Technology Transfer in International Business

Technology is a new variable in the equation of economic relations. Traditional  theories of international business assumes that all nations have equal access to technology and, therefore,  that there is no need to transfer technology from one county to another. Recent  research findings have invalidated this assumption. In addition, they point to  technology differences as primary cause of international inequalities in  economic achievements. To reduce the inequalities, technology capabilities of  the backward nations must be strengthened. The quickest way to do so is to  transfer technology from the developed to the developing nations.

Technology is any device or process used for productive purposes. In its  broadest sense, it is the sum of the ways in which a given group provides itself  with good and services, the group being a nation, an industry, or a single firm.  There is a fundamental characteristic of technology that demands clear  recognition. Q unites unlike commodities and capital, technology is not depleted  or its supply diminished when it is transferred or used. It is usable but not  consumable. Once created, technology is inexhaustible until it becomes  obsolete. Therefore; export of technology need not cause the source country to  reduce its use of the technology. Indirectly, a decline may result if the recipient  country creates an industry large to change the global supply and demand  equilibrium of the goods produced by the technology involved. For most  technology sought by the developing nations this is not the case.

Technology transfer in international business

Contrary to the classical assumption, technology is not a free good but a  valuable property, nor is it evenly distributed around the globe. The supply  schedules differ widely from country to country. To obtain new technology, a  nation has three alternatives:

  1. Produce the technology capability at home
  2. Import it from abroad
  3. Import goods containing the desired technology

For most Least Developed Countries (LDCs), home production of technology is often uneconomic. Since  much of what they are seeking already exists in the industrially advanced areas,  they can fill their needs by importation. Normally, the importation can be  effected at savings over the domestic cost of research and development (R&D).  R&D expenditures devoted to projects duplicating existing know-how are  obviously wasteful. Thus, economic rationale requires that LDCs concentrate  their home production of new technology on any unusual requirements that  cannot be met from import sources.

The access to technology depends on its ownership.

  1. Non-proprietary  technology  belongs to the public. It is there for the taking, but it is not free. The taker must  have the ability to gather it from libraries, public research institutions, or  wherever it may be found. To locate the sources and to sort out what is usable  and unsuitable from any given application may involve considerable cost, which  might be called the assembling and packaging of technology. Consulting firms  specialize in this type of service. They very sources and consumers of  technology but instead act as intermediaries between the sources and consumers  of technology.
  2. Proprietary technology is privately owned. It consists, trademarks, and secret  processes. The most efficient and profitable technology, often also the newest,  belong in this category. Access to proprietary technology is at the owner’s  discretion. It may or may not be for sale. If the sale creates potential  competitors, the owners’ interest is served by not selling it unless the expected  loss from new competition is less than the price for which the technology can be  sold.  Much proprietary technology is not for sale. It can move only with investments  of owner firm. This is embodied technology, as distinguished from disembodied  technology, which can be transferred without the original owner’s investments.  All nonproprietary technology is disembodied.

At the macro and micro levels, nations people, and organizations increasingly  depend on technology for prosperity and quality of life.  The competitive edge of an individual firm vastly depends on technology. One  of the means of acquiring technology is through its transfer.

Technology Transfer in International Business

Technology transfer covers various activities, including the internal transfer of  technology from the R&D or engineering department to the manufacturing  department of a firm based in a country. It also includes the same transfer of  technology from a laboratory or operations of a MNCs in one country to its  laboratory or operations in another country. Finally, It includes the transfer of  technology from a research consortium supported by many firms to one of the  members. Simply told, technology transfer is a process that permits the flow of  technology from of technology from a source to a receiver. The source is the  owner or the holder of the knowledge and it can be individual, a company, or a  country. The source is the owner or the or holder of the knowledge and it can be  individual, a company or a country. The receiver is the beneficiary of the  transfer technology. Technology is transferred through published material (such  as journals, books), purchase and sale of machinery, equipment and intermediate  goods, transfer of data and personal, and interpersonal communication.  Technology transfer in international business comprises six categories:

