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Society for the Advancement of Technology Management in the Philippines

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Society for the Advancement of Technology Management in the Philippines

1999

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Society for the Advancement of Technology Management in the Philippines Rm. 249 School of Economics U.P. Diliman, Quezon City, Philippines 1101 Tel. Nos. (632) 435-6316 • 927-9686 loc. 249 Telefax (632) 435-6313 Website: www.satmp.org Philippine Exporters Confederation, Inc. International Trade Center Roxas Boulevard, Pasay City, Metro Manila Tel. Nos. (632) 831-2033 • 0912-3504591 Fax No. (632) 831-2101 United States Agency for International Development Ramon Magsaysay Center 1680 Roxas Boulevard Metro Manila, Philippines Tel. No. (632) 522-4411 Fax No. (632) 522-2512 Published by the Society for the Advancement of Technology Management in the Philippines with the support of the Philippine Exporters Confederation, Inc. through its Trade and Investment Policy Analysis and Advocacy Support Project with the United States Agency for International Development

rganized in October 1996, the Society for the Advancement of Technology Management in the Philippines (SATMP) is a tripartite

alliance of leaders in the government, industry, academe, who are committed to accelerating the technological development of the nation. In pursuit of this goal, SATMP shall:

• Act as an information resource center on new technologies, products and processess;

• Advocate policies that give priority to the

development of human resource, science and technology;

• Support the commercialization of

indigenous technologies and local adaptation of imported technologies;

• Initiate research cooperative ventures with

the industry, goverment and academe as partners;

• Sponsor national and local forum to

promote technology management; and • Link with various local and international

science and technology organizations. The present membership of SATMP comprises of more than 100 individuals and 18 institutions, affiliated to industry, academe, and government.

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Preface ................................................................................................................................. ii About the Authors ............................................................................................................. v Overview of the Policy Forum on Managing Technology for Export Competitiveness Magdaleno B. Albarracin, Jr.,.............................................................................................. 1 Technology Management for Export Competitiveness: How About Knowledge-Based Products? Leandro B. Verceles, Jr. ....................................................................................................... 3 Technology Management for Exporters Meneleo J. Carlos, Jr............................................................................................................ 7 Highlights of the Technology and Exports Open Forum ...................................... 20 Technology Management and Export Competitiveness: Lessons from Korea and Taiwan Roger Posadas ...................................................................................................................... 22 Highlights of the Technology and Governance Open Forum .............................. 44 Securing Global Competitiveness through Accelerated Quality Improvement Nestor O. Rañeses................................................................................................................. 46 Highlights of the Product Quality Open Forum..................................................... 65 Some Proposals Towards Improving Efficiencies in Technology Transfer and Adaptation Process in the Philippines Serafin D. Talisayon ............................................................................................................. 67 Highlights of the Technology Transfer and Adaptation Open Forum ............. 79 TRIPS Y2K: Managing Intellectual Property Rights in the Third Millennium Ma. Rowena R. Gonzales ...................................................................................................... 82 Refocusing IPR Regimes in Developing Countries: An Overview Adelardo C. Ables and Ma. Felisa Batacan ......................................................................... 93

Highlights of the IPR Open Forum ………………………………………………. 108

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Preface

major factor that accounts for the success of developed countries and the Asian Tiger economies is an effective management of science and technology in tandem with sound

fiscal, monetary and competition policies. In the case of post-war Japan, a national innovation system that undertakes technology assessment, selection and forecasts, reverse engineering and incremental innovations, was instrumental in attaining long-term goals of improving quality in products and processes. The government nurtured corporations to achieve competitive advantage through incentives, financial and technical support, and worldwide marketing intelligence services. Korea, for her part, laid a wager on large, diversified and hierarchical chaebols, sheltered by a strong and interventionist state. Taiwan’s strategy was to develop small and medium enterprises (SMEs) so that the major manufacturers can rely on them for parts and intermediate inputs. A common feature of the development strategies in these countries is the high priority given to R&D by both private and government sectors, with the former determining the market focus and the latter providing stimuli by means of incentives and infrastructure. Competitive intelligence was used as a tool to develop products, processes and markets. The educational systems were geared towards providing the scientists, engineers and technical manpower required by the expanding industries. The investments in technology, i.e., accumulation of hardware (machinery and equipment) and software (methods, processes, systems, etc.), resulted in significant improvements in labor productivity and product quality. These developments helped define niches, expanded markets and, in turn, provided feedback mechanisms for further improvements and innovations. Against this background, the Policy Forum on Managing Technology for Export Competitiveness explores the development challenges and options for the Philippine government and business. The imperatives are made more critical in the face of tightening competition in the global market and increasing pressure from various multilateral agencies for developing countries to open their protected markets. This compendium contains papers presented during the Policy Forum, held on the 3rd June 1999 in Makati City, Philippines, and organized by the Society for the Advancement of Technology Management in the Philippines (SATMP) and the Philippine Exporters’ Confederation (PhilExport), through the support of the United States Agency for International Development (USAID). There were five main papers presented: Technology Management for Exporters by Meneleo J. Carlos Jr.; Technology Management and Export Competitiveness: Lessons from Korea and Taiwan by Roger Posadas; Securing Global Competitiveness through Accelerated Quality Improvement by Nestor O. Raneses; Some Proposals towards Improving Efficiencies in Technology Transfer and Adaptation Process in the Philippines by Serafin D. Talisayon; and

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TRIPS Y2K: Managing Intellectual Property Rights in the Third Millennium by Ma. Rowena R. Gonzales. The compendium also includes the Conference Overview presented by SATMP Chairman Magdaleno B. Albarracin Jr., and the Keynote Address delivered by Congressman Leandro B. Verceles Jr., Vice-Chairman of the Committee on Science and Technology of the House of Representatives. Albarracin notes that the rigors of global competition are forcing local industries to face new market challenges which include: increasing rate of innovation, widening application of new technologies, shorter life cycles, diminishing role for unskilled labor, and constant changes in the organization of production. Critical to a firm’s survival in the global market is its ability to manage technology. Verceles suggests that the government consider shifting its promotion from resource-based goods to knowledge-based services. He points out that the country has the resources that can be honed to develop comparative advantage in IT-based goods and services. But domestic technological activity in this area is sparse, hence the need for the government to stimulate it. In his exposition, Carlos discusses the rapid changes in consumer demand and how technology can be made to respond to these changes. He highlights the importance of managing technology as an economic resource, of promoting a technology-oriented culture in the country, and of adapting technology to the demands of the consumer. Carlos notes that successful companies are those adept at selecting technology and not necessarily those that create them; and that time-to-market factor is critical to competitiveness. He calls on the private sector to invest more in R&D, and for the State to open government laboratories for collaborative research. Posadas reviews the development experiences of Korea and Taiwan from where he culls some lessons on technology management that may be relevant to the Philippines. He elucidates on the major features of the export-led development strategies that transformed these countries into economic tigers. He places importance on the close linkages forged between the government, industry and academe, as he claims that such linkages facilitated the growth of industrial clusters — instrumental to the rapid industrial development of these two economies. Talisayon tackles the issue of technology transfer from what he calls a “market” instead of a public policy perspective. He focuses on the motivations of technology buyers and the options available to them so they can obtain the technology they need at the most efficient manner. He notes the basic problem is that many local inventors produce technologies that do not address market demand or the requirements of technology users. Hence the challenge is to bridge the gap between what the market needs and what local technology producers generate. Towards this end, he proposes: (a) the establishment of a technology market or clearinghouse; (b) the enactment of legislation on business incubators; and (c) local adaptation of the Swedish Inventschool Model. Raneses’ paper on product quality stresses the importance of developing local standards that are aligned to global standards. He examines the strategic options for improving product quality: superior product and package designs, world class manufacturing technologies and services, including cycle time and delivery performances, total quality management, alignment to world class product and quality system standards, benchmarking of best practices, and improvement and acquisition of new technology. But there are institutional barriers to improving product quality.

