coordination of Social Life, London: Sage. Thrift, Nigel (1994), ‘On the social and cultural determinants of international financial centres: the case of the City of London’, in Stuart Corbridge, Ron Martin and Nigel Thrift (eds.), Money, Power and Space, Oxford: Basil Blackwell, pp. 327–55. ——and Leyshon, Andrew (1992), ‘In the wake of money: the City of London and the accumulation of value’, in L.Budd and S.Whimster (eds.), Global Finance and Urban Living: A Study of Metropolitan Change, New York: Routledge, pp. 282–311.

References

273

——and Olds, Kris (1996), ‘Refiguring the economic in economic geography’, Progress in Human Geography, Vol. 20 (3), pp. 311–37. Tickell, Adam T. (1996), ‘Making a melodrama out of a crisis: reinterpreting the collapse of Baring’s Bank’, Environment and Planning D: Society and Space, Vol. 14 (1), pp. 5–33. Toh, Mun Heng and Low, Linda (1994), ‘The state of play of direct foreign investment in Asia’, Journal of Asian Economics, Vol. 5 (1), pp. 65–84. Tolentino, Paz Estrella E. (1993), Technological Innovation and Third World Multinationals, London: Routledge. Tong, Chee Kiong (1991), ‘Centripetal authiority, differentiated networks: the social organization of Chinese firms in Singapore’, in Gary G.Hamilton (ed.), Business Networks and Economic Development in East and South East Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 176–200. Tricker, Richard I. (1992), ‘Who’s in charge here?’, Amcham (published by the American Chamber of Commerce in Hong Kong), Vol. 24 (12), pp. 14–17. Tseng, Choo Sin (1992), ‘Entrepreneurship and outward foreign direct investment by PRC multinationals’, Proceedings of the ENDEC World Conference on Entrepreneurship, 11–14 August 1992, Marina Mandarin, Singapore, pp. 447–58. Tuan, Chyau and Ng, Linda Fung-Yee (1995a), ‘Manufacturing evolution under passive industrial policy and cross-border operations in China: the case of Hong Kong’, Journal of Asian Economics, Vol. 6 (1), pp. 71–88. ——(1995b), ‘The turning point of Hong Kong manufacturing sector: impact of outward investment to Pearl River delta’, Journal of International Trade and Economic Development, Vol. 4 (2), pp. 153–70.

Ulgado, Francis M., Yu, Chwo-Ming J. and Negandhi, Anant R. (1994), ‘Multinational enterprises from Asian development countries: management and organizational characteristics’, International Business Review, Vol. 3 (2), pp. 123–33. UNCTAD (1994), World Investment Report 1994: Transnational Corporations, Employment and the Workplace, New York: United Nations. ——(1996a), World Investment Report 1996: Investment, Trade and International Policy Arrangements, New York: United Nations. ——(1996b), Transnational Corporations and World Development, London: International Thomson Business Press. UNCTC (1978), Transnational Corporations in World Development: A Re-examination, New York: United Nations. ——(1989), ‘Asia largest investor among developing regions’, Transnationals, Vol. 1 (4), p. 3. ——(1992a), World Investment Report 1992: Transnational Corporations as Engines of Growth, New York: United Nations. ——(1992b), World Investment Directory 1992: Foreign Direct Investment, Legal Framework and Corporate Data, Vol. 1: Asia and the Pacific, New York: United Nations.

References

274

Uzzi, Brian (1996), ‘The sources and consequences of embeddedness for the economic performance of organizations: the network effect’, American Sociological Review, Vol. 61 (4), pp. 674–98.

Van Maanen, John and Laurent, André (1993), ‘The flow of culture: some notes on globalization and the multinational corporation’, in Sumantra Ghoshal and D.Eleanor Westney (eds.), Organization Theory and the Multinational Corporation, New York: St Martin’s Press, pp. 275–312. Vernon, Raymond (1966), ‘International investment and international trade in the product cycle’, Quarterly Journal of Economics, Vol. 80, pp. 190–207. ——(1979), ‘The product cycle hypothesis in a new international environment’, Oxford Bulletin of Economics and Statistics, Vol. 41, pp. 255–67. ——(1992), ‘Transnational corporations: where are they coming from, where are they headed?’, Transnational Corporations, Vol. 1 (2), pp. 7–35. ——(1993a), ‘Multinationals redux’, International Economic Insights, Vol. 4 (4), pp. 12– 14. ——(1993b), ‘Sovereignty at bay: twenty years after’, in Lorraine Edan and Evan H. Potter (eds.), Multinationals in the Global Political Economy, New York: St Martin’s Press, pp. 19–24.

Wade, Robert (1990), Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization, Princeton, NJ: Princeton University Press. The Wall Street Journal, New York, various issues. Weidenbaum, Murray and Hughes, Samuel (1996), The Bamboo Network: How Expatriate Chinese Entrepreneurs are Creating a New Economic Superpower in Asia, New York: Free Press. Wells, Christopher (1988), ‘Brazilian multinationals’, Columbia Journal of World Business, Vol. 23 (4), pp. 13–23. Wells, Louis T. Jr (1978), ‘Foreign investment from the Third World: the experience of Chinese firms from Hong Kong’, Columbia Journal of World Business, Vol. 13 (1), pp. 39–49. ——(1981), ‘Foreign investors from the Third World’, in Krishna Kumar and Maxwell G.McLeod (eds.), Multinationals from Developing Countries, Lexington, MA: D.C.Heath, pp. 23–36. ——(1982), Technology and Third World Multinationals, Working Paper No. 19, Multinational Enterprise Programme, Geneva: International Labour Office. ——(1983), Third World Multinationals: The Rise of Foreign Investment from Developing Countries, Cambridge, MA: MIT Press. ——(1984), ‘Multinationals from Asian developing countries’, in Richard W.Moxon, Thomas W.Roehl and J.Frederick Truitt (eds.), International Business Strategies in the Asia-Pacific Region: Environmental Changes and Corporate Response, Research in International Business and Finance, Vol. 4 (A), Greenwich, CT: JAI Press, pp. 127– 43.