  1. International Technology Transfer, in which the transfer is across  national boundaries. Generally, such transfers take place between  developed and developing countries.
  2. Regional Technology Transfer, in which technology is transferred from  one another.  
  3. Cross-industry or Cross-sector Technology Transfer, in which  technology is transferred from one industrial sector to another .
  4. Interfirm Technology Transfer, in which technology is transferred  from one company to another.
  5. Intra-firm Technology Transfer, in which technology is transferred  within a firm ,from one location to another. Intrafirm transfers can also  be made from one department to another within the same facility.
  6. Pirating or Reverse-Engineering, whereby access to technology is  obtained at the expense of the property rights of the owners of  technology.

Modes of Technology Transfer in International Business

Since technology defies delineation as a discrete variable, the analysis of its  transfer is encumbered by such other factors as capital investments, economic  organization, labor resources, entrepreneurship, and even en sociocultural  systems. Lacking  dis-aggregated  data, different analysts have used different  composites as  proxies  for data on technology flows. Many economists treat direct  foreign investments and licensing agreements as synonymous with  international  technology transfers. Others tabulate scientific and professional conferences,  technical assistance programs, exchanges of educators and students, plus many  other kinds of information flows. Obviously, all of these have some technology  content, but few are pure technology.

Importing  Non-proprietary  Technology

Non proprietary technology can be transferred from one country to another in  any number of ways. Technology in pure from can be imported if the transferee  possesses the capacities to collect and employ it. LDCs many rely on indigenous  enterprises or on foreign firms to do the importing. Since LDCs often lack  indigenous firms who can affect the transfer, they rely heavily on foreign  consultants.  Another way for an LDC to obtain  non-proprietary  is by importing the hardware  required and then either implementing a training program for its use or  dispatching managerial personnel to study how to use the hardware. Experience  tends to favor home-based training programs, initially with expatriate instructors  from developed countries and later with indigenous instructors, over the  alternative of sending people from LDCs to learn abroad. The advantage is  twofold:

  1. The home-based program ensures better adaptation of the technology to  local conditions.
  2. Fallout from the program is minimized by reducing the risk of “brain  drain,” which has ravaged many foreign-based programs.

Importing technology intensive goods is the third method of obtaining new  technology.

Importing Proprietary Technology

An LDC’s access to proprietary technology is far more complicated. To acquire  embodied technology it must attract direct investments by the desired industry.  The direct cost of such acquisition is any special incentives that the country is  required to offer to interest the potential investor, who may have more profitable  investment alternatives elsewhere. If the incentives offered exceed the investor’s  opportunity cost of forgoing its other alternative, parties, the LDC and the  multinational corporation (MNC), benefit. The LDC has no concrete way of  assessing data and the MNC’s opportunity cost, it lack both the necessary data  and the expertise. This gives the MNC a strategic bargaining advantage and  wide latitude for its demands for incentives.

Proprietary technology that are readily for sale can be transferred by exporting  turnkey projects, licensing patents or trademarks, selling formulas or blueprints,  organizing training programs, or dispatching experts. The choice depends  again on the seller’s preference-which serves the MNC’s objectives best. Owner  willingness to sell proprietary technologies varies widely. Some technologies,  such as that of the latest IBM computers or coca-cola syrup, are absolutely  nonnegotiable. At the other extreme are the so-called sheleved technologies, for  which their owners are anxious to find any takers at all.  The shelved technologies are mainly by-products of corporate R & D activities.  For example, in the process of seeking improvements in aircraft and spacecraft  technologies, Boeing researchers have discovered numerous patentable  techniques and compounds for which the company has no anticipated use.

The Market Model

LDCs’ comparative technology deficiencies require access to technologies that  belong to private firms. The governments of developed nations can facilitate the  international transactional transfer process. But they cannot force the transfer to  take place without expropriating private property. LDCs’ requests for treaty  obligations or other official commitments by industrial national to guarantee an  expeditious and an expeditious and inexpensive transfer of technology is,  therefore, largely a misdirected rhetoric.

