catching up or falling behind: patterns in international interfirm technology partnering

Pergamon

World Development, Vol. 22, No. 5, 711-780, 1994 pp. Copyright 0 1994 Elsevier Science Ltd

Printed in Great Britain. All rights reserved 0305-750x/94 $7.00 + 0.00

0305750X(94)EOO03-G

Catching Up or Falling Behind: Patterns in

International Interfirm Technology Partnering

CHRIS FREEMAN and

JOHN HAGEDOORN* University of Limburg, Maastricht, Netherlands

Summary. - The central issue in this paper is to what extent diverging international patterns in the distribution of technological capabilities are also found in interfii technology cooperation. To answer this question attention will be paid to two, largely different forms of interfirm technology partnering. One is the phenomenon of strategic technology partnering, the other covers interfirm technology transfer agreements. Other mechanisms for international technology transfer that we discuss put the central subject of the present contribution in a wider context. The analysis enables us to address the possible limits of catching up through technology partnering and the major differences between the developed economies, newly industrialized countries (NICs) and less-developed countries (LDCs). A major conclusion is that interfirm partnering so far has not led to a catching up of LDCs and most of the NICs, as it is much more part of a process of concentration of technological competencies within the developed economies.

1. INTRODUCTION

The widespread discussion of economic “globalization” in the early 1990s has involved an important debate on the role of technology in economic internationalization and economic growth (see Chesnais, 1992; Kobrin, 1991; Kogut, 1991; OECD, 1992; Ohmae, 1990; Verspagen, 1993; to give but a few and very diverse examples). Much of that debate has concentrated on the internationalization of technology and other aspects of corporate behavior within the so-called developed economies and/or the Triad: the United States, Japan, and Europe. This group of developed economies consists of these Triad countries plus countries such as Australia, Canada, New Zealand, Israel, Turkey, and South Africa. By and large this subpopulation that we refer to as the developed economies coincides with the large group of the Organization for Economic Cooperation and Development (OECD) countries. In the present contribution internationalization of technology is studied in a worldwide context, not only looking at the Triad and the developed economies but in particular at the role of the group of less-developed countries (LDCs) and newly industrialized countries (NICs). Among the so-called NICs are countries such as South Korea, Taiwan, Singapore, Hong Kong and some

Latin American countries such as Brazil, Mexico, and Argentina, although the latter appear to play a much smaller role in this analysis than the East Asian countries. LDCs include the remaining group of countries in particular from Latin America, Asia and Africa. Unfortunately Eastern Europe countries are not included in the survey. The core of the present contribution is found in the empirical investiga- tion of the international distribution of interfirm technology cooperation and a discussion of its consequences for a further uneven technological development on a world scale.

A first rough indication of the present distribution of worldwide technological capabilities is found for the distribution of global research and development (R&D) which is highly concentrated in the developed economies. About two-thirds of the

*This paper is partly based on our contribution to the EC- Monitor FAST Program. An earlier version was presented at the United Nations Conference, Global trends in foreign direct investment and strategies of transnational corporations in Brazil, SBo Paula, November 3-6, 1992. We would like to thank Larry Westphal and two anonymous referees for comments on this paper. Final revision accepted: November 13, 1993.

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172 WORLD DEVELOPMENT

worldwide R&D efforts are probably found within the Triad of the United States, Japan and Western Europe. The Third World, by the most generous esti- mates accounts for only about 5% of global R&D. Furthermore, R&D efforts are stagnating or declin- ing in many Third World countries, especially in heavily indebted countries. Only in the “four tigers” (South Korea, Taiwan, Singapore, Hong Kong) and also in China and some other East Asian countries is there a rapid rise of R&D. Furthermore, the share of the former Eastern European countries was much bigger during the past decade but a large part of these R&D expenditures was accounted for by Soviet military and space R&D which is now in sharp decline (OECD, 1992).

If we take the world distribution of patents, the most frequently applied indicator of technological output, it tells almost the same story. The combined share of Third World countries would probably be l-3% of a truly global index of patents, i.e. even lower than their R&D share. These two measures yield very similar results for the Third World indi- cating that its share in new science and technology is indeed extremely low. The only major exception to this generalization is the group of countries in Eastern Asia mentioned above. Their R&D expenditures have been growing rapidly in the 1980s and not only South Korea but also Taiwan and Singapore which now have a level of R&D intensity comparable to that of many European countries. These countries built relatively well-developed national systems of innovation, that apart from substantial company R&D also led to increased university research and the creation of a wide variety of technology institutes. In the late 1980s the patenting activity of this group of countries also began to rise very rapidly, while that of other NICs, such as those in Latin America, showed little or no improvement.