References

275

——(1986), ‘New and old multinationals: competitors or partners’, in Khushi M.Khan (ed.), Multinationals of the South: New Actors in the International Economy, London: Frances Pinter, pp. 196–210. ——and Wint, Alvin G. (1993), ‘Marketing strategies to attract foreign investment’, in Lorraine Edan and Evan H.Potter (eds.), Multinationals in the Global Political Economy, New York: St Martin’s Press, pp. 168–86. Westphal, Larry E., Rhee, Yung W., Kim, Linsu and Amsden, Alice H. (1984), ‘Republic of Korea’, World Development, Vol. 12 (5/6), pp. 505–33. Whitley, Richard (1987), ‘Taking firms seriously as economic actors: towards a sociology of firm behaviour’, Organization Studies, Vol. 8, pp. 125–47. ——(1992a). ‘The social construction of organizations and markets: the comparative analysis of business recipes’, in Michael I.Reed and Michael Hughes (eds.), Rethinking Organization: New Directions in Organization Theory and Analysis, London: Sage, pp. 120–43. ——(1992b), Business Systems in East Asia: Firms, Markets and Societies, London: Sage. ——(ed.) (1992c), European Business Systems: Firms and Markets in their National Contexts, London: Sage. ——(1994), ‘The internationalization of firms and markets: its significance and institutional structuring’, Organization, Vol. 1 (1), pp. 101–24. ——and Kristensen, Peer Hull (eds.) (1995), The Changing European Firm: Limits to Convergence, London: Routledge. Whyte, Martin King (1996), ‘The Chinese family and economic development: obstacle or engine?’, Economic Development and Cultural Change, Vol. 45 (1), pp. 1–30. Wible, James R. (1995), ‘The economic organization of science, the firm, and the marketplace’, Philosophy of the Social Sciences, Vol. 25 (1), pp. 35–68. Wilkinson, Barry (1996), ‘Culture, institutions and business in East Asia’, Organization Studies, Vol. 17 (3), pp. 421–47. Willcocks, Leslie and Choi, Chong Ju (1995), ‘Co-operative partnership and “total” IT outsourcing: from contractual obligation to strategic alliance?’, European Management Journal, Vol. 13 (1), pp. 67–78. Williamson, Oliver E. (1975), Markets and Hierarchies: Analysis and Antitrust Implications, New York: Free Press. ——(1985), The Economic Institution of Capitalism, New York: Free Press. ——(1986), Economic Organization: Firms, Markets and Policy Control, Brighton: Wheatsheaf Books. ——(1993), ‘Calculativeness, trust, and economic organization’, Journal of Law and Economics, Vol. 36, pp. 453–86. ——(1996), The Mechanisms of Governance, New York: Oxford University Press. ——and Winter, Sidney G. (eds.) (1991), The Nature of the Firm: Origins, Evolution, and Development, New York: Oxford University Press. Windolf, Paul and Beyer, Jürgen (1996), ‘Co-operative capitalism: corporate networks in Germany and Britain’, British Journal of Sociology, Vol. 47 (2), pp. 205–31. Wong, Gilbert K.K. (1991), ‘Business groups in a dynamic environment: Hong Kong 1976–1986’, in Gary Hamilton (ed.), Business Networks and Economic Development

References

276

in East and Southeast Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 126–54. Wong, John (1979), ASEAN Economies in Perspective: A Comparative Study of Indonesia, Malaysia, the Philippines, Singapore and Thailand, London: Macmillan. Wong, Siu-lun (1985), ‘The Chinese family firm: a model’, British Journal of Sociology, Vol. 36, pp. 58–72. ——(1988), Emigrant Entrepreneurs: Shanghai Industrialists in Hong Kong, Hong Kong: Oxford University Press. ——(1991), ‘Chinese entrepreneurs and business trust’, in Gary G.Hamilton (ed.), Business Networks and Economic Development in East and South East Asia, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 13–29. ——(1993), ‘Business and politics in Hong Kong during the transition’, in Hong Kong in Transition 1992, Hong Kong: One Country Two Systems Economic Research Institute, pp. 488–514. ——(1995), ‘Business networks, cultural values and the state in Hong Kong and Singapore’, in Rajeswary Ampalavana Brown (ed.), Chinese Business Enterprise in Asia, London: Routledge, pp. 136–53. ——, Salaff, Janet W. and Fong, Eric (1994), Network Capital: Emigration from Hong Kong, paper presented at the conference on ‘Transnationalization of Overseas Chinese Capitalism: Networks, Nation States, and Imagined Communities’, National University of Singapore, 8–12 August 1994. Wong, Teresa Y.C., Chen, Edward K.Y. and Nyaw, Mee-kau (1991), ‘The future of industrial and trade development in the Asian Pacific: an overview’, in Edward K.Y. Chen, Mee-Kau Nyaw and Teresa Y.C.Wong (eds.), Industrial and Trade Development in Hong Kong, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. ix–xxxiii. Wortman, Max S. Jr. (1994), ‘Theoretical foundations for family-owned business: a conceptual and research-based paradigm’, Family Business Review, Vol. 7 (1), pp. 3– 27. Wu, Y-Li (1983), ‘Chinese entrepreneur in Southeast Asia’, American Economic Review, Vol. 73, pp. 112–17.

Yang, Mayfair Mei-Hui (1988), ‘The modernity of power in the Chinese socialist order’, Cultural Anthropology, Vol. 3 (4), pp. 408–27. ——(1989), ‘The gift economy and state power in China’, Comparative Studies in Society and History, Vol. 31 (1), pp. 25–54. ——(1994), Gifts, Favors and Banquets: The Art of Social Relationships in China, Ithaca, NY: Cornell University Press. Yasuda, Nobuyuki (1991), ‘Malaysia’s New Economic Policy and the Industrial Coordination Act’, The Developing Economies, Vol. 29 (4), pp. 330–49. Yee, Albert H. (1989), A People Misruled: Hong Kong and the Chinese Stepping Stone Syndrome, Hong Kong: API Press. Yeh, Anthony G.O. and Ng, M.K. (1994), ‘The changing role of the state in high-tech industrial development—the experience of Hong Kong’, Environment and Planning C, Vol. 12 (4), pp. 449–72.

References

277

Yeung, K.Y. (1991), ‘The role of the Hong Kong government in industrial development’, in Edward K.Y.Chen, Mee-Kau Nyaw and Teresa Y.C.Wong (eds.), Industrial and Trade Development in Hong Kong, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp. 48–56. Yeung, Wai-chung Henry (1994a), ‘Third World multinationals revisited: a research critique and future agenda’, Third World Quarterly, Vol. 15 (2), pp. 297–317. ——(1994b), ‘Transnational corporations from Asian developing countries: their characteristics and competitive edge’, Journal of Asian Business, Vol. 10 (4), pp. 17– 58. ——(1994c), ‘Hong Kong firms in the ASEAN region: transnational corporations and foreign direct investment’, Environment and Planning A, Vol. 26 (12), pp. 1931–56. ——(1994d), ‘Critical reviews of geographical perspectives on business organisations and the organisation of production: towards a network approach’, Progress in Human Geography, Vol. 18 (4), pp. 460–90. ——(1995a), ‘Qualitative personal interviews in international business research: some lessons from a study of Hong Kong transnational corporations’, International Business Review, Vol. 4 (3), pp. 313–39. ——(1995b), ‘The geography of Hong Kong transnational corporations in the ASEAN region: some empirical observations’, Area, Vol. 27 (4), pp. 318–34. ——(1996a), ‘Sectoral specialisation and competitive advantage: Hong Kong investments in the ASEAN region’, ASEAN Economic Bulletin, Vol. 13 (1), pp. 74– 94. ——(1996b), ‘The historical geography of Hong Kong investments in the ASEAN region’, Singapore Journal of Tropical Geography, Vol. 17 (1), pp. 66–82. ——(1996c), ‘Attracting foreign investment? The role of investment incentives in the ASEAN operations of transnational corporations’, Pacific Review, Vol. 9 (4), pp. 505– 29. ——(1997a), ‘Business networks and transnational corporations: a study of Hong Kong firms in the ASEAN region’, Economic Geography, Vol. 73 (1), pp. 1–25. ——(1997b), ‘Cooperative strategies and Chinese business networks: a study of Hong Kong transnational corporations in the ASEAN region’, in Paul W.Beamish and J.Peter Killing (eds.), Cooperative Strategies: Asia-Pacific Perspectives, San Francisco, CA: New Lexington Press, pp. 22–56. ——(1997c), ‘Limits to the growth of family-owned business? The case of Chinese transnational corporations from Hong Kong’, Proceedings of the Academy of International Business Asia Pacific Area Conference, University of Hawaii, 19–21 June 1997, pp. 43–8. ——(1998a), ‘The social-spatial constitution of business organisations: a geographical perspective’, Organization, Vol. 5 (1), pp. 101–28. ——(1998b), ‘The political economy of transnational corporations: a study of the regionalisation of Singaporean firms’, Political Geography, Vol. 17. ——(1998c), ‘Transnational economic synergy and business networks: the case of twoway investment between Malaysia and Singapore’, Regional Studies, Vol. 32. ——(forthcoming a), ‘Service transnational corporations from Hong Kong: an emerging competitor in the regional and global marketplace’, International Business Review, Vol. 6.

