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Joint KIST-Batelle teams surveyed 18 industrial sectors to determine
what had to be done to improve Korean industry. Scores of research contracts
have followed. KIST has, for example, developed a recovery process for
automobile lubricating oils, and devised a means for extracting titanium
and zirconium oxides ˘important for making paints and ceramics) from heavy
sand.
The principal divisions of KIST are: Materials Science and Metallurgical
Engineering; Chemistry and Chemical Engineering; Electronics Engineering;
Mechanical Engineering; Food Technology; Economics and Construction. Fields
of investigation under Materials Science and Metallurgical Engineering include:
Properties of Solids; Ceramic Materials; Semiconductor Materials; High
Temperature Materials; Electronic and Magnetic Materials; Corrosion and
Surface Treatment; Metal Working; Nonferrous Metals; Physical Metallurgy;
Chemical Metallurgy; Iron and Steel (Making, Shaping, Treating); Smelting
and Refining; Foundry Technology and Materials; and Powder Metallurgy. Some
of the fields in the other divisions include: Polymers, Plastics, Lubricants,
Catalysis, Surface Chemistry, and Mechanical and Plastic Working of Metals.
MULTINATIONAL CORPORATIONS
Types of Multinational Corporations
Multinational corporations (MC's) are enterprises that see the world, or
a goodly portion of it, as their market and act to make the most of their
opportunities on a supranational basis. Some MC's have a truly multinational
flavor, others carry the stamp of their headquarters country wherever they
operate. There is no generally-accepted definition of an MC, but as far as
MSE is concerned it seems that such corporations can be broadly classified
into two types:
(a) The high-technology MC tHTMC) which confines most of its operations
to the advanced countries, and
(b) The vertically-integrated MC (VIMC), the operations of which usually
embrace raw-material-producing countries, often in developing countries, as
well as manufacturing in advanced countries.
Examples of the HTMC's occur in the electronics and semiconductor industry,
pharmaceuticals, and the automotive industry. Examples of the VIMC's
include oil companies, mining and metallurgical companies, and food industries.
A third type of MC is the conglomerate; while a particular industrial theme
may provide the backbone to a particular conglomerate its overall enterprise
resists simple categorization into technological fields.
Over half (528) out of the lOOO companies on Fortune's first and second
"500 largest" lists operate abroad. In a study of 267 of these companies,
roughly 24% are in automotive, machinery, tools, and related industries; 24%
are in chemicals, oil, drugs, and similar undertakings; 20% in aerospace,
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electrical, electronic, and other high-technology areas; 12% in mining,
metals, building materials, and construction industries; and the remaining
20% are in consumer products such as food, apparel, tobacco, paper, glass,
books, etc. Most such companies expect their overseas operations to grow
much faster than their domestic activities.
Of a gross world product (GWP) of $3 trillion, approximately 1/3 is
produced in the U.S., 1/3 in the industrial nations of Europe, Canada, Japan,
and Australia, and the remaining 1/3 in Russia, Eastern Europe, China, and
the developing countries. About 15%, or $450 billion, is accounted for by
multinational enterprises; $200 billion of this by U.S.-based companies; $100
billion by foreign-based companies which also operate in the U.S.; and $150
billion by interproduction in other countries. The proportion contributed by
MC's is growing at the rate of 10% per year. At this rate, MC's will generate
1/2 or more of the GWP in less than 30 years.
Statements For and Against MC's
The recorded operating results of MC's support the statement of N. R.
Danielian, President, International Economic Policy Association, "There is no
other instrumentality with the same flexibility, inventiveness, initiative,
and effectiveness as the multinational corporation in undertaking the extrac-
tion, fabrication, transportation, and marketing (of the world's) resources.
No armies, no governments, no foreign aid, no international institutions can
match this achievement."