A closely related issue is the R&D investment behavior of leading multinational companies and its effect on the international distribution of technological capabilities. It is well known that the proportion of general foreign direct investment going to the Third World declined in the 1980s as the Triad countries built up both their manufacturing and their R&D in each other’s “home” territories. US and Japanese investment in Europe and Japanese and European investment in the United States increased, and to a much lesser degree European and US investment in Japan also rose. Trends in foreign R&D seem to follow these general trends in direct investment. For instance from material presented by Pearce and Singh (1991) one can deduce that over 98% of foreign R&D laboratories owned by leading multinational companies are found in OECD countries, leaving very few examples of R&D facilities set up in other parts of the world. Peters’s (1992) research indicates an internationalization of R&D

with a growing number of US firms setting up new laboratories in regions other than their home base, however, only a few laboratories were found in developing countries.

All this has to be seen in the light of, what a recent OECD (1992) study referred to as an “unprecedented shrinkage” of the main indicators of international technology flows to the Third World in the 1980s with the exception of some East Asian countries that have been able to create indigenous technological capabilities. More in particular, these trends seem to support the “agglomeration” thesis, for instance, put forward by Cantwell (1991), which suggests that technological activities of the world’s largest companies are frequently drawn toward countries with relevant revealed technological advantages. In the end this preference can lead to a situation in which the world faces a both continuous and increasing unbalanced worldwide distribution of innovative capabilities.

The central question for this paper, addressed in the following sections, is to what extent such diverging international patterns in the distribution of technological capabilities are also found in interfirm technology cooperation. This interfirm technology partnering could have a beneficial effect on firms from developing countries, in terms of improving their technological capabilities through technology transfer and partnerships with more advanced companies from the developed economies.

To answer the above mentioned question we will pay attention to two, largely different forms of interfirm technology partnering. One is the phenomenon of strategic technology partnering, the other covers interfirm technology transfer agreements. We refer to strategic technology partnerships as those interfirm agreements for which joint R&D and/or other innovative activities are part of the agreement and that can reasonably be assumed to affect the long- term product market positioning of at least one partner. Joint ventures with shared R&D resources, R&D corporations, joint R&D pacts, crosslicensing agreements, research contracts and second-sourcing agreements build the largest part of this group of cooperative agreements. For inter-firm technology transfer agreements one has to think of arrangements by means of which one company provides access to its technology to another company, usually in return for a fee or other forms of compensation. Licensing agreements and broader modes of cooperation with a licensing arrangement are clear examples of this category of interfirm partnering. The information on these different modes of interfirm partnering is found in the MERIT-CAT1 databank which gives access to information on approximately 10,000 worldwide interfirm technology partnering agreements (see the appendix). The analysis of patterns in international interfirm technology cooperation is

CATCHING UP OR FALLING BEHIND 773

followed by a brief discussion of some other mechanisms for international technology transfer that enable us to put the central subject of the present contribution in a wider context. In the final section of this contribution we discuss the implications of the empirical results. In particular the possible limits of catching up through technology partnering and the major differences between the developed economies, NICs and LDCs are addressed.

2. INTERNATIONAL PATTERNS IN STRATEGIC TECHNOLOGY PARTNERING

If one looks at interfirm strategic technology partnering we detect similar patterns as briefly discussed above. Earlier research on this subject (Hagedoom and Schakenraad 1993) already indicated that one of the most striking features of strategic technology alliances made during the past decade is the concentration of these partnerships within the developed capitalist economies and in particular the Triad countries. Figure 1 shows the distribution of the strategic technology alliances within the developed economies, and between the Triad and the NICs, and the Triad and the LDCs. Over 95% of the strategic technology partnerships have been made between companies from the developed economies, and 2.3% of the alliances were made between a Triad company and a firm from one of the NICs. Since only an extremely small share of 1.5% of all alliances made during the 1980s cover partnerships between the Triad and LDC companies, other combinations can be neglected.