References

278

——(forthcoming b), ‘Strategic control and coordination in Chinese business firms: some characteristics of Hong Kong transnational corporations in the ASEAN region’, Asia Pacific Business Review, Vol. 3. ——(forthcoming c), ‘Business networks and competitive advantage: the case of service transnational corporations from Hong Kong’, in Raj Aggarwal (ed.), Multinationals from Emerging Economies: Theory and Practice, Greenwich, CT: JAI Press. ——(forthcoming d), ‘Competing for transnational corporations? The regional operations of foreign firms in Hong Kong and Singapore’, in Ian Cook, Marcus Doel and Rex Li (eds.), Business, Trade and Economic Development in Pacific Asia, Aldershot: Avebury. ——(forthcoming e), ‘The internationalization of ethnic Chinese business firms from Southeast Asia’s strategies, processes and competitive advantage’, International Journal of Urban and Regional Research, Vol. 23. ——(forthcoming f), ‘Capital, state and space: Contesting the borderless world’, Transactions of the Institute of British Geographers, Vol. 23. ——and Olds, Kris (eds.) (forthcoming), The Globalisation of Chinese Business Firms, London: Macmillan. Yoshihara, Kunio (1988), The Rise of Ersatz Capitalism in South East Asia, Singapore: Oxford University Press. ——(1995), ‘The ethnic Chinese and ersatz capitalism in Southeast Asia’, in Leo Suryadinata (ed.), Southeast Asian Chinese and China: The Political-economic Dimension, Singapore: Times Academic Press, pp. 66–86. Young, Stephen, Huang, Chun-Hua and McDermott, Michael (1996), ‘Internationalisation and competitive catch-up processes: case study evidence on Chinese multinational enterprises’, Management International Review, Vol. 36 (4), pp. 295–314.

Zukin, Sharon and DiMaggio, Paul (eds.) (1990a), Structures of Capital: The Social Organisation of the Economy, Cambridge: Cambridge University Press. ——(1990b), ‘Introduction’, in Sharon Zukin and Paul DiMaggio (eds.), Structures of Capital: The Social Organisation of the Economy, Cambridge: Cambridge University Press, pp. 1–36.

INDEX Acer 39, 48 Acma Electrical Industries 43 aerospace industry 38, 49 Africa 45 agglomeration 60, 63, 75 airlines 38, 45 alliance capitalism 4 Argentina 34, 40, 51 arm’s-length transactions 5, 55, 66, 159, 163, see also market transactions Arrow, Kenneth 68 ASEAN xv, 15, 17–19, 25–6, 46, 54, 80–83, 88, 99, 101, 104, 106, 109, 111, 115, 118–20, 122, 126, 128–34, 136–7, 141, 145–8, 151–2, 162–3, 165, 167, 170–1, 174, 176–80, 183–4, 187, 190, 194, 197, 201, 203, 206, 214, 226–7, 229–32, 235–7; see also Southeast Asia ASEAN integrated circuit 120 ASEAN Investment Area 17 ASEAN Free Trade Area (AFTA) 17 Asia xv, 13, 15, 28–9, 34, 38, 43, 50, 52, 66, 74, 77, 107, 119, 125, 129, 134, 153, 177, 183, 187–8, 192, 198, 209, 211, 214–15, 219–20, 222, 234, 239; see also Asia Pacific Asia Pacific 10, 14, 17, 24, 34, 81–2, 106, 119, 134, 143, 210, 232, 239 Asian economies 3, 24 ASM Pacific Technology Ltd. 120, 123, 208–9 Astec 208–9 AT&T 35, 124, 153, 187 atmosphere 68–70, 138, 141, 162 Australia 35, 150, 207, 222 automobiles 38, 49, 62, 74; see also cars bamboo networks 52; see also business networks Bangkok 107, 168, 184–5 Bangkok Bank 167 Bank Negara 103 Bank of Indonesia 92, 180 banking 43, 151, 186 Barings Bank 182 Batam 99 Beijing 216–17 Benetton 5, 58 Berli Jucker 144 Bermuda 82

Index

280

biotechnology 5 Boeing 38 branch plant 60 Brazil 28, 34, 40, 42–3, 45 Britain 75, 110, 135, 175; see also United Kingdom British capital 81, 175, 208 British firms 6, 75 Brunei 15, 17–18 bubble economy 13 bumiputra 165, 179–82 business firms 57, 65, 69; Chinese 6, 52–3, 136, 140, 143, 145, 166, 199–200, 208, 213–15, 223, 232; Western 6–7, 172 business history 6 business networks 3, 5, 7, 25–26, 29, 51–4, 65, 67, 135, 137–8, 140, 195, 197, 199, 211, 223, 226, 230, 232; Chinese xvi, 69, 77, 134, 137, 143, 191, 194, 213, 218–19, 232; extra-firm xv, 26, 60–2, 66, 70, 73–4, 102, 133, 148, 163, 174, 176, 183–6, 191, 194, 198, 226, 229–30; inter-firm xv 5–8, 11, 26, 51, 55, 60–2, 66–7, 69–70, 72–4, 133–4, 136, 145, 151, 156, 158–60, 163–74, 191, 194, 198, 226, 229; intra-firm xv, 4–5, 11, 26, 51, 55, 60–2, 66–7, 69–70, 72–4, 77, 80, 133–4, 136, 144–5, 147–8, 151, 156–9, 163, 167, 173–4, 194, 198, 226, 229; social organisation of 26, 132–3, 137, 173 business organisation 7, 9, 26, 52, 58–9, 63–5, 67, 73–4, 76–8, 80, 130, 132, 134, 225, 227, 233 business partners 102 business practice 78 business systems 52, 143, 196, 213, 232–3; Anglo-Saxon 196, 232; Chinese 3, 6, 62, 135–7, 141, 143, 154, 173, 195–6, 198, 229–30, 232–3 Butterworth 192 Cable & Wireless 109 California 35 Canada 35, 38–9, 126, 184, 207 capitalism 20, 52, 63, 134–5, 143, 179, 196, 219 Caribbean 13, 121 cars 4; see also automobiles case studies xv, 136, 174, 176, 183, 191, 203, 206, 214, 223, 227, 236 causal agencies 59, 63–4, 78 causal mechanism 26, 64–5, 136, 226, 230; see also generative mechanism causal powers 64, 76–7; see also power CEF 219 central banking system 20 centripetal authority 145 Century City Holdings 211 chambers of commerce 69, 74

