Technology Transfer viaIntl Licensing Agreement

- Implications for Developing Countries-

Yumi Ejiri

March 4, 2005

Friday Session

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Contents

1. Technology for Economic Growth

2. Channels of Intl Technology Transfer

3. International Licensing Agreement and ITT

4. Intellectual Property Rights (IPR) and ITT

5. Japan’s Experience

6. Implications for Developing Countries

7. Action Plans

• References

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1. Technology for Economic Growth (1/2)

• Technology contributes to economic growth through:– Improving productivity– Expanding new market frontiers

• Increases in productivity in industrialized countries depend on INNOVATION.

• Increases in productivity in developing countries depend on IMPORTING FOREIGN TECHNOLOGY.

• For the relationship b/w transfer of foreign technology and economic growth in developing countries, see: Chenery and Bruno (1962), McKimon (1964), Bacha (1984), Taylor (1990, 1993) and Zhang and Zou (1995)

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1. Technology for Economic Growth (2/2)

Economic Theories on Technology and Growth:• “Endogenous” theories of economic growth

(Romer, 1986; Grossman and Helpman, 1990, 1994)

• Once created, knowledge can spill easily in to the hands of others at zero marginal cost (Arrow, 1962)

• Much technological knowledge cannot in fact be transmitted easily to others; they can be transmitted only at a cost through imitation and apprenticeship (Nelson, 1992)

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2. Channels of Intl Technology Transfer

• Foreign Direct Investment (FDI)

• International Licensing Agreement• Intl Trade in Goods– Imports from abroad

• Movement of people

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3. Intl Licensing Agreement and ITT (1/2)

• Purchase of production or distribution rights and the underlying technical information and know-how.

Licensor Licensee LICENSE PERMIT

TECHNOLOGY TRANSFER

ROYALTY PAYMENT

LICENSING AGREEMENTLICENSING AGREEMENT

Responsible for granting technology, incl. training, materials and other TA.

Responsible for product warranty and other agreed deeds (custody of secrecy ,etc.)

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3. Intl Licensing Agreement and ITT (2/2)

Hands-on Features of Licensing Agreement

• Licensee needs capacity to learn and investments to apply technologies into production process.

• MNEs are more keen to transfer conventional technologies than the latest high technologies.

• Determinants: IPR protection, information about local market, market size, anticipated growth, political/social stability (investment climate), etc.

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4. Intellectual Property Rights and ITT (1/2)

• Intellectual property refers to creations of the mind: inventions (patents), literary and artistic works, and symbols, names, images, and designs used in commerce.

• A patent is an exclusive right granted for an invention, which is a product or a process that provides a new way of doing something, or offers a new technical solution to a problem.

• A patent provides protection for the invention to the owner of the patent. The protection is granted for a limited period, generally 20 years.

--- from WIPO website.

In general MNEs prefer to invest in / license out to where IPR laws are adequately established.

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4. Intellectual Property Rights and ITT (2/2)

IPR and Developing Countries

TRIPS/WTO also calls for effective use of IPR for development.

- Article 7: IPRs should contribute to the promotion of technological innovation and the transfer and dissemination of technology.

- Article 8.2; Appropriate measures, provided they are consistent with the provisions of the Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology."

- Article 66.2: obligations of developed countries to provide incentives to their enterprises and institutions to promote technology transfer to LDCs.

More Information on:www.wto.org/english/tratop_e/trips_e/trips_e.htmwww.wipo.int/cfd/en/

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5. Japan’s Experience (1/2)

Background• Opening the country in 1853 – Post WWII c.1970.• Catching up to West• “Industrialization free of foreign ownership/control.”

Strict Technology Transfer Policies• Heavy restrictions on inward-FDI until 1970.• Licensing of foreign technology was aggressively

encouraged.• Scrutinize inward foreign technology transfer

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5. Japan’s Experience (2/2)

Success Factors• Quick in learning and improving on imported

technology (creative imitation)- Investment in R&D and education.

• Clear objectives and finely-tuned policies. • Close government-business cooperation in

promoting export industries • Foreign suppliers continued to license out to

Japan despite their heavy restriction – WHY?- The technologies Japan wanted in its post-WWII was mature and conventional by Western standards.

