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Japan's experience and Asian perspectives

Transfer of high technology to developing countries

The development of electronics industrial technology in the last three decades is a historical event comparable to the Industrial Revolution in the late eighteenth century. One major difference between the cur rent electronics technological revolution and the Industrial Revolution can be found in the intensively rapid progress in product and process innovations occurring today.

The memory capacity of microchips, for example, has increased from 4K bit dynamic random access memory (DRAM) in the mid-1970s to 16M bit DRAM by the mid-1980s - a dramatic four-thousand-fold change within a decade! This electronic technology has been developed in industrial countries, particularly in the USA and Japan. As a result, the technology gap between industrial countries and the third world in general has become much wider in the 1980s than in the 1960s.

The rise of Japan as one of the major industrial countries, and that of the Republic of Korea as one of the newly industrialized countries (NICs), was made possible by the international transfer of technology. The industrialization of the world, we may argue, is indeed a historical process of international transfer of technology from more advanced to less developed countries. Therefore, the current electronics technological revolution could spread to the developing countries in the future. One could thus pose the legitimate question of how and when the international transfer of electronics technology, or, more generally, "high technology," will take place in the third world.

The possibility and desirability of transfer of high technology to developing countries will be discussed in terms of microchip technology. Microchips are the most essential inputs for the electronics technology; the product and process innovations in the microchip industry generate a wave of product and process innovations in the electronics industry as a whole, which in turn create another wave of innovations in related industries. In this regard, we can represent microchips as a high-technology industry. In the following sections we shall discuss, first, the basic characteristics of the industry and, second, the relevance of the microchip industry to developing countries. Finally, a tentative conclusion concerning the transfer of high technology to developing countries in the short run will be drawn.

Major characteristics of the microchip industry

Short product cycle

The intense competition for the development of new microchips among the leading electronics firms in the world was observed at the International Solid State Circuit Conference (ISSCC), which was held in New York in February 1987. International Business Machines Corp.

(IBM) announced that it has designed and produced a significantly more powerful computer memory chip that can store more than four million bits of data. This 4M bit DRAM chip, however, was not the monopoly of IBM. Other companies, including Texas Instruments Inc. and several Japanese concerns, also unveiled their successes in the development of a 4M bit DRAM chip. At the same meeting, Nippon Telegraph and Telephone Corp. (NTT) announced that it had already produced a 16M bit DRAM chip. This new memory chip, which is 8.9 mm by 16.6 mm in size, can integrate about 40 million components. Its cycle time is 180 nanoseconds (one nanosecond is one billionth of a second). This means that the chip requires only 0.4 second to read and write 64 pages of a newspaper.

In 1987, the 256K bit DRAM chip was the most widely used computing memory chip, and the mass production of a 1M bit DRAM chip by some Japanese and US electronics firms had just begun. The NTT's epoch-making breakthrough was evidence that the technological lead would soon be captured by other major electronics firms. Thus, the innovation of a new 4M bit DRAM chip, and even of a 16M bit DRAM chip, will accelerate the shift of the product cycle toward super-powerful memory chips.

It is said that a lifetime of a unit of productive facilities for certain types of microchip may be as short as four years owing to the very rapid product cycle. This machinery and equipment for microchip production will become obsolete within a short time-span, and chip manufacturing firms are forced to continue reinvestment for new production facilities in order to survive in the face of keen competition. LSI manufacturing facilities are in the order of 36-39 billion yen. Nevertheless, Japanese electronics firms are tending to intensify their investment in production facilities for microchips. The value of IC sales increased from 10.8 billion yen in 1975 to 179.8 billion yen in 1984, while IC-related investments rose from 1.1 billion yen in 1975 to 76.3 billion yen in 1985. The ratio of IC-related investments in the value of IC sales thus rose from 10.5 per cent in 1975 to 42.4 per cent in 1984. This enormous financial capacity to invest is an indispensable condition of survival in an electronics revolution of which the quick product cycle is one of the major characteristics.

Rapid process innovation

The second important characteristic of the microchip industry is found in the rapid development of process innovation. Thus, in the product innovation from 64K bit DRAM to 256K bit DRAII, and further to

1M bit DRAM, every processing step required a new technological breakthrough. Many process innovations take place along with the product cycle.