These figures refer to the 1980s without showing the growth in the actual number of alliances made each year. If one compares the second half of the 1980s with the first half one finds that out of all strategic technology alliances in the MERIT-CAT1 data bank 37.2% were formed during the first half of the 1980s and 62.8% were made during the second half. In general this growth pattern does not substantially vary for the different international combinations. Although the actual number of alliances made with NICs and LDCs companies did grow consider- ably, their weight in the total of strategic partnerships has remained largely at the same level. For alliances between Triad and NIC companies the share rose slightly from 2.2% in the first half to 2.4% in the second half of the 1980s. For Triad-LDC combinations the share rose from 1.3% to 1.7% (see Freeman and Hagedoom, 1992).

Based on these figures one can determine that the dominance of strategic technology alliances by companies from the developed economies is even bigger than already indicated. We can assume that in each combination with the Triad there is at least one company from the developed economies. This will add

Triad-NICE 2.3%) Miacoualleous 0.5% Triad-LDC 1.5%

Figure 1 Distribution of strategic technology alliances between companies from developed economies, Triad and

NICS, Triad and LDCs, 198&89

an extra 2% to the participation rate of the developed economies, if one takes about half of the alliances made between Triad companies and those in NICs and LDCs. All in all, there appears to be an almost complete dominance of strategic technology partnering by companies from the developed capitalist economies with a share of over 97.5% of all worldwide strategic technology alliances.

This dominant position for the developed economies is, of course, also found at the disaggre- gated level of fields of technology (see Table 1). In general the overall distribution of alliances is reflected at the sectoral level, but there are some differences. In some sectors the distribution of strategic technology partnering appears to approach a “closed shop” as cooperation within the developed economies comes close to or actually reaches a participation rate of 100%. Examples of these extreme situations are found in medical technology and instrumentation (loo%), biotechnology (99.5%), software (99.1%) and computers (98%).

In some other sectors the participation of NIC and LDC companies is somewhat higher. In microelectronics alliances between companies from the Triad and NICs reach a level of 3.6%. This figure reflects alliances between US and European companies with, in particular, South Korean chip manufac- turers. The same holds for the share of 5.4% of the alliances in miscellaneous information technology which largely covers consumer electronic applica- tions of information technology. In that sector we find many alliances between European, US, and Japanese electronic corporations and companies from the “East Asian dragons.”

There are also a few sectors where the share of alliances between companies from the developed economies is less dominant. In food and beverages, for which we found only a small number of strategic technology partnerships, only 90.5% of the alliances are made by companies from the developed world, leaving 9.5% to alliances between the Triad and the NICs. Strategic partnering in automotives and in chemicals also represents a much larger number of cases of non-Triad collaboration - the role for com-


panies from the NICs and the LDCs also seems to be substantially larger. In the automotive sector nearly 10% of the alliances involve companies from the group of NICs, and also combinations between companies from the Triad and LDC companies come to a share of over 5%. In chemicals the role of LDC and NIC companies is reversed, in the sense that this is one of the few examples where LDCs seem to play a somewhat larger role than NICs. Here combinations of Triad companies with firms from developing companies take a relatively large share of more than 7%, which is partly due to the role played by oil- chemical companies from OPEC countries. The proportion of technology partnerships between Triad companies and NIC companies is not as high, but it still reaches a share of nearly 4%.

This differentiation of strategic technology partnering between companies from several economic blocks suggests that such a pattern could be partly influenced by the technology intensity of sectors. If we distinguish sectors of industry according to their high, medium or low technology content (see OECD, 1990) we notice that, with the exception of the NIC involvement in microelectronics, a “reasonable” level of NIC and LDC participation in sectors such as consumer electronics, automotive, chemicals and food and beverages coincides with a low or medium technology character of these sectors. A strong domination of strategic technology partnering between companies from the Triad and the other developed economies, i.e. a dominance of over 95%, is found in those fields that can be characterized as high-tech sectors.

We can take this issue of the research intensity of strategic technology partnering of companies from different economic regions somewhat further when we analyze the distribution of different modes of technology partnering. In Table 2 we present the international distribution of different modes of strategic technology partnering during the 1980s. In general the group of joint R&D pacts is the largest category of partnering with a share of nearly 42%. It is followed by joint ventures with about 29% and minority investments with over 16% and other modes of cooperation, in particular R&D contracts and second-sourcing agreements, which amount to nearly 13%. For these modes of cooperation it can be said that in general joint R&D pacts are the most R&D-intensive form of partnering as shared R&D activities are the main objective of this mode. For some joint ventures the sharing of R&D is also the only purpose of the firm but in general the joint ventures discussed here have a number of corporate objectives of which the joint undertaking of research is only one aspect (see Hagedoom, 1993). In our def- inition of minority investments these are usually related to a share taken by a large company in a small company for which the larger company also shows some interest in some of its partners technological assets. The category “others” covers a range of interfirm agreements but the main categories are R&D contracts through which one company has a specific piece of research done by another firm, and second-sourcing agreements that involve particular arrangements for transfer of product technology.

