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Government research and its utilization by industry: The case of industrial civil research in India
55
Government research and its utilization by industrv: The case of industrial civil research in Indii *
Ghayur National
ALAM Council
of Applied Economic Research, 1 I, I. P. Estate, New Delhi 110002, India
John LANGRISH Insiitute
of Advanced Studies, Manchester
Final version received
November
Po!ytechnic, All Saints, Manchester
GBH, UK
1983
In the past, efforts of less developed countries (LDCs) to promote utilization of government research have concentrated on narrowing the communication gap between research laboratories and industry. On the whole these attempts seem to have failed. This paper examines the extent of utilization of government civil research by industry and the steps undertaken by the government to increase research utilization in India. It shows that the proportion of research utilization in India is indeed very low; in our sample 85 percent of the licensed processes were not put into production. In our view government policy needs to take into account the fact that small and large firms have different reasons for their failure to use government research. In the past, small firms have shown considerable interest in government research but failed because they lacked technical resources. To enable these firms to use government research successfully, it is essential that increased development activities are undertaken by government agencies. Interestingly, as our study shows, the expenditure by government agencies on development activities has been considerably reduced. On the other hand, to interest the large firms in using government research, where little demand exists at present, it is essential that government policy should not only discourage the import of technology but, more importantly, encourage changes in the socio-economic structure which is mainly responsible for demand in the LDCs for products that can only be manufac-
* The authors would like to thank Dr. H.S. Rao, Managing Director of NRDC and his staff for their help in the collection of the information on which this study is based. They are also grateful to Mr. A.K. Sen, Member Secretary, Board of Award for Import Substitution, Government of India, for his advice and support and to two anonymous referees of this journal for their very useful comments. Research Policy 13 (1984) 55-61 North-Holland 0048-7333/84/$3.00
Ml5
0 1984, Elsevier Science Publishers
tured by the use of sophisticated, and often imported, technology. In the absence of such changes the activities of government research laboratories will become even more isolated from production.
1. Introduction
From the experience of the last three decades it has become apparent that although governments in many LDCs consider research and development activities to be an important part of their development strategy, their efforts in promoting utilization of locally developed technology have not been very successful and that government R&D has not contributed significantly to the country’s industrial output. For example, it has been estimated that in the case of India the contribution of processes developed by government laboratories to industrial output has been less than 1 percent [l]. (Similar observations have been made in the case of Pakistan [2] and Turkey [3].) Science planners have attributed the disappointing contribution of R&D in these countries to a lack of communication between the government laboratories and industry [4;5]. According to them the problem can be solved by merely strengthening the links between laboratory and industry and by using modern management methods, presumably to be imported from developed countries. The basic assumption underlying these suggestions has been that a considerable demand exists in LDCs
B.V. (North-Holland)
56
G. Alam and J. Lungrish / Indus~~ul civil research in Indiu
for the processes and know-how developed by these laboratories and steps to facilitate transfer of technology from them to industry would be sufficient to ensure greater utilization of R&D. As this has been the predominant view among science planners in these countries a number of steps have been taken in this direction. The most notable of these has been the creation of special organizations, (such as the National Research and Development Corporation (NRDC) in India), to publicize the results of R&D to industry, and help in its transfer from the laboratories to industry [5]. Many government laboratories have also established special liaison units to co-ordinate their efforts to license their know-how to industry. But there are indications to suggest that these efforts to interest industry in using the know-how developed in government laboratories have not resulted in greater utilization of such know-how in production. As mentioned earlier, the contribution of R&D to the national production of these countries has been slight. Moreover, the number of processes licensed has not increased significantly over the years and a large number of processes, when licensed, have not been used in production (see below). This paper is mainly concerned with examining the extent to which the Indian Government’s efforts to bridge the gap between laboratories and industry by creating the NRDC have been successful, the reasons for success or failure and the implications for the future performance of government research within India. It is based on information provided by the CSIR labs and NRDC, interviews with CSIR scientists and correspondence between the NRDC and the licensees. Most of the scientific research in India with possible application in industry is organized by the Council of Scientific and Industrial Research (CSIR). In 1970 it employed 14,000 scientific personnel and has been responsible for 75 percent of the processes referred to NRDC in the past ‘. CSIR was established in 1942 to conduct limited research into local raw materials and was the result of the fact that the colonial government in India was cut off from its supplies during World War II. After independence the government of India expanded the research facilities in the CSIR considerably. New laboratories were opened and the existing
ones were expanded to cover new areas of research. As a result the research expenditure in the CSIR increased from Rs 50 million in 1958 to Rs 414 million in 1976 [7]. To promote the use of the results of these research activities and to act as a link between research organizations and industry, the National Research and Development Corporation was established in 1953. The Corporation’s main aim is to publicize and license the processes referred to it by research organizations, especially those referred by the CSIR laboratories. It publicizes the processes available for licensing through its publication Invention Intelligence and by arranging seminars and get-togethers for scientists and industrialists.
