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International technology transfer for improved production functions
245
Engineering Costs and Production Economics, 10 (1986) 2 4 5 - 2 5 2 Elsevier Science Publishers B.V., Amsterdam - Printed in The Netherlands
INTERNATIONAL TECHNOLOGY TRANSFER FOR IMPROVED PRODUCTION FUNCTIONS* George K. Chacko Institute of Safety and Systems Management, University of Southern California, University Perk, Los Angeles, CA 90089-1421 (U.S.A.)
ABSTRACT The U.S., suddenly becoming a net debtor nation for the first time in three generations, could license middle-level technologies to Newly Industrializing Countries (NICs) in return for adapting the inventions to suit Asian markets as innovations, and thereby raise 300% or more the recipient country's technology level while reducing the U.S. deficit. The modus operandi is presented. The selection o f a sample 10 Taiwan companies and multinationals is described. The results o f in-depth interviews identify 15 hi-technol-
ogies that Taiwan's corporate management would like to have, but cannot obtain because o f Taiwan's piracy image. It is proposed that Taiwan identify a sequence o f three hi-tech inventions, illustratively ranking 45, 50, and 55 (or higher) on a scale o f 1-100, the top 96-100 being currently imbedded in products marketed by hi-tech inventors. The sequence o f high and higher technologies will ensure that the production function is increasingly efficient, producing better products more cheaply.
INTRODUCTION
between the U.S. and the fastest-growing economic region in the world, the Pacific Region, with primary reference to multinationals and Taiwan.
Grubbstr/Sm interprets "disembodied technical progress" as "a change in the production function" [ 1 ]. Once produced, technology which changes the production function costs little to duplicate and transfer to new customers within the country or in other countries. However, unless R & D is rewarded highly and is provided a steeply rising risk premium (e.g. 42.9%) for failure (e.g. 30%), the technology creation process would cease. This paper discusses the context and conditions of international technology transfer *Invited paper. 0167-188X/86/$03.50
1. TECHNOLOGY TRANSFER AN IMPERATIVE NECESSITY, NOT AN OPTIONAL LUXURY The context of U.S.-Taiwan technology transfer dramatically changed in 1985 when, for the first time in 71 years, the U.S. became a net debtor country, its deficit of US$150 billion being more than 40 times the deficit figure of US$3.7 billion in 1914, the last time that the US owed more to the world
© 1986 Elsevier Science Publishers B.V.
246 than the world owed the US. A feasible, but frightening, scenario projects a $1,000 billion net deficit by 1989. An illustrative impact of such a deficit shows that the entire export earnings of the other major industrial countries would be inadequate just to meet the interest payments on the U.S. deficit a dangerous limit indeed. When an individual finds his income inadequate to meet expenses, he uses his assets to borrow funds to tide him over. The interest payments on the loan are usually tax-deductible. The assets usually increase in value. By the time the person's earning capabilities balance income and expenditure, making the personal deficit disappear, the assets have been preserved, and even enhanced. What is the parallel, on the national scene, to personal assets? Inventions. Not the inventions which t h e corporation has converted into innovations, but the v a s t majority of inventions that lie unused in the corporate vaults. A study of a multinational showed that it used less than 5% of the inventions - both patented and proprietary inventions - that flowed out of its vast R & D establishment year after year. In other words, out of 100 inventions, t h e lower-ranking 1-95 are unused. They also represent better ways of making cheaper products, but they are less profitable than the chosen ones, which rank 9 6 - 1 0 0 on a 1 - 1 0 0 scale of profitability. Rank 95 would probably make a better product more cheaply for the corporation's competition. Therefore,. it behooves the corporation t o deny the use of Rank 95 to its competition; and not only Rank 95, but also all the other inventions which are unused. The chances are that, the next year, the corporate R & D would haveproduced inventions Ranked 101-150. The corporation would find i t most profitable to make products using Ranks 143-150, locking up t h e rest, ranked 1-142, to protect the top
earners. The size of the unused assets grows each year. If there is a way to use part of the unused inventions without damaging the earnings of the top products of the corporation, it would not only reduce the mounting trade deficit, but also significantly raise the level of technology of the recipient corporations and countries.
2. THE MODUS OPERANDI OF MIDDLELEVEL TECHNOLOGY TRANSFER TO NICs Who would benefit from technology transfer, not of Rank 9 6 - 1 0 0 , which would damage the corporation's earning power, but of Ranks 1-957 The answer ~is: the Newly Industrializing Countries (NICs), particularly those of the Pacific Region, which is the fastest-growing economic region in the world, as seen in Table 1. We could say that the NICs are at about Rank 15 on a scale o f 1-100. TABLE 1 Real GNP (GDP) growth of selected countries, 1980-84 Country
Percentage change over previous year 1980
1981
1982
1983
1984p
6.6 10.2 11.7 . -6.2
5.0 9.9 10.9 6.4
3.9 6.3 2.4 5.6
7.5 7.9 5.2 9.5
11.0 8.2 8.0 7.5
1.2
2.0
-0.3
2.6
4.8
Selected NICs: Taiwan
Singapore HongKong South Korea Total OECD
p = preliminary Source: OECD Economics Outlook, Dec. 1984; Country
Sources.
