添付４

Capacity Building of Local Firms
through FDI:The East Asian Perspective
Kenichi Ohno (GRIPS/Tokyo)
Maputo, November 2012

India

Thailand

Vietnam

Malaysia

The Way to True Development


Growth based on FDI, ODA, big projects, natural resources or
locational advantage will eventually end. The true source ofdevelopment is value creation by humans—knowledge, skills,
technology.
For continuous growth into high income, policies andinstitutions that encourage—and even force—human capital
accumulation must be installed.
Policy learning—for acquiring concrete policy technique,government should compare different international bestpractices and build general capability to create a policy
package most suitable for local context.

Cf. K. Ohno, Learning to Industrialize: From Given Growth to Policy-aided
Value Creation, Routledge, 2013.

What is a Middle Income Trap?
(Or more generally, developmental traps?)

A developmental trap occurs when a country is stuck at theincome dictated by given resources and initial advantages, andcannot rise beyond that level (only luck and no effort).
The level of income where the trap may occur depends on thesize of resources and advantages relative to population.
Low endowment  Poverty trap
Moderate endowment  Middle income trap
Rich endowment  High income
In East Asia, three governments are seriously worried about
middle income traps: Malaysia, China and Vietnam.

Proactive Industrial Policy







Liberalization, integration and good governance can take acountry to a given income level. But reaching higher income
requires different policies to guide and stimulate private
dynamism.
Laissez-faire cannot overcome a developmental trap. Free
market tends toward short-terminism, speculation and lobbying
instead of long-term investment in skills, technology andmachinery.
State and market must be combined in proper balance. Policy
must be well informed by market, and vice versa.
Even under globalization of the 21st century, proactive
industrial policy that forces human capital accumulation is not
only possible, but widely practiced by many high-performing
economies in East Asia.

Stages of Catching-up Industrialization
Preindustrialization

Internalizing
parts andcomponents

Initial FDI
absorption

Internalizing
skills andtechnology

Internalizing
innovation

Creativity

Arrival of
manufacturing
FDI

Agglomeration(accelerationof FDI)

Monoculture,subsistence
agriculture, aid
dependency

Simplemanufacturing
under foreign
guidance

Vietnam

STAGE FOUR

STAGE THREE
STAGE TWO

STAGE ONESTAGE ZERO

Technology
absorption

Have supporting
industries, but
still under foreign
guidance

Management &technology
mastered, canproduce highquality goods

Korea, Taiwan

Thailand, Malaysia

Middleincome trap

Full capability ininnovation andproduct design as
global leader

Japan, US, EU

Speed of Catching Up: East Asia
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
100%
Japan

90%

Singapore

80%

Hong Kong
70%
Taiwan60%

S. Korea

50%

Malaysia

40%

ThailandIndonesia

30%

Philippines
20%

Vietnam

10%

China

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

0%

Sources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; theCentral Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).

Latin America
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
100%
90%
Argentina

80%

Brazil
70%
Chile
60%

Colombia

50%

Mexico

40%

Peru

30%

Urguay20%

Venezuela

10%

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

0%

Sources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; theCentral Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).

Africa
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
100%
Botswana

90%

Cote d'Ivoire
80%
Egypt
70%

Ghana

60%

Kenya

50%

Madagascar

40%

Nigeria30%

South Africa
Tanzania

20%

Tunisia
10%
Uganda

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

0%

ZambiaSources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; theCentral Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).

The Curse of Natural Resources

Natural resources seem good for growth, but history showsthat this is not the case (Sachs and Warner 2001).
Resource-rich countries are difficult to industrialize because of:- Resource diversion to extractive industries- Global commodity price instability- Currency overvaluation and loss of competitiveness- Availability of easy money that prevents technology learning- Enhanced rent-seeking and corruption



To avoid the curse, additional issues must be addressed—
narrowing gaps between resource barons and general
population, export diversification, macroeconomic shockresponse, stabilization fund, linking resource money to longterm investment, resource processing (if feasible), etc.

