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References

1 Adler, E. The Power of Ideology: The Quest for Technological Autonomy in Argentina and Brazil. Los Angeles: University of California Press, 1987.

2 Alvarez, C. Homo Faber: Technology and Culture in India, China and the West 1500-1972. Bombay: Allied Publishers, 1979.

3 Bell, M., B. Ross-Larson, and L. Westphal. Technological Change in Infant-Industries: A Review of Empirical Evidence. World Bank Working Paper. Washington, D.C.: World Bank, 1985.

4 Cooper, C. Science, Technology and Development: The Political Economy of Technological Advance in Underdeveloped Countries. London: Frank Cass, 1974.

5 Daghestani, F.A. Science and Technology in the ESCWA (Economic and Social Council for West Asia) Region: End of Decade Review. Amman: The Higher Council for Science and Technology, 1988.

6 Dosi, G. "Technological Paradigms and Technological Trajectories." Research Policy 11 (1982): 147-162.

7 El-Kholy, O.A. "The 1976 CASTARAB Rabat Meeting: A Review." In: Zahlan, ed. See ref. 35.

8 Elzinga, A., and A. Jamison. "The Other Side of the Coin: The Cultural Critique of Technology in India and Japan." In: E. Baark and A. Jamison, eds. Technological Development in China, India and Japan. London: Macmillan, 1986.

9 Ernst, D., and D. O'Connor. Technology and Global Competition: The Challenge for Newly Industrialized Economies. Paris: OECD, 1989.

10 Evenson, R., and G. Ranis. Science and Technology: Lessons for Development Policy. Boulder, Colo.: Westview, 1990.

11 Forsyth, D. Appropriate National Technology Policies. Geneva: ILO, 1989.

12 Freeman, C.L. The Economics of Innovation. London: Frances Pinter, 1982.

13 Goonatilake, S. Aborted Discovery: Science and Creativity in the Third World. New York: Zed Books, 1984.

14 Hoffmann, K. Technological Advance and Organizational Innovation in the Engineering Industry. World Bank Industry Series Paper no. 4. Washington, D.C.: World Bank, 1989.

15 IDRC. Science, Technology and Development: Planning in the STPI Countries. Ottawa: IDRC, STPI Project, 1979.

16 Jecquier, N., and Hu Yao-Su. Banking and the Promotion of Technological Development. New York: St. Martin's Press, 1989.

17 Kaplinsky, R. "Technological Revolution and the International Division of Labor in Manufacturing: A Place for the Third World?" European Journal of Development Research 1 (June 1989), no. 1.

18 Katz, J., ed. Technology Generation in Latin American Manufacturing Industries. London: Macmillan, 1987.

19 Lall, S. Learning to Industrialise. London: Macmillan, 1987.

20 Lall, S. "Explaining Industrial Success in the Developing World." Development Studies Working Papers, University of Oxford, 1989. Mimeo.

21 Lall, S. Building Industrial Competitiveness in Developing Countries. Paris: OECD, 1990.

22 Mazrui, A. Political Values and the Educated Class in Africa. London: Heinemann, 1978.

23 Mudimbe, V. The Invention of Africa: Gnosis, Philosophy and the Order of Knowledge. Bloomington: Indiana University Press, 1988.

24 Nasr, S. Islamic Science: An Illustrated Study. London: World of Islam Festival, 1976.

25 Needham, J. Science and Civilisation in China. Cambridge: Cambridge University Press, 1954.

26 Nelson, R., and S. Winter. An Evolutionary Theory of Economic Change. Cambridge, Mass.: Belknap Press, Harvard University, 1982.

27 Perez, C. "Technical Change, Competitive Restructuring and Institutional Reform in Developing Countries." World Bank Discussion Paper no. 4, Strategic Planning Review, Washington, D.C., 1989.

28 Price, D. de Solla, and I. Spiegel-Rösing, eds. Science, Technology and Society: A Cross-Disciplinary Perspective. London: Sage, 1977.

29 Rosenberg, N. "Science and Technology Policy for the Asian NICs.'' In: Evenson and Ranis, eds. See ref. 10.

30 Rushing, F., and C.G. Brown. National Policies for Developing High Technology Industries. Boulder, Colo.: Westview, 1986.

31 Sagasti, F. "Science and Technology Policy Research for Development: An Overview and Some Policies from a Latin American Perspective." Bulletin of Science, Technology and Society 9 (1989), no. 1.

