Technology transfer : a case study

Abstract

Like many developing countries, Thailand has adopted industrialisation policies to achieve growth objectives. At the same time direct foreign investment has been encouraged to bring additions to the local stock of capital, management and technology. From the early 1970s, there has been growing disillusion about the benefits that a host country can gain from direct foreign investment. Direct foreign investment has been attacked as bringing inappropriate technology, inhibiting local learning and perpetuating technological dependence. This thesis has taken Thai manufacturing industry as a case study. The study argues that modern large-scale manufacturing industries must be viewed as skills rather than employment generators. Employment objectives could not be achieved in any significant degree under the current strategy regardless of channels for technology transfer. Part I examines the role of direct foreign investment and other channels for transferring technology to Thailand, the cost of importing technology through direct foreign investment and technology contracts, and the relative efficiency of these channels in exploiting imported technology. Evidence suggests that the weakness of local technical and industrial expertise often makes direct foreign investment, especially joint venture arrangements, the preferred form of transferring technology although its cost in terms of royalty payments is slightly higher. Local sectors turned out to be relatively efficient in bargaining for technology. Other invisible costs and factors which affect the pricing of technology are also discussed. The positive spill-over effects of direct foreign investment, though they exist, are weak. This is partly attributable to the early stage of industrialisation of Thailand, the small size of Thai industries and the relative inefficiency of direct foreign investment in some sectors. Like many developing countries, Thailand has adopted industrialisation policies to achieve growth objectives. At the same time direct foreign investment has been encouraged to bring additions to the local stock of capital, management and technology. From the early 1970s, there has been growing disillusion about the benefits that a host country can gain from direct foreign investment. Direct foreign investment has been attacked as bringing inappropriate technology, inhibiting local learning and perpetuating technological dependence. This thesis has taken Thai manufacturing industry as a case study. The study argues that modern large-scale manufacturing industries must be viewed as skills rather than employment generators. Employment objectives could not be achieved in any significant degree under the current strategy regardless of channels for technology transfer. Part I examines the role of direct foreign investment and other channels for transferring technology to Thailand, the cost of importing technology through direct foreign investment and technology contracts, and the relative efficiency of these channels in exploiting imported technology. Evidence suggests that the weakness of local technical and industrial expertise often makes direct foreign investment, especially joint venture arrangements, the preferred form of transferring technology although its cost in terms of royalty payments is slightly higher. Local sectors turned out to be relatively efficient in bargaining for technology. Other invisible costs and factors which affect the pricing of technology are also discussed. The positive spill-over effects of direct foreign investment, though they exist, are weak. This is partly attributable to the early stage of industrialisation of Thailand, the small size of Thai industries and the relative inefficiency of direct foreign investment in some sectors.Like many developing countries, Thailand has adopted industrialisation policies to achieve growth objectives. At the same time direct foreign investment has been encouraged to bring additions to the local stock of capital, management and technology. From the early 1970s, there has been growing disillusion about the benefits that a host country can gain from direct foreign investment. Direct foreign investment has been attacked as bringing inappropriate technology, inhibiting local learning and perpetuating technological dependence. This thesis has taken Thai manufacturing industry as a case study. The study argues that modern large-scale manufacturing industries must be viewed as skills rather than employment generators. Employment objectives could not be achieved in any significant degree under the current strategy regardless of channels for technology transfer. Part I examines the role of direct foreign investment and other channels for transferring technology to Thailand, the cost of importing technology through direct foreign investment and technology contracts, and the relative efficiency of these channels in exploiting imported technology. Evidence suggests that the weakness of local technical and industrial expertise often makes direct foreign investment, especially joint venture arrangements, the preferred form of transferring technology although its cost in terms of royalty payments is slightly higher. Local sectors turned out to be relatively efficient in bargaining for technology. Other invisible costs and factors which affect the pricing of technology are also discussed. The positive spill-over effects of direct foreign investment, though they exist, are weak. This is partly attributable to the early stage of industrialisation of Thailand, the small size of Thai industries and the relative inefficiency of direct foreign investment in some sectors. Part II of the thesis examines in some detail the fostering of human capital and the choice of techniques in the textile industry. On the production side, evidence suggests that technology has largely been transferred. However, at the entrepreneurial level, the transfer has been inhibited by the desire (often of both local and foreign parties) to maximise efficiency. It also reveals that both foreign and local textile firms are not significantly different in their choice of technology. Their choice has largely been affected by local factor prices which in turn are influenced by various local policy instruments. The relatively high productivity and profitability of foreign firms are attributable to their management rather than their machines. While the evidence does not suggest that direct foreign investment per se has produced undesirable effects, more could be achieved by the promotion of market mechanisms and provision of information to local entrepreneurs.