2.1 License the high technology If Ranks 4 5 - 5 0 were licensed to the Pacific Region it would immediately raise three-foM the Region's technical level.
247
2.2 Create new Asian markets The Region has abundant entrepreneurial talent. As a condition to licensing Ranks 4 5 - 5 0 , specify that the technology inventions must be used to create innovations, namely, products tailored to the Region. The payments for the use of Ranks 4 5 - 5 0 would be two-fold: (1) a fee for use of the invention, and (2) a percentage of sales of the innovations.
dent of several selected companies were conducted, for whom the term itself had first to be clarified.
3. DEFINITIONS It is useless to say that technology is applied knowledge; or that it is applied science. A matchstick would qualify as an instance of technology: combustion on demand, without having to rub two Boy Scouts together!
2.3 Enhance the level of technology transfer 3.1 Technology If the Region were to use Ranks 4 5 - 5 0 , as agreed, and created acceptable revenues, then higher-rank technologies would be made available through licensing. Whether, say, Ranks 5 5 - 6 0 or 7 0 - 7 5 are made available will depend on how well Ranks 4 5 - 5 0 have been applied.
2.4 Mutual benefits Such a technology transfer, like the quality of mercy, "is twice bless'd; it blesseth him that gives, and him that takes." Examples of benefits are: U.S. (a) Revenue from licensing fee; (b) Revenue from sales to new markets of products which did not exist before. Taiwan (a) Three-fold technology jump; (b) New innovations not possible before; (c) Significant revenues from new market; (d) Four-fold higher-technology access.
2.5 Ten-company study in Taiwan It takes two to tango. What does Taiwan need by way of technology transfer? To determine the answer, in-depth interviews with the Chairman of the Board and the Presi-
At the other end of the scale of energy production is nuclear fission. When the first atomic pile demonstrated in Soldiers' Field, Chicago, in 1941, that fission was feasible, was it "technology"? Hardly. It was more in the nature of a large laboratory demonstration that the technology was feasible, as compared to technology like the match stick. Usability provides an important element of technology. A matchstick provides readier usability than live coals (and is safer, too!). The fundamental feature of all technology is convenient conversion of matter into energy, matter into matter, and energy into energy. We could define technology as converting physical/mental matter/energy into directly usable alternate form (s).
3.2 High technology What constitutes "high(hi)-technol0gy"? It is a relative term. The Model T Ford automobile was high-technology in its day, as was the Wright Brothers' flying machine. Supersonic air transport is hi-tech compared with jet transport, which, in turn, is hi-tech compared with piston-engined transport. Our definition should take the sliding scale of technology into account, fully recognizing that the hi-tech today will become low-tech tomorrow. We could define high-technology thus: Multiply-
248 ing manifold the output/input ratio in converting physical/mental matter/energy into directly usable alternate form (s).
3.3 Hi-tech transfer What constitutes transfer? Usually, when we transfer what is in one pocket into another pocket, the first pocket is empty. In physical transfers, that is indeed the case. However, when the mathematics teacher teaches the students the rules of multiplication or of integration, knowledge is transferred from the teacher to the students; the teacher's knowledge has not decreased, however, and the students have acquired a positive addition to their knowledge base. In other words, the knowledge multiplies when transferred. The relation between teacher and student is a special one. In China, the teacher is revered next to parents because, while the physical parents give one the original endowments, it is the intellectual parents who give one the means to enhance the endowments. The transfer of knowledge from the teacher to the student is therefore a sacred gift which is reciprocated with reverence. However, high-technology transfer will spawn almost immediate competition. The commercial advantage that a hi-tech source enjoys from an innovation gefierally lasts from six months to two years. Hi-tech transfer during that period would create competitors, who, like judo experts, can use the hi-tech donor's very strength against him in the marketplace. What death-wish would propel a hi-tech innovator to transfer his innovation to create a mighty opponent to murder him in the marketplace? One self-preservation technique is to provide the glitter and not the gold. If the hi-tech donors can make the hi-tech recipient believe that hi-tech is transferred in substance while only doing so in form, that would help' preserve the former's (market) territory without jeopardizing technology. To underscore
the self-interests of both the hi-tech donor and the hi-tech recipient, it is essential to define high-technology transfer: Duplicating,
on a self-sustained basis, a foreign process o f multiplying manifold the output/input ratio in converting physical~mental matter/ energy into directly usable alternate form(s). 4. DETERMINING TAIWAN'S HI-TECH NEEDS: 10-COMPANY SURVEY From the perspective of corporate top management, what high-technology areas and elements are critical to Taiwan's continued competitiveness in the international marketplace?
4.1 Selection of sample industries Taiwan needs high-technology. The three primary world sources of hi-tech are: the U.S., Japan and West Germany. Hi-tech imported from these sources is for the purpose of imbedding it in hi-tech product/ processes which will be exported back to the same hi-tech donors tomorrow. Therefore, from Taiwan's point of view, the candidates must belong to the leading export industries. Table 2 shows the three leading export industries. By aggregating the appropriate subclassifications, we identify the three major export industries. It is equally, if not more, TABLE 2 Selection of industries Export industry
Electrical and electronic products Textiles Plastics products
Total exports (billion US$)
Exports to the U.S. (%)
4.844 4.598 0.908
27.59 32.17 52.65
10.350
31.82
Basic Source: Preliminary Statistics of Exports and Imports, Department of Statistics, Ministry of Finance, Taipei, Jan. 10, Feb. 20, 1984.
