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The components of technology transfer

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The components of technology transfer

  1. 1. The Components of Technology Transfer• Technology transfer simply means movement of technology from one place to another.• International technology transfer refers to cross-border transfers of technology.• Intranational technology transfer refers to transfer within a national border• Horizontal technology transfer is said to be take place when transfers take place between twodifferent corporate entities.Vertical technology transfer is said to take place when the transfer takes place within a corporateentity.• In every case there are a producer (supplier) –who possesses the technology- and a procurer(user) – who seeks the technology. The former is called “the transferor” and the later is called “thetransferee” of the technology transfer process.This session shall focus on horizontal technology transfer.Linking Mechanisms• Linking mechanisms are the means by which technology is transferred from the transferor to thetransferee.• The commercial transfer of technology may take place with the sale and import ofmachinery andequipment and other capital goods, intermediate goods, parts or other components, that embodytechnology.• A licensing agreement is a contract whereby the licensor grants a license to the licensee to use thelicensed object, in exchange for which the licensee pays either a fixed sum of money and/or royaltypayments.• The licensed object can be a patent of invention, an industrial design, a trademark etc.• The supply of know-how may be the subject of an agreement to communicate technical informationand skills concerning the use and application of specific industrial production processes (sometimesreferred to as technical know-how).• The technical information and skills may be described in documentation or furnished orally orthrough demonstration and training. A substantial portion of the know-how information is held secret.That is either unpatentable or is purposefully left unpatented.• A technical information service agreement covers only components of technicalinformation that lieoutside know-how andpatents. The content of this form ofagreement may provide short-term as wellascontinuing services.• Expert services: Know-how may also be supplied through consultants or other professional expertswho provide services and assistance covering the basic engineering of an industrial plant or itsmachinery and equipment, the installation, operation and maintenance of an enterprise and itsindustrial and commercial activities.• Professional expertise may also extend to preinvestment and post investment phases of projects,including technical, economic, financial and organizational studies and general planning• Direct foreign investment whether in a wholly owned subsidiary or in a join venture can ensure arapid transfer of technological information and production facilities. Its main advantages for the hostcountry are the minimization of risks and direct access to all supportive resources of transferor firms.• Sub-contracting is a practice whereby the party offering the subcontract (transferor) requests anotherindependent firm (subcontractor or transferee) to undertake the whole or part of an order it hasreceived instead of doing the work itself, while assuming the full responsibility for the work vis-à-visthe customer.• As a result of the technology transferred the subcontractor can have improved production practices,higher quality, better training of workers, new product designs.Reasons for firms entering technology transfer• Some of the reasons for selling technology:– To obtain immediate financial benefits– To gain access to good sources of raw materials
  2. 2. – To obtain earnings from technologies whoseperiod of competitive advantage in primaryhomemarket is over or from technologies which has no immediate use at home– To lower production cost by capitalizing on the new international division of labour, and therebymaintain competitiveness in world markets– To gain access to market with protectionist barriers, to protect existing market, developpotential market– To take advantage of existing surroundings for testing and improving certain technologies– To improve corporate image• Some of the reasons for transferee firms tobuy technology– They lack capability to produce technology locally due to both skill and resource constraints– Local market size does not justify minimum required investment– They can capitalize on the new international division of labour• International technology transfer is a business deal with its price depends on relativebargainingposition between the transferor and the transferee.Issues of cost and conflicts in international technology transfer• Availability of inputs– Source of finance: Subsidiaries try to obtain domestic finance as much as possible, this leadsto reduced foreign exchange inflows and causes conflict with the host government– Access to local credit: Amount of credit available is limited in developing countries. Banks prefer tolend to subsidiaries/joint ventures than to local entrepreneurs• Price of inputs:– demand absolute control over source of inputs to manipulate pricing with a view towardsrepatriating surplus in a disguised form– in order to attract the best talent and maintain a loyal work force subsidiaries/join ventures may payvery high wages/salaries and pass on the burden to the consumers– insist upon guaranteed fixed pricing for water, electricity, etc. for several years. Thus when pricesincrease the local firms end up subsidising the foreign owned firms.• Level of outputs– Subsidiaries/ joint ventures may not be able to expand the market if the technology supplier onlywants to serve the domestic market and not create a threat to its own overseas markets andthus– The technology supplier may provide very sophisticated capital intensive equipment if it requiresinterchangeability of output between subsidiaries. – On the other hand if the supplier wants an outlet for used machinery and/or no threat to its thirdcountry markets it may supply near obsolete equipment– The firm may be asked to produce a product with more features (and hence higher price) than themarket demands. This may be• To facilitate interchangeability between subsidiaries• To protect its brand name• Due to the training of the managers Issues of cost and conflicts in international technology transfer• Maintain of technological monopoly– No R&D in host country– Transfer of operative, maintenance and troubleshooting skills only• Disposal of output• Size and direction of exports: Host countries have balance of payments and strategic politicalreasons for influencing the size and direction of exports. This may conflict with the internationalcompetitive strategy of the supplier• Price of outputs: Transfer pricing of products within a vertically integrated multinational companiesis one way of impoverishing a subsidiary in an unfavoured host country and transferring the surplus toa subsidiary in a favoured host country• Distribution of surplus
  3. 3. – Dividend policies: The technology supplier maywant an early return on capital invested whereasthe local partner may be interested in growth– Foreign exchange repatriations:In the face of a depreciating currency the technology supplier would like to repatriate earnings asquickly as possible and increase local borrowing. For the host country it is better to delay repatriationsas much as possible.• Other sources of conflict– Attitude to domestic and foreign competition• Negotiate for exclusive rights to an operation• Negotiate protection through tariffs on imports of competitive products• Negotiate tariff reduction of imported inputs• Excessive advertising to create brand loyalty• Other sources of conflict– Development policies• Employment generation• Appropriateness of technology• Technological “colonialism”– Limiting backward and forward linkages• To facilitate transfer pricing• To retain technology monopolyEffective technology transfer• A technology transfer is considered successful if the transferee gains proper understanding andeffective use of the technology.• In developing countries international technology transfer has encountered many failures such as:increase foreign control over the productive infrastructure of the national economy, increases inenergy, capital goods, spare parts import costs, no progress towards technological self-reliance., etc.Effective technology transfer• There are two basic reasons for these failures– Transferees often do not have a detailed idea of what kind of technology is being bought and whatwill be the consequences of its applications– Developing countries have often failed to develop local technological infrastructure for theassimilation of imported technology• What is necessary is a combined strategy of technology transfer and development of indigenoustechnical skill.• Transfer of technology and independent R&D should be regarded as part and parcel of thetechnology advancement process.• Some principles for effective technologytransfer– Selection of technologies to be imported should be determined by a correlation between needs andusable resources available and possibilities for acquiring added capabilities and modifyintechnology– Imported technologies need to be applied after adapting them in such a way that they fit localsurroundingsEffective technology transfer– Repair, imitation and improvements in introduced technology should be done by local trainedmanpower– Hire qualified foreign experts to give effective training for manpower developmentPossible basis for formulating international technology transfer policies– At the national level, international technology transfer policies can be classified into 3 categories• Promoting and assisting technology importation• Obtaining favourable terms of contract• Digestion and improvement of imported technologies

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