2. Utilization of government research by industry In the case of India there are some indications that the results of government R&D have not been used by local industry to a very significant extent. We have already mentioned the small contribution that government R&D has made to national production. This is also borne out by the low proportion of the processes referred to NRDC that have been used by industry. According to NRDC, out of a total of 2015 processes referred to up to 1978, 886 (44 percent) were licensed to industry of which only 369 (18 percent) were reported to have undergone production [8]. In fact these figures may be an overestimate as they include a number of cases where production was stopped soon after it commenced due to problems arising in the use of the know-how. To examine more thoroughly the success and failure of these processes in production, we studied a sample of 33 processes licensed by NRDC in 1973. Although the sample is not large enough to draw definite
Table 1 State of processes
by the authors
from the NRDC
Annual
Reports.
in 1973 Number
Processes licensed in 1973 but not used Processes licensed in 1973, used and stopped Processes licensed in 1973 being used in 1980 Total
’ Calculated
licensed
% of total
11
33
17
52
5
15
33
100
G. Alam and J. Langrish / Industrial civil research in India
conclusions and a time lag of 7 years may not be long enough for commercialization of know-how in every case, this analysis provides some indication of the reasons responsible for the failure in these cases. As shown in table 1, only in the case of five licensees were the firms still reporting successful production. This very low proportion of licensees reporting production (15 percent) after 7 years highlights the high failure rate of the processes licensed by NRDC. To study the reasons for the high rate of failure in using the know-how we studied the correspondence between NRDC, the laboratories and the licensees in our sample. Out of the 28 cases where production had not started or stopped soon after, 15 had written to NRDC stating the problems they were facing in the use of the know-how. As shown in table 2, technical and marketing problems were the most frequently reported causes for the failure of the licensees to exploit CSIR technology. In most cases where technical problems were responsible, further development of the know-how was necessary (see below). In some of these cases this may be due to the overenthusiasm of CSIR and NRDC bureaucracy to push processes which were not ready for commercial exploitation. In the case of firms reporting marketing problems, the correspondence between NRDC and licensee revealed that these firms were unable to produce their products at a low enough price and could not sell them competitively. This was mainly because they had little previous business experience and lacked financial resources. As NRDC know-how attracts a number of engineering graduates who
Table 2 Problems responsible exploit the technology
for the failure commercially
of NRDC
Problem
1. 2. 3. 4. 5. 6.
licensees
to
No. of firms who experienced the problem
Imperfect technology Marketing problems Difficulty in procuring raw materials Problems with government departments Competitors allowed to import technology Lack of cooperation from research labs
I 6 3 2 1 1 a20
a Total number each.
of firms: 15. Five firms reported
two problems
51
wish to undertake manufacturing for the first time, this situation is not surprising and calls for assistance in management techniques as well as development work to bring down production costs. In three instances successful production could not be undertaken due to problems associated with raw materials. In two of these cases firms reported problems in procuring the raw materials, while in the the third case the price of the raw materials had increased to an unacceptable level. Two firms in our sample complained of bureaucratic obstacles in dealing with government departments. For example, in one case, where the product could only be marketed after its registration with a Government Board, long delays in registration had resulted in the failure of the licensee to undertake manufacture. It is interesting that in one case imports were responsible for the failure of the NRDC licensee. That imports were being allowed, even though the product was being manufactured by an Indian firm using CSIR technology was also confirmed by CSIR scientists, who cited a number of other examples. For instance, a process to manufacture succinic acid by electrolysis was developed by the scientists at Central Electra-Chemical Research Institute (CECRI, a CSIR laboratory) and a licence issued. The licensee was successful in manufacturing succinic acid by this process but soon found itself competing with imports, mainly by powerful multinational pharmaceutical firms. In spite of many complaints by the licensee, the import of succinic acid reportedly continues and is seriously affecting the NRDC licensee. In another example, a process to manufacture para-nitrobenzoic acid was developed at the same institute and a licence was issued, but the manufacturer faced competition from imports. Yet again, the main users and importers of para-nitrobenzoic acid were the multinational pharmaceutical firms. The situation has worsened since 1977 when government policy regarding imports was changed. According to the new policy, import of a product is allowed if there is only one manufacturer in the country [9]. Considering the fact that NRDC seems to prefer to restrict the licence to only one firm for the first few years (this was evident from the examples cited by the scientists where firms had approached NRDC for a licence, but the latter had been postponing the decision, apparently to give the first licensee sufficient time to concentrate
58
G. Alum und J. Lrrngrish / Industrial cwil research in Indra
on technical problems), it seems unavoidable that many licensees would face competition from imports with the resulting failure of their efforts.
As mentioned above, several licensees (7 out of 15) in our sample mentioned unsuitability of the know-how for production as the reason for their failure to commercialize it. In most of these cases further development work was necessary before the know-how could be used in production. As such activities required a large amount of capital and technical facilities, they could only be undertaken by firms of a substantial size. But as many of the large firms influence government policy regarding import and foreign collaboration and can afford to import technology from developed countries, they are seldom interested in using technology developed by national laboratories. In fact studies on India have shown that very few of the licences from NRDC have been taken by large firms and that most of NRDC’s licensees are small firms [l,p. 921. These firms are unable to undertake development work because of financial and technical constraints. The need to carry out development work has been recognized by NRDC from the early days of its existence. In 1957 it reported that industry expected it to provide assistance in the fabrication and design of plant [lo]. As a result, NRDC decided to undertake the necessary development work in co-operation with research institutes and industry. NRDC’s development activities formed an important part of its operation in the 1950s with a large and increasing proportion of its income being spent on these activities. In 1959-60 development expenditure was 34 percent of its total income. 2 This increased to 60 percent during the next year and continued at a very high level until 1964. 3 Unfortunately this activity, though extremely useful, could not be continued for long. Although by 1960 NRDC was claiming great success and
reporting increased confidence by industry in its know-how [ll], it was also facing serious financial problems. Due to the large sums it had spent on development activities, the Corporation had incurred heavy losses, which by 1963 had accumulated to Rs 1.71 million [12]. On a number of occasions it was forced to defend both the losses and the development expenditure [13;14]. NRDC rightly explained that the development expenditure should be seen as a long term investment and not be expected to bring immediate profits. Moreover, it argued that it was not a commercial organization whose success had to be judged by profits, that its main aim was to assist in the utilization of indigenous technology and that its performance should be strictly judged by that criterion. It suggested that the losses, incurred mainly because of its development activities, should be made good by the government as in the UK where, by a Development of Innovation Act, the British government reimburses the losses of the British NRDC. In fact the losses incurred by the NRDC were negligible compared to total government expenditure on research and development. For example, in 1964 government R&D expenditure was Rs 490 million [13] compared to Rs 0.29 million annual losses of NRDC. But in spite of the relatively small amount involved, the government pressure on NRDC to reduce its losses was strong and had immediate effect. NRDC drastically cut its development expenditure, from the 1963 level of 64 percent of its income to 30 percent in 1964 and no new project was initiated that year. 4 During the next few years development activities were stopped almost completely; by 1967-68 development expenditure had fallen to a mere 13 percent of income. ’ As mentioned above, development activities are crucial to enable the NRDC’s licensees to exploit its know-how commercially. The new policy, predictably, caused a set-back to efforts to narrow the gap between government R&D and its potential users. This policy continued until 1970. In 1971 the Corporation made profits for the first time in its history and development activities were restarted with the initiation of one project in
* Calculated
Report
4 Calculated
by the authors
from the NRDC
Annual
Report
Annual
(1964). ’ Calculated (1968).