Looking at the international distribution we see

Table 1. tnternatioml distribution of strategic technology alliances, 198M9

Fields of Number of technology alliances

% for developed economies

% for Triad

% for Triad-NICs

% for Triad-LDCs Other

Biotech. 846 99.1 94.1 0.4 0.1 0.5 New materials 430 96.5 93.5 2.3 1.2 - Computer 199 98.0 %.O 1.5 0.5 Industrial automation 281 96.1 95.0 2.1 1.8 - Microel. 387 95.9 95.1 3.6 0.5 Software 346 99.1 %.2 0.6 0.3 - Telecom. 368 97.5 92.1 1.6 0.3 0.5 Misc. IT 148 93.3 92.6 5.4 0.7 0.7 Automot. 205 84.9 82.9 9.8 5.4 Aviation 228 %.9 94.3 0.9 1.3 0.9 Chemical 410 87.6 80.0 3.9 7.1 1.5 Food & beverages 42 90.5 76.2 9.5 Heavy electr. 141 %.5 92.2 1.4 2.1 -

MT/Instr. 95 100.0 100.0 Others 66 90.9 77.3 1.5 4.5 3.0 Total 4192 95.7 91.9 2.3 1.5 0.5

Source: MERIT-CATI.


Table 2. Distribution of different modes of strategic technology alliances, international regions, 198&89

Mode of cooperation

Number of alliances

Share for developed economies

Share for Triad-N10

Share for Triad-LDCs

Joint ventures

Joint R&D

Minority investments Other

Total

1224 27.1% 61.9% 67.2% (29.2%)

1752 43.2% 9.3% 10.9% (41.8%)

684 16.3% 14.4% 1.6% (16.3%)

532 12.8% 14.4% 1.6% (12.7%)

4192 100.0% 100.0% 100.0%

(100%)

Source: MERIT-CATI.

that for the developed countries over 43% of the technology partnerships are organized through joint R&D pacts. Only about 10% of the alliances from Triad companies with either NlC companies or firms from LDCs are organized through these joint R&D pacts. Partnerships with companies outside the developed economies are to a very large extent organized through joint ventures. Second-sourcing agreements between Triad and NIC companies also play a substantial role, but they are almost nonexistent for partnerships with LDC companies. In general, it seems that the skewed distribution of strategic technology partnering toward alliances of companies within the developed economies, in particular in high-tech sectors, is reflected in the strong emphasis of strategic partnering within the developed economies on contractual R&D relations. Partnering with companies from NICs and LDCs is dominated by joint ownership for which shared technology resources is only one in a number of objectives for the agreement.

Some final remarks on this issue of differences in the R&D content of strategic alliances can be made when the distribution is considered of those intertirm partnerships that are characterized by a strong R&D

Table 3. Distribution of strategic technology alliances with sfrong R&D orientation 198&89

% of mainly R&D-oriented

alliances in subtotal

Per “block”

Developed countries Triad-NICs Triad-LDCs

Source: MERIT-CATI.

50.3% 13.4% 12.5%

orientation. The data from the MERIT-CAT1 data bank facilitate the separation of those strategic technology alliances that have a strong R&D orientation from other alliances. Table 3 shows that over 50% of the alliances between companies from the developed economies are strongly oriented toward R&D. For alliances between Triad companies and companies from NICs and LDCs this remains only at a relatively low share of about one-eighth of all these partnerships.

All the evidence presented clearly demonstrates that strategic technology partnering between companies is dominated by firms from the developed economies, in particular those from the Triad. Firms from NICs play some role, although this should not be overestimated; LDC involvement is generally very small. For the international distribution of technological capabilities the present patterns in strategic technology partnering do not suggest that these alliances contribute to a balancing of the present uneven distribution. On the contrary their effect appears much more to strengthen the already exist- ing worldwide asymmetry in technological capabilities.

