CACCI Journal, Vol.

2, 2005

Technology Transfer Trends

S. P. Agarwal
Ashwani Gupta
G. P. Gandhi

After the birth of the WTO in 1995, developing economies have had easier access to
foreign technologies. The thrust has been towards development and transfer of technologies
in new and emerging areas such as bio-technology, new materials, and drugs and
pharmaceuticals. This article examines the emerging technological needs and technology
transfer policies and practices in developing countries of the Asia-Pacific, with special
reference to India. It also briefly discusses trends in technology-intensive exports over a
period of eight years (1994-2002).

Introduction

The objectives and modes of technology transfer have undergone significant changes
over the years, particularly alter the birth of the WTO in 1995, depending on the stages of
development of various countries. The Republic of Korea, Taiwan, Singapore and Hong Kong
were among the earlier countries that started opening up their economies and adopted
market-driven policies. Later, China, Malaysia and others followed suit.

In 1990 India announced its liberalized, new industrial policy and other policy measures,
including the Foreign Direct investment (FDI) policy, which broadly aimed at enhancing
international competitiveness and exports, and perceived FDI as an additional source of
investment.

Over the last decade, FDI and foreign technical collaborations are being approved through
an “automatic route" for most sectors in India. The tax policy, tariff rates and other duty
structures, rules and procedures, as well as the policy regime, have been tuned towards meeting
WTO requirements. Within the domestic market, local producers have to compete with products
manufactured abroad or made by large companies, and services offered by foreign providers.
The other developing countries which are members of the WTO are also going through similar
economic, industrial and social restructuring, though the stages and degree of these changes
may vary from country to country. The impact of the WTO Agreements on the international
businesses of developing countries is not yet fully understood.

The technology transfer needs and capabilities of developing countries in the Asia and
Pacific have thus significantly changed to meet international competitive pressures on the
production and service sectors in globalizing economies, including those required to comply
with the WTO The recent trends of internationalizing production by multinationals and other
large manufacturing and service companies, regional and sub-regional agreements, bilateral
agreements (including free-trade agreements) have further added complexity to the area of
technology transfer.

Reprinted from Asia-Pacific Tech Monitor, May-June 2004 issue, pp. 36-41. Dr. S. P. Agarwal is Professor &
Head of Centre for International Trade in Technology, Indian Institute of Foreign Trade; Mr. Ashwani Gupta is
Scientist “F”, Department of Scientific and Industrial Research Technology Bhawan; and Mr. G. P. Gandhi is
Research Officer of Indian Institute of Foreign Trade.

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An attempt has been made in this article to examine, some of the characteristics, salient
needs and modes of technology transfer, analyze technology transfer experiences and predict
future trends in developing countries of the Asia-Pacific, with special reference to India.

Modes of technology transfer

The conventional modes of technology transfer, such as transfer of know-how against

lumpsum payment and royally, technology imports in the embedded form of plant and
machinery, and turnkey projects, etc., in developing countries, seem to be giving way to
acquisition of technology associated with FDIs in most cases and innovations. In traditional
sectors of economy, cost reduction, quality improvement, rationalization of resources, better
management and marketing, etc., are being adopted to compete and sustain. Some of the other
issues in determining the acquisition and developmental modes of technologies are the
advancement in technologies, including applications of ICT in the products and services
sectors, and the need to produce more technology-intensive and higher value-added products.
In emerging sectors, such as computer software, bio-technology, drugs, and pharmaceuticals,
in-house R&D capabilities are gaining significance in developing new products and processes.
The national R&D expenditures in most of the countries, including India, have gone up during
the last 10 years, as can be seen from Table 11, which is an indication of the strengthening of
technology transfer and development capabilities in a country.

Technology transfer policies

Various countries, developed and developing, have been evolving their technology transfer
polices and mechanisms, keeping in view the changing needs in globalizing economies. For
example, the Government of India announced its new Science and Technology Policy in 2003,
which is committed to increase its national R&D expenditure from 0.8 per cent of GDP to 2 per
cent of GDP in the next 5 years, while some of the advanced developing countries such as the
Republic of Korea are already spending at that level. Also, the share of trade and industry in
national R&D expenditure appears to be increasing in select sectors, such as in drugs and
pharmaceuticals, bio-technology, computer software, and the auto sector. (The trends in R&D
expenditure for automobile and pharmaceutical firms are given in Tables 2 and 3.) The major
shift of S&T Policy in India has been towards developing new and emerging technologies and
encouraging globalization of R&D for internationalization of production, as against the earlier
policy of indigenization and self-reliance.

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China has also undertaken time-bound and sector-specific R&D and technology
development projects, besides encouraging technologies associated with foreign investments,
and foreign technology imports as well as exports. So, there is a clear shift in technology
transfer policies towards developing an export-oriented and internationally competitive
production and service sector.

