How successful are multinational corporations (MNCs) in extending their firm-based environmental standards to their wholly owned subsidiaries and local suppliers, particularly the small and medium sized firm suppliers in developing economies who operate as part of the global production networks of MNCs? Three developments suggest this is not an idle question. To begin with, the economic influence of MNCs is simply staggering. As Dowell et al. (1999: 4) state, the intra-firm transactions of the more than 40,000 MNCs with approximately 250,000 affiliates worldwide account for about 40% of world trade; foreign direct investment is roughly five times official development assistance, and the sales of the ten largest MNCs are larger than the GNP of the 100 poorest countries. This suggests that MNCs along with their affiliates and their suppliers have the potential for exerting substantial influences on local, national, regional, and global environments. Because most of the value added and employment in industry in most developing countries, including the developing economies of East Asia, is accounted for by small and medium sized firms that lie beyond the reach of most governments’ environmental regulatory agencies and because we suspect that the most viable path to technological upgrading and environmental improvement in the low income economies lies in finding ways to increase the participation of indigenous small and medium sized enterprises (SMEs) in the global value chains of multinationals, it is important to ask whether an upgrading strategy based on linking indigenous SMEs to the global value chains of MNCs can also be used to affect the environmental performance of SMEs. While not all the SMEs in any one developing economy are ever likely to be reached through the supply chains of MNCs, there is substantial evidence that governments working in concert with MNCs in vendor development programs linking SMEs to MNCs in some places such as Taiwan Province of China, Malaysia, and Singapore have affected the technological upgrading activities of indigenous small and medium sized firms. To date, there is little rigorous evidence to suggest that these vendor development programs have affected the environmental behavior of small and medium sized firms in the East Asian newly industrializing economies.
