TECHNOLOGY TRANSFER

Technology transfer is the dissemination of technical knowledge, skills, and products from a point of origin into a broader sphere of use. The term can describe any number of such actions, but the main two stages of technology transfer are as follows:

1. Noncommercial to commercial —the transfer of knowledge from research settings such as universities, institutes, and government laboratories to the commercial sector.
2. Industrial economy to developing economy —the spread of knowledge from wealthier, developed economies to less developed economies.

In general, these stages occur in this sequence, although they can also happen in reverse order or simultaneously.

As the definitions above highlight, the most important aspect of technology transfer is the underlying knowledge of how technology works and how it can be applied to real-life problems. The skills needed to implement this knowledge in a practical form are also crucial, and it may be beneficial to physically transfer technology as well, but the physical transfer is usually least important from a technology-transfer perspective.

MECHANISMS FOR TECHNOLOGY
TRANSFER

Technology transfer takes place through a number of different channels. Key among these are foreign direct investment, licensing agreements, joint ventures, and research collaboration between private companies and universities or government agencies. The choice of mechanism for individual companies depends largely on business strategy, risk tolerance, and available resources. A combination strategy may also be used. For instance, when technology has implications for more than one industry, the originating company or research center may choose to license its innovation for certain uses outside its expertise while directly developing the technology for those areas it is most competent in. In addition, multinational corporations, particularly those based in the United States, Western Europe, and Japan, act as major transferrers of technology to LDCs.

NONCOMMERCIAL TO COMMERCIAL
TRANSFER

Universities, research institutes, and government-sponsored agencies are a major source of new technology that is ultimately exploited in the commercial realm. By one late 1990s estimate, university technology transfer alone is worth more than $21 billion a year in the United States.

ENCOURAGED BY LEGAL REFORMS.

Since the late 1970s, American universities have played an increasingly important role in the development and transfer of new technologies. This shift was strongly encouraged by the 1980 passage of the Bayh-Dole Technology Transfer Act, which allowed nongovernmental organizations (universities, companies, nonprofits) to use federal dollars for research and still retain the patents to their innovations. Before then, government agencies commonly claimed at least some of the rights to such inventions and proved lethargic and inefficient managers of the intellectual property, impeding technology transfer.

A series of additional laws throughout the 1980s helped to further stimulate research for technology transfer to the commercial sector. Noteworthy acts included the National Cooperative Research Act of 1984, which loosened restrictions governing research collaboration between for-profit competitors, and the Technology Transfer Act of 1988, which enabled government research laboratories to form cooperation agreements with private-sector organizations to facilitate technology transfer.

UNIVERSITIES CENTRAL TO THE PROCESS.

The emphasis of the top U.S. research universities on the commercial applications of research also resulted in part from a widespread perception that the United State was losing out to its international competitors in both basic and applied research. This led government, industry, and university representatives to undertake initiatives to develop new linkages between companies and top research universities. Among these linkages were university ownership of equity in firms established on the basis of university research, liaison or technical assistance programs, research partnerships, and the establishment by universities of patent and technology licensing offices. Many top research universities in the United States took the route of equity ownership in start-up companies. It was argued that this method facilitated technology transfer, created the possibility of large financial gain for universities, and helped to attract and retain faculty who might otherwise be tempted to join the commercial venture themselves.

Federal funding to universities continues to play a paramount role. Of the 1,500 or more patents in all fields issued to universities each year, some 80 percent come from projects that receive federal funds. The federal government has provided two-thirds of total university research funds, with private industry providing a relatively small though rapidly growing share. To a lesser extent, federal funds also target small businesses through such initiatives as the Small Business Administration's Small Business Technology Transfer (STTR) program.

DEVELOPED ECONOMY TO DEVELOPING
ECONOMY

While technology is transferred internally in developed countries and LDCs alike, studies of technology transfer are often concerned specifically with transfers from the more advanced economies to LDCs. In this sense, technology transfer is central to the study of newly developing economies.