32 Salomon, J.-J., and A. Lebeau. Mirages of Development. Boulder, Colo.: Lynne Rienner, 1993. Originally published in French as L'écrivain public et l'ordinateur. Paris: Hachette, 1988. The debate is captured in the Appendix to the English edition, reprinted from Social Science Information, vol. 29, no. 4 (1990).

33 UNCSTD. State of Science and Technology for Development in the World: Options for the Future. New York: United Nations, 1989.

34 Unesco. Unesco Activities in the Field of Science and Technology in the Arab Region. Science Policy Studies and Documents, no. 65. Paris: Unesco, 1986.

35 Zahlan, A.B., ed. Technology Transfer and Change in the Arab World. A Seminar of the United Nations Economic Commission for Western Asia. Oxford: Pergamon, 1978.

11 Technology transfer and diffusion

Amitav Rath

Elements and mechanisms of technology transfer
Historical background
The technology market
Towards a revised framework
Concluding remarks
References

The first modern reference to technology transfer was made in 1957 [10], but it was only in the early 1960s that the subject began to receive serious attention from researchers. This was followed by an explosive growth in the literature on technology transfer from the mid-1960s through the 1970s and into the 1980s. One bibliographic survey [60] cited 1,200 books and articles on the subject, and by 1980 they had increased the citations to over 2,000 items [61]. Researchers then appear to have lost interest in technology transfer issues in more recent years for reasons not entirely clear.

In spite of the voluminous literature, a number of questions, especially regarding recent trends, remain unanswered. There is no single accepted definition of technology nor of what constitutes its transfer. Furthermore, whatever definitions we choose, we have scanty information on certain channels of technology transfer and on implications for certain sectors. Even when we examine the different mechanisms of technology transfer, and improve our data on technology transfer by mechanisms, there remains a problem of aggregation, as common measures of volume or value do not exist [51]. Finally, there is also considerable disagreement about the nature of the impact of the transfer of technology on developing countries, focusing variously on the process of transfer, the conditions of transfer, and the character or sophistication of the technology transferred.

From the wide array of issues that could be covered, I shall in general restrict myself to the core issues dealt with in the literature regarding the transfer of manufacturing technology across national boundaries for economic development and only touch on intersecting issues in passing.

There have been three other extensive reviews of technology transfer issues recently. Chudnovsky [13] provides the most thorough coverage of the issues and literature for Latin America; Enos [21] focuses on the Asian experience; and Reddy and Zhao [56] focus on the actors and transactions and provide numerous references to the literature. Among the reviews, Hoffman and Girvan [25] provide a detailed treatment of strategies and the management of technology acquisition; they include an extensive bibliography on technology transfer, with full coverage of African and Caribbean literature.

Elements and mechanisms of technology transfer

"Technology" is defined here broadly to include the body of specific knowledge, the organizations and procedures, the machinery, tools, and equipment, the necessary material inputs, and human skills that are combined to produce socially desired products. It must be emphasized that technology is a "necessary input to production" and does not include all kinds of knowledge, human and material inputs.

Transfer of technology is said to take place when an existing technique of production is moved from one location to another. This movement may be from a research laboratory to a production location or entity, or from one production location to another. Mansfield [37] and Brooks [8] label a movement along the research, development, and production sequence as a "vertical" transfer and the movement from one production entity to another as a "horizontal" transfer. The technology transfer process is distinguished from technology diffusion in that the transfer is a "purposive movement of established technology" [64, p. 29] and diffusion is a less planned movement of technology produced more by imitation processes. Transfers can take place within a single firm where a technology used in one plant or location is transferred to another. It may take place within a country from one firm to another, very often from machinery, process, and product suppliers to user firms. Or it may take place across national boundaries, which is the only transfer I shall consider here. The processes and issues concerning vertical and horizontal transfers, which take place largely within an economy, and international transfers, which cross political and economic boundaries, are sufficiently dissimilar to require completely different treatment, though they both contribute to increasing innovation and production capacities, and the management of the transfer processes share a number of common features.

