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.'