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To address these concerns, he recommends: (a) obtaining international accreditation of testing laboratories through ISO, IEC, and other foreign accreditation standards; (b) proliferating “best practices” to exporters; (c) “incentivizing” the cost of getting new technology; (d) removing protectionism and exposing mature industries to competition; and (e) setting up a clearinghouse of standards for manufacturers. On the issue of Intellectual Property Rights (IPR), Gonzales raises alarm on the lack of preparedness of the country for the 1 January 2000 deadline when the Philippines has to abide by the WTO agreement on the protection of IPR. She forewarns local users of foreign creations on possible legal complaints from foreign holders of IPR and the forthcoming US Super 301 Review early next year. At the same time, she urges the government to undertake extensive information campaign on the possible impact of the IPR agreement to local users. In a rejoinder paper, Refocusing IPR Regimes in Developing Countries, Adelardo Ables and Ma. Felisa Batacan relate the issues of reforming IPR regimes with concerns to generate investments and trade. They stress that as the country strives to comply with international treaties and agreements on IPR protection, it should, at the same time, ensure that adequate protection is accorded to locally produced intellectual property. They also point out a number of institutional problems that hamper the enforcement of IPR in the country. Indeed there are critical institutional problems that have to be addressed so that the private sector can better utilize technology to attain market competitiveness. However, as the contributions in this compendium clarify, much of the work has to be done by the private sector. But given their limited resources, there is a need for greater collaboration with the government and academe to draw in more resources and help them overcome the technological constraints that weaken their competitive position. SATMP and PhilExport believe that bringing together various sectors in a forum to discuss issues and exchange views on possible approaches to solve the problem, is a step in this direction.

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Magdaleno B. Albarracin, Jr., D.B.A. is the President of the Philippine Investment Management Consultants, Inc. (PHINMA), Chairman of United Pulp and Paper Co. (UPPC). He is also the current Chairman of the Society for the Advancement of Technology Management in the Philippines (SATMP). Leandro B. Verceles, Jr. is the Representative for the lone district of Catanduanes, and acts as Vice-Chairman of the House of Representatives, Committee on Science and Technology. He is the current Vice-Chairman of the Society for the Advancement of Technology Management in the Philippines (SATMP). Meneleo J. Carlos, Jr. is a leading Philippine industrialist and President of Resins Inc. He has chaired or served as a member of several government advisory councils on power and energy affairs, science and technology and industrial development. Roger Posadas, Ph.D. is the current Secretary of the Society for the Advancement of Technology Management in the Philippines (SATMP). He was formerly Chancellor of the University of the Philippines and Dean of the UP College of Science. He is the Deputy Academic Director of the Systems Technology Institute (STI), and President of the Technology Management Foundation, Inc. Nestor O. Rañeses is a professorial lecturer on Industrial Engineering and Operations research at the UP College of Engineering and the Executive Director for Test Operations for American Microsystems Philippines, Inc. He is an Affiliate Faculty on Total Quality Management, Technology Management Center, U.P. Diliman. Serafin D. Talisayon, Ph.D. is a professor in the Philippine Studies Program of the Asian Center of the University of the Philippines. He is the President of Digital Synapse Products, Inc., and Executive Director, HB&A International, Inc. He was formerly Assistant Director General of the National Security Council. Ma. Rowena Gonzales is a Senior Researcher at the Institute of International Legal Studies, University of the Philippines Law Center. She is one of the Philippines’ leading authorities on the subject of intellectual property rights, and has acted as editor for the World Bulletin’s January-June 1996 and May-August 1997 issues regarding IPR matters. Adelardo C. Ables is the Chief Economist of the Economic Intelligence and Investigation Bureau under the Department of Finance, and a member of the recently-formed Philippine Chapter of the Association of Certified Fraud Examiners based in Austin, Texas, USA. He is a member of the Secretariat of the Society for the Advancement of Technology Management in the Philippines (SATMP). Ma. Felisa H. Batacan is a policy researcher for the Economic Intelligence and Investigation Bureau under the Department of Finance. She was a former investigative journalist for ABS-CBN’s ‘Assignment’ and won the grand prize for the English novel in the 1999 Palanca Memorial Awards for Literature.

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Magdaleno B. Albarracin, Jr.

he Society for the Advancement of Technology Management in the Philippines (SATMP), the Philippine Exporters Confederation (PhilExport) and the United States Agency for International Development (USAID) are privileged to host the Policy Forum

on Managing Technology for Export Competitiveness. This forum is a venue for ventilating ideas on how best to harness technology as a strategic economic resource. It has well been recognized that the key resource in attaining competitiveness in the global marketplace is technology. The rigors of competition are compelling firms to faithfully commit to applications of new technology, to new ways of managing production, and to new approaches to understanding the market. Competitiveness ceases to be a function mainly of price. Quality, delivery time, services and capacity to adapt rapidly to user needs have increasingly become crucial in capturing markets. Indeed the link between cheap labor and export competitiveness has weakened. Those who have been exposed to the rigors of global competition know too well that the real market challenges come from the increasing rate of innovation, widening application of new technologies, shorter life cyces, diminishing role for unskilled labor, and constant changes in the organizational paradigm of production, among others. It is how well a firm adapts and responds to these challenges that will determine its survival in the marketplace. To these daunting challenges, the appropriate response is effective management of technology. As most technology advocates, SATMP believes that it is high time for the Philippines to strive to compete in more sophisticated industry segments, where value-added is generally higher, but where also the productivity requirements are more rigorous. To succeed, however, we need to create an economic environment that is open, flexible and conducive to innovation. It is of course not the intention of this forum to develop a national technology development paradigm, that would be a tall order requiring a series of consultations. Our goal is relatively modest: to build a working base of strategies and policy proposals that can be brought to the attention of decision- and policymakers.

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In developing such a base, we can debate on the approaches and strategies that best suit our present condition. Surely, there is a wide range of development models to choose from. Some may opt for incremental change in existing structure; others may choose radical institutional and policy change. In the end, however, we need to draw up some consensus if only for the public and private sectors to get their acts together.

The urgency of forming some consensus, at least in the direction that we want to take as a nation, stems from the realization that many of our neighbors have long ago bypassed us in technological development. New forms of technological cooperation are evolving even among competing firms. New modalities of competitive cooperation are thus evolving. Process niche-ing is becoming a byword of our neighbors and competitors, and yet, we have not even developed roots in product niche-ing. It is our firm belief that in the final analysis, global competition will favor those who have learned to manage technology well. The likely survivors in the global marketplace are: ! Those who correctly recognize the needs of the market and develop product or process

technologies that address such needs; ! Those who can perform a proficient technology foresight or forecast and direct resources

to such technological path; ! Those who can devote resources to R&D and use them efficiently and effectively; ! Those who can conduct technology intelligence and have the information for faster

dissemination than their neighbors-competitors; ! Those who can build on and perform incremental innovations to existing products or

processes in order to exploit unrecognized demand and deliver products to the market before obsolescence and competitors set in; and

! Those who can muster the resources of the state, industry and academe in a symbiotic

resource cooperation.

This forum brings together leading technology advocates, industry leaders and key government personalities. Cognizant of the imperatives of global competition, the goal is to identify key technological concerns that bear heavily on the capacity of local producers to compete. We will attempt to identify these issues and to draw up a list of policy options to address them. We hope that these could serve as inputs in rethinking policy directions and in crafting new strategies.

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Keynote Address

Leandro B. Verceles, Jr.

am honored to be part of this select group of some of the best minds and key movers of the country in business, government and the academe. This forum is a recognition of the growing impact of technology and the imperative

of exploiting it to promote the national development agenda. The increasing influence of technology in our export markets cannot be ignored, and this is why our efforts to formulate a technology management framework is laudable and deserves fullest consideration . You may have observed that presently, technology management in relation to trade does not figure too prominently in our country’s development agenda. The Philippine Medium Term Development Plan of the Estrada Administration, for instance, puts emphasis on agriculture as key to promoting our country’s global competitiveness. There is merit to this. But let me go on. Aside from this, pre-identified potential sources of incremental growth in exports, according to the Philippine Export Development Plan from 1991 to 2001, are dominated by resource-based products and industrial manufactures. To cite some figures, agricultural resource-based products constitute about US$1.3 billion or 4.5% of the total US$29.5 billion Philippine Export Market. Food-based agricultural products constitute another US$1.2 billion, or 4.3%, of our export market. In a country of 76 million people by the year 2000 with 40% of the national workforce in the farms, it is but logical that our economic policies focus on agriculture- at least from the standpoint of livelihood, employment and food security. After all, we cannot simply let our people starve. But, whether due to inherent limitations, miscalculated policies, uncontrollable world events, protectionist policies, or furies of nature, agriculture has not produced much economic value-added, nor the value of our agriculture export products been stable. Other resource-based products, while giving short and medium-term revenue to the country, are slowly stripping the Filipino nation of its patrimony. Together with heavy industries, we are left with the "environmental trash" in terms of soil erosion, deforestation, air and water pollution and other wastes.

