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A backward linkage of Lao Agribusiness Value Chain: A case study on knowledge

and technology transfers

Xaysomphet Norasingh1

Abstract

Economic integration is the important role that Lao People’s Democratic Republic is

moving toward in order to integrate the country into both global and regional economic

integration. The integration into regional production networks for goods and services has

occurred at a slower pace in Laos due to low labor skills and technology support on

production at a local factory level. It is predicted that the principal trade obstacles to

agriculture processing factories at local level are characterized by inexperience among

entrepreneurs and producers in accessing markets. There also might be some missing gaps

in terms of knowledge transfer from investors to local firms and from local firms to local

farmers. Therefore, this study identifies firm-to-firm matching with technology transfers in

local and global economy by selecting joint venture (subsidiary) firms and foreign direct

investment firms. The study also identifies steps of knowledge and technology transfer

from international firms to local stakeholders with the understanding of what motivates

firms to commit with technology transfer and receive the transfer and what are the obstacles

occurring during the transfer of new knowledge to local firms. Finally, policy

recommendation will be addressed.

Keywords: global network, knowledge transfer, technology, interaction, buyers and

suppliers

1 Deputy Director General of Economic Research Institute for Trade, Ministry of Industry and Commerce,

P.O.Box 4107, Vientiane, Lao PDR, Tel: 856 21 417084; email: xaysomphet.n@laomoic.org.

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1. Overview

Economic integration is the important role that Lao People’s Democratic Republic

(PDR) is moving toward in order to integrate the country into both global and regional

economic integration. As a geographical advantage, Lao PDR is surrounded by some of the

dynamic and fastest growing economies in the Asian region (e.g., Thailand, Vietnam,

China, and Cambodia). The ASEAN Economic Community integration with 600 million

people will increase markets for Laos export in the future. In addition, Laos also gains

benefit from the investment and demand that comes from its neighboring countries (e.g.,

China, Thailand, and Vietnam). The growth in cross-border investment and trade with

neighboring countries continues to strongly boost Laos’ economy and will help Laos to be

closely integrated into the region. Much of this investment is driven by the strong demand

in the region for natural resources, especially Multinational National Corporation (MNC).

Incessantly, the exports of Laos are increasingly dominated by natural resources, while

non-natural resource exports tend to be located in fragile sectors with limited scope for

value addition (DTIS, 2012).

The direction for agricultural development is stated in the Ministry of Agriculture and

Forestry’s (MOAF) Agricultural Development Strategy (ADS 2011–2020) and the Master

Plan for Agricultural Development (2011–2015). The ADS contains strategies for

addressing recent global agricultural development issues including increasing smallholder

productivity; a major role for agro-enterprises in agricultural economic development;

climate change mitigation and adaptation; connecting to markets; and ensuring economic,

social, and environmental sustainability.

Agriculture sector is a key player in the agro-economic modernization and market

expansion processes that will promote access for Lao products to regional and global value

chains. The government of Laos is expecting foreign agribusiness investors to collaborate

with local small and medium-sized enterprises (SMEs), mainly to upgrade the quality of

local agricultural products by utilizing technology. Foreign director investment is expected

to introduce industry-based production technologies, family- and community-based post-

harvest handling, and value-added processing in rural areas, thereby phasing in good

agriculture practices, good manufacturing practices, and sanitary and phyto-sanitary (SPS)

measures to ensure the quality of food and agricultural exports according to an interview

with the Department of Planning, MOAF, December 2014.

However, the SME participation in global value chains of big companies invested in

Laos is limited. Local firms cannot gain much benefit from MNCs due to low production

capacity, poor marketing skills, instability in supply to MNCs, and traditional technology

use in factories; therefore, local firms remain producers of primary products and raw

materials for processing in neighboring countries with little value added by domestic

stakeholders in the value chain.

Apparently, most of the agro-processing factories invested by big firms are vertical

integrated investment or Greenfield investment. Local farmers become one-side suppliers

without gaining any benefit from knowledge transfer from foreign direct investment.