Inter-industrial technological linkages

Innovations in processing technology require considerable interactions with technologies developed in other industries outside electronics. The combination of technological developments in, for example, the construction, chemical, and textile industries makes it possible to fabricate microchips. It should be mentioned that related development in the technology of machine and electronics engineering created "mechatronics" engineering. The development of microcomputers was combined with machine engineering, and produced many kinds of NC machinery, machining centres, and other types of super high-precision instruments. The process innovations of the microchip industry would not have been possible without simultaneous technological development in mechatronics. In this regard, the microchip industry is the one which needs to apply technological progress in other industries. The inter-industrial technological linkages are of vital importance to product and process innovations in the microchip industry.

The extent of inter-industrial linkages can be shown by the input of other industries into the production of microchips. In 1984, microchip production amounted to 2,600 billion yen in Japan. A total of 400 firms in related industries played supporting roles in the industry, with annual sales of 1,000 billion yen.11

The growth of chip fabrication machinery and equipment in Japan has been very rapid, resulting in the quick import substitution of those production facilities. Without the available technological support by related industries, domestic manufacture of and innovations in microchip production facilities could not be attained.

Substantial expenditure on R&D backed by capable human resources

Technological progress in the microchip industry has been made possible in Japan by the massive investment in R&D which has been carried out jointly by the private sector and the government. Electronics firms in Japan spent nearly 215 million yen -19.9 per cent of the sale of microchips - on R&D activities in 1975. Their expenditure on R&D steadily increased to 2,549 million yen, 17.5 per cent of the sale of microchips, in 1985. The number of R&D-related employees in microchip manufacturing firms increased from 2,337 in 1973 to 5,695 in 1984.12 This figure does not include research staff in universities and public agencies. Therefore, the actual number of persons engaged in IC-related R&D in Japan is certainly much larger.

Many major electronics firms in Japan have established their own R&D institutions, and they have been very active in making technological innovations in order to compete with other firms in the industry. One thing to be mentioned here is that electronics firms are extremely competitive among themselves, but at the same time they tend to cooperate in the R&D for national projects. This may imply that major innovations are too expensive to be carried out by an individual firm.

Facing the serious technological challenges by Japan, US microchip manufacturers have also decided to form a billion-dollar cooperative manufacturing venture, the Sematech. This will be jointly funded by government and industry, and designed to restore the international competitiveness of US microchip manufacturers. This fact alone demonstrates what extraordinarily large R&D expenditures are needed to maintain a leading position in the era of the electronics revolution.13

International transfer of high technology to developing countries in East and South-East Asia

Japan's technological development, along with the electronics revolution, has again proved the usefulness of the strategy of borrowing technology from abroad. Japan imported electronics technology mainly from the US, and went through the process of adaptation and indigenization of imported technology. It is not surprising, therefore, to see that many Asian countries hope to learn lessons from Japan. They have already entered the phase of primary export substitution, and have steadily increased their exports of manufactured goods, including consumer durables and even electronic goods. With this level of industrial development, transfer of high technology from abroad is one of their major national concerns.

The Republic of Korea has already emerged as an exporter of VLSI, and Taiwan, Singapore, Malaysia, and Thailand are also exporting microchips. It appears that the Republic of Korea has now the capacity to become one of the world's major VLSI exporters. In this regard, it is interesting to examine the Korean strategy of electronics development. Table 7 shows the Korean perspective on technological progress toward the year 2000, and divides the industrial sector into three groups. Group 1 consists of electric appliances, iron and steel, petrochemicals, textiles and sundries. Group 2 comprises automobiles, shipbuilding, electronics, high-precision machine tools, and advanced chemicals. Group 3 covers LSI-related electronics, mechatronics, aviation, computer and communications, biotechnology-related industry, and robotics.14 The classification of industries into these three groups gives an insight into the Korean perception of technological progress. As an NIC, the Republic of Korea has shown remarkable progress in establishing a strong industrial base with the clear aim of catching up with technological developments in the industrial countries.

Table 7. Korean perspective on technological development towards the year 2000

Product cycles in industrial countries

Korea's domestic technological development phases

Future technology
Imported and indigenized technology Improvement of indigenized technology Early phase of imported technology High technology

Group 3

Entry         Computers and communications

Group 2

Biotechnology Robotics
Growth     Electronics LSI  
      Highprecision Mechatronics  
      machine tools Aviation  

Group 1

Advanced chemicals    
Maturity Electric appliances Automobiles      
  Iron and steel Shipbuilding      
Decay Textiles        

Source: Korean Institute of Development Research, A Long-term National Development toward National Development. p. 122. Requoted from M. Saito, International Political Economy of Transfer of Technology, Tokyo: Toyo Keizai Shimpousha. 1986, p. 49.