249 important to identify the share of export to the U.S. We notice that 41.2% of the export earnings for the last full year at the time of the survey, 1983, came from these three industries. A little over a quarter of the exports of electrical and electronic products, a third of the exports of textiles, and over half the exports of plastics products went to the U.S.
it its own; i.e. high-technology transfer, as defined above. While the seven firms were all Taiwanese firms, three other firms were also selected and interviewed in depth for three to six hours each. Two were multinationals with a long history of operation in Taiwan. The third was a Taiwanese company which is the largest exporter of a hi-tech product to a leading U.S. firm. The question again was hi-tech transfer.
4.2 Selection of sample firms Seven leading firms in these industries were selected. The chairman of the board, or president, or executive vice-president, was directly interviewed in English or Chinese with technical translation, for one to five hours each, often with follow-ups with the top management and/or technically-knowledgeable designers. The fundamental question was: How does the firm acquire hi-technology and make
4.3 Taiwan's corporate hi-tech needs If they could get whatever high-technology they wanted, what particular elements would they buy? In some instances, the top management answers were specific; in most instances, the answers identified specific areas of technology. From the many individual answers, the list in Table 3 was prepared.
TABLE 3 High-technology required now but not obtainable Area
High-technology
Manufacturing
1. 2. 3. 4. 5.
Design technology to develop compatible robot accessories to meet customized demand Dyeing technology to test and sample customer specification of color and design Upgrading technology to manufacture higher-value clothing Upgrading technology to manufacture higher-value fine chemicals Diversification option generation and evaluation for plastics-based and textiles-based companies
Software
6. 7. 8. 9.
Computer-Assisted Design (CAD) advanced and advancing technology Flexible Manufacturing System (FMS) advanced and advancing technology Design and sale of custom software Automation of manufacturing
Marketing
10. Reliable forecasting of product life cycle phases as a basis for developing alternate national and international marketing strategy 11. Relational database development and adaptation to allow multiple users to access the same data for multiple uses 12. Interactive capabilities for management to specify customized decision support systems
Management
13. Alternative strategies to move from bulk chemicals to fine chemicals 14. Non-petrochemical base, e.g. animal fat, to make fine chemicals 15. Contingent high-technology licensing and upgrading on a continuing basis
250
5. SUCCESSIVELY IMPROVING PRODUCTION FUNCTIONS AS HI-TECH TRANSFER CONDITION The 15 hi-technologies are currently unobtainable, primarily because of Taiwan's piracy image. Detailed steps to face the problem frontally are discussed in the literature [2]. Assuming that those pre-conditions are met, how would hi-tech transfer improve the production function?
5.1 Technology escalator Schumpeter suggested that inventions came in dusters. Looking back at mid-eighteenth century England, we do find several dramatic capabilities being developed within the span of a few years, such as the spinning jenny and the steam engine. In the 1960s, inventions of several elements of micro-miniaturization could be seen to have clustered together. This cluster required a concerted, though not necessarily coordinated, effort. With coordination, targeted results of momentous dimensions, such as landing on the moon, could be achieved. Clearly, Japan's Fifth Generation Computer Systems Project is a contemporary example of targeted technological progress. Even when not coordinated on a grand scale, current developments in integrated circuitry can be considered to be some sort of uncoordinated coordination. The coordination comes from the very nature of the technology which requires the revising of targets of higher milestones as each one is reached. With many different groups of people working on pushing back the frontiers of knowledge of circuitry, any news of problems encountered, just as much as news of problems conquered, become valuable inputs to the next set of outputs. Robert N. Noyce, the founder of the most famous of all microprocessor manufacturers, Intel Corporation, mentions another impor,~
tant invention in microprocessor technology, as well as an associated "law" of development of integrated circuitry: In 1964, noting that since the production o f the planar transistor in 1959 the number o f elements in advanced integrated circuits had been doubling every year, Gordon E. Moore, who was then director o f research at Fairchild was the first t o predict the future progress o f the integrated circuit. He suggested that its complexity would continue to double every year. Today (1977) with circuits containing 2 is (262,144) elements available, we have not y e t seen any significant departure from Moore's Law... By 1986 the number o f electronic functions incorporated into a wide range o f products each year can be expected to be one hundred times greater than it is today (1977) [31. Moore's Law and Noyce's Conjecture provide a reasonable profile for the technological future of integrated circuitry and electronic functions. How may the exponential progress be characterized? To suggest that inventions in the early days of the Industrial Revolution were like the steps of a staircase would be to smooth over some rough edges of the progress. It could be argued that the steps were not laid in a nice sequence, one invention neatly being bridged to the next. With the charm accorded distant memory, we could collect all the disjointed steps and connectors and impute to them an orderly progression. The escalator, rather than the staircase, would be the appropriate analogy to our hitechnology progress today. Unlike in the case of a staircase, where progress is achieved by moving from one to step to another, today the very technological ground we stand on is being moved forward. The underlying forces are not confined to a country, or a discipline, or a period. An unnoticed and obscure development in a field not even directly related to microelectronics may provide precisely the missing link which
