Regional Cycles of Learning: Foreign Multinationals as Agents of Technological Upgrading in Less Developed Countries

Within the debate about positive effects of foreign multinational branch plants on host regions in less developed countries questions of technological learning and upgrading rank at the top. This paper describes forces and mechanisms which, under favourable conditions, promote dissemination of know-how through the dynamics of regional cycles of learning. Enriching earlier insights into the local embedding of subsidiaries and processes of cumulative causation, it emphasises why and how agglom-erating branches of globally operating technology companies engage in upgrading their less developed locality: effects are triggered by a combination of increasing regional labour-cost pressure and corresponding reactions of firms which relate to their branch activities and affect the institutional framework. Two models of regional cycles of learning are introduced which depict crucial distinctions between spatial clusters of technology firms with and without foreign affiliates. Empirical evidence is provided by comparing two technology regions in developing Asia: Bangalore, India, and Bandung, Indonesia. Both are well endowed with universities, research institutions, and firms in technology sectors, but differ with regard to the presence of foreign firms, and accordingly, display divergent qualitative developments.