Upload
nguyenkhanh
View
214
Download
0
Embed Size (px)
Citation preview
1 | P a g e
A backward linkage of Lao Agribusiness Value Chain: A case study on knowledge
and technology transfers
Xaysomphet Norasingh1
Abstract
Economic integration is the important role that Lao People’s Democratic Republic is
moving toward in order to integrate the country into both global and regional economic
integration. The integration into regional production networks for goods and services has
occurred at a slower pace in Laos due to low labor skills and technology support on
production at a local factory level. It is predicted that the principal trade obstacles to
agriculture processing factories at local level are characterized by inexperience among
entrepreneurs and producers in accessing markets. There also might be some missing gaps
in terms of knowledge transfer from investors to local firms and from local firms to local
farmers. Therefore, this study identifies firm-to-firm matching with technology transfers in
local and global economy by selecting joint venture (subsidiary) firms and foreign direct
investment firms. The study also identifies steps of knowledge and technology transfer
from international firms to local stakeholders with the understanding of what motivates
firms to commit with technology transfer and receive the transfer and what are the obstacles
occurring during the transfer of new knowledge to local firms. Finally, policy
recommendation will be addressed.
Keywords: global network, knowledge transfer, technology, interaction, buyers and
suppliers
1 Deputy Director General of Economic Research Institute for Trade, Ministry of Industry and Commerce,
P.O.Box 4107, Vientiane, Lao PDR, Tel: 856 21 417084; email: [email protected].
2 | P a g e
1. Overview
Economic integration is the important role that Lao People’s Democratic Republic
(PDR) is moving toward in order to integrate the country into both global and regional
economic integration. As a geographical advantage, Lao PDR is surrounded by some of the
dynamic and fastest growing economies in the Asian region (e.g., Thailand, Vietnam,
China, and Cambodia). The ASEAN Economic Community integration with 600 million
people will increase markets for Laos export in the future. In addition, Laos also gains
benefit from the investment and demand that comes from its neighboring countries (e.g.,
China, Thailand, and Vietnam). The growth in cross-border investment and trade with
neighboring countries continues to strongly boost Laos’ economy and will help Laos to be
closely integrated into the region. Much of this investment is driven by the strong demand
in the region for natural resources, especially Multinational National Corporation (MNC).
Incessantly, the exports of Laos are increasingly dominated by natural resources, while
non-natural resource exports tend to be located in fragile sectors with limited scope for
value addition (DTIS, 2012).
The direction for agricultural development is stated in the Ministry of Agriculture and
Forestry’s (MOAF) Agricultural Development Strategy (ADS 2011–2020) and the Master
Plan for Agricultural Development (2011–2015). The ADS contains strategies for
addressing recent global agricultural development issues including increasing smallholder
productivity; a major role for agro-enterprises in agricultural economic development;
climate change mitigation and adaptation; connecting to markets; and ensuring economic,
social, and environmental sustainability.
Agriculture sector is a key player in the agro-economic modernization and market
expansion processes that will promote access for Lao products to regional and global value
chains. The government of Laos is expecting foreign agribusiness investors to collaborate
with local small and medium-sized enterprises (SMEs), mainly to upgrade the quality of
local agricultural products by utilizing technology. Foreign director investment is expected
to introduce industry-based production technologies, family- and community-based post-
harvest handling, and value-added processing in rural areas, thereby phasing in good
agriculture practices, good manufacturing practices, and sanitary and phyto-sanitary (SPS)
measures to ensure the quality of food and agricultural exports according to an interview
with the Department of Planning, MOAF, December 2014.
However, the SME participation in global value chains of big companies invested in
Laos is limited. Local firms cannot gain much benefit from MNCs due to low production
capacity, poor marketing skills, instability in supply to MNCs, and traditional technology
use in factories; therefore, local firms remain producers of primary products and raw
materials for processing in neighboring countries with little value added by domestic
stakeholders in the value chain.
Apparently, most of the agro-processing factories invested by big firms are vertical
integrated investment or Greenfield investment. Local farmers become one-side suppliers
without gaining any benefit from knowledge transfer from foreign direct investment.
