Difference between Small and Large Samples

Though it is difficult t draw a clear-cut line of demarcation between large and small samples it is normally agreed amongst statisticians that a sample is to be recorded as large only if its size exceeds 30. The tests of significance used for dealing with problems samples for the reason that the assumptions that we make in case of large samples do not hold good for small samples.

The assumption made while dealing with problems relating to large samples are:-

(i) The random sampling distribution of a statistic is approximately normal. and

(ii) Values given by the samples are sufficiently close to the population value and can be used in its place for calculating the standard error of the estimate. 

When conducting research, quality sampling may be characterized by the number and selection of subjects or observations. Obtaining a sample size that is appropriate in both regards is critical for many reasons. Most importantly, a large sample size is more representative of the population, limiting the influence of outliers or extreme observations. A sufficiently large sample size is also necessary to produce results among variables that are significantly different. For qualitative studies, where the goal is to “reduce the chances of discovery failure,” a large sample size broadens the range of possible data and forms a better picture for analysis.

Sample size is also important for economic and ethical reasons.  “An under-sized study can be a waste of resources for not having the capability to produce useful results, while an over-sized one uses more resources than are necessary. In an experiment involving human or animal subjects, sample size is a pivotal issue for ethical reasons. An under-sized experiment exposes the subjects to potentially harmful treatments without advancing knowledge. In an over-sized experiment, an unnecessary number of subjects are exposed to a potentially harmful treatment, or are denied a potentially beneficial one.”

Relevance of International Business Environment

As stated earlier, environment plays a vital role in the conduct of business operations. Especially in the context of international business, environment assumes critical importance as no two countries have similar environments and demand different business strategies to cope with differing business conditions. As the environment affects firms’ strategic as well as tactical decisions, it becomes imperative for the firm to have .in-depth knowledge of the domestic, foreign and global environments.

When a firm decides to enter into international business, it faces two major decision problems: one, in which market(s) to select, and second how to enter into those markets. Both these decisions are strategic in nature and are greatly influenced by the environmental forces. Firms select those countries as their target markets which have sufficient market potential. Market potential in turn depends upon geographic, economic and cultural environments prevailing in the foreign countries. Demand for fans, for instance, will be more in countries which are geographically located in hot zones and where per capita income is high enough for the people to afford purchase of fans. Besides climate and sufficient income, electricity should be available to make the fans workable. 

Once the firm identifies countries with market potentials, it needs to decide as to what mode it should use for entering into those markets. A wide range of options such as exporting, licensing franchising, joint venture or setting up wholly owned subsidiaries abroad are available to firms. Firm’s actual choice of market entry mode is influenced by a variety of environmental factors. Exporting is desirable when it is economical to produce in the home country and there are no legal restrictions on import of given product in the foreign markets. In the case of import bans or excessive costs of transportation, a firm may choose to set up its manufacturing and marketing subsidiaries abroad. But this is feasible only when foreign governments are not averse to foreign direct investment, and necessary raw materials and labour are available locally at competitive prices in the foreign countries. In countries where first condition is not fulfilled, the firm can go in for either licensing or joint venture as these entry modes are politically less objectionable.

Environmental forces play an equally important role in shaping a firm’s functional and tactical decisions. What should be the scale of production? Should the firm employ labour or capital intensive techniques? How to finance firm are foreign operations? How much to repatriate? What marketing mix should the firm use? Should it hire local persons or employ foreign nationals? What should be their compensation package? Answers to these and other questions require in-depth analysis of the prevailing environments in foreign countries. Since the environments differ, firm cannot be much successful by falling back upon its domestic decisions and practices. Firm needs to screen the foreign country environments and accordingly decide about the best course of action in each country. 

It may be pointed out here that environmental analysis is important not only for the firms entering into the foreign markets for the first time, but it is also important for the firms already in international business. Since environmental conditions change over time, firms need to continuously monitor changes in the environment and mike suitable changes in their decisions.

Domestic, Foreign and Global Environment

Another way of understanding various factors constituting international business environment is to divide the various factors into three broad groups: domestic, foreign and global environments. This classification is based on the location at which environmental actors and forces exist and operate. Look at Figure 1 .I where a schematic presentation of these three levels of environment along with their components has been shown. 

In the figure, innermost circle represents firm's business strategy and decisions with regard to production, finance, marketing, human resources and research activities. Since these strategies and decisions are made by the firm, they are called controllable. Firm can change them but ‘within the constraints of various environmental factors.

The next circle represents domestic environment and it consists of factors such as competitive structure, economic climate, and political and legal forces which are essentially uncontrollable by a firm. Besides profound effect on the firm's domestic business, these factors exert influence on the firm’s foreign market operations. Lack of domestic demand or intense competition in the domestic market, for instance, have prompted many Indian firms to plunge into international business. Export promotion measures and incentives in country have been other motivating factors for the firms to internationalise their business operations. Since these factors operate at the national level, firms are generally familiar with them and are able to readily react to them.

The third circle represents foreign environment consisting of factors like geographic and economic conditions, socio-cultural traits, political and legal forces, and technological and ecological facets prevalent in a foreign country. Because of being operative in foreign market, firms are generally not cognisant of these factors and their influence on business activities. The firm can neglect them only at the cost of losing business in the foreign h markets. The problem gets more complicated with increase in number of foreign markets in which a firm operates. Differences exist not only between domestic and foreign environments. But also among the environments prevailing in different foreign markets. Because of environmental differences, business strategies that are successful in one nation might fail miserably in other countries. Foreign market operations, therefore, require an increased sensitivity to the environmental differences and adaptation of business strategies to suit the differing market situations.