Index

281

Chandler, Alfred 6, 54, 56, 66, 106, 132, 135, 195–6, 214 chemical industry 66, 89, 92, 97 chemicals 101, 124 Cheng, Yu Tung 164, 188–91, 210–11 Cheung Kong Holdings 108, 128, 188, 210, 223 China, 137, 139–41, 143, 156, 161, see also People’s Republic of China China Resources Corporation 109 Chinese business 133, 135–41, 146, 154, 159, 164–5, 170, 175, 191, 195–7 Chinese family firms 138, 146–7, 170, 194, 200; see also business firms, family business Chinese University of Hong Kong 210 Ching Dynasty 17 Chow, Chung-kai 188, 190 Chow, Wen-hsien 188, 190 Chrysler 38 CITIC Pacific 222 clans 69, 135, 146, 164 Coase, Ronald 7, 54, 67 collective bargaining 26 Colombia 34, 38 colonial trading houses 81; see also hongs Common Effective Preferential Tariff (CEPT) 17 comparative advantage 89, 129 comparative management approach 197–9, 213, 223, 230–1 competition 60–2, 106, 179, 196–8, 213, 218, 225 competitive advantages 2, 24–6, 29, 36, 38–9, 45, 63, 80, 92, 104, 106, 111, 129–30, 142, 187, 196–8, 200–201, 206, 210, 213–14, 216, 219–20, 225, 236, 239 competitive strategy 11, 123 complementary assets 55 configuration 60–2, 76 conflicts 60–2 consortia 73 construction 38, 42–3, 48, 92, 99 contracts 6, 57, 69, 74, 103, 139, 159, 163, 166, 184, 191–2, 194, 215–17, 219, 229–30 control 9, 26, 41, 62, 65–6, 69–70, 72–3, 76–7, 102–3, 133–4, 136, 144–8, 150–1, 165–6, 170, 172–3, 175, 186, 194, 198, 209–10, 226, 229 convertible currency 20 cooperation 53, 56, 60–2, 67–8, 74, 139, 145, 196, 198, 214, 229 cooperative agreements 5–6, 48, 51, 56, 73, 129, 232 cooperative competition 62, 70, 76, 173 cooperative relationships 62, 68, 235 coordination 26, 40, 55, 60, 62, 66–7, 72–3, 76–7, 133, 136, 144–5, 147–8, 166–7, 173, 194, 198, 226, 229 core competence 2, 4, 153, 198, 201, 210, 213, 215, 219, 222–3, 225, 231, 237 corporate finance 103 corporate governance 9, 135, 138 corporate stocks 9 corporate strategies 1–2, 10, 60–2, 64, 72, 80, 118, 129–30, 132–3, 167, 195, 206 cost factors 26 CP Group 36

Index

282

Crosby Securities 219 cross-subsidisation 55 culture 56–7 customisation 123 Daewoo 28, 36, 38 Daimler-Benz 39 deindustrialisation 22 developed countries 13–14, 24, 35, 44, 49, 81, 178, 219 developing countries 11, 13–15, 34, 36, 39, 42–3, 47, 49–50, 74, 81–2, 129 dialectical process 5, 230 Dicken, Peter xv–xvi, 8, 10–11, 63, 65, 69, 74–5, 78, 125, 178, 235 discrimination 214 dispersion 60, 63 diversification 66, 106, 109, 118–19, 128, 162, 176, 190, 230 division of labour 4, 174 downscaling 44 DRAM (Dynamic Random Access Memory) 39 Du Pont 66 Du Pont, Pierre S. 64 Dunning, John H. 2, 11, 54, 56, 62–3, 66, 74, 214, 235 Durkheim, Emile 68, 158 East Asia 10, 36, 82 East Java 34 eclectic approach 2, 53 economic action 6, 57–8 economic cooperation 15 economic determinism 64 economic development 10, 15, 17, 20, 81–2, 97, 143, 175, 177, 180, 184, 203 Economic Development Board 127–8, 160, 178, 189 economic geography 2–3, 53 economic liberalisation 15 economic linkages 15 economic organisations 55, 57 economic rationality 5–6, 57–8 economic recession 106 economic sociologists 5, 58 economic sociology 57, 59 economic transactions 6, 59, 66 economics xvi, 1, 229 economies of scale 39, 44 economies of scope 44 economies of synergy 65 Elec & Eltek 208–9 electronics 5, 82, 92, 104, 106, 110–11, 118, 120, 123, 126, 176, 192, 198, 201, 208–9, 223, 237 electronics industry 20, 22, 38, 40, 43, 49–50, 62, 92, 208 embeddedness 5–6, 53, 57, 59–60, 64, 72, 78–9, 136, 196, 215, 230; geographical 63, 75–77, 133; social/cultural 51–2, 54, 58–9, 133, 160 emerging markets 13, 119

Index

283

emigrant industrialists 81 engineering 125 entrepôt 19, 22, 239 entrepreneurs 19–20, 64, 135, 139, 142–3, 156, 158–9, 173, 177, 218, 230 entrepreneurship 26, 64, 133, 135–7, 139, 143, 156, 158–62, 173, 194, 229, 234–5 Esquel Group 118, 121, 144, 146, 207 Esprit Asia 207 ethnic groups 77, 134, 136, 143, 164, 188, 196, 218 ethnicity 134, 180, 182, 236 export processing zone (EPZ) 180 export promotion 45, 47 exports 17, 22, 46, 50, 104, 122, 125, 176, 178, 206–7 European Community 74 European Union 111 face 138, 140 factor endowments 82 families 6, 69, 133, 135, 142–4, 146–7, 150–1, 154, 158–60, 162–4, 168, 173, 183, 229 family business 106, 132, 135, 142–5, 147, 161–2, 166, 172, 209, 233 family-isation 142, 162, 194, 229 Fang Brother Group 144, 207 Far East 123, 129 Far East Organisation 188, 218 Fiat 38 financial capital 9 financial centre 22, 108, 219, 239 Financial Guardian 108 financial industry 22, 38, 43, 89, 129, 198, 219 firm-specific advantages 2, 8, 55 first mover advantage 66, 214–15 First Pacific Company 144 fiscal policy 20, 22 flexible production 56, 210 flexible technology 44 footwear 43, 47 Ford 38, 65 Ford, Henry 64 foreign capital 17, 42 foreign direct investment 3, 8–9, 11, 17, 36, 42, 53–4, 75, 95, 125–6, 134, 182, 230; American 9; flows of 13–15, 17, 24, 35, 177–8; from developed countries 97; from developing countries 25, 29–33; Japanese 13, 15; resource-oriented 4, 50; stock of 11–13, 29, 34, 36; theories of 54 foreign exchange control 20, 41–3 Fortress Europe 63 founders 6, 135, 145–6, 170–2, 187, 194 France 11, 42, 107