Technical foreign collaborations

There is a visible reduction in the number of foreign technical collaborations approved

by the Government of India during the period 1990-2002 (Table 4).2 Of the 703 foreign
collaborations approved in 1990, only 201 were involved in foreign investment, while 2273
foreign collaborations were approved during 2002, out of which 1,958 were related to foreign
investment. This trend clearly shows a leaning towards technology transfer associated with
foreign investments, rather than towards purely technical collaborations.

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A quick analysis of the data related to foreign collaborations approved during the period
1990-2002 in India also indicates that foreign collaborations with other developing countries,
such as the Republic of Korea, China, and Singapore, have been increasing over the years,
and have decreased from advanced countries, such as Italy, Switzerland and Sweden.2

The interactions and networking of R&D and academic institutions with industry are
on the increase, and there are evidences to show' that industry, including the multinational
companies, is now seeking technologies from national R&D institutions or sponsoring
collaborative R&D projects, or are setting up their own R&D centres in India and abroad.
Over one hundred global companies have set up their R&D centres in India, with the
intention of leveraging strengths in R&D, innovation, engineering, Indian rnanagement
capability, etc. - e.g. Maruti R&D Gurgaon Centre will be the Suzuki Asian development
hub for cars by 2007; and IBM and GE have their R&D centres in India. India is developing
leaders in manufacturing as well. Chinas telecom company ZTE is reportedly planning to
set up its R&D centre with the manufacturing hub in Bangalore. The Bosch group has also
announced plans for R&D facilities in India by end 2004.3 Nokia10 has announced the
establishment of a new R&D facility in Mumbai, which will focus on providing software for
CDMA technology.

Globally outsourcing manufacturing is another example of technology transfer and

associated capabilities being developed in India and other developing countries. The
McKinsey Report put the value of global outsourcing of manufacturing to over US$ 1,000
billion by 2008 as against US$ 150 billion for BPO and US$ 200 billion for IT services. An
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AT Kearney Report places India as the sixth most attractive destination globally for FDI, in
2003, ahead of countries like the UK, Indonesia, Italy, Brazil, Canada and even Japan.3 It is
predicted that India will become the world's third largest economy by 2030, beating Europe
and Japan.

Technology-intensive exports

In world trade, primary products and resource-based manufactures have steadily lost
shares over the past decades, falling below 50 per cent in 1994 and reaching 28 per cent by
the year 2000. High-value exports are now the largest foreign exchange earners in the
developing world. In 2000, exports of high-technology exports by developing countries
amounted to US$ 450 billion – US$ 54 billion more than primary exports, US$ 45 billion
more than technology exports, US$ 40 billion more than medium technology exports, and
US$ 215 billion more than resource-based exports.4

India is ranked fifth in the resource-based exports, and 16th in the non-resource
manufactures, making it among the top 20 export winners.4 Further, India is ranked 9th in
low-technology manufactures and 7th in the medium-technology manufactures. This data
clearly indicates the need for technology. It is needed for producing technology-intensive and
value-added products and processes, which may not be easily available through the usual
technology Transfer modes, and new mechanisms, such as those related to FDI outsourcing
and subcontracting, or contract research may need to be considered.

The IIFT, with the support of DSIR, has been conducting research studies based on field
surveys and desk research on technology-intensive exporting companies in the country for the
last 8 years (1994-2002), to study the status and capability of technology exports in India.
More than 3,000 companies/organizations were contacted, out of which about 300 were
personally visited for the survey in 2000 and 2001. According to the survey,
technology-intensive exports have increased from Rs 7 billion in 1994-95 for 34 companies to
Rs 107 billion in 2001-02 for 247 companies/organizations. Details of these surveys are given
in Table 5.5 Table 6 shows the results of analysis related to technology-intensive exports from
the survey data, based on the level of technology applied. It is also reported that the import
intensity of exports of corporate India declined from 2.27 times in 1996-97 to 1.61 times in
2002-03.6

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All the data show that higher levels of technology and innovations are being used by the
corporate sector to produce competitive products and services for international markets, and
the new mechanisms and efforts are being made for acquisition and development of
technology, as mentioned above. A new trend of migration of manpower for work from
advanced countries, such as the USA, to developing countries is emerging. For example, a
US-based IT company, Cognizant, will hire around 15 B-school students to work in India for
a year, as a part of induction and training. The recruits will be from Harvard, MIT Sloan,
Kelloggs and Carnegie Mellon among others. So far, much of the hiring from the USA was
restricted to senior levels, like R&D. Now, even Indian IT giants are seriously looking at
bringing middle level management from the USA. Similarly, Indian IT giant Infosys has
interns from global institutionalized B-schools to do project work in India. This trend
indicates another form of transfer of technology between developed and developing
countries.3

Technological competitiveness

The growth competitiveness rankings of 102 select developing and developed countries
for the year 2002-03 are given in Table 7.7 The Republic of Korea has improved its ranking
from 25 in 2002 to 18 in 2003, while Thailand has improved from 37 to 32. But the ranking of
the UK has gone down from 11 to 15, while that of China from 38 to 44 and that of India
from 54 to 56.

