TECHNOLOGY TRANSFER AND ECONOMIC GROWTH

STS Part 4.3

TECHNOLOGY TRANSFER AND ECONOMIC GROWTH
By Raja Aggarwal Technology is usually defined as "know-how" or the sum of knowledge, experience, and skill necessary to establish enterprise that will manufacture and market a product economically. Technology needs to be viewed not only as the specific production process or manufacturing technology, but also various other types of knowledge and expertise necessary for the planning, establishment, and operation of a manufacturing plant and associated enterprises. Transfer of technology is interpreted as the communication, adaptation, and use of technology from one economic region into a second region. Technology transfer is not simply the reproduction of an identical enterprise in a second area, but an adaptation of the original that has been modified to fit the second region's peculiar social, political, technological, climatologically, economic, and educational environment. THE PROCESS OF TECHNOLOGY TRANSFER Technology transfer (TT) among nations and regions can take place through a number of different channels and mechanisms that may in some cases exist independently of other channels. The nature and extent of TT and the channels used can be influenced by internal government policies and by national political and economic alliances. The absorptive capacity of the recipient may also influence the channels used and the rate of TT. The importance of these channels for TT will also depend on the antireform, interfere, or the international dimension of the TT. While some have emphasized the importance of personal contacts and networks in TT, the major mechanism for TT has been the international extension of the life cycle of new products by business firms. New products have usually been developed by a firm through extensive investment in research and development, which it then recovers by progressively developing and supplying markets for that product in as many countries as possible. The Product Life Cycle Theory of Technology Transfer

The product life cycle theory is based on assumptions that the flow of information and skills across regions or national borders is restricted and that products undergo predictable changes in production and marketing characteristics over time. It also assumes that the production process is characterized by economies of scale, that it changes over time, and that market characteristics (consumer tastes) also change over time. In the international product life cycle (PLC) theory of TT, the international involvement of a business is viewed as following sequential stages in the life cycle of the product or process it develops. It is more likely to occur first in well-developed, highly industrialized nations. These same innovations are more likely to be used in less developed nations later as they emerge and develop economies and consumer tastes similar to those of the highly developed nations. It must be noted though that product innovation can and does take place in all countries A major implication of the PLC theory of TT is that investment in research and development can be recovered over a much longer product life. Research and development is a high risk and often expensive activity and successful products, on average, must also pay for expenses incurred in developing unsuccessful ones. Costs and Benefits of Technology Transfer For the firm transferring the technology, there are advantages or benefits. One is the possibility of making an adequate or even above normal rate of return. Another strategic advantage may be the ability to maintain its market share and competitive position with competing firms. A third advantage is that expansion into another country and market not perfectly linked to its existing operations or markets provides for a reduced level of overall risk because of diversification or portfolio effects. A forth advantage is that the firm may be able to tap the capital markets of other countries, thereby obtaining access to a possibly more diversified and lower cost source of funds. The disadvantages or costs in TT to include the possible higher costs of production or of doing business in a foreign country located at a distance from its home base. A second disadvantage is the possible higher business risk faced in a new environment. A third cost is the risk of expropriation, forced sale of equity to local partners at lower than economic value, restrictions on repatriation of income and capital, and other forms of interference by the host government. A fourth disadvantage is the risk of incurring losses because of unexpected exchange rate changes. A fifth cost is the higher cost of expatriate managerial compensation and training local nationals. A sixth set of costs are the transportation costs and border taxes incurred in transferring labor, materials, and capital overseas. GLOBAL ECONOMIC CHANGES AND APPROPRIATE STRATEGIES Driven by significant advances in technology, telecommunications, and transportation, the global economy is currently in a period of rapid change characterized by:
1. Shifting technological, strategic, and commercial advantages;
2. Increasing international integration; and 3. The emergence of new economic power centers. The term economic revolution has been used to convey the simultaneous occurrence of two types of change: a fundamental change in society's productivity and a consequent change in its economic organization. The first economic revolution was the development of agriculture in the 8th millennium BC while the industrial revolution of the eighteenth and nineteenth centuries was the second economic revolution. It is contended here that we are probably at the beginning of the third economic revolution based on the widespread application of the new information-based technologies of the micro-processor, telecommunications, and genetic manipulation (biotechnology). These new technologies designed to supplement human intellectual and genetic abilities are based on the creation, manipulation, and transmission of electronic and genetic information. These technologies are likely to transform the global economy even more fundamentally than the industrial revolution, when human and animal power was supplemented by mechanical power. The pace of technology transfer is likely to increase as the costs of information processing and transmission continue to decline. Role of the Nation-State One structural change being brought about by this third economic revolution is that the importance of the nation-state as an economic unit may be starting to decline. The economies of most nations and regions have become more open to international influences, and their relative economic importance is shifting. Newly industrialized countries, especially those located in the Orient, are making their presence felt in global markets. International financial markets are now playing a more important role. Cross-border investments continue to increase as does the role of multinational companies that finance, produce, and distribute simultaneously in a number of countries. There have also been extraordinary increases in the international dimension of business through increased cross-border trade, financing, licensing, franchising, and management contracts. This growth in global business organizations and activity has taken place in spite of the various costs of operating overseas. For example, these costs include the costs of overcoming linguistic, cultural, political, institutional, and other barriers to the operation of cross-border businesses. Because of the increased openness of most economies, there are very few companies that can afford or claim to be purely domestic. Today, almost every business is affected by events in the international economy. Either a business imports or exports directly, or it competes in its sales or raw material markets with foreign firms or firms that export or import or are multi-national in nature. Even if a firm faces purely domestic product markets, it certainly faces financial markets that are influenced by global forces. Multi-polar Global Structure We may be returning to a multi-polar world where there are a number of economic and military centers that are important instead of global dominance by one or two super-powers.