The upper most circles, viz., circle four, represents the global environment. Global environment transcends national boundaries and is not confined in its impact to just one country. Global environment exerts influence over domestic as well as foreign countries and comprises of forces like world economic conditions, international financial system, international agreements and treaties, and regional economic groupings. World-wide economic recession; international financial liquidity or stability; working of the international organisations such as World Trade Organisation (WTO), International Monetary Fund (IMF), World Bank and the United Nations Conference on Trade and Development (UNCTAD); Agreement on Textiles and Clothing (ATC); Generalised System of Preferences (GSP); International Commodity Agreements; and initiatives taken at regional levels such as European Union (EU), North American Free Trade Association (NAFTA) and Association of South East Asian Nations (ASEAN) are some of the examples of global environmental forces having world-wide or regional influences on business operations.

CONCEPT AND RELEVANCE OF INTERNATIONAL BUSINESS ENVIRONMENT

Simply speaking, environment refers to one's milieu or surrounding. In the context of a business firm, environment can be defined as various external actors and forces that surround the firm and influence its decisions and operations. The two major characteristics of the environment as pointed out by this definition are: one these actors and forces are external to. The firm, and secondly these are essentially uncontrollable. The firm can do little to change them. It has to rather learn to live with them. 

Micro and Macro Environments 

In order to gain a better understanding, let us have a look at two important classifications of environment one classification is the micro and macro environments. 

Micro environment can be defined as the actors in the firm’s immediate environment which directly influence the firm’s decisions and operations. These include: suppliers: various market intermediaries and service organisations such as middlemen, transporters, warehouses, advertising and marketing research agencies, business consulting firms and financial institutions; competitors, customers and general public. While the customers constitute firm's market, suppliers and market intermediaries help providing the firm with inputs and assist in production and marketing processes. Competitors and general public, also influence the way a firm conducts its business. 

Macro environment, on the other hand, consists of broader forces which affect the firm as well as other actors in the firm’s micro environment. These include factors such as geographic, economic, financial, socio-cultural, political, legal, technological and ecological forces. Firms need to continuously monitor changes in these environmental forces and devise strategies to cope with them.

OVERVIEW OF WORLD TRADE

Trade has been one of the most buoyant international economic activities in recent period. World merchandise trade has been consistently growing at rates higher than rates of growth in global output in the nineties. The world merchandise trade grew by an average rate of 6% during the period 1990-95.

The trade growth slowed in the year 1998 as the Asian crisis deepened and its repercussions were felt increasingly outside Asia. The volume of world merchandise exports grew by 3.5% in the year 1998 after an outstanding growth rate of 10.5% in 1997. All major regions experienced a marked slowdown of their trade growth in 1998. 

Trade performance in 1998 differed widely among regions. While oil-exporting regions recorded the strongest annual value declines in merchandise exports, countries directly affected by the Asian financial crisis reported the stinger import decline. The contractionary forces of the Asian crisis and falling commodity prices were attenuated by the robustness of continued economic growth in the United States and strengthened demand in Western Europe. All regions recorded a lower export expansion in 1998 than 1997. The transition economies and the Latin America recorded the strongest export volume growth. Asia's export volume increased marginally, as the strong contraction of intra-Asian trade was only just offset by a sharp rise in extra regional flows. Western Europe's export growth remained above the global average of 3.5% and North America's export growth fell below the average.

As far as import is concerned, Western Europe, the largest regional trader, was the only region not to record a deceleration in import growth in the year 1998. Western Europe's import growth rate of 7.5% was less than the 10% rate recorded by North America, Latin America and the transition economies. The imports into Asia fell by 8.5%. The stagnation or decrease in import volumes is estimated for Africa and the Middle East. 

Services are becoming a significant component in global trade. The value of commercial services increased from US $ 1275 billion to US $ 1320 billion in 1996 to 1997. It fell down to US $ 1290 billion in the year 1998.

India and Intellectual Property Rights

It is the most controversial aspect of ratification of Marrakesh Agreement by India, the real contentious issue being patent protection. India has been a member of Berne Convention for the protection of literary and artistic works. Computer software is protected as a literary work under our copyright laws since 1983, three years before the launching of Uruguay Round of Negotiations in 1986. Indian laws relating to trademarks, trade secrets and industrial designs are on par with generally accepted international standards. Necessary adaptation in keeping with the agreements is under way. 

The Indian Patent Act, 1970 permits only process patent in food, pharmaceutical and chemical sectors. The duration of patent under this law is only 7 years in food and pharmaceutical sectors, while it is 14 years in other sectors. The patent granted in these three sectors will be deemed to be endorsed with the words "license of right" .so that any person can work on the patent without the authorization of the patent owner. Compulsory licensing provisions of the Act have also been broadly worded including the grant of compulsory license. Virtually, this Act does not provide protection in food, pharmaceutical and chemical sectors.

International Agreements for Intellectual Property Rights

There are a large number of international agencies and international agreements which are expected to manage intellectual property rights protection. Let us learn about few important agencies. 

World Intellectual Property Organization (WIPO): It is a specialized UN agency established in 1967 which came into force to deal with intellectual property protection, specially patent and copyright, all over the world. It cannot effectively enforce the intellectual property rights and is considered to be toothless. 

Paris Convention: International Union for the Protection of Intellectual Property Rights, Paris Convention, was signed in Paris in 1883. In 1989, it had 100 member states. India was not a member. Under this convention, member states must accord to nationals and residents to other member states the same advantages under their law relating to the protection of inventions, trademarks and other subjects of industrial property as they accord to their own nationals.