3. A COMPARISON OF STRATEGIC TECHNOLOGY PARTNERING WITH

TECHNOLOGY TRANSFER AGREEMENTS

Apart from patterns in the international distribution of strategic technology alliances one can also study a different group of cooperative agreements for which technology transfer from one company to another company is a major objective of the agreement. In order to see whether such agreements demonstrate somewhat different patterns than strategic alliances a selection of more than 1,700 cooperative agreements from the MERIT-CAT1 data bank

776 WORLD DEVELOPMEN’I

was made. These agreements are either licensing agreements, technology-sharing agreements with a licensing contract, or joint ventures with a licensing arrangement, providing technology transfer from one partner to the other. With the exception of the joint ventures with licensing arrangements, the coverage of these agreements does not coincide with the group of strategic technology alliances already discussed. Contrary to the group of strategic technology alliances in our data bank, for which we expect a fair coverage, these interfirm technology transfer agreements are only a small sample compared to the general population of such agreements. Due to this, conclusions have to be drawn with more care than in the case of strategic alliances, but it is nevertheless possible to arrive at a cautious interpretation.

An important feature of this second group of partnerships is that technology transfer is at the heart of the agreement. Licenses as well as licensing arrangements of joint ventures and technology-sharing agreements could contribute to the improvement of the technological capabilities of the licensee. One can assume that the licenser usually has a somewhat superior technological capability vis-d-vis the licensee, particularly in cases where firms from developed economies cooperate with NIC and LDC firms. If this set of interfirm agreements would demonstrate a somewhat more balanced distribution of international linkages, this could indicate that these cooperative agreements, contrary to the group of strategic technology alliances, could have a beneficial effect on the technological capabilities of NIC and LDC firms.

A first impression of differences in the intema- tional distribution of strategic technology partner-

ships and technology transfer agreements is found in Figure 2. We notice that the distribution of technology transfer agreements is only slightly different and somewhat less skewed toward agreements between companies from the developed economies. These differences should, however, not be overstated as there is still an extreme dominance of agreements made within the developed economies. In general nearly 90% of the technology transfer agreements registered during the 1980s are made between companies from the Triad and the other advanced economies, which confirms those findings that suggest that developing countries by-and-large receive little technology transfer (UNCTC, I99 1). Technology sharing agreements between Triad and NIC companies and Triad and LDC firms obtain a share of over 6% and nearly 4%, respectively. These figures suggest a relative “improvement” of the position of firms from outside the developed economies if one compares strategic technology alliances with these technology transfer agreements. Additional material not reproduced here indicates that the portion of technology transfer agreements with NIC and LDC firms has, however, decreased if one compares the second half of the 1980s with the first half of that decade. Although there has been a general growth of new agreements to a similar degree as with strategic partnerships, the share of Triad-NIC and Triad-LDC technology transfer agreements has fallen from 6.2 to 6% and from 4.4 to 3.5%, respectively.

It will not come as a surprise that the international distribution of these technology transfer agreements at the sectoral level largely follows their general pattern and the pattern already reported for strategic technology partnerships. These data will

EO- m strategic techrl010gy auiaoccs

m Teehnolo.gy transfer agreements

Trid-NICI Triad-LDCS

Figure 2. A comparison of the international distribution of strategic technology alliances with interfirm technology transfer agreements, 1980.89.


not be reproduced here, see Freeman and Hagedoom (1992) for an extensive overview of more detailed statistical information of sectoral differences. A few striking examples, however, are worth mentioning: - In sectors such as new materials, computers,

biotechnology, and software the dominance of companies from the advanced economies goes from close to 95% for the first to 100% for the sector last mentioned.

- In a number of subfields of information technology such as microelectronics, telecommunications, consumer electronics-related information technology, and the automotive industry technology transfer agreements between companies from the Triad and in particular South East Asian firms reach a substantial share. In microelectronics and in automotive technology nearly 20% of these agreements are made between companies from these two blocks. In consumer electronics and telecommunications this combination also obtains a substantial share of about 10% of the agreements.

- As already mentioned technology transfer agreements between companies from the Triad and LDCs play only a very limited and even decreasing role. As far as sectoral differences do occur, the small number of cases do not allow a discussion at any level of disaggregation.