Right and Wrong Technology

Any manufacturing process can usually set up using alternative configurations  of equipment. In selecting the optimal equipment configuration, we must look  beyond the general goals of low cost and high productivity and consider each  configuration’s demands for labor skills and attitudes, supervision, industrial  engineering for tools and manufacturing techniques, materials and supplies,  maintenance, product scheduling, inventory controls, and quality control  procedures. Each of these ingredients is directly affected by the environment.  The economic environment affects costs and availability of workers; the  political environment establishes what is acceptable for a plant to make and  how. Thus, it is imperative that a technical strategy be derived in part from a  realistic assessment of the total environment in which it is to operate.


The technology supply of LDCs is powerfully influenced by the policies of  public authorities. Some groups in developing countries oppose technology  imports and insist on indigenous production of new technology. They argue that  since technology and growth are closely linked, those nations who are behind in  the production of technology are destined to perpetual backwardness. This is  false reasoning.  As high technology applications – automation, computerization, and robotics –  are replacing many traditional factory systems in industrial countries, much old  equipment is surpluses as economically obsolete, though physically intact. Many  LDCs’ needs for industrial systems can be met by utilizing this technological  slack. Indeed, a number of multinationals have already affected transfers of  entire factories to their affiliates in LDCs. Automobiles, trucks, refrigerators,  shoes, pharmaceuticals, and metal fabrication head the list, but there are more  and more others. Such they benefit the multinationals by extending the  productive life of their capital assets.

Parties Involved in the  Technology  Transfer

International technology transfer has both horizontal and a vertical dimension,  each with its own elements. From the horizontal perspective, the three basic  elements in technology transfer are the home country, the host country and the  transaction. The vertical dimension of technology transfer refers to the issues  specific to the nation state, or to the industries or firms within the home and host  countries.

In general, the various elements may be categorized as (i) home country, (ii)host  country ,and (iii)the transaction.

1. Home Country’s Reactions to Technology Transfers

Home countries express apprehensions about the export of their technology,  they have reasons to oppose the export of technology .They argue that the  established of production facilitates by MNCs in subsidiaries abroad decreases  their export potential. Additionally, they claim, because some of the MNCs  imports stem from their subsidiaries, the volume of imports of the home  country tends to increase. Given the decrease in exports and increase in imports,  the balance of trade tends to be adverse to be adverse to the home country.  Besides technology transfer tends to affect adversely comparative advantages of  the country.  Labor  unions in the home country too oppose technology transfer  on the ground that the jobs generated from the new technology will benefit the  country citizens.

2. Host Country’s Reactions to technology Transfers

More serious are the reactions of the host country to transfer. The subject of  technology transfers is highly sensitive, often evoking strong reservations  against it from the country citizens. The criticisms against technology transfer  are based on economic and social factors.

  1. Economic Implications: Economic implications include payment of fee, royalty,  dividends, interest and salaries to technicians and tax concessions resulting in loss to the national exchequer. All these are payable to the transferring country  and might prove very expensive to the host country. In addition to the payments  just stated, the technology supplier often succeeds in extracting payments  through various other techniques like over-pricing and buying intermediates at  high prices. There are malpractices too, for example, tie-up purchase, and  restriction on exports, and charging excessive prices.  Many times, the type of technology transferred by international business is not  appropriate to developing countries. The technology that is developed is  inevitably the one most suitable for industrial countries which are appropriate to  resources endowment of developed nations. Such technology are not in the  interest of developing countries.
  2. Social Implications: The social and cultural implications of technology transfer  are more serious than the economic significance. Along with the transfer of  technology, there is the transmission of culture from the exporting countries.  The Indians who work in firms using such imported technology get influenced  and accustomed to the skills, concepts, policies, practices, thoughts, and beliefs. Then there are social problems like pollution,  urbanization  , congestion,  depleted natural resources, and similar other evils.

3. Transaction

This element focuses on the nitty-gritties of the transfer. The issues here relate to  the terms and conditions of technology transfer.

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