Knowledge and HRM practice transfer in emerging economies: the case of Japanese automotive joint ventures in Indonesia

Abstract:

This research contributes to our understanding of knowledge transfer mechanism and infrastructure. One objective for economic development among emerging market economies (EMEs) is to achieve parity with developed countries. Knowledge transfer and human capital investment are two vehicles for accomplishing this objective. This study offers an analysis of Japan’s Official Development Assistance (ODA) economic contribution to the host-country knowledge transfer infrastructure and human resource development (HRD). It aims (i) to address why and where knowledge transfer barriers have occurred in the global manufacturing supply chains and (ii) to examine the extent of Japan’s commitment to Indonesia’s achievement of economic development and parity.

What is the research problem? Knowledge transfer from Japanese core companies presents EMEs in Southeast Asia with significant opportunities. Nevertheless, those opportunities are often not being realised because institutional constraints (i.e., government regulations and management conflict of interests) and knowledge transfer mechanism and infrastructures may act as a barrier rather than a facilitator. This paper sets the context of an analysis of Japan’s ODA contributions to Indonesia. It examines the depth of knowledge transfer from Japan to the Japanese global supply chains operating in the weak labour market institutions and regulatory systems of Indonesia. Furthermore, it analyses the extent of Japan’s commitment to Indonesia’s socioeconomic development. While Japanese MNCs felt able to diffuse Japanese knowledge to their Indonesian subsidiaries’ workers for vehicles with lower technological inputs (e.g., the cases of Honda and autoparts tiers 2 and 3), they were reluctant to transfer knowledge pertaining to the manufacture and supply of parts for vehicles with higher technological inputs (e.g., the cases of Toyota, Daihatsu and Denso).

Using data gathered from semi-structured interviews and on-site observations in a vertically integrated Japanese automotive manufacturing system, the paper investigated three tiers of Japanese-Indonesian automotive joint venture manufacturers: Toyota cars, Honda motorcycles and Denso autoparts in Japan and Indonesia. While Japanese MNCs diffused knowledge to their Indonesian subsidiaries for vehicles with lower technological inputs and niche markets (e.g., the type of economy valued Daihatsu cars and Honda motorcycles limited to local markets), they were reluctant to transfer knowledge concerning the manufacture of vehicles with higher inputs (e.g., Toyota cars and Denso tier 1 auto part for global markets). As a result, the Japanese manufacturing system maintains its superiority in product design (i.e. knowledge), human resources (i.e. skill and development), and manufacturing (i.e. technology and innovation) over Indonesian subsidiaries. In fact, Japan and Indonesia are locked in a perpetual pursuit of economic growth through their hierarchical relationship of economic co-dependency. This relationship is significant because no matter how much Indonesia desires to be competitive, productive and innovative, and benefits from engaging with Japan in advancing its own socio-economic and human capital advancement, it is perpetually trapped in a position of subordination to Japan. Thus, Indonesia continues to face challenges in achieving developmental parity.

Findings. In general, the top-tier Japanese MNCs (e.g., Toyota, Honda and Denso) have demonstrated their scepticism that their technologies could not be sufficiently understood or utilised by the Indonesian subsidiaries. There were also issues of trust in Japanese companies about divulging their most sensitive technologies. Consequently, they were reluctant to transfer knowledge about certain aspects. However, for products specifically suited to or aimed at local Southeast Asian markets, the Japanese companies are prepared to diffuse their technologies and investment. In other words, knowledge transfer is capitalised and the structure of knowledge transfer networks is highly politicised in the setting of Japanese-Indonesia joint venture automotive manufacturing amid strong power relations of both Japanese and Indonesian business groups (i.e., Toyota Motor Corporation Japan and Astra Automotive Indonesia). Moreover, there are significant human resource management and employment relations (HRM-ER) institutional challenges to take an account. On the Indonesian side, managers and employees feel that they are being held back in the country’s development. Specifically, they claim that that they are  prevented from acquiring value-added/innovative technology, skill and  development (the know-how): a situation that one could interpret as a form of colonial exploitation.

What does this mean? Knowledge transfer mechanisms and implications are not only highly contingent on the receiving country’s political economy and levels of human capital. They are also affected significantly by levels of trust and the ideologies held by the sending country. For example, Indonesia becomes perpetually subordinated to a peripheral role within the Japanese global manufacturing networks. Japan has constructed regional manufacturing chain competition among ASEAN state members (e.g. Indonesia, Malaysia and Thailand) with a similar degree of Japanese economic dependency. However, existing alongside Japanese manufacturing networks is the potential for Japanese government ODA economic cooperation and capacity building programmes to unlock the perpetual peripheralisation of ODA recipient countries’ HR development. Also worth noting is that investments allow these countries to achieve a self-sustaining developmental system independently of Japanese global manufacturing networks. Indonesia is a prime example.

In general, Japan encourages Southeast Asian EMEs to develop along Japanese developmental pathways in order to keep both the home- and host-country labour market institutions locked in the Japanese global system while simultaneously keeping these EMEs one or two steps behind Japanese development. Thus, these countries continue to feed further Japanese advancement and support the home country political economy stability. Ultimately, this study supports the ‘flying geese’ model of East and Southeast Asian development, with Japan leading and pulling neighbouring Asian countries into economic development behind it. Also, there is a darker side of Japanese ODA involvement and investment in navigating this knowledge transfer barrier and in (de)capitalising Japanese knowledge and human capital development. Even as Japan leads and pulls, it remains perpetually one or two steps ahead of its Asian EME neighbours in an interdependent hierarchy of human resource and business development in Asia, with Japan permanently at the apex.

This research affirms that a structural hierarchy of HR development is entrenched. It is the outcome of the behaviours of dominant corporate business models and governmental ODA ecosystems involved in cross-border knowledge transfer and transnational industrial strategy. Actors within EMEs find themselves caught within a perpetual development trap. On the one hand, they welcome the contributions of advanced industrialised economy countries’ economic cooperation through FDI, knowledge transfer and cross-border management “best practices”, as their socioeconomic development is fostered and facilitated by participation in global corporate networks and supply chains. At the same time, however, subsidiary actors are thwarted in their efforts to achieve parity in terms of development. They continually come up against  policies and practices of the lead countries’ governments and corporations that reflect a reluctance to transfer the most advanced technologies and best management practices being adopted in the host countries. Therefore, no matter how cynically Indonesian subsidiaries may view the underlying intentions of the Japanese MNCs and their government, they still have to deal with the dominant country because it is the only path available to them to advance their economies and human capital development.