Cooper and Sercovitch [17] define technology transfer to cover "the transfer of those elements of technical knowledge which are normally required in setting up and in operating new production facilities or in extending existing ones." Different elements may be required at different points in time; for instance in the pre-investment phase there is a need for feasibility studies, market surveys, the range of relevant technologies, choosing the appropriate technique, and so on, to elements required for plant operation, maintenance, and expansion. Some of the technical knowledge will be embodied in machinery, some will be available in written form, and some will always be uncodified and reside in skilled personnel. Other categorizations of elements include technical knowledge that is general and widespread to the industry, and system- and firm-specific technical knowledge that is often patented, protected, or secret, arises from experience, and is partially uncodified.

Elements of technical knowledge can be transferred from one country to another in many different ways. These include:

1. Books, journals, and other published information such as trade literature, standards, patent information.
2. Education and training abroad.
3. Informal personal contacts and observations through travel, meetings, and conferences; visits to production sites.
4. Exchange of information and personnel through technical cooperation programmes.
5. Employment of foreign experts and consultancy arrangements.
6. Import of machinery and equipment with literature and technical information supplied.
7. Import of intermediate products, in particular those considered technology-intensive.
8. Reverse engineering.
9. Technical specifications, standards, and training provided by importers.
10. Licensing agreements to use proprietary know-how, patents, production processes, and trademarks.
11. Foreign direct investment (FDI) that brings with it all the necessary elements of technical know-how.

Some of these mechanisms are useful for transferring technical knowledge in general, as well as more specific technical information and know-how required to use a particular process or to make a given product. While items 1-5 serve more general purposes of knowledge transfer, items 6-11 tend to be mechanisms used to transfer specific components of technology required for production. There are few useful data on the magnitudes and values of technology transferred through the more general channels. Case-studies of technology transfer show that all of the channels are valuable and developing country strategies must ensure that the full mix of channels and mechanisms are used optimally.

Some of the general indicators of technology flows include the value of machinery and capital goods imported, the quantum of FDI, payments made for patents and know-how that are normally included in licence fees and royalties, the trade in technology-intensive products, and the value of bilateral and multilateral technical assistance (this last category provides a proxy for general technical flows).

We must note a number of caveats regarding the usefulness of these indicators. First, additional technology flows are usually required to make best use of capital goods and machinery that may not be captured, and the entire value of the goods cannot be considered as payment for technology. Second, licence and royalty payments often include payments for copyrights and trade marks. Third, in many countries wholly owned subsidiaries are not allowed to make additional payments for patents and know-how. Fourth, in the case of subsidiaries, tax and commercial considerations dominate the ways in which payments are made and so the amounts need not be a good indicator of the value of the technology transferred [46, p. 81,. Fifth, these statistics do not record both general and specific transfers for which monetary transactions are not made or records are not available. Finally, a problem with the literature on technology transfer is that, because of the difficulties of aggregation and measurement of the general mechanisms, it concentrates on foreign direct investment and licences as the two most significant mechanisms. We shall see below that in fact the harder to measure categories are very important for domestic technological capability, and that domestic capability in turn is the most important variable affecting the success of technology transfer. The lack of attention to, and hence data and analysis of, the other mechanisms reflect not their lower significance but the greater salience of foreign direct investment and technology contracts in the distribution of gains between the supplier and recipient.

Technology flows by type, origin, and destination (in billion US dollars, constant prices)

Source: Ref. 74, pp. 88-89.

The indicators in the table suggest, with the above caveats, that the dominant mechanism for technology flows is in the form of capital goods. The imports of capital goods by developing countries increased rapidly until the early 1980s and have stagnated since then. The value of foreign direct investment is lower by an order of magnitude, and since the 1970s almost three-quarters of it was to other OECD countries. Royalty and licence payments by developing countries represent significant amounts in foreign exchange for their budgets. Though their absolute values are very small compared with imports of machinery, their significance lies in the fact that these represent payments for know-how only and not additional goods. Finally, the value of technical assistance is more than twice the payments for production know-how.

Historical background

A common heritage of many developing countries is their experience of being colonized by Europeans in the recent past, although most Latin American countries achieved formal political independence during the mid-1800s. Naturally, there have been important differences in the nature of the colonization experience and its impacts on the political, economic, and technological developments in the Americas, Asia, and Africa.

During the colonial period, most colonies of Asia and Africa had zero or low rates of economic growth. With the rapid increases in population, particularly in Asia, the result was increased poverty during a period in which there was continuous and rapid economic growth in Europe and North America. A major concern of developing countries therefore, both before and after independence, has been to reduce the gaps between themselves and the industrialized countries.