251 would make possible a significant step forward. The simultaneous pursuits in different countries, each vying with each other with understandable secrecy, nevertheless permit cross-fertilization of ideas, and the interdisciplinary exchange, while made more difficult by the spawning of sub-disciplinary specialties, still holds out hopes for some integration at the operational level. In this context we may use the imagery of an escalator technology. Unlike a staircase, where the steps are discrete, firm and fixed, an escalator has steps that are less discrete, the transient steps being thrust forth from the floor one moment, they themselves becoming the new floor for the next step. Similarly, the progress at one technological level in one country almost readily becomes an input to the next level in the same country or another country. Even while the new technology is barely tangible, it has to be embodied in a product or products, and a niche has to be found for the distant product(s) of the future technology, underscoring the technology seeking the territory. 5.2 Identifying a sequence of three hi-tech innovations It is step 2 in the modus operandi of middle-level technology transfer (2.2 Create new Asian markets) that makes new territory (markets) the pre-condition for technology (transfer). It requires the Pacific Region recipient country(ies) to specify what innovations it will make with the inventions that are the subject of technology transfer. While entrepreneurial, these countries are not known for their marketing forte. A dramatic reorientation of the mentality, essentially of a shortterm trader of small wares, has to be accomplished. Such a trader does not have to sell abstract qualities of the product and the alternate uses they can be put to. Much less does he have to work with the prospective
customer on how he could adapt the product to meet some other customer's future requirements. Instead, he merely needs to know the name of the product, and a contact who needs it. Instead of such a simplistic level of operation, incurring the cost of customer cultivation is indispensible in high-technology innovation. It is indispensible because what is being sold is not a product but a process, a process o f making better products more cheaply. There are risks associated with this focus on process. First, there is the cost of time and training of Taiwanese company personnel to sell the process. Second, there is the cost of "No Sale", i.e. the customer is not ready. Third, there is the cost of handing over to one's competition the very awareness that one has spent time and effort to cultivate; upon hearing the story a second time, the customer may buy because one has already spent time making him aware of the technology process and its promise. The payoff is thus certainly not in the first high-technology, or the next-higher technology. Rather, it is in the development of customer confidence that, whatever the next higher level of technology may be, the particular Taiwanese company will find it and adapt it to the customer's advantage. It would be reasonable to sketch out at least three successive levels of higher technology that the Taiwanese company would plan to acquire and adapt in the next several months before starting with the training on the first hi-tech innovation pitch to the customer. In other words, before Rank 45 is licensed, the Taiwanese company should have convinced the potential donor of hi-tech, what it would do with Rank 50 and Rank 55 technologies, how they would be adapted to Asian markets, and how they would be marketed. Clearly, Ranks 50 and 55 (or similarly higher ranks) are already available from the technology donor. One characteristic com-
252 m e n to higher-level technologies is that they generally make better products more cheaply. In terms of the production function, the same output produces higher (better) outputs, making the production function more efficient.
Taiwan stands ready to make technology transfer - under the right conditions... [which he calls] "High protection for High Technology"." (Present author's italics)
REFERENCES 5.3 IBM Taiwan, a possible hi-tech transfer source Is there any support to the proposed midlevel technology transfer? The comments made on the Trade Drain book [2] to Asian Computer Monthly by Barry B. Lennon, the Chairman of the Board of IBM Taiwan L t d . , w h i c h accounts for more than a third of Taiwan's hi-tech earnings, are encouraging: "When he proposes that multinationals license specific technology to NICs, he shows how the inventive capabilities of the West can be combined with the innovative capabilities of the East by working out quite realistic a scale o f dual p a y m e n t s - a fee for technology use; and a share of the new markets the recipient country newly develops... He has done an invaluable service by carefully selecting a sample of Taiwan firms from the three leading export industries and talking to the top management for 5 h o u r s to' two days to determine specific hi-technology areas that they will like to see made available. Many of the 15 areas he has identified are areas which 1BM
1 Robert W. Grubbstrbm, 1985. International cooperation in research and development and technology transfer. In: Prec. 12th Int. Small Business Congr., Taipei, Taiwan, 11 September, 1985. 2 Chaeko, G.K., 1985. Trade Drain Imperative of Technology Transfer - U.S.-Taiwan Concomitant Coalitions. Petroeelli, Princeton, NJ, U.S.A. 3 Robert N. Noyee, 1977. Microelectronics. Scientific American, 3 (sept).
(Received September 30, 1985; accepted October 22, 19851
BIOGRAPHICAL NOTE Dr. George K. Chacko, Professor of Systems Science with the University of Southern California, was Senior Fulbright Professor at National Chengchi University, Taiwan's premier National University in management science, in 1 9 8 3 - 8 4 and 1984-85. His research for the National Science Council of Taiwan, published as Trade Drain Imperative of Technology Transfer - U.S.-Taiwan Concomitant Coalitions (Petrocelli Books, Princeton, NJ, USA), offers a macro-perspective of high-technology transfer with significant implications for micro p r o d u c t i o n functions, which the Editors feel w o u l d b e of interest to readers of Engineering Costs and Production Economics.
