RATIONALE OF TRANSFER OF TECHNOLOGY AND NON-EQUITY FORMS OF TECHNOLOGY TRANSFER

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Course Code : IBO – 01
Course Title : International Business Environment
Assignment Code : IBO-01/TMA/2019-20

Coverage : All Blocks

IBO – 01 International Business Environment Solved Assignment for 2019-20

Q2.) What are the rationale of transfer of technology?Describe the non-equity forms of technology transfer by Transnational Corporations and Small and Medium Enterprises.

Ans: Technology transfer is the process of sharing skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities among governments and other institutions to ensure that scientific and technological developments are accessible to a wider range of users who can then further develop and exploit the technology into new products, processes, applications, materials or services.

It permits the flow of technology from a source to a receiver. The source is the owner or holder of knowledge while the recipient is the beneficiary of such knowledge.This is a process by which science and technology are transferred from one individual or group to another that incorporates this new knowledge into its way of doing things.

RATIONALE OF TECHNOLOGY TRANSFER :

A seller of technology finds that it can earn returns from selling the technology. This is particularly so in view of the fact that life cycle of the technology is short. The advances made in technological innovations are so fast that there is a tendency to sell previous generation of technology. In addition, the proprietorial right in a number of cases is short. Hence, the firm is induced to sell technology. 

Transfer of technology among various units of TNCs, which are globally operating, that is subsidiaries, affiliates and joint venture partners, also takes place at a price and also enjoys the benefits of total production of products and services.

Buyers of technology have three main reasons for purchasing technology. They are: 

i) Innovating a new process or a product by a firm is costlier than buying technology in the market, it is often said that one does not need to invent a wheel again and again, 

ii) Since a commercially successful technology has already proved its utility the buyer finds it very attractive to buy the technology. 

iii) A firm which has no incentive to become a leader in the market either by innovating a new product or a new process would find it more convenient to buy the most modern technology from the owner which is most often a TNC than taking the risk of innovating a similar technology.

NON-EQUITY FORMS OF TECHNOLOGY TRANSFER: 

There are a number of mechanisms other than equity participation through which technology transfer takes place. It includes outright-sale of technology, sub-contracting of production of parts, components and services, management contracts, franchise exports, strategic alliances and technology collaboration agreements. 

Outright Sale Purchase of Technology: Firms at times prefer outright purchase of technology while the seller also opts for it. The advantage of this mode of transfer to the purchaser is that the buying firm gets technology at one goes and has freedom to use the technology without the interference of the seller. Further, it is argued that the buyer can find it economical. But there are certain disadvantages as well. First, outright purchase may not be adequate to transfer technology without the support of the seller. Further, the buyer will be deprived of advances that would be subsequently made. In addition, in the absence of well planned R&D, the technology absorption by the firm may not be adequate. The firm may in the ultimate analysis depend on outside source for all technological inputs.

Sub-Contracting: Many foreign enterprises sub-contract the purchase of inputs to host country’s producer. This is called supplier user relationship. Under this arrangement the TNC's affiliate, for instance, not only assists the local firm technically but also provides information which is important in increasing its ability to coordinate the production of components and other intermediate products. (This should not be mistaken for licensing agreements.) Technology passes to sub-contractors or suppliers coming in the form of technical assistance, material handling, product and process technology, and general information with regard to production and finance, etc. This form of technology transfer is widespread in automobile industry, radio, television, shoe, etc. This form of technology transfer has also expanded to highly sophisticated products such as those of the semiconductor industry. 

Management Contract: A number of firms also sign management contracts with firms in the host countries. Under these contracts foreign enterprise advises the host company about various management practices which are in use in its parent company. Occasionally, under this contract the entire management is handled by the foreign firm. For this the host company has to pay management fees, either lump sum or in installments.

Franchises: Under this owner of a specific technology allows a host company under franchise to use its specific knowledge for a franchise fee. This is a widespread practice in food industry, hotels, etc.

Exports and Technology Transfer: National firms will be able to acquire technology through exports. Let us learn this concept with the help of the following case. This case has been taken from World Development Report, Vol. 18, No. 2 (Young Wheel Rhee, The Catalytic Model of Development: Lessons from Bangladesh's Success with Garment Exports, pp. 333-346.) 

Acquisition of Export Marketing Skill from Transnational Corporations: The Case of Garments Exports from Bangladesh: Tile phenomenal success of garments exports from Bangladesh vividly illustrates the positive impact of learning through trade in ‘association with TNCs. Starting from virtually zero in 1978, export earnings from garments reached $560 million in the fiscal year 1989- 1990 and may have been higher still in the fiscal year 1990-91 (data for the whole year are not available). The average growth rate in garment export-value was over 120 per cent in the 1980s; during that period, the absolute value of exports of garments surpassed that of jute manufactures, traditionally the highest foreign exchange earning item of the country. The contribution of garment exports to foreign exchange earnings, a vital but scarce resource for the economic development of Bangladesh, was enormous, amounting to 40 per cent of the total by the fiscal year 1989-1 990.