Inr. J. Technology Management, Vol. 5, No. 5.

1990 489

Sophisticated technologies: taking root in

developing countries
Technologies sophistiquees: leur enracinement
dans les pays en voie de dhveloppement
Hochtechnolagie faBt Wurzeln in Entwicklungslandern

Prof. B.J. Habibie

Minister of Slate for Research and Technology, and Chairman, Agency
for h e Assessment and Application of Technology, National Research
Council, Djakarta, Indonesia

Abslract: Of the world’s 5 billion plus ppulaIion, 80% live in iniermediaie

or low-income countries. Is it possible €or these countrics ID become
~eehnologidyself-sufficient, and eveniually to become iechnology donors? The
answcr, says b e aulhor, is technology mnsfer based on he developed of m e
value-addcd processes. Appropriately applied, such processes become vehicles
for Ihe tmhnological and indusvial hausformalion or entire economies. Indonesia
is laken as a case in point.

Keywork developing countria; mhnology uansfer; Indonesia; value-added

processes.
Reference to this paper should k.make as follows: Habibie, B.J. (1990)
‘Sophisticated technologies: laking roo[ in developing couniries’, IRI. J.
Technology Managemenr, Vol. 5, No. 5. pp. 489-49)

R h m k Parmi les 5 milliards d’habitants ou plus de la planhe, 80%vivent

dans des pays niveau de vie bas ou rnoyen. Est-il possible pour ces pays de
muvir eux-mEmes leurs besoins en malitre de teehnologie et tveniucllement de
devenir des exprtatwrs de rechnologie? La dpnse =Ion l’auleur est le iransfert
teehnologique qui doit [enter d’implanter des processus ti valeur ajoutk &lle.
brsqui’ils sOnt appliquts mrrecterneni, de tels processus dcviennent les vecteurs
pour la tmsfomytion kAnologique et indushielle d ’ h n o m i e s entihres. L‘anicle
prend c o m e exemple I’hdonhie.

MoLs-clb: Pays en voie de d6veloppemeni; transfert de technotogie; Indonhie;

pm6ddb B valeur ajou&

~ ~

Zusammedssung: 80% der Weltbevdkerung von 5 Milliarden Menschen

lebt im mitcleren und unteren Einkommensbmich. K h n e n diese Staaten
technologisch autark werden und vielleicht soger die Rolle von
Technologidonatoren einnchrnen? Wie der Autor sagi, liegt dic Antwon auf
490 B.J. Habibie

jene'm Technologietransfer, der auf der Entwicklung von wahren

Wemerrnehmngsprozessen beruh!. Bei entsprechender Anwendung werden
solche ProzesSe iurii Zugpkrd Filr die techiiologkhe und indM-ielle Udormung
ganzcr Okonomien. Indonesien w i d als Fallbeispiel hemngezogen.

Saehwkter: Eniwicklungsland; Technologietransfer; Indonesien;

Wemermehmngsprozess.

Ovcr many centuries, the centre of world economic activity moved from the Mediteme
Sea to the Atlantic Ocean. This transition was closely related to the deveIopment
communication and transportation technologies. Today, advances in these key a r m a
making a third region - -
the Pacific basin increasingly important to the world wonom
Before dealing with the application of sophisticated technology to developing munhiir
it would be welt to note its rclationship to nation building. TechnoIogy is important becau
it constitutes the mjor motive force behind value-added processes, including raw materii
processing, and he transformation of raw materials into finished products. These p m
are successful only if materials, machinery, and skilled labour are fully integrated
technology so as to produce goods and services that have a higher value than the mater
h a 1 went into prcducing them. Because of this, technology constituies the most decisi
element in valued-added processes. The more efficient and productive the value-add
processes, the higher the standard of living. And improvd standards of living give ri
to new ways of thinking and further advances i n science and technoIogy.
InYugoslavia in 1988, the United Nations held an official ceremony marking the bii
of the five-billionth member of the world's popdation. Yet the total population o f t
member countries of the Organization of Economic Cooperation and Development (OK:
does not exceed 600 million. It can hus be said that not more than 17%of the worlc
population live in advanced eounlries wilh sophisticated technologies and enjoy high livi
standards, while 83% live in counlries with intermediate or low incomes.
But while the world's population has undergone explosive growth, communicati
and transportation systems have in effect made the world smaller. Given these conditio
and h e concrete problems faced by the underdeveloped part of the world. there is :
point in classifying technologies as elementary, intermediate. high, appropriate, a
sophisticated, as is frequently he case. To say that to forecast the weather. to eradicr
 Sophisticared reclinologies: taking root in developing countries 49 1