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Our local market is also small, not enough to maintain economies of scale needed for successful world class industrial ventures. In fact, to rely on the export market may be a daunting challenge considering the enormous costs of shipping industrial goods to the bigger markets abroad. This simply does not make Filipino products very competitive abroad. Our problems could be exacerbated upon the implementation of the GATT-WTO agreements. Do we have the competitive niches to survive in the new economy? I believe we need to undergo a reality check, reexamine our strengths and weaknesses as a nation, and if found imperative, change gears and consider a two-pronged strategy approach to exports development -- one that is not solely agriculture or resource-based, but rather, one that is also anchored on technology butressed by a strong knowledge-based services sector. This shift in emphasis will rely on our gradually increasing comparative edge in information technology, as contrasted with our basic dependence on agriculture, from which Filipinos are still deriving low and unstable incomes; or in natural resources that are easily depleted; or, moreover, in big industries that are highly capital-intensive. Dr. Craig Barrett, Chief Executive of Intel, was right when he observed that "natural resources and labor rates are no longer the only factors needed for a country to remain competitive. One must have the knowledge that can be put to use to create new products." A high value-added service economy, sustained by a strong information technology program, will open new trade opportunities. And we have all the people we need to be tapped: 60 percent of our population working outside of the farms, the non-agricultural sector. Moreover, our people have relatively good English skills that are required for I.T. work. The demand abroad is staggering. Electronic commerce, or e-commerce, for instance, is estimated to become an annual trillion dollar industry worldwide by the year 2003. In the Asia-Pacific region alone, there will be a US $200 billion I.T. market per year. Relate this to our 1998 total export revenue of only US$29.5 billion, equivalent to 14.8 percent of the potential regional I.T. market. To pump-prime e-commerce, a potential export winner for the country, I recently filed House Bill 7104, which serves as a counterpart measure of a similar bill filed in the Senate. Clearly, this will be as challenging as the recent Y2K measure that we also authored, and which was recently signed into law. Tough issues on e-commerce will have to be resolved. There is the problem of security of transactions, digital signatures, satisfaction of the notarial legal requirement of personal presence before the notary of the affiant and witnesses under a state of own volution and free will. How do you comply with this if you are transacting online and you do not get to meet face to face with the affirming authority? And then there is the issue of admissibility and weight of electronic evidence, and the probative value of electronic documents. Most likely, we will have to reengineer our rules on evidence, our commercial laws, our laws on sales and the notarial law, among others. The forthcoming convergence of telecommunications, information technology and the media in the world arena will also bring more opportunities as countries, by sheer necessity, will now have to be more liberal with their municipal laws if they are to promote cross border commerce. New international agreements like the GATT-WTO are also creating new trade paradigms. Moreover, nation states are now merging into one global village that is rooted on

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ubiquitous electronic networks and driven by a new set of economic rules - the rules of a connected world manifested by the Internet. Indeed, the active participation by Filipinos in the future global economy would not be far-fetched given a sound technology policy framework that encompasses a national agenda toward developing a knowledge-based service export industry. We will have to create a regime where the intellectual property rights of Filipinos as well as those of other countries in relation to I.T. are truly respected and protected. This is needed if e-commerce is to thrive. Bringing about this change, however, would require strong advocacy support, particularly from the private sector. A recent study has shown, in fact, that while technology policies are important, technological progress in East Asia must be led mostly by the private sector. David Osborn and Ted Gaebler in their thesis Reinventing Government argue that the government should only steer and let the private sector do the rowing in bringing about economic progress. As a tripartite group, the Society for the Advancement of Technology Management in the Philippines could very well take up this challenge to advocate a change in focus in trade and export development to one that recognizes the huge potential of knowledge-based enterprises. Various publications have also emphasized the importance of indigenous sources of technological capability, which could initially start with simple innovations and graduate to consequent masteries in research and design. In the Philippines, semi-conductor and electronics offer some potential. In 1998, exports of these products constitute US$19.8 billion, or 67 percent of the total value of Philippine exports. But at present, there is only assembly activity in these sectors, with very limited knowledge input. For the medium-term, offshore sourcing of knowledge projects offers considerable promise, such as Y2K or millennium bug remediation, web page design, computer graphics, testing of hardware and software applications, and software programming. In the long-term, Filipino industries can engage in software design and research. Alongside these initiatives, however, our telecommunications and information infrastructure must be improved. Without such facilities, our economy will surely fail in the new information century. The directions mentioned thus far would lack the necessary teeth if not backed up by financial resources through allocations in the national budget. The shift to an export development strategy must be reflected in the government’s budget for technology promotion and development vis-a-vis other appropriation items . In 1998, P931.1 million of the government budget was allocated to technological research and development. This represents merely 0.3% of GNP that is far below the minimum prescribed level of R&D expenditure by UNESCO. UNESCO prescribes 1.0% of GNP. In comparison, industrialized countries are allocating as much as 3 to 5% of their GNP to scientific research and development. The UNESCO minimum standard is meant for developing countries like the Philippines, which is necessary to prevent stymied economic growth. Economist Robert Shaw claims that technology has been responsible through the ages for 80% of economic growth.

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This representation has filed a bill in Congress requiring the government to allocate a minimum of two percent of the total GNP for scientific and technological research and development. This will hopefully generate for R&D some P18.6 billion per annum. Even at 1% of GNP, the minimum requirement under UNESCO, the allocation will increase to P9.3 billion- still a respectable amount, not just for I.T. but for all of technologies. With sound policy environment, necessary infrastructure, and technology management efforts firmly in place, I believe we can elevate our knowledge-based industries, and information technology most especially, to a higher level as a primary export development strategy for the country.

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Roger Posadas The key ingredient to the success of Korea and Taiwan, but is missing in the Philippines industrialization effort, is the conscious, competent, and concerted practice of technology management by the national government and domestic firms. Most Philippine firms have remained mere importers and users of foreign technologies. As a result, they have been trapped in a vicious circle of technological laggardness and dependence that has stunted the competitiveness and productivity of Philippine industries. The most important roles of the government are to secure a stable and conducive macroeconomic environment for long-term investments and to provide adequate educational, technological and infrastructural support to industrial development.

uring the past decade there has been a tremendous global expansion of interest in technology management among business executives, government leaders, and business

schools as shown by the recent mushrooming of graduate programs, books, and journals in this new interdisciplinary field. In the Philippines, the institutionalization of technology management was pioneered by the University of the Philippines at Diliman when it established the Technology Management Center in 1995 and started offering the Diploma and Master’s Programs in Technology Management in 1996, becoming only the second academic institution in Asia to do so. This recent explosive growth of interest in technology management is but a manifestation of the increasing awareness among corporate and government leaders that competence in technology management - that is, adeptness and agility in selecting, acquiring or generating, exploiting, and mastering technology - is the key strategic factor in creating and sustaining competitive advantages for a firm or nation. Although the formal recognition of technology management as a distinct field of management is a recent development, the practice of technology management at the firm and national levels has long been pursued as far back as the Industrial Revolution. In Asia, the Japanese used technology management competently and effectively in their successful drive towards industrialization and technological catch-up. Following this Japanese model of technology management, the Koreans and Taiwanese succeeded in industrializing their