Representative Hale Boggs, July 27, 1970, on the other hand said: "While
business leaders have viewed (direct investment) abroad as a means of distribu-
ting the fruits of technology and managerial expertise more rapidly throughout
the globe, spokesmen for organized labor have viewed the MC's as institutions
exporting thousands of jobs. The U.S. government has also become concerned
that American firms might be able to avoid administrative regulations by
permitting their branches abroad to engage in activities that would not be
permitted here. On the other hand, some other governments have considered
the attempt to impose U.S. antitrust statutes, balance of payments guidelines,
and trade regulations on foreign subsidiaries of American firms as an unjusti-
fied extension of U.S. sovereignty."
Danielian describes the conflicting pressures on MC's: "They are con-
fronted with a diversity of political motivations -- some of emotional origin,
such as nationalism; others ideological, such as consumerism; and some even
humanitarian, as in the case of welfarism -- which subject them to a multi-
plicity of restrictions and taxation of varying levels in different countries.
They have to do business in a variety of environments; the nation, state,
common markets, free-trade areas, preference systems, state trading blocs,
and democracies of varying degree of popular representation.... They have to
cope with controls over imports and exports, tariffs, nontariff barriers,
diversity of tax systems and tax rates, different welfare schemes, a variety
of employment policies, exchange controls, antitrust rules, and threats to
nationalization and expropriation."
Thus, on one hand the MC is regarded as having an equalizing effect on the
world; as a world unifier, it speeds up the spread of new products, new
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technologies and new skills; it can be a powerful agent for cultural change,
tending to equalize attitudes towards work, authority, and life itself in the
countries it penetrates. On the other hand, critics claim that MC's add to
managerial and economic inequalities because they concentrate more and more
business decision-making into vast managerial pyramids which operate according
to directions issued from central control towers in home countries; they are
thereby creating cleavages and inequalities both inside the U.S. and in the
foreign circuit -- charges of neocolonialism from the developing countries;
charges of exporting jobs from organized labor; charges of unfair foreign
competition from businessmen in host countries; charges of unfair advantages
to the MC's in U.S. from small businessmen; charges that the way of life in
other countries will be engulfed. Even within the MC's, there are differences
between "freer trade" and "buy American" groups; there are antitrust dilemmas
for the Justice Department; the Treasury worries about the effect of MC's on
the balance of payments; Congress is concerned about finding ways to tax
domestic and foreign earnings equitably.
Labor, Management and Government Attitudes: Not surprisingly, organized
labor is trying to develop counterforces, such as by international associations
of labor unions. Labor sees two prime "dangers": (a) the cost of MC's in
terms of American jobs, and exports, and (b) the growth of the "foreign
satellite plant concept" to take advantage of lower labor rates. Labor
representatives urge easier public access to corporate records; tight tax
rules to reduce opportunities for tax avoidance; more effective labor policy;
mandatory union recognition under international conventions; tighter regulation
of export of capital, tighter labeling (country of origin) requirements;
uniform accounting standards; taxation of exported capital; and in the case of
inventions stemming from government-subsidized research, direct royalty pay-
ments to the U.S. Treasury instead of to the corporation conducting the
research.
Management representatives recommend simplification and harmonization of
the antitrust, tax, and securities regulations, a rationalization and perhaps
internationalization of Latent law, and standardizing of weights and measures.
The Peterson Report (Presidentia1 Task Force on international Development)
noted that developing countries are now setting their own priorities for
development, mobilizing funds for investment, educating and using more well-
trained professional personnel. International agencies such as the World
Bank are gaining influence. The traditional exports of developing countries
have limited growth potential -- they will be forced to export more manufactured
goods. The debt burden of developing countries is now a serious problem. The
above Task Force supported continued reduction of tariffs globally, the grant
of preferential tariffs to certain countries, and regional market-economy
concepts to achieve economies of scale. They recommended that U.S.-based
MC's grant more responsibility to local national employees, create improved
working conditions, and encourage widespread local ownership of their corpora-
tions. They also supported some form of guarantee against expropriation,
multinational joint ventures, tax incentives, and an international program to
provide technical assistance, research, population control, personnel training,
agricultural improvements, and debt rescheduling.