pests, to overcome natural disasters, 10 obtain clean waler, or to improve agricultural

prductivity, Third World countriesshould u seprimilive technologies is to suengthen h e
vicious circle of ignorance and poverty.
It is far more constructive to believe that through preparation and counselling, the
capabilities of any society anywhere can be increased so that it can undertake a leap in
its reasoning ability and the power of its imagination to master even the most sophisticated
science and technology appropriate and useful for the solution of concrete questionswhich
it faces in its daily life and to improve its value-added processes.
Related to this is the rapid evoIuuon in the world division of labour, which has
undergone remarkable changes since the end of the Second World War. In that era, the
division of world labour was relarively simple. In underveloped areas, cheap labour was
used to process natural resources into raw material for industry in the developed parts
of the world. Developed countries produced fmished products, which they marketed to
olher countries and regions, including the raw material suppliers. The processing of raw
material into final products was carried out with more advanced technology using a higher-
skilled labour force and more expensive iechnology. Part of the a d d d value thus created
was used in research and development Lo improve the technology and to develop new
technologies. Through new and improved lechnoIogy the productivity and efficiency of
valueadded processes could be increased, production costs decreased. the variety of
products widened, and their quality improved.

1 Why technology transfer is good for developed countries

T h y , the conditionsare quite different. The market for sophisticated technology products
such as watches, radios, photographic equipment, recording equipment, motor vehicles,
aircraft, ships, communication satellites, cement factories, fertilizer factories and others
is no longer limited to advanced countries. Because of the rising costs associated with
skilled personnel and related facilities, the R&D funds needed to deveIop technologies
further are being sketched. The market must be widened to include developing countries.
But the low-income population of the world can become a'big market for, and a
significant donor of, high technology only if its income and purchasing power rise. This
cannot be accomplished only hrough the provision of commercial, soft, and even very
soft loans. Real productivity increases are needed, which boils down to improvements
in valueadded processes. This, in tum, can occur only with the enhancementof technology .
As a result, deveIoping counhies are not the only ones interested in technology transfer.
Because they need to widen their markets, advanced countreis themselves have an interest
in transferring their technology to developing countries.
Unfonunately, however, hese perceptions are not widely held. Both in advanced as
well as developing countries, the majority view is that national wealth is very much
dependent on the existence of natural resources - a point of view that is contradicted
by the modem economic and industrial history of Japan and South Korea. These two
countries have demonstratal that skilled human resources and appropriate application of
technology, rather than natural resources, are the keys to improvingvalueadded processes.
Experience also shows that some resource-rich countries that have neglected development
of their human resources have been unable to develop and to contribute to the welfare
of the world.
492 B.J. Habibie
2 Harmonizing the needs of transferors and receivers
. . .. . .. . - .. ..