As is evident from the discussion above, there is substantial evidence of the unbalanced international distribution in both strategic technology partnering and interfirm technology transfer. The material intro- duced so far does not appear to require much additional information as the general trend and patterns are rather obvious. Therefore, it will suffice to enter one last set of figures on the issue of the intemation- al distribution of interfirm technology partnering. In Table 4 a comparison is made between the intema- tional distribution of strategic technology alliances and technology transfer agreements emphasizing the role of new core technologies. These core technologies are information technology with its large set of subfields, biotechnology, and new materials. It is widely accepted that these three core technologies constitute the heart of many future technological developments affecting manufacturing, but also services and everyday social life. Technological competence regarding these core technologies appears to be a prerequisite for present and near-future competitive advantages in a large number of industrial sectors. If. for instance, the developed economies would retain a certain monopoly and dominance in these fields of technology, this would certainly do little to improve the international competitiveness of companies from developing countries. We have already seen above that technology partnering, be it through strategic alliances or through transfer agreements, has done little to change the international access to technolo-

gy, in particular for the LDCs. It will probably not come as a surprise that the overall picture does not change if we concentrate on the share of core technologies in technology partnering. From Table 4 one learns that nearly three-quarters of the strategic technology alliances within the developed economies are made in the three core technologies. With regard to technology transfer agreements the share of core technologies is somewhat smaller but it still covers over 60% of the agreements made during the 1980s.

If one looks at the distribution for partnerships between companies from the Triad and the NICs the share for core technologies appears to be substantially lower. For both categories of interfirm cooperation the share of core technologies captures somewhat over half of the agreements that we found. From these figures it is also clear that the situation is clearly worse with respect to partnering with companies from LDCs. Given the already small portion of alliances made with LDC companies and the relatively small impact of core technologies on strategic technology partnering, with a share of less than a quarter, the picture of international interfirm technology partnering with LDCs looks even worse. In fact the international distribution of strategic technology alliances affecting core technologies demonstrates a very regularly decreasing triplet which leaves little to the imagination regarding the position of companies from the LDCs. As far as technology transfer agreements are concerned the picture seems somewhat less gloomy but the relatively large share of core technology-related agreements with companies from LDCs appears to be caused by an “outlier” for agreements made in industrial automation. But even if one abstracts from statistical irregularities the overall picture remains the same. Core technologies play a very important role in both strategic technology partnering and interfirm technology transfer within the developed economies. They are clearly less relevant for partnering of companies from the developed economies with firms from NICs, but a majority of these agreements are still associated with core technologies. With regard to partnerships with firms from developing countries it is obvious that the vast majority of these alliances are not related to the three major fields of modem technology.

4. OTHER FORMS OF INTERNATIONAL TECHNOLOGY EXCHANGE

The formal agreements for technology cooperation and technology transfer, which have been described in sections 2 and 3 above do not of course exhaust the possibilities for technology acquisition in Third World countries, whether LDCs or NICs. There are many other ways in which developing countries gain access to worldwide developments in


Table 4. Comparison of shares of core technologies in strategic technology alliances (s.t.a.s) and technology transfer agreements (t.t.a.s), economic regions, 198X39

Share of core Share of core technologies technologies

in s.t.a.s in t.t.a.s

Triad Developed economies Triad-NICs Triad-LDCs

73.5% 61.4% 73.0% 60.9% 53.6% 52.4% 23.4% 38.5%

Source: MERIT-CATI.

science and technology. Among the more important methods of technology acquisition are the following: - Import of machinery and other capital goods of

all kinds, sometimes with supporting technical services. This may sometimes be associated with reverse engineering to gain added technological competence.

- Scanning of worldwide open scientific and technical literature, information services and data banks. This may often be related to specific pro- ject surveys as well as general knowledge.

- Engineering consultancy services, often associated with major new investment projects and plant construction activities.

- The work of undergraduate and graduate students in foreign countries. Although some of these students may find employment abroad (the so-called brain drain), many return at some point in their careers bringing valuable skills and experience.

- Recruitment of foreign nationals for short or long periods, both as advisors and as employees of national organisations.

- Inward investment by transnational companies, which will normally be associated with a number of the previously mentioned points.

- The work of intergovernmental international agencies (UN, World Bank, etc.) and various forms of official government aid are especially important in such fields as health, agriculture, and infra-structure.

Most or all of these methods were used intensively by Japan (and at an earlier stage by various European countries) in the course of their “catching up” phase of industrialization. They are also of course still used by these and other developed economies in their normal transactions with each other, with the partial exception of the last point mentioned above. The technological activities of advanced countries are characterized by their broad scope as well as by their scale and intensity.