In the Republic of Korea's technological development, however, there appears to be a continuity from light consumer industry to heavy chemical industry, and further to high technology industry. On the other hand, the time-span in which Korea mastered the necessary technology for certain industries is astonishingly short. The process of learning-by-doing to acquire higher levels of technology was condensed into a short period, and she has been accelerating her national capability to absorb higher levels of technology.15 What we should note here is that Korea did not try to absorb the electronics technology before she had mastered the technology of manufacturing automobiles and shipbuilding. Another point to be stressed is that Korean industrial development took place along with the formation of powerful company groups such as Hyundai, Samsung, and Daewoo. These company groups played decisive roles in financing and industrial investment and also in mobilizing entrepreneurial resources.

The ASEAN countries have also made notable developments in industrialization. They have entered into the phase of primary export substitution in which the export of manufactured goods has been steadily increasing. Their industrial progress has been facilitated by an international transfer of technology. Although the level of industrialization varies among them, it would be safe to argue that almost all the ASEAN countries have already developed industries which can be classified into the group 1 of the Korean case (table 7). However, it is hard to believe that they have firmly established the industrial base of the group 2 Korean industries. Nevertheless, most of the ASEAN countries have begun to develop high-technology-based industries. In some countries like Malaysia and Singapore, the international transfer of high technology seems to be a national project.

The transfer of high technology to these countries is technically feasible, as shown in the foreign direct investments undertaken by major electronics multinational firms in these countries. Either as subsidiaries of multinationals or as in joint ventures with local firms, the microchip industry was established in the ASEAN countries. In most cases, however, the plants were constructed on a turnkey base; the machinery and equipment were directly imported from parent multinationals; necessary technical staffs were dispatched from them; and the products were exported with their help.

More importantly, the microchip industry in the ASEAN countries is primarily engaged in the downstream operations of microchip fabrication. Most of the plants are assembly plants, which require relatively unsophisticated technology in the whole range of technological packages in the industry. In essence, these plants are used as instruments for the offshore operations of multinational electronics firms. It is therefore inevitable that the microchip industry tends to create a "technological enclave" in these countries.

In the previous section, we pointed out the four major characteristics in the microchip industry: (1) a short product cycle; (2) rapid process innovations; (3) inter-industrial technological linkages; and (4) substantial expenditure in R&D backed by capable human resources. At the moment, all the ASEAN countries appear to face considerable financial difficulties in developing the microchip industry. First, it is not at all easy to continue new investment, given the short product cycle of microchips. In fact, the cost of investment in a larger-capacity microchip has substantially increased. Furthermore, the unit price of microchip fabrication equipment rises along with the increasing integration of technological sophistication. The present level of available inter-industrial technological linkages in the ASEAN countries seems to be insufficient to allow them to embark upon the import substitution of the machinery and equipment for the fabrication of microchips. Thus, import dependency will continue, at least in the short run. The S&T infrastructure in terms of the availability of capable human resources and R&D institutions has still to be developed in these countries.


The international transfer of high technology to developing countries has to be examined country by country, since the level and structure of the industrial sector are, to a considerable extent, different among them. There are many means of transfer of high technology: (a) the import of high technology by licensing agreement; (b) the import of high-technology-related commodities, machinery and equipment, and plants; (c) the establishment of multinational subsidiaries; (d) joint ventures with multinational corporations; (e) subcontracting with multinational firms; and (f) the participation in international R&D projects.

Available options are limited by the recipient country's absorptive capacity for high technology. The Republic of Korea appears to have wider options than the ASEAN countries. She has already established the technological base for licensing production of microchips, whereas many countries in the ASEAN region still depend on foreign direct investment in the form of either subsidiary arrangements or joint ventures. Therefore, their immediate requirement is to strengthen their absorptive capacity for high technology rather than to embark upon the large-scale investment necessary to develop high-technology industries.

This view may conflict with the national self-image of the ASEAN countries. The Korean experience tends to support this tentative conclusion. Only after the Republic of Korea had mastered the necessary technology related to the group 1 industries did she venture to catch up with high technology.

Self-reliance in S&T for national development does not rule out the strategy of borrowing technology from abroad. Nevertheless, this strategy may end in failure if a country borrows technology which cannot be effectively utilized; this will only result in increasing dependency on foreign technology. A step-by-step approach in the international transfer of technology and a massive national effort to shorten the time requirement for mastering imported technology could be a realistic option for many developing countries, including those in the ASEAN region.

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