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Learning outcomes:• To understand how technology helps in success of

globalization through its everlasting impact on the growthof the economy of a nation and methods used in transfer oftechnology.

Impact of Technology on GlobalizationTechnological advances have tremendously fosteredglobalisation. Technology has in fact been very importantfacilitation factor of globalisation.Several technological developed become a compelling reason forinternationalisation. Technological break-throughs are substan-tially increasing the scale economies and the market scalerequired to break-even.Global sourcing was encouraged not only by trade liberalizationbut also by technological developments which reduced trans-port costs. Advent of containarisation and supertonnage cargoships drastically reduced transport costs.Technology monopoly, like possession of patented technology,encourages internationalization because the firm can exploit therespective demand without any competition.The pace of globalisation has been accelerated by severalenabling technologies. Technological revolution in severalspheres, like transport and communication, has given a greatimpetus to globalisation by their tremendous contribution tothe reduction of the disadvantages of natural barriers likedistance and cost. The IT revolution has made an enormouscontribution to the emergence of the global village. Thedevelopments in the field of air cargo transportation ofsensitive goods (like perishables and goods subject to quickchanges in fashion/taste). Developments of containerizationand refrigeration have also been of high significance. The steepfall in the cost of transportation and communication haveconsiderably accelerated pace of globalisation. All these havecontributed to the drastic transformation of the logistical andglobal distribution of the value chain system. The world-wideweb has a stupendous impact on globalisation.

Global village

Because of the shrinking time and shrinking space thanks to thetechnological revolution and the disappearing borders thanks to theliberalization and technological factors the world is evolving into a globalvillage, in several respects.

Contacts between the world’s people are widening and deepening as natureand artificial barriers gall. Huge declines in transport and communicationcosts have reduced natural barriers. Shipping is much cheaper: between1920 and 1990 maritime transport costs fell by more than two-thirds.Between 1960 and 1990 operating costs per mile got the world’s airlinesfell by 60 per cent.

Communication is also much easier and cheaper. Between 1940and 1970the cost of an international telephone call fell by more than 80 per cent,

LESSON 4ROLE OF INTERNATIONAL BUSINESS IN TECHNOLOGY TRANSFER AND ROLE OF

TECHNOLOGICAL CHANGE IN INTERNATIONAL BUSINESS

and between 1970 and 1990 by 90 per cent. In the 1980’s telecommuni-cation traffic was expanding by 20 per cent a year. The internet, the takeoff point for the information superhighway, was used by 50 million peoplein 1998, with the number of subscribers tapping into it doubling everyyear.

Some of the change in international trade and finance reflect advanced intechnology. The lightning speed of transactions means that countries andcompanies now must respond rapidly if they are not to be left behind.

Technological change is also affecting the nature of investment. Previously,high-technology production had been limited to rich countries with highwages. Today technology is more easily transferred to developing countries,where sophisticated production can be combined with relatively low wages.

The increasing ease with which technology can accompany capital acrossborders threatens to break the links between high productivity, hightechnology and high wages. Further, the availability to higher levels oftechnology all over the world is putting pressure on the wages andemployment of low-skilled workers.

Who really benefit from the IT and communication revolution?

Financial dealers are at the pinnacle of connections. Instant communica-tion, free flows of capital and constant updates from around the worldenable money markets from London to Jakarta, from Tokyo to New York,to act as a unit in real time.

Multination corporations, too are roaming global markets and integratingproduction, cross-border mangers and acquisitions (majority- foreign-owned) account for a large chunk of the total foreign direct investment.

NGOs on – line can campaign around the world, with their messagestraveling across borders in seconds. Through e-mail and media networks,people are giving their support to associations across borders-form informalnetwork to formal organizations.

Skilled labour also travels the global village. With internet access innearly every country, the highly educated are increasingly on-line and intouch around the world. In 1998 more than 250,000 African profession-als were working in the united-state and Europe, Immigrants with skillsin computing technologies are in high demand – in the European unionalone, 500,000 information technology jobs go unfilled because of lack ofnational skills. The united states offers a special visa to professionalimmigrants to keep high-tech industries staffed.

Unskilled labour, by contrast, runs up against hurdles. Many families aredivided across international borders as a result of the increasingly tightrestriction in the rich countries in the immigration of unskilled labour.Millions of people do not even have passports-difficult to get. In somecountries- let alone the visas required to travel abroad.

