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Technology acquisition and domestic learning

Summary

Most firms in developing countries rely on imported equipment, knowledge, information and software as part of their capability development strategies. This process is commonly referred to as technology 'transfer', which implies a passive role on the part of importing firms.

In fact, to get value from imported technologies, firms must be pro-active in sourcing technological solutions and selecting suppliers. Firms that already have some capability in place — the ability to source, use, modify and deploy technologies — will be more successful at acquiring further technology.

Firms cannot depend on imported technologies alone, so they must have a foundation of internal capability. Furthermore, although the drive to develop technological capabilities comes from firms themselves, public institutions still have a supporting role to play. Technology acquisition and domestic learning efforts, both inside firms and in public institutions, are therefore complementary processes, not substitutes for each other.

Most firms in developing countries rely on imported equipment, knowledge, information and software as part of their capability development strategies. This process is commonly referred to as technology 'transfer', which implies a passive role on the part of importing firms.

In fact, to get value from imported technologies, firms must be pro-active in sourcing technological solutions and selecting suppliers. Firms that already have some capability in place — the ability to source, use, modify and deploy technologies — will be more successful at acquiring further technology.

Firms cannot depend on imported technologies alone, so they must have a foundation of internal capability. Furthermore, although the drive to develop technological capabilities comes from firms themselves, public institutions still have a supporting role to play. Technology acquisition and domestic learning efforts, both inside firms and in public institutions, are therefore complementary processes, not substitutes for each other.

Introduction

The term 'technology' refers to a combination of elements. If a technology is to deliver services, a firm must have the capability to source, use, change, and deploy that technology. This capability is both embodied — held in people — and non-embodied, as a property of components. Firms must be able to bring all these elements together over time and manage the process, an operation known as organisational integration (see Figure 1).

                Figure 1. The elements of technological capability

For most firms in developing countries, a large proportion of technology is imported, usually as a 'bundle' that includes equipment, software, and codified knowledge in the form of equipment handbooks, training course materials, maintenance procedures and protocols. Although the equipment component accounts for a large percentage of a contract, imported technology typically also includes tacit knowledge flows such as face-to-face exchanges and access to experts and trainers. 

This process is commonly referred to as technology 'transfer'. The term implies, however, that importing firms are passive — that they have nothing to begin with and that any added value comes purely from the source of the imported technologies.

In fact, developing country firms actively search for technological solutions and install, test and commission technologies, working with international suppliers as partners. This type of active engagement produces better returns on investment in technology and fosters improved familiarity and confidence. So the process is better described as technology 'acquisition'.

The need for internal capability

The ability to acquire technology varies across firms in developing countries. For example, a single foreign company may sell the same technology to multiple domestic firms. But the way it is used and the value of the resulting service will be different for each firm. This variation depends on the size of the importing firm, its ownership profile (whether it is foreign or locally owned), its openness to the rest of the world — through participation in trade fairs, membership in industry associations, reading of technology magazines and research on the Internet — and the extent to which it has an internal 'technological capability strategy'. Such a strategy might include recruiting technological experts, experimenting with and adapting imported technologies, providing staff with training programs and access to information technology, and encouraging employees to feel they are all part of the problem-solving process.

Firms that have an internal capability strategy in place will be more effective at using, modifying and deploying imported technologies as well as delivering services. Being able to select suppliers and negotiate suitable terms and conditions is also important, as equipment suppliers can lock developing country firms into long contracts, and charge inflated rates for technical services. [1]

Two models for acquiring technology

Academics have used two main models to understand technology acquisition. The first, a linear model, suggests that developing country firms acquire increasingly complex capabilities through a cumulative process. [2,3,4] In this model, firms first acquire operational capabilities (allowing them to use and maintain the technology), followed by the ability to duplicate and then adapt the technology to fit local conditions. Finally, they develop innovative or design capabilities that allow them to build new technologies for themselves. 

But the linear model underestimates the effort needed even to acquire lower-level technological capability, which is assumed to be simple. This model may also lead to a simplistic set of policies that assumes firms can easily move from one stage to the next.

Other approaches argue for a nonlinear model that tries to understand the key skills firms need to master at every level of technology acquisition, including the earlier stages. [5,6,7,8] It emphasises the need to balance importing 'know-how' (skills and knowledge about how to use technology in production processes) with developing internal capacity, since firms must be able to use and change technology once they have imported it.

Firms must have a fundamental base of knowledge — both about the scientific principles of a technology as well as more generic knowledge about sources of technology and technological trends — to successfully acquire technology. For example, in the communications industry, an importing firm must know why and how wireless technologies differ from fixed-wire ones in order to select and develop an appropriate system.

How to successfully acquire technology

Firms can use a number of strategies to help them successfully acquire technology (see Box 1). These include using training and learning programmes and focusing on acquiring combinations of design, engineering and project management technologies. Successful firms have also used postgraduate training and work experience for engineers and managers to acquire problem-solving skills and gain access to informal international networks. Establishing research and development centres or technological learning outposts overseas can also help domestic firms acquire knowledge. Management practices and corporate culture and leadership styles can facilitate efforts to jointly manage technology imports with local capability development.

