Download Changes and Determinants on Technology Transfer of MNE’s in China

Changes and Determinants on Technology Transfer of MNE’s in
China1
PAN Shenbiao
Zhejiang University of Technology, P.R.China, 310032
[email protected]
Abstract: R&D investments in China by the MNEs are normal behaviors for seeking the maximum
profits. Competition is the real condition and drive that makes MNEs transfer technology to China. In
recent years, the aim of the foreign investors who enhanced their R&D inputs in China is to make their
products more competitive, to maintain their market share. From this point, we can get that establish the
fair, competitive market environment and policy surroundings, might induce technology transferring,
enlarge the technology spillover effect.
Keywords: Multinational Enterprises (MNEs), Technology Transfer, Determinants, changes
1 Introduction
With the development of the globalization and the innovation of the technology in modern competition
market, the international production system is forming based on the cooperation of the MNEs. The
MNEs are the crucial innovator and disseminator of the advance technology in the new system. The
increasingly free developed foreign direct investment (FDI) and the international trade might disable the
technology-introduced policy. Thus, here comes the significant topic, how to introduce and assimilate
the advanced technology, improve our self-innovation ability during the process of attracting the foreign
direct investment.
2 Changes on the technology Transferring of MNEs to China
Some changes have taken place in China since her entry into WTO. It is a great challenge and
opportunity to the Chinese firms and other related parties to improve their technology, technique, even
skills in production. There appear four significant changes on the technology Transferring of MNEs to
China.
2.1 the scale of the technology Transferring expands systematically than before
Usually, the technological input of the MNE’s is in accordance with their steps into the Chinese markets.
The typical process is as follows, firstly set up local small businesses and supply them with proper
production technology, secondly expand the production scale, put more new products, apply more newly
production technology dynamically, thirdly set up R&D center for new product design to satisfy the
local or global demand of the consumer, after the accumulated investment and market share are big
enough. The technological inputs by the MNE’s to their Chinese subsidies are obviously increasing
recently. According to the related statistical data, the technology export amount by the MNE’s account
for more than a half of the whole country, the areas covered mechanics, electronics, information
technology and so on.
2.2 From passive technology transferring to consciously technological input
One of the aims of opening the market to the foreign investor is the introduction of advanced technology.
Therefore, compulsorily articles were often seen in the contract of the international investment
cooperation. The law of the people’s republic of China on Chinese-foreign equity joint ventures revised
1
This paper is supported by the research Project of Nation Natural Science Foundation of
China(No.70373036).
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before the year of 2000 required that joint ventures established within China's territory shall be able to
promote the development of China's economy and the raising of scientific and technological levels for
the benefit of socialist modernization. Joint ventures permitted to be established are mainly in the
following industries:
—— energy development, the building material, chemical and metallurgical industries;
—— machine manufacturing, instrument and meter industries and offshore oil exploitation equipment
manufacturing;
——electronics and computer industries, and communication equipment manufacturing;
——light, textile, foodstuffs, medicine, medical apparatus and packaging industries;
——agriculture, animal husbandry and aquiculture;
——tourism and service trades.
The revised edition of the law of Chinese-foreign equity joint ventures in 2001 abolished these articles
and with the replacement as follows. The purpose of the parties to the joint venture is in conformity with
the wish of enhancing the economic cooperation and technical exchanges, to raise economic results and
ensure satisfactory economic benefits for each investor by improving the product quality, developing
new products and gaining competitive position in the world market in quality and price through
advanced and appropriate technology and scientific management. The compulsorily articles were gone.
On the other hand, after the abolition of these compulsorily articles, the technology transferring is still
increasing. And the attitude of the transferring changes from passively to consciously, which is obvious
in automobile and electronics industries.
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2.3 From technology transferring purely to R&D oriented
China’s entry to the WTO and the further opening to the world accelerate the establishment of the R&D
center of the MNEs in China. The increasing number of the R&D centers and the enhanced financial
input to these institutions tell us more and more foreign investors put their R&D activities in China. A
point that should be mentioned is that the R&D activities by the foreign investors focus on the applied
technology, research on the pure fundamental theory is little. But it is a good sign that some MNEs have
been putting the pure fundamental research in China recently.
2.4 Combination of the technological input and the related facilities
After the investment reaches certain scale, the MNEs generally will cooperate with the local universities,
institutions in kinds of Technology R & D by supporting financially. Normally, the findings of such
projects are not the final results, but intermediate findings, what belongs to the MNEs. They will bring it
back for further studying and researching.
Under such way, the MNEs make full use of the technology R & D power from these China universities
and institutions with very low cost, while they do not need to worry about the disclosing of technology.
Another method MNEs always apply is technical supporting to local enterprises by OEM / ODM
cooperation terms instead of overbuild up their own enterprises. More and more MNEs have set up their
own purchasing office in China nowadays to look for the proper local enterprises as their supplier. They
offer technical support to enable the suppliers qualified enough to the required tech standard, so the
products purchased locally can be allowed into their Globally Production System.
2.5 The consolidation of the technology control
Other important change that should not be neglected is the reinforcement of the technology control. The
core of competition between the MNE’s is technology. The part that owns the most advanced technology
will have the advantage over the other parts, thus it is a crucial problem for the MNE how to control the
technology and the keep these secrets. The more advanced technology the MNEs have, the more they
apt to operate the Chinese subsidies through the wholly foreign-owned or holding companies. The recent
research on the FDI by MNEs, show that the technology applied by the foreign-owned firms is more
advanced than the joint ventures which the foreign investor have the absolute share, and what the joint
ventures applied is much more advanced than the local firms which buy technology from the foreign
partners.