Therefore, to understand more about technology and knowledge transfer mode of investors,

the study has selected three firms to study on knowledge transfer through both hard and soft

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knowledge transfer mode in a non-resource sector as well as study on interaction between

buyers and suppliers. The selected firms are a local firm that produces silk products and

exports these products to the Japan market; a foreign director investment sugar firm that

exports sugar to the Vietnam and the European Union (EU) markets; and a joint venture

(subsidiary) sugar production firm from Thailand and Laos exports to Thailand and the EU

market. The study will conduct a cross-case comparison to identify the global value chain

of local, joint venture, and foreign direct investment firms as well as knowledge transfer

from those firms to local stakeholders, as indicated in diagram 1.1 below. Finally, the study

will address policy recommendation to local government on promoting technology to

support agribusiness in Lao PDR.

Diagram 1. Technology transfer from firms to focal/local firms and farmers

Source: Concept study model designed by IDE-JETRO, Bangkok, 2014

Research methodology — To understand firm-to-firm matching with technology

transfers in the local and global economy, this study will conduct both desk‐based research

and participatory assessment approach by conducting interviews with the firms and

examining the business operation of all the two MNC firms2. The interview will mainly

focus on backward linkage rather than forward linkage. Therefore, the key on how firms

transfer knowledge and technology to local workers, farmers, and buyers are the main ideas

to discuss in this study. Finally, the study will come up with a policy recommendation to

2 Vietnam sugar factory in Attapeu Province, and Mitr Lao sugar factory in Savannakhet Province

Supplier

BuyerFocal firm

Supplier

BuyerFocal firm

Buyer

SupplierInternational Trade

Traders

Buyer

Supplier

Border

Knowledge transfer

FDI

1st Step 2nd Step

• Knowledge transfer from the

focal firm (e.g., teacher) to

foreign or domestic

supplier/buyer (e.g., student)

• Cross-border knowledge transfer

from foreign

buyer/supplier/intermediaries

(e.g., teacher) through

international trades (or traders)

Or

• Domestic knowledge transfer from

FDI buyer or supplier (teacher)

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the local government to utilize the results of this study. The case study also undertakes the

cross-case comparison of the three firms at different locations, as shown in Diagram 1.

2. Findings from the sector

2.1. Challenges in the agriculture sector development

The principal challenges in the agriculture sector development in Lao PDR are

characterized by inexperience among entrepreneurs and producers in accessing markets,

institutional constraints on export diversification and growth, decentralized authority for

trade, and logistical issues. Less technology is introduced to the local business and farms

who supply raw materials to factories. Predominantly, international buyers directly place

order from headquarters, but the products are produced in other countries. This happens

because of the limitation of market access, production knowledge, and skill of local

producers. Therefore, foreign firms seem to dominate the agro-processing in Lao due to

local producers are lacking of foreign market knowledge and information.

In terms of regulation and trade facilitation issues, agribusiness, especially the

development of value-added processing facilities, is also delayed by a regulatory system

built on control and fee extractions rather than facilitation.

Extension skills are vital for learning about modern farming methods throughout the

value chain. In production, new skills are required to yield the benefits of modern

production methods such as high-yielding crop varieties and fertilizer application. The

development of high value-added agriculture product exports might depend on meeting

international food safety, requirements, and SPS standards.

The agriculture processing factories and associated businesses have not well understood

the importance of food supply chain management and thus cannot improve their production

methods. Therefore, the use of modern technology in production aspect is low, and not

many local factories granted international standard.

2.2. Agribusiness and its market-related issues

Both local silk and sugarcane farmers have an inadequate understanding of domestic,

regional, and global markets. Farmers usually cultivate and harvest the same crops at the

same time using traditional practices. The important impact is that large volumes of the

same unprocessed agricultural raw materials oversupply small local markets and many

regional markets, driving down prices even supply to the local factories (ADS 2011–2020).

The unstructured nature of local and regional markets provides few incentives for farmers

to invest additional time, labor, technology, or capital in post-harvest handling or value-

added processing at the farm or household level.

In terms of interacting with domestic, regional, and global markets, most domestic

entrepreneurs and commodity traders are traditional as their producer counterparts are.

They lack awareness of modern, transparent, and market-based ways of doing business.