Box 1: Telecommunication in Africa

A study of 26 telecommunication firms in Ghana, South Africa, Tanzania and Uganda has shown that a number of firm-level actions can be taken to improve technological acquisition for developing countries. [9] For example, importing firms can:

  • improve their selection of training instructors and 'experts' by being more active in the screening process;
  • stay in regular contact with their suppliers;
  • make sure suppliers and clients share the same objectives;
  • involve clients in a wide range of acquisition activities;
  • improve access to social networks within supplier firms;
  • use joint learning mechanisms like equipment trials and test sites;
  • ask suppliers to disclose more information before contracting them;
  • make use of scan and search mechanisms like trade fairs and exhibitions;
  • negotiate bilateral and multilateral funding terms that do not reduce technological choice;
  • encourage participation of technological specialists in regional organisations and industry forums;
  • actively seek out information from shareholders and strategic investors;
  • establish strong and effective management systems, particularly for organisational development;
  • support technological experimentation;
  • engage senior leadership in technological acquisition strategies; and
  • promote higher-order learning.

The lessons learnt from this study challenge the assumption that firms in developing countries are passive importers of technology. Among the 26 firms, ten had active strategies for internal capability development. These were better able to form sustained partnerships with international suppliers and to make informed choices about suppliers and imported technologies.

In the fast-moving telecommunication industry, the effective firms were well ahead of government policies in terms of their technological knowledge and understanding of technological trends. But they also worked with research centres and universities to jointly solve problems and improve domestic technological capability.

What public institutions can do

Traditionally, a proactive role in building technological capability has been advocated for public institutions like universities, technical vocational training colleges, training institutes, national research centres, and policymaking and regulatory bodies. [5] Policy makers interpreted recommendations to suggest that public institutions were able to direct capability-building activities in firms. Early studies, however, tended to overemphasise the positive role of public research centres, overstate their influence and fail to consider the role of activities within individual firms.

Rereading the evidence of those early studies from Southeast Asia, the contribution to technological upgrading came in part from the direct activities of well-funded research and training institutes, but also from good relationships with the private sector. The Indian National Institute of Information Technology is a good example of a training institution that has positively contributed to India's success in developing an information technology sector.

Finding the balance between the role of firms and public institutions is critical. Firms actively respond to signals from public institutions. But, particularly in fast-paced technological environments, they are themselves better equipped to select suppliers, choose technological platforms, and adjust technological capability-building efforts. [4]

Yet public institutions can still play a supporting role, even when the drive for improving technological capabilities comes from individual firms. They can, for example, use national research programmes to help improve firms' understanding of technological trends and patterns ('know-why'). They can also provide reliable and independent information on sources of technology ('know-who'). Countries such as China and Malaysia both sponsor engineers to go on overseas visits to build networks.

Public institutions need to facilitate and support technological knowledge exchange between firms and suppliers by making information on sources of technology available through, for example, public databases or directories. Public institutions also have the potential to be a source of know-how, although this is often limited by relatively poor access to up-to-date equipment.

Policymaking and regulatory bodies, in particular, can provide information on what activities are permissible or feasible under legislative and regulatory rules, and can advise on changes to those rules.  They can also conduct public consultations and publish policy documents, known as 'white papers'. In South Africa, such documents contain sections on what the technologies are and how they can be used — often the best source of up-to-date information for small firms. Many developing countries, though, lack the capability for this sort of activity.

Policymakers can also use financial and non-financial instruments as positive incentives for firms to invest in technological efforts — for example, tax incentives, training grants or depreciation allowances for capital assets. But introducing such incentives would require much capability improvement in the public sector of most developing countries to achieve results, as there is no guarantee that firms will do the technological upgrading, and output quality will not necessarily improve.

Public institutions in developing countries themselves require considerable reinforcement if they are to effectively support firms in acquiring technology. Public institution employees need to update their own skills, and improve their familiarity with, and understanding of, technological trends.

There also needs to be a proactive approach to increasing the pool of technically skilled people through, for example, training courses jointly developed with universities and technical colleges. In Malaysia, the private sector is highly involved in many publicly funded colleges and research institutes, like Malaysia Multimedia University and Mimos Berhad.

Implementing formal and informal cross-industry training programmes, where costs are shared among the beneficiaries, can also help increase the number of skilled workers. For example, the mining sector has worked with government in Namibia to establish the Namibia Institute of Mining Technology.

Gillian Marcelle is principal consultant at Technology for Development, South Africa, and a visiting fellow at the University of Sussex.

References

[1] Hoffman K. and Girvan N. Managing International Technology Transfer: A Strategic Approach for Developing Countries. International Development Research Centre (1990)
[2] Lall S. Technological capabilities and industrialization. World Development, 20(2), 165-186 (1992)
[3] Lall S. Learning to Industrialise: The Acquisition of Technological Capability by India. Macmillan Press, London (1987)
[4] Stewart F. Technology transfer for development. In: Evenson R. and Ranis G., eds. Science and Technology: Lessons for Development Policy, pp 301-324. Westview Press, Colorado (1990)
[5]

Bell M. and Pavitt K. Technological accumulation and industrial growth: contrasts between developed and developing countries. In: Archibugi D. and Michie J., eds. Technology, Globalisation and Economic Performance pp 83-137. Cambridge University Press, Cambridge (1997)

[6] Cohen W. M. and Levinthal D.A. Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly 35, 128-152 (1990)
[7] Ernst D., Mytleka L. and Ganiatsos T. eds. Technological Capabilities and Export Success: Case Studies from Asia. Routledge, London (1998)
[8] Kim L. and Nelson R.R. eds. Technology Learning and Innovation. Cambridge University Press, Cambridge (2000)
[9] Marcelle G. M. Technological Learning: A Strategic Imperative for Developing Country Firms.  Edward Elgar, Cheltenham (2004)