In general, developing countries are characterized by low levels of industrial activity and low technology inputs to production. As a concomitant of economic and social processes at work, they continue to have low levels of economic output, low productivity per worker, high levels of unemployment or underemployment of labour, considerable underutilization of available natural resources, and shortages of capital and knowledge, which continue to act as constraints on their economic growth. Furthermore, their poverty and colonial history have often resulted in continued political and economic dependence on the richer, industrialized countries.

Given this background, most developing countries have accorded high priority after independence to the twin objectives of growth in economic output and of political autonomy. Sub-objectives such as eliminating poverty are seen to follow from or require the primary objective of growth to be satisfied. Similarly, objectives of increasing national control of the economy and the share of assets and incomes accruing to nationals are seen to support the primary objectives. These twin economic and political objectives have influenced the concerns of research and policy related to technology transfer, sometimes reinforcing each other and at other times being antagonistic.

Technology, technology transfer, and economic growth

Almost all economists will agree that economic output (Q) can be seen to be a function of the available (and utilized) land, labour, and capital (where land represents both physical land and other natural resources), which are constrained in specific ways depending on knowledge and institutional factors. This can be formulated as

where f_t represents one particular function at time t and is dependent on the structure of the economy and available technology.

In many developing countries, not much increase in land is considered possible, and in many other countries redistribution of highly inegalitarian and inefficient landholding patterns is deemed impossible or undesirable by their leaders. In many countries, labour is thought to be in excess supply, and when employed it is so with low productivity. So the resources that are seen as the final constraints on output growth and that are required to increase the productivity of labour, as in the historical experience of the industrialized countries, are increased inputs of capital and new production technologies. This very stylized theory suggests that "at the very least... the prospects of raising per capita incomes in the developing countries are, in most cases, very limited unless some significant infusions of new technology take place" [58, p. 7]. This requires an increase in domestic savings, knowledge-creating and knowledge-using capacities, and the augmentation of domestic possibilities with inflows of capital and technology from outside.

First phase: Post-war to mid-1960s

The post-war to mid-1960s period was defined by the end of the Second World War, the rapid reconstruction of European economies through American financial assistance, the (almost) undisputed hegemony of the United States in the world economy, and a time of relatively stable and rapid growth. In this period the mainstream view of economic development was relatively simple. It derived from a liberal world-view strengthened by the contribution of Keynes to economic management and the experience of growth and the contribution of American capital flows in achieving the almost miraculous transformation of Europe after the devastation of the war. The other important global event during this period was the achievement of independence of most colonies in Asia and Africa, a process that was almost completed during the 1960s. These events provided considerable optimism about the prospects for economic growth and political autonomy.

The mainstream development policies suggested that an increase in capital stocks was the main source of economic growth [38, p. 71]. This view meant an emphasis on the mobilization of domestic savings and increased external capital flows through concessional and market loans and through foreign direct investments by the newly active and rapidly growing category of multinational firms. The state was assigned the role of promoting a process of modernization by shaping the appropriate attitudes and institutional structures. It was also seen to have a considerable role in undertaking investments towards improving infrastructural facilities and providing public goods that, due to externalities, would be under-provided through private initiative.

When issues of science and technology were raised in this framework, they were resolved in two ways. It was accepted that science and knowledge were the perfect example of public goods. Once created, everyone benefited; there were no losses to one individual because another acquired them, and the cost of diffusion and transfer of knowledge was close to zero compared with developing it in the first place. Therefore, it was appropriate for developing countries to build up their domestic infrastructure for education, technical training, and research facilities. It was thought that the vast body of world knowledge was waiting as if on supermarket shelves. The increase in domestic capacity together with direct foreign investment would allow the developing countries to tap into this resource at negligible cost, allowing them to rapidly close the gap between themselves and the industrialized countries [54, p. 1434].

Second, any external costs would be taken care of by increased flows of foreign capital. As and when new technologies were needed, the foreign direct investments made by the multinational firms would bring with them the required advanced technologies. That there would be adequate flows of capital was assumed on the basis of decreasing marginal utility. As the developing countries were short of capital and the rich countries had abundant capital, the returns on capital in developing countries would be higher. So the required capital and technological flows would take place provided the infrastructural and other bottlenecks were removed.