Engineering Costs and Production Economics, 10 (1986) 2 4 5 - 2 5 2 Elsevier Science Publishers B.V., Amsterdam - Printed in The Netherlands
INTERNATIONAL TECHNOLOGY TRANSFER FOR IMPROVED PRODUCTION FUNCTIONS* George K. Chacko Institute of Safety and Systems Management, University of Southern California, University Perk, Los Angeles, CA 90089-1421 (U.S.A.)
ABSTRACT The U.S., suddenly becoming a net debtor nation for the first time in three generations, could license middle-level technologies to Newly Industrializing Countries (NICs) in return for adapting the inventions to suit Asian markets as innovations, and thereby raise 300% or more the recipient country's technology level while reducing the U.S. deficit. The modus operandi is presented. The selection o f a sample 10 Taiwan companies and multinationals is described. The results o f in-depth interviews identify 15 hi-technol-
ogies that Taiwan's corporate management would like to have, but cannot obtain because o f Taiwan's piracy image. It is proposed that Taiwan identify a sequence o f three hi-tech inventions, illustratively ranking 45, 50, and 55 (or higher) on a scale o f 1-100, the top 96-100 being currently imbedded in products marketed by hi-tech inventors. The sequence o f high and higher technologies will ensure that the production function is increasingly efficient, producing better products more cheaply.
INTRODUCTION
between the U.S. and the fastest-growing economic region in the world, the Pacific Region, with primary reference to multinationals and Taiwan.
Grubbstr/Sm interprets "disembodied technical progress" as "a change in the production function" [ 1 ]. Once produced, technology which changes the production function costs little to duplicate and transfer to new customers within the country or in other countries. However, unless R & D is rewarded highly and is provided a steeply rising risk premium (e.g. 42.9%) for failure (e.g. 30%), the technology creation process would cease. This paper discusses the context and conditions of international technology transfer *Invited paper. 0167-188X/86/$03.50
1. TECHNOLOGY TRANSFER AN IMPERATIVE NECESSITY, NOT AN OPTIONAL LUXURY The context of U.S.-Taiwan technology transfer dramatically changed in 1985 when, for the first time in 71 years, the U.S. became a net debtor country, its deficit of US$150 billion being more than 40 times the deficit figure of US$3.7 billion in 1914, the last time that the US owed more to the world
© 1986 Elsevier Science Publishers B.V.
246 than the world owed the US. A feasible, but frightening, scenario projects a $1,000 billion net deficit by 1989. An illustrative impact of such a deficit shows that the entire export earnings of the other major industrial countries would be inadequate just to meet the interest payments on the U.S. deficit a dangerous limit indeed. When an individual finds his income inadequate to meet expenses, he uses his assets to borrow funds to tide him over. The interest payments on the loan are usually tax-deductible. The assets usually increase in value. By the time the person's earning capabilities balance income and expenditure, making the personal deficit disappear, the assets have been preserved, and even enhanced. What is the parallel, on the national scene, to personal assets? Inventions. Not the inventions which t h e corporation has converted into innovations, but the v a s t majority of inventions that lie unused in the corporate vaults. A study of a multinational showed that it used less than 5% of the inventions - both patented and proprietary inventions - that flowed out of its vast R & D establishment year after year. In other words, out of 100 inventions, t h e lower-ranking 1-95 are unused. They also represent better ways of making cheaper products, but they are less profitable than the chosen ones, which rank 9 6 - 1 0 0 on a 1 - 1 0 0 scale of profitability. Rank 95 would probably make a better product more cheaply for the corporation's competition. Therefore,. it behooves the corporation t o deny the use of Rank 95 to its competition; and not only Rank 95, but also all the other inventions which are unused. The chances are that, the next year, the corporate R & D would haveproduced inventions Ranked 101-150. The corporation would find i t most profitable to make products using Ranks 143-150, locking up t h e rest, ranked 1-142, to protect the top
earners. The size of the unused assets grows each year. If there is a way to use part of the unused inventions without damaging the earnings of the top products of the corporation, it would not only reduce the mounting trade deficit, but also significantly raise the level of technology of the recipient corporations and countries.
2. THE MODUS OPERANDI OF MIDDLELEVEL TECHNOLOGY TRANSFER TO NICs Who would benefit from technology transfer, not of Rank 9 6 - 1 0 0 , which would damage the corporation's earning power, but of Ranks 1-957 The answer ~is: the Newly Industrializing Countries (NICs), particularly those of the Pacific Region, which is the fastest-growing economic region in the world, as seen in Table 1. We could say that the NICs are at about Rank 15 on a scale o f 1-100. TABLE 1 Real GNP (GDP) growth of selected countries, 1980-84 Country
Percentage change over previous year 1980
1981
1982
1983
1984p
6.6 10.2 11.7 . -6.2
5.0 9.9 10.9 6.4
3.9 6.3 2.4 5.6
7.5 7.9 5.2 9.5
11.0 8.2 8.0 7.5
1.2
2.0
-0.3
2.6
4.8
Selected NICs: Taiwan
Singapore HongKong South Korea Total OECD
p = preliminary Source: OECD Economics Outlook, Dec. 1984; Country
Sources.
