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The Transfer Of Technologies Of Multinational Corporations Economics Essay

Throughout the history technological changes and transfer leading to mechanization and industrialization have led to economical change, innovation, increasing in the knowledge and skills as well as, from the industrial point of view, productivity (UNIDO/WBSCD, 2002). Also the transfer of technology by multinational corporations (MNCs) would help developing countries to have sustainable development as well as both preserve the environment and improve the quality of life for present and future generations (Hope, 1996). It has played an important role in shaping the society (UNIDO/WBSCD, 2002) and the development of the countries (Hope, 1996). Technological transfer involves a two-way relationship of sending and receiving technology between and among firms, industries and governments. However, the transfer of technology to a developing country depends on many factors including government, its economy, market, research and development as well as infrastructure of the country (Hoekman, et al., 2004).

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The transfer of technologies by the MNCs to the developing countries brings in economic changes as well as fosters productivity growth. Though invention and creation processes remains the province of the developed countries. However productive knowledge as well as follow-on innovation occurs in developing countries. These processes effectively are the drivers for sustainable growth and change in developing countries (Hoekman, et al., 2004).

Technology is at the core of competition and development (Dhewanto and Umam, 2009). The transfer of technology by multinationals enhances a country’s technological capabilities by providing product or process innovations or both. With manufacturing of new products and services as well as improving the quality of the existing ones it could lead to industrial up gradation of a developing country technical ability. Innovation could also lead to the establishment of more competitive industries that could in turn generate revenues for the host (developing) countries (UNIDO/WBSCD, 2002). For example, country like China attracts foreign direct investment (FDI) due to cheap mass production which was gradually established due to its innovation capabilities. Being fully aware of the threats, China took steps towards innovation. Innovation is considered the focal instrument of economic growth in both developed and developing countries. Developing countries can maintain its economic growth through its own innovation capabilities (Dhewanto and Umam, 2009).

Constant growth could be there with the creation of new products that expands the knowledge of the technology and products and in turn lowers cost of innovation (Hoekman, et al., 2004). The transfer of knowledge and skills is considered necessary for the adoption of new technologies in a developing country (Dhewanto and Umam, 2009). For an MNC there is a growing dependence on the knowledge and skills for a profitable utilization of the product. Therefore a firm may invest in the dispersion of productive knowledge and skills to its employees, to the local suppliers of the inputs needed in its production process and to the local customers who may have to be taught the new technology of using the firm’s products effectively. The direct, in particular, impact is on the labour in the host country (Johnson, 2001). The transfer of the knowledge and skills to local suppliers and labours make up a base for technology spillovers (Chudnovsky and Lopez, 2003). This spillover in turn upgrades the existing knowledge and skills so as to ensure that the host country enjoys the true potential of the transferred technology (UNIDO/WBSCD, 2002). A highly skilled and knowledge based economy is a dominant feature in the 21st century so as to increase a developing country’s growth and competitiveness (Dhewanto and Umam, 2009).

Apart from innovation and growth of knowledge and skills transfer of technology from multinationals to a developing country brings in technical changes in production equipments, production methods and final products that have economic benefits. An increase in the scale of production is possible due to the improved technology as well as due to increase in the knowledge and better skills of the labour (UNIDO/WBSCD, 2002). Technological inputs can directly improve productivity by being used in production processes (Hoekman, et al., 2004).

Technology transfer by the multinationals makes a difference in nurturing a sustainable development in the developing countries. Technology cooperation is recognized as one of the key instrument in the context of sustainable development (UNIDO/WBSCD, 2002). Sustainable development could lead to the origination of new solutions to the socio-economic needs of the developing countries. Sustainable development is all about progress, economic growth, efficient use of resources as well as helping an economy to come out of poverty and environmental degradation (Hope, 1996). MNCs offer developing countries mutually beneficial environmentally clean and economical technologies. Some MNCs are pioneering eco-efficient, process-oriented low polluting technologies which are transferred to the developing countries (Chudnovsky and lopez, 2003). For example, British Petroleum are providing solar energy and upgrading the basic facilities in the remote parts of Philippines. With the help of this technology it is providing the remote parts with energy related infrastructure such as lighting facilities, school equipments, water pumps and many more. Also the company is providing knowledge about the technology through training and community development programs so that the local community members can manage the technology (UNIDO/WBSCD, 2002). The contribution of environment friendly technologies is associated to sustainable development. This in turn ensures that the quality of life and long-term benefits for the present as well as future generations improves (Hope, 1996).