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economies, becoming export tigers, and narrowing their technological lags at a much faster pace (within 25 years) than the Japanese. In contrast, although the Philippines started its own industrialization efforts in the 1950s ahead of Korea and Taiwan by at least a decade, it has not attained the status of a newly industrialized country (NIC), much less that of an export tiger. What is worse is that whereas 50 years ago the Philippines was ahead of Korea and Taiwan in all aspects of national development, it is now behind these two NICs by at least 25 years in technological development. So what was the ingredient or factor that was key to the success of Korea and Taiwan but is missing in the Philippine industrialization effort? This ingredient, of course, is the conscious, competent, and concerted practice of technology management by the national government and the domestic firms. Therefore, if the Philippine government and industries are really serious in attaining NIC status and global export competitiveness, it is imperative that we study how the Koreans and Taiwanese used technology successfully to become NICs and export tigers and derive lessons from their experiences. It is towards this end that this paper is written. There are some people, however, who believe that it is worthless studying the Korean, Taiwanese, or Japanese models of industrialization and technology management because of the recent Asian economic crisis that has plunged these countries into recession. Yet, what these people neglect to point out is that these economic tigers’ current temporary economic problems have been caused not by the failures of their technology management but rather by weaknesses in financial management at the corporate and national levels, particularly the corruption and collusion among government and corporate officials that masked serious corporate financial problems. Hence, this paper takes the position that the Korean and Taiwanese experiences in technology management can offer us valuable lessons that can be useful in our national drive towards industrialization and export competitiveness. In the next section, we explain what technology management is about, then describe the main features of the export-led technological learning and catch-up strategies that the Koreans and Taiwanese pursued to develop their technological capabilities and export marketing skills simultaneously. The particular lessons in technology management that can be drawn from Korea and Taiwan are then discussed. We finally present a list of technology management recommendations that our country can adopt. THE ELEMENTS OF TECHNOLOGY MANAGEMENT Technology can be narrowly defined as "the engineering knowledge needed to create and produce a new product or process." In a broader sense, technology management is "the means of accomplishing a specific task". In Michael Porter’s value-chain model, a firm’s technology is the way it performs its value-chain activities, as depicted in Figure 1 and Figure 2. It is clear, therefore, that technology, broadly defined, pervades all activities of a firm. Hence, a firm can create competitive advantages for itself - whether in terms of lower costs through the use of better process technologies, or of distinct and better products through the use of better product technologies - by making appropriate technological decisions for each value-chain activity as to the selection, sourcing, acquisition, generation, exploitation, assimilation, improvement, or abandonment of technology. The integrated and consolidated set of

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technological decisions for all of the firm’s value-chain activities will constitute the firm’s technology strategy. We can now define technology management as the strategic formulation and operational implementation of a technology strategy that informs, and conforms with, the firm’s competitive strategy. In other words, technology management at the firm level involves the strategic and operational management of the firm’s various technology-related functions and activities such as technology audit, scanning, forecasting, selection, sourcing, acquisition or generation, commercialization or licensing, absorption and adaptation, mastery, transfer, and abandonment.

FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

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SUPPORTACTIVITIES

PRIMARY ACTIVITIES

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Transportation Technology

Material Handling Technology

Storage and Preservation Technology

Communication System Technology

Testing Technology

Information System Technology

Basic Process Technology

Materials Technology

Machine Tool Technology

Material Handling Technology

Packaging Technology

Maintenance Methods

Testing Technology

Building Design / Operation Technology

Information System Technology

Transportation Technology

Material Handling Technology

Packaging Technology

Communication System Technology

Information System Technology

Media Technology

Audio & VideoTechnology

Communication SystemTechnology

Information SystemTechnology

Diagnostic and Tesing Technology

Communication System Technology

Information System Technology

Training TechnologyMotivation Research

Information Systems Technology

Product TechnologyComputer-aided DesignPilot Plant Technology

Software Development ToolsInformation Systems Technology

Information System TechnologyCommunication System TechnologyTransportation System Technology

Information System TechnologyPlanning and Budgeting Technology

Office Technology

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Figure 1. Michael Porter’s Value-Chain Model of a Firm

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Technology management can be pursued through an exogenous cycle from the

acquisition to the mastery of an externally-sourced technology, or through an endogenous cycle from in-house research and development (R&D) to technology commercialization, or through a judicious combination of these two approaches. A technology management framework for a firm is shown in Figure 3. If we define a firm’s competitiveness as its ability to get customers to choose its product(s) or service(s) over competing alternatives on a sustainable basis, then it is obvious that technology management is strategically important to competitiveness for it can improve the firm’s product technology (i.e., the design of novel or better products), or its process technology (i.e., the efficient production of products). The first step in technology management is the technology audit of a firm or a nation, which is essentially the assessment of the firm’s or nation’s technological status for each technology in terms of two measures: (1) its level of technological sophistication (i.e., the measure of its proximity to the technological frontier or state-of-the-art); and (2) its level of technological capability (i.e., the extent of its technological mastery of that technology).

A firm’s level of technological capability is indicated by its position or rung in the following technological ladder of capabilities.

1. Operative Capability - the ability to use or operationalize an externally acquired technology efficiently and to carry out routine maintenance and minor repairs on the technology. 2. Adaptive Capability - the ability to adapt an externally acquired technology to local conditions through a modification and/or localization of the technology’s scale, inputs, and peripheral components. 3. Integrative Capability - the ability to select, procure, and integrate parts of a technology system in order to reconstruct, without external assistance, a production or service facility on the model of a previous externally acquired facility. 4. Replicative Capability - the ability to reproduce through reverse-engineering a local replica or imitation of an externally acquired product, equipment, or process. 5. Innovative Capability - the ability to design and commercialize a significant but incremental improvement or “upgrade” of an externally acquired product or process. 6. Creative Capability - the ability to create a radically new technology from endogenous research and development (R&D) and to commercialize it into a novel product, process, or service.

Figure 2. Representative Technologies in a Firm’s Value Chain

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Figure 3. Technology Management Framework in terms of an Endogenous Innovation Cycle or an Exogenous Innovation Cycle

A firm at the lowest or operative rung of the technological ladder is a mere technology user, while one at the highest or creative rung is a technology creator or producer. The technological sophistication of a firm’s technology can be gauged in terms of its location along the curve of the technology’s life cycle, as shown in Figure 4. Thus, a technology can be: (a) state-of-the-art if it is at the introductory stage of the technology life cycle; (b) a dominant design if it is at the growth stage or upward slope of the curve; (c) standardized or mature if it is at the plateau of the curve; (d) declining or aged if it is at the downward slope of the curve, and (e) obsolete if it is at the terminal segment of the curve.

CORPORATESTRATEGY-MAKING

AND PLANNING

STRATEGY-TECHNOLOGY

ANALYSIS

TECHNOLOGYPLANNING

OPERATIONS

TECHNOLOGYFORECASTINGAND MAPPING

AUDIT OFINNOVATIONCAPABILITIES

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Figure 4. The Technology Life Cycle

Using these measures of a firm’s technological status, we can make a rough depiction of the overall technological profile of Philippine domestic firms. Large firms, especially those linked with foreign firms, use foreign technologies that range in sophistication from "standardized or mature" to "dominant design" but their technological capabilities are generally limited to the operative and adaptive levels. On the other hand, most domestic firms (comprised of small and medium enterprises or SMEs) use technologies ranging in sophistication from "obsolete" to "standardized or mature" even though their technological capabilities may have gone beyond adaptive levels. In general, Philippine domestic firms do not make any effort to reverse-engineer or improve an imported technology; they simply buy another set of foreign equipment or license another foreign process when they decide to replace their technology. Thus, most Philippine firms have remained mere importers and users of foreign technologies. As a result, they have been trapped in a vicious circle of technological laggardness and dependence (shown in Figure 5) that has stunted the competitiveness and productivity of Philippine industries. At the same time, successive Philippine governments have failed to formulate and implement a coherent and effective system of national technology management as shown by the fact that over the past 50 years, the country did not have a coherent national industrialization

Introductory Growth Mature Declining Obsolete

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strategy nor a clear national technology strategy. As I have explained in an earlier paper, our government’s S&T policies and programs have been largely nothing more than R&D policies and programs that tried addressing the demand side and linkage part of national S&T development. Therefore, I maintain that the continuing failure of the Philippines to achieve NIC status and export competitiveness is due mainly to its continuing weaknesses in technology management at the firm level and national level, which have perpetuated the technological laggardness and dependence of Philippine industries. A Japanese economist has aptly described our country’s half-century of industrialization efforts as "technology-less industrialization". Since the essence of industrialization is the relentless mastery of manufacturing technologies and continuous accumulation of manufacturing skills, it is obvious that any industrialization effort that neglects technology management is doomed to fail.