by the authors
from the NRDC
Annual
Report
3. Suitability of government know-how for commercial exploitation
(1957). 3 Calculated Reports.
by the authors by
the
authors
from the NRDC from
various
Annual NRDC
G. Alam
and J. Langrish
/ Industrral
the same year. The development activities increased moderately over the following years with Ten new projects costing Rs 6.39 million sanctioned in 1972-73 [15]. This level did not change considerably over the years 1974, 1975 and 1976 [16]. But although the development activity has restarted, it is at a very low level compared to 1964 when the work was stopped. For example in 1975-76 the development expenditure was a mere Rs 43,980, which is even lower than the amount spent in 1957-58, This constitutes only 1.7 percent of the NRDC’s income and only 3 percent of its administrative expenditure, compared to the 64 percent of income spent on development in 1963. 6 Some authors have suggested that the main reason for research laboratories’ isolation from industry in LDCs is a lack of demand for local technology in the existing production system of these countries [17-191. Our study shows that 44 percent of the processes referred to NRDC have been licensed. This would give the impression that a considerable demand does exist for locally developed technology among the firms. But this demand is restricted almost exclusively to small firms, many of which are unable to utilize the know-how licensed to them. As a result, this demand does not result in utilization of locally developed technology to any significant extent and does not help to break the isolation of research laboratories from industry. We also found that once a large and technologically competent firm has perceived a demand that can be met by government reserach laboratories, the problems of communication do not pose serious obstacles in the successful development of know-how and its utilization. We were cited two examples by CSIR scientists where R&D efforts were initiated as a response to obvious demand in industry and the results in both cases have been very successful. In the first example the Central Electro-Chemical Research Institute was approached by the Alkali Manufacturers Association in 1967 to develop know-how for the manufacture of alternative anodes to replace graphite anodes. At the time the alkali industry in India was using only graphite anodes which had certain disadvantages. This involved heavy wastage due to corrosion, high maintenance cost, a very long down-time and large 6 Calculated Reports.
by the authors
from various
NRDC
Annual
civil research in Indra
s9
energy consumption. Also, perhaps most importantly, they had to be imported which was expensive and, at times, difficult. An alternative process to overcome some of these problems was first invented by a Dutch scientist working in Belgium who used platinized titanium anodes. Later the scientist moved to an Italian firm, Oronzio De Nora, which in 1967 initiated the manufacture of metal anodes. At the request of the Association, work on metal anodes was started at CECRI in 1969. By 1972, they had developed the anode and were ready to test it. A chloro-alkali cell using metal anodes was constructed and installed for testing purposes at a number of large textile and chemical firms who were potential users of the metal anodes. The results were succesful and the process licensed in 1976 to a firm located not far from the Institute. The firm had been involved with the Institute’s research on the anodes from its early days and had fabricated titanium structure for this. The venture is very successful and the firm has already supplied anodes to most of the plants in India. In another example, research to develop a fluorescent compound needed for coating tube lights was initiated as a result of a chance meeting between the Director of CECRI and a local industrialist already manufacturing tube lights. The fluorescent compound was supplied by the multinational electronics firm, Philips, who controlled most of the market in India. The industrialist wished to gain independence from suppliers and suggested that CECRI undertake the development work necessary for the manufacture of the compound. The firm has assisted the Institute in various ways, particularly by providing coating and testing facilities. The project has been successful and the Institute has already developed the knowhow for the manufacture of the powder used in blue and green lights, with work on white light nearing completion.