Rich Resource Endowment Is Actually Not
Good for Growth
Real GDP growth per capita (%/year), 1970-2000

8
6
4
2
0
-2
-4
Correlation = - 0.297

-6
0

10

20

30

40

50

60

Exports of natural resources in percent of GDP, 1970

Source: Author’s calculation using data from World Bank, World Development Indicators & Global
Development Finance, April 2010.

GDP Driven by Commodity Price
Fluctuations
A large part of African growth spurt in recent years is attributable tocommodity booms rather than a rise in productivity or innovation.
Zambia’s GDP and Copper Price
USD/MT

8000
Copper price(left scale)
Per capita GDP(right scale)

7000
6000

Uganda’s GDP and Coffee Price
USD

US cents/pound

1400

250

1200

USD

600
Coffee price (leftscale)Per capita GDP(right scale)

200

1000

5000
800

500

400
150
300

4000
600
3000

100
200

400

2000

50
CORR = 0.43

Source: International Monetary Fund, International Financial Statistics, August 2010.

2006

2001

0

1996

0

1991

2005

2000

1995

1990

1985

1980

1975

0

1970

0

100

1986

CORR=0.80

1981

1000

200

Linkages between FDI/ODA
Projects and Local Firms
For job & income creation:
 Construction of factories and related facilities—land, sewage,
access roads—by local firms and labor (temporary).
 Employment of local (unskilled) workers at big projects.
 Local procurement of non-core services (cleaning, gardening,food catering, accommodation, transport).
 Positive effects of big infrastructure (power, roads, port, etc.)
on social and economic activities in surrounding areas.
For corporate social responsibility:
 CSR activities by big firms for local communities.
For competitiveness and local capability building Local procurement of materials, components and services ascore inputs to big projects (“industrial clusters,” “supporting
industries & services”)

Forging Linkage forCompetitiveness








Forging linkage for competitiveness and local capability is astandard way to learn technology and skills. It is a good entry
point which can cover many policy areas.
In East Asia, linkage is normally defined as input-output(upstream-downstream) relationship in the manufacturing
process on a commercial, competitive basis. Linkage policy
mainly targets this.
Spillover and learning from FDI do not occur spontaneously;
it must be generated by serious management effort andappropriate policy.
Two types of linkage policy: (i) linkage promotion itself; (ii)building local capability (so that local firms can participate in
the linkage). These two components are often integrated.

Creating Business Linkages(UNCTAD Report 2010, p.14)
Systematic policy approach to linkage building consists of:

Improving investment climate
 Strategic FDI attraction
 Strengthening absorptive capacity
 Specific linkage policies


Note: middle-income economies in East Asia have largely
achieved the first two and now work on the latter two—Thailand, Indonesia, Vietnam, (Malaysia)… But Mozambiquemust work on all four.

Dual Economic Structure of Typical Latecomer
Country in East Asia
The Need to Link Domestic Sector with Globally Integrated Sector

Export Sector（Under-developed,
often protected)(Integrated & competitive
under free trade)

Local market
oriented FDI

Local firms(SOEs & private)

Exportoriented FDI(located mainly inindustrial estates)

Missing link

Materials& parts

Products

Global and Regional Markets

Domestic Sector

(1) Standard Policy Menu for
Linkage Promotion










Strategic FDI marketing and investor support
Domestic and export market development
Trade fairs and “reverse trade fairs”
Enterprise database & matching service
Subsidies for FDI-local linkage and technology transfer
Official promotion and intermediation of subcontracting
Establishment and strengthening of business/sectoral
associations
Promoting local firm networks (for information sharing,support programs, joint order taking)(2) Standard Policy Menu for
Local Capability BuildingIndustrial human resource- Universities, colleges and technical schools- Transfer of specialized skills to engineers- Subsidies for worker training- Skill certification, competition, awards and prizesEnterprise capability- Kaizen - quality & productivity mindset and tools- Shindan - officially supported enterprise diagnostic & advisory services- Subsidies for upgrading management, design, marketing, accounting, etc.
- Quality standards and certification, best practice awards

SME finance- Development finance institutions and subsidized bank loans- Credit guarantee- Equipment leasing- Enterprise credit information databaseStart-up and innovation support

Reverse Trade Fairs


Reverse trade fairs are trade fairs in which large firms exhibit
components and materials they want to buy from local firms,
instead of exhibiting what they want to sell.
The Japan External Trade Organization (JETRO) frequently
hosts such fairs in China and Southeast Asia to help
Japanese manufacturing FDI to procure inputs locally.

