Technology Transfer: Some Systematic Views

Copyright IFAC Systems Approach (0 Appropriate Technology Transff'ro \Oi('nna o ,·\ustria 19H3

TECHNOLOGY TRANSFER: SOME SYSTEMATIC VIEWS T. Vasko International Institute for Applled Systems Analysis (IIASA), Laxenburg, Austrza

Abstract. The transfer of technology is becoming an important issue in economicall y o riented liter ature. It is also an important variable of the majority of economic policies. To assess the relevance of this phenomenon in th e r ecent interdependent world is by no means easy, but it could be a potentially rewarding activity . This paper is an attempt to briefly review the main direction of th e int ernationa l transfer of technology and to describe the prevailing forms a nd actors. It illustrates the difficulty of measuring the flow of technology and discusses some indicators used. This paper also argu~s the fact tha t the importance of t echno logy transfer for industrial policy d~sign will grow and points out some issues deserving further study. ~eywords.

Technology tr
1 :-.lTRO DL'CT 1O:-.l

context is especia lly used in works describing th e transfer of technically relevant knowledge between two or more actors--"Technology transfer is the process by which science and technology are diffused throughout human activity" (Brooks, 1967). The latter case is then synonymous with the diffusion of technology. If the two actors between which tile transfer takes place are in different countries, this is called hltemational technology transfer. Looking at it frorr a firm's (or branch's) point of view one distinguishes (Rrooks, 1967) hetween ve r ti cal transfer (usually within an institution) and horizon:~ Z transfer (among institutions or different branches of industry).

The process of t ec hnology related knowledge transfer i s QS old os civ ilization itself and yet it de fies an e
GEOCRAPHY OF TECHNOLOGY

Last century pconnmists sta rt ed to pay atten rion to te c hnolo gv, hut th e transfer process has attrac t ed most attention in the pr ese nt centu r y , especiallY the latter half. As we ;dth, devoted tn R&D, in c r eased so the importance of channelling t!:e results pro ce ss to the economv proportionally incre ased (for e xampl e . Lesher ;:md Hm,'ick, 1966). So initially , wo rk foe us sed on transfer inside a countrv and somewhat later the international ingred i ents heeame involv ed .

TRA~SFER

~ith

the advancing internationalization of science and industry (or its global integration) the international transfer of technology approaches the center of interest with many, and different, kinds of stimuli, impacts, and forms. It is worth mentioning that the transf er of basic technologies has always had an international component. Perhaps it may also be of interest to briefly review the international transfer of technology according to basic "directions" which pose certain peculia r problems and require specific solutions.

SE'lA\TICS Io.,[ST -

Tec hn o l ogy trans fe r has no generally accepted definition and ranges from general application of science and technol og y (Holomon, 1967) "Technol ogy transfer is a special case of t echno l ogical change " to the definit i on describing only the process itself. The latter

WEST

The most significant direction of technology transfer has been from west to west. The most celebrated case is that of Japan acquiring foreign technology. Even in recent years when Japan developed its research capability its

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T. Vasko

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balance of trade in technology IS still believed to be negative. With the slackening development of world economy and the increase in competition from newly developed countries, technology transfer is being studied in order to better understand its longer-term impacts and to devise ways of controlling it in line with national interests (Robock, 1980; NAS, 1978). The pattern of technology flow, once centered around the US, became more diffused and "omnidirectional". It also became sensitive to specific branches and somewhat confused by the difficulty of assessing the role of multinational corporations. This source of new technology and the actors in technology transfer are responsible for the detectable increase in international flow. In the seventies the transfer of technology by multinational corporations of products less than five years old to subsidiaries in foreign (developed) countries was estimated to be almost three times higher when compared to the situation in the sixties. This means that the product cycle hypothesis which has been so instrumental in explaining the US investments in Europe and elsewhere, is losing relevance because new products are being transferred early in the life cycle. The real impact of the increase in international technology transfer is not easy to assess because production abroad brings returns which are incorporated into the anticipated R&D payoff calculations. Without the potential returns from foreign sources the R&D budget would be smaller with a negative impact, also on domestic performance (Mansfield, 1982). So technology transfer is on both sides of the equation which depicts economic efficien~.