Berne Union: This treaty was signed in Berne in 1886. It is the international Union for the protection of literary and artistic works. Under this, members must accord the same protection to the copyrights of nationals to other nationals. It also prescribes minimum protection of 50 years. India is a party to it. 

Washington Treaty: It covers the protection of layout designs of integrated circuits. This treaty was signed in 1987. India has signed this treaty. 

Under the Uruguay Round of Multilateral Trade Negotiations, regime of intellectual property rights was negotiated under trade related intellectual property rights which became an important component of the Marrakesh Agreement. Development and enforcement of intellectual property rights regimes was removed from other international agencies and was brought under Uruguay Round of Multilateral Trade Negotiations under the auspices of General Agreement on Tariffs and Trade (GATT). The inclusion of intellectual property rights in the agenda of the GATT was to not only enable negotiations set to achieve uniform and higher standards of protection and enforcement, but also empower concerned organization to take recourse to "'cross retaliation" in the goods sector to ensure compliance. The appellation "trade related aspects" is only a thin veil to confer legitimacy on the inclusion of the subject on the agenda of Uruguay Round. The USA had similarly done unilaterally under Super and Special 301 provisions of its trade laws.

TRIPS Agreement covers seven categories of intellectual property, viz., copyright and related rights, trade marks, geographical indication, industrial designs, patents (which include micro-organisms and plant varieties), integrated circuits and trade secrets. 

i) Protection will be available for 20 years for patents and for 50 years for copyrights. Patents shall be available for any invention, whether product or process, in all fields of technology. Further, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology whether products are imported or locally produced. Patent will be available in the area of computer development and information technology. 

ii) Protection of intellectual property rights provided in the agreement will be enforced through the Common Dispute Settlement Mechanism of World Trade Organization (WTO) which provides for retaliation and cross retaliation.

INTELLECTUAL PROPERTY RIGHTS

The concept of intellectual property rights refers to the exclusive privilege granted to individuals or institutions to make use or sell goods and services that embody the ideas, techniques and inventions that they have appropriated. "An intellectual property rights system thus can be defined as the interrelationship between a set of incentives and rewards designed to stimulate the creative, inventive activity of people and institutions for the achievement of specific goals and the mechanisms that regulate and permit the enforcement of the exclusive rights." The most important intellectual property rights in existence are patents and copyrights. The patent is the exclusive right to make, use or sell a particular application of a new idea. It is thus a mechanism for the disclosure of new knowledge and it encourages entrepreneurs to invest on patents that in turn covered not only industrial processes and products but is now extended to services and agriculture. Copyright is the exclusive privilege to make copies or to reproduce a particular tangible expression or information. Other intellectual property rights are certificates of invention, trade secrets, trademarks, plants' patent and plant breeding rights. The most recent type of intellectual property rights is for semi-conductor chip layouts.

‘The growing international concern over the intellectual property rights stems from four major considerations: 

a) "It is intangible and easily leaked out. Intellectual property can transcend national boundaries and legislations in a way that is not possible for real property. New technologies, particularly the cluster making up information technology, have enormously enhanced the characteristic of intellectual property. Hence the protection of IPRs on the basis of national laws and the dissemination of information which those laws are designed to protect is considered to be a matter of international concern. 

b) "Since national legislation has not kept pace with technological progress, new questions have arisen, the solution to which requires new mechanisms and regulations. These need to cover not only the legal aspects of property rights but also the economic, ethical and political aspects. 

C) "Since existing legislation is national in character, its enforcement depends upon national procedure and mechanisms. In turn, new technologies facilitate dissemination, imitation, and infringement, they also make it more difficult to identify the infringement and consequently more difficult to enforce rights. and  

d) "It is now recognized that the economic dimension of intellectual property rights has a far greater relevance than was traditionally assumed. This is perhaps the most important of the four considerations."

VITAL COMPONENTS OF TECHNOLOGY TRANSFER CONTRACT

Technology Collaboration Agreements is a specific mechanism of technology transfer. In India it has been an important mechanism. Even with subsidiaries and affiliates some TNCs have technology collaboration agreement spelling out the details of technology to be transferred and price to be paid. Technology transfer agreement is a legal agreement enforceable by the courts of law. Some of the main components of the technology collaboration agreements are highlighted. This listing has been done keeping in view the interest of the buyer. Let us now learn the vital components of contracts.

i) Patent and Secret Technology: Every transfer of technology, through whatever mechanism, has the following components to affect transfer: (a) patent and (b) knowledge of the process or the secret knowledge of the firm which the owner shares with the buyer. The knowledge means know-how which is industrially useful, secret, novel and valuable information including associated technical and other information.

(ii) Trade mark: Although it is not a part of technology and hence not an integral part of transfer, trade mark from the buyer's point of view identifies the given level of product quality including certain continuation of product features. From the seller's point of view trademarks identify exclusive source thereby serving as a repository for a 'good-will', a repository which is protected from the unfair competition of imitators.

Brand Name: Very often technology transfer also includes brand names of the product which’s believed to enhance the value of the product and marketing. Category does have R&D activities. Their unique advantage is flexibility in management. ,

Royalty, Management and Technical Fees: Technology transfer is made on specific payment, royalty for patent and various fees for management technology and technical fees. Royalty is paid for patented knowledge which is normally a proportion of the sales value. Management and technical fees could be lump sum to be paid in one installment or in a number of installments. There is also separate payment for buying trade mark and brand name.

Duration: Technology transfer agreement is normally for a period of time, for example, five years.