Malaysia:
Vendor Development Program








VDP was introduced in 1988 to strengthen business linkage
between Proton (national car company, as “anchor firm”) andlocal Malay component suppliers (“vendors”).
The anchor firm was required to do the following:- Purchase as many components as possible from eligible
vendors- Provide technical assistance to vendors- Intermediate government loans to vendors
Later, more anchor firms were added, mainly from electronics.
By 2002 anchor firms numbered 85 (46 Malaysian, 28
Japanese, 5 American, etc.) and qualified vendors numbered
296 (metals, plastic, auto parts, etc.)
However, some FDI firms were reluctant to participate due to
low technical capability of local firms.

Vietnam:Hanoi University of Industry







Established in 1898 under French rule, HaUI was a technicalcollege, upgraded to a university in 2005. It now has 1,400
teachers and 60,000 students.
In 2000-05, JICA supported HaUI to create metal, machining
and electronics programs with equipment and training.
In 2010-13, JICA is calibrating HaUI curriculums to meet thedemands of Japanese FDI.
Newly introduced courses: 5S, mechanical drawing, machine
maintenance, quality control, pilot skills certification.
Japanese FDI cooperating with HaUI: Toyota, Panasonic,
Ebara, Toho, Takagi, Nagatsu, Showa Denko.

Vietnam: ESUHAI Company
Producing workers with mindset and skills







ESUHAI is a private firm founded by Mr. Le Long Son, aVietnamese engineer who studied die & mold in Japan.
ESUHAI dispatches Vietnamese workers to Japan as technicaltrainees for three years (about 400 workers per year)
Before being sent to Japan, workers are trained for one year inJapanese language, basic manufacturing mindset such as
greetings and 5S, and long-term life vision as engineer.
After returning to Vietnam, they are supported with follow-up &level-up training, and matching with Japanese firms.
ESUHAI also assists Japanese firms to establish factories inVietnam (worker database, rental factory, factory construction,
obtaining license, etc.)

Kaizen in
Ethiopia

KaizenQuality and Productivity Improvement








Kaizen is a set of philosophy and tools for eliminating muda
(waste) in work places. If features (i) small and continuous
improvement, (ii) company-wide participation, and (iii) no needfor lay-offs or capital investment.
Kaizen tools include: 5S, suggestion box, QCC, TQC, TQM,
TPS, etc. Kaizen starts with simple actions such as: keep
factory floor and toilets clean, remove all unneeded things,
place remaining things in marked positions, etc.
It originated in Japan in the 1950s by modifying American
quality control method. Now it is being taught and adopted
widely around the world, especially Southeast Asia and India.
African countries practicing or learning kaizen: Botswana,
Burkina Faso, Ethiopia, Ghana, Kenya, Mauritius, Tanzania,
Zambia, and AU. Japanese assistance is often provided.

Kaizenin India

Indian auto partcompany practicing
kaizen near Delhi; Indian
engineers learned
kaizen from MarutiSuzuki, a Japanese JV.

ShindanEnterprise Diagnosis & Advisory Service








Shindan is a state-authorized system of enterprise diagnostics
and advisory services targeted at SMEs.
Japan’s Shindan System started in 1948. Certified consultants
are aided by legislation, official recognition and assistance,and supporting organizations such as SME Universities and JSMECA (consultants association).
Shindan experts advise SMEs in both management andtechnology. They also explain new policies. Shindan results
are strongly linked with commercial bank loans to SMEs.
Japan has over 20,000 Shindan experts, many of whom are
JICA consultants working in developing countries.
Shindan has been introduced to Thailand, Malaysia, Indonesia,
Philippines… But institutionalization is not easy.

Shindan Experts
JICA Senior Volunteer Team in Vietnam







Since 2010, about 20 experienced Japanese industrial
experts have been assisting Vietnam’s “supporting industry”(component producers) in metals, plastic, electronics,
nonferrous metals and machinery. 100 firms are targeted.
Assistance focuses on 5S and quality control. Other areas ofconcern are productivity and technology management.
Shindan experts visit factories regularly and give themhomework for improving production lines. Seminars, training
in Japan, manuals and materials are also used.
Improved local firms are listed in JETRO’s Excellent Local
Company Database. This facilitates Japanese FDI firms tofind local partners.