They prefer to purchase raw materials at the farm gate, and may perform some post-harvest

value-added processing (i.e., drying, cleaning, sorting, grading, etc.) that will supplement

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their small trade margin. Agribusiness entrepreneurs generally lack a long-term vision.

They are motivated more by short-term gains from traditional trading (ADS 2011–2020).

Therefore, big companies invest in Laos prefer to invest in vertical integrated mode; they

can completely manage the business, market, labor, and raw materials. It is safe for them to

sign a contract with the main suppliers outside production base location in order to secure

the demand. In addition, building buyers’ relationship outside countries will reduce the risk

on investment return and reduce the risk of regulation burden. Hence, it is normal to see

that the benefit of spillover from large firms to local countries, especially in Laos, is less

and not really developed as planned by the local government.

2.3. Labor force situation in the sector

As Lao PDR makes the transition from subsistence agriculture to market economy

oriented, job creation and the labor force in the sector become a major concern that the

government of Lao PDR must expedite on skill development to support the sector. The

commercial on agriculture development requires more skill labor to work on modern

factories. However, it is found that the quality and quantity of employment in the sector is

limited. Simultaneously, the growing demand for people in agro-processing is increasing;

hence, the influx of skilled labor from China and Vietnam is occurring. Based on the site

visit of three studied factories in December 2014, we determined that the skilled labors

mostly are from Thailand and Vietnam who operate and control the production, especially,

technology and machinery, where Lao labors are working as labor support to the factories.

From an interview, we found that there is an urgent need for technical training and

vocational education in Laos. There is a high demand for local skilled labors in order to

save cost for investors. Those three selected companies prefer to have local skilled labors

rather than recruit expert or skilled labors from abroad (according to an interview with the

three companies in December 2014). Therefore, we normally find that the technical

workers work in industrial plantations, and thousands of foreign workers from neighboring

countries have flowed into Laos and facilitated technology transfer. The shortage of skilled

labor is still the main issue in Laos since investors have difficulties in finding available

workers to support factory production.

2.4. Global value chain challenges

Laos is a small and landlocked country, the majority of the business activities is SMEs.

SMEs comprise 95% of all enterprises, of which 58% is small businesses, 21% is

microenterprises, and the rest 16% is considered as medium enterprises. These SMEs have

faced various challenges such as access to finance and market saturation (57% of micro

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businesses and 45% of the small enterprises). These SMEs also consider a lack of product

differentiation as their obstacles (HRDME 2012).3

As one of the ASEAN member, Laos has gradually integrated into ASEAN production

networks, including the garment industry, and increasingly engaging in other

manufacturing sectors. Participation in ASEAN production and global networks provide

Lao firms with access to larger markets, technology, knowledge, and finance as well as

diversifying the country’s industrial production and export base. However, entering global

value chain network is difficult for Laos as foreign investors seek for firms in the host

countries that are capable of joining regional production networks more effectively. This

requires local firms equipping with certain level of human capital (availability of

professional managers and skilled labors).

3. Brief of selected factories’ business profile4

To study firm-to-firm matching with technology transfers in the local and global

economy, this study selected sugar production business to support and analyze the global

value chain and technology transfer to local partners and farmers. The selected factories are

well known in Lao PDR, and they can be a representative of MNCs, representing joint

venture and subsidiary firms with international experiences. They all export final and semi-

products to headquarters for further processing before distributing products to retail stores

and finally consumers. The two firms selected for this study are (1) Mitr Phol sugar factory

located in Savannakhet Province, and (2) Vietnam sugar factory (Hoang Anh Gia Lai

(HAGL) sugar factory located in Attapeu Province southern part of Laos.

Mitr Lao Sugarcane Factory and Plantation is a subsidiary of the Mitr Phol Group,

which is a group of companies involved in industry sectors related to the sugar industry,

including the sugar industry itself; the particle board industry; bio‐ energy; ethanol

industry; and warehouse and logistics industry. The Thai company invested THB 2.3

Billion for constructing a sugar mill and developing land for cane production. In May 2009,

the factory produces both semi‐processed sugar and refined sugar products. The refined

sugar product is for the domestic market, and the semi‐processed product is for export to

Thailand for further processing and then re‐export to the EU market in partnership with

Tate and Lyle. Whereas HAGL industry started in November 2011 with an investment of

approximately US$90 million. It was inaugurated and put into operation in early 2013.