Establishment of R & D: The seller of technology is expected to help the buyer to establish an R&D unit.

Performance Guarantee: The clause of performance guarantee is very important from the point of view of the buyer since it goes into the roots of the technology transferred or acquired. It ensures that technology transferred will be able to produce expected quality products at expected costs. This is very important in a large number of industries specially chemicals and pharmaceuticals.

Design Conference: It is normally between the proposed buyer and seller to understand the nature of technology and its components which is expected to be transferred. This conference provides a beginning for effective negotiations on both sides.

Restrictive Practices: One should be careful about restrictive business clauses such as export restriction, importing from sources specified by the seller of technology where there is a possibility of transfer pricing.

Latest Technology: Technical collaboration agreement must also include provision for transfer of latest technology.

Technical Assistance and Training: No transfer of technology can be said to be complete unless the technical knowledge, information and skills are properly communicated by the licensor to the licensee. Technical assistance or the training is the only and the most effective mechanisms in this regard.

Training of Labour Force: Training is regarded as an important channel through which TNCs impart synergistic ownership-specific advantages to the host country nationals. Training tends to raise both the technical and managerial capacity of the host country, enabling it to apply knowledge and skills in production without assistance. There is also a spillover effect of this on labour mobility and increases overall productivity.
Training programmes are carried out either within the country or abroad. Within the country, this may take the form of on-the-job training, training in a formal institution, or an institution established by TNCs. Training abroad is normally restricted to specialized areas and limited to the top management cadre.

Small and Medium TNCs and Transfer of ~technology

The emergence of small and medium-sized TNCs is a later phenomenon. They are normally hesitant to engage in international business because they are unfamiliar with foreign markets. However, recent technological developments in communication, transportation and financial services have enabled small and medium enterprises to exploit opportunities in international markets.

‘The small and medium TNCs have contacts with enterprises abroad through trade and various other contracts. Yet most of the investment overseas by the small and medium-sized companies is Greenfield in nature. Some of them are technically advanced and are willing to establish overseas affiliates. Hence technical advantages are a key element in explaining their transnationalisation. They also exploit low cost labour, local markets and exports to third countries. Regarding technology nearly 70 per cent of the enterprises belonging to this category do have R&D activities. Their unique advantage is flexibility in management.

Small and medium sized enterprises are more circumspect in their transfer. They are also less inclined to formalize their technology transfer because of Lack of personnel and other re- sources but also because their know-how is often acquired through personal experience which is difficult to formalize. They are less able to send technical experts and blueprints. Technical training other than on-the-job training was connected only by 40 per cent of small and medium enterprises. The significant aspect of their technology is suitable to small enterprises. Labour capital ratio is 1% times higher in small and medium enterprises than large. TNCs. Hence, they are expected to transfer labour intensive technology.

NON-EQUITY FORMS OF TECHNOLOGY TRANSFER BY TNCs AND SMALL AND MEDIUM ENTERPRISES

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 lumpsum 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.

The process started in 1979 with a non-equity arrangement with a developing country TNC, the Daewoo Corporation of the Republic of Korea. That company signed a five-year collaboration agreement with the Desh Garment Company of Bangladesh, under which Daewoo provided: six months of training for Desh workers in the Republic of Korea (later extended to seven months); assistance in start-up activities, including the installation of machinery purchased from Daewoo; supervision of production managed by Desh; and marketing services. In December 1979, 130 Desh workers trained by Daewoo in the Republic of Korea returned to Bangladesh, along with three Daewoo engineers assigned to assist start-up activities. In April 1980, production of garments began with 500 employees and450 machines Desh exported its first products in 1979-1 980, amounting to about $56,000. 

It was initially impossible for Desh to sell garments in the international market without Daewoo’s expertise. As so-called "triangular trade" arrangement was established: first, Daewoo received a letter of credit from an overseas buyer; second, it opened a back-to-back letter of credit addressed to Desh'; and, finally, Desh shipped its garments under the Daewoo brand name directly to the overseas buyer, while it received payment from Daewoo. In this triangular trade, Daewoo assured product quality through production line supervision and quality inspection, while Desh could fully utilize the established marketing networks of Daewoo and learn the necessary marketing techniques.

The speed of learning was so rapid that Desh cancelled its collaboration agreement in June 198 1, after only about one-and-a-half years of factory operation, long before the expiration of the agreement. Export performance following the cancellation was impressive, as Desh acquired the ability to handle all its export marketing and to purchase all its inputs from abroad, including from non-Daewoo sources. Its exports reached $10 million in 1987- 1988. 

Meanwhile, 115 of the 130 Daewoo-trained workers left Desh to set up their own, or to join other newly established, garment companies. Those workers were major agents for imparting export skills throughout the whole garment industry, leading to its dramatic success in foreign exchange earnings. Indeed, many new garment companies did not need the expertise of foreign companies because of the existence of those workers. The remarkable speed with which the ex-Desh workers transmitted their production, marketing and management know-how to hundreds of their factories demonstrates the potential for learning through initial exposure to trade in association with a TNC. It should also be noted that the spread of learning was facilitated by government policies that permitted automatic access to inputs at world prices, provided adequate trade financing at reasonable costs and exe6pted the industry from investment licensing,

Strategic Alliances and Technology Transfer: High risks and rising R&D costs (especially in the area of new technologies) and the rapid obsolescence of new products have forced many TNCs to form technology-related strategic alliances to share development costs, acquire new technologies and make better use of scarce qualified personnel. The substantial number of strategic alliances in existence now is a relatively new phenomenon. There are indications, however, of an emerging trend towards a very high proportion of agreements involving the development of and access to technologies. The alliances of IBM with several other corporations for the purpose of developing its personal computer are an example: the Lotus Corporation provided the application software, and Microsoft wrote the operating system, for a micro-processor that was produced by Intel. IBM (traditionally reluctant to conclude alliances) has now created alliances with more than 40 partners around the world, pooling technology and customer bases in the telecommunications and related fields. As a response to competition from IBM, the Japanese computer firm Fujitsu formed alliances with Texas Instruments, Siemens and Hitachi. Such alliances are often undertaken for the joint development of new generations of products and to set industry standards. Transnational Corporations from the United States and Europe are the most active participants in strategic alliances, most of which take place in information technologies.