Displacement of Bureaucratic Systems by Markets

Recent years have seen a marked rise in the acceptance of market mechanisms and individual initiative as important determinants of economic growth. Socialism and state ownership and control of economic enterprises are on the decline globally. More and more countries realize the benefits of private ownership. The role of markets is becoming more important in more countries. Thus, the world economy is in a period of rapid change. New market forces are emerging as the economic center of gravity continues to move westward towards the Orient. The information revolution is likely to equal or exceed the industrial revolution in its impact on the global economy.

The importance of various industries and countries is changing more rapidly. Companies in the United States and Western Europe must face up to the fact that Japanese low-cost production is being replaced by even lower cost producers from the "new Japans": Hong Kong, Korea, Singapore, and Taiwan. Industries at successively higher levels of technology are facing this threat. Consequently, companies in these industries must engage in a never-ending process of moving to higher value-added operations, using even higher levels of technology. Bureaucratic systems were developed in an age when change was much slower. These systems are not very good at responding to rapidly changing markets and technologies. In addition, a large, modern economy or even a large company may be too complex a system to manage or even understand. Therefore, tight government control or management of an economy or similar bureaucratic control of a large corporation may be an exercise in frustration. Almost every country in the world seems to be discovering these limitations of bureaucratic systems, as evidenced by the global rise of entrepreneurial activity and the movement toward the privatization of government-owned and government-run companies. Government companies are being sold in countries. Countries are now transforming their economic systems to take greater advantage of systems that reward individual initiative, which is the essence of free enterprise. Public Policy and Economic Response

To stay competitive in rapidly evolving global markets, countries must depend on a system that can respond quickly and efficiently to change. A number of fields, from quantum mechanics to sociobiology, are coming to similar conclusions regarding the nature of optimal growth strategies in an uncertain environment. It seems that the most effective long-run strategy for large, complex systems to adjust to rapid environmental changes is a process of trial and error undertaken in the form of numerous random changes among the individual units. It seems that the economic system best able to keep an economy growing and competitive in an increasingly dynamic global economy is a market-force-driven free enterprise system with appropriate, but minimal, government regulation. Consequently, if a country is to stay competitive in the global economy, it must continue to encourage innovation in its economy. It should continue to emphasize corporate and social systems that encourage and reward entrepreneurship.