Technology Transfer

Till now, I have discussed in my earlier posts about Technology Management and Technology Forecasting. For and individual firm, once technology forecasting has been completed, depending on the firm’s capability, it may either develop the technology required or start scouting for the availability of the requisite technology. This second activity, which is usually carried out in lesser developed economies would lead to the next level of interaction, ie, technology transfer.

In this post, I intend discussing some aspects of technology transfer. The first question that comes to mind is, what is technology transfer? Well, technology transfer is a process by which commercial technology is disseminated from one firm to another, one industry to another, and/or among different economies. These transactions may or may not be covered by a legally binding contract. However, all these transactions involve communication of relevant knowledge from a transferor to recipient.

 When technology transfer occurs, the transferor may transfer either a core technology to the recipient or a peripheral technology. This transfer may be an explicit transfer involving a written contract or an implicit transfer through transfer of manufacturing process or equipment. The transfer, when done under a contract may be a direct market mediated transfer or and indirect non-market mediated transfer.

The technology transfers may be either vertical or horizontal. Vertical transfers comprise transfer of equipment from the transferor to the recipient. In this case, there is reduced risk to the transferor as he already owns the technology and the transfer is one way from the transferor to the recipient. The results of technology transfer are quick to see. In these transfers, one of the major risks that the recipient has to face is the dependency risk. Also these transfers are usually done by the transferor to non rival companies. Horizontal transfers are long and complex process. In this case investments are undertaken by both, the transferor as well as the recipient. These transfers are usually in the form of Joint Ventures or partnerships and the technology risk is shared by both the partners. The technology is owned by both the partners too. 

 The next question that arises is, what is the necessity for transfer of technology. There can be various reasons necessitating transfer of technology, some of which come to my mind are:-

  • Technology Integration and Combination.   In today’s high technology world, many key technologies are required to meet the technology integration & combination trends for developing new products or processes in the industry. However, all these technologies cannot be developed in-house by companies owing to the cost involved and the expertise available. This thus leads to a need for transfer of technology.
  • Reduction in Life of Technology.  There is increased risk in technology development. This happens due to reduced life cycle of technology products, which in turn is caused due to quick appearance of similar technologies or substitute technology. Hence, the easier way out may be to specialise in certain technologies and obtain the others required.
  • Rapidly Changing Market Demands.   To meet market demands and preoccupy opportunities there is a need to speed up new product release. This can be done through externally supplied technology as developing own technology takes time.
  • Reduce Cost of Technology Acquisition.   There is a need to reduce R&D costs by outsourcing in order to remain competitive.
  • Diversification of Risk.   New technologies have high risk associated with them. In order to diversify this risk in relation to the uncertainty of modern times, there is a need for risk avoidance. This can be done through diversification of R&D.

Now that we know the reasons for transfer of technology, the next question is, how do companies go about the process of technology transfer. The main components of technology transfer process are:-

  • Discovery of Technology.   The firm undertakes discovery of competitive technology, this may usually be technology available in the market. Once the technology is identified, transfer request is made for arranging & securing technology that can be transferred but is not possessed in-house.
  • Valuation of Technology and Selection of Demand.   The firm thereafter carries out qualitative and quantitative valuation of the technology required for transfer. Then the possibility of clash of the identified technology with 3rd party owned technology needs to be analysed. The transfer strategy is the established based on type and form of technology. Preliminary demand and supply matching of the required technology is then undertaken after which pre-analysis is carried out to determine whether the transferred technology can secure competitiveness if it is sought to transfer the technology overseas.
  • Negotiation and Contracting.   This process would usually comprise establishing strategy and consultation on major conditions of the negotiation. Examination of the drawn up draft contract. Calculation of technical fee and remittance support tasks.
  • Management Post Contract. Once the contract is concluded, compliance with the conditions of the contract need to be monitored. This may involve actual inspection and preparation of report of compliance.

So we have been seen what are the means of technology transfer, why technology needs to be transferred and how it is transferred. I shall now touch upon two more aspects, namely the significance of technology transfer on industry and economic activity and the problems that may be faced during the transfer.

Starting with significance, technology transfer facilitates vertical specialisation. It allows for division of tasks between firms based on their capabilities and competencies. It allows for usage of a technology at a larger scale. It prevents duplication of R&D in the industry and finally it helps in building technical capability in the industry as well as the economy.

Any activity undertaken can face a few problems, the main problems faced during technology transfer may be, difficulty in finding partners, the transaction costs involved and disagreements on royalty payments.

I shall take up this issue of royalty payments in a later post.