Figure 5. The Vicious Circle of Technological Backwardness and

Dependence Observable in Most Philippine Firms

LINKING TECHNOLOGY MANAGEMENT AND EXPORT MARKETING IN KOREA AND TAIWAN This section will discuss how Korea and Taiwan were able to achieve NIC status and export competitiveness by linking technology management with export marketing. In the 1960s, when both the Korean and Taiwanese governments decided to pursue export-led industrialization, they

Local firms’ poor

technologies and very weak technological capabilities

Local firms’ inability to master the

foreign technologies

Local firms resort to

technology transfers from

abroad

Local firms’ lack of global technology-

competitiveness

Local firms’ continuing

dependence on mature foreign technologies

Local firms’ lack of drive upgrade their product and

process technologies

Absence of R&D and technology

management in most

local firms

Local firms’ satisfaction in doing business

in the domestic market

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both adopted national technology management policies that were supportive of their export-oriented policies, although they differed in their growth strategies, with Korea concentrating on large, diversified conglomerates called chaebols, as its engines of growth, and with Taiwan relying on a multitude of small and medium enterprises (SMEs). Both Korean and Taiwanese firms that wished to enter export markets in the 1960s had to overcome two sets of competitive disadvantages: (a) serious technological disadvantages because of their huge technological lag behind the world’s technology leaders; and (b) serious market disadvantages in terms of their isolation from export markets and their lack of experience in export marketing. Their basic problem then was how to overcome international market and technology barriers to entry. The Korean and Taiwanese firms were able to overcome the initial barriers to entry by using international technology transfer mechanisms to acquire technology and to enter export markets. The international technology transfer channels used by the Korean and Taiwanese firms were the following: ! Foreign Direct Investments (FDIs) ! Joint Ventures ! Technology Licensing ! Subcontracting ! Original Equipment Manufacture (OEM) ! Own-Design and Manufacture (ODM) ! Technical Assistance by Foreign Buyers ! Reverse-Engineering of Foreign Products ! Informal Means (Overseas Training, Hiring of Foreign Engineers, Recruitment of Locals

Trained in TNCs ! Overseas Acquisition of, or Equity Investments in, Foreign High-Tech Firms ! Strategic Alliances

Most of these channels provided Korean and Taiwanese firms with access to both technologies and export markets. Exploiting these channels, Korean and Taiwanese exporting firms succeeded in accumulating export marketing skills that enabled them to graduate from the supply of labor-intensive assembly services to the export of sophisticated products, and simultaneously climbing up the technology ladder from operative capabilities to innovative and creative capabilities that enabled them to graduate from technological imitators and apprentices to technological innovators. The linked stages of export marketing and technological capabilities that Korean and Taiwanese firms went through are given in Table 1.

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Table 1. Linkage of Export Marketing Skills and Technological Capabilities Export Marketing Stages Technological Capabilities

1. Passive importer-pull; 1. Assembly skills and basic production Cheap-labor assembly; capabilities with respect to mature Dependence on buyers for distribution products 2. Active sales of capacity; 2. Incremental process changes for quality and

speed; and cost-based; Reverse-engineering of foreign products Dependence on foreign buyers

3. Advanced production sales; 3. Full production skills; Establishment of marketing department; Process innovations; Start of overseas marketing; Product design capability Marketing of own designs 4. Product marketing push; 4. Initiation of R&D for products and processes; Direct sale to overseas distributors and retailers; Product innovation capabilities Buildup of product range; Start of sale of own-brand 5. Push of own brand; 5. Competitive R&D capabilities; Direct marketing to customers; Linking of R&D to market needs; Use of independent distribution channels Advanced product/process innovation and direct advertising; Use of in-house market research

To Korean and Taiwanese exporting firms, export markets provided the demand that pulled their technological learning up the technology ladder from imitation to innovation. At the same time, the intense competition from other domestic firms and pressure from the government pushed the exporting firms to continuously improve their technologies and upgrade their technological capabilities. In turn, the technological development of Korean and Taiwanese firms raised their productivity and product quality, enabling them to sustain their competitive advantages and expand their exports. However, the buildup of technological and marketing capabilities in Korean and Taiwanese firms could have been hampered or undermined if they had not been supported by a government which provided them with: (a) a stable and favorable macroeconomic environment of low inflation and low interest rates that was conducive to long-term planning and investment; (b) adequate educational and infrastructure support; (c) a competitive market that pushed competing firms to upgrade continuously; and (d) a national technology management system which supported technological learning and innovation. TECHNOLOGY MANAGEMENT: LESSONS FROM KOREA

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The phenomenal rapid industrialization and accelerated technological progress achieved by South Korea within a few decades can offer many lessons in technology management to developing countries like the Philippines which has been trying unsuccessfully to industrialize for the past 50 years. These lessons can be divided into those pertaining to national technology management and those pertaining to firm-level technology management. Lessons from Korea’s National Technology Management Role of Government In the 1960s and 1970s, a strong, developmental, interventionist government played a key and effective role in driving and steering the Korean economy into its successful export-oriented industrialization by targeting certain preferred industries, using carrots and sticks to push Korean firms into achieving ambitious export goals, and protecting the domestic market from imports and FDIs. In the 1980s and 1990s, however, the effectiveness of the Korean government’s interventions was reduced because of rapid changes in the world’s economic environment and because political corruption led to a collusion between the government and the big conglomerates or chaebols. State intervention in the economy can be effective for only as long as the government’s leaders and technocrats are competent and incorruptible. Industrial Policy Industrial policy, specifically "targeting" or the selection of particular industries for government support and development, was pursued by the Korean government with mixed results: it was successful in electronics, steel, and shipbuilding but unsuccessful in chemical and machinery industries. Targeting can be a risky government policy. The government should instead promote and develop industrial clusters that can integrate and link related and complementary industries as well as large, medium, and small firms. Export-Oriented Policy The Korean government in the 1960s and 1970s vigorously pushed Korean firms to upgrade their technologies and achieve ambitious export goals while supporting them with financial, technological, and international marketing assistance. In 1962 the Korean government created the Korea Trade Promotion Corporation (KOTRA) which by the 1980s operated about 100 international trade centers throughout the world and, with the help of 30 or so Korean trade associations, tracked export markets and supplied information to foreign buyers and Korean exporters. To achieve export competitiveness, the government must vigorously push exporting firms to continuously improve their product and process technologies to world-class standards while providing them with financial and technological assistance and global network of marketing support services similar to Korea’s KOTRA and Japan’s JETRO. Technology Transfer Policy In the 1960s, the Korean government adopted a restrictive policy against FDIs and foreign technology licensing and allowed mainly technology transfers through imports of foreign machinery. This policy allowed Korean firms to avoid management control by TNCs and to