The FDI and technology transfer index in India is 27, while for China it is 42. In 2003,
the technology transfer index ranking for India was 63, while that for China was 47. The
innovation index for India was 66, while for China it was 70. These indexes tend lo show the
relative technology transfer capabilities and needs of developing countries such as India and
China. They further indicate that there is need to improving their respective technology
transfer capabilities.

The Georgia Institute of Technology, USA has conducted a study related to the
technology competitiveness of 33 countries, 15 years hence.8 This study indicates that India
and China will be at the level of 40 after 15 years from the present level of 30, as against 45
for the Republic of Korea, Japan, Germany and the USA. Level 10 indicates essentially low
capability, while level 50 indicates products considered technically advanced and
state-of-the-art in the international market. Those Trends clearly indicate that there would be
technology flows from advanced countries to developing countries and from developing
countries to advanced countries in the future. Technology transfer modes and practices will
therefore be more in the form of collaborative and joint R&D, patenting, transfer of
technology from laboratories to industries, through foreign direct investments, etc. The
technology transfer will also depend on the sectors, resources, requirements, and the policy
environment prevailing at the national level in various countries.

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Conclusion

The policies, objectives and modes of technology transfer in the Asia-Pacific countries,
including developing and least developed countries, have significantly changed in globalizing
economies in a market-driven policy environment in recent years, especially after the birth of
WTO in 1995. The acquisition of know-how by industry against lumpsum and royalty
payments or technologies in embedded form through import of plant and machinery or
turn-key projects, to produce goods and services in closed economies, have generally given
way to technology transfers associated with foreign investments, innovations or incremental
developments through in-house R&D efforts, networking and collaborative projects with
R&D institutions by industry in India or abroad. In technology-intensive and emerging sectors,
such as computer software and IT, bio-technology and drugs and pharmaceuticals, R&D
expenditures have significantly increased in India after 1995. Several corporates have gone
abroad to set up R&D centres or for acquisitions and mergers, and at times to have access to
modern and sophisticated technologies for international competitiveness. Over 100
multinational companies have set up R&D centres in India, and also in other countries such as

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China, the Republic of Korea and Malaysia, depending upon the strengths and objectives,
including professional skills, infrastructure, policy regime and markets.

New technology transfer policies in various developing countries in the Asia-Pacific

region also relied the need to globalize production facilities and internationalize R&D, and to
give easier access lo foreign technologies. The emphasis is on the development and transfer of
globally competitive technologies rather than on import substitution. self-reliance or reverse
engineering. India announced its new S&T policy in 2003, encouraging innovations and
development of technologies for global markets, and enhancing export of high value-added
and technology-intensive manufactured products. It appears that more than half of the
manufactured products have been exported from India in 2003, and the import intensity of
exports has considerably reduced in recent years.

China has set up a special fund to encourage the import and export of technologies,
besides R&D projects of a specialized nature in new areas. The economies of major countries
such as India and China are surging ahead, and technology transfers will no longer be limited
from advanced countries to developing countries, but would be both ways, depending upon
the needs and strengths in the areas of interest. It is predicted that India is to become the
world's 3rd largest economy by 2030, and that it would beat Europe and Japan.9

The WTO requirements and emerging trends of international businesses at regional,

sub-regional and bilateral levels have added to the complexities of technology transfer
requirements for which fresh policies and incentives would need to be evolved. R&D
institutions and corporate R&D centres would have to play more crucial roles towards faster
development and commercialization of technologies, through networking across the globe.
Applications of ICT in elective and timely technology transfer process would be important.

References

1. Centre for Technology Management, Administrative Staff College of India, R&D in India, Issue Paper
No. 9, March 2003.
2. Department of Scientific & Industrial Research, Ministry of Science &Technology, Foreign
Collaborations, 2002.
3. The Economic Times, 22 April 2004.
4. UNCTAD, World Investment Report 2002.
5. S.P. Agarwal, Ashwani Gupta, G.P. Gandhi, Growth and Potential of Technology Intensive Exports
from India, submitted for International Conference on Management of Technology New Directions in
Technology Management: Changing Collaboration between Government, Industry and University,
3-7April 2004, Washington, DC (USA).
6. The Times of India. 25 April 2004.
7. World Economic Forum, The Global Competitiveness Report 2003-04, Geneva, Switzerland.
8. Alan L. Porter, J. David Roessner, Nils C. Newman, Xiao-Yin Jin, Alisa Kongthon, "High Tech
Indicators: Who's Gaining?", Technology Exports, January-March 2004, Indian Institute of Foreign
Trade. New Delhi.
9. The Economic Times, 29 April 2004.
10. The Times of India, 29 April 2004.