29 "The United States in the Changing World Economy," U.S. Govt. Printing Office,
Stock No. 4000-0271, Washington, D. C., 1971.
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Host Country Attitudes
Nationalism presents the most critical constraint on overseas invest-
ment and MC operations, most dramatically in the developing countries where
MC's are sometimes regarded as neocolonialism. But even advanced countries,
such as Europe, particularly France, and Canada have shown concern over the
extent of the American business penetration. Japan until now has resisted
such penetration. Societies, however, will continue to demand services and
goods from abroad but they are going to insist that the inflows be achieved
in ways more compatible with their national interests. Host countries are
increasingly likely to insist on two preconditions to new foreign business
activity:
(a) The needed skills and products must be acquired without the host
society having to surrender ownership and control to foreigners.
(b) The needed skills and products must be acquired without the host
society having to commit itself to the continued pay-out of foreign exchange
after the unique skill or resource that was originally required from overseas
becomes available locally.
MC's may well find it difficult to accommodate these attitudes. Even
though MC's can take many steps to alleviate the more obvious irritations,
e.g. by use of local nationals in management, use of local capital, etc.,
the external ties remain so significant that the conflict with nationalism
remained unabated. Truly multinational corporations, not identified with any
major advanced countries in particular, are likely to be more appealing to
most developing countries but such MC's will still be regarded as outsiders
from the viewpoint of narrow nationalism. New contractual arrangements within
the MCts may be an answer -- e.g. where the Western firm will supply management
skills and technical knowledge without the equity participation and direct
control of overseas operations that have been the essence of traditional
foreign investment. This compares with the familiar Licensing arrangements.
The selling of technical and managerial services abroad may become the main
profit-earning activity for the advanced country, with local groups making the
major capital commitments and assuming actual ownership. Such methods may
enable advanced countries to maintain some operations in the developing
countries in the face of nationalism; they may provide more desirable com-
binations of return maximization and risk minimization.
Developing countries are wont to attack MC's when searching for explana-
tions of their countries' compound miseries, and so MC's have learned the
importance of being good corporate citizens in the countries where they
operate. The trend of new investments towards manufacturing and away from
extractive industries and public utilities may help to lessen tensions.
Probably the more self-confident developing countries will provide the best
overall investment climate in the future as, for example, in the past did
Israel, Mexico, and Japan.
Among the advanced countries, there is also fear of becoming branch-
plant countries in relation to the U.S. (Canada and France have particularly
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expressed this concern). Such countries are aware that the MC has a national
address and a national (often American) character as well. U.S. investments
in Europe, though relatively smaller than in Canada, tend to be in the
science-based industries and Europeans worry that they may have lost control
over such industries as computers upon which they believe their future
development depends. On the other hand, U.S. firms perform well in Europe;
they thereby help to speed modernization and to improve productivity.
Prospects for Multinational Corporations
The MC seems here to stay; the prospects for its continued growth seem
favorable though complex; the "interdisciplinary" nature of the MC leads to
flexibility and adaptability enabling it to surmount the tangle of obstacles
that may be placed in its path. The MC is rich and, within its sphere,
powerful. Its management is able to circumvent many governmental barriers
because business has gone international while governments have not. The MC
surrounds itself with an aura of the future; it attracts excellent personnel,
including managerial talent, R&D brains, tax specialists, and public-
relations experts.
MC's can operate across national boundaries, counting on national -
governments to maintain reasonably stable price levels, trade barriers, and
exchange rates.
However rich and powerful the MC's are, they are private profit-making
enterprises that cannot be expected to pacify the world, let alone unify it.
They are instruments of material progress, not tools of foreign policy. And
since the U.S. is the home-base of most MC's, the spotlight is on the U.S. as
weld as on the MC. The U.S. has devised a number of specific policies to
deal with particular MC problems as they arise, but usually on an ad hoc
basis. What is needed is an internationally-coordinated approach to the MC and
its problems.
