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