Friday, November 1, 2013

Synergy Development in Economic Hubs

Successful development in Southeast Asia often rests partly in foreign direct investment and multinational firms. The author studied the investments between Malaysia and Singapore to determine that two-way investments embedded within business networks fostered synergy for economic growth (Yeung, 1998). It is a process of creating linkages between two economies, or entities, to ensure they develop from each other to create products for the market. 

What makes this process possible is that Malaysia and Singapore invest in each other’s economies. For example, Singapore invests primarily in services within Malaysia’s primary manufacturing base. Malaysia becomes an exporter of finished products and returns investment profits back to companies in Singapore. 

As the cross regional investments increase so does the business connection between the areas. The use of these connections and cross-capital investments creates a type of synergy based upon the varying skill sets embedded within each economy. Together they are able to provide stronger and better products and services that have more appeal on the market. 

When countries develop they change from importers to exporters (Dunning, 1998). This happens when the environment is conducive to local offerings; competitive strategy effectively reflects that need and the organizations are aligned to provide adequate products/services (Porter, 1990).  The area must align its business operations and offerings to the market need to effectively grow. 

Firms do not need to be owned by the exporting locality but the region should be the home location where investments turn into exports (Porter, 1986). The firms were the primary source of success in creating synergy. At a firm level it was these personal and business connections between companies that helped to create greater investment and cooperation for economic growth (Chandler, 1990). 

Most of the major firms from each country have cross operations. These cross operations connect to other networks within the countries and begin to share resources and knowledge. Significant competitive advantages can arise when companies from different countries and firms work together (Yeung, 1998). These are a result of:

-       Long-term relationships that reduce business uncertainty. 

-       Shared resources and information that offer “first mover” advantages.

-       Increased credit worthiness that improves financial flow.

-       Once established the system protects itself. 

Chandler, A. (1990) Scale and Scope: The Dynamics of Industrial Capitalism. Harvard University Press, Cambridge, MA.

Dunning, J. (1998)  Explaining International Production. Unwin Hyman, London.

Porter, M. (1986) Competition in global industries: a conceptual framework, in PO RT ER M. E. (Ed) Competition in Global Industries, pp. 15± 60. Harvard Business School Press, Boston.

Porter, M. (1980). The Competitive Advantage of Nations. Macmillan, London.

Yeung, H. (1998). Transnational economic synergy and business networks. Regional studies, 22 (8). 

Yeung, H. (1998a) The political economy of transnational corporations: a study of the regionalisation of Singaporean firms, Pol. Geogr., 17, 389± 416.

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