Index

284

franchising arrangements 73, 104 free trade 15, 20 free trade area 17 freight forwarding 122, 142, 148, 191–2, 194 Frigidaire 43 furniture industry 40, 50 Gap, The 122 garments 82, 97, 99, 104, 106, 110–11, 118, 120–1, 143–4, 176, 190, 192, 198–9, 201, 206, 223, 237 garments industry 20, 24, 38, 46, 122, 130, 207; see also textiles industry Gates, Bill 64 GATT (General Agreement on Tariffs and Trade) 238 General Motors (GM) 1, 38 generative mechanism 59, 64, 70, 78–9; see also causal mechanism geocentricity 7 geographical contexts 6, 136 geographical proximity 108, 123, 151 geography xvi, 75, 77–8 George Muehleback Brewery Company 35 Germany 11, 42, 106, 123–4, 135, 206–7 Giddens, Anthony 59 gift economy 137, 140 global competition 4–5, 24, 62 global corporations 24; see also transnational corporations global division of investment 13 global economy 1, 4–5, 10, 15, 24–6, 28, 36, 49, 60, 63–4, 78, 129, 148, 197–201, 206, 211, 214, 223, 231, 235, 237 global industries 62 global integration 4–5, 40 global restructuring 11, 20 global scanning 4, 55 globalisation 2, 4, 11, 24, 40, 74–6, 78, 106, 233, 235; see also transnational corporations: transnationalisation of Gold Peak Group 208–9 goodwill 124, 170 governance structures 6, 25, 55, 59, 70, 133, 227, 231 government 74, 78, 126, 153, 166, 184, 186–7, 191–3, 226, 230, 234; see also nation states government incentives 26, 110, 125–6, 184, 194, 227, 235 government restrictions 47, 49, 74, 102 Granovetter, Mark 5–6, 56–8, 64, 67, 69, 200, 230 gross domestic capital formation (GDCF) 178 gross domestic product (GDP) 20–2 gross national product (GNP) 17 Growth Triangle 99 Guangdong Province 41, 82–3

Index

285

guanxi 26, 52, 69, 135–9, 141–2, 147, 159–60, 164–5, 173, 195, 214–17, 229; see also relationships Gulf War 13 Gunung Sewu 221–2 Guthrie 180 Hagemeyer 144 Harvey, David 76 Henderson Land 210 heterarchy 70, 72, 167 hierarchy 55–7, 66–7, 69–70, 72–3 high-tech industries 127, 176, 178, 234 historical contexts 6 HKArch 156–7, 215 HKCarpet 146–7, 150–2, 170–2, 194 HKComputer 120, 147–8, 150–1, 166–9, 233 HKElectronics 166, 176, 184, 187, 191, 208 HKGuard 107, 233 HKPartners 125 HKPrecision 120, 123–4, 208–9 HKTech 126–7, 184 HKToys 140, 145–6, 160–2, 194, 215 HKTrading 153, 184–6, 191 HKTrans 122, 142, 144, 148, 151, 153, 166, 191–3 holding companies 129 Hong Kong 10, 17, 19–25, 27–8, 36, 38, 41–2, 50, 78, 81–4, 88, 101, 104, 107–9, 115, 119, 121, 124, 129, 134–9, 144–7, 150, 152, 158, 160, 162, 166–7, 170–2, 184–5, 188–9, 192, 207–8, 210– 11, 216, 220, 223, 233–6, 238–9; as a Special Administrative Region (SAR) 10, 126; business organisation in 143; business systems in 143; economy of 19, 176, 201, 207, 210, 233; entrepreneurship in 143; exports from 20, 24, 111, 207; firms from 26, 41, 78, 80–3, 102, 110, 126, 143–4, 174–6, 183, 206, 230, 236; foreign direct investment from 10, 13, 26, 29, 34, 43, 45, 80–3, 88–101, 129, 176–7, 237; government in 81, 175–7; imports into 22; industrial structure of 24, 176; land policy in 24; manufacturing industries in 20, 24–5, 110, 128, 176, 206, 209, 236, 238; people from 135, 161, 188, 190, 227; politics in 175; semiconductor industry in 20, 210; service industries in 25, 237; Stock Exchange of 42, 101, 147, 175 Hong Kong & Shanghai Hotels 208, 211 Hong Kong Container Terminals 109 Hong Kong transnational corporations xv, 3, 7, 10, 25–6, 38–9, 42, 46–7, 50–1, 53, 63, 66, 72, 74, 78–82, 88–9, 95, 103, 106, 108, 111, 115, 118, 120–2, 126, 128–9, 131–4, 136–7, 139, 144–6, 151,

Index

286

162–3, 165–6, 170, 173–4, 184–7, 191, 194, 196–7, 200–201, 209, 216–17, 219, 223, 226–30, 232– 3, 235, 239; affiliates/subsidiaries of 83, 88–9, 101, 107, 111, 124, 126, 129–30, 148, 150–4, 166, 176, 186, 201, 203, 206, 220, 227; business networks of 80; competitive advantage of 148, 197–207, 211, 215, 219, 223, 225, 231, 237–8; control and coordination of 151–4, 157; corporate strategies of 26, 103–4, 195, 227, see also corporate strategies; finance of 154; global operations of 80, 173; headquarters of 101, 103, 106, 111, 125, 133, 148, 150, 201, 203, 220; in manufacturing 82, 176, 223, 227, 237; in services 185, 198, 214, 219, 236, 238; internationalisation of 24, 164, 196; marketing by 151, 153–4; motivations of 109–10, 194, 227; see also motivations; organisational characteristics of 101; ownership forms of 101–2, 227; representative office of 103; sourcing by 151, 153–4; technology of 152–3 Hongkong & Shanghai Banking Corporation 81, 128 Hongkong Land 211 Hongkong Telecom 222 hongs 81, 109, 210 Hopewell Holdings 211 hotels 41, 45, 89, 92, 99, 152, 170–2, 176, 190, 198, 201, 208, 210–11, 223 Hu, Richard 187–8 human resources 15 human rights 104 Hutchison Whampoa 28, 36, 106, 109, 128, 210 Hymer, Stephen 2, 9, 53–4 Hyundai 35, 38–9 IBM 39, 166, 168–9, 209 Immigration Department 128 imperfect information 103 import restrictions 4 import substitution 45, 47, 179 imports 22 India 34, 38, 40–3, 45, 47, 50–1, 222 Indian Ocean 121 Indians 134, 136, 196 Indonesia 15, 17–18, 25–6, 34–6, 38, 50, 60, 83–4, 88–9, 92, 97, 99, 102–3, 108, 111, 115, 118, 120–2, 126, 129–30, 135, 142, 144, 147–8, 150, 165, 171–2, 178–83, 191–3, 203, 217, 221–2, 227, 233, 236 Industrial Coordination Act 166, 179–80, 182 industrial economies 15, 53 industrial economists 66, 75

