Figure 1.1: The Technology Transfer/Innovation System.

The theme of technology transfer is highly interdisciplinary and has been approached from a variety of perspectives, including: business, law, finance, microeconomics, international trade, international political economy, the environment, geography, anthropology, education, communication, and labour studies. Although there are numerous frameworks and models put forth to cover different aspects of technology transfer, there are no corresponding overarching theories (Martinot et al., 1997; Reddy and Zhao, 1990). This Report employs the technology transfer/innovation system as a framework for analysis. In this system (see Figure 1.1), technology is transferred as knowledge, money (investment) and goods (trade) flow among different stakeholders: governments, private-sector entities, financial institutions, non-governmental organisations, and research/teaching institutions. Innovation performance depends on the way in which the different stakeholders of the "innovation system" - businesses, universities and other research bodies - interact with one another at the local, national and international levels. It also depends on the innovation promotion policies of governments.

There are a large number of pathways through which the various stakeholders can interact to transfer technologies. The most common include:

• direct purchases
• licensing
• franchising
• foreign direct investment
• sale of turn-key plants
• joint ventures
• subcontracting
• cooperative research arrangements and co-production agreements
• export of products and capital goods
• exchange of scientific and technical personnel
• science and technology conferences, trade shows and exhibits
• education and training (of nationals and foreigners)
• commercial visits
• open literature (journals, magazines, books, and articles)
• government assistance programmes.

Other pathways require little or no interaction among the principal stakeholders, because they involve the acquisition of technology without the consent of the provider. Among these are:

1. industrial espionage
2. end-user or third country diversions
3. reverse engineering.

Each pathway represents different types of flows of knowledge, money, goods and services among different sets of stakeholders (see also Annex 1-3). Each pathway has very different implications for the learning that occurs and ultimately the degree of technology-as-knowledge transfer that takes place beyond simple hardware transfers.

The following framework classifies pathways into three primary types:

1. Government-driven pathways are technology transfers initiated by government to fulfil specific policy objectives;
2. Private-sector-driven pathways primarily involve transfers between commercially oriented private-sector entities, and have become the dominant mode of technology transfer;
3. Community-driven pathways are those technology transfers involving community organisations with a high degree of collective decision-making.

Figure 1.2: The Five Basic Stages of Technology Tansfer.

Some observers have suggested that along any pathway, technology transfer follows five "stages": assessment (including identification of needs), agreement, implementation, evaluation and adjustment, and replication (Figure 1.2). The stakeholders involved and the specific decisions and actions taken at each stage differ greatly depending upon the pathway. By analysing the interests and influences of different stakeholders at each stage it is possible to determine how various barriers to technology transfer might be overcome.

Much has been written about why multinational corporations choose one pathway over another. Some of the key issues are summarised in Table 1.2. While wholly owned subsidiaries have been the dominant modes of foreign direct investment (except where joint ventures have been specifically targeted by national policies, such as in India), international joint ventures have been growing in number since the 1980s. Various theories have been advanced to explain this change. Datta (1988) suggests that: (a) host governments are increasingly requiring foreign investors to form joint ventures, (b) multinational corporations have realised that the knowledge of complex and often volatile local business environments by local partners can be a significant asset, and (c) there is a growing trend to internationalise business to reduce costs. Contractor (1991) sees transaction costs as determinants of a firm's choice of the mode of transfer. Kogut (1988) explains joint ventures in terms of transaction costs, strategic behaviour, and transfer of organisational knowledge and learning. Kogut further suggests that some forms of tacit knowledge can only be transferred through a joint venture, because the knowledge is organisationally embedded and not conducive to licensing or other forms of transfer. On the other hand, increasing global competition may deter technology transfer, especially at the cutting edge.

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