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6. Implications for Developing Countries

• Conventional technologies (by Western standard) are more easily licensed out by foreign firms.

• Foreign suppliers tend to license out to the countries where IPRs are well protected.

• Adopt, adapt, and create are the keys to growth on technology transfer.

• Circumstances changed from Japan’s case – MNEs are more sensitive to ITT; FDI is seen less exploiting; global trend for liberalization.

• Purchasing of licenses costs money.

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7. Action Plans (1/2)

Short-Term Policies

• Adopt technology transfer laws that ensure incoming technologies do benefit domestic economic development.

• Target at (1) standardized technology, toward (2) strategically important industries.

• Establish incentive system that encourages firms to step into adopting foreign technologies.

• Strengthen IPRs protection.

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7. Action Plans (2/2)

Long-Term Policies

• Enhance absorptive capacity

• Adopt holistic policy framework overarching various channels of ITT – FDI, licensing agreement, goods imports and movement of people.

• Improve the investment climate in general.

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References

• Bacha, Edar L. (1984) “Growth with Limited Suppliers of Foreign Exchange: A Reappraisal of the Two- Gap Model” in Moshe Syrquin, Lance Taylor and Larry Westphal, efd., Economic Structure and Performance: Essaysin Honor of Hollis B. Chenery. New York Academic Press.

• Chrnery, Hollis, and Micheal Bruno (1962) “Development Alternative in an Open Economy: the Case of Israel” Economc Journal, Vol 57, March 1962. 79 – 103.

• Glass, Amy Jocelyn and Saggi, Kamal (2002) “Licensing versus Direct Investment: Implications for Economic Growth” Journal of International Economics 36, 131-153

• Grossman, G. M. and Helpman, E. (1994). Endogenous innovation in the theory of growth. Journal of Economic Perspectives, Winter 1994, 23-44.

• Hoekman, Bernard M., Maskus, Keith E., and Saggi Kamal (2003) “Transfer of Technology to Developing Countries: Unilateral And Multilateral Policy Options”, Institute of Behavioral Science.

• Saggi, Kamal (2000) “Trade, Foreign Direct Investment, and Ijte3rnational Technology Transfer” World Bank Working Paper • Horstmann, Ignatius J. and Markusen, James R. (1995) “Exploring New Markets: Direct Investment, Contractual Relations and the

Multinational Enterprise” National Bureau of Economic Research, Working Paper No. 5029• Layton, W. Duan “Japan and the Introduction of Foreign Technology: A Blueprint for Less Developed Countries?” Stanford Journal of

International Law.• McKinnon, Ronald (1964) “Foreign Exchange Constraints in Economic Development and Efficient Aid Allocation” Economic Journal,

Vol. 74, p. 388-409.• Nagaoka, Sadao (1989) “Overview of Japanese Industrial Technology Development” Industry Series Paper 6. World Bank, Industry

and Energy Department. Washington, DC.• Nelson, R. R. (1994). What has been the matter with neoclassical growth theory? In G. Silverberg and L. Soete (eds.) The economics

of growth and technical change. Edward Elgar, Aldershot. • Ozawa, Terutomo (1974) “Japan’s Technological Challenges to the West, 1950-1974: Motivation and Accomplishement” The MIT

Press, Cambridge, Massachusetts.• Pack, Howard (1993) “technology Caps between Industrial and Developing Countries: Are There Dividends for Latecomers?”

Proceedings of the World Bank Annual Conference on Development Economics 1992, The World Bank.• Romer, P. M. (1994). The origins of endogenous growth. Journal of Economic Perspectives,Winter 1994, 8, 3-22. • Solow, R. M. (1994). Perspectives on growth theory. Journal of Economic Perspectives, Winter 1994, 45-54. • Taylor, Lance (1991) Income Distribution, Inflation, and Growth. Cambridge, MA: MIT Press.• Yang, Guifang and Maskus, Keith E. (2003) “Intellectual Property Rights, Licensing, and Innovation” World Bank Policy Research

Working Paper 2973.• Zhang, Xiaoming and Zou, Heng-fu (1995) “Foreign Technology Imports and Economic Growth in Developing Countries” The World

Bank Policy Research Working Paper 1412. Washington, DC. The World Bank.