Malaysia
Comprehensive SME Support

Growth of autonomous and high-tech SMEs is the key toovercoming the (upper) middle income trap of Malaysia. The
National SME Development Council, chaired by Prime
Minister Najib, is leading this effort as top national priority.
Under the Ministry of International Trade and Industry (MITI),
several implementing agencies collectively assist SMEs.
- SME Corporation Malaysia—one stop service fro all SME policy
issues; overall policy coordination- Malaysia Productivity Corporation—quality and productivity training,
consultation, research, certification, etc.
- SME Bank—SME finance and training- MATRADE—trade promotion- Others (MIDF, MIDA, DFIs…)

Thailand
Linking Local Auto Part Suppliers with Japanese FDI
Auto Makers
Technology Promotion Association (TPA) is a local NPO
established in 1973 by Thai students who studied engineeringin Japan. TPA has taught Japanese management, technology
and language to Thai people for nearly 40 years. In 2007 it
created the Thai-Nichi Institute of Technology.
Thailand Automotive Institute (TAI) is a government-created,but now financially autonomous, NPO that drafts automotive
master plans and implements automotive policies.
Under Automotive Human Resource Development Program(AHRDP, 2006-10), Denso, Honda, Nissan and Toyota teachlean production, mold & die, skill certification and TPS to Thai
suppliers with additional support from JICA and JETRO.

Thailand Automotive
Master Plan 2007-2011
Drafting team at Thailand Automotive Institute, 2011



Despite global economic crises, the Thai auto industry
continues to grow strongly (esp. pickup trucks & part export).
Mr. Vallop Tiasiri, President of TAI, exercised strong leadershipand coordination to link FDI & local firms with policy makers.

Vision—“Asia’s
auto production
base with valueadded and strongparts industry”
Productivity,
market,technology, HRD
and linkages areintegrated in thismaster plan.

Japan & Taiwan: Most Advanced
SME PromotionJapan and Taiwan are two economies with historically verystrong SME sectors supported by effective policy measures—
there is no “missing middle.”
Both have a wide variety of programs ranging from quality,
management, technology, finance, accounting and taxes,
start-ups, R&D, marketing, export, and overseas expansion.
These are however too difficult and too broad to emulate forlatecomers.
Due to high wages (and other reasons), manufacturing SMEs
in Japan and Taiwan are no longer competitive; they are now
moving abroad for survival and/or business expansion.

Ethiopia
Requiring FDI/ODA projects to enhance local
capability and linkage

PM Meles personally met individual investors and donors andrequested the following.
- Use local inputs as much as reasonably possible (build RR
carriages and train stations locally, if not locomotives).
- Teach Ethiopian engineers so they acquire skills to build andmaintain the factory and equipment.
- Train workers.
PM Meles asked specific industrial support from each donor.
Japan—kaizen, math & science education
Germany—TVET, universities, business associations, etc.
China—infrastructure
India—textile, leather, infrastructure, etc.

Policy Suggestion 1

Bringing Manufacturing from Asia
General improvement in business climate is not enough forstrategic FDI marketing. Clear focus on target countries,
sectors, and even companies should be considered.
 Labor-intensive manufacturing in East Asia needs to relocate
due to rising wages (China, Malaysia, Thailand, Vietnam…)
and Africa is a possible destination (World Bank, Light
Manufacturing in Africa, 2012)
 With its ports and long coastal line, Mozambique is a potential
receiver of light manufacturing from Asia—but only potential.
 To turn potential into reality, aggressive preparation and FDI
marketing are required through policy learning and proper
benchmarking.
(cf. creation and capacity building of the Zambia Development
Authority by JICA).
Policy Suggestion 2

Concrete Manufacturing Strategy








Situation analysis—domestic, regional & Asian situation, etc.
Vision—e.g. “Mozambique is a preferred destination of laborintensive manufacturing from Asia (and elsewhere)”
Targets—quantitative & qualitative targets such as receiving
garment & footwear from China, India, Turkey & Vietnam;
electronic assembly from Thailand & Malaysia, etc.
Policy issues—e.g. (i) industrial parks; (ii) one-stop service;(iii) labor supply & quality; (iv) strategic FDI marketing, etc. (3to 5 areas to be improved for achieving the above targets)Action plan—what, who, by when, performance criteria,
monitoring mechanism

Note: overvaluation, wage pressure, and Dutch disease are
additional macroeconomic concerns that must be dealt with.

