The<scp>I</scp>n Situ Upgrading of Japanese Electronics Firms in<scp>M</scp>alaysian Industrial Clusters

<jats:title>Abstract</jats:title><jats:p>The ability of clusters generated by direct foreign investment (<jats:styled-content style="fixed-case">DFI</jats:styled-content>) in emerging economies to generate sustained, value‐added growth is a matter of controversy. This article assesses this debate with reference to the role of Japanese electronics multinational corporations (<jats:styled-content style="fixed-case">MNCs</jats:styled-content>) in the development of clusters in<jats:styled-content style="fixed-case">M</jats:styled-content>alaysia. Conceptually, we present a typology of<jats:styled-content style="fixed-case">DFI</jats:styled-content>‐generated industrial clusters that represent increasing degrees of commitment to local value creation and upgrading. Empirically, we conducted a survey of 10 Japanese firms in<jats:styled-content style="fixed-case">M</jats:styled-content>alaysia that examined whether or not their factories increased technological upgrading, increasingly embedded their operations through using local skilled labor and supply firms, and responded positively to national policies and cluster‐governance measures supporting the electronics industry. We found that<jats:styled-content style="fixed-case">J</jats:styled-content>apanese firms had clearly moved beyond simple assembly‐based to embedded clustering but had not progressed further to technology‐intensive behavior because of the poor technological environment in<jats:styled-content style="fixed-case">M</jats:styled-content>alaysia, as well as<jats:styled-content style="fixed-case">J</jats:styled-content>apanese<jats:styled-content style="fixed-case">MNCs</jats:styled-content>' strategies that depend on technology from headquarters. Nonetheless,<jats:styled-content style="fixed-case">J</jats:styled-content>apanese<jats:styled-content style="fixed-case">MNCs</jats:styled-content>were sufficiently embedded in<jats:styled-content style="fixed-case">M</jats:styled-content>alaysia to upgrade production to digital consumer products, and semiconductor assembly has flourished, warding off competition from<jats:styled-content style="fixed-case">C</jats:styled-content>hina and low‐cost locations in the Association of Southeast Asian Nations. At the end of the study period,<jats:styled-content style="fixed-case">M</jats:styled-content>alaysia remained an attractive location for<jats:styled-content style="fixed-case">J</jats:styled-content>apanese electronics<jats:styled-content style="fixed-case">MNCs</jats:styled-content>.</jats:p>