Mediating regional development : how metalworking firms forged lasting linkages with steel in Ciudad, Guayana, Venezuela

Ever since the late 1950s, planners have lured large firms to lagging regions with the expectation that they will trigger local industrial activity. According to the literatures on unbalanced growth, growth poles, foreign direct investment, and global commodity chains, large firms can dynamize lagging economies by creating a market for inputs, which then stimulates and fortifies local suppliers. Yet in practice, many national and regional development efforts centered on attracting large firms have not elicited this hoped for, backward linkage effect. This study researches why large firms arriving to lagging regions seldom induce local suppliers, and how they can. Existing studies relate linkage behavior to firm-specific or industry-specific variables. This research differs in looking at the process through which large firms develop links to local suppliers. Specifically, this study traces the evolution of backward linkages in Ciudad Guayana, Venezuela, where more than 100 small and medium metalworking firms developed to supply the large steel firm Siderirgica del Orinoco (SIDOR) with maintenance, parts and equipment. Research of other steel-centered cases in lagging regions reveals that this linkage effect is uncommon. When it happens, local suppliers tend to disappear following their client firm's restructuring. In contrast, Ciudad Guayana's metalworking firms successfully survived SIDOR's 1997 privatization to a foreign multinational, and head regional development efforts there today.