Technological alliances can be viewed as a way of providing collective protection to technological advances among a few partners. The increasing incidence of such alliances combined with the current pace and cost of technological development makes it more difficult for developing countries to acquire technology through traditional non-equity arrangements. Many alliances also involve common actions for setting international standards that increase the barriers to entry (including, for new products from developing countries) in the international market. Some developing countries have the potential and capability, however, to become partners in technology alliances. 

A typical example to use is in the area of computer software, where the Government has set up two software engineering firms in cooperation with IBM. Taiwan Province of China provides good quality engineers at a relatively low cost while IBM provides experience in software research and development. Similarly, the Sony Group is to transfer advanced technology to the electronics industry in Taiwan Province of China. Sony has announced that it has entered into alliances with 130electronics companies from that country working with a "technology development centre" to create a production base for export to Japan and affiliated companies of Sony world-wide. Similarly, several firms in the automobile industry in the Republic of Korea have entered into alliances with TNCs from the Triad. Examples are those of Hunday with Mitsubishi and Chrystler, Daewoo with General Motors, Suzuki and Isuzu; and Kia with Ford and Mazda.

These examples, however, represent only a small number of alliances that include developing countries. Indeed, only 2 to 3per cent of technology alliances in the 1980s were between companies from the Triad and firms from newly industrializing economies, and less than two per cent included firms from other developing countries. For most developing countries, then, the acquisition of new technologies is likely to rely - at least for the present - on intra-firm transfers by TNCs, rather than on inter-firm alliances between independent firms. 

In services, non-equity arrangements have played an important role. There are some groups of services which have used non-equity firms. 

1. Hotels, restaurants, fast food and car rental companies: Their preferred way to produce abroad is a management contract or franchising. In most cases, the agreement is sufficient because it protects the contractor’s assets related to technology, operating methods or information and with respect to the performance of the contractees. 

2. Business and professional services such as accounting, consulting and legal services whose main assets are human capital, reputation, connections and brand names: They do not require expensive fixed assets that could be the basis for capital equity, but their key competitive advantages can be codified and easily transferred through non-equity arrangements, such as partnership.

3. Business services such as engineering, architectural and technical services, and some advertising requiring adaptation to local tastes, accounting and legal services. Partnerships or minority of joint ventures with local partners provide access to local knowledge. This can also lead to preliminary transfer of technology.

ORGANISATIONAL INNOVATION AND MANAGEMENT PRACTICES

Organizational innovation and improved managerial practices are being increasingly viewed as a major aspect of technological development for enhancing productivity and accelerating growth. The principal components of these aspects that have evolved over the last two decades or so can be summarized as follows: 

The underlying philosophy of production has been altered; instead of producing to stock, goods are produced to order. That necessitates a demand-driven system capable of producing a variety of product types in much smaller volumes. Hence, lot sizes have been reduced dramatically. 

The efficient production of different products in small lot sizes requires minimizing downtime. That, in turn, requires quick line changeovers and tool set ups, Machinery redesign becomes necessary but, more importantly, production-line workers must be trained to do changeovers rather than having them done by separate teams as in mass production.

Production layouts need to be restructured, and changes made in the use and manage- Ant of machines in order to create a smooth tow of smaller lot sizes. 

Inventories have to be reduced to a minimum "just-in-time" level rather than being stocked "just-in-case", so that the increased number of different product types can be accommodated without large carrying costs. 

Maintaining a smooth flow of production without inventories requires that components have zero defects or be of perfect quality, whether they come from suppliers or from in house sources further back in the production line. 

Skill and craft demarcations among workers are eliminated and workers are trained to be multi-skilled; they are paid according to their skill level and the quality of their work. 

The organizational changes involved extend throughout the firm from design to marketing to production; from senior management to the shop floor and from management's relations with its work force.

TRANSFER OF TECHNOLOGY, FDI AND TNCs

Since the TNCs are the main actors in technology development, attention is focused on their role in the transfer of technology. A large proportion of R & D expenditure that forms the basis of technology development in today’s world of all global civilian R & D is concentrated within the TNC system comprising a component of 75-80 per cent. 

An important mode of transfer of technology is trade. The trade in capital goods is a very important mode of transfer of technology. All developing countries except Africa imported technology as import of capital goods. Total import of capital goods have risen substantially, Dramatic growth has taken place in imports of Asia and the Pacific region. The share of TNCs in capital goods imports of developing countries is considered to be very big. 

A TNC normally undertakes FDI when it possesses certain technological or other economic advantages over its competitors, which it finds in its best interest to exploit internally from a foreign location since technology forms an important part of the competitive advantages of a TNC. Many firms choose to service their foreign markets through FDI not only to exploit that advantage but also to retain the company's control over ‘their technology. TNCs generally transfer their most recent technology to their affiliates, while selling or licensing older technologies to locally owned firms and joint ventures. Hence, it is argued that FDI may be the only way for many developing countries to gain access to the latest technology and especially to certain key technologies. 

