Production linkages, technological intensities and economic performance: small and medium enterprises in Malaysian manufacturing

This paper examines the impact of proximate domestic sourcing on productivity, exports and technological upgrading in small and medium enterprises (SMEs) in electric-electronics, textiles-garments, automotives and wood products industries in Malaysia. The results show that the intensity of backward subcontracting in the domestic economy was important in domestic and export intra-industry purchases. The significant technological variables were that less-integrated firms showed higher intensities than more-integrated firms. Econometric results show that technological intensity is positively correlated with productivity and export-orientation; this infers that technology matters in economic performance. The Probit estimations confirm that domestic supplies matter in labour productivity and export-intensities, but not in technological intensities. Low export-intensities need not discourage technological upgrading if inward-oriented firms operate as subcontractors supplying exporters. Governments should be encouraged to examine the nexus between suppliers, buyers and economic performance to stimulate national inter-firm production synergies to increase competitiveness by domestic firms.