2.1 License the high technology If Ranks 4 5 - 5 0 were licensed to the Pacific Region it would immediately raise three-foM the Region's technical level.
247
2.2 Create new Asian markets The Region has abundant entrepreneurial talent. As a condition to licensing Ranks 4 5 - 5 0 , specify that the technology inventions must be used to create innovations, namely, products tailored to the Region. The payments for the use of Ranks 4 5 - 5 0 would be two-fold: (1) a fee for use of the invention, and (2) a percentage of sales of the innovations.
dent of several selected companies were conducted, for whom the term itself had first to be clarified.
3. DEFINITIONS It is useless to say that technology is applied knowledge; or that it is applied science. A matchstick would qualify as an instance of technology: combustion on demand, without having to rub two Boy Scouts together!
2.3 Enhance the level of technology transfer 3.1 Technology If the Region were to use Ranks 4 5 - 5 0 , as agreed, and created acceptable revenues, then higher-rank technologies would be made available through licensing. Whether, say, Ranks 5 5 - 6 0 or 7 0 - 7 5 are made available will depend on how well Ranks 4 5 - 5 0 have been applied.
2.4 Mutual benefits Such a technology transfer, like the quality of mercy, "is twice bless'd; it blesseth him that gives, and him that takes." Examples of benefits are: U.S. (a) Revenue from licensing fee; (b) Revenue from sales to new markets of products which did not exist before. Taiwan (a) Three-fold technology jump; (b) New innovations not possible before; (c) Significant revenues from new market; (d) Four-fold higher-technology access.
2.5 Ten-company study in Taiwan It takes two to tango. What does Taiwan need by way of technology transfer? To determine the answer, in-depth interviews with the Chairman of the Board and the Presi-
At the other end of the scale of energy production is nuclear fission. When the first atomic pile demonstrated in Soldiers' Field, Chicago, in 1941, that fission was feasible, was it "technology"? Hardly. It was more in the nature of a large laboratory demonstration that the technology was feasible, as compared to technology like the match stick. Usability provides an important element of technology. A matchstick provides readier usability than live coals (and is safer, too!). The fundamental feature of all technology is convenient conversion of matter into energy, matter into matter, and energy into energy. We could define technology as converting physical/mental matter/energy into directly usable alternate form (s).
3.2 High technology What constitutes "high(hi)-technol0gy"? It is a relative term. The Model T Ford automobile was high-technology in its day, as was the Wright Brothers' flying machine. Supersonic air transport is hi-tech compared with jet transport, which, in turn, is hi-tech compared with piston-engined transport. Our definition should take the sliding scale of technology into account, fully recognizing that the hi-tech today will become low-tech tomorrow. We could define high-technology thus: Multiply-
248 ing manifold the output/input ratio in converting physical/mental matter/energy into directly usable alternate form (s).
3.3 Hi-tech transfer What constitutes transfer? Usually, when we transfer what is in one pocket into another pocket, the first pocket is empty. In physical transfers, that is indeed the case. However, when the mathematics teacher teaches the students the rules of multiplication or of integration, knowledge is transferred from the teacher to the students; the teacher's knowledge has not decreased, however, and the students have acquired a positive addition to their knowledge base. In other words, the knowledge multiplies when transferred. The relation between teacher and student is a special one. In China, the teacher is revered next to parents because, while the physical parents give one the original endowments, it is the intellectual parents who give one the means to enhance the endowments. The transfer of knowledge from the teacher to the student is therefore a sacred gift which is reciprocated with reverence. However, high-technology transfer will spawn almost immediate competition. The commercial advantage that a hi-tech source enjoys from an innovation gefierally lasts from six months to two years. Hi-tech transfer during that period would create competitors, who, like judo experts, can use the hi-tech donor's very strength against him in the marketplace. What death-wish would propel a hi-tech innovator to transfer his innovation to create a mighty opponent to murder him in the marketplace? One self-preservation technique is to provide the glitter and not the gold. If the hi-tech donors can make the hi-tech recipient believe that hi-tech is transferred in substance while only doing so in form, that would help' preserve the former's (market) territory without jeopardizing technology. To underscore
the self-interests of both the hi-tech donor and the hi-tech recipient, it is essential to define high-technology transfer: Duplicating,
on a self-sustained basis, a foreign process o f multiplying manifold the output/input ratio in converting physical~mental matter/ energy into directly usable alternate form(s). 4. DETERMINING TAIWAN'S HI-TECH NEEDS: 10-COMPANY SURVEY From the perspective of corporate top management, what high-technology areas and elements are critical to Taiwan's continued competitiveness in the international marketplace?
4.1 Selection of sample industries Taiwan needs high-technology. The three primary world sources of hi-tech are: the U.S., Japan and West Germany. Hi-tech imported from these sources is for the purpose of imbedding it in hi-tech product/ processes which will be exported back to the same hi-tech donors tomorrow. Therefore, from Taiwan's point of view, the candidates must belong to the leading export industries. Table 2 shows the three leading export industries. By aggregating the appropriate subclassifications, we identify the three major export industries. It is equally, if not more, TABLE 2 Selection of industries Export industry
Electrical and electronic products Textiles Plastics products
Total exports (billion US$)
Exports to the U.S. (%)
4.844 4.598 0.908
27.59 32.17 52.65
10.350
31.82
Basic Source: Preliminary Statistics of Exports and Imports, Department of Statistics, Ministry of Finance, Taipei, Jan. 10, Feb. 20, 1984.