4. Effects of lack of R&D utilization on research activities of government laboratories Table 3 shows how the number of processes referred to NRDC have been steadily decreasing over the past few years. Whilst in 1973, 151 processes were referred to NRDC, the number had fallen to 90 by 1978. This
60
G. Alum und J. Langrish / Industrral cwil research in India
Table 3 Number of processes referred to NRDC Year No. of processes
1973 151
1974 102
fall in the inflow of new processes has been noted with concern by the Department of Science and Technology of the Government of India [7, p. 591 and the NRDC [20]. From our interviews with CSIR scientists it was found that this fall reflected: (1) an overall decrease in research activities in CSIR laboratories; (2) a diversion of research effort into activities that do not result in commercially exploitable know-how but provide the researcher with other benefits such as academic reputation etc. CSIR scientists interviewed claimed that the very low proportion of processes utilized, the resulting low royalties and lack of confidence in the ability of NRDC are responsible for this reduction in effort. Although until 1978 the CSIR scientists responsible for developing processes that were licensed to industry received 40 percent of the royalty earnings, the number of processes that had undergone production was extremely small, and thus the royalty payment received in most cases was negligible. Worse still, not all the firms using licensed processes in production are making regular royalty payments. By 1978 only one-fifth of the total royalty payment due was actually paid. The low rate of commercial utilization of the know-how and NRDC’s failure to collect the royalty payment has predictably caused frustration among scientists. This has worsened since 1978, when CSIR introduced’new regulations by which the scientists ceased to receive a share in the royalty payments for the licensed know-how. The lack of financial incentive has particularly demoralized CSIR scientists because of the low expenditure, both in salary and equipment, per scientist by CSIR as compared to the private sector. (In 1974 CSIR spent Rs 2100 per scientist as compared to Rs 3700 spent by the private sector [21 I.)
1975 120
1976 102
1977 97
1978 90
5. Conclusion The past attempts of the Indian government to increase utilization of know-how developed in government laboratories have concentrated upon bridging the gap between industry and laboratory. We consider that these attempts are based on the incorrect assumption that the main cause for the small utilization of government know-how is the lack of awareness in industry of the activities of government research laboratories. Not surprisingly, they have not been very successful. In our view the main problems are that: (1) The large firms, although aware of the research activities of government laboratories and the know-how available for commercialization are not interested in using it. The prefer and can afford to import technology from developed countries. (2) The small firms, who constitute an overwhelmingly large proportion of NRDC licensees, lack financial and technological resources. As a result, they are unable to exploit the licensed know-how commercially. This is evident from the fact that 85 percent of the licensees in our sample failed to undertake successful production. In a large number of cases, technological problems were the main reason for the licensees’ failure to use the know-how in production. These problems are made worse by the reduced expenditure on development work by NRDC and research laboratories. Unless and until the government can induce or force the large and resourceful firms to use the results of government research, the only hope of an increased proportion of licences resulting in successful production will be by providing the licensee with technology which is fully developed and can easily be exploited by small firms. Another important problem faced by the small firm attempting to use locally developed know-how is competition from imported products. In many cases large firms are able to influence government policy regarding imports of products and technol-
G. Alam and J. Lungrish / Industrial civil research in India
ogy and its implementation to their advantage. The fact that in the cases mentioned to us by CSIR scientists, the users of the imported product were large multinational firms, indicates the power and influence that can be brought to bear on the policy makers and how it defeats the attempts of small firms to use government know-how. The study has important bearings on any government policy aimed to increase the utilization of locally developed technology by industry. The policiy would have to take into account that there is a considerable number of small firms who are interested in using such technology but have little technical competence to exploit it commercially. To help these firms use government research, greater attention will have to be paid to development activities. It should be possible to identify such technology as the small firms are mostly interested in simpler technology that does not involve large investment, and development work can be concentrated on them. On the other hand, to induce a significant proportion of large firms, among whom little demand for the technology developed in government laboratories exists at present, to use the know-how, it is essential that government policy not only discourages the import of technology but more importantly encourages changes in the socio-economic structure which, as some authors have pointed out, is mainly responsible for demand in LDCs for products that often lead to the import of technology [17, p. 51. In the absence of such changes, the activities of government scientists are likely to become even more isolated from production as more and more scientists continue to divert their efforts into academic research.
61
References [l] A.V. Desai, The Origin and Direction of Industrial R&D in India, Research Policy 9 (1980) 91. [2] Mehbubal Haq, Western Investment in Scientific Research, in Ward Morehouse (ed.) Science and the Human Condition in India and Pakisian (Rockefeller University Press, New York 1968). [3] Ergun Turkcan, The Limits of Science Policy in a Developing Country: The Turkish Case, Research Policy 2 (1974). (41 Y. Nayudamma, Decentralised Management of R&D in a developing country, Minvera XI (4) (October 1973). [5] Y. Nayudamma, Use of Science and Technology in Developing Countries: Some Problems and Approaches, in Ward Morehouse (ed) Science and the Human Condition in India and Pakistan (Rockefeller University Press, New York, 1968). [6] NRDC Annual Report 1955 (New Delhi, 1955). [7] Department of Science and Technology, Research and Development Statistics, 1976 - 77 (New Delhi, undated). [S] NRDC, Annual Report 1977-78 (New Delhi, 1978). [9] Interview with an officer (name withheld) of the Directorate General of Technical Development, Government of India (New Delhi, 1979). [lo] NRDC, Annual Report 1956-57 (New Delhi, 1957). [ll] NRDC, Annual Report 1959-60 (New Delhi, 1960). [12] NRDC, Annual Report 1962-63 (New Delhi, 1963). [13] NRDC, Annual Reporf 1963-64 (New Delhi, 1964). (141 NRDC, Annual Report 1969- 70 (New Delhi, 1970). [15] NRDC, Annual Reporf 1972- 73 (New Delhi, 1973). [16] NRDC, Annual Reports 1973-74 to 1975-76 (New Delhi, 1974, 1975, 1976). [17] Charles Cooper, Science, Technology and Production in Underdeveloped Countries, Journal of Development S&dies (October 1972). 1181 Charles Cooper, Science Policy and Technological Change in Underdeveloped Economies, World Development 2 (3) (March 1974). [19] Amilcar Harrera, Social Determinants of Science Policy in Latin America, Journal of Developmenf Studies (October 1972). [20] NRDC, Annual Report 1976 - 77 (New Delhi, 1977). [21] Department of Science and Technology, Handbook of R&D Statistics 1974-75 (New Delhi, 1977) quoted in [l, p. 851.