Therefore, to understand more about technology and knowledge transfer mode of investors,
the study has selected three firms to study on knowledge transfer through both hard and soft
3 | P a g e
knowledge transfer mode in a non-resource sector as well as study on interaction between
buyers and suppliers. The selected firms are a local firm that produces silk products and
exports these products to the Japan market; a foreign director investment sugar firm that
exports sugar to the Vietnam and the European Union (EU) markets; and a joint venture
(subsidiary) sugar production firm from Thailand and Laos exports to Thailand and the EU
market. The study will conduct a cross-case comparison to identify the global value chain
of local, joint venture, and foreign direct investment firms as well as knowledge transfer
from those firms to local stakeholders, as indicated in diagram 1.1 below. Finally, the study
will address policy recommendation to local government on promoting technology to
support agribusiness in Lao PDR.
Diagram 1. Technology transfer from firms to focal/local firms and farmers
Source: Concept study model designed by IDE-JETRO, Bangkok, 2014
Research methodology — To understand firm-to-firm matching with technology
transfers in the local and global economy, this study will conduct both desk‐based research
and participatory assessment approach by conducting interviews with the firms and
examining the business operation of all the two MNC firms2. The interview will mainly
focus on backward linkage rather than forward linkage. Therefore, the key on how firms
transfer knowledge and technology to local workers, farmers, and buyers are the main ideas
to discuss in this study. Finally, the study will come up with a policy recommendation to
2 Vietnam sugar factory in Attapeu Province, and Mitr Lao sugar factory in Savannakhet Province
Supplier
BuyerFocal firm
Supplier
BuyerFocal firm
Buyer
SupplierInternational Trade
Traders
Buyer
Supplier
Border
Knowledge transfer
FDI
1st Step 2nd Step
• Knowledge transfer from the
focal firm (e.g., teacher) to
foreign or domestic
supplier/buyer (e.g., student)
• Cross-border knowledge transfer
from foreign
buyer/supplier/intermediaries
(e.g., teacher) through
international trades (or traders)
Or
• Domestic knowledge transfer from
FDI buyer or supplier (teacher)
4 | P a g e
the local government to utilize the results of this study. The case study also undertakes the
cross-case comparison of the three firms at different locations, as shown in Diagram 1.
2. Findings from the sector
2.1. Challenges in the agriculture sector development
The principal challenges in the agriculture sector development in Lao PDR are
characterized by inexperience among entrepreneurs and producers in accessing markets,
institutional constraints on export diversification and growth, decentralized authority for
trade, and logistical issues. Less technology is introduced to the local business and farms
who supply raw materials to factories. Predominantly, international buyers directly place
order from headquarters, but the products are produced in other countries. This happens
because of the limitation of market access, production knowledge, and skill of local
producers. Therefore, foreign firms seem to dominate the agro-processing in Lao due to
local producers are lacking of foreign market knowledge and information.
In terms of regulation and trade facilitation issues, agribusiness, especially the
development of value-added processing facilities, is also delayed by a regulatory system
built on control and fee extractions rather than facilitation.
Extension skills are vital for learning about modern farming methods throughout the
value chain. In production, new skills are required to yield the benefits of modern
production methods such as high-yielding crop varieties and fertilizer application. The
development of high value-added agriculture product exports might depend on meeting
international food safety, requirements, and SPS standards.
The agriculture processing factories and associated businesses have not well understood
the importance of food supply chain management and thus cannot improve their production
methods. Therefore, the use of modern technology in production aspect is low, and not
many local factories granted international standard.
2.2. Agribusiness and its market-related issues
Both local silk and sugarcane farmers have an inadequate understanding of domestic,
regional, and global markets. Farmers usually cultivate and harvest the same crops at the
same time using traditional practices. The important impact is that large volumes of the
same unprocessed agricultural raw materials oversupply small local markets and many
regional markets, driving down prices even supply to the local factories (ADS 2011–2020).
The unstructured nature of local and regional markets provides few incentives for farmers
to invest additional time, labor, technology, or capital in post-harvest handling or value-
added processing at the farm or household level.
In terms of interacting with domestic, regional, and global markets, most domestic
entrepreneurs and commodity traders are traditional as their producer counterparts are.
They lack awareness of modern, transparent, and market-based ways of doing business.
They prefer to purchase raw materials at the farm gate, and may perform some post-harvest
value-added processing (i.e., drying, cleaning, sorting, grading, etc.) that will supplement
5 | P a g e
their small trade margin. Agribusiness entrepreneurs generally lack a long-term vision.
They are motivated more by short-term gains from traditional trading (ADS 2011–2020).