As noted earlier, the introduction of new products or qualitatively superior old products is. One of the ways by which technology promotes growth. One important way of assessing how transfer of technology is taking place by the TNCs is to measure the expansion of the share of sales of high and medium research intensive industries.

The creation of production facilities by TNCs in high and medium research intensive industries can imply technology transfer not merely through a changing product composition but also through the training of host country personnel in new skills and introduction of new management methods and a new way of organizing the production process. 

As evidence, an overwhelming proportion of the foreign R&D of TNCs is located in developed countries. However, in countries like India, the Republic of Korea and Singapore, the TNCs have established R&D units of significance. But most often these R&D units are typically confined to adapting the technology of the parent company to local conditions. In a sample of 218 Japanese TNCs, 57 per cent expressed the view that the main objective of their foreign R&D facilities was to develop products tailored to meet local demand. The effects of TNCs on deeper indigenous research and innovation capabilities (know-why) in developing countries is less evident. As TNCs can import all their 'know-why', it is possible local firms] nay conduct more R&D.

It may also be that a strong presence of TNCs can inhibit the development of an indigenous technology. Foreign competition could also induce domestic firms producing similar products to undertake R&D that otherwise would not have taken place in order to improve that competitive advantage. FDI could also, it is stressed, improve the local innovating capacity in areas in which the host country and its firms are strongest and have a competitive market structure.

RECENT TRENDS AND CURRENT ISSUES OF TECHNOLOGY TRANSFER

i) Technology is increasingly globalized as: 

a) Trade in technology is growing tremendously as measured by increased technological collaboration agreements; 

b) The research and development activities of the firms are also getting globalized for a number of TNCs are increasingly establishing their R & D units in various countries specially the developed ones. 

ii) The diffusion of technology globally has caused a radical alteration of the world trading system. This has led to an important development. Technology which was considered a strategic factor in national development has now emerged as an equally vital and critical element for achieving control of international markets. In all countries, science and technology policy is thus now perceived as having effects that go beyond national boundaries and having consequences for international trade. 

iii) Technology is considered not only in the national context of industrialization or modernization of agriculture, but also improving the services sector as well. 

iv) Technology is considered as the prime factor in creating comparative advantage and acquiring competitiveness in international markets.

V) There has been a growing tendency for companies to seek increased governmental protection of intellectual property rights. 

vi) The protection of intellectual property rights is also considered by many a necessary condition for increased flow of foreign direct investment. Therefore, there has been pressure on various governments to build stricter intellectual property rights regimes .through unilateral action and multilateral agreements. 

vii) The decade of ‘sixties’ and 'seventies' had witnessed serious attempts on the part of the United Nations Conference on Trade and Development (UNCTAD) to increase technology transfer to developing countries, reduce the costs of technology transfer and acquire technology on less onerous terms. But there is a reversal of these efforts. It is feared that terms of transfer of technology are becoming stringent and costs are becoming higher. A few developing countries are increasing their R&D expenditure. 

viii) Protection of technology means for the developed countries protection of their market power and prevention of competition from entering the market. Hence they have pursued their objective of protection through various international agreements. 

Issues

1. One of the major issues with regard to technology transfer is the proprietorial rights of the owner of technology. They have been made more stringently enforceable by unilateral action of a single country, the United States, and multilateral agreements, e.g., trade related intellectual property rights which has interfered with the national development of technology. 

2. Linking of providing protection to the owner of technology to various other international economic transactions, violation of proprietorial regimes by any one country calls for retaliation/cross retaliation affecting adversely various segments of international transaction of a country.

3. If a country desires to attract Foreign Direct Investment (FDI) it is forced to liberalize its technology policy resulting in increased vulnerability of a large number of developing countries. 

4. Protection of technology has been extended to not only the manufacturing sector but also agriculture and services sector. Patents of bio-technological inventions and micro-organisms as provided in trade related intellectual property rights of the Marrakesh Agreement (1994) have raised a large number of complex issues.

RATIONALE OF TRANSFER OF TECHNOLOGY

It is important to understand-what is meant by technology. Technology normally implies a way of producing goods or establishing services; it manifests itself in production process and product development. Modem understanding of technology is more comprehensive than conventional understanding. It also includes organizational, informatory and motivatory areas.

Transfer of technology can be defined as the transfer effected from one agency to the other. There are various levels of transfer of technology. First, when the technical knowledge is transferred from the laboratory and scientific establishment to students of technology; it can be called transfer of knowledge. For example, the principles of physics and chemistry are transferred through teaching to the students. An advanced form of transfer of technology in this category is high level seminars where advancements made in a number of basic science and their applications are discussed. The same is also published for wider use. It must be noted here that there is no relationship between the costs incurred and price paid by the users. 

The second level of transfer is the general knowledge of production of a product. Firms and individuals in this area would be broadly knowledgeable about the process and requirement which constitute part of the general knowledge of a concerned industry. Here again there is no relationship between costs and benefits. 

Third, it can be said when a new product is either introduced in the market or imported, one can get an idea of technological possibilities.

Fourth, which is the focus of this unit is the transfer of technology which is commercially successful and this technology normally is owned by a firm with necessary property protection. Therefore, it can be transferred only through the market transaction, i.e., buying and selling. 

Before identifying the main features of technology market, it is useful to understand the rationale of technology transfer. We are confining here to technology transfer between two firms which are located in two different countries, i.e., international transfer of technology. Over about a century, firms all over the developed world are buying and selling technology. Over the last thirty years in particular the technology transfer is also taking place between the firms of developed and developing countries. In this context, it is necessary to briefly understand the rationale guiding the buying and selling of technology. 