Government research and its utilization by industrv: The case of industrial civil research in Indii *
Ghayur National
ALAM Council
of Applied Economic Research, 1 I, I. P. Estate, New Delhi 110002, India
John LANGRISH Insiitute
of Advanced Studies, Manchester
Final version received
November
Po!ytechnic, All Saints, Manchester
GBH, UK
1983
In the past, efforts of less developed countries (LDCs) to promote utilization of government research have concentrated on narrowing the communication gap between research laboratories and industry. On the whole these attempts seem to have failed. This paper examines the extent of utilization of government civil research by industry and the steps undertaken by the government to increase research utilization in India. It shows that the proportion of research utilization in India is indeed very low; in our sample 85 percent of the licensed processes were not put into production. In our view government policy needs to take into account the fact that small and large firms have different reasons for their failure to use government research. In the past, small firms have shown considerable interest in government research but failed because they lacked technical resources. To enable these firms to use government research successfully, it is essential that increased development activities are undertaken by government agencies. Interestingly, as our study shows, the expenditure by government agencies on development activities has been considerably reduced. On the other hand, to interest the large firms in using government research, where little demand exists at present, it is essential that government policy should not only discourage the import of technology but, more importantly, encourage changes in the socio-economic structure which is mainly responsible for demand in the LDCs for products that can only be manufac-
* The authors would like to thank Dr. H.S. Rao, Managing Director of NRDC and his staff for their help in the collection of the information on which this study is based. They are also grateful to Mr. A.K. Sen, Member Secretary, Board of Award for Import Substitution, Government of India, for his advice and support and to two anonymous referees of this journal for their very useful comments. Research Policy 13 (1984) 55-61 North-Holland 0048-7333/84/$3.00
Ml5
0 1984, Elsevier Science Publishers
tured by the use of sophisticated, and often imported, technology. In the absence of such changes the activities of government research laboratories will become even more isolated from production.
1. Introduction
From the experience of the last three decades it has become apparent that although governments in many LDCs consider research and development activities to be an important part of their development strategy, their efforts in promoting utilization of locally developed technology have not been very successful and that government R&D has not contributed significantly to the country’s industrial output. For example, it has been estimated that in the case of India the contribution of processes developed by government laboratories to industrial output has been less than 1 percent [l]. (Similar observations have been made in the case of Pakistan [2] and Turkey [3].) Science planners have attributed the disappointing contribution of R&D in these countries to a lack of communication between the government laboratories and industry [4;5]. According to them the problem can be solved by merely strengthening the links between laboratory and industry and by using modern management methods, presumably to be imported from developed countries. The basic assumption underlying these suggestions has been that a considerable demand exists in LDCs
B.V. (North-Holland)
56
G. Alam and J. Lungrish / Indus~~ul civil research in Indiu
for the processes and know-how developed by these laboratories and steps to facilitate transfer of technology from them to industry would be sufficient to ensure greater utilization of R&D. As this has been the predominant view among science planners in these countries a number of steps have been taken in this direction. The most notable of these has been the creation of special organizations, (such as the National Research and Development Corporation (NRDC) in India), to publicize the results of R&D to industry, and help in its transfer from the laboratories to industry [5]. Many government laboratories have also established special liaison units to co-ordinate their efforts to license their know-how to industry. But there are indications to suggest that these efforts to interest industry in using the know-how developed in government laboratories have not resulted in greater utilization of such know-how in production. As mentioned earlier, the contribution of R&D to the national production of these countries has been slight. Moreover, the number of processes licensed has not increased significantly over the years and a large number of processes, when licensed, have not been used in production (see below). This paper is mainly concerned with examining the extent to which the Indian Government’s efforts to bridge the gap between laboratories and industry by creating the NRDC have been successful, the reasons for success or failure and the implications for the future performance of government research within India. It is based on information provided by the CSIR labs and NRDC, interviews with CSIR scientists and correspondence between the NRDC and the licensees. Most of the scientific research in India with possible application in industry is organized by the Council of Scientific and Industrial Research (CSIR). In 1970 it employed 14,000 scientific personnel and has been responsible for 75 percent of the processes referred to NRDC in the past ‘. CSIR was established in 1942 to conduct limited research into local raw materials and was the result of the fact that the colonial government in India was cut off from its supplies during World War II. After independence the government of India expanded the research facilities in the CSIR considerably. New laboratories were opened and the existing
ones were expanded to cover new areas of research. As a result the research expenditure in the CSIR increased from Rs 50 million in 1958 to Rs 414 million in 1976 [7]. To promote the use of the results of these research activities and to act as a link between research organizations and industry, the National Research and Development Corporation was established in 1953. The Corporation’s main aim is to publicize and license the processes referred to it by research organizations, especially those referred by the CSIR laboratories. It publicizes the processes available for licensing through its publication Invention Intelligence and by arranging seminars and get-togethers for scientists and industrialists.