Therefore, big companies invest in Laos prefer to invest in vertical integrated mode; they
can completely manage the business, market, labor, and raw materials. It is safe for them to
sign a contract with the main suppliers outside production base location in order to secure
the demand. In addition, building buyers’ relationship outside countries will reduce the risk
on investment return and reduce the risk of regulation burden. Hence, it is normal to see
that the benefit of spillover from large firms to local countries, especially in Laos, is less
and not really developed as planned by the local government.
2.3. Labor force situation in the sector
As Lao PDR makes the transition from subsistence agriculture to market economy
oriented, job creation and the labor force in the sector become a major concern that the
government of Lao PDR must expedite on skill development to support the sector. The
commercial on agriculture development requires more skill labor to work on modern
factories. However, it is found that the quality and quantity of employment in the sector is
limited. Simultaneously, the growing demand for people in agro-processing is increasing;
hence, the influx of skilled labor from China and Vietnam is occurring. Based on the site
visit of three studied factories in December 2014, we determined that the skilled labors
mostly are from Thailand and Vietnam who operate and control the production, especially,
technology and machinery, where Lao labors are working as labor support to the factories.
From an interview, we found that there is an urgent need for technical training and
vocational education in Laos. There is a high demand for local skilled labors in order to
save cost for investors. Those three selected companies prefer to have local skilled labors
rather than recruit expert or skilled labors from abroad (according to an interview with the
three companies in December 2014). Therefore, we normally find that the technical
workers work in industrial plantations, and thousands of foreign workers from neighboring
countries have flowed into Laos and facilitated technology transfer. The shortage of skilled
labor is still the main issue in Laos since investors have difficulties in finding available
workers to support factory production.
2.4. Global value chain challenges
Laos is a small and landlocked country, the majority of the business activities is SMEs.
SMEs comprise 95% of all enterprises, of which 58% is small businesses, 21% is
microenterprises, and the rest 16% is considered as medium enterprises. These SMEs have
faced various challenges such as access to finance and market saturation (57% of micro
6 | P a g e
businesses and 45% of the small enterprises). These SMEs also consider a lack of product
differentiation as their obstacles (HRDME 2012).3
As one of the ASEAN member, Laos has gradually integrated into ASEAN production
networks, including the garment industry, and increasingly engaging in other
manufacturing sectors. Participation in ASEAN production and global networks provide
Lao firms with access to larger markets, technology, knowledge, and finance as well as
diversifying the country’s industrial production and export base. However, entering global
value chain network is difficult for Laos as foreign investors seek for firms in the host
countries that are capable of joining regional production networks more effectively. This
requires local firms equipping with certain level of human capital (availability of
professional managers and skilled labors).
3. Brief of selected factories’ business profile4
To study firm-to-firm matching with technology transfers in the local and global
economy, this study selected sugar production business to support and analyze the global
value chain and technology transfer to local partners and farmers. The selected factories are
well known in Lao PDR, and they can be a representative of MNCs, representing joint
venture and subsidiary firms with international experiences. They all export final and semi-
products to headquarters for further processing before distributing products to retail stores
and finally consumers. The two firms selected for this study are (1) Mitr Phol sugar factory
located in Savannakhet Province, and (2) Vietnam sugar factory (Hoang Anh Gia Lai
(HAGL) sugar factory located in Attapeu Province southern part of Laos.
Mitr Lao Sugarcane Factory and Plantation is a subsidiary of the Mitr Phol Group,
which is a group of companies involved in industry sectors related to the sugar industry,
including the sugar industry itself; the particle board industry; bio‐ energy; ethanol
industry; and warehouse and logistics industry. The Thai company invested THB 2.3
Billion for constructing a sugar mill and developing land for cane production. In May 2009,
the factory produces both semi‐processed sugar and refined sugar products. The refined
sugar product is for the domestic market, and the semi‐processed product is for export to
Thailand for further processing and then re‐export to the EU market in partnership with
Tate and Lyle. Whereas HAGL industry started in November 2011 with an investment of
approximately US$90 million. It was inaugurated and put into operation in early 2013.
HAGL planted approximately 10,000 ha of sugarcane in Attapeu Province by the end of
2013.
3 The classification is based on the number of employees: microenterprises (1–2 staff), small enterprises (3–
19 staff), medium enterprises (20–99 staff), and large enterprises (≥100 staff members) according to the 2004
Decree on SMEs of Laos.