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.

Main Features of the Technology Market 

Technology market is a seller's market. The owners of proprietorial technology are a few large TNCs, although there are a few medium and small scale enterprises in the market. So the TNCs control the sale of technology. The buyers of technology are a large number of firms especially from developing countries. Effective purchase of technology can be done only when a buyer knows about the technology. This knowledge includes information on a number of companies owning similar technology like whether it is still subject to proprietorial regulations and what are the terms and conditions under which that concerned technology is traded in the market. In technology purchase knowledge is power. It is, therefore, imperative that a technology buyer makes necessary home work in this regard.

THE INDIAN PERSPECTIVES of TNCs

India had a restrictive foreign direct investment policy till 1990. Even then a large numbers of operated in India either through collaboration with Indian enterprises through minority share holdings or through their own subsidiaries. The TNCs even then had dominated many consumer industries. Many of them had nearly 60-70 per cent of the market share. Many TNCs found that the India's domestic market was large and hence persisted to operate within the framework of the Indian policies.

Since 1991, the Indian Government has liberalized its Foreign Direct Investment (FDI) policy. Hence, India has emerged as an important market for serious considerations of TNCs' operations. Generally, large TNCs like Philips, Union carbide, Unilever, Glaxo, Boots, Welcome, Coca Cola, Pepsi, IBM, Brooke Bond, ITC are operating in India. They are entering in a large number of consumer industries as well. International Banks are also showing interest in the Indian economy. The free entry of TNCs is, however, still subject to some concern in Indian industry and political circles. Indian industry fears that the TNCs with the liberalized policy of the Government will adversely affect the operations of the domestic enterprise. Therefore, many of them seeking level playing fields for them. Political parties are wary about the domination of TNCs on Indian economy. But the debate is rather weak. Hence we can conclude that TNCs will increasingly come to India. But their primary pre-occupations, one can envisage, would be to exploit the growing domestic market. 

Indian Companies Operating Overseas 

Indian policy on joint ventures has now permitted Indians to establish not only joint ventures but also owned subsidiaries. There are various subsidiaries either established overseas or in the process of getting established. But they have not acquired a status of TNCs. Among the TNCs of developing countries only Tata Steel Works is treated as an emerging TNC. It will take some time for Indian companies to acquire the status of a TNC.

ISSUES AND CONTROVERSIES OF-TNCs

Currently there has been a broad consensus that TNCs are efficient allocators of resources in the world economy. Further, they are also technological giants and innovators. Yet there are a large number of issues on which the controversies exist. They are: 

a) The TNCs interest and the interest of host countries specially developing ones conflict with each other. TNCs produce products which are not very essential for host developing countries and thus they divert scarce resources away from production of necessary items.

b) The TNCs dominate high profit oriented consumer sectors. They monopolize profits of these sectors without providing any scope for local enterprises. This, they do through their market power which includes promotion of brand name, trade mark etc. 

C) While the TNCs possess technology, they are extremely reluctant to transfer technology to the host country. Therefore, they make developing countries depend on TNCs for their technology. TNCs preserve all their important R & D in home countries. 

d) In order to protect their market share they take recourse to restrictive business practices. These restrictive business practices include tying imports to specific sources of interests of TNCs, conditions of technology transfer, price fixation, exports restrictions, and restrictive use of brand names and trademarks. 

e) Through the transfer pricing, the TNCs avoid paying taxes to government of host countries and thus transfer resources away from them. The TNCs also deprive the partners from host countries of their legitimate profits. 

f) The TNCs do not appoint host countries personnel at higher positions. 

g) The TNCs create balance of payments problems for the host developing countries through large imports and repatriation of huge dividends, royalty, technical and management fees.

h) The TNCs do not create necessary backward and forward linkages. This failure very often leads to non-industrialization of host countries. 

i) The TNCs are not necessarily very efficient institutions. Lately, many of the giant TNCs have met with huge losses. 

j) The TNCs increase their dominant power through mergers and acquisitions thus preventing the needed competition. 

k) The TNCs have a tremendous capacity to influence their home governments and international organizations. This capacity enables them to promote national and international legal frameworks consistent with their needs at the cost of interest of many countries specially the developing ones. 

The Home Country Perspective 

While home countries promote their TNCs, their operations are not without criticism 

i) The TNCs divert resources away from their home countries without paying adequate taxes. 

ii) The TNCs establish production centers in those countries where cheap labour is available thus creating unemployment in the home countries. 

iii) The TNCs also often violate environmental considerations by establishing industries in many countries where environment regulations are lax. This leads to 

(a) Global environment problems and 

(b) Import of environmentally hazardous goods.

Currently, however, the supporters of TNCs argue that these criticisms are exaggerated and not based on adequate evidence. They argue that TNCs assist host developing countries to develop. Very often they refer to the economic development of Malaysia, Thailand and some Latin American countries. The late eighties and nineties are considered to be a period of cooperation between governments and TNCs.

THEORIES EXPLAINING EMERGENCE OF TNCs IN WORLD ECONOMY

The growth of TNCs has been a subject matter of great concern for various reasons. While they have grown in importance as seen in the previous section in post-war period, their origin can be traced to the nineteenth century. A number of theories have been developed to understand and explain why an enterprise would like to invest in a foreign country in view of a large number of problems and risks that it could face in an alien environment. The foreign firm has to adjust to a new government, new culture and most often competition from the local companies which have many advantages. The foreign firm, it is further argued, can achieve its corporate goals by directly exporting and licensing its technology without risking its investment. Yet firms have chosen to invest. The theories on TNCs try to explain this phenomenon. 