EAST - WEST Since the early years in the Soviet Union, and later in other socialist countriest, the transfer of technology took place in many forms. Initially this was mostly embedded in the purchase of capital goods but later, after successfully erecting the research and development base of their industry, also appeared as licenses. At the same time, however, the number of licenses sold to western partners also increased. The export of licenses from the USSR increased six-fold between 1962-82 (Kurakin, 1982). With respect to individual forms, even now, two-thirds of contracts are of a "turnkey" type for the USSR with about 40% for Bulgaria (Oleynik, 1981). Licenses and know-how make up 8.1 % of cooperation contracts in the USSR, but this figure rises to 50% in Czechoslovakia. This transfer is hampered by barriers of various origins, but mostly politically motivated.

EAST - EAST In general much less IS known about technology transfer between socialist countries. The

dominant form for the future is an agreement based cooperation. Out of 116 existing agreements the International Institute of Economic Problems of World Socialist Systems in Moscow analyzed 102 agreements among socialist countries with the following results (Ilj in, 1980):

33% 20,5% 9,8%

ended with project documents, ended with prototype documents, ended with the recommendation of serial production.

The rest had common research reports as a result. It can be concluded then that the potential of this type ef transfer is by far unused. Therefore new forms of collaborations are suggested. Some assessments indicate that 10% is used of the total potential offered by cooperation. This is because, in the past most R&D applications were separately performed in individual countries and resources needed for R&D and their implementations were in the ratio of 1:9, i.e., only 10% of the overall activities benefited from cooperation. Some interesting results were achieved heralding future possibilities. One can mention, for example, the 750kV AC-long distance transnational power transmission lines. In the Budapest meeting of CMEA (1982) new forms of industrial cooperation (common ventures) were stressed which are to be worked out in the next few years.

NORTH - SOUTH This "direction" is a popular topic with much coverage and therefore it is almost impossible to gain a complete picture. The essence of the transfer process was well covered nearly two decades ago (Spencer and Woroniak, 1966) when the "gl obal integration" of industrial production had just begun. It is interesting to note how unnoticed the role of multinational corporations and the resulting intraindustry trade patterns were. Only ten years later this force was labeled as "vecteur majeur" of technology transfer to developing countries (Michalet, 1976) and framed in the sixties in the product cycle hypothesis developed by Vernon (1966). And now, only five years later, several new variables have eme rged and it is believed that technology itself (in its pure form) is no longer central in explaining trade (especially intraindustry) and inv estment flows among industrialized countries. Corporate strategies aimed at seeking efficient portfolio activities through the identification of market niches should be taken into account (Michalet, 1982). As the transfer flow diversified, new variables emerged and interest has been extended to "rr.ezzo-economics" and even to small scale companies. The latter better corresponds to the local environment in many developing countries. ~ ew patterns of technology transfer are thought of in developed countries, for example, the S-I concept of Swedish economists (S-I means sister-industry). This concept involves the cooperation and technology transfer between two small companies in

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Technology Transfer: Some Systematic Views supportive environment created by appropriate policies (Allinge and Ulwblick, 1980).

are used in order to arrive at the most complete picture of the situation.

Similar studies are also reflecte~ In the work of economists in developing countries where interesting differences in the process of technology transfer, with respect to industrially developed countries, have been detected and are suggested for further study (for example, the role of family/relatives communication in technology transfer) (Joshi, 1980).

The most commonly used indicators are:-

This particular direction of technology transfer will remain an exposed topic for research b eca use many traditional variables and actors are registering a declin ing share and new events are emerging .

SOUTH - SOl'TH Countries formally lab e lled as developing have also become exporters of technology and founders of affiliated companies in other developing coun tries. This was possible because th e once celebrated te chnology gap between the CSA a nd Eu rop e now seems to be also r eap pear ing among the developing countries themselves (Vernon, 1982). There are indications that in some areas developing countries found better ways for technology transf e r than the developed countri es. This, then, confirms the fact that developing countries cannot be reasonably tr e ated in an unstructured way. There are studies which indicat e that there are more than 1000 "multinational" corporations owned by groups in developing countries and operating in other developing cou ntries. The volume of operations is, in any terms, as yet very small and does not qualify for slJch a lab e l. For exampl e , th e t o tal numb e r of Indian joint ventures ope rating in o ther developing coun tries in mid-1979, amounted to 39 million l'S$ (O'Erien, 1981). Neve rth e less there are areas (for example, construction) where some developing co untries managed to reach top leve l performance. The internationalization of producti on led to the internationalization of investment flow and th e grow in g oligopoly of th e market. This means that many developing countries are pushed into residual markets in order to ope r a t e. As several developing countries acce pted similar patterns of industrialization there i~ a possibility of technology transfer from advanced developing countries to the less advanced. There are many indications that this process may intensify and diversify in th e future .