Even within this simplified framework two troubling issues were evident. First, if domestic capital had lower rates of return than foreign direct investment over time, the shares of investible surplus and control over the domestic economy would pass increasingly to non-national agents, nullifying the recently acquired political autonomy. The second concerned an empirical observation that most countries, as they attempted the required structural changes, faced continuous and severe foreign exchange constraints. This resulted in reduced capital inputs and reduced access to improved capital goods and world technology.

There were always a number of criticisms of this model, but in most theories, both mainstream and alternative, it was not until the late 1960s that technology and technology transfer were introduced as increasingly critical variables in the process of development.

Second phase: Mid-1960s to early 1980s

By the late 1960s, a number of factors had come together to highlight technology-related issues as central to development policies and the pattern of economic growth. Within the broad range of technology policy issues, the gains and losses from technology transfer from the industrialized countries to developing countries received the greatest attention from researchers and policy makers, both in developing and industrialized countries, and also from the agencies of the United Nations, specially the UN Conference on Trade and Development (UNCTAD).

By this time, there was considerable disenchantment with the earlier approach, and continued political and economic dependence became more and more irksome. A number of observers noted that the development process followed had resulted in an increasingly dual economy, where in one small part the process of modernization, economic growth, and prosperity seemed to occur as predicted, but a much larger part of the economy appeared either to be unconnected and unchanged or the connections were negative, leading to greater impoverishment, unemployment, and inequality. Many researchers and policy makers began to believe that important reasons for the unsatisfactory development experience lay in the poor understanding of and policies related to technology issues. Questions about technology and technology transfer began to multiply in the research and policy agenda.

Developing country unhappiness with the process of technology transfer was first raised at the UNCTAD I meeting in 1964. The initial complaints of the developing countries related to their perceptions that insufficient technology was available to them for meeting their development objectives; that technology supplies were largely controlled by multinational corporations. These firms used their extensive powers, their control over patents and know-how, to enforce unequal partnerships with developing countries and firms. The agreements included restrictive clauses on the use of technology, and the companies made exorbitant profits from their transactions with their partners. These key perceptions had emerged by the time of UNCTAD II in 1968.

UNCTAD was mandated to review the role of technology imports in the industrialization efforts of member countries and supported many of the early studies to draw attention to the problem faced by developing countries in technology transfer transactions. A summary of the developing country experience is available in UNCTAD [70]. Important early studies include Vaitsos [80, 81], and Lall [32] provides a useful survey of issues. See also Chudnovsky [13], Enos [21], UNCTAD [75], Hoffman and Girvan [25].

Over a period of 15 years, UNCTAD was responsible for a large number of studies on technology transfer (some done by staff, others by consultants), and it inspired a host of studies by other researchers, national governments, and also by technology suppliers, who had to respond to an avalanche of criticism. Some of the key documents that chart the progress of work in this area include UNCTAD [68-70].

Thanks to these studies, the earlier view in which technology was equated with knowledge - the idea that, like knowledge and information, it is widely "applicable, easy to reproduce and re-use and where firms can produce and use innovations by dipping freely into a general stock or pool of technological knowledge" [51, p. 7; 22] - was increasingly seen to be mistaken. The UNCTAD view of technology pointed out that "technology is an essential input into production," and it is bought and sold in the world market in the form of "(a) capital and intermediate goods; (b) human labour, usually highly skilled and specialized manpower, with the knowledge of machinery, processes, techniques, and problem solving; and (c) as information of a technical or commercial nature, some of which is openly available and some is subject to proprietory rights and sold under specific conditions" [69, p. 5].

Following this line of argument, Vaitsos [81] and others are uncomfortable with the term "technology transfer" as it hides the sale and purchase of these items under the neutral term "transfer"; they prefer the term "technology commercialization." Once defined as an object of trade and commerce it is natural to begin to analyse the characteristics of the object traded and of the market in which such trading takes place, the characteristics of the buyers and sellers, the costs and prices, and so on. The Office of Technology Assessment of the US Congress makes a distinction between technology trade and technology transfer: technology trade refers to the commercial transactions of buying and selling a technological element; for the transfer to occur, the further element of technology absorption, assimilation, and the ability of the receiving entity to operate and maintain the facility is required [49]. This is a useful distinction, given that developing countries often criticize technology transfer operations for failing to provide them with the capacity to operate efficiently and maintain production facilities, to expand production, and to make further changes.

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