In his essay "International Business and the Transborder Movement of Technology," Denis Simon defined three classes of technology transfer: material transfer, design transfer, and capacity transfer. Material transfer refers to physical goods ranging from product parts to fully operational plants. Design transfer refers to blueprints or other types of information used to build products or production facilities. Capacity transfer refers to education and training not only to operate existing plants but also to develop innovations in products and processes.

Japan is often referred to as a case of an advanced country that developed in large part through technology transfer. Previously developed capitalist countries such as Britain, the United States, and Germany relied to a larger extent on domestically produced technologies.

Japan's developmental success in the postwar years provides a contrast with the patterns observed in many LDCs. In particular, many LDCs have depended heavily on exports of raw materials, which often suffer from unstable prices in world markets, and have consequently run up large trade deficits and suffered from crushing debt burdens. Part of the appeal of technology transfer is that it creates the possibility for development that is less reliant on native sources of raw materials and is more self-sustaining. The newly industrialized countries of the Pacific Rim—including Taiwan, Hong Kong, South Korea, and Singapore—along with Brazil and India have recently emerged as significant beneficiaries of transferred technologies.

APPROPRIATENESS OF TECHNOLOGY TRANSFER.

One of the central problems regarding technology transfer is whether the technology is "appropriate" for the recipient country. For example, technologies that are highly capital intensive may be transferred to a country in which there is substantial underemployment of labor. Transferred technologies may also require technically sophisticated workers and managers or natural resources that are in short supply in the recipient country. The problem of appropriate technologies suggests that substantial planning is generally required for technology transfer to be beneficial. At the same time, the problem highlights the potential conflicts between the interests of multinationals and the long-term development of recipient countries.

Thus, the viability of technology transfer is determined by the general level of industrial development in LDCs. New technologies are more readily able to be implemented if similar or complementary technologies have been previously established. Key among these considerations is the capacity of producers within an LDC to serve as suppliers of parts or services. Whether a transferred technology can be supported by suppliers within the country has a potentially large impact on the competitiveness of production, given the potentially higher costs of relying on parts from abroad as well as the greater lead times involved. In addition, toxin-producing industrial processes are potentially much more problematic in LDCs. In order to control environmental damage, these processes require pollution-abatement technologies, which are generally less developed in LDCs.

IMPORTANCE OF EDUCATION.

Education is a vital part of the technology-transfer process and of the development process more generally. A gap often exists between the technical education levels in source and recipient countries. Employees must have sufficient training to efficiently operate and maintain machinery. More than that, innovation and research and development typically require highly educated technicians. LDCs often attempt to minimize their technical dependence on outside sources such that they are able to generate innovation from within, creating the possibility of a more self-sustaining development process.

The role of education becomes increasingly critical with the expansion of electronics-based and other medium- to high-tech goods. Accordingly, new product and process development generally requires a higher level of technical knowledge. At the same time, a larger share of all manufacturing production is beginning to be controlled by computers in highly integrated processes.

ROLE OF MULTINATIONAL CORPORATIONS.

Multinational firms engage in technology transfer through licensing arrangements with non-affiliated firms or through foreign direct investment with affiliated firms. These are sometimes referred to as external and internal technology transfer, respectively. Multinationals generally prefer internal technology transfer. In his essay "Contractual Agreements and International Technology Transfer," Bernard Bonin described this preference as follows: "Foreign direct investment is normally preferred since the owner of the technology is thus in a position to capture all the rents attached to his technological advantage, while licensing is more risky in this regard. Contractual agreements will be entered into only when the potential benefit from intangible assets cannot be otherwise exploited."

There are a number of factors that impede technology transfer within a firm, making external transfer more viable. Smaller firms may lack the resources to engage in direct investment. Firms may have inadequate managerial experience in overseas production and marketing. In other cases, the host country may restrict foreign direct investment, leaving licensing as the only option. More generally, firms are more inclined to license older products and processes, for which the relative technological advantage and profitability are generally less.

