A Study of the Constraints on Enhancing the Linkages Between Vendors and Their Anchor Companies

SMIs play an important complementary role to large establishments in the economy. They supply many of the large firms with parts and components through vendorship or subcontrating. Nevertheless, many studies have indicated that there have been insufficient and/or ineffective economic linkages between MNCs and even local multinational corporations(LMCs) with SMIs. The lack of economic linkages and the insufficiency in the diffusion of the benefits vital to economic growth has led to the tremendous slackening in growth and upgrading of SMIs relative to MNCs. The need to encourage and upgrade the development of SMIs is urgent and essential to facilitate the process of industrialization. Toward this end the Government launched the Vendor Development Programme in 1988. The focus of this research is on determining the reasons for the reluctance in
forming effective linkages, why the development of linkages is so limited and on the enhancement of insight into how such linkages can be more effectively nurtured. Four case studies were conducted using interview instruments derived
from relevant literature review and key informant interviews. In-depth structured analysis of information derived at interviews was then carried out. From the four case studies, it is revealed that the main constraint to forming linkages is the lack of personal contacts or track record of the entrepreneur. The hindrance to effective maintenance of relationship is the inconsistency of demand
and the practice of J-I-T. The obstacle to nurturing the development of vendors is the treatment of vendors as just a separate entity serving the anchor company’s needs. The two most important pre-requisites to the maintenance of a linkage are quality and delivery. The lack of success of the VDP can be traced to the fact that MNCs are reluctant to source from SMIs they are not familiar with.