Let us discuss a few major theories which.try to explain the growth of TNCS in the post-war period. 

1. Stephen Hymer, one of the original contributors to the theory of TNCs emphasized that when a firm operating in imperfect market structure seeks monopoly rent which through the internalization of related activities can be increased and captured by the internalizing firm. This is also a market failure of the structural kind. 

2. An enterprise which innovates new products enjoys market domination in its home country. It could be an enterprise or a few enterprises. When a product gets standardized, a large number of national firms start imitating by producing similar products. The original producers in order to retain their domination move to other economies by establishing production units. These economies largely belong to the same income groups. Once these firms face competition in these foreign countries by the imitators, the original producer moves to other countries which are mainly developing countries. This theory was propounded by Raymond Vernon and is known as Product Life Cycle Theory. This theory very often applies to firms dealing with consumer products. 

3. Many like John H. Dunning, Mark Casson, have attempted to explain the ‘Theory of International Resource Allocation' and the theory of ‘Market Failure'. Dunning puts it "Between them, we believe that these theories help to explain the origin of the Ownership Location and Internalization (OLI) advantages created or acquired by firms and strategic management of theirs". The unique characteristic of the TNC is that it is both multi activity and engages in the internal transfer of intermediate products across national boundaries. In other words, it produces at different points of the value added chain and in different countries. Since firms which produce at more than one point on the chain necessarily engage in intra-firm rather than, or in addition to, inter firm transactions, and ate multi activity, this implies the existence of some kind of market failure, in the sense that whether within or between countries, firms are motivated to replace the market as transaction agent. When these activities are undertaken across national boundaries, then there is international market failure. It is the failure of the market to organize a satisfactory deal between potential contractors and contractees of intermediate products that explains why one or the other should choose the hierarchical rather than the market route for exploiting different factor endowment situations.

The market failure arises from the inability of arms length transaction to perform efficiently. This might happen for three reasons: First, perhaps the most important factor, the difference between international and domestic failure, is the additional risk and uncertainty associated with cross border transactions. Such risks are particularly noteworthy in raw materials and high technology industries that typically incur high development costs where there is a danger of disruption of supplies or where there is likelihood of property rights being displaced or abused by foreign licenses. The second reason for transactional market failure is that the market cannot take account of the benefits and costs associated with a particular transaction between buyer and seller which accrue to one or another parties but which are external to that transaction

The third reason for transactional market failure arises whenever the market is insufficiently large to enable firms to capture economies of size and scope when facing an infinitely elastic demand curve. Such economies may be in production or in purchasing, marketing, research and development, finance, organization and so on.

4. The reasons for firms to produce abroad also include explanations minimizing tax burden and exchange risks. Companies are also expected to move their production centers across the border to derive advantages arising from cheap labour, plenty of raw materials etc. 

5. Production facilities are established by an enterprise across geographical and political areas which are policy induced. One variety is called Tariff Jumping Operations that are to overcome the restrictions imposed by the host country on imports of final products. Yet another approach is to receive the benefits offered by the host countries for foreign investment. 

There is no one theory. There could be a large number of explanations for a single firm to go abroad. It could be considered as Dunning points it, as eclectic theory.

Identity of TNCs with their home countries 

USA, UK and Germany have been dominant home countries of the TNCs. This has led to raise questions whether TNCs coming from these respective countries have any different characteristic features. This question has arisen, in particular, in view of differences in the type of capitalism. Some scholars of capitalism and management argue that there is difference between the capitalism of Germany and Japan on the one hand and capitalism of USA and UK on the other. The former is called 'Communitarian Capitalism’ while the latter is known as 'individualistic'. In Communitarian capitalism the firms play a game termed as strategic conquests while Individualistic Capitalism of the US and the UK believe in consumer economics. The UK and the US capitalism maximize the profit and hence customer and employee relationship are the means of achieving higher profits. Similarly workers also seek higher wages and go in search of them. In Germany and Japan, especially Japan employees are primarily important and shareholder next. Profits can be sacrificed to maintain wages and employment. Further, banks and firms have collective strategy. Germany thinks of having a 'Social Market’ and not just the market. Social welfare is part of the market. In the Anglo- Saxon market economy, social welfare policies would not be necessary. There are other differences as well. 

With regard to the national identities of TNCs there are clearly two view points. Some argue that there is a difference between the TNCs of leading countries. Hence their behavioral and the results of their transnationalisation are different. According to others, the transnationalisation process totally blurs the national identities and interests. Hence, there will not be any difference in the behaviour of Japan for instance, from that of the behaviour of TNCs from the US. The approach stems from the assumption that TNCs are 'stateless' corporations. In 1969, Charles Kindleberger wrote that international corporation has neither country to which it owes more allegiance than any other nor any country where it is completely at home. Over the last few years this approach has grown substantially. 

The latter view has been prominent in the context of TNCs of Japan. In the US, Robert, B. Reich has argued that while foreign direct investment coma to America from any country, it will become American, His famous statement attracted considerable attention.' They are us' "The cosmopolitan corporations eager to avoid appearances of national favoritism and ... desirous of a familiar and reliable image wherever it does business around the world, also hires and promotes citizens of many nations to its executive ranks,.

Others argue that the TNCs retain their national identities, objectives and character in their corporate behaviour. Then are no, it is further argued, such stateless corporations. TNCs from various countries do keep their national identities. For, they keep important R & D units in their home countries, boards of decision making of the parent consist of nationals of the parent country. Some thus say, ‘they are not us.'