249 important to identify the share of export to the U.S. We notice that 41.2% of the export earnings for the last full year at the time of the survey, 1983, came from these three industries. A little over a quarter of the exports of electrical and electronic products, a third of the exports of textiles, and over half the exports of plastics products went to the U.S.
it its own; i.e. high-technology transfer, as defined above. While the seven firms were all Taiwanese firms, three other firms were also selected and interviewed in depth for three to six hours each. Two were multinationals with a long history of operation in Taiwan. The third was a Taiwanese company which is the largest exporter of a hi-tech product to a leading U.S. firm. The question again was hi-tech transfer.
4.2 Selection of sample firms Seven leading firms in these industries were selected. The chairman of the board, or president, or executive vice-president, was directly interviewed in English or Chinese with technical translation, for one to five hours each, often with follow-ups with the top management and/or technically-knowledgeable designers. The fundamental question was: How does the firm acquire hi-technology and make
4.3 Taiwan's corporate hi-tech needs If they could get whatever high-technology they wanted, what particular elements would they buy? In some instances, the top management answers were specific; in most instances, the answers identified specific areas of technology. From the many individual answers, the list in Table 3 was prepared.
TABLE 3 High-technology required now but not obtainable Area
High-technology
Manufacturing
1. 2. 3. 4. 5.
Design technology to develop compatible robot accessories to meet customized demand Dyeing technology to test and sample customer specification of color and design Upgrading technology to manufacture higher-value clothing Upgrading technology to manufacture higher-value fine chemicals Diversification option generation and evaluation for plastics-based and textiles-based companies
Software
6. 7. 8. 9.
Computer-Assisted Design (CAD) advanced and advancing technology Flexible Manufacturing System (FMS) advanced and advancing technology Design and sale of custom software Automation of manufacturing
Marketing
10. Reliable forecasting of product life cycle phases as a basis for developing alternate national and international marketing strategy 11. Relational database development and adaptation to allow multiple users to access the same data for multiple uses 12. Interactive capabilities for management to specify customized decision support systems
Management
13. Alternative strategies to move from bulk chemicals to fine chemicals 14. Non-petrochemical base, e.g. animal fat, to make fine chemicals 15. Contingent high-technology licensing and upgrading on a continuing basis
250
5. SUCCESSIVELY IMPROVING PRODUCTION FUNCTIONS AS HI-TECH TRANSFER CONDITION The 15 hi-technologies are currently unobtainable, primarily because of Taiwan's piracy image. Detailed steps to face the problem frontally are discussed in the literature [2]. Assuming that those pre-conditions are met, how would hi-tech transfer improve the production function?
5.1 Technology escalator Schumpeter suggested that inventions came in dusters. Looking back at mid-eighteenth century England, we do find several dramatic capabilities being developed within the span of a few years, such as the spinning jenny and the steam engine. In the 1960s, inventions of several elements of micro-miniaturization could be seen to have clustered together. This cluster required a concerted, though not necessarily coordinated, effort. With coordination, targeted results of momentous dimensions, such as landing on the moon, could be achieved. Clearly, Japan's Fifth Generation Computer Systems Project is a contemporary example of targeted technological progress. Even when not coordinated on a grand scale, current developments in integrated circuitry can be considered to be some sort of uncoordinated coordination. The coordination comes from the very nature of the technology which requires the revising of targets of higher milestones as each one is reached. With many different groups of people working on pushing back the frontiers of knowledge of circuitry, any news of problems encountered, just as much as news of problems conquered, become valuable inputs to the next set of outputs. Robert N. Noyce, the founder of the most famous of all microprocessor manufacturers, Intel Corporation, mentions another impor,~
tant invention in microprocessor technology, as well as an associated "law" of development of integrated circuitry: In 1964, noting that since the production o f the planar transistor in 1959 the number o f elements in advanced integrated circuits had been doubling every year, Gordon E. Moore, who was then director o f research at Fairchild was the first t o predict the future progress o f the integrated circuit. He suggested that its complexity would continue to double every year. Today (1977) with circuits containing 2 is (262,144) elements available, we have not y e t seen any significant departure from Moore's Law... By 1986 the number o f electronic functions incorporated into a wide range o f products each year can be expected to be one hundred times greater than it is today (1977) [31. Moore's Law and Noyce's Conjecture provide a reasonable profile for the technological future of integrated circuitry and electronic functions. How may the exponential progress be characterized? To suggest that inventions in the early days of the Industrial Revolution were like the steps of a staircase would be to smooth over some rough edges of the progress. It could be argued that the steps were not laid in a nice sequence, one invention neatly being bridged to the next. With the charm accorded distant memory, we could collect all the disjointed steps and connectors and impute to them an orderly progression. The escalator, rather than the staircase, would be the appropriate analogy to our hitechnology progress today. Unlike in the case of a staircase, where progress is achieved by moving from one to step to another, today the very technological ground we stand on is being moved forward. The underlying forces are not confined to a country, or a discipline, or a period. An unnoticed and obscure development in a field not even directly related to microelectronics may provide precisely the missing link which