Index

287

industrial organisation 6, 9, 54, 56 industrial restructuring 22, 24, 82, 99, 176, 179, 236 industrialisation 17, 19–20, 81–2, 143, 177–9 information industry 48 information processing 5 Information Revolution 5 institutional change 52 institutional economics 53–4 institutional structures 64, 174 institutional thickness 136, 194, 234 insurance 103 Intel 39, 66 interactive learning 56 interest differential theory 54 intermediate product 55 internalisation 55, 74, 130, 169, 194, 196; advantages of 56; strategy 40, 160; theory of 2, 54–5 international business 1–3, 5–6, 53, 60, 62, 65, 74–5, 136, 138, 156, 160, 230, 235 International Maritime Carriers (IMC) 187–8, 190 international political economy 2–3 international production 9, 11, 53–4, 56, 78, 133, 230 international subcontracting 5 internationalisation 54–5, 62, 80, 198; see also globalisation, transnational corporations: transnationalisation invisible hand 57, 64, 67 iron and aluminium 40 Italy 207 Jakarta 34, 177 Japan 10–11, 13, 15, 22, 24, 36, 39, 43, 69, 74, 77, 84, 92, 97, 99, 123–4, 152, 167, 170, 176, 206– 7, 209 Jardine Matheson Group 81–2, 108–9, 128, 208, 210–11 Jews 134, 170–1, 196, 208 Johnson Electric 208–9 Johor 99 Kalimantan 34 Kansas City 35 Kenya 34 Keppel Group 49 Keswick, Simon 82 King, Sieh-Ting 188 kinship 69, 133, 137, 139, 146, 163 knowledge 70, 74 Korean chaebols 28, 35, 38–9 Korean EXIM Bank 41 Korean War 20 Krugman, Paul 75

Index

288

Kuala Lumpur 186 Kuok, Robert 211, 218 Kuok Group 188 labour costs 108–11, 129 labour market 20, 110, 150 labour mobility 63 labour-intensive 24, 58, 60, 89, 95, 97, 99, 129, 160, 176, 180, 182 Lai Sun Group 144 laissez-faire 20, 24, 81 Lam, Patrick 123 Laos 15 Latin America 13, 28–9, 34–5, 51 Lee, Kuan Yew 187, 189–90, 216 Lee, Shau-kee 164, 188–9, 191, 210 Lefebvre, Henri 76 legitimacy 73–4 Levi Strauss 121 LG (Lucky Goldstar) 35, 38 Li, Dak-sum 188, 190 Li, Ka-shing 84, 108–9, 128, 164, 188–9, 191, 210, 216, 222–3 Li, Peng 216 Li, Victor 108 liberalisation 109 licensing agreements 39, 43, 73, 104 Liem, Sioe Liong 144 Liem Group 144 linkages 123 Lo, Y.S. 211 local politics 78 localities 77 location-specific advantages 2, 42, 49–50 locational economies 75 London 35, 119 Mabuchi Motors 209 McDonald’s 217 Mah, Bow Tan 189 Mahathir, Mohammed 189 Malacca 124 Malaya 81 Malaysia 13, 15, 17–18, 25, 28–9, 34–6, 38, 43, 60, 62, 75, 84, 88–9, 92, 95, 97, 99, 102, 104, 108– 9, 111, 118, 120, 123–6, 135, 142, 148, 151–2, 165–6, 168–9, 178–83, 187–9, 191–3, 207, 218, 222 Malaysian Industrial Development Authority 102, 182, 186–7 management expertise 103 Mandarin Oriental International 208, 211 manufacturing industries 15, 20, 22, 29, 36, 81, 84, 89, 92, 97, 99, 102, 111, 119, 122, 125, 129–30, 151, 166, 177, 179, 199, 208, 223 Marco, Ferdinand 140, 179, 183 market efficiency theory 54 market position 38, 201, 206

Index

289

market power approach 2 market share 62, 65, 69, 106, 122, 130, 201, 207, 238 market transactions 5, 67 marketing strategies 106, 118, 132, 173, 178, 195, 201, 239 Marks & Spencer 121 mass production 55 Matsushita, Konosuke 64 Mauritius 50 merchant banks 103, 219–20 Metro Drug 144 Mexico 28, 34, 38 Middle East 35, 42, 48, 172 Ministry of Trade and Industry 102, 179 Mitac 39 mode of rationality 59, 63–4, 66, 78, 130, 196, 233 mode of transactions 6 modern organisations 57–8 Monetary Authority of Singapore 108 monopoly 109, 124, 218 Morgan Stanley 222–3 Morita, Akio 64 Most Favoured Nation (MFN) 83, 104 motivations 64, 68, 109–10, 118, 120, 206, 230 Motorola 66, 124 multi-domestic structure 4 Multi-Fibre Arrangement (MFA) 110, 238 multinational corporations see transnational corporations multinationality 4, 7, 25, 51, 55, 106, 120, 215 Myanmar 15, 222 nation states 47, 60–3, 66, 73, 76, 132, 182–3, 186, 194, 229, 235; see also government national boundaries 5, 7–8, 11, 52, 65, 75–6 national champions 48, 176 national firms 54 national structures 6 NCR Microelectronics Production 35 negotiations 60–2, 74 neoclassical economics 52, 57, 199 neoclassical economists 20 neoliberalism 175–6 nepotism 146 Netherlands 15, 144 network corporation 4 network society 4 networks 1, 4, 6, 25, 54, 56, 65, 76, 81, 130, 140–1, 146, 174, 215, 231, see also business networks; approach of 3, 53–4, 58–9, 65, 76, 78, 80, 132, 191, 226–7, 230; ethnic 66, 73; of close friends 142, 189; organisation of xv, 51, 56–7, 70;