Transfer of technologyTechnology transfer is the process by which commercialtechnology is disseminated. This will take the from of atechnology transfer transaction, which may or may not be alegally binding contract, but which will involve the communica-tion, by the transferor, of the relevant knowledge to therecipient. Among the types of transfer transactions that may be

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used, the draft TOT code by UNCTAD has listed the follow-ing:(a) The assignment, sale and licensing of all forms of

industrial property, except for trade marks, service marksand trade names when they are not part of transfer oftechnology transactions;

(b) The provision of know-how and technical expertise in theform of feasibility studies, plans, diagram, modelsinstructions, guides, formulae, basic or detailed engineeringdesigns, specifications and equipment for training, serviceinvolving technical advisory and managerial personnel,training;

(c) The provision of technology of technological knowledgenecessary for the installation, operation and functioning ofplant and equipment, and turnkey projects;

(d) The provision of technological knowledge necessary toacquire, install and use machinery, equipment, intermediategoods and/or raw materials which have been acquired bypurchase, lease or other means;

(e) The provision of technological contents of industrial andtechnical cooperation arrangements.

The list excludes non-commercial technology transfers, such asthose found it international cooperation agreements betweendeveloped and developing states. Such agreements may relate toinfrastructure or agricultural development, or to international;cooperation in the fields of research, education, employment ortransport.Broadly, three are two forms of TT, viz., internalized andexternalized forms of technology transfer. Internalized formsrefer to investment associated TT, where control resides withthe technology transferer, normally, holding the majority or fullequity ownership. Externalized forms refer to all other forms,such as joint ventures with local control, licensing strategicalliances and international subcontracting.The distinguishing feature between these two modalities ofresource transfer is that in internalized TT, the transferer has asignificant and continuing financial stake in the success of theaffiliate, allows it to use its brand names and to have access toits global technology and marketing networks, exercises controlover the affiliate’s investment, technology and sales decisions,and sees the affiliate as an integral part of its global strategy.Externalized forms lack one or all of these features, withrepercussions on the TT process. Over time, the array of TTarrangements has diversified and particular modes have alsobecome more flexible. Thus, the dividing lines betweenexternalized and internalized modes are becoming less easy todraw.

Levels of TTA simplified treatment of the subject would suggest four levelsof TT.Operational Level: At the bottom level are the simplest ones,needed for operating a given plant: these involve basic manufac-turing skills, as well as some more demanding troubleshooting,quality control, maintenance and procurement skills.

Duplicative Level: At the intermediate level are duplicativeskills, which include the investment capabilities needed toexpand capacity and to purchase and integrate foreign technolo-gies.Adaptive Level: At this Technology Self-reliance level, im-ported technologies are adapted and improved, and designskills for more complex engineering learned.Innovative Level: This level is chatacterised by innovative skills,based on formal R&D, that are needed to keep pace withtechnological frontiers or to generate new technologies.

Channels of Technology FlowThe most important channels for the flow of technology ateForeign Investment and Technology Licence Agreements andJoint Ventures.Foreign Investment: Traditionally, the flow of technology todeveloping countries has been an integral part of direct foreigninvestment. Multinational corporations and other firms haveresorted to foreign direct investment for a variety of reasons likeprotection and development of foreign markets, utilization oflocal resources (in the host country) including cheap labour,overcoming or lessening of the impact of tariff restriction andtax laws. The flow of sophisticated technology, in particular, hasthus been associated with direct investment.Technology Licence Agreements and Joint Ventures: Technologytransfer has been a taking place in a significant through licensingagreements and joint ventures. There has been a fairly rapidgrowth of joint ventures, encouraged by government restric-tions on foreign investment and foreign trade or the perceivedadvantages of such ventures. When foreign capital participationin joint ventures is blow 50 per cent, technological agreementsassume considerable significance.

Method of Technology TransferTransfer of technology takes a variety of forms depending onthe type, nature and extent of technological assistance required.The following are the important method of technologytransfer:1. Training or Employment of Technical Expert: Fairly simply

and unpatented manufacturing techniques/processes, can beacquired by imparting the requisite training to suitablepersonnel. Alternatively, such technology can be acquired byemploying foreign technical experts.

2. Contracts for Supply of Machinery and Equipment:Contracts for Supply of machinery and equipment, whichnormally provide for the transfer of operational technologypertaining to such equipment, is often quite adequate formanufacturing purposes not only on small scale projects butalso in a number of large scale industries where the nature oftechnology is not particularly complex.

3. Licensing Agreements: Licensing agreements, under whichthe licensor enters into an agreement with a licensee inanother country to use the technical expertise of the former,is an important means for the transfer of technology.Licensing agreements are usually entered into when foreigndirect investment is nit possible or desirable.

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T4. Turnkey Contracts: Transfer of complex technology often

takes place through turnkey project contracts, which includethe supply of such services as design, creation,commissioning or supervision of a system or a facility to theclient, apart from the supply of goods.

Many times, a combination of two or more of the abovementioned methods is used. Turnkey contracts, obviously, arethe most comprehensive of such comprehensive of suchcombinations.

