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What Is Technology Absorption

Technology absorption in developing countries comes primarily from foreign sources through both embodied technologies like machinery and tacit knowledge gained through interaction. Absorbing new technologies efficiently requires effort from both enterprises and supporting systems like suppliers and training institutions. Multinational corporations play a dominant role in technology flows, controlling most internalized transfers of new technologies through foreign direct investment and global production networks. For developing countries, foreign direct investment is often the most efficient way to access new technologies, while local firms can benefit from licensing, joint ventures, or supplying multinational corporations when they have strong base technologies or non-core activities. Absorbing foreign technology also requires developing a supportive infrastructure for standards, metrology, and linking research institutions to enterprises.

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7K views5 pages

What Is Technology Absorption

Technology absorption in developing countries comes primarily from foreign sources through both embodied technologies like machinery and tacit knowledge gained through interaction. Absorbing new technologies efficiently requires effort from both enterprises and supporting systems like suppliers and training institutions. Multinational corporations play a dominant role in technology flows, controlling most internalized transfers of new technologies through foreign direct investment and global production networks. For developing countries, foreign direct investment is often the most efficient way to access new technologies, while local firms can benefit from licensing, joint ventures, or supplying multinational corporations when they have strong base technologies or non-core activities. Absorbing foreign technology also requires developing a supportive infrastructure for standards, metrology, and linking research institutions to enterprises.

Uploaded by

unidentified02
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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What is technology absorption?

• Most technology in ‘latecomers’ comes from abroad, in


mixture of two forms:
o Embodied: in capital goods, patents, blueprints,
designs, models and so on
o Tacit: knowledge that can be ‘transferred’ only by
close interaction and learning by new user
• Using technology efficiently thus needs conscious effort
by the enterprise & also the ‘system’ in which it works
(suppliers, customers, technology support, training
institutions and so on)

Technology flows forms:


• Non-contractual: Public knowledge, fairs, conferences,
migration, export activity and informal networks
• Contractual:
o FDI related: (internalized) transfers within
multinationals or joint ventures with MNCs
o Arm’s length: equipment imports, turnkey projects,
licensing, subcontracting, franchising and other
contracts
o
Role of internalized technology flows
• Innovation is highly concentrated, by region, country
and enterprise
• MNCs lead in innovation: most R&D is performed by
large firms and most innovative firms are globalized
• MNCs dominate technology flows in all forms, but form
depends on nature of technology: newest and most
valuable technology is internalized, others licensed
• Role of MNCs in global economy is growing steadily
• FDI is growing faster than other economic aggregates:
national investment, GDP or exports
• MNCs control about 2/3 of world trade.
• About 30-40% of this trade is within MNCs, and their
role is particularly large in high-tech manufacturing
• MNC export activity is taking new forms: ‘global
production networks’, with very fine vertical
specialization by function/component between countries
• Local companies are also involved in global production
networks, but only if they have very high levels of
technological capabilities – and form strong ties with
MNCs to access and absorb their technological know-
how and management skills

What this means for:

Developing & Transition economies:


• FDI is the most efficient way to access foreign
technology if countries want ...
• New, fast-changing proprietary technologies not
available at arm’s length
• Rapid access to new technology and subsequent
upgrading, without local effort
• Non-core components of operation (i.e. management,
marketing, finance etc)
• Access to MNC foreign markets, particularly to global
production networks

For local firms…

• Licensing or joint ventures are desirable if:


o Local firms are strong in base technologies but
need particular new components of technology
o They specialize in activities with stable
technologies, where state-of-art technologies are
available at arm’s length
o They can export through foreign buyers (low
technology products), sell undifferentiated
products directly or have established brands
o They subcontract to MNCs (OEM) or supply local
components

• Creating a technology culture in industry (difficult but


necessary

• Raise awareness of need for in-house technological


activity and R&D
• ‘Technology foresight’ exercises
• Benchmarking and technology audits
• R&D incentives: most countries make R&D tax-
deductible expense, many offer extra incentives. Effects
mixed, but tax credits linked to incremental R&D seem
best

Strengthening the technology


infrastructure
• Metrology, standards, testing, quality
o Quality standards vital (e.g. ISO 9000)
o Good standards institutions can help to diffuse
technology and quality awareness
o Advanced standards institutions are withdrawing
from testing into basic standard setting and
research. They are helping create private service
providers.
o Metrology (measurement/calibration) is central to
quality certification; international accreditation is
vital to competitiveness
o Local metrology capability reduces cost and raises
response speed
o Secondary metrology can be carried out by private
laboratories, primary metrology has to be done in
public institutions
o Role for government in providing the public goods
and creating private markets

Research & development institutions

• Most public R&D/universities are delinked from


enterprises: different ‘culture’, no incentives and wrong
skills
• But they are an important resource for accessing,
adapting, diffusing, creating technology – and for
‘rooting’ MNCs
• Valuable for hi-tech start-ups and SMEs
• Vital source of creating R&D skills for industry and
breaking ground in generic new technologies

How can knowledge institutions be made more relevant?

• Privatisation of public laboratories


• Hard budgets, management change
• Intensive training of staff and incentives to reach out to
industry
• Funded schemes for joint R&D with industry, exchange
of R&D personnel
• Matchmakers to create links with firms, raise their
awareness of capabilities and potential

Conclusions
• Technology absorption needs stable and conducive
policy framework
• Technology access is increasingly linked to FDI – but
attracting, rooting and extracting benefits from FDI
needs dynamic local firms & institutions
• Building local capabilities is basic to effective
technology absorption: and this needs strong policy
support

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