It would not be reasonable to expect that the least developed economies with very little manufacturing industry, very low levels of per capita income, and

very limited resources in terms of skilled engineers and scientists, would have a similar pattern of technology transfer activities as the most developed economies. One would, however, hope that as they develop sucessfully they would be able to make increasing use of all these methods of technology transfer, as well as the formal technological cooperation techniques discussed in sections 2 and 3 of this paper.

Our survey provides important evidence that the pattern of technological activities does indeed change substantially during the course of development. The NlCs differ systematically from the LDCs in many respects. Moreover there are also important differences within each of these categories, related to stage of development, size of economy, resource endowment and so forth. Thus, within the category of NlCs important differences have become clearly apparent m the 1980s between the Latin American NlCs on the one hand and the East Asian NlCs on the other.

The most important of these differences relate to scale, direction and location of R&D. South Korea, Taiwan, Hong Kong and Singapore not only have a much higher intensity of R&D activities than Latin American countries, they also conduct a far higher proportion (> 60%) of these activities in industry than is the case in Latin America (typically < 30% of total R&D). Whereas the scale of R&D changed little in Latin America over the past decade, it increased very rapidly in East Asia, so that for instance R&D intensity in South Korea at nearly 2% of GDP is now comparable to that of Western Europe. This rapid increase finds its reflection also in the international patent statistics. Whereas NlCs all had relatively low rates of patenting in the United States in the 1970s and early 1980s (2040 patents per annum typically for most NlCs) this turned very sharply upward for Taiwan and South Korea in the late 1980s and early 1990s (hundreds of patents per annum), see Freeman and Hagedoom (1992).

This very rapid spurt of growth in technological activities in East Asia may be regarded as a conse- quence of successful industrialization. But it is also a very important cause of that success. It is now worthwhile for European, US and above all Japanese multinationals to enter into a variety of agreements with East Asian enterprises because of their technological capability, as well as their manufacturing prowess and the attraction of their markets. This largely accounts for the differences between NlCs and LDCs in the pattern of technology agreements.

Thus, although a low level of domestic R&D activities may be inevitably associated with the low- est levels of development and this in itself limits the possibilities for joint ventures and exchange based on R&D, one would hope to see, as in the East Asian “dragons,” an increasingly R&D-intensive pattern in

the later stages, associated with growing participation in international collaborative agreements. Indeed the main lesson from the “dragons” is that autonomous domestic technological activities and the import of technology are not alternative but com- plementary activities in technology: “to him that hath shall be given.”

5. SOME CONCLUSIONS

The picture of the international scenery in interfirm technology partnering as presented above leaves little room for an optimistic view on the possibilities

. for most developing countries and many of the newly industrialized countries to catch up with their competitors from the developed economies. Strategic technology partnering as well as advanced technology transfer appear to be as heavily concentrated within these developed countries as other aspects of technological development such as R&D expenditures, patenting, foreign direct investment, and the location of R&D laboratories of leading multinational companies. It is obvious that companies that origi- nate from developing countries are virtually “locked out” from interfirm partnerships that concentrate on joint R&D and/or new core technologies such as information technology, new materials and biotechnology. This implies that this pattern reflects not only the present distribution of worldwide technological capabilities, it will also enforce the concentration of technological capabilities for new technologies in the foreseeable future. There are some examples of high-tech interfirm partnering of companies from the OECD countries with firms from developing countries. Many of these cases, however, are actually examples of collaboration that focus less on joint R&D or advanced technology transfer but more on market access or joint manufacturing.

The main exception to this general pattern is the

role that is played by companies from some East Asian countries. ,Although their situation should not be overstated, it is, however, clear that these countries do play some role in strategic technology par- nering and technology transfer. By and large this role appears to parallel their increased technological capabilities as indicated by their R&D efforts and their share in international patenting.

A major conclusion of all this is that apparently the construction of a level of indigenous technological capabilities, that comes close to the worldwide technological frontier, appears compulsory for those that intend to enter the game of international technology collaboration. This strategic technology partnering is a risky game in which partners do not always find-themselves in a win-win situation or on the pos- itive side of a win-lose situation and success is certainly not assured. In order to just enter the game, however, one needs a number of assets that enable firms to find capable partners. To be more or less successful playing the game one has to capitalize on the learning process that comes with interfirm partnering. As already demonstrated by recent contribu- tions to the economic theory of innovation leaming- by-learning and learning-by-doing are strong elements of succesful corporate innovative behavior. These learning capabilities have to be built up within companies but in case of technological development they partly depend on a broader technological infrastructure that involves national innovation systems with research institutes, universities and technology spill-over effects from other incumbent companies.