HAGL planted approximately 10,000 ha of sugarcane in Attapeu Province by the end of

2013.

3 The classification is based on the number of employees: microenterprises (1–2 staff), small enterprises (3–

19 staff), medium enterprises (20–99 staff), and large enterprises (≥100 staff members) according to the 2004

Decree on SMEs of Laos.

4 The full paper and businesses’ profile can be obtained upon requested

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Factories’ suppliers and market

Suppliers and markets

The selected factories invest on the sugarcane farms and organizes contract farming

with local farmers in the mode of 2 + 3. The local farmers will receive same techniques,

land development, sugarcane seeds, and advices from factory experts. When the final

output is ready after cultivation, the farmers will sell sugarcanes to the factory at an agreed

price. Hence, the factory has two supplier sources to secure raw material supply shortage to

the factory: one is from its own farm and the other is from contracted local farmers.

As for market side, the brown sugar was sent to mother firms abroad to be purified

before exporting it to the Chinese and EU markets.

4. Mode of knowledge transfer in agro-processing

Diagram 2. Knowledge transfer mode of agro-processing factories

(Source: Based on an interview with the sugar factories in December, 2014)

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The knowledge can be transferred from one organizational unit to the other (Argote

& Ingram, 2000; Garavelli et al. 2002; Szulanski 2000) by literature and two-way

communication. It is widely acknowledged that knowledge transfer is a complex, time-

consuming, and difficult process (Bresman et al. 1999: 447; Garavelli et. al. 2002: 271;

Szulanski 2000: 10; Simonin 1999: 596-7). From diagram 4.1, we observe that most of the

companies seem to use the same type of knowledge transfer even though there are various

knowledge transfer modes. They prefer to use dispatch expert approach from the

headquarters to teach and train local partners as well as local farmers who provide raw

material to the factories. The interaction between trainees and trainers is an important factor

of knowledge transfer that all firms prefer to use.

The headquarters will dominate all knowledge transfer to local institutions or

factories. Therefore, most of the training and teaching modes require two-way

communication; they expect interaction with trainees even with local farmers who have

basic education training. However, the approach they use might consume more time when

training occurs with local farmers due to the low literature of local farmers, and it is hard

for those experts to break the traditional practice.

As indicated in the global value chain (diagram 2) of sugar factories, the experts are

dispatched by the headquarters; the experts visit the sites with specific training purposes. In

other words, they know on what and who they are going to train. The companies aim only

to train people to do the job, which shows less motivation and commitment on technology

and knowledge transfer to local partners. In writer observation, the agro-processing

factories in Laos operate the investment as vertical integrated and considering as capital

incentive. Most of the assigned tasks are planned by the headquarters. Moreover, the

quality control of the production and technical workers are foreign staff. The final products

export to the foreign market. However, some of the companies also have a plan and starts to

capture local market where the AEC is going to commence in near future.

4.1.Knowledge transfer from international to local firms (1st Step)

The mode of knowledge transfer to local staff members who have limited education

background is very hard. As we understood, knowledge transfer is a systematic process

designed to connect people with each other, and with the knowledge and information, they

need to achieve results through the identification, capture, validation, and transfer of

knowledge. Proper training techniques transfer can assist firms to reduce investment cost

on human capital. Therefore, this study finds that there are two levels of knowledge transfer

from international to local firms: management and administrative levels in agro-processing

firms/factories.

At the management level, most of the big firms use “dispatch expert approach” to

manage the plant and local partner office. The recruitment of decision-making staff is done

at the headquarters; therefore, at big firms, we normally do not see local people involved in

decision-making level. The managers assigned from the headquarters will administrate the

firms after the completion of assignment terms. Several reasons of having this approach is

because the dispatch managers from the headquarters are acquainted with the system from

the headquarters; they are internal and full-time staff of the foreign firms, and they have

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international experiences and have worked for years. Therefore, all systems at the

headquarters can be easily applied in developing a new office environment. The appointed

key staff from the headquarters will know what buyers need and what markets are;

therefore, they can start the task immediately without giving more time on training new

people at local sites.

