“FDI Accelerates Indonesian Automotive Cluster: The Challenge and Complexity in Managing Technology in Extended Automotive Global Production“ DESSY IRAWATI

2 OUTLINE Introduction Knowledge Diffusion and Local Capability Formation: The Case of Indonesian Automotive Industry Technology & Knowledge Transfer: Learning Aspect From Knowledge Network In the Automotive Sector Fostering The Global-Local Alliance Formation for The Case of Indonesian Automotive Forging The Automotive Industrial Production Networks Conclusion

3 AIM & METHODOLOGY Aim: This research intend to demonstrate that Japan is not only plugging into the region’s economy energy but also transforming and promoting the host country in technology-based production alliance Methodology Case Study approach: qualitative research and secondary data for statistic and numerical data Descriptive & Explorative study on the Automotive Cluster and its learning dimension along with its linkages in Indonesia Semi-structured interview with the automotive actors (car makers and their suppliers), government, industrial estate developer, university/research institution Field work & observation in the car plants for 4 months On-Going Correspondent with the interviewees

4 INTRODUCTION Prediction: the Japanese automotive MNEs will emerge as globalization and direct competition between different productions systems. Thus, inward automotive FDI serves a transmission vehicle for the best practices of the investing regions (Kenney & Florida 1993, Florida et. al 1998, Rutherford 2000, Womack 2005) The auto industry as an example of a mature industry and the Japanese have emerged as a result of higher oil prices and environmental concerns (Vernon 1996) The automotive industry in ASEAN-4 is now seeking to regionalize the dense web of mutually reinforcing ties in the automotive industry

5 Asia is Pax-Niponica-Mutual Benefit Zone, the most suitable site in the world for Japanese expansion in the automotive industry. It is right next to door to Japan & the region is still developing. Importantly for efficient just in time manufacturing system (Dicken 1988, Doner 1991, Dicken 1992, Dicken 2003) Asia is filled with ‘developmentalist-minded’ governments (Dicken 1988, Hatch & Yamamura 1996, Borrus 1992, Dicken 2003)

6 Global Production Network, Knowledge Diffusion, and Local Capability Formation: The Case of Indonesian Automotive Industry Despite the long trajectory now Indonesia has become the exporter to another international market including Japan itself (Sugiyama 2000, ADB 2005, Gaikindo 2007, Toyota 2007, Honda 2007) Triggered growing number of the local suppliers used by Japanese auto manufacturers, although they are ‘still’ Japanese affiliates (West 2000) though there is still unequal cooperation (Yeung 2000, Schmitz 2000, Terry 2002, Wolf 2004) In the quest for efficient supply networks (Hatch & Yamamura 1996 ), these firms receive invaluable infusions of capital, technology, and managerial guidance Ensuring Indonesian economy do not become ‘captive’ members of a Japanese production alliance, Thus up-grading technological capacity is necessary (UNCTAD 2007)

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8 Technology & Knowledge Transfer: Learning Aspect From Knowledge Network In the Automotive Sector (Mito 1990, Nonaka & Takeuchi 1995): Firstly is the technical dimension (capital embodied), which encompasses informal and crafts in the term know-how. Secondly is cognitive dimension (labour embodied) consisting of mental models, beliefs, ‘credo’, and perceptions and it is shaped by the surrounding environment (Nonaka & Takeuchi 1995), Japanese support their production management methods and their technical training all the way through OJT (On the Job Training)=LEAN PRODUCTION SYSTEM as Learning Dimension Internal: OJT via TPS,Employees Exchange Programme, OJT via NH Circle, Idea Contest External: Jishuken (Learning activity/COP) through Suppliers for OEM, RP/SP LEAD TO KANBAN-E-KANBAN TO QCDSM

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12 The interrelatedness of internal and external network

13 Forging The Automotive Industrial Production Networks The Southeast Asian region in fact is a buzzing with a competitive energy that is more than a little reminiscent of the katō kyōsō (excessive competition) (Aoki 1987) Each automotive manufacturer enters this regional rat race, with high-volume technology investment for expanded production facilities, increase output, reduce costs, boost exports and grab larger shares of the global market The alliances that in Japan are called as vertical keiretsu that lies somewhere between vertical integration of transaction within a single firm and long-term contracting between a stronger and a weaker firm (Aoki 1987, Hideki 1988, Kodama 1994, Hatch & Yamamura 1996)

14 Toyota Motor Networks ASEAN-4 Source: Toyota Motor Corp. (2000)

15 CONCLUSION The perspective of forging the automotive industrial production networks and macro regional integration is equally valid for all Asian economies (ASEAN in particular), but not for all industries The Auto industry, additionally, can function as an engine, transforming a low wage, labour intensive, and developing economy into a higher-wage, technology-intensive, and developed economy This analysis is an attempt to reflect on what has happened in the beginning and what has been going on in the automotive industry in Indonesia. In view of that, this analysis is trying to fill in the gap between the theory and the practice of the Asian automotive industry The Japanese approach to organizational knowledge creation can be applied outside Japan and that the key adjustment needed is a prolonged phase of socialization and externalization

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