Embedding Foreign Affiliates in Transnational Business Networks: The Case of Hong Kong Firms in Southeast Asia

Abstract

The author aims to examine the nature and organisation of transnational business networks. From an empirical study of some 111 parent Hong Kong transnational corporations (TNCs) and 63 of their foreign affiliates in Southeast Asia, he argues that the role and functions of TNC affiliates are critically dependent on their embeddedness in transnational business networks. These transnational business networks can be organised either within TNCs (intrafirm) or with local firms (interfirm). This network embeddedness of TNC affiliates is socially organised and can be strategically deployed to facilitate the extension of network associations through time and space. Two detailed case studies of business networks of Hong Kong TNCs (HKTNCs) in Southeast Asia present several interesting illustrations. First, the strategic strength and spatial reach of intrafirm networks determine the competitive advantage of Hong Kong TNCs in the regional economy. Better integration and regional coverage are the winning strategies of Hong Kong firms in Southeast Asia. Second, the embeddedness of foreign affiliates in the business networks of HKTNCs are socially constructed. Personal relationships and business association among leading actors in HKTNC networks provide the underlying organising principles of such network formation. Third, the functions and contributions of local Southeast Asian affiliates to overall group performance are related to their access to local business and other forms of interfirm networks. Local affiliates with strong networking capabilities tend to receive more support and coordination from parent TNCs. In the concluding section the author offers some implications for recent developments in network theory in economic geography and geographies of Chinese business networks in Asia.