4 The full paper and businesses’ profile can be obtained upon requested
7 | P a g e
Factories’ suppliers and market
Suppliers and markets
The selected factories invest on the sugarcane farms and organizes contract farming
with local farmers in the mode of 2 + 3. The local farmers will receive same techniques,
land development, sugarcane seeds, and advices from factory experts. When the final
output is ready after cultivation, the farmers will sell sugarcanes to the factory at an agreed
price. Hence, the factory has two supplier sources to secure raw material supply shortage to
the factory: one is from its own farm and the other is from contracted local farmers.
As for market side, the brown sugar was sent to mother firms abroad to be purified
before exporting it to the Chinese and EU markets.
4. Mode of knowledge transfer in agro-processing
Diagram 2. Knowledge transfer mode of agro-processing factories
(Source: Based on an interview with the sugar factories in December, 2014)
8 | P a g e
The knowledge can be transferred from one organizational unit to the other (Argote
& Ingram, 2000; Garavelli et al. 2002; Szulanski 2000) by literature and two-way
communication. It is widely acknowledged that knowledge transfer is a complex, time-
consuming, and difficult process (Bresman et al. 1999: 447; Garavelli et. al. 2002: 271;
Szulanski 2000: 10; Simonin 1999: 596-7). From diagram 4.1, we observe that most of the
companies seem to use the same type of knowledge transfer even though there are various
knowledge transfer modes. They prefer to use dispatch expert approach from the
headquarters to teach and train local partners as well as local farmers who provide raw
material to the factories. The interaction between trainees and trainers is an important factor
of knowledge transfer that all firms prefer to use.
The headquarters will dominate all knowledge transfer to local institutions or
factories. Therefore, most of the training and teaching modes require two-way
communication; they expect interaction with trainees even with local farmers who have
basic education training. However, the approach they use might consume more time when
training occurs with local farmers due to the low literature of local farmers, and it is hard
for those experts to break the traditional practice.
As indicated in the global value chain (diagram 2) of sugar factories, the experts are
dispatched by the headquarters; the experts visit the sites with specific training purposes. In
other words, they know on what and who they are going to train. The companies aim only
to train people to do the job, which shows less motivation and commitment on technology
and knowledge transfer to local partners. In writer observation, the agro-processing
factories in Laos operate the investment as vertical integrated and considering as capital
incentive. Most of the assigned tasks are planned by the headquarters. Moreover, the
quality control of the production and technical workers are foreign staff. The final products
export to the foreign market. However, some of the companies also have a plan and starts to
capture local market where the AEC is going to commence in near future.
4.1.Knowledge transfer from international to local firms (1st Step)
The mode of knowledge transfer to local staff members who have limited education
background is very hard. As we understood, knowledge transfer is a systematic process
designed to connect people with each other, and with the knowledge and information, they
need to achieve results through the identification, capture, validation, and transfer of
knowledge. Proper training techniques transfer can assist firms to reduce investment cost
on human capital. Therefore, this study finds that there are two levels of knowledge transfer
from international to local firms: management and administrative levels in agro-processing
firms/factories.
At the management level, most of the big firms use “dispatch expert approach” to
manage the plant and local partner office. The recruitment of decision-making staff is done
at the headquarters; therefore, at big firms, we normally do not see local people involved in
decision-making level. The managers assigned from the headquarters will administrate the
firms after the completion of assignment terms. Several reasons of having this approach is
because the dispatch managers from the headquarters are acquainted with the system from
the headquarters; they are internal and full-time staff of the foreign firms, and they have
9 | P a g e
international experiences and have worked for years. Therefore, all systems at the
headquarters can be easily applied in developing a new office environment. The appointed
key staff from the headquarters will know what buyers need and what markets are;
therefore, they can start the task immediately without giving more time on training new
people at local sites.
This type of knowledge transfer and investment mode will not promote and provide
any opportunity for the Lao people to work at a management level. In summary, the 1st
step, referring to diagram 1, technology transfer from firms to local firms is taken place by
foreign firms. It is limited in terms of technology and knowledge transfer from the
headquarters to the local staff leading to low motivation and commitment. We normally see
the knowledge transfer to the local partner is performed through the key people at the
management level only. The key people will directly receive instruction and order from the
foreign firms, where at the same time, the foreign firms receive request based on the buyers
and suppliers needed. Moreover, this mode limits local firms to access global buyers and
suppliers network; therefore, the global economic benefit still dominates the big firms.
