Technology Transfer in International Business
It is widely believed that the transfer of technology is one of the main reasons for the growth of many third world countries. As third world countries generally tend to be poor and have limited capital to invest, they can’t develop their own technologies. Hence MNCs play a big role in transferring technology to these countries and improve the domestic industry. Many global corporations operating in developing countries are bringing in new technologies to improve their productivity and thereby increase the industrial output in emerging economies. For example, transfer of technology by big oil companies operating in Latin America and Africa has led to a dramatic jump in global oil production. Technology transfer is not just limited to business organizations. Governments and other non business organizations to play an important role in technology transfer. It was expected that the transfer of nuclear technology by the communist government of the erstwhile Soviet Union helped China in the late 1950s to shorten the time needed to develop nuclear weapons by 15 years (Liu and Liu, 2009). Below are some of the ways in which technology is transferred in international business:
Direct Exporting
Direct exporting is a very simple way through which technology is transferred by MNCs. Direct exporting is called as an ‘externalized mechanism’ and forms part of the inter-firm transfer of technology. Technology transfer through direct exporting happens when a technology supplier (MNCs) transfers technology that is embodied in products, capital goods, and other machinery to the recipient who is located out of the organization’s boundary. Masks (2003) suggested that the export of goods and services creates potential for transferring technology to the importing organization/country as they can absorb and improvise the acquired technology in capital goods and machinery. But direct exporting is generally used by small producers as it gives limited control on the marketing and distribution of goods and services in the host country. Direct exporting also makes it difficult for exporter to understand the host market in the long term. Ibrahim and Mcguire (2001) suggest that as exporting does not require heavy investment and involves less financial risk, it gives less opportunity for MNCs to learn about host markets.
Licensing
Licensing is granting of permission to use, manufacture, sell a product/service, or perform certain other actions by a party to who holds the rights to grant such permission. A licensor gets a license fee from the licensee in exchange for licensing a technology. According to (Contractor, 1980) there are two kinds of technology licensing: 1) technology licensing agreement which involves conveying of patent, trademark, and other rights to make and sell a product; and 2) technology licensing agreement with provisions of providing technical and operational assistance to the licensee. As transfer of technology through licensing gives a low risk and stable income to MNCs, this channel is preferred by companies who don’t have the capital and managerial resources to launch their direct operations in several countries (Dollinger, 1995). Ramanathan (2001) gave a classification of possible modes of technology transfer.
Joint Ventures
Other than direct exporting and licensing, another externalized and formal form of technology transfer is by MNCs entering into joint ventures with local firms. Joint ventures are considered as the collaborative efforts by MNCs and domestic firms in sharing their skills and expertise. Though joint ventures, MNCs and small firms who received technology were expected to their knowhow resulting in a two way transfer of knowledge. While MNCs contribute their superior technical knowledge and managerial expertise to the joint venture, domestic firms contribute their knowledge in terms of better understanding of local political and economic conditions, tastes and preferences of customers, better relationships with local distributors, etc. (Shrader, 2001). MNCs would prefer to enter into joint ventures over directly setting up shop if there are inherent benefits like the ability to create a niche in a foreign market early on, opportunity to get a favorable treatment in taxes and other duties, and simpler way to transfer their taxes back home. For example, Suzuki Motor Corporation entered into a joint venture with the Government of India, which made it possible for it to create a niche in small cars before any other foreign player in India. On the other hand, firms in developing countries like to enter into joint ventures with MNCs as these tie-ups enable them to improve their technical expertise, get more global exposure, and get a share in the venture’s profit. Many researchers in the field too have argued that joint ventures are more suitable when technology can be easily learned and diffused through local partners who possess the required expertise the imported technology. The success of technology transfer through joint ventures depends on a number of joint venture characteristics like relationship openness, ownership type, knowledge connection, organizational structure, and relationship openness (Hamel, 1991).
Technology Transfer through Spillovers
Technology that is being transferred by big MNCs to their subsidiaries may spread to other companies in the host countries due to spillover effects. Existence of these spillovers which can lead to an increase in the productivity of domestic firms is one of the reasons why technology transfer is deemed to have some public good characteristics. There are a number of ways through which spillovers can increase technological capabilities of domestic firms. According to Blomstrom and Kokko (1998), the channels from which spillovers can be transmitted to firms in the host country can be classified into productivity and market access spillovers. Productivity spillovers are a result of vertical linkages between MNCs and their local supply chain partners, mobility of workers between the domestic firms (and thereby taking knowledge of new technology with them), and innovative imitation of big MNCs by the local firms. Market access spillovers are a result of the export activity of MNCs on the local productive framework.
Movement of Personnel
Technology transfer can also happen through the movement of people from one market to the other. Transfer of technology through personnel is achieved through the transfer of expatriate engineers, project managers, and sending employees working in the subsidiary to the parent company or foreign supplier. This kind of technology transfer happens at the time of the implementation of FDI and formation of joint ventures where technical experts from an MNC are needed to assist affiliates, local firms and licensors on matters related to production process, transferring uncodified technology, and managerial processes. Technology transfer through movement of personnel sometimes becomes inevitable as many types of complex technologies cannot be effectively transferred without utilizing the know-how of people who actually work on them (Maskus, 2003).
Communication Media and Data in Patent Application
Other than the above channels, past research has identified many other ways through which technology is transferred indirectly. Technology can be transferred through various communication channels like research reports, e-mails, newsletters, academic journals, and memos. In a study by Rogers et al. (2001) on prominent research laboratories and universities in the USA it was found that technology transfer happens through different kinds of communication channels and spinoffs (companies formed by former employees of R&D labs and research universities).