TP can be developed, for example, from technology transfer. After successfully implementing a technology transfer programme, two enterprises learn to trust each other and the receiver can build sufficient technological capabilities in a particular field to exchange technology; this enables both enterprises to form a TP relationship in the future. Successful technology transfer is therefore important in developing country enterprises for TP formation.
This paper will discuss the technology transfer experience of a SME in the Republic of Korea and a type of TP with its foreign partner. It will then analyse the policy implications of the process.
- SHIN CHANG ELECTRICS CO.
The technology cooperation experience of Shin Chang Electrics Co. (SCE) is very instructive, and valuable lessons can be learnt for successful technology cooperation between developed and developing country firms. SCE has achieved much in terms of growth and product development, and has been very successful in building technological competence. Like other firms in the Republic of Korea, SCE was dependent on foreign technologies in the early stages of its growth. It has made tremendous efforts, however, to absorb imported technologies. In this process, it has benefited from government support and technological assistance from universities and government-funded research institutes.
A) Company profile
SCE, a manufacturer of car lock sets and switches, was established in January 1978. From the outset, its management goal has been to become competitive through building technological competence. Its performance has been phenomenal in terms of sales growth, for instance, sales having increased from 15.5 billion won in 1987 to 74.5 billion won in 1995. This year, SCE hopes to increase its sales to 100 billion won (about US$125 million).
SCE's founder, Mr. Ree, who had been looking for a promising business, was shocked that the technology for manufacturing car lock sets and switches did not exist in the Republic of Korea, although the car parts industry was later to become very lucrative. He therefore decided to set up his own company to produce this equipment. He established technological ties with a Japanese firm, ToKai Rica Co. (TRC), which was supplying car lock sets and switches to Toyota Automobile Co., and in 1981 he secured a licensing contract for manufacturing car lock sets and switches. This contract has so far been renewed every three years. In December 1985, TRC bought 25 per cent of SCE's issued stock, thus making it a jointly owned firm.
B) Why SCE imports foreign technology
Until recently it was not common for firms in the Republic of Korea, to manufacture new products without using foreign technology. When SCE started up, the unavailability of relevant domestic technology meant that it had no choice but to import foreign technologies. However, after accumulating production technology through growth, SCE has developed new products on the basis of its own experience combined with imported core technology.
The channels for acquiring foreign technology are various. The most popular one is the licensing contract, whereby the donor's production and/or process know-how and industrial property rights are acquired. Technology can also be transferred through the exchange of engineers. In this case, the donor firm may train the receiver firm's engineers or it may send technicians to help with the operation of imported technology. SCE has used all these channels.
The purposes of technology imports are also various. In SCE's case, the primary goal was to acquire advanced technology for manufacturing car lock sets and switches. Acquiring basic technology for research and development (R & D) was also an important factor.
C) Licensing contract
SCE's licensing contract with TRC in 1981 was negotiated with the assistance of the Small and Medium Industry Promotion Corporation (SMIPC), one of whose functions is to facilitate matchmaking with foreign technology partners. SCE chose TRC because TRC's technology for manufacturing car lock sets and switches was very good and appropriate for it. At that time, car manufacturing companies in the Republic of Korea were provided with car lock sets and switches from TRC. During negotiation of the contract, there were disagreements between the donor and the receiver about the contents and scope of technology transfer, royalty rates, the royalty payment method, and so on. With the SMIPC's help, however, the disagreements were settled. The contract may be summarized as follows:
* donor: ToKai Rico Co. (Japan);
* recipient: Shin Chang Electrics Co. (Republic of Korea);
* duration of contract: 3 years;
* technology: technology for car lock sets and switches;
* contents of transfer: information, documentation, technical services and patents;
* payment: running royalty of 3 per cent of sales.
The technology transfer was effected by the donor's supplying drawings of car lock sets and switches, teaching SCE how to manufacture the equipment and training SCE engineers. The transfer met the receiver's expectations. Since 1985, TRC's senior engineer has been working
for SCE in the Republic of Korea and giving technological advice. Every year, three SCE engineers are trained in the Japanese firm and learn the necessary technology.
D) Innovation through learning
- The role of imported technologies
Technology in general cannot be fully transferred because tacit knowledge specific to the supplier is hard to transfer. Consequently, considerable efforts on the part of the recipient and sincerity on the part of the donor are required. Even when core technologies are not transferred, technological ties with foreign firms contribute greatly to improving product quality and performance, and helping the receiver acquire technological experience.
- Learning process
Despite being a SME, SCE spends about 2.5 per cent of sales on R & D (the average figure for Republic of Korea SMEs was 0. 4 per cent in 1994). The emphasis is on development.