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pursue an independent approach in sourcing and acquisition of foreign technologies. In addition, the policy forced them to undertake reverse-engineering of foreign products. In the 1970s, however, the government relaxed its restrictions on FDIs and licensing as Korean firms gained capabilities in assimilating more complex technologies. To attain an independent, self-reliant technological capability, the industrialization strategy should not depend primarily on FDIs but should instead build up domestic industries and firms as the engines of industrial growth. Too much reliance on FDIs sustains technological dependence and laggardness. Industrial Structure Policy The Korean government adopted in the 1960s an industrialization strategy that relied heavily on large, widely diversified, vertically integrated, family-owned, rigidly hierarchical and bureaucratic conglomerates known as chaebols for the scale-intensive mass production of standardized products for mature export markets. This strategy, however, neglected the development of SMEs. It was only in the 1980s when the importance of SMEs was belatedly recognized that an institutional framework for supporting and upgrading SMEs was established. Nevertheless, unlike the Japanese keiretsu, the chaebols failed to develop a supply chain of specialized SMEs, leaving them dependent on foreign (mainly Japanese) competitors for key components, parts, and materials. SMEs should be given as much importance as large firms in a nation’s industrialization because SMEs can serve as suppliers and support service providers to large firms. They can be niche exporters like Taiwan’s SMEs. The continuous technological upgrading of SMEs and their linkage with large firms through industrial clusters should be a priority program of government. Education and Training Policy The Korean government in the 1960s invested heavily in education to produce a well-trained, hardworking workforce for industrialization. In 1974 the government passed a law that required all industrial firms with 300 or more workers to provide in-plant training. A year earlier, the government enacted a law which decreed that technicians/craftsmen had the same status as scientists and engineers. Since the 1970s, however, investments in education declined, particularly in higher education, resulting in shortages of high-level engineers and scientists and the development of only a few research-oriented universities. The upgrading of educational institutions and programs at all levels should be an essential priority of government. Private firms should also be urged to institutionalize a regular training program for their employees. Technical and vocational education and training should be made as attractive and prestigious as college education. Government R&D Institutes In the 1960s the Korean government established the Ministry of Science and Technology to manage the country’s S&T development programs. It started the organization of a network of government-owned R&D institutes (GORDIs), beginning with the Korea Institute of Science and Technology (KIST) in 1965. The GORDIs played important roles in assisting in the 1960s and in 1970s in sourcing, acquiring, reverse-engineering foreign technologies and by serving as the key implementers of the country’s national mission-oriented R&D programs during the 1980s and 1990s. Their effectiveness, however, has been weakened in recent years because of their stifling bureaucracies and the loss of researchers to universities and corporate R&D centers.

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The role of GORDIs in a country’s R&D system should be reviewed as university and corporate R&D centers develop. GORDIs could still find a niche in the development of non-market-oriented technologies and in the diffusion of technologies to SMEs. R&D Promotion and Financing The Korean government promoted domestic R&D activities by means of direct and indirect R&D incentive packages. Direct R & D incentives are for developing R&D infrastructure and financing R&D in universities and GORDIs; Indirect R & D incentives, which included preferential R&D loans and R&D tax concessions, are for at stimulating private sector R&D. By the 1980s the government’s preferential R&D loans became the most important means of financing private sector R&D-- accounting for about 64% of total R&D expenditures in manufacturing in 1987. National expenditures on R&D, as a percentage of GNP, rose rapidly from 0.32% in 1971 to 2.61% in 1994. The bulk of R&D expenditures also shifted to the private sector which accounted for only 2% in 1963, but accounted for as much as 84% by 1994. Various R&D incentive packages coupled with intense domestic competition and high export goals can be effective in promoting R&D in private firms. National Mission-Oriented R&D Programs In the 1980s and 1990s the Korean government formulated and sponsored several advanced, mission-oriented R&D projects that were undertaken jointly by the GORDIs, university laboratories, and the private sector and designed to solve Korea’s current and future technological problems. These projects were: (a) Industrial Generic Technology Development Project (IGTDP), (b) National R&D Project (NRP), and (c) Highly Advanced National R&D Project (HAN). Huge national mission-oriented R&D projects involving government-academia-industry are hard to manage and are not too fruitful. Cooperative R&D projects undertaken through independent institutes affiliated with industrial clusters may be more effective than national mission-oriented cooperative R&D projects. Technology Entrepreneurship and Commercialization In the 1980s the Korean government enacted laws establishing more than 30 venture capital firms - all jointly funded by the government and the private sector - as a means of promoting new technology venture firms. In 1992, the government introduced the Spin-off Support Program which sought to encourage GORDI researchers to spin off their research outputs and establish new technology-based small firms by offering them financial, managerial, and technical assistance. Then in 1993 the government initiated the New Technology Commercialization Program in which preferential financing could be obtained from the government for activities related to R&D and technology commercialization. The establishment of a venture-capital industry and a spin-off support program should be implemented in the Philippines. Science and Technology Parks The Korean government created two S&T Parks: the Seoul Science Park in 1966, and the Taedok Science Town in 1978. The latter had 14 GORDIs, 3 tertiary-level educational institutions, and more than a dozen corporate R&D laboratories by 1998. However, after 20 years of existence,

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Taedok Science Town had not yet become a dynamic breeding ground for technology-based start-ups like the USA’s Silicon Valley or Taiwan’s Hsinchu Science-Based Industrial Park. Science Parks, Technology Parks, Research Parks, Science Towns, or Technopolises have been created not only in Korea but also in many other countries, but only a few have been able to approximate the bustling dynamism and technology-business synergy of Silicon Valley. Industrial clusters, linked to academia and government agencies, have greater promise of promoting technology entrepreneurship. Technology Diffusion and Extension As a belated realization of the importance of SMEs, the Korean government in the 1980s established an extensive network of government, public, and private (non-profit) technical support systems to provide technology diffusion and extension services to SMEs. This network is coordinated by a government agency, the Industrial Advancement Administration, and composed of a national network of technical extension services, a separate network for technology diffusion, and an online network of S&T information dissemination. Korea’s extensive networks of technology diffusion, extension services, and online S&T information dissemination should be adapted to Philippine conditions in order to support the development and upgrading of SMEs. Lessons from Korea’s Corporate Technology Management Most Korean firms, especially the chaebols, were fiercely committed to a technology strategy of moving up the technology ladder rapidly through a technological learning process that consisted of four phases: (1) preparation, (2) acquisition, (3) assimilation, and (4) improvement. They also had certain remarkable characteristics such as: (a) heavy investment in in-house R&D, (b) strong commitment to training of personnel, (c) orientation towards low-cost, high-volume production, (d) early efforts to develop their own products and to market these abroad under their own brand names, (e) drive for growth and willingness to take risks, (f) strong discipline and fierce competitive can-do spirit. The following are the major lessons that can be learned from Korea’s corporate technology management. Preparations for Technology Acquisition Korean firms diligently monitored technological developments in advanced countries through technical assistance agreements with foreign firms, the setting up of technological outposts in Silicon Valley, establishing R&D and marketing subsidiaries in California, short-term observation of foreign plants and exhibitions, short- and long-term training and education abroad, direct ties with local S&T information centers, direct links with foreign research institutes, and subscriptions to foreign journals. In preparation for the acquisition of a particular technology, they would conduct extensive reviews of the technical literature, pirate experts in the technology, conduct an observation of the technology in actual operation abroad, or undertake a joint research with a local R&D institute in that technology. These preparatory activities enabled the Korean firms to select appropriate technologies, identify suppliers of the technology, and strengthen their bargaining positions in the acquisition of the technology. These preparatory activities are worthy of emulation by Philippine firms because these would help them in selecting and acquiring appropriate foreign technologies.

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Technology Acquisition Strategies The strategy used by Korean firms in acquiring technology depends on the supplier’s willingness to transfer technology, extent of patent protection, and nature and maturity of the technology. If the technology is simple and mature, Korean firms would reverse-engineer the foreign product to create clones or knock-offs. If the technology is complex but mature (as in the case of cars) and reverse-engineering is not feasible, but suppliers of technology are willing to transfer, then Korean firms enter into licensing agreements. When the technology is in the growth stage of its life-cycle and has unexpired patents and if the foreign firms were unwilling to transfer it, then Korean firms would collaborate with a local R&D institute smaller foreign firms in cracking technology through advanced reverse-engineering, as in the case of optical fibers, industrial robots, microwave ovens, electronic switching systems, and personal computers. When the technology is new and its foreign owners are unwilling to transfer it, some Korean firms would establish R&D laboratories and listening posts in foreign country, buy the technology from distressed small high-tech companies, or take over foreign high-tech companies. Finally, when the technology is still embryonic or emerging, Korean firms invest heavily in their own in-house R&D and enter into strategic alliances with TNC high-tech leaders like IBM, ATT, Toshiba, Microsoft, etc. Korean firms’ aggressiveness and adeptness in acquiring foreign technologies should be emulated by Philippine firms. Technology Assimilation and Improvement Upon the acquisition of a foreign technology, Korean firms immediately exerted efforts to assimilate and improve the technology by moving the technology ladder from the operative rung, to the adaptive, integrative, replicative, and innovative rungs. To help in their assimilation efforts, Korean firms hired retired or moonlighting foreign (usually Japanese) engineers as tutors or consultants. The Korean practice of assimilating and improving an imported technology should be emulated by Philippine firms so they can avoid costly dependence on foreign technology suppliers while being able to improve their competitiveness through incremental innovations in product and process technologies. Corporate R&D Korean firms invested heavily in in-house R&D as they moved towards the technology frontier in their product and process technologies. The leading chaebols also established in the 1980s several R&D centers in the USA, particularly in California, to tap the R&D expertise of experienced Korean-American and other American scientists and engineers. From 1981-1991 Korea recorded the highest growth rate of private sector R&D per GDP at 31.6% as compared to Singapore’s 23.8%, Taiwan’s 16.5%, and Japan’s 8.8%. Philippine manufacturing firms should start investing in in-house R&D not only as a means of improving their product and process technologies but also as a leverage for acquiring foreign technologies. Technological Training The chaebols were strongly committed to the training and development of their personnel in order to facilitate technology learning and assimilation. They established their own training institutes,