Policy Suggestion 3

Document, Action & ResultsPolicy consists of three levels:(1) Documentation(2) Implementation—budgeting, staffing, monitoring, etc.
(3) Performance—growth, export, skills, technology, structuraltransformation, etc.

(3) is the ultimate goal while (1)(2) are the means. When apolicy is drafted, attainment of (2) & (3) must be contemplated.
In many countries, producing documents becomes an end in
itself for hardworking bureaucrats without ensuring (2) and (3).
This cannot produce growth or industrialize the nation.

Policy Suggestion 4

Policy Learning








Developing countries should learn policy making by comparing
international best policy practices. Policy content, procedureand organizations are proper subjects for learning. East Asia
can offer many such examples.
However, copying others blindly will not work because allcountries are different. Foreign experiences should be treatedas raw materials from which to compile your own policy withselectivity, adjustment and simplification.
What needs to be acquired is a general capability to create apolicy package most suitable for local context.
Japan conducts “bilateral policy dialogue” with countries withdesire to learn—Argentina, Vietnam, Laos, Thailand, Indonesia,
Ethiopia…

Japan’s Policy Dialogue with Developing Countries (Selected List)
Country

PeriodHead/key players

Purpose and content

Argentina

1985-1987
1994-1996(folow up)

Thailand

1999

Vietnam

1995-2001

Shigeru Ishikawa (professor)

Large-scale joint study on macroeconomy, industry, agriculture,enterprise reform, crisis management, etc.

Vietnam

2003-current

Japanese embassy, JICA, JETRO,
JBIC

Bilateral joint initiative to improve business environment and strengthen
competitiveness through 2-year monitoring cycle of action plans

Indonesia

2000

Shujiro Urata (professor)

Policy recommendation for SME promotion

Indonesia

2002-2004

Takashi Shiraishi and Shinji
Asanuma (professors)

Policy support for macroeconomic management, financial sector reform,
SME promotion, private investment promotion, democratization,
decentralization and human resource development

Laos2000-2005

Yonosuke Hara (professor)

Study on macroeconomy, finance, state enterprise, FDI and poverty
reduction, etc.

Myanmar1999-2002

Konosuke Odaka (professor)

Study on agriculture, rural development, industry, trade, finance, ICT, etc.

Mongolia

1998-2001

Hiroshi Ueno and Hideo Hashimoto(World Bank economists andStudy on the support for economic transition and development
professors)

Ethiopia

2009-

Saburo Okita (former foreign
minister)Comperehesive study on agriculture and livestock farming, industry,transport and export promotion

Shiro Mizutani (former MITI official) Study on the master plan for SME promotion policy

GRIPS Development Forum and
JICA

Kaizen, basic metals and engineering, productivity movement, policy
procedure and organization, export promotion, technology transfer, etc.

Source: K. Ohno, Learning to Industrialize: From Given Growth to Policy-aided Value Creation, Routledge, 2013.

Policy Suggestion 5

Linkages for Manufacturing FDIManufacturing is the most suitable base for linkage policy forcompetitiveness. Policy differs greatly between countries
receiving large amounts of manufacturing FDI (East Asia) andcountries receiving mainly extractive, construction or service
FDI (Africa). The latter case is much harder.
Mozambique should target manufacturing FDI, and combine itwith linkage promotion and local capability building. Together
with corridor development, this should be the heart ofMozambican manufacturing strategy.
Policy should push and nudge FDI to produce linkage, but
unrealistic demand without promoting local capability drives
manufacturing FDI away. For positive results, governmentand businesses must work closely with full understanding ofeach other’s needs. This requires high-level policy learning.