It has been suggested that some of the problems requiring attention are
the establishment of more uniform tax laws; come-on guidelines for setting
intracorporate transfer prices; the coordination of national policies for
preserving competition; a tribunal for resolving problems of conflicting
jurisdictions; clarifications of the conditions on how far a home country
government can enforce its laws against subsidiary companies in foreign
countries; and the role of private foreign direct investment in the extractive
industries.
The developed countries could coordinate policies through the O e E.C.D.
more than at present, but no start seems to have been made yet on the more
pressing problems concerning the developing countries. More could be done in
this sector through U.S. organizations.
Research, Development, and Flow of Technical Information in a High-
Technology Multinational Corporation
An MC faces a dual requirement for assuring that technical information
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will flow as needed between those units which can make use of it and for
avoiding duplication of effort in various locations. This requirement poses
a large and urgent problem of communications.
Each company which operates in this environment will have its own
policies and procedures for handling this problem, which will differ in detail
but which must be capable of satisfying the dual requirement.
In a typical MC, there are subsidiary units in several countries engaged
in the same basic business field, but with specific constraints dictated by
local conditions. These units may or may not report organizationally to a
common group management. If they do the communications problem is simplified,
but if they do not they are still tied together closely through commonality of
market and product requirements. These units generally will have strengths
and capabilities which vary and which will duplicate in some areas and be
complementary in others e Each of these units will have its own technical
staff reporting to a local technical management and engaged in the development
of products to meet the local-market specifications, and in the development
and control of production processes.
Although each separate unit will have its own technical staff, in most
instances these staffs will not carry out the function of research or explora-
tory development which will normally be undertaken by central laboratories,
staffed at the appropriate level. This is a necessary step to optimize
efficiency since the diversified staff required for effective research and
exploratory development cannot be supported by individual units. The central
laboratories will be charged with the responsibility for carrying out the
advanced programs which can underlie product development in various locations,
and then with supplying the necessary information to those locations.
The overall technical coordination and control rests upon a general
technical director and his corporate technical staff. This technical director
is held responsible for all of the funds spent for RD&E and for the quality of
each of the technical programs which are undertaken, either in the centr al
laboratories or by the engineering staffs of the various company units.
The corporate technical staff undertakes, on a continuous basis, to
monitor the programs which are being carried out at the various locations.
Such monitoring is done by means of reports generated at the locations, by
review meetings between corporate and local staffs and by periodic visits to
review individual programs in depth. Through this continuous contact, the
corporate staff is cognizant of all the work which is being done within the
corporation and with the progress and status of each individual program. The
requirements for information which may arise in any individual location can
thus be reviewed by the staff, which should know in detail where the required
information can be found and can take the necessary steps to see that the
information flows.
As an example, when an individual company unit is seeking new products to
supplement or expand its present product line, discussion with the corporate
technical staff will often reveal work being done in other units which will
serve as the basis for new products and of which the seeking unit may be
totally unaware. Characteristically, discussions with technical staff will
suggest new directions in which the existing technology in one or another of
the units can be exploited. It is in this way that the major requirement for
fostering flow of technical information is discharged.
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The other aspect of the dual requirement is that of minimizing the
duplication of technical effort in various parts of the MC. This requirement
is satisfied by the control program which is exercised by the corporate
technical staff. It is the objective of this staff to establish and monitor
an optimum number of parallel development programs. Because of the diverse
demands of the various national governments, designs produced in a single
central laboratory could never meet the local constraints. One of these
demands is typically that the companies supplying the requirements in a
particular country have a technical capability in its own staff which can
respond to specifications drawn up for it. This is why each company must
have its own technical staff, but it also imposes the need to control the
number of parallel developments in order to avoid undue duplication
The process by which this control is exercised is based upon the
procedure for funding the programs. Each manufacturing unit is required to
contribute to a central development fund on the basis of a percentage of its
sales. This fund is used to support the central laboratories and to provide
for the refunding of a portion of the payment to each of the units. This
allocation is carried out on the basis of review and approval of proposals
for development programs, initiated usually on an annual basis but also, when
appropriate, at other times. The amount of funding will depend on a number
of aspects of any particular program. Funding may be larger for a development
in a new field and, of course, for programs where the commercial prospect
appears particularly attractive.
