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.

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.