2. Utilization of government research by industry In the case of India there are some indications that the results of government R&D have not been used by local industry to a very significant extent. We have already mentioned the small contribution that government R&D has made to national production. This is also borne out by the low proportion of the processes referred to NRDC that have been used by industry. According to NRDC, out of a total of 2015 processes referred to up to 1978, 886 (44 percent) were licensed to industry of which only 369 (18 percent) were reported to have undergone production [8]. In fact these figures may be an overestimate as they include a number of cases where production was stopped soon after it commenced due to problems arising in the use of the know-how. To examine more thoroughly the success and failure of these processes in production, we studied a sample of 33 processes licensed by NRDC in 1973. Although the sample is not large enough to draw definite
Table 1 State of processes
by the authors
from the NRDC
Annual
Reports.
in 1973 Number
Processes licensed in 1973 but not used Processes licensed in 1973, used and stopped Processes licensed in 1973 being used in 1980 Total
’ Calculated
licensed
% of total
11
33
17
52
5
15
33
100
G. Alam and J. Langrish / Industrial civil research in India
conclusions and a time lag of 7 years may not be long enough for commercialization of know-how in every case, this analysis provides some indication of the reasons responsible for the failure in these cases. As shown in table 1, only in the case of five licensees were the firms still reporting successful production. This very low proportion of licensees reporting production (15 percent) after 7 years highlights the high failure rate of the processes licensed by NRDC. To study the reasons for the high rate of failure in using the know-how we studied the correspondence between NRDC, the laboratories and the licensees in our sample. Out of the 28 cases where production had not started or stopped soon after, 15 had written to NRDC stating the problems they were facing in the use of the know-how. As shown in table 2, technical and marketing problems were the most frequently reported causes for the failure of the licensees to exploit CSIR technology. In most cases where technical problems were responsible, further development of the know-how was necessary (see below). In some of these cases this may be due to the overenthusiasm of CSIR and NRDC bureaucracy to push processes which were not ready for commercial exploitation. In the case of firms reporting marketing problems, the correspondence between NRDC and licensee revealed that these firms were unable to produce their products at a low enough price and could not sell them competitively. This was mainly because they had little previous business experience and lacked financial resources. As NRDC know-how attracts a number of engineering graduates who
Table 2 Problems responsible exploit the technology
for the failure commercially
of NRDC
Problem
1. 2. 3. 4. 5. 6.
licensees
to
No. of firms who experienced the problem
Imperfect technology Marketing problems Difficulty in procuring raw materials Problems with government departments Competitors allowed to import technology Lack of cooperation from research labs
I 6 3 2 1 1 a20
a Total number each.
of firms: 15. Five firms reported
two problems
51
wish to undertake manufacturing for the first time, this situation is not surprising and calls for assistance in management techniques as well as development work to bring down production costs. In three instances successful production could not be undertaken due to problems associated with raw materials. In two of these cases firms reported problems in procuring the raw materials, while in the the third case the price of the raw materials had increased to an unacceptable level. Two firms in our sample complained of bureaucratic obstacles in dealing with government departments. For example, in one case, where the product could only be marketed after its registration with a Government Board, long delays in registration had resulted in the failure of the licensee to undertake manufacture. It is interesting that in one case imports were responsible for the failure of the NRDC licensee. That imports were being allowed, even though the product was being manufactured by an Indian firm using CSIR technology was also confirmed by CSIR scientists, who cited a number of other examples. For instance, a process to manufacture succinic acid by electrolysis was developed by the scientists at Central Electra-Chemical Research Institute (CECRI, a CSIR laboratory) and a licence issued. The licensee was successful in manufacturing succinic acid by this process but soon found itself competing with imports, mainly by powerful multinational pharmaceutical firms. In spite of many complaints by the licensee, the import of succinic acid reportedly continues and is seriously affecting the NRDC licensee. In another example, a process to manufacture para-nitrobenzoic acid was developed at the same institute and a licence was issued, but the manufacturer faced competition from imports. Yet again, the main users and importers of para-nitrobenzoic acid were the multinational pharmaceutical firms. The situation has worsened since 1977 when government policy regarding imports was changed. According to the new policy, import of a product is allowed if there is only one manufacturer in the country [9]. Considering the fact that NRDC seems to prefer to restrict the licence to only one firm for the first few years (this was evident from the examples cited by the scientists where firms had approached NRDC for a licence, but the latter had been postponing the decision, apparently to give the first licensee sufficient time to concentrate
58
G. Alum und J. Lrrngrish / Industrial cwil research in Indra
on technical problems), it seems unavoidable that many licensees would face competition from imports with the resulting failure of their efforts.
As mentioned above, several licensees (7 out of 15) in our sample mentioned unsuitability of the know-how for production as the reason for their failure to commercialize it. In most of these cases further development work was necessary before the know-how could be used in production. As such activities required a large amount of capital and technical facilities, they could only be undertaken by firms of a substantial size. But as many of the large firms influence government policy regarding import and foreign collaboration and can afford to import technology from developed countries, they are seldom interested in using technology developed by national laboratories. In fact studies on India have shown that very few of the licences from NRDC have been taken by large firms and that most of NRDC’s licensees are small firms [l,p. 921. These firms are unable to undertake development work because of financial and technical constraints. The need to carry out development work has been recognized by NRDC from the early days of its existence. In 1957 it reported that industry expected it to provide assistance in the fabrication and design of plant [lo]. As a result, NRDC decided to undertake the necessary development work in co-operation with research institutes and industry. NRDC’s development activities formed an important part of its operation in the 1950s with a large and increasing proportion of its income being spent on these activities. In 1959-60 development expenditure was 34 percent of its total income. 2 This increased to 60 percent during the next year and continued at a very high level until 1964. 3 Unfortunately this activity, though extremely useful, could not be continued for long. Although by 1960 NRDC was claiming great success and
reporting increased confidence by industry in its know-how [ll], it was also facing serious financial problems. Due to the large sums it had spent on development activities, the Corporation had incurred heavy losses, which by 1963 had accumulated to Rs 1.71 million [12]. On a number of occasions it was forced to defend both the losses and the development expenditure [13;14]. NRDC rightly explained that the development expenditure should be seen as a long term investment and not be expected to bring immediate profits. Moreover, it argued that it was not a commercial organization whose success had to be judged by profits, that its main aim was to assist in the utilization of indigenous technology and that its performance should be strictly judged by that criterion. It suggested that the losses, incurred mainly because of its development activities, should be made good by the government as in the UK where, by a Development of Innovation Act, the British government reimburses the losses of the British NRDC. In fact the losses incurred by the NRDC were negligible compared to total government expenditure on research and development. For example, in 1964 government R&D expenditure was Rs 490 million [13] compared to Rs 0.29 million annual losses of NRDC. But in spite of the relatively small amount involved, the government pressure on NRDC to reduce its losses was strong and had immediate effect. NRDC drastically cut its development expenditure, from the 1963 level of 64 percent of its income to 30 percent in 1964 and no new project was initiated that year. 4 During the next few years development activities were stopped almost completely; by 1967-68 development expenditure had fallen to a mere 13 percent of income. ’ As mentioned above, development activities are crucial to enable the NRDC’s licensees to exploit its know-how commercially. The new policy, predictably, caused a set-back to efforts to narrow the gap between government R&D and its potential users. This policy continued until 1970. In 1971 the Corporation made profits for the first time in its history and development activities were restarted with the initiation of one project in
* Calculated
Report
4 Calculated
by the authors
from the NRDC
Annual
Report
Annual
(1964). ’ Calculated (1968).
