Elsewhere in this paper, it has been stated that innovations result in sustained competitive advantage. In the global environment, an under-developed nation is subjected to pressures from the TNC of a developed nation to accept its technologies and is susceptible to its terms that are motivated by profit alone. This may not be entirely suitable in the long run as the TNC is inclined to take advantage of the host country only in self-interest is always ready to move on to better opportunities elsewhere leaving the host country in the middle of a transition.
Normally under-developed host countries devise regulations through its institutions to ensure that this does not happen and the TNC is committed to accept this as a precondition to their entry. Through such regulatory policies, nations ensure that fertile ground is eventually prepared for domestic industries to upgrade themselves and develop competencies that lead to innovations (Unctad Report 1999). Toyota Motors have a reputation for its innovative capabilities and extensively uses its engineering and management personnel to innovate products for host countries. It has never allowed an R& D centre outside Japan without manning it with Japanese employees.
However, in South Korea it was forced by law to pass on its know-how to the chaebols on the strength of which the South Korean motor car industry took off and is now challenging its mentor with innovations and is successfully sustaining competitive advantage the world over. Indeed learning from this the Thai government forced an R& D centre from Toyota manned for the first time by local engineers. As a result, the Thai innovation was the Toyota Innova, a mini-van that became the rage in the Asian markets.
The nation thus helped the local company in its innovative effort through its regulatory policy. Similarly regulating Foreign Direct Investments (FDI) in India has resulted in the establishment of several R& D centres all over the country by several TNCs and has resulted in extending and widening the knowledge base of its companies.
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