THE

~IETRICS

OF TECH:-IOLOGY TRA:-:SFER

For a r e liable analysis which is supposed to be used in policy design, it is important to have a comprehensive data base. In spite of the fact that this area is over-exposed there is no specific date base for monitoring technology transfer. Several proxy indicators

• export statistics, especially the export of technology-intensive goods. The use of this indicator is based on the assumption that technology is the most important factor in determining the competitive position of a country. This indicator then, is sensitive to other influences such has fluctuations in exchange rates and direct foreign investments especially made by multinational corporations which result in the transfer of all or part of production; • licenses sold or bought can be used as an important measure, hut delivering no information on the economic impact of the transaction itself; • migrations ef trained personnel can be used as an indicator because, after all, a human being can also be a vehicle of technology transfer (sometimes a very efficient one too) ; • there are also attempts to define an analytic index of technology transfer (Yiu-Kwan Fan and Wing-Yin Yu, 1981) which could be found from readily available economic statistics. This index is applied to a particular line of produc tion. The technology transfer index: (Ime)b I

=

(Imc) t

where (Imc)b is the percentage of the imported technological component in the production cost of the commodity in the base year, and (Imc) is the same for the year under examinati6n. This index fits in well, especially with cases common in developing countries where production of labor intensive goods were transferred (and technology wi th it). This index is not influenced by general inflation but is affected by differential changes in prices. It also has several limitations--if it is smaller than 1 then negative transfer can be considered (if it has any meaning at all). • royalty payments may also carry information on technology transfer even when insensitive to many distorting effects, for example, cross-licensing may result in the transfer of te chnology without royalties but some royalty payments may be included on other i terns (as overheads), etc. The list of indicators can be extended, as well as the list of difficulties in developing a reliable measure of technology transfer. The individual measures and the measurement itself depends on the mode of technology transfer. It is clear that in joint projects (ventures~ joint R&D projects, licensing or acquisition of companies represent different forms of technology transfer which need specific approaches in order to do analysis.

POLICY ISSlTS RELATED TO TRAI"SFER

TECH~OLOGY

T. Vasko

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There are many reasons why the importance of technology transfer increases. Some are mentioned below but the list is certainly not exhaustive. • with the internationalization of production the volume of technology transfer grows. As mentioned different forms of the activity are involved; • technology transfer is becoming an integral part of development strategies of many developed and developing countries (especially the so-called "open economies" among developed countries); • with increased resources needed for new innovations no single country can reasonably expect to excel in all important disciplines. Therefore, a country has to rely on technology transfer if it is to benefit from new technology. This is true provided that political and policy considerations will not make the cost of acquiring the know-how through technology transfer equal to, or higher than, the cost of autonomous development. Therefore a policy has to be carefully designed for technology transfer. In the past, economic research could not give clear-cut guidance to policy-makers and, even now, when this area is in the limelight mu c h remains to be done. One of the many indications of this situation is the activity in designing policy schemes to enhance or control technology transfer. As an illustrative case, Japan and many developing countries see technology transfer as being the most powerful instrument in economic growth. But also other developed countries rely on technology as an engine of economic growth. For example, Sweden is introducing several schemes to help smaller companies acquire new technology from or sell to abroad by subsidizing licensing or helping in the transactions by education or advice (Granstrand, 1981). In the more interdependent economic regions, and the world as a whole, the economies and better mechanisms of technology transfer have to be developed. This task is difficult by the complex character, and new features, of many modern technologies. This makes the transfer and the specification of the propensity to accept difficult to assess in advance. For example, in the transfer of microelectronics there should not only be the transfer of delicate production processes and the know-how of the product itself (the hardware) but also the software and post sale services. However, there are some production processes which (at least in the past) did not require prohibitively high starting costs and did not show strong economies of scales which made many transfers possible. So new technology is both a new opportunity and a new challenge and, therefore, a system and systematic approach could help to master the problem.