Issues on Transfer of TechnologyCost, appropriateness, developing and obsolescence are the fourimportant issues associated with the transfer of technology.In many cases, the developing countries obtain foreign technol-ogy at unreasonably high prices. In a number of cases offoreign direct investment associated with technology transfer,the net outflow of capital by way of dividend, interest, royaltiesand technical fees has been found to be much higher than thecorresponding inflow.The appropriateness of the foreign technology to the physical,economic and social conditions of the developing countries isan important aspect to be considered in technology transfer. Ithas been argued that there are a large number of cases where theforeign technology transferred has been irrelevant or inappropri-ate to the recipient country’s socio-economic priorities andconditions.Further, heavy reliance on foreign technology may lead totechnological dependence.It is pointed out that the import of modern sophisticatedtechnology has tended to displace the traditional indigenoustechnology which have been improved under a different set ofpolicies. The steady stream of new products and processesintroduced by multinationals into developing countries hasbeen unfavourable to the promotion of domestic technologicalcapacities and has discouraged local scientists and techniciansfrom devoting themselves to practical development problems.It creates an attitude of subservient dependence, which mayinhibit the capacity to do even relatively minor adaptive researchor to adopt processes which are developed locally.It has also been observed that there is a tendency to transferoutdated technology to the developing countries. Thus, theywould not enjoy the advantages of the latest technology andwould still technologically lag behind. It is unfortunate that theowners of modem technology view the developing countries asa means to salvage technology that is obsolescent in theadvanced countries, even when they possess more advancedtechnology.

Promotion and RegulationDespite the problems or shortcomings of foreign technology, itis widely recognised that if properly regulated and promoted itcan play a positive role, particularly in the technologically abackward LDCs. The governments of India and a number ofother countries have, therefore, taken a number of regulatoryand promotional measures to take advantage of foreigntechnology without sacrificing national interests.

Areas of Regulation

A number of regulatory measures have been taken by differentcountries to ensure that the technology chosen is the bestavailable, appropriate to domestic conditions and that indis-criminate and unnecessary import of foreign technology is notundertaken. The following are the aspects of its type andnature.The Extent and Terms of Equity Participation: These aregenerally determined by the priorities of the technology-usingindustry in the nation’s economy, supply conditions of thetechnology and its type and nature.Phasing of Domestic Manufacturing: Where foreigntechnology is employed, many government, including that ofIndia, insisted upon indigenisation on a phased manner. Thegovernment of India in the past also insisted that suitableprovisions should be made for the training of Indians in thefields of production and management. Further, there should beadequate arrangements for research and development, engineer-ing design, training of technical personnel and other measuresfor the absorption, and developing of the imported technology.The Appropriateness of the Technology: Permission to aparticular technology is generally based on considerations suchas suitability of the technology to the socio-economic andecological condition in the country and the priority of thetechnology using industry in the national economy. Accordingto the guidelines issued by the government of India, theentrepreneurs should, to the fullest extent possible, explorealternative sources of technology, evaluate them for a techno-economic point of view and furnish reason preferring theparticular technology and source of import.Payment Terms and Foreign Exchange outflow: Mostgovernment take measures to ensure that disproportionatelyhigh payments are not paid for any technology. Restrictionswere imposed also on dividend payments and pricing.The government of India’s guidelines clearly laid down thatthere should be no requirement for the payment of minimumguaranteed royalty, regardless of the quantum and value ofproduction.Restrictive Terms in the agreement: technology importswith highly restrictive terms on the importing parties are notgenerally favoured. For instance, according to the governmentof India’s policy, to the fullest extent possible, there should beno restriction on free exports to all countries. Further agree-ments or clauses which in any manner bind the Indian partywith regard to the procurement of capital goods, components,spares, raw materials, pricing policy and selling arrangementshould be avoided.

Promotional MeasuresTo take full advantage of the positive role of foreign technol-ogy, it is necessary to take certain promotional measures. Theseinclude:1. Assessing technological requirements of various sectors and

identifying areas where foreign technology is required.2. Dissemination of information in foreign countries regarding

foreign investment potentials and scope for technicalcollaboration in the domestic economy, government policyand regulation in respect of foreign capital and technology,

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institutional assistance and infrastructural and other facilitiesfor industrial development. The Indian Investment Centre,established in 1961 has been playing such a role.

3. Provision of advisory services to Indian entrepreneurs inrespect of foreign technology including the techniques andprocess of technology transfers.

Activity (Questions): -

Q1) What is the impact of technology on globalization?Explain.

Q2) How are IT and marketing related to each other and howIT has revolutionized the marketing scenario in the presentworld?

Q3) What are the methods of technology transfer and issuesinvolved in it, discuss?