This type of knowledge transfer and investment mode will not promote and provide

any opportunity for the Lao people to work at a management level. In summary, the 1st

step, referring to diagram 1, technology transfer from firms to local firms is taken place by

foreign firms. It is limited in terms of technology and knowledge transfer from the

headquarters to the local staff leading to low motivation and commitment. We normally see

the knowledge transfer to the local partner is performed through the key people at the

management level only. The key people will directly receive instruction and order from the

foreign firms, where at the same time, the foreign firms receive request based on the buyers

and suppliers needed. Moreover, this mode limits local firms to access global buyers and

suppliers network; therefore, the global economic benefit still dominates the big firms.

At the administrative/office level, the local staff members have more involvement at

this level (1st step—diagram 1). The cross-border knowledge transferring from foreign

expert occurs at this step. Local staff can work with the foreign staff and can learn many

types of knowledge transfer from them. For instance, local staff members have chances to

attend study visit at the headquarters in Thailand and Vietnam. Some local staff members

also have more chances to attend annual meetings with executive board to understand the

firms’ operation and strategy plan. The knowledge transfer at the administrative level

provides more benefit to the local staff. Therefore, in the future, local staff can be promoted

at some circumstances but not on the decision-making level. However, we consider that the

replacement of local and foreign staff members will be taken place at this level.

4.2.Knowledge transfer from focal firms to local suppliers and farmers/labors (2nd

Step)

At the factory/labor level (according to diagram 1st and 2

nd step), the study includes

contract farmers, farmers at factory farms, and labor works in the factory including

seasonal contract farmers. Most of them received different types of training. The contract

farmers received training from the factory’s expert through the farm learning process. The

group of farmers will gather at one designated place to receive instruction and

demonstration of some techniques from the factories’ experts. During the training time, the

experts will introduce new lessons and new farming tools to the farmers. The demonstration

of farming activities will also be provided to the farmers including advices on land

development and growing processes. The farmers will receive growing sugarcane manual,

which is prepared by the factory expert, and several instructions list for the farmers to

follow. The experts will follow up with the farmers several times in a month to solve any

problems. The standard and condition of raw materials that the factory requires are

provided at this stage.

The same training procedure will also apply to the farmers at the factory. The

farmers at the factory will acquire same standard and condition of the raw materials. At the

factory gate, the expert will re-check the quality of sugarcane before sending to the factory

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for next-step production. The workers at the factory will receive regular training on grading

raw material, machinery operation, and quality control on production. The head labor at

different units will receive instructions from the technical experts to ensure that there are no

mistakes happening during production. Each sugar factory (both HGAL and Mitr Lao) will

provide learning board for the staff where all staff can look at the board and know what was

happening daily. The head of the units can provide instructions, share problems, and issues

occurring during operation. Finally, the experts will provide solutions to solve the issues.

The problem can also be sometimes tackled from an advisor. It is considered that the

factory sticks on learning to build up staff capacity and responsibility to the assignment.

Simultaneously, they want to transfer knowledge and skill in a friendly manner, which will

help in closing down the bureaucrat gap. Those factories emphasize more on factory

working system. They want the working system or mechanism to be set and all workers

must follow the system. Therefore, the workers can follow the system on a regular basis. At

the end, when the system is in place, the local staff can build up skill and replace foreign

experts as factory objectives.

In brief, at the factories, most of processing factories in Laos invest more on

technology to support factories. They use new technology to support production with

dispatch skill experts and technical staff from the headquarters to control new technology

before transferring technology skill to the local staff—the reasons of this management

approach is because Lao workers are still lacking behind; at the same time, low skill labor

at the provincial level is also existed. Therefore, the knowledge transfer mode at the factory

level requires more educated staff to attend training. The training mode at this level is more

professional and requires local staff to have basic knowledge at some points in order to

obtain more benefit on skill transfer.

At the same time, the training provided by the local firms to the farmers and

workers is more on teachers to students’ mode. The experts must use hands on approach to

teach farmers and workers. We normally see in this case that local farmers cannot provide

adequate quality raw materials as per factory condition. The farmers always breach the

contract and do not follow what they have learnt from the experts because they are familiar

with the traditional ways. There is always a problem between the factories and farmers on a

timely basis.