At the administrative/office level, the local staff members have more involvement at
this level (1st step—diagram 1). The cross-border knowledge transferring from foreign
expert occurs at this step. Local staff can work with the foreign staff and can learn many
types of knowledge transfer from them. For instance, local staff members have chances to
attend study visit at the headquarters in Thailand and Vietnam. Some local staff members
also have more chances to attend annual meetings with executive board to understand the
firms’ operation and strategy plan. The knowledge transfer at the administrative level
provides more benefit to the local staff. Therefore, in the future, local staff can be promoted
at some circumstances but not on the decision-making level. However, we consider that the
replacement of local and foreign staff members will be taken place at this level.
4.2.Knowledge transfer from focal firms to local suppliers and farmers/labors (2nd
Step)
At the factory/labor level (according to diagram 1st and 2
nd step), the study includes
contract farmers, farmers at factory farms, and labor works in the factory including
seasonal contract farmers. Most of them received different types of training. The contract
farmers received training from the factory’s expert through the farm learning process. The
group of farmers will gather at one designated place to receive instruction and
demonstration of some techniques from the factories’ experts. During the training time, the
experts will introduce new lessons and new farming tools to the farmers. The demonstration
of farming activities will also be provided to the farmers including advices on land
development and growing processes. The farmers will receive growing sugarcane manual,
which is prepared by the factory expert, and several instructions list for the farmers to
follow. The experts will follow up with the farmers several times in a month to solve any
problems. The standard and condition of raw materials that the factory requires are
provided at this stage.
The same training procedure will also apply to the farmers at the factory. The
farmers at the factory will acquire same standard and condition of the raw materials. At the
factory gate, the expert will re-check the quality of sugarcane before sending to the factory
10 | P a g e
for next-step production. The workers at the factory will receive regular training on grading
raw material, machinery operation, and quality control on production. The head labor at
different units will receive instructions from the technical experts to ensure that there are no
mistakes happening during production. Each sugar factory (both HGAL and Mitr Lao) will
provide learning board for the staff where all staff can look at the board and know what was
happening daily. The head of the units can provide instructions, share problems, and issues
occurring during operation. Finally, the experts will provide solutions to solve the issues.
The problem can also be sometimes tackled from an advisor. It is considered that the
factory sticks on learning to build up staff capacity and responsibility to the assignment.
Simultaneously, they want to transfer knowledge and skill in a friendly manner, which will
help in closing down the bureaucrat gap. Those factories emphasize more on factory
working system. They want the working system or mechanism to be set and all workers
must follow the system. Therefore, the workers can follow the system on a regular basis. At
the end, when the system is in place, the local staff can build up skill and replace foreign
experts as factory objectives.
In brief, at the factories, most of processing factories in Laos invest more on
technology to support factories. They use new technology to support production with
dispatch skill experts and technical staff from the headquarters to control new technology
before transferring technology skill to the local staff—the reasons of this management
approach is because Lao workers are still lacking behind; at the same time, low skill labor
at the provincial level is also existed. Therefore, the knowledge transfer mode at the factory
level requires more educated staff to attend training. The training mode at this level is more
professional and requires local staff to have basic knowledge at some points in order to
obtain more benefit on skill transfer.
At the same time, the training provided by the local firms to the farmers and
workers is more on teachers to students’ mode. The experts must use hands on approach to
teach farmers and workers. We normally see in this case that local farmers cannot provide
adequate quality raw materials as per factory condition. The farmers always breach the
contract and do not follow what they have learnt from the experts because they are familiar
with the traditional ways. There is always a problem between the factories and farmers on a
timely basis.
4.3. Summary mode of knowledge and technology transfer from firms to local
factories/partners
Companies mandates and
profile
Mode of knowledge and
technology transfer at
factory
Dispatch experts in different fields to support local factory
On-the-job training, field trip
Experts will train unskilled labors to be skilled labors and become
professional staff to administrate the factory.
11 | P a g e
Mode of knowledge and
technology transfer to
farmers
Sugarcane experts will support farm preparation and planting of
sugarcane.
Regular checks by experts taken place at the sight/farm to make
sure farmers follow instructions.