Index

290

relations of 6, 9, 26, 57, 59–60, 62–70, 72–9, 133, 136–7, 142–3, 156, 191, 194–5, 198, 213–15, 218–19, 221, 223, 225, 229–30, 232, 234, 238; social 57, 132, 156; structures of 7, 53, 60, 66, 156, 160, 203; transnational 56, 162 New World Development Ltd 108, 188, 190, 210–11 New York 35, 119, 190 New Zealand 167 newly industrialised economies (NIEs) 3, 10, 13, 15, 17, 20, 24–5, 27–9, 34, 38, 47, 49, 81, 92, 99, 177 Newport, South Wales 35 Nigeria 34 Nissan 65 non-government organisation 73–4 non-profit organisation 73 Nordstrom 121 North America 10, 13, 15, 22, 35, 43, 45, 82, 120, 122, 148, 192, 239 OECD 13, 106 Ohmae, Kenichi 75, 77 oligopolistic behaviour 54 Ong, Teng Cheong 187–8 open-door policy 82 operational flexibility 56 opportunism 68–9, 183 organisation studies 57, 59 organisation theories 2–3 organisational capabilities 4, 52, 66, 106, 148, 198–200, 213–14, 219, 223, 225, 227, 231, 237 organisational culture 64, 70, 162 organisational forms 59–60, 67, 80, 83, 101 organisational logics 63 organisational structures 3–4, 6, 80, 145, 199 organisational theorists 66, 75 original equipment manufacturers (OEM) 104, 120, 187, 210 overseas Chinese 7, 10, 28–9, 121, 128, 132, 134, 136, 139, 141–2, 154, 156, 158–9, 174, 183, 216, 218–19, 232–3 ownership 9, 144–7, 158, 165, 179–80, 192, 199, 209 ownership-specific advantages 49 Pacific Rim 121, 218 Pangilinan, Manuel 144 Pao, Y.K. 210–11 passenger aircraft 4 patents 39 paternalism 132, 146 Pearl River Delta 25, 46, 108 Pei, I.M. 190 Penang 192 People’s Republic of China 10, 13, 15, 19–20, 22, 25, 28, 34, 36, 41–2, 45–6, 50, 82–3, 101, 104, 108–10, 119, 126, 128, 135, 143, 157–8, 172, 175–6, 192, 207–8, 210–11, 214–15, 217, 222, 227, 230, 237, 239

Index

291

Peregrine Investments Holdings 129, 182, 198, 214, 219–23 perfect competition 66 Peru 34 petroleum transnational 40 pharmaceuticals 4, 62, 69 Philippines 15, 17–18, 26, 35, 40, 48, 50, 84, 88–9, 95, 97, 102, 107–8, 111, 118–20, 126, 130, 135, 140, 144, 170–2, 178–80, 183, 203, 222, 227 place xvi, 59, 77–8 Polanyi, Karl 57 political competences 74 political connections 26, 195 political economy 174–5 political embargo 20 political movements 63 political stability 15, 108 Polo Ralph Lauren 121 Port Klang 192 Porter, Michael 2, 75–6, 198, 238 portfolio investments 8, 53, 166, 169 post-Fordism 56 positive non-intervention 20 power 59, 65–6, 69–70, 76, 130, 134, 140, 145, 175, 226, 231 power relations 9, 69, 73, 76, 133, 139, 147, 165, 174, 194 pribumi 179, 217 price mechanism 54 privatisation 109 product differentiation 45, 173, 198 product life-cycles 2, 5, 47, 75 production costs 111, 186, 206 production chains 8, 11, 35, 67, 69, 73, 77, 106, 162 production of space 59, 76 production systems 59, 69, 74 professional management 6, 135, 143, 146 professionalism 107, 125, 146 profit centres 24, 101, 156 property markets 24, 175 proprietary rights 73–4 protectionism 35, 106, 238–9 PT Eratex Djaja 121 public housing schemes 24 public ownership 135 quality 107, 121, 203, 207, 209, 213, 223, 237 quota restrictions 46, 81–2, 110, 130, 176 Ramada Hotels 108, 211 reciprocity 137–40, 142, 215 Regal Hotels International 210–11 regional blocs 63 regional development 58 regional division of labour 20

Index

292

regional economic integration 11, 17 regional headquarters 24 regional groupings 15 regionalism 15 regulations 60, 102, 129, 165, 169, 180–4, 186, 191–2, 194, 215, 219, 229, 235; see also government restrictions regulatory regime 63, 74, 101, 126, 133, 174, 177, 179–80, 194, 235, 238 relationships xv, 6–7, 52–4, 57, 60, 65, 69, 72, 81, 102, 120, 125, 131–3, 135–8, 140–2, 146–7, 150, 156, 159, 163–6, 168–71, 185, 193–5, 199, 214–17, 220, 223, 226–7, 229–30, 232–4; see also guanxi Renault 38 reputation 9, 138–40, 142, 166, 169, 171, 193, 203, 213, 221 research and development 5, 35, 38–9, 44, 73–4, 123, 145, 153, 159, 171, 176, 237 revealed comparative advantage 42–3 Roxy-Sharp 190 Royal Dutch Shell 1 royalties 8, 39 Russia 210 Salomon Brothers 187 Samsung 38–9 San Antonio, Texas 35 San Miguel 34 Sanyo 43 Second World War 6, 170 sectoral specialisation 83 Semi-Tech Ltd 108 semiconductor industry 20, 38, 123 Senegal 34 services 11, 22, 24, 26, 29, 35, 43, 89, 92, 97, 99, 101, 104, 106–8, 111, 118–20, 122, 125, 129–30, 151, 156, 158, 166–7, 169, 177, 182, 185, 198, 203, 206–7, 219, 221, 223, 225, 227, 234, 237 SGS Thomson 124 Shanghai 20, 81, 170–2, 188–9, 191 Shangri-La International 210–11 Shaw, Run Run 188, 190 Shaw Organisation 190 Shih, Stanley 39 shipping 38, 43, 45, 103, 189 Siemens 124 Silicon Valley 35, 39 Sime Darby 180 Singapore 15, 17, 19, 22, 24–6, 28–9, 34–6, 38–40, 43–4, 47, 49–51, 62–3; 83–1, 88–9, 97, 99, 101–2, 104, 107–8, 111, 115, 118–20, 123–4, 126–9, 135, 141–3, 151–2, 156–7, 161–2, 170–2, 174, 177–84, 187–8, 190–1, 203, 207, 214–15, 218, 227, 229, 233–5 Singapore Airlines 38 Singapore Technologies 49 Singer Sewing Machine 108 Sino-British Joint Declaration 82–3, 126, 130 Sloan, Alfred P. 64 small and medium enterprises (SMEs) 36, 46 Smith, Adam 67

Index

293

Smith-Corona 39 social agency 57 social construction 57–8 social formation 59 social regulation 78 social relations 5–6, 57–8, 66, 68, 78 social system 68 socialisation 57, 78 socio-spatial 53, 59, 79, 226, 230 Sohmen 128 Sony 39 sourcing capabilities 4 South Africa 81 South China 25 South Korea 24, 28–9, 34, 36, 38–42, 46–8, 50, 176, 207–8, 218, 222 South Sea Textiles 188 Southeast Asia 10, 13, 25–6, 28, 34–5, 45–6, 50–1, 54, 63, 78, 80–3, 107, 119, 123, 132, 135, 137, 143, 148, 174, 183, 189, 192, 195, 197, 207, 218, 226, 232–3, 237 sovereignty 109, 226, 236 space 59, 64, 70, 73, 76–8, 141, 148, 162, 214–15, 219, 225, 227, 232–3 spaces of firms 76–7 spaces of network relations 76–7 spatial differentiation 77 spatial fix 76 spatial organisation 60–4, 77, 83 spatial practices 76 spatial strategies 76–7 spatial tendencies 60 special economic zones 25 Sri Lanka 34, 50 stockbroking 43, 119, 182, 187 strategic advantage 70, 76 strategic alliances 5–7, 51, 56, 65–6, 73, 76, 232, 234 strategic capabilities 2 strategic industry 48 strategic intent 62 strategic predisposition 78, 103 structuration 59, 65–6 Subang 192 subcontracting 5, 8–9, 58, 73, 129, 143 Suharto 121 Sulawesi 34 Sumatra 34 Sumiko 124 Sun Hung Kai Co. Ltd. 118–19, 122, 210, 219 Suntec City 139, 142, 146, 163–4, 187–91, 215, 217–18 Swire Pacific Group 81, 109, 208, 210 Switzerland 84, 238 Tai Ping Carpets 190 Taipei 39

