The globalizing world has led to the increase of foreign direct investments (FDIs) from multinational corporations (MNCs), particularly in nations that are technologically backward. In turn, increasing FDIs have resulted to technological advancements, which owes to technological spillovers. Therefore, there is an understanding that technological spillovers have come from MNCs, which increases alongside their increasing presence and activity. However, concerns over the viability of the existing framework for determining technological spillovers vis-à-vis MNCs have grown, mainly because the predominant framework characterized by theories of production function, production function, did not provide consistent findings on the link between spillover occurrence and FDIs. Therefore, Gachino emphasized that such inconsistencies arise from varying methodologies as well as specificities in firms, industries and nations. With that, Gachino presented an alternative framework that includes three strands from the existing literature: spillover literature, technological innovations, and cluster and network dynamics.
Gachino, in designing his alternative framework, expanded the use of the production function framework by using technological innovations and cluster network dynamics alongside it in a bid to remove the inconsistencies surrounding the connection between spillover occurrence and FDIs. The alternative framework recognizes the need for “an endogenous, evolutionary and institutional approach that views enterprises as embedded in dynamically changing economic and social-economic-institutional networks,” given the various imperfections of technological spillovers. The spillover literature takes into account variables related to variations in time, types of industries, and those related to space and location, alongside those that of technological changes that emerge endogenously, human capital accumulated in time and receptiveness to trade and investment from other nations.
Literature on technological innovation stands with great importance under the alternative framework proposed by Gachino, mainly because of the fact that it involves further understandings on the overall capacity of firms to absorb technological spillovers. After all, technological spillovers stand to have no effects if firms that are supposed to utilize it do not have the necessary capacity to use those to their advantage. With that, it is essential to focus on how firms learn to grasp technological changes as well as to evaluate their overall ability to use those for their benefit. Clustering and network dynamics also form part of the existing literature considered by Gachino in his alternative framework. In that case, factors such as institutional networking, proper organizational practices, social capital and others that consider the importance of relationships relevant to market forces all characterize clustering and network dynamics as perused by Gachino.
Overall, what Gachino considered in his alternative framework for technological spillovers is the importance of emphasizing on the endogenous processes of firms, which indispensably includes its human resources vis-à-vis their overall capacity to learn and absorb technological changes coming from therein. Possibly relating to the influx of technological spillovers is the current trend on the relatively irregular patterns posed by UAE stock markets. The volatility of financial markets of developed nations in the Middle East, particularly in the UAE, has yet to find extensive analysis compared to that of the well-studied cases of East Asian nations, whose developed economies – most notably Japan, have become the subject of thorough studies. Findings by Khedhiri and Muhammad reveal that the volatility of UAE stock markets was borne out of the growing participation of foreign investors therein, subject to a recent regulation. Thus, questions arise whether or not firms would actually benefit from the presence of foreign investors in the UAE, given their potency to inspire technological spillovers.
The sluggishness of UAE stock markets, which is rooted on the entry of foreign investors via a regulation, has inevitably raised concerns on firms looking to improve their performance. At the same time, firm performance has indispensable links to technological change adaptation. Firms more adept to technological changes have the ability to introduce innovations and constantly raise the bar for market standards, particularly in terms of product development and sales strategies as well as stronger efforts in marketing and advertising. Khediri and Muhammad have placed FDIs - a proven source of technological spillovers, in a questionable position within the context of UAE stock markets, given firms in the UAE have to decide between endogenous development and market stability. Such brings forth the importance of the premise raised by Siddique, who noted the importance of including job analysis in company-wide policies in the UAE in order to instil competitive advantage.
On one hand, job analysis may induce companies not to require FDIs - considering the current standing of the UAE as a technologically advanced nation, in maintaining competitive advantage. Given that, job analysis pushes through with the use of information systems containing human resource data as well as greater involvement of human resources in strategic planning – factors that contribute to greater firm competitiveness that do not require FDIs. In turn, such may lead firms to go against foreign investment in the UAE stock market, as posited earlier, given that those would not necessarily affect their competitive advantage, what with the possession of their current technological capabilities. On the other hand, FDIs may posit technological spillovers that may prove valuable to firms in their bid to raise competitive advantage. In such a scenario, firms now have to balance between the dilemma on prioritizing between market stability and competitive advantage coming from FDIs. In such a case, job analysis done proactively may prove inadequate for firms in the UAE, for they may choose to benefit from FDIs with the risk of having to prepare for an unstable market, given the findings of Khedhiri and Muhammad.
Bibliography
Gachino, Geoffrey. "Technological Spillovers from Multinational Presence: Towards a Conceptual Framework." Working Paper, Maastricht Economic and Social Research and Training Centre on Innovation and Technology (MERIT), United Nations University (UNU), The Netherlands, 2007. https://ideas.repec.org/p/unm/unumer/2007017.html.
Khediri, Sami, and Naeem Muhammad. “Empirical Analysis of the UAE Stock Market Volatility.” International Research Journal of Finance and Economics 15 (2008): 249-260.
Siddique, C. M. “Job Analysis: A Strategic Human Resource Management Practice.” International Journal of Human Resource Management 15, no. 1 (2004): 219-244.