The consequences of this are that companies from developing countries and newly industrialized countries, in particular those that aim at competing beyond the world of the less developed countries, will have to be supported by an improved indigenous scientific and technological infrastructure before they can begin to gradually appropriate high-tech capabilities through interfirm alliances.


REFERENCES

Cantwell, J., “The international agglomeration of R&D,” in M. Casson (Ed.), Global Research Strategy and International Competitiveness (Oxford: Blackwell, 1991).

Chesnais, F., “National systems of innovation, multinational enterprises and the contemporary process of globalisation,” in B.-A. Lundvall (Ed.), Elements oj National Systems of Innovation (London: Pin&x, 1992).

Freeman, C., and J. Hagedoom, “Globalization of technology,” Mimeo (Maastricht: MERIT, 1992).

Hagedoorn, J., “Understanding the rationale of strategic technology partnering: Inter-organizational modes of cooperation and sectoral differences,” Strategic Management Journal, Vol. 14, No. 5 (1993), pp. 371-387.

Hagedoom, J., and J. Schakenraad, “Strategic technology partnering and international corporate strategies,“ in K. Hughes (Ed.), European Competitiveness (Cambridge: Cambridge University Press, 1993). pp. 60-87.

Kobrin, S., “An empirical analysis of the determinants of global integration,” in Strategic Management Journal, Vol. 12 (1991), pp. 17-31.

Kogut, B., “Country capabilities and the permeability of borders,” Strategic Management Journal, Vol. 12 (1991). pp. 3347.

National Science Foundation, Science and Engineering Indicators (Washington, DC: NSF, 1991).

OECD Observer (June-July 1990). OECD, Technology and the Economy (Paris: OECD,

1992).


Ohmae, K., The Border-less World (New York: Harper, UNCTC, World Investment Report 1991: The Triad in 1990). Foreign Direct Investment (New York: United Nations,

Pearce, R., and S. Singh, Globalizing Research and 1991). Development (London: Macmillan, 1992). Verspagen, B., Uneven Growth Between Interdependent

Peters, L. S., “Technology management and the R&D Economies (Avebury: Aldershot, 1993). activities of multinational enterprises,” Mimeo (1992).

APPENDIX: THE MERIT-CAT1 DATA BANK

The CAT1 data bank is a relational database which contains separate data files that can be linked to each other and provide (dis)aggregate and combined information from several tiles. So far information on nearly 10,OGO cooperative agreements involving some 3,500 different parent companies has been collected. Systematic collection of interfrm alliances started in 1987. Many sources from earlier years were consulted enabling a retrospective view. In order to collect intertirm alliances various sources were consulted, of which the most important are newspaper and journal articles, books dealing with the subject, and in particular specialized journals which report on business events. Company annual reports, the Financial Times Industrial Companies Yearbooks and Dun & Bradstreet’s Who Owns Whom provide information about dissolved equity ventures and investments, as well as ventures that were not registered when surveying alliances.

This method of information gathering which one can refer to as “literature-based alliance counting” has its drawbacks and limitations due to the lack of publicity for certain arrangements, low profile of certain groups of companies and fields of technology. Despite these shortcom- ings, which are largely unsolvable even in a situation of extensive and large-scale data collection, we have been able to produce a clear picture of the joint efforts of many

companies. This enables us to perform empirical research which goes beyond case studies or general statements. Some of the weaknesses of the database can easily be evaded by focusing on the more reliable parts, such as strategic alliances.

The data bank contains information on each agreement and some information on companies participating in these agreements. The first entity is the interfirm cooperative agreement. Cooperative agreements are defined as com- mon interests between independent (industrial) partners which are not connected through (majority) ownership. In the CATI database only those interfirm agreements are being collected, that contain some arrangements for trans- ferring technology or joint research. Joint research pacts, second-sourcing and licensing agreements are clear-cut examples. Information on joint ventures in which new technology is received from at least one of the partners and joint ventures having some R&D program is also collected. Mere production or marketing joint ventures are excluded. In other words, the analysis is primarily related to technology cooperation. Only forms of cooperation and agreements for which a combined innovative activity or an exchange of technology is at least part of the agreement are included in the analysis.

catching up or falling behind: patterns in international interfirm technology partnering

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