EVALUATING TECHNOLOGY TRANSFER'S SUCCESS.

One of the contentious issues surrounding technology transfer is the means by which the success of such transfers should be evaluated. Traditionally the success of development has been measured in terms of the growth rate of gross national product (GNP) or per capita gross national product. This measure has been criticized on several grounds. For one, it does not take into account income distribution. In his Strategic Planning in Technology Transfer to Less Developed Countries, Christian Madu summarized other limitations of national income measures as follows: "Understanding the LDC's socio-economic structure and how it differs from that of the developed countries will help in the development of appropriate standards for measuring growth. For example, a major flaw of GNP is that it fails to take into account social costs due to industrial waste, crime, congestion, and different perceptions of the inhabitants about their changing environment in evaluating the nation's performance." New "quality of life" measures have been developed in recent years to complement GNP-based measures in evaluating technology transfer and other economic development policies.

The pace of technology transfer increased rapidly after the 1970s. This resulted from the growth of foreign direct investment by multinational corporations as well as from the increased outsourcing of product components in the international market. More generally, the growth of technology transfer reflects the increasingly international perspective of corporations. The growth in recent years was also an outcome of earlier technology transfers, in that those transfers enabled a greater number of countries to act as important sources of technology. Technology transfer has been greatly facilitated by improvements in international transport and communications, enabling firms to more readily control operations across the globe. Finally, the establishment of free trade agreements within North America, Europe, and Southeast Asia created more favorable financial environments for technology transfer.

RESTRICTED TECHNOLOGIES.

Government policy plays a large role in technology transfer. The advanced capitalist countries typically have policies that restrict the outflow of certain technologies. Among these are military equipment or technologies with potential military applications. Exporting technologies may also be restricted in an effort to protect competitive advantages in certain high-tech goods. Among these goods are supercomputers and superconductors. The government policies of LDCs vary widely in the extent to which they regulate technology transfers. While many LDCs compete with each other to accommodate multinational corporations, others restrict foreign ownership, foreign investment, and joint ventures.

U.S. government regulation of technology transfer in the postwar years was shaped in large part by the Cold War. The Export Control Act of 1949 authorized the president to regulate exports on the grounds of short supply and national security, as well as to achieve foreign policy objectives. In that same year, the United States and six European countries formed the Coordinating Committee for Multilateral Export Controls (COCOM) in an effort to carry out strategic embargoes, particularly against China and the Soviet Union. COCOM was not strongly effective in Cold War years since some of these European countries sought to increase trade with the Communist powers. Consequently the United States relied on the Export Controls Act to attach restrictions to technologies licensed to allied and neutral countries in an effort to control the re-export of these technologies. Congress extended the act in 1953.

Exports to the Warsaw Pact countries increased during the Nixon administration with the Export Administration Act of 1969 and with detente. With the Soviet invasion of Afghanistan in 1979 and the election of Ronald Reagan in 1980 came the move toward greater restriction of technology transfers. The U.S. Department of Commerce came to play a leading role in the regulation of nonmilitary exports, and the staff of the Export Administration unit of the department increased by fourfold through the 1980s. Similar expansions occurred in the export-control divisions of U.S. Customs and the departments of Defense and State. Many U.S. businesses complained that these regulations substantially hurt their sales and their capacity to develop new technologies. Restrictions on technology transfer were progressively loosened in trade legislation enacted after the mid-1980s. New laws and regulations sought to situate the issue of export controls in light of general trade considerations as well as national security interests. Entering the 1990s, the collapse of the Eastern Bloc and the expansion of U.S. trade with China created possibilities for substantial increases of technology transfer from the United States and other advanced capitalist countries. However, particularly in the case of China, which in the late 1990s was embroiled in a scandal involving spying on U.S. defense laboratories and contractors for military technology secrets, the dichotomy between permissible and impermissible technology transfer remained a cornerstone of the U.S. foreign relations regime.