251 would make possible a significant step forward. The simultaneous pursuits in different countries, each vying with each other with understandable secrecy, nevertheless permit cross-fertilization of ideas, and the interdisciplinary exchange, while made more difficult by the spawning of sub-disciplinary specialties, still holds out hopes for some integration at the operational level. In this context we may use the imagery of an escalator technology. Unlike a staircase, where the steps are discrete, firm and fixed, an escalator has steps that are less discrete, the transient steps being thrust forth from the floor one moment, they themselves becoming the new floor for the next step. Similarly, the progress at one technological level in one country almost readily becomes an input to the next level in the same country or another country. Even while the new technology is barely tangible, it has to be embodied in a product or products, and a niche has to be found for the distant product(s) of the future technology, underscoring the technology seeking the territory. 5.2 Identifying a sequence of three hi-tech innovations It is step 2 in the modus operandi of middle-level technology transfer (2.2 Create new Asian markets) that makes new territory (markets) the pre-condition for technology (transfer). It requires the Pacific Region recipient country(ies) to specify what innovations it will make with the inventions that are the subject of technology transfer. While entrepreneurial, these countries are not known for their marketing forte. A dramatic reorientation of the mentality, essentially of a shortterm trader of small wares, has to be accomplished. Such a trader does not have to sell abstract qualities of the product and the alternate uses they can be put to. Much less does he have to work with the prospective
customer on how he could adapt the product to meet some other customer's future requirements. Instead, he merely needs to know the name of the product, and a contact who needs it. Instead of such a simplistic level of operation, incurring the cost of customer cultivation is indispensible in high-technology innovation. It is indispensible because what is being sold is not a product but a process, a process o f making better products more cheaply. There are risks associated with this focus on process. First, there is the cost of time and training of Taiwanese company personnel to sell the process. Second, there is the cost of "No Sale", i.e. the customer is not ready. Third, there is the cost of handing over to one's competition the very awareness that one has spent time and effort to cultivate; upon hearing the story a second time, the customer may buy because one has already spent time making him aware of the technology process and its promise. The payoff is thus certainly not in the first high-technology, or the next-higher technology. Rather, it is in the development of customer confidence that, whatever the next higher level of technology may be, the particular Taiwanese company will find it and adapt it to the customer's advantage. It would be reasonable to sketch out at least three successive levels of higher technology that the Taiwanese company would plan to acquire and adapt in the next several months before starting with the training on the first hi-tech innovation pitch to the customer. In other words, before Rank 45 is licensed, the Taiwanese company should have convinced the potential donor of hi-tech, what it would do with Rank 50 and Rank 55 technologies, how they would be adapted to Asian markets, and how they would be marketed. Clearly, Ranks 50 and 55 (or similarly higher ranks) are already available from the technology donor. One characteristic com-
252 m e n to higher-level technologies is that they generally make better products more cheaply. In terms of the production function, the same output produces higher (better) outputs, making the production function more efficient.
Taiwan stands ready to make technology transfer - under the right conditions... [which he calls] "High protection for High Technology"." (Present author's italics)
REFERENCES 5.3 IBM Taiwan, a possible hi-tech transfer source Is there any support to the proposed midlevel technology transfer? The comments made on the Trade Drain book [2] to Asian Computer Monthly by Barry B. Lennon, the Chairman of the Board of IBM Taiwan L t d . , w h i c h accounts for more than a third of Taiwan's hi-tech earnings, are encouraging: "When he proposes that multinationals license specific technology to NICs, he shows how the inventive capabilities of the West can be combined with the innovative capabilities of the East by working out quite realistic a scale o f dual p a y m e n t s - a fee for technology use; and a share of the new markets the recipient country newly develops... He has done an invaluable service by carefully selecting a sample of Taiwan firms from the three leading export industries and talking to the top management for 5 h o u r s to' two days to determine specific hi-technology areas that they will like to see made available. Many of the 15 areas he has identified are areas which 1BM
1 Robert W. Grubbstrbm, 1985. International cooperation in research and development and technology transfer. In: Prec. 12th Int. Small Business Congr., Taipei, Taiwan, 11 September, 1985. 2 Chaeko, G.K., 1985. Trade Drain Imperative of Technology Transfer - U.S.-Taiwan Concomitant Coalitions. Petroeelli, Princeton, NJ, U.S.A. 3 Robert N. Noyee, 1977. Microelectronics. Scientific American, 3 (sept).
(Received September 30, 1985; accepted October 22, 19851
BIOGRAPHICAL NOTE Dr. George K. Chacko, Professor of Systems Science with the University of Southern California, was Senior Fulbright Professor at National Chengchi University, Taiwan's premier National University in management science, in 1 9 8 3 - 8 4 and 1984-85. His research for the National Science Council of Taiwan, published as Trade Drain Imperative of Technology Transfer - U.S.-Taiwan Concomitant Coalitions (Petrocelli Books, Princeton, NJ, USA), offers a macro-perspective of high-technology transfer with significant implications for micro p r o d u c t i o n functions, which the Editors feel w o u l d b e of interest to readers of Engineering Costs and Production Economics.