Obviously, ~echnologytransfer can not be carried out just like that. Its success is dependent
on the harmonization of the interests of the technology transferor and technology receiver.
In general, the most significant incentive on h e part of technology proprietors is the
opportunity to widen their markets, lo increase sales volume. and 10 raise research and
development funds through programs with technology receivers.
In addition, it is common for technology proprietors to have the following inlerests:
First, to cornpensale for their substantial investments, proprietors have an
interest in direct incentives such as licence faes and royalties. As an indirect
incentive it should be demonstrated to proprietors h a t their technologies are
king us& properly so that h e technologY receiver not only becomes stronger
and more skilled, but also increases in purchasing power.
Second, technology owners are naturally interested in protecting their property
righls. The existence of a framework of laws and regulations which sufficiently
guarantm intellectual property and patent right protection conshtules one of
the necessary preparations to be made by the technology receiver.
Third, technology transferors do not want transfer of their technology to result
in job losses. To fulfill this goal it is necessary to divide labour between
technology transferor and receiver on the basis of bilateral macro- and micro-
economic factors so that approximately 40 to 60% of added value is d e d out
by the technology receiver while the remainder is undertaken by the technology
transferor. This way both parries complement each other and jointly contribute
to the research and development cosls of their partner.
In addition to the division of labour in valueadded processes, it is necessary to share the
market. The technology transferor must be guaranteed that the technology receiver will
not compete within the transferor’s own market, while the technology receiver must be
given sole marketing rights in its domestic market andlor in h e region surrounding its
domestic market. Finally, technology proprietors will transfer technology only when
convinced that a mutually profitable, long-term relationship between them and technology
receivers will be formed.
On the other hand. the technology receiver also has certain interests:
First, the receiver must be guaranteed that the technology it receives is really
slalesf-the-art technology.
Second, the technology receiver must be guaranteed that by paying cemin
service charges, it will always obtain the most recent information regarding h e
latest developments in these techno1ogies.
Third, he economic and human resources of the technology receiver must be
involved in the further development of these technologies.
And fourth, like the technology transferor, the technology receiver must be
convinced that a mutually profitable, long-term relationship is possible.
 Sophisticated technologies: raking root in developing countries 493

3 Justifying production in developing countries

.. ..

Finally, technology transfer requires a good deal of preparation. For example, a major
conslraint faced by the technology receiver is that its labour force has usually just completed
its formal education and lacks practical experience. In addition, the value-added processes
underlaken by the receiver lack the integration usually found in the modem organizations
of the technology transferor. In advanced countries workers can usually be relied on lo
thoroughly know their jobs and the interconnection bemeen heir jobs and others in the
faetory. This is not the m e in a developing country. Bemuse of this, factories in developing
countries have to make additional investments in infrastructure, plant facilities, education
and training, and systems and work procedures so that they become what is called
‘technology carriers’. All this impacts on the cost of production.
It is usual for developing countries to rely on their inexpensive labour because these
costs (including overheads) are often only 10%of the labour costs in advanced countries.
But h e productivity and efficiency of labour in developing countries is not as high as that
OF the experienced labour forces in advanced countries. And we should not forget that
labour costs are only a part of total production cosls.
Let’s say that roughly 33.33% of total manufacturing cosrs go for labour, 43.33%
for materials and vendor items, and 23.33% for machine hours. This cost composition
implies that wilh labur costing only 10%of what it costs in advanced countries. developing
countries can at most save up 103096 of total COSLS - as long as all other factors remain
the same. But his is rarely the case. \

It is impossiblefor material and vendor item costs in developing countries to be lower

than in advanced countries. There are many reasons €or this. For instance, materials and
vendor items are often delivered from overseas. This factor, combined with the inefficiency
of domestic transportation systems, results in longer Iead times than those in advancsd
countries.In addition, just-in-time supply systems are generally not practical in developing
countries. As a result, companies often have to manage with very high inventory levels.
Taking these factors into account, it is clear that unless higher material, vendor item. and
rnachine-hour costs can be compensated by savings in labour costs of at least 30X, there
is no economic rmon LO produce in developing countries.
How can the governments of technology transferring countries support the proccss
of technology transfer? By applying appropriate tax, labour, and credit regulations. by
instituting financial and technical assistance programs, and even by providing incentives
to business units seeking opportunities to transfer their technology to firms in developing
countries. Incentives must also be given to deveIoping countries hat wish to receive
technology and have policies and views in agreement with those of the donor countries.
These incentives can take the form of educational assistance, lechnical assistance, and the
provision of guarantees.
Experience shows that in time, with appropriate production planning, material and
vendor item costs can be paired down to a level about 10% higher than in advanced
countries. W i h improved prduction stability, an increasing number of component and
material producers will relocate to deve1opingeountrie-s.And with his development, costs
can be lowered further-soas lo approach the material and vendor iiem costs in advancd
countries.
Depending on the speed of the increase of heir production planning and control
capability and of the skill of their workers, the comparative disadvantage of developing
countries in material and vendor item costs will decrease. On the other hand, heir
494 B.J. Habibie