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formulated their own training programs, and sent their engineers and top technicians abroad for advanced training. Corporate education and training has become imperative for the development of a world-class workforce that can cope with the demands of globalization and rapid technological change. From OEM to ODM to OBM Starting from OEM (i.e., original equipment manufacture where a domestic firm produces a finished product to the precise specification of a foreign TNC, which then markets the product under its own brand name through its own distribution channels), Korean firms quickly graduated to ODM (i.e., own-design and manufacture, where the local firm undertakes some or all of the product design and production processes needed to make the product according to a general design layout supplied by a foreign TNC) and then to OBM (own-brand manufacture). From the outset, the chaebols were committed to developing their own products and marketing them abroad under their own brand names such as Samsung, Hyundai, and Daewoo. Moving from OEM to OBM is a path that could also be followed by Philippine manufacturing firms, but it entails full commitment to technological learning and continuous technological innovation. TECHNOLOGY MANAGEMENT LESSONS FROM TAIWAN Taiwan presents a stark contrast to Korea because while the latter relied mainly on large, diversified, hierarchical, vertically integrated chaebols as its engines of industrial progress, Taiwan depended on a multitude of SMEs. However, Taiwan also has similarities with Korea because its firms were also successful in climbing up the technology ladder and transforming themselves from technological imitators to technological innovators. Hence, the Taiwanese model of technology management and export competitiveness based on SMEs offers an alternative to the Korean chaebol- based models. Again the lessons from Taiwan will be divided into those pertaining to national technology management and those pertaining to corporate technology management. Lessons from Taiwan’s National Technology Management Role of Government The Taiwanese government played a less interventionist role in the economy than the Korean government but it was also protectionist until recently. Although the government promoted the development of heavy and intermediate-goods industries (such as steel, petrochemicals, and shipbuilding) through direct intervention and financial support, it encouraged private enterprise in light industries such as electronics, textiles, and plastics. At the same time, the government provided a stable macroeconomic environment of low inflation and low interest rates and until recently, protected the local market through import restrictions. The government has played a very active role in the technological upgrading of the economy. The long-term development of science and technology was placed under the responsibility of the National Science Council, while the planning and coordination of industrial development was the responsibility of the Ministry of Economic Affairs.

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In industrializing countries, the most important roles of the government are to secure a stable and conducive macroeconomic environment for long-term investments and to provide adequate educational, technological, and infrastructural support to industrial development. Export-Oriented Policy Like Korea, Taiwan shifted from import-substitution to export-oriented policy regime in the 1960s, which led to the proliferation of SMEs concentrating on labor-intensive industries. Publicly-owned enterprises were set up as reliable upstream suppliers of low-cost raw materials to the downstream private SMEs, thereby playing an important supportive role in industrial development. The export-led SME-based industrial development model of Taiwan offers a viable alternative to the Korean export-led chaebol-based industrialization model of Korea. The Taiwanese model is also more conducive to industrial clustering. Technology Transfer Policy In the 1960s, government policy towards FDIs was described as "encouragement with caution." Initially, the government drew up a "positive list" which identifies the areas where FDIs would be allowed. In 1988 the "positive list" was changed to a "negative list" which stipulated that FDIs would be automatically approved provided these were not in prohibited sectors. Unlike in Korea, FDIs played a central part in electronics, metal products, chemical products, and machineries up to the 1990s. The government encouraged FDIs, joint ventures, and OEM agreements although it often negotiated the terms of entry of TNCs. TNCs attracted the formation of local SMEs which swarmed and clustered around the TNCs, offering their goods and services and entering into OEM arrangements with the TNCs. FDIs should be attracted to seed or develop industrial clusters because they can serve as sophisticated buyers and spur the formation of local SMEs as suppliers or supporting industries. Education and Training Policy The Taiwanese government invested heavily in the expansion and development of the educational system. Public expenditure on education as a percentage of GNP was raised from less than 2% in the 1950s to more than 4% in the 1980s. Technical colleges were also established in the 1970s to enable vocational students to earn a bachelor’s degree and to raise the status and prestige of technicians. The development of education at all levels is essential to industrialization and technological development because the lack of engineers, scientists, and technicians could hamper technological learning and development. R&D Promotion and Financing Taiwan’s gross R&D expenditure as a percentage of GNP was 0.84% in 1979 and 1.04% in 1986. Of this total R & D spending, government’s share in 1986 was 60% allocated to basic research (11%), research and technology development (50%). To encourage the private sector to shoulder a bigger share of the country’s R&D expenditures, the government offered incentives like tax credits and preferential financing, akin to the incentives offered by the Korean government. However, a survey of 1,406 firms in 1987 showed that these incentives were not effective. What the firms considered to be the most effective government measures for

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promoting technological development were: (a) educating more R&D personnel; (b) government coordination of joint research among firms; (c) government assistance in introducing new technologies from abroad; and (d) commercializing and diffusing technologies from GORDIs. Tax credits and preferential loans may not be effective to induce the technological upgrading of firms. Government R&D Institutes Since the SMEs had limited amount of resources for R&D, they had to rely heavily on the government to develop technologies and transfer these to them. In the electronics and information industries, the Taiwanese government established two government owned R&D institutes or GORDIs: the Industrial Technology Research Institute (ITRI) in 1973 and the Institute for the Information Industry (III) in 1979. ITRI was tasked with developing hardware-related technologies, while III was tasked to develop software technologies and provide computer-related services. What was remarkable about these two GORDIs was that they were vested with corporate powers to establish a new spin-off venture company jointly with the private sector or form joint ventures with TNCs. Since 1982, six IC fabrication companies have been spun off from ITRI, while successful joint ventures were formed between III and IBM. To encourage Philippine GORDIs to be market-oriented and to venture into technology commercialization, it is imperative that they be vested with corporate powers similar to those enjoyed by ITRI and III. Science and Technology Parks In 1980, the government established the Hsinchu Science-Based Industrial Park under the administration of the National Science Council as a means of attracting overseas Chinese and returning Taiwanese students to invest in high-tech industries. What makes the park attractive is that it offers world-class facilities, utilities, housing, schools, and other amenities that allows an investor to immediately move in and start business. In December 1988, there were 96 high-tech firms in employing 16,500 workers. The Hsinchu Science-Based Industrial Park could serve as a model for prospective S&T parks in the Philippines. Lessons from Taiwan’s Corporate Technology Management Technology Strategies In contrast to Korea’s chaebols, which relied on the scale-intensive mass production of mature products, Taiwan’s SMEs focused on niche production, relying on speed, adeptness, and agility for their survival and success. Taiwan’s manufacturing firms usually began with OEM arrangements with TNCs, gradually accumulating product design skills to move up to the ODM, (own-design and manufacture) stage, and finally acquiring product innovation capabilities and establishing marketing channels to graduate to the OBM (own-brand manufacture) stage.

