Backward linkages from foreign investors to domestic firms A Case Study

The analysis of how to design policies to promote backward linkages would not be complete without introducing sound discovery into the debate. Foreign investors would naturally prefer to avoid creating rivals to their market position, aiming at horizontal positioning. But workers and managers often leave foreign plants to start up their own; local firms learn from watching the operations of foreigners. In the vertical direction, in contrast, foreign investors often have self-interest in creating low-cost reliable-quality suppliers in the host market. The outcome depends, however, on the structure and character of the industry involved.