comparative advantage in Iabour costs will be gradually reduced as wages rise to reflect
improved skills.
Which developing countries will stand the best chance of increasing their production
of sophisticated technoIogy products as a result of technology transfer? In my opinion
and experience, the ones that will be able to do so are those h a t thoroughly understand
the technology transfer process and ils relationship to added value, offer an economically
and politically stable environment, and control a domestic market large enough to merit
investment in the first place.
On a more detaild level, technology receivers must be prepared to implement
manufacturing plans on a step-by-step basis, with h e ultimate objective of eventually
matching the added-value percentage oblained by the technology transferring Firm.
SecondIy, technology receivers must be competitive in their own markets. which means
accurate estimation of the scale of production, product quality, and reliable after-sale
service. These factors are of course far more manageable in the context of a domestic
market than in the international arena.
The philosophy that must be followed in carrying out hese programs is ‘to start with
the end and to end with the beginning’, i.e. to commence with the frnal product and finish
with the initial components. It i s easier to find controllable domestic markets for final
products than for components and vendor items. Componenls and vendor items must be
marketed in domestic markers that are oRen controlled by competitor countries; and
therefore h e shbility of demand and the viability of production cannot be guaranteed.
Only programs h t permit the application of ‘progressive manufacturingplans’, that
in turn tie h e transfer of technology to the number oE final products manufactured, can
guarantee the transfer of technology in its totality. And only produels h a t have a conmllabIe
domestic market can guarantee sufficient scale of production to survive in he market.
Thus,only production programs that fulfill-both conditions will successfully transform
technology receivers into active users rather than passive recipienls of sophisticated
technologies.It is for lhis mson that I have named programs hat fulfill hese two amditions
‘vehicles for technological and industrial transformation’.
The transformation itself takes place in four overlapping smges:
0 Technology mnsfer through licensd production, i.e., the use of existing
produelion and management technologies to produce goods already on the
market;
0 Technology integration, i.e. the use of existing technologies in the design and
production of completely new products;
a Technology development, i.e. the further development of existing technologies
and investment in new technologies; and
0 Large-scale basic research to support h e h i three stages and to defend the
teehnological superiority already anained.

4 Indonesia: a case in point

Indonesia is made up of more than 17,000 islands that cover an area of some 2 million
sq. kilometers, stretching 5100 kilometers from Sabmg to Merauke. With a population
of 175 million and a growth rate of 2.182, there are 3.8 million new Indonesians each
 Sophisticored technologies: taking root in developing countries 495

Figure 1 TeEhnology transfer W u g h direct investment. The major conlribulors 10

Indonesia’s economy are Japan. he EC, and the USA. Source: 1MF and BKPM,

year, and 2.4 million new job seekers. Even considering a projected decrease in this growth
rate, Indonesia’s population is estimated to reach 216 d i o n by the year 2000.
These simple statistics alone already show that, as repeatedly stated by President
Soeharto, h e major problem for Indonesia is to meet the basic needs of its population:
food, health, education. clean water, housing and a healthy environment, as well as to
further improve its economic infrashucture, i.e. transportation, cornmuniation,and energy.
The Republic of Indonesia is already self-sufficient in rice, fertilizer and pesticides,
but there is a conhued n d to improve engineering capabilities and the agricultural
equipment industry.
In the effort to fulU the basic needs oE its population, especidy in food, Indonesia
has for a long time used rernote-sensing techniques. Indonesia’s gagraphy has made
conventional methods of natural resource mapping. inventory and evaluation impractical,
expensive and time consuming. Because of this, aerial photography and radar and salellite
imaging Wdsat)are beimg used, and geostationq rneteoroIogical satellites are providing
weather information and monitoring currents, spawning grounds and other data relevant
to the fishing industry.
In agriculture, Indonesia intends to apply plant biotechnology to raise the nutritional
quality of rice, to develop cell fusion technology, and to improve m o m t and other cash
crops. In animal husbandry, diagnostic methods are being developed for the study of ‘New
Castle’ disease in poultry, and other animal diseases. In applying biotechnology to health,
the development of diagnostic methods as well as vaccines against the hepatitis-B virus,
496 B.J. Habibie

h e application of state-of-the-art fermentation technology to lhe production of anti-rabies

vaccines, and the development of production facilities for tetracycline and other antibiotics
are being planned.
In addition to the opportunities opened by the development of industry, mining and
the transportation service stxtor generally, a market is also being created for mid-sized
passenger aircraft. The IPTN Nusantara Aircraft Industry i s working with Bocing.
Messerschmitt-Bolkow-Blohm,and Fokker on h e development of an 85- to 135-passenger
plane, which wilt use composite malerial, aluminium-Iithium alloys, and fly-by-wire and
other state-of-the-rn imhnologies.