Proposals for developments are generated and are supported by market
forecasts, which will indicate the payback that can be expected from the
expenditure requested. The various programs proposed in any period of time
are reviewed by appropriate groups to insure that the direction proposed for
the program meets the requirements of the largest number of potential benefi-
ciaries and that parallel programs are combined or redirected so as to achieve
the maximum return with the minimun of duplication. After several reviews of
this nature, an overall program will have been refined and the component
parts of it can be approved for funding for a specified period of time. The
final approval of such funds rests with the corporate technical staff which
thus has a mechanism for control of the program.
By a procedure such as this, coordination and cross-fertilization among
all of the various company units is assured. Information flow between the
units in various countries is facilitated by this process, and the information
and technology available to the engineering staff at any given location is
optimized.
Technology Diffusion via High-Technology 30
Multinational Corporations in the Electronics Field
In Europe, foreign subsidiaries have assured the swift diffusion of new
From John E. Tilton, The International Diffusion of Technology, Brookings
Institute, 1971.
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technology when the established industry leaders have faltered. More
specifically, in the 1960ts, then the European receiving-tube firms, which
like their American counterparts, are large, diversified companies, delayed
too long in providing devices made with the planar silicon technology,
American semiconductor firms set up subsidiaries in Europe and concentrated
on the new devices neglected by the domestic leaders. As a result, the U.S.
MC's captured a substantial share of the European market which, in turn,
stimulated the European receiving-tube firms to adopt the new technology.
It appears that the newer American subsidiaries have been much more
effective at diffusing semiconductor technology in Europe than the older
established American subsidiaries, the latter tending to perform more like
their European counterparts. This suggests that the new subsidiaries may
receive more help from their parent companies in the form of R&D results,
know-how from production experience, specialists, and from other professional
personnel, and, if necessary, venture capital.
In Japan, the established receiving-tube firms were better able to
re-establish themselves in semiconductors, perhaps because foreign sub-
sidiaries were barred as a matter of governmental policy.
Thus, new foreign subsidiaries of MC's provide an alternative to large
established firms for quickly transferring new technology from the innovating
to the immitating countries. The MC subsidiaries are not hampered by
learning economies as are new domestic firms because they have special access
to the technology of the innovating country. Moreover, as a result of their
special ties, they can often acquire new technology from abroad as fast or
faster than the large independent firms, even though the latter may have
licenses and technical assistance agreements with major foreign producers.
despite such advantages, there is considerable reluctance on the part of
many countries to allow subsidiaries controlled by foreign interests to
dominate the strategic and prestigious research-intensive industries. This,
they feel, undermines national sovereignty. Moreover, it is stated in a modern
version of the infant-industry argument, domestic firms will never become
competitive unless they have the opportunity to acquire production experience
and, in turn, the benefits of learning economies. For such reasons, some
imitating countries have limited the activities of foreign subsidiaries.
The experience of Japan suggests that it is possible to ban foreign-
controlled firms and still acquire new technology quickly from abroad.
However, restricting foreign subsidiaries entails certain risks. Such firms,
as European experience demonstrates, provide insurance that new technology
will quickly disseminate in the imitating country when indigenous firms fail
to respond as rapidly as desirable.
The risks involved in barring foreign subsidiaries are reduced when the
established firms are exposed to other forms of discipline. This may come
from new domestic firms if entry barriers are low, from other established
firms if competition for the domestic market is vigorous, or from foreign
firms if overseas markets are important. While the risks may be reduced, they
cannot be completely eliminated, for in barring new foreign subsidiaries an
imitating country cuts off a potential diffusion channel that just may be
needed. Of course, this disadvantage may be offset by other considerations.
This is a political decision that involves weighing competing national goals.