4.3. Summary mode of knowledge and technology transfer from firms to local

factories/partners

Companies mandates and

profile

Mode of knowledge and

technology transfer at

factory

Dispatch experts in different fields to support local factory

On-the-job training, field trip

Experts will train unskilled labors to be skilled labors and become

professional staff to administrate the factory.

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Mode of knowledge and

technology transfer to

farmers

Sugarcane experts will support farm preparation and planting of

sugarcane.

Regular checks by experts taken place at the sight/farm to make

sure farmers follow instructions.

Benefits from transfer

technologies to partners

Reduce the cost of doing business

Local staff can negotiate with local farmers better than foreign

expert

Support local government strategy, e.g increase job and reduce

poverty

Upgrade productivity of the firms to meet buyers requirement

Improve quality of product to compete with competitors and to

comply with international requirement

Firm chooses their current

suppliers as their production

partners

Direct from HQ and throughout existing suppliers from rubber

business

Support host country policy in order to increase job creation and

social benefit in the province

(Source: Based on the firms interview with key personnel, December 2014)

5. Results of the study

One of the critical issues that were observed in this study were that the big firms left

local SMEs behind the global value chain or linkage. Local SMEs do not have linkage with

global economy because the foreign investors prefer to use all their suppliers. The

headquarters have knowledge on the market condition, and therefore, they dominate all

operation tasks at local firms. In addition, the new technology does not provide any

innovation of the product, such as designing of a new product and new packaging. All firms

upgraded technologies because they wanted to increase their production capacity, improve

product quality, and fulfill market demands as well as commit with international standard

requirements. Therefore, it has a negative effect on local SMEs participation in either

global suppliers’ production network and incentive in the organization as well as the

specialty market.

However, in terms of SMEs in Laos, the benefit that they can gain from MNCs

spillover is still low. Many business owners might suffer from vertical integrated

investment if they do not improve their management skills. The local firms lack in terms of

new product development and innovation, and the technology introduced by the foreign

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direct investment cannot help local labors and farmers to produce a new product. To gain

such a benefit from firm-to-firm matching with technology transfer in the local and global

economy, the SME, especially agriculture sectors in Laos, should be more active. They

have to develop their management capacity, improve their labor skill, utilize new

technology by boosting the innovation of existing products, and increase reliable suppliers

to meet international standards and requirements.

For the local farmers in Laos, there will be difficulties to meet agro-industry

standards and contractual requirements. Moving ahead of integration both globally and

regionally, SMEs and processors in Laos will have to compete with large-scale agriculture

manufacturers that can benefit from economies of scale in processing technologies. Buyers,

traders, suppliers, and marketers in both global and local markets will merge with large

firms rather than SMEs because stable supply and product quality meet the standard

requirements. It has been understood that traditional farming and marketing systems in

Laos needs to be changed as farming became more commercialized, and it integrated into

national markets to link with global production (Chirstian Henn, 2014). What is found from

this study is the extent and rapidity of the changes in traditional systems being driven by

global and national trends in agribusiness and agro-industries and foreign direct investment

flows.

6. Conclusion and policy recommendation

From diagram 2, we determined that the global value chain of these developing

factories will help the firms grow faster because they import skills and technology and

increase employment and productivity by utilizing local people to support the firms. The

global value chain increasingly involves various stakeholders at the local sites. Some can

gain benefit from technology and knowledge transfer, and the local government can gain

social benefit by improving local employment rate, yet some local producers and farmers

are left behind because they could not be a part of the global production network. However,

knowledge transfer mode of all the three firms is considering similar methodologies and

strategies. All of them are relied on the key foreign expert to supervise and continue to train

local workers even some trained at the headquarters. It is observed that none of the firms

open an opportunity to local partners to contact with trading partners; therefore, local

partners cannot access international markets and have limited knowledge on foreign buyers.

Nevertheless, local partners are ending up in supplying only raw material.