5 Transformation: taking the fourth step

Given Indonesia’s geography. satelIites play an essential role in the country’s

telecommunications. SatelIitcs also provide educational services and help to bring a sense
of national identity to the country’s many societies and language groups. PT INTI and
oher Indonesian lelephonc equipment companies am active in he production and co-
prduction of switching systems under licence from Siemens.
Regarding energy, the development of the transmission network in Java - in which
60% of Indonesia’s population resides - is almost complete, and this network will soon
be linked to the 3ali and Sumatra networks. It is estimated that by 2015 Indonesia will
require an additional 27,OOO M W of electric power, 7000MW of which will be supplied
by coal, 2300MW by natural gas. and 1500 by combined cycle plants.
Since all hydro resources are alrady being used, the supply of geothermal power
is limited. and the use of additional coal is environmentally problematic, the use of nuclear
power to generate the remainder of the needed eIectricity is under considerarion. In this
area domestic engineering industries will be utilized as far as possible.
Like so m y industries in Indonesia, shipbuilding is also growing. Inler-island shipping
alone is estimated to require replacement and additional tonnage of up to 237.000 dwt
or 75 vessels of 3000dwt by 1994.
As mentioned earlier, the development of basic research and technology constitute
the third and fourth stages of technology transfer toward transformation into an industrial
nation.
To support industq in the applicalion of new technologies, Indonesia has established
the Cenue for Research, Science and Technolorn (PUSPIPTEK) in Serpong near Jakarta
as an area for h e centralized management of hese stages.
When complete, the PUSPIPTEK Centre will include a 500-hectare complex of the
most modem multidisciplinary laboratories and research facilities, a 350-hectare high-
technology industrial zone, a 150-hectare educational complex for the Indonesian Institute
of Technology campus, and an officc complex for the Indonesian Academy of Sciences,
the National Research Council, the IndonGian National Academy of Engineering, and
the Indonesian National Academy of Medicine. A botanical garden for the preservation
of rare plant species is being planted over the total loo0 hexkres, providing for pleasant
surroundings for the whole complex.
The 500-hecrare area reserved for research and science encompasses a 30-MW
Multipurpose Research Reaclor with installations for nuclear fuel dement fabrication,
experimental fuel elements, radioactive waste treatment, radio-isotope production, nuclear
safety engineering, and radiomelallurgy. The complex also includes five laboratories under
 Sophisticated rechndogies: raking root in developing countries 497

the Tndonesian Institute of Science, and six laboratories managed by the Agency for h e
Assessment and Application of Technology.
A Science Demonstration Centre and a 2218 mz Multipurpose Centre complement a
1564 unit housing complex offering sporls, recreation. shopping, educational. medical,
and religious facilities.
PUSPIPTEK is being developed in order to dircctly confront h e problems of limited
manpower, scarce funds, inadequate facilities, uncoordinatedp r o g m , insufficient sccielal
support, and low incomes faced by the Indonesian scientific community.
In additional, science and technology centres similar 10 the PUSPlPTEK Cenme are
being developed in other locations. These cinclude one in Cibinong, south of Jakarta, which
focuses on biotechnology and genetic engineering, and another in Siirabaya. concentrating
on marine science and technology. Still others in Bogor, Medan, Pasuruan and other
locations are being planned.
All in all, Indonesia has strongly promoted technology transfer and has moved
aggressively to use it as a springboard to technological independence. In my vicw. the
Indonesian experience with the application of technologies may prove LO be a valuable
example for many other developing countries.

Acknowledgement

Grateful acknowledgement is made to Siemens Review for permission LO reproduce this

paper.