.
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Technology Transfer via Vertically-Integrated, Multinational
Corporations to Developing Countries
Those companies whose operations span both advanced CAC) and developing
(LDC) countries often find themselves transferring technology from the AC to
the LDC. This is only likely to continue, though selectively, and perhaps
even accelerate in the future as LDC's raise their standards of living. But
the ability of an LDC to absorb successfully foreign technology depends not
only on the transfer of technical knowledge and methods, but also on the
ability to introduce new and foreign developments in those administrative,
financial, and social fields which constitute the infrastructure of industrial
activities. Another factor of concern to a V~MC is that those LDC's seeking
to emulate Japan's meteoric economic rise may note that Japan successfully
absorbed foreign technology while essentially barring foreign subsidiaries.
However, compared with most LDC's, Japan was already quite advanced technologi-
cally and educationally. It seems more likely that an LDC in its early stages
of development will profit more from the operation of an MC, especially in
those situations where centralized control is the only means by which a tech-
nology, particularly an advanced technology, can be effectively transferred.
As the scale, complexity, and pervasiveness of the technology increase,
governments in LDC's become more and more involved. This involvement is
obviously greatest in the defense industry and in the basic and service
industries such as iron and steel, electricity supply, and telecommunications.
An important point is that the level of technology which is transferable
depends very strongly on the level of technological sophistication of the
receiving country. The two levels should be matched. But the trend is
everywhere upwards; as the level of educational, technological, and social
sophistication rises in a country, so will the level of technology it can
absorb. This is simply another corollary of the fact that today's high
technology in an AC becomes its low technology as LDC's acquire the capability
of absorbing it. For example, the manufacture of automobiles, once confined
to only a few technologically-advanced countries, is being carried on in a
number of LDC's which have acquired the necessary industrial and management
skills. On the other hand, these LDC's are mostly not at the stage in their
development where they can carry out much independent R&D concerning automotive
transportation. It is the AC's who can investigate new forms of motive power,
sophisticated safety devices, and traffic-control systems at the present time.
Yet in due course, these technologies will join the procession to the LDC's.
The old picture of an LDC being regarded as simply a source of raw
materials for which they are paid in cash or manufactured goods from the AC
is no longer valid - it represents only the first stage in the development of
a country. The payment nowadays has often to be in the form of exports of
technological and managerial capabilities, a function which the ZINC is in an
excellent position to perform. But the message is clear. For that part of
the MC operating in the AC to remain viable, it has to keep generating new
technology. Otherwise, the LDC part of the MC becomes increasingly self-
sufficient, the operation in the AC sees a shrinking market, jobs are lost,
R&D declines, and the downward spiral leads to a relative lowering of the
standard of living. It is a difficult but exhilarating endeavour for a
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country, or a company, to become the leader, technologically, but it is even
more difficult for it to remain on top. To do so must also become a continuing
exhilarating enterprise.
The stages and methods by which technology transfer to LDC's take place
within an MC are varied. The transfer may occur by direct investment, i.e.
by the setting up of local manufacturing subsidiaries; or by licensing and
patent agreements; by the transfer of managerial personnel; or by the setting
up of local R&D facilities, usually at a later stage of sophistication. But
the actual transfer of information and experience can be improved by direct
action to raise the level of education, training, and competence of individuals
in both technical and managerial knowledge.
It is necessary to regard the transfer of technology as part of an inter-
acting system and to take a systems approach to it. Lack of such systems
planning, for example, can lead to the introduction of large raw materials
plants before the secondary processing industry is ready to absorb the output.
