Markets, States or Transnational Networks? Explaining Technology Leverage by Latecomer Firms in Industrializing Countries

The market versus state debate still shapes teaching and scholarly work on how latecomer firms acquire capabilities to become internationally competitive in industries new to their country. However, the developmental state approach underestimates the importance of firms as key actors in the articulation of economies into global markets and overestimates the role of the government. Industry studies filled this gap by showing how firms responded to government industrial policies, by identifying the mechanisms of technology leverage, and by underscoring the importance of aligned interests between foreign and domestic firms. Yet, we do not know under which conditions technology leverage happens and how the absorptive capacity of latecomer firms to leverage technology is generated in the first place. This article presents an explanation of the origins of absorptive capacity of latecomer firms based on a systematic analysis of the experience of domestic firms in East Asia. The framework emphasizes the role of transnational networks linking foreign and domestic firms as well as foreign firms’ business strategies. The article then applies this framework to explain the emergence of an apparel export industry in Mauritius in the 1970s, an exceptional success case in the African region, drawing on original empirical data.