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(1980).

Transfer

of technology from small scale industries in Sweden to developing countries. Presented at Conference on Technology Transfer, International Institute of Management, Science Center, Berlin (West), December 8-10. Brooks, H. (1966). National science policy and technology transfer. In Proceedings of a Conference on Technology Transfer and Innovation, National Science Foundation, Washington, D.C., May 15-17, NSF 67-5. Granstrand, o. (1981). Incentives and ' limits for innovation and technology transfer. The Case of Sweden. Presented at First Joint CRSTE/RPI/SPRU Conference on Technology and Industrial Policy in China and Europe, Research Policy Institute, University of Lund, Sweden, June 9-12. Holomon, H.J. (1966). Technology transfer. In Proceedings of a Conference on Technology Transfer and Innovation, National Science Foundation, Washington, D.C., May 15-17, NSF 67-5. Iljin, M. (1980). To the problem of application of scientific-technical results in the course of international cooperation. In Proceedings of SIP 80 in Brno, Czechoslovakia. The House of Technology, Pardubice (in Czech). Joshi, B. (1980). Diffusion of technological innovations in Maharashtra: A study of technology-based small enterprises in Pune. Systems Research Institute, l7-A Gultekdi, Pune 411009, India. Kurakin, B.J. (1982). 1500 modern technologies from all areas of science and technology. Soviet Export , 4 (]39) , 3. Lesher, R.L., and Howick, G.J. (1966). Assessing technology transfer. NASA, Washington, D.C., SP-5067. Mansfield, E. (1982). Technology transfer, innovation and public policy. Technology

Tr ansfe r, Pr oductivity and Economic Poliq;, W.W. Norton, New York (in press). Michalet, C.A. (1976). Transfer of technology t o developin g countries: The role of multinational c ompanies (in French). In The Ro l e of Business in ~odern Society 11. Technology and Pr oductivity . Arthur K. Watson, International Education Centre, La Hulpe, Belgium, December 9-10, 63-71. Michalet, C.A. (1982). Comments, in Emerging Technolo g ies: Consequences for Economic Growth, Structural Change and Employment. Herbert Giersch (Ed.), J.C.B. Mohr (Paul Siebeck), TUbingen, 170. NAS. (1978). Technology, trade and the VS economy. Report of a workshop he Id at Wo o ds Hole, Massachusetts, August 22-31. ~ational Academy o f Sciences, Washington, D.C. O'Brien, P. (1981). Third world industrial enterprises as exporters of technology-Recent trends and underlying causes. Viertel Jahres Berichte, 83, Forschungsinstitut der Friedrich-Ebert-Stiftung Verlag Neue Gesellschaft GmbH, Bonn, March, 101-123. Oleynik, 1. S. (1981). The influence of multinational corporati o ns on industrial

Technology Transfer: Some Systematic Views development: A prel i minary analysis of the problem. International Institute for Applied Systems Analysis, Laxenburg, Austria. ~overnber, WP-8l-l5l. Robock , S.H. (1980). The international technology transfer process. Report from the Workshop on Anatomy of the Transfer of Technology Process, ~ew York, February 3'-4, 1978. "ational Academy of Sciences, Washington , D.C. Spencer, D.L. , Woroniak, A. (Eds.) (1966). The Transfer of Technology to Developing Countries . Papers and Proceedings of a Conference held at Airlie House, ~arren­ ton, Virginia, April 28- 30. \'ernon, R. (1966). International Investment and International Trade in the Product Cyc le. Tli!o OuaY't c Y' ly Jcncyn al of' [co nol?1i cs, ~'o z. 80 , Cambridge, Nass. Fay, pp. 190207 . (1982). Technology's Effects on . Vernon, R. Intern3tional Trade: A Look Ahead. In Emerging Technology: Consequences for Economic Crowth, Structural Change, and Employment. Herbert Giersch (Ed.). J.C.B. Mohr (Paul Siebeck), TUbingen, 160. Yiu-Kwan Fan, \.Jing-Yin Yu . (1981). A technology transfer index. Department of Physics, University of Hong Kong, Internal Dra f t.

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