Methodological and Technological issues in Technology Transfer

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1.6 The Innovation System and Pathways: A Framework for Analysis

Figure 1.1: The Technology Transfer/Innovation System.

The theme of technology transfer is highly interdisciplinary and has been approached from a variety of perspectives, including: business, law, finance, microeconomics, international trade, international political economy, the environment, geography, anthropology, education, communication, and labour studies. Although there are numerous frameworks and models put forth to cover different aspects of technology transfer, there are no corresponding overarching theories (Martinot et al., 1997; Reddy and Zhao, 1990). This Report employs the technology transfer/innovation system as a framework for analysis. In this system (see Figure 1.1), technology is transferred as knowledge, money (investment) and goods (trade) flow among different stakeholders: governments, private-sector entities, financial institutions, non-governmental organisations, and research/teaching institutions. Innovation performance depends on the way in which the different stakeholders of the "innovation system" - businesses, universities and other research bodies - interact with one another at the local, national and international levels. It also depends on the innovation promotion policies of governments.

There are a large number of pathways through which the various stakeholders can interact to transfer technologies. The most common include:

Other pathways require little or no interaction among the principal stakeholders, because they involve the acquisition of technology without the consent of the provider. Among these are:

  1. industrial espionage
  2. end-user or third country diversions
  3. reverse engineering.

Each pathway represents different types of flows of knowledge, money, goods and services among different sets of stakeholders (see also Annex 1-3). Each pathway has very different implications for the learning that occurs and ultimately the degree of technology-as-knowledge transfer that takes place beyond simple hardware transfers.

The following framework classifies pathways into three primary types:

  1. Government-driven pathways are technology transfers initiated by government to fulfil specific policy objectives;
  2. Private-sector-driven pathways primarily involve transfers between commercially oriented private-sector entities, and have become the dominant mode of technology transfer;
  3. Community-driven pathways are those technology transfers involving community organisations with a high degree of collective decision-making.

Figure 1.2: The Five Basic Stages of Technology Tansfer.

Some observers have suggested that along any pathway, technology transfer follows five "stages": assessment (including identification of needs), agreement, implementation, evaluation and adjustment, and replication (Figure 1.2). The stakeholders involved and the specific decisions and actions taken at each stage differ greatly depending upon the pathway. By analysing the interests and influences of different stakeholders at each stage it is possible to determine how various barriers to technology transfer might be overcome.


Much has been written about why multinational corporations choose one pathway over another. Some of the key issues are summarised in Table 1.2. While wholly owned subsidiaries have been the dominant modes of foreign direct investment (except where joint ventures have been specifically targeted by national policies, such as in India), international joint ventures have been growing in number since the 1980s. Various theories have been advanced to explain this change. Datta (1988) suggests that: (a) host governments are increasingly requiring foreign investors to form joint ventures, (b) multinational corporations have realised that the knowledge of complex and often volatile local business environments by local partners can be a significant asset, and (c) there is a growing trend to internationalise business to reduce costs. Contractor (1991) sees transaction costs as determinants of a firm's choice of the mode of transfer. Kogut (1988) explains joint ventures in terms of transaction costs, strategic behaviour, and transfer of organisational knowledge and learning. Kogut further suggests that some forms of tacit knowledge can only be transferred through a joint venture, because the knowledge is organisationally embedded and not conducive to licensing or other forms of transfer. On the other hand, increasing global competition may deter technology transfer, especially at the cutting edge.

Table 1.2 Key issues and factors affecting choice of technology transfer pathways
Direct sales Import duties
Product compatibility
Standards and certification
After-sales service and training
Distributor capabilities
Degree of system integration required before use by final user
Insurance and product liabilities
Turnkey contracts Domestic technological capabilities
International competitive bidding
Import duties
Buyer training
Wholly owned subsidiaries Acceptable financial risks
Foreign investment policies of government
Expected size of domestic market
Export duties
Repatriation of profits
Joint ventures Acceptable financial risks
Ensuring protection of intellectual property
Expected size of domestic market
Product adaptation
Partner identification, appraisal, and negotiations
Foreign investment policies of government
Export duties
Repatriation of profits
Licensing agreements Intellectual property protection
Future domestic market and strategic interests of MNC
Acceptable financial risk
Multilateral development lending Need for and viability of carrying out structural economic reforms
Guarantees and credit worthiness of government and borrowers
Economic and financial rates of return from investments
Procurement procedures
Development aid and other grant financing (like GEF) Donor country political agenda
Multilateral agency priorities
Recipient country capacity to make informed choices
Range of stakeholders' involvement in recipient country
Twinning, conferences, symposia, and other person-to-person pathways Ability to attend conferences, symposia
Availability of counterpart resources
Access to information and communication means
Intellectual property protection

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