by the authors
from the NRDC
Annual
Report
3. Suitability of government know-how for commercial exploitation
(1957). 3 Calculated Reports.
by the authors by
the
authors
from the NRDC from
various
Annual NRDC
G. Alam
and J. Langrish
/ Industrral
the same year. The development activities increased moderately over the following years with Ten new projects costing Rs 6.39 million sanctioned in 1972-73 [15]. This level did not change considerably over the years 1974, 1975 and 1976 [16]. But although the development activity has restarted, it is at a very low level compared to 1964 when the work was stopped. For example in 1975-76 the development expenditure was a mere Rs 43,980, which is even lower than the amount spent in 1957-58, This constitutes only 1.7 percent of the NRDC’s income and only 3 percent of its administrative expenditure, compared to the 64 percent of income spent on development in 1963. 6 Some authors have suggested that the main reason for research laboratories’ isolation from industry in LDCs is a lack of demand for local technology in the existing production system of these countries [17-191. Our study shows that 44 percent of the processes referred to NRDC have been licensed. This would give the impression that a considerable demand does exist for locally developed technology among the firms. But this demand is restricted almost exclusively to small firms, many of which are unable to utilize the know-how licensed to them. As a result, this demand does not result in utilization of locally developed technology to any significant extent and does not help to break the isolation of research laboratories from industry. We also found that once a large and technologically competent firm has perceived a demand that can be met by government reserach laboratories, the problems of communication do not pose serious obstacles in the successful development of know-how and its utilization. We were cited two examples by CSIR scientists where R&D efforts were initiated as a response to obvious demand in industry and the results in both cases have been very successful. In the first example the Central Electro-Chemical Research Institute was approached by the Alkali Manufacturers Association in 1967 to develop know-how for the manufacture of alternative anodes to replace graphite anodes. At the time the alkali industry in India was using only graphite anodes which had certain disadvantages. This involved heavy wastage due to corrosion, high maintenance cost, a very long down-time and large 6 Calculated Reports.
by the authors
from various
NRDC
Annual
civil research in Indra
s9
energy consumption. Also, perhaps most importantly, they had to be imported which was expensive and, at times, difficult. An alternative process to overcome some of these problems was first invented by a Dutch scientist working in Belgium who used platinized titanium anodes. Later the scientist moved to an Italian firm, Oronzio De Nora, which in 1967 initiated the manufacture of metal anodes. At the request of the Association, work on metal anodes was started at CECRI in 1969. By 1972, they had developed the anode and were ready to test it. A chloro-alkali cell using metal anodes was constructed and installed for testing purposes at a number of large textile and chemical firms who were potential users of the metal anodes. The results were succesful and the process licensed in 1976 to a firm located not far from the Institute. The firm had been involved with the Institute’s research on the anodes from its early days and had fabricated titanium structure for this. The venture is very successful and the firm has already supplied anodes to most of the plants in India. In another example, research to develop a fluorescent compound needed for coating tube lights was initiated as a result of a chance meeting between the Director of CECRI and a local industrialist already manufacturing tube lights. The fluorescent compound was supplied by the multinational electronics firm, Philips, who controlled most of the market in India. The industrialist wished to gain independence from suppliers and suggested that CECRI undertake the development work necessary for the manufacture of the compound. The firm has assisted the Institute in various ways, particularly by providing coating and testing facilities. The project has been successful and the Institute has already developed the knowhow for the manufacture of the powder used in blue and green lights, with work on white light nearing completion.
4. Effects of lack of R&D utilization on research activities of government laboratories Table 3 shows how the number of processes referred to NRDC have been steadily decreasing over the past few years. Whilst in 1973, 151 processes were referred to NRDC, the number had fallen to 90 by 1978. This
60
G. Alum und J. Langrish / Industrral cwil research in India
Table 3 Number of processes referred to NRDC Year No. of processes
1973 151
1974 102
fall in the inflow of new processes has been noted with concern by the Department of Science and Technology of the Government of India [7, p. 591 and the NRDC [20]. From our interviews with CSIR scientists it was found that this fall reflected: (1) an overall decrease in research activities in CSIR laboratories; (2) a diversion of research effort into activities that do not result in commercially exploitable know-how but provide the researcher with other benefits such as academic reputation etc. CSIR scientists interviewed claimed that the very low proportion of processes utilized, the resulting low royalties and lack of confidence in the ability of NRDC are responsible for this reduction in effort. Although until 1978 the CSIR scientists responsible for developing processes that were licensed to industry received 40 percent of the royalty earnings, the number of processes that had undergone production was extremely small, and thus the royalty payment received in most cases was negligible. Worse still, not all the firms using licensed processes in production are making regular royalty payments. By 1978 only one-fifth of the total royalty payment due was actually paid. The low rate of commercial utilization of the know-how and NRDC’s failure to collect the royalty payment has predictably caused frustration among scientists. This has worsened since 1978, when CSIR introduced’new regulations by which the scientists ceased to receive a share in the royalty payments for the licensed know-how. The lack of financial incentive has particularly demoralized CSIR scientists because of the low expenditure, both in salary and equipment, per scientist by CSIR as compared to the private sector. (In 1974 CSIR spent Rs 2100 per scientist as compared to Rs 3700 spent by the private sector [21 I.)