Again, the wrong choice of a research project may cause difficulties in the
absorption of the technology for countries which have not appreciated how
the results of these research projects will affect their own developing
technologies. To an increasing extent, industry in the AC's is being forced
to plan on a world scale in order to secure the success of their particular
technology in the widest possible market. Otherwise, societies may find
themselves compelled to accpet a given technology even widen it is not in their
best interests to do so. Urban pollution and congestion could be changed by
alternative approaches to the technology of transportation and building con-
struction, but it is extremely unlikely that any developing society can at
this time resist the growth of the conventional motor vehicle and its
associated highways. Also, new technologies may result in an LDC having its
economy based on the wrong raw materials - for example, the rise of the
synthetic fiber industry has by-passed LDC's which were basing their economic
growth on natural fibers. Thus LDC's have to recognize the importance of new
technologies and the timing of their introduction.
The problem for an MC is not so much one of choosing between basic,
intermediate, or advanced technologies but of selecting and encouraging
compatible technologies with built-in opportunities for development to match
world economic and productive trends. For example, instead of launching into
large-scale basic production, it may be more effective to encourage programs
of industrial development through the establishment of a final products
industry using imported raw materials, and gradually build up the basic and
integrated industries after a proper market size has been reached.
Role of Research and Development
There is evidence in some LDC's that a correlation exists between in-
vestment in indigenous R&D and importation of technology. The investment
in R&D is not merely complementary to the importation of technology, but is
a prerequisite for the absorption of the transferred technology into society.
The Japanese regarded their own early R&D investment as the fertilizer which
encouraged the "seeds" of new technologies to grow. The R&D activity should,
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therefore, be firmly based on fields where applied research is necessary to
foster adaptation of the imported technology.
But while LDC's may see the need for more indigenous R&D, the MC's and -
the AC's may not. It is often felt that the creation of virtual monopoly
conditions by foreign-companies precludes the growth of R&D in the LDC.
Besides these arguments it is often true that there is not sufficient qualified
manpower in the LDC to carry out effective R&D.
R&D in the LDC is often regarded as a technical service backing up the
adaptation and use of the imported technology and ensuring quality control.
Arguments for investment in more fundamental research in the LDC have to be
based on general premises, such as that improved understanding of structure-
property relationships in materials is of importance in all forms of tech-
nology, or that science is a potential industrial strength because the quality
of tomorrow's technology depends on the influence of the scientific effort
today. Nevertheless, the mere accumulation of scientific research will not
contribute very much to success in industrial development unless the results
are actively exploited. Generally, it will be more effective if scientists
and engineers in LDC's are employed in fairly well defined applied research
and development coupled to -industrial needs. However, applied research
provides substantial scientific knowledge, and work in advanced technologies
can create both the capability and desire to advance further in the relevant
fields of basic science.
Where MC activity in an LDC involves only the manufacture of some com-
ponents for inclusion in an assembly, most of which is imported from the
parent company, there is no investment in RED in the LDC. Likewise when the
MC is forced into producing in the LDC because of tariffs or similar economic
policies, the technology may be transferred simply from the parent country
with minimum possible expenditure on adaptation or development. Only if
really interested in the investment as a long-term proposition aimed at a
market expected to expand, and in the potentiality of an export market, does
the MC consider it worthwhile to set up an R&D unit in the LDC. Sometimes,
though, MC's do have to establish local R&D units to adapt technology to meet
local standards and regulations. These activities can be regarded as final
development extensions of the R&D conducted by the MC in the home country.
The latter R&D embraces longer-term research and is often carried out as a
corporate activity in central research laboratories. Such laboratories can
provide excellent training grounds for personnel who will subsequently return
to the local R&D in the LDC. However, unless these subsidiary R&D units can
offer reasonable facilities and career prospects, they may accentuate the
brain drain from the LDC.
In dividing R&D effort between the parent country and the receiving
country, the MC has to ensure that both activities are above critical size
for effectiveness, otherwise the local R&D units are likely to confine their
efforts to quality assurance and trouble-shooting. Another consequence of
the critical-size requirement is that the final development work may be
organized, instead, into geographically convenient units, with one unit
serving several countries.
The justification for the transfer of foreign technology lies essentially
in the reduction of lead time, coupled with enhanced commercial viability
over the long term. The stages in the R&D transfer occur in parallel with
l
Representative terms from entire chapter:
foreign subsidiaries