Index

294

Taiwan 22, 24, 28–9, 34, 36, 38–9, 45–8, 50–1, 84, 107, 123–4, 135, 176, 207–8, 214, 218, 233 TAL Apparel 144, 207 Tang, Jack 188 tariffs 4, 17, 118 Tatung 39, 48 tax havens 129 tax incentives 81, 126–8, 189; see also government incentives taxes 74 technological capabilities 42, 49, 66 technological change 5, 24 technological infrastructure 22 technological innovations 2, 5, 49, 60, 62, 74–5, 237 technology 5, 9, 15, 42–7, 49–50, 54, 65, 75, 103, 123, 152, 182, 191, 198, 207, 219, 225 technology exports 42 technology transfer 35, 40, 42, 44, 172 telecommunications 109, 184 telematics 58 Television Broadcasts Ltd 188 Temasek Holdings 49 territorial complexes 35 Texas Instruments 39 textiles 81–2, 92, 97, 99, 104, 110–11, 118, 120–2, 130, 143–4, 176, 188–90, 198, 201, 206–7, 223, 237–8 textiles industry 20, 22, 24, 38, 43, 46, 50, 92, 95, 122, 130, 207; see also garments industry Thailand 13, 15, 17, 19, 25–6, 28, 34–6, 44, 46, 50, 62, 83–4, 88–9, 99, 101–2, 104, 108–9, 118, 120, 123, 126, 129–30, 135, 144, 147, 153, 165, 167, 169, 172, 178–86, 203, 207, 222, 227 ‘Third World multinationals’ 26, 28, 39, 101, 197, 199–200, 223, 226, 230–31; see also transnational corporations: from developing countries Tiananmen Square incident 83, 128–9 time-space specificities 3, 59–60, 130, 230–1 Tokyo 219 Tommy Hilfiger 121 Tose, Philip 129, 222 Toshiba 153, 184–5 toys 43, 97, 99, 160–2, 199, 209 trade 17, 28, 99, 179, 185, 238 transaction costs 2, 51, 53–7, 64, 69, 130, 133, 160, 173, 195–6, 227, 229–30 transaction modes 55 transnational corporations xv, 1–8, 17, 25, 55–65, 70, 74–8, 132–3, 136, 173, 182, 201, 226–7, 236; American 3, 39, 44, 62, 66, 231; British 3, 6; cross-border subsidisation by 4; definitions of 7–9, 134; equity-based arrangements 5; family-owned 40; foreign affiliates of 1, 4, 7, 34, 51, 72, 102–3; from Asian NIEs 25, 28–9, 36, 38, 46, 49, 51, 80, 197–9, 231; from developed countries xv, 3, 35–8, 40, 43–8, 101, 183, 197–8, 223; from developing countries xv, 3, 8, 10, 28, 34–51, 197, 200, 223, 229–31;

Index

295

from Japan xv, 39, 63, 74; functional integration of 60; global operations of 4, 60; headquarters of 5, 147–8; host countries of 9, 42; in services 45, 74; Indian 29, 41–2, 48–9; joint ventures of 4, 9, 34, 39–43, 47–8, 51, 56, 73, 101–2, 107–8, 129, 150–1, 154, 161, 165–6, 168–72, 182, 189, 191–4, 219, 221, 227, 229; mergers and acquisitions of 4, 66, 108; network forms of 5, 53–4, 133; non-equity arrangements of 5, 42, 47, 56, 73; parents of 39–41, 72; placeless xvi, 75, 78; regionalisation 49, 103–4, 106, 120, 122, 234–5; social embeddedness of 54, 56, see also embeddedness; subsidiaries of 3, 5, 9, 26, 34, 36, 38–40, 44, 50, 72, 78, 88, 147–8; transnationalisation of 9, 27, 52, 54, 56, 59–60, 63–4, 122, 136, 156, 158, 173, 195, 201, 226, 230; see also globalisation, internationalisation; western-centric view of xv, 3 transnational platform 59 transnational solution 2 transport 38, 104, 111, 122, 182, 186, 192 Triad 10, 43, 60, 77, 122, 130, 177, 197–8, 201, 218 trust 9, 28, 51, 56, 58, 67–70, 120, 125, 137–42, 147, 156–61, 165–6, 169–72, 187, 193, 196 Tsao, Calvin 163, 190, 215, 218 Tsao, Frank 163, 187–90, 215 Tsao, Frederick 189 Tsao & McKown 190 Turkey 48 UNCTAD (United Nations Conference on Trade and Development) 1, 11, 14, 28, 38, 75, 83 UNCTC (United Nations Centre on Transnational Corporations) 7–8, 11, 14, 36, 38, 82, 125, 232 undersocialisation 56–57 Unisouth Holdings 118, 121, 207 United Kingdom 11, 15, 17, 35, 84, 97, 150, 182, 206 United States 10–11, 13, 15, 20, 22, 24, 35, 38–40, 43–4, 57, 62, 69, 74–5, 77, 81, 84, 97, 99, 106, 108, 110–11, 121–3, 126, 135, 148, 152, 187, 199, 206–7, 209, 211, 233, 238–9 Unitex 122 Urban Redevelopment Authority 190 Uruguay 34 Vancouver 108, 217 Varitronix International 208, 210 Venezuela 34 Vernon, Raymond 1–2, 54, 56, 75, 226, 235 vertical integration 40, 47, 50–1, 56, 74, 145, 203 Vietnam 15, 135, 222

Index

296

Wang, Robert 188 Wardley Ltd 103, 219 Western Europe 10, 12, 17, 22, 35, 43, 45, 63, 69, 77, 81–2, 110, 120–2, 124, 148, 194, 207, 239 Western societies 6 western-centric xv, 197, 230–1 Wharf Group 81, 210–11, 216 Wheelock & Co. 216 Williamson, Oliver E. 54–6, 67–8 Wing Tai Garment 144 Winsor Industrial Corporation 189 Wong, Julian 121 Wong’s International 208 Woo, Peter 216 Worldwide Shipping 128 worldwide web 52, 137, 227; see also business networks WTO (World Trade Organisation) 238 Wu, Gordon 84, 222 Wuhan 216 Yang, Sam 121, 144 Yangtzechiang Garment 144 Yeh, Anthony 188–90 Yeo, Philip 189 Yeo Hiap Seng 50