Benefits from transfer
technologies to partners
Reduce the cost of doing business
Local staff can negotiate with local farmers better than foreign
expert
Support local government strategy, e.g increase job and reduce
poverty
Upgrade productivity of the firms to meet buyers requirement
Improve quality of product to compete with competitors and to
comply with international requirement
Firm chooses their current
suppliers as their production
partners
Direct from HQ and throughout existing suppliers from rubber
business
Support host country policy in order to increase job creation and
social benefit in the province
(Source: Based on the firms interview with key personnel, December 2014)
5. Results of the study
One of the critical issues that were observed in this study were that the big firms left
local SMEs behind the global value chain or linkage. Local SMEs do not have linkage with
global economy because the foreign investors prefer to use all their suppliers. The
headquarters have knowledge on the market condition, and therefore, they dominate all
operation tasks at local firms. In addition, the new technology does not provide any
innovation of the product, such as designing of a new product and new packaging. All firms
upgraded technologies because they wanted to increase their production capacity, improve
product quality, and fulfill market demands as well as commit with international standard
requirements. Therefore, it has a negative effect on local SMEs participation in either
global suppliers’ production network and incentive in the organization as well as the
specialty market.
However, in terms of SMEs in Laos, the benefit that they can gain from MNCs
spillover is still low. Many business owners might suffer from vertical integrated
investment if they do not improve their management skills. The local firms lack in terms of
new product development and innovation, and the technology introduced by the foreign
12 | P a g e
direct investment cannot help local labors and farmers to produce a new product. To gain
such a benefit from firm-to-firm matching with technology transfer in the local and global
economy, the SME, especially agriculture sectors in Laos, should be more active. They
have to develop their management capacity, improve their labor skill, utilize new
technology by boosting the innovation of existing products, and increase reliable suppliers
to meet international standards and requirements.
For the local farmers in Laos, there will be difficulties to meet agro-industry
standards and contractual requirements. Moving ahead of integration both globally and
regionally, SMEs and processors in Laos will have to compete with large-scale agriculture
manufacturers that can benefit from economies of scale in processing technologies. Buyers,
traders, suppliers, and marketers in both global and local markets will merge with large
firms rather than SMEs because stable supply and product quality meet the standard
requirements. It has been understood that traditional farming and marketing systems in
Laos needs to be changed as farming became more commercialized, and it integrated into
national markets to link with global production (Chirstian Henn, 2014). What is found from
this study is the extent and rapidity of the changes in traditional systems being driven by
global and national trends in agribusiness and agro-industries and foreign direct investment
flows.
6. Conclusion and policy recommendation
From diagram 2, we determined that the global value chain of these developing
factories will help the firms grow faster because they import skills and technology and
increase employment and productivity by utilizing local people to support the firms. The
global value chain increasingly involves various stakeholders at the local sites. Some can
gain benefit from technology and knowledge transfer, and the local government can gain
social benefit by improving local employment rate, yet some local producers and farmers
are left behind because they could not be a part of the global production network. However,
knowledge transfer mode of all the three firms is considering similar methodologies and
strategies. All of them are relied on the key foreign expert to supervise and continue to train
local workers even some trained at the headquarters. It is observed that none of the firms
open an opportunity to local partners to contact with trading partners; therefore, local
partners cannot access international markets and have limited knowledge on foreign buyers.
Nevertheless, local partners are ending up in supplying only raw material.
Therefore, it shows that big firms still seek for raw material supply in Laos, and
Laos labors are still left behind, and they hardly gain something from foreign direct
investment spillover, especially on knowledge transfer benefit. To gain more benefit from
these types of investment and to encourage Lao producers to participate in global economy
and production network, the study recommends the following points:
1. Foreign direct investment, especially MNCs, brings many advantages to the suppliers of
developing countries. For example, access to distribution system in developed
countries, knowledge on product development and design, and offer good opportunity
on the transfer of new technologies, and the product produced in Laos can gain benefit
on brand recognition. Furthermore, the technology transfer through foreign direct
13 | P a g e
investment can facilitate the process if the country’s capabilities in a certain activity are
high enough. Therefore, to gain such benefits, Lao government should prepare
sufficient competency and skill labors to attract more MNCs to invest in Laos.
2. Governments can provide support to improve the performance of value chains targeted
to domestic markets that might not alone attract private investment. So far, foreign
direct investment can provide benefit only in backward linkage, such as technology
transfer, skill transfer, and job creation in the country, but not promote on new product
innovation. The government of Laos should think ahead on forward linkage by bringing
local processors and potential local firms to participate in the value chain (Deborah K.