1975 120
1976 102
1977 97
1978 90
5. Conclusion The past attempts of the Indian government to increase utilization of know-how developed in government laboratories have concentrated upon bridging the gap between industry and laboratory. We consider that these attempts are based on the incorrect assumption that the main cause for the small utilization of government know-how is the lack of awareness in industry of the activities of government research laboratories. Not surprisingly, they have not been very successful. In our view the main problems are that: (1) The large firms, although aware of the research activities of government laboratories and the know-how available for commercialization are not interested in using it. The prefer and can afford to import technology from developed countries. (2) The small firms, who constitute an overwhelmingly large proportion of NRDC licensees, lack financial and technological resources. As a result, they are unable to exploit the licensed know-how commercially. This is evident from the fact that 85 percent of the licensees in our sample failed to undertake successful production. In a large number of cases, technological problems were the main reason for the licensees’ failure to use the know-how in production. These problems are made worse by the reduced expenditure on development work by NRDC and research laboratories. Unless and until the government can induce or force the large and resourceful firms to use the results of government research, the only hope of an increased proportion of licences resulting in successful production will be by providing the licensee with technology which is fully developed and can easily be exploited by small firms. Another important problem faced by the small firm attempting to use locally developed know-how is competition from imported products. In many cases large firms are able to influence government policy regarding imports of products and technol-
G. Alam and J. Lungrish / Industrial civil research in India
ogy and its implementation to their advantage. The fact that in the cases mentioned to us by CSIR scientists, the users of the imported product were large multinational firms, indicates the power and influence that can be brought to bear on the policy makers and how it defeats the attempts of small firms to use government know-how. The study has important bearings on any government policy aimed to increase the utilization of locally developed technology by industry. The policiy would have to take into account that there is a considerable number of small firms who are interested in using such technology but have little technical competence to exploit it commercially. To help these firms use government research, greater attention will have to be paid to development activities. It should be possible to identify such technology as the small firms are mostly interested in simpler technology that does not involve large investment, and development work can be concentrated on them. On the other hand, to induce a significant proportion of large firms, among whom little demand for the technology developed in government laboratories exists at present, to use the know-how, it is essential that government policy not only discourages the import of technology but more importantly encourages changes in the socio-economic structure which, as some authors have pointed out, is mainly responsible for demand in LDCs for products that often lead to the import of technology [17, p. 51. In the absence of such changes, the activities of government scientists are likely to become even more isolated from production as more and more scientists continue to divert their efforts into academic research.
61
References [l] A.V. Desai, The Origin and Direction of Industrial R&D in India, Research Policy 9 (1980) 91. [2] Mehbubal Haq, Western Investment in Scientific Research, in Ward Morehouse (ed.) Science and the Human Condition in India and Pakisian (Rockefeller University Press, New York 1968). [3] Ergun Turkcan, The Limits of Science Policy in a Developing Country: The Turkish Case, Research Policy 2 (1974). (41 Y. Nayudamma, Decentralised Management of R&D in a developing country, Minvera XI (4) (October 1973). [5] Y. Nayudamma, Use of Science and Technology in Developing Countries: Some Problems and Approaches, in Ward Morehouse (ed) Science and the Human Condition in India and Pakistan (Rockefeller University Press, New York, 1968). [6] NRDC Annual Report 1955 (New Delhi, 1955). [7] Department of Science and Technology, Research and Development Statistics, 1976 - 77 (New Delhi, undated). [S] NRDC, Annual Report 1977-78 (New Delhi, 1978). [9] Interview with an officer (name withheld) of the Directorate General of Technical Development, Government of India (New Delhi, 1979). [lo] NRDC, Annual Report 1956-57 (New Delhi, 1957). [ll] NRDC, Annual Report 1959-60 (New Delhi, 1960). [12] NRDC, Annual Report 1962-63 (New Delhi, 1963). [13] NRDC, Annual Reporf 1963-64 (New Delhi, 1964). (141 NRDC, Annual Report 1969- 70 (New Delhi, 1970). [15] NRDC, Annual Reporf 1972- 73 (New Delhi, 1973). [16] NRDC, Annual Reports 1973-74 to 1975-76 (New Delhi, 1974, 1975, 1976). [17] Charles Cooper, Science, Technology and Production in Underdeveloped Countries, Journal of Development S&dies (October 1972). 1181 Charles Cooper, Science Policy and Technological Change in Underdeveloped Economies, World Development 2 (3) (March 1974). [19] Amilcar Harrera, Social Determinants of Science Policy in Latin America, Journal of Developmenf Studies (October 1972). [20] NRDC, Annual Report 1976 - 77 (New Delhi, 1977). [21] Department of Science and Technology, Handbook of R&D Statistics 1974-75 (New Delhi, 1977) quoted in [l, p. 851.