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3 Determinants on MNE’s technology transfer
Generally speaking, it is more and more difficult for a country with great population to introduce
technology after its per capita GDP reach 1000 us dollars. The industries of the country have to improve
the technology by self-innovation not through sheer importing technology, or introduce foreign investors.
The transformation form the technology importing to self-innovation can not only upgrade the exporting
structure but also make the exported goods more competitive. For an item of technology, the whole
process can be divided into stages as follows, introduce, absorption, diffusion, improvement,
development, innovation and invention. All the stages are connected by the technology transferring,
and the transferring is actually part of the technology innovation.
Analyzing the process of technology transferring, we may know that the process is affected by lots of
real economic factors in the host country. These factors interact each other, forming a complicated
technology-transferring environment, as follows.
—— market scale
A successful transferring of technology largely depends on whether the MNEs will transfer the
technology in FDI, which is decided by the scale of the market. Related empirical studies shown that
market scale play an important role in MNE’s oversea R&D activities. The robust of the R&D by the
subsidies in host country is positively related with the overall market share in that country. For MNEs,
especially market-seeking firms, invest oversea for developing new market, the technology transferring
is a very effective way. The bigger the host market is, the more potential developing space the MNEs
will have, thus they will transfer the technology.
—— market structure
MNEs are used to applying their technology advantage to maintain the monopolistic position to get
more profits. Therefore, when the MNEs monopolistic statuses are threaten by the local or other foreign
competitors, they will accelerate the developing speed, improve the technical level, and reinforce the
technology transfer to the host country.
—— the competition of the market
The competition between MNE’s influence their bargain abilities during the process of technology
transferring, which will benefit the host firms or partners, especially in proportions of patent fee or the
period, etc. The existence of competition and the competitiveness are the main forces that promote the
technology transferring. The fiercer the competitions are, the faster will the advanced technology be
transferred. For instance, in some industry like communication equipment manufacturing, automobile,
engineering mechanics, the competition pressure drive both the domestic and foreign firms to apply
advanced technologies, which lead to technology improvement. On the contrary, in some service
industry like financial service, the limited competition fostered the lagged service skills and low
efficiency.
—— technology level of the host country
A high technology level of the host country provides a well transferring platform to MNEs. As for the
host firms, the good technology base mean they can get relative advanced technology, and the
transferring effect will be satisfied. As for the MNEs, the good technology base of the host country,
including the existed technology and well supporting settings will reduce much cost, and enhance the
technology efficiency, realize the strategic aim of the MNEs in that country.
—— policy environment
Technology transferring of the MNEs goes on under the macro policy of the host country. The policy
toward the foreign investment and the related laws, regulations will also directly influence the
transferring behavior. In other words, reduce or eliminate the discrimination on the domestic and foreign
investment, establish a fair, competitive, perfect market environment is very attractive to the MNEs.
Technology is a kind of intellectual product, need protected by well- designed intellectual laws. Thus,
the effectiveness of the protection in intellectual products is the key to decide whether transfers the
technology or not. For most developing nations, it is very important arrange a good technology
transferring policy environment in introducing FDI, including foreign investment policy and technology
regulations.
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Approaches to accelerating the technology transferring
Competition is the real condition and drive, which makes MNEs transfer technology to China. In recent
years, the aim of the foreign investors who enhanced their R&D input in China is making their products
more competitive, maintaining their market share. From this point, we can get that build fair,
competitive market environment and policy surroundings, are well approaches to induce technology
transferring, enlarge the technology spillover effect.
4.1 Technology transferring by policy induced
In order to expand foreign economic co-operation and technological exchange and to promote the
development of the Chinese national economy, the Chinese government endeavor to introduce the
foreign investor to activate the domestic economy. The establishment of the R&D institution in China is
becoming a new trend recently. It is a crucial part of the global competition strategic of MNE’s.
Evidence shows that China might be the in-flow center of the international technology transferring.
However, we should make it clear that the MNEs are apt to transfer the technology to the country with
loose technology restrictions, well-equipped service facilities. The problem of weakness on the
intellectual property protection and the worse services facilities might be the obstacles influencing the
investment on R&D by MNEs. Thus, it is urgent for the government to improve the policies on the
technology transfer, according to the new international environment and the requirement of the open
economy. Encouraging the foreign investors to set up hi-tech R&D by using squashing and gravitation
measures.
4.2 Technology transferring by market induced
In most cases, technology transferring is a market phenomenon. Thus, elimination of the improper
restrictions toward the foreign investors, exposing some industries on the competitive surroundings,
letting the market mechanism determine the investment is good to the transferring of technology. Some
supporting measures should also be taken to encouraging them, such as more simply investment
procedures, favorable taxation and so on.
5 Conclusions
R&D investments in China by the MNEs are normal behaviors for seeking the maximum profits.
Therefore, when, what and how to transfer the technology by the MNEs is up to many factors outside,
such as the outlook, environment and competition of the market, policies by the government, etc.
Competition is the real condition and drive that makes MNEs transfer technology to China. In recent
years, the aim of the foreign investors who enhanced their R&D input in China is make their products
more competitive, maintain their market share. From this point, we can get that build fair, competitive
market environment and policy surroundings, are effective means to expanding foreign economic
co-operation and technological exchange and to promote the development of the Chinese national
economy.
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