Global Production Network, Knowledge Sharing, and Technology Transfer: Evidence from Thailand

Abstract: This paper examines the institutional factors underlying the successful integration of Thailand’s automotive industry into the global production network of Japanese automobile assemblers. More specifically, I explore the role of Japanese firms in developing and creating local supplier networks and the evolution of the technological capability of local firms. Based on questionnaire surveys and interviews with assemblers and suppliers, conducted over the past five years, firms’ boundaries and procurement structures, i.e., make-or-buy decisions, have evolved significantly during the past four decades. Japanese firms employed relational contracts for parts procurement, but they were unable to replicate the Japanese-style supplier system in Thailand. This was due mainly to the limited capability of Thai suppliers. To reduce the transaction costs of procurement and improve productive efficiency, ‘social’ and ‘physical’ technology has been transferred to suppliers directly and indirectly, through ‘supplier development programs’ and ‘knowledge-sharing’ at the network level. As a result, 'trust' and ‘social technology’ have been developed, which in turn enables assemblers to rely on suppliers for some parts that normally require specific investment or capability, such as outer panels. In addition, there is clear evidence that ‘social technology’ is diffused and reused with other customers. Hence, newly established firms can free-ride incumbents’ efforts.