In search for a silver lining: The evolution of the E&E industry of Batam

Abstract

The industrialization of Southeast Asian countries is strongly influenced by foreign direct investment (FDI) and multinational corporations (MNCs). The industialization of Batam, Indonesia, is strongly determined by the neighboring state of Singapore. Especially the electrical and electronics (E&E) industry of Batam is dominated by subsidiaries of Singapore-based MNCs. Although Singapore experienced a specialization of the E&E industry in semiconductors, Batam did not experience industrial upgrading. Instead, the E&E industry of Batam can still be characterized by low value-adding labor-intensive activities such as manufacturing and assembly. Moreover, in absolute terms the E&E industry of Batam is even declining in recent years (2010-2012). However, the E&E industry shows a strong trend of automation, partly due to rising labor costs, originally one of Batam's main competitive advantages. The lack of actual upgrading of subsidiaries is influenced by a local environment that lacks knowledge (creation) and a weak position of the subsidiaries in the regional production network (RPN) of the MNCs.