Irrespective of the sustainable development and importance of contribution by MNCs for the technology transfer to developing countries, factors such as government, market, economy, research and development as well as infrastructure affect the transfer and diffusion of technologies (Hope, 1996). A country’s government plays a crucial factor in influencing technology transfer (Lai and Tsai, 2008). Government actions can build favourable conditions under which technology transfer and cooperation can occur. A sound economic and regulatory frameworks, transparency and political stability can make a country a viable market for technology transfer (UNIDO/WBSCD, 2002). A strong policies regarding patents, licensing and sector specific increase the flow of technology transfer. In turn it increases productivity and knowledge growths as well as multinationals become more willing to transact more advanced products and processes in the host country. For example, after the Second World War Japan’s transition to a developed economy was due to the government stability and policies which in turn lead to increase in innovation (Hoekman, et al., 2004). However, if there is lack of political stability and frequent changes in the policies of a host country then MNCs are unlikely to transfer technology to that country (Enakrire and Onyenania, 2007).

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The incentives provided by the government such as subsidies and reduced taxes can encourage MNCs to transfer technology thus reducing the cost of technology. This reduction could help in building the infrastructure as well as research and development capabilities of the country (UNIDO/WBSCD, 2002). With this low cost of transfer this could lead to positive spillover which in turn increases the overall productivity of the country (Hoekman, et al., 2004). However excessive government support is detrimental in some cases. One of the problems is weak financial structure arising from over generous loan policies/incentives/tax free policies by the government (Derakshani, 1984). Many MNCs may behave strategically so as to win subsidies. This can result in corruption and bad corporate governance. Framing and implementing of policies and subsidies are difficult to control (Hoekman, et al., 2004). Subsequently the host country government in order to have a controlled implementation could increase taxes and tariffs on technologies thus escalating the cost of technology (Enakrire and Onyenania, 2007). Therefore the capabilities and right polices by government play a fundamental role in the transfer of technologies. A positive impact on productivity can also be due to research and development. With right government policies and low cost of transfer there would be an increase in activities like research and development (Hoekman, et al., 2004) which would facilitate the stability of technology transfer process (Lai and Tsai, 2008).

Another determinant factor in technology transfer is the scale of the market. A new technology will be produced and transferred with the high expectations from the host country market. A right market enables the products to be rightly evaluated and priced (Lai and Tsai, 2008). Market transactions in technology are burdened by problems. Firstly, due to asymmetric information whereby due to lack of information given out by MNCs it could cause increase in transfer costs that stifle market-based technology transfer. Secondly, as owners of technologies have market power resulting from patents and many other sub factors. This in turn increases the cost and reduces innovation. Lastly, it’s due to externalities. This is due to the costs and benefits of technology transfer are not fully adopted by those involved. The reason being, a major share of benefits to the host countries of the transfer is due to unbalanced spillovers, that is, positive as well as negative spillovers. However open market could reduce these problems as it provides incentives for MNCs to transfer the technology thereby increase the growth of the developing country (Hoekman, et al., 2004).

MNCs respond to favourable factors so at to transfer the technologies to the developing countries. Host countries benefits from the transfer of technologies through capacity benefited activities. Capacity building is the foundation of a sustainable development of a host country. Capacity building includes education, training, transfer of knowledge and skills and majorly increases a host country’s innovative capabilities. It is important that capacity building takes place at different levels for the development of economic and industrial capabilities as well as for the success of individual business and projects at the host country level. The goal of using technology is not only about productivity or strengthening the economy of the host country but also benefiting improving the livelihood of the present and future generations (Hoekman, et al., 2004).

With proper technological cooperation capacity building programs can be adapted to local economies and cultures. An efficient program that deals with capacity building will enable developing countries and MNCs to work together. Such a program will accelerate FDI and development within the host country (UNIDO/WBSCD, 2002) through increasing technological capacity, improving its balance of payments, reducing technological dependence abroad, reducing unemployment and improving the infrastructure of the host developing country (Derakshani, 1984).

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