Elms, 2013). The forward linkage will not only provide short-term benefits in the long
run but will also provide the local firms more chances to penetrate into many markets
and opportunity outside the country by utilizing new technology and innovation.
Simultaneously, small farmers may have some comparative advantage and specialized
knowledge when there are integrations ahead. 3. Establishing vocational school partners with firms and international vocation school can
be one of the solutions for the government to take into account. It is evident that skill
development needs vocational school. However, to make it effective and efficient, the
vocational school should produce skilled labor based on the firms’ standard
requirements and demand. The government can link the local government with the
international government vocational school and cooperate to focus on standard capacity
building. In addition, we found that most of the labors and farmers were trained in the
fields and factories without receiving any training from school. Therefore, lack of
technical schools will lead to low labor cost in Laos, which will continue in future if not
solved immediately.
4. Firm-to-firm matching with technology transfer in the local and global economy occurs
at a certain level. Normally, foreign firms prefer to transfer knowledge at a limited
level. The spillover of technology and knowledge from foreign to local firms is in small
groups at the headquarters to partnership firms, and then the partnership firms will
transfer knowledge to local firms and suppliers. The quality of knowledge transfer will
reduce since there are many steps of knowledge transfer getting involved. Therefore,
the government of Laos should push local firms to establish joint venture business with
foreign firms to receive full spillover from foreign direct investment firms to local firms
directly.
14 | P a g e
References
International Development Association, and International Finance Corporation, Country
Partnership Strategy, WB, Report No. 66692-LA
Argote, L. and Ingram, P. (2000), “Knowledge transfer: a basis for competitive advantage
in firms,” Organizational Behavior and Human Decision Processes, 82, 150-169.
Bresman, J., Birkinshaw, J., and Nobel, R. (1999), “Knowledge transfer in international
acquisitions,” Journal of International Business Studies, 30, 439-462.
Mitr Phol Sugar Company – Business Profile from:
http://www.mitrphol.com; accessing date: 29 December 2014
International Union for Conservation of Nature (IUCN) Lao PDR and National Economic
Research Institute, (2011), “Assessment of Economic, Social and Environmental
Costs and Benefits of Mitr Lao Sugar Plantation and Factory: Case Study in
Savannakhet Province”. UNDP, UNEP
Deborah K. Elms and Patrick Low (2013), “Global value chains in a changing world”,
World Trade Organization and Fung Global Institute, Geneva.
Chirstian Henn, (2014), “Linking Global Value Chain to development”, Expert Group
Meeting on “Global value chains, regional integration and sustainable development:
UNCC, 12 December 2014, Bangkok, Thailand.
Human Resource Development for a Market Economy 2012, “Enterprise survey 2011:
main report,” Vol. 1, Deutsche Gesellschaft f r Internationale usammenarbeit
(GIZ), Vientiane, Laos.
Ministry of Industry and Commerce 2012, “Diagnostic trade integration study 2012: trade
and private sector roadmap”, Department of Planning and Cooperation, Vientiane,
Laos
Ministry of Agriculture and Forestry; “Agricultural Development Strategy (ADS) 2011-
2020 and Master Plan for Agricultural Development 2011-2015”, Department of
Planning, Vientiane, Laos
Key interview people: 18-19 December 2014
1. Mitr Lao Sugar Co., Ltd: Mr. Athiporn Rahulpan, Managing Director; Mr. Chira
Kupachaka, Deputy Cane Supply Director; Mr. Bodin Phasouk, Head Public
Cooperation Division – Interview date 18 December 2014
15 | P a g e
2. HAGL Sugar factory: Mr. Nguyen Bao Khiem, Deputy Financial Division; Mr. Ngo
Xuan Thanh, Deputy Sugar Factory Manager; Mr. Bu Long, Interpretor; Interview
date 19 December 2014
3. Varitha Huaan Ando Lao Co., Ltd: Ms. Varitha Phommasathith, Laos Partner; Mr.
Manop Kaewmongkol, Shipping and factory Assistant Manager; date interview 19
December 2014
Source of information from Website:
1. http://www.thanhniennews.com/business/hagl-begins-sugar-production-in-laos-
3743.html; access date: 25 December 2014
2. http://www.talkvietnam.com/2013/02/hoang-anh-gia-lai-opens-sugar-refinery-in-
laos/; accessed date: 25 December 2014
3. www.mitrphol.com; assessing date: 29 December 2014