SCE realized that it would never catch up with Japanese firms simply by importing foreign technology, and that building up its own technological capability was essential. In 1989, it established a research institute. It was thus able to carry out systematic research into technology for car lock sets and switches, and made considerable progress in developing new products. In addition, cooperative research with universities and government-funded research institutes proved to be helpful and effective, and enabled SCE to build up its own technology capabilities. This resulted in import substitution. SCE's outstanding performance and research efforts have been publicly acknowledged. In 1990, the Government formally recognized its outstanding quality, and in 1993 it was awarded the presidential medal for its import-substitution achievements.
SCE has benefited from government and public sector help in various ways. The SMIPC has assisted it in plant investment, guiding technology and management, and facilitating matchmaking with foreign technology partners. Bank loans on favourable terms were offered by the SME Bank. In addition, research workers were exempted from military service.
E) Formation of a type of TP
When a new model of car is developed and produced, new car lock sets and switches for it should be also developed. Currently, SCE's new product is being developed with TRC. In addition, SCE is supplying product parts to TRC. This benefits both enterprises, and can be regarded as a type of TP. It came into being because (a) both the donor and the recipient were satisfied with the technology transfer, and therefore trusted each other; and (b) SCE built up its technology capabilities through the interplay of imported technology with its own R & D efforts.
- POLICY IMPLICATIONS
In initiating and promoting international technological cooperation such as TP, the government and the public sector play a very important role as regards the macroeconomic, mesoeconomic and microeconomic dimensions.
A) Macroeconomic dimension
The host country's macroeconomic conditions crucially affect (a) foreign enterprises' willingness to enter into TPs, and (b) local partners' ability and desire to do the same. In this connection, the Republic of Korea's macroeconomic policy is generally considered to be credible and stable enough for foreign enterprises to enter into technological cooperation with domestic enterprises. Given the country's good macroeconomic conditions, domestic enterprises need to actively pursue technical cooperation with developed countries in order to compete with enterprises at home and abroad.
B) Meso- and microeconomic dimensions
Intermediary institutions play a very important role in promoting international technological cooperation in SMEs, because such enterprises lack the necessary information and research data. In developing countries, public institutions should help to fill this gap. SCE, for example, was able to find a good partner with the help of the SMIPC, and succeeded in international technology cooperation.
There are various institutions in the Republic of Korea that can assist matchmaking between foreign and domestic enterprises by disseminating information, helping to reducing risk and building mutual trust, thus reducing transaction costs. The two most noteworthy are the SMIPC and the ITEP.
C) The role of the Small and Medium Industry Promotion Corporation and of the Institute of Industrial Technology Policy
The Small and Medium Industry Promotion Corporation (SMIPC) was established in 1979 as a non-profit autonomous organization, under the Small and Medium Industry Promotion Act, for the purpose of implementing various programmes to promote the small and medium industry sector. One its programmes provides support for firms' industrial partnerships with foreign counterparts. Since the SMIPC had very good access to SMEs in the Republic of Korea and had come to know them very well on an individual basis, it set up the Centre for Foreign Investment Services (CFIS) and the Centre for Overseas Investment Services (COIS) in 1986. Their primary purpose is to promote international cooperation for technology transfer, joint ventures and long-term distributorships.
The Institute of Industrial Technology Policy (ITEP) serves as a bridge between generic industrial technologies and domestic manufacturing industries. This will sharpen industry's international competitive edge through the exchange of technological information and personnel, assistance with joint research projects, and building up cooperation channels overseas. The ITEP helps enterprises enhance their technological capabilities by setting up and operating a standing support system for the promotion of inbound transfer of advanced technologies. This system (i) assesses targeted technologies; (ii) seeks foreign technology cooperation arrangements; (iii) locates relevant technical experts; and (iv) stands proxy for technological consultations.
- CONCLUDING REMARKS
In technology transfer, the recipient firm achieves success by producing products comparable with those of the donor firm. But this is one-sided. For the transfer to be successful, both donor and recipient must benefit from it. Thereafter, the relationship can develop into a TP. (In the case of SCE, the donor and the recipient seem to have been satisfied with the technology transfer, and the relationship between the two firms was therefore able to develop into a type of TP). The role of the government and the public sector is very important in that process. Macroeconomic policy should be stable and credible, and public institutions should provide relevant information to reduce transaction costs. Furthermore, tax incentives for investment accompanying international technology cooperation such as TP can be introduced in developing countries. If both parties are not satisfied, technology cooperation ends up as nothing more than a war of attrition.