Therefore, it shows that big firms still seek for raw material supply in Laos, and

Laos labors are still left behind, and they hardly gain something from foreign direct

investment spillover, especially on knowledge transfer benefit. To gain more benefit from

these types of investment and to encourage Lao producers to participate in global economy

and production network, the study recommends the following points:

1. Foreign direct investment, especially MNCs, brings many advantages to the suppliers of

developing countries. For example, access to distribution system in developed

countries, knowledge on product development and design, and offer good opportunity

on the transfer of new technologies, and the product produced in Laos can gain benefit

on brand recognition. Furthermore, the technology transfer through foreign direct

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investment can facilitate the process if the country’s capabilities in a certain activity are

high enough. Therefore, to gain such benefits, Lao government should prepare

sufficient competency and skill labors to attract more MNCs to invest in Laos.

2. Governments can provide support to improve the performance of value chains targeted

to domestic markets that might not alone attract private investment. So far, foreign

direct investment can provide benefit only in backward linkage, such as technology

transfer, skill transfer, and job creation in the country, but not promote on new product

innovation. The government of Laos should think ahead on forward linkage by bringing

local processors and potential local firms to participate in the value chain (Deborah K.

Elms, 2013). The forward linkage will not only provide short-term benefits in the long

run but will also provide the local firms more chances to penetrate into many markets

and opportunity outside the country by utilizing new technology and innovation.

Simultaneously, small farmers may have some comparative advantage and specialized

knowledge when there are integrations ahead. 3. Establishing vocational school partners with firms and international vocation school can

be one of the solutions for the government to take into account. It is evident that skill

development needs vocational school. However, to make it effective and efficient, the

vocational school should produce skilled labor based on the firms’ standard

requirements and demand. The government can link the local government with the

international government vocational school and cooperate to focus on standard capacity

building. In addition, we found that most of the labors and farmers were trained in the

fields and factories without receiving any training from school. Therefore, lack of

technical schools will lead to low labor cost in Laos, which will continue in future if not

solved immediately.

4. Firm-to-firm matching with technology transfer in the local and global economy occurs

at a certain level. Normally, foreign firms prefer to transfer knowledge at a limited

level. The spillover of technology and knowledge from foreign to local firms is in small

groups at the headquarters to partnership firms, and then the partnership firms will

transfer knowledge to local firms and suppliers. The quality of knowledge transfer will

reduce since there are many steps of knowledge transfer getting involved. Therefore,

the government of Laos should push local firms to establish joint venture business with

foreign firms to receive full spillover from foreign direct investment firms to local firms

directly.

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Human Resource Development for a Market Economy 2012, “Enterprise survey 2011:

main report,” Vol. 1, Deutsche Gesellschaft f r Internationale usammenarbeit

(GIZ), Vientiane, Laos.

Ministry of Industry and Commerce 2012, “Diagnostic trade integration study 2012: trade

and private sector roadmap”, Department of Planning and Cooperation, Vientiane,

Laos

Ministry of Agriculture and Forestry; “Agricultural Development Strategy (ADS) 2011-

2020 and Master Plan for Agricultural Development 2011-2015”, Department of

Planning, Vientiane, Laos

Key interview people: 18-19 December 2014

1. Mitr Lao Sugar Co., Ltd: Mr. Athiporn Rahulpan, Managing Director; Mr. Chira

Kupachaka, Deputy Cane Supply Director; Mr. Bodin Phasouk, Head Public

Cooperation Division – Interview date 18 December 2014

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2. HAGL Sugar factory: Mr. Nguyen Bao Khiem, Deputy Financial Division; Mr. Ngo

Xuan Thanh, Deputy Sugar Factory Manager; Mr. Bu Long, Interpretor; Interview

date 19 December 2014

3. Varitha Huaan Ando Lao Co., Ltd: Ms. Varitha Phommasathith, Laos Partner; Mr.

Manop Kaewmongkol, Shipping and factory Assistant Manager; date interview 19

December 2014

Source of information from Website:

1. http://www.thanhniennews.com/business/hagl-begins-sugar-production-in-laos-

3743.html; access date: 25 December 2014

2. http://www.talkvietnam.com/2013/02/hoang-anh-gia-lai-opens-sugar-refinery-in-

laos/; accessed date: 25 December 2014

3. www.mitrphol.com; assessing date: 29 December 2014