1. International Business Management (MS34B)
Linkage Creation in Developing Countries
Facilitator: Densil A. Williams
MS34B, UWI Mona, Department of Management Studies

2. MS34B, UWI Mona, Department of Management Studies
Contents
Conceptual understanding of Linkage
Benefits of Linkage
Types of Linkages
Factors that impact linkage promotion in developing countries
Governments’ approach to building successful linkages in developing countries
Concluding Remarks
MS34B, UWI Mona, Department of Management Studies

3. Conceptual understanding of Linkage
Linkage is basically inter-firm production relations.
It involves the interconnectedness of suppliers, service providers and associated institutions.
In essence, linkage is really clustering but companies do not always have to be located in the same geographical region or town.
MS34B, UWI Mona, Department of Management Studies

4. MS34B, UWI Mona, Department of Management Studies
Benefits of Linkage
Increases the productivity of firms (or even industry)- linkage provides firms with greater access to specialized suppliers, employees information etc.
Increases capacity for innovation and productivity growth (greater asset sharing and information flow between entities).
Stimulates and enables new business formation( proprietary information critical to this process).
MS34B, UWI Mona, Department of Management Studies

5. MS34B, UWI Mona, Department of Management Studies
Benefits of Linkage
Foreign Firm: reduced costs, increased flexibility, and technological synergies.
Local Firm: increased output and increased employment.
Host developing economy: spillovers/externalities: labour – training, firms – production efficiencies, technological and managerial capabilities, export capabilities.
Also, increases the ‘rooting’ of the multinational enterprise in host developing country. i.e. an integrative strategy
MS34B, UWI Mona, Department of Management Studies

6. MS34B, UWI Mona, Department of Management Studies
Types of Linkages
Two types exist:
Vertical
Horizontal
- Backward Linkages: these exist when foreign affiliates acquire goods or services from domestic firms.
- Forward Linkages: these exist when foreign affiliates acquire distribution outlets for their goods or services
MS34B, UWI Mona, Department of Management Studies

7. MS34B, UWI Mona, Department of Management Studies
Types of Linkages
Horizontal Linkages: foreign and domestic firms interact through complementary activities.
E.g. AA and Air Ja. sharing similar data processing system
MS34B, UWI Mona, Department of Management Studies

8. MS34B, UWI Mona, Department of Management Studies
Factors impacting backward linkage in developing countries
Uncompetitive price
Lack of quality
Timeliness of delivery
Inability to change design/production
Inability to design parts
Long term commitment problem
MS34B, UWI Mona, Department of Management Studies

9. MS34B, UWI Mona, Department of Management Studies
Approaches to building successful linkage in developing countries
Traditional methods such as TRIMs, e.g., local content requirements and trade barriers on intermediate inputs unsuccessful in fostering linkages.
Also, no longer permitted under WTO.
Hence, Battat et al. calls for a market based approach to developing linkages between foreign and local firms in developing countries.
MS34B, UWI Mona, Department of Management Studies

10. MS34B, UWI Mona, Department of Management Studies
Approaches to building successful linkage in developing countries
The market-based approach entails the following:
Best linkage candidates are targeted
Foreign firms participate in the process
Institutional linkages are established (co-ordination)
Visibility of Institutions is highlighted
Institutions focus on:
Upgrading technology
Manpower development and training
Financial Assistance
(Singapore, Taiwan and Korea = success stories)
MS34B, UWI Mona, Department of Management Studies

11. MS34B, UWI Mona, Department of Management Studies
Concluding Remarks
The challenge for developing economies is to create better linkage programmes that can lead to the improved competitiveness of their local firms.
This will require moving from linkage driven by cost consideration to more sophisticated activities such as technology transfers, innovation.
Only when local firms are brought up to an internationally competitive standard will foreign firms (especially export oriented ones) find it valuable to form linkages.
MS34B, UWI Mona, Department of Management Studies