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Most Philippine firms do not try to graduate from the OEM stage to the ODM stage. They must emulate the technological development trajectories of Taiwanese firms if they want to be globally competitive. SME Clustering around TNCs Taiwanese SMEs exploited the business opportunities offered by TNCs and foreign buyers by supplying them with parts, components, or assembly services. The availability of low-cost and reliable Taiwanese suppliers attracted more foreign investors, which in turn stimulated more local SMEs, leading to the improvement of the supply infrastructure. The repetition of the process formed a large industrial clusters in keyboards, printed circuit boards, computer mice, PCs, fax machines, calculators, bicycles, sewing machines, and athletic shoes. One of the major deficiencies in the industrial infrastructure of the Philippines is the availability of local manufacturers and suppliers of parts and components. This is a major problem that should be addressed immediately. Takeovers of Foreign Firms A strategy adopted by Taiwanese SMEs to acquire a marketing network, known brand names, and state-of-the-art technologies was to takeover financially distressed foreign firms. An example of this was the Acer Group’s takeover of US-based Counterpoint Computers (which helped Acer acquire minicomputer technology) and of DYNA, the third largest computer dealer in the US (which provided Acer with a marketing network). Takeover strategies can be a very feasible and quick way by which SMEs can become vertically integrated and acquire the marketing channels, brand names, and technologies needed to cope with globalization. RECOMMENDATIONS FOR THE PHILIPPINES Drawing lessons from the experiences of Korea and Taiwan, we recommend tbe following to improve technology management and to attain export competitiveness. On the Role of Government Apart from insuring a stable and conducive macroeconomic environment for long-term planning and investment, the government should push and encourage local firms to attain world-class standards of productivity and product quality. Adequate educational, technological, informational, and infrastructure support are necessary component of this drive. Industry Infrastructure and Industrial Clustering The government should promote the development of a balanced and integrated industry structure by encouraging the establishment of industrial clusters that are linked through vertical (buyer/supplier) or horizontal (common customers, technology, channels, etc.) relationships. Industrial clusters could provide the means for (1) linking large firms with SMEs, TNCs with domestic firms, manufacturing firms with agribusiness and service firms; (2) dispersing industries to the regions and provinces of the country; and (3) focusing the industrial support services of government and academia through cluster-dedicated R&D centers, S&T services, educational and training institutions, financial services, etc.

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Export Promotion The Philippine export promotion programs should be intensified and provided with a global market assistance network similar to Korea’s KOTRA and Japan’s JETRO. Foreign Direct Investments The Philippine industrial development program should not depend mainly on FDIs that view the country as a mere temporary investment base within their global strategy. Nevertheless, as the Taiwanese experience has shown, FDIs could serve as seeds for industrial clusters. The low-cost, high-quality local suppliers could then make themselves indispensable to the TNC subsidiaries. Education and Training The government, academe, and the private sector should work together to upgrade all levels of the country’s educational system, particularly its programs and institutions for educating engineers, scientists, technicians, managers, and entrepreneurs. Private firms should also institute training programs, on their own or collaboratively with other firms through cluster-based institutes or jointly with educational institutions, for the purpose of developing a world-class workforce that can easily absorb, adapt, assimilate, and improve foreign technologies or generate technological innovations. The government should also assist in the development of the country’s leading universities into research universities. It should adopt a massive crash program to increase the country’s pool of R&D scientists and engineers to international levels. It should also encourage the establishment of more graduate programs in technology management and the inclusion of technology management courses in degree programs in business, engineering, science, economics, and public administration. The status of technicians should also be elevated and professionalized by instituting a post-secondary 4-year degree program leading to a Bachelor of Technology (in Software Technology, Air-conditioning Technology, etc.) to be offered by Technical Colleges or Polytechnic Universities and by reinventing technicians as "Technologists". Entrepreneurial courses should also be incorporated into the curriculum from elementary to tertiary levels. R&D Programs and Funding The government, academe, and the private sector should work together to formulate a national portfolio of R&D projects based on a third-generation system of R&D management which would select R&D projects in accordance with (a) short-term, cluster-oriented problems, (b) medium-term, cross-disciplinary, mission-oriented government programs, and (c) long-term, knowledge-oriented, university-based fundamental research. These three sectors should increase their R&D investments to attain the United Nations’ minimum target of 1% of GDP. The government should study and offer various incentive packages that could induce private firms to spend more funds on in-house R&D.

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R&D Organizations The R&D institutes of the Department of Science and Technology (DOST) should be assessed for possible reorganization into corporate R&D organizations that can establish spin-off venture companies or enter into joint ventures with private companies similar to Taiwan’s ITRI. The government should also create a government-endowed, market-oriented contract R&D organization similar to the Korea Institute of Science and Technology or the Fraunhofer Society in Germany. The government and academia should also assist industrial clusters in creating cluster-based and cluster-dedicated R&D centers jointly funded by the government, academia, and the cluster firms. Technology Entrepreneurship and Commercialization The government should promote the creation of venture capital firms, study the establishment of a technology park similar to Taiwan’s Hsinchu Park, initiate a Spin-Off Support Program, patterned after Korea’s program, to encourage and assist government or university R&D personnel to become technology-based entrepreneurs. It should also promote the establishment of technology business incubators. Technology Diffusion and Extension The government, academia, and the private sector, should also cooperate in establishing a national network of organizations dedicated to (a) the diffusion of modern technologies among domestic firms; (b) the provision of testing, calibration, and other S&T extension services; and (c) the provision of online S&T information services. National S&T Management The DOST, DTI, DOE, DOTC, DA, NEDA, and other government agencies should formulate a national technology management framework and institutionalize the practice of technology management in their planning, policy-making, and programming. In particular, the government should conduct regular technology forecasting exercise, technology audit of each industry’s technological status, and international benchmarking of each industry’s technologies, in order to determine each industry’s technological lags relative to its foreign competitors. Corporate Technology Management Philippine firms should also institutionalize the practice of corporate technology management and appoint a Chief Technology Officer or Vice-President for Technology Management who would be responsible for corporate technology management. Philippine firms should emulate the technology management practices of Korean and Taiwanese firms, striving to climb up the technology ladder as quickly as possible in order to achieve global export competitiveness.

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CONCLUSION The principal lesson one learns from the experiences of Korea and Taiwan is that a country or a firm can become an export tiger only if it is also a technology tiger, that is, if it is aggressive, agile, and adept in acquiring, learning, and mastering technologies. Export competitiveness entails competence in technology management because the latter can provide an exporting firm with the competitive advantage of lower costs (through better process technologies) or better product quality or features (through better product technologies). Philippine firms have not yet developed into export tigers because they have remained technological pussycats. Therefore, if Philippine firms want to become globally competitive, they should start emulating the technology management practices of Korean and Taiwanese firms. At the same time, the government should insure a stable and conducive macroeconomic environment, push for world-class norms and standards in products and processes, provide adequate educational, technological, informational, and infrastructural support, and adopt an integrated national technology management system.

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REFERENCES Amsden, A. H. (1989), Asia’s Next Giant: South Korea and Late Industrialization, New York: Oxford University Press. Ford, D., and Saren Mike., (1996), Technology Strategy for Business, London: International Thomson Business Press. Hobday, M. (1995), Innovation in East Asia: The Challenge to Japan Cheltenham, UK: Edward Elgar. Hou, C. and S. Gee, (1993), "National Systems Supporting Technical Advance in Industry: The Case of Taiwan", in R. Nelson (ed.), National Innovation Systems: A Comparative Analysis. New York: Oxford University Press, pp. 384-413. Kim, L. (1993), "National System of Industrial Innovation: Dynamics of Capability Building in Korea", in R. Nelson (ed.), National Innovation Systems: A Comparative Analysis. New York: Oxford University Press, pp. 357-383. Kim, L. (1997), Imitation to Innovation: The Dynamics of Korea’s Technological Learning. Boston: Harvard Business School Press. Korea Advanced Institute of Science and Technology (1987), Proceedings of the International Workshop on Formulation of Science and Technology Policy in Developing Countries. Seoul, Korea September 21-30. Porter, M. E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press. Porter, M. E. (1990), The Competitive Advantage of Nations. New York: The Free Press. Posadas, R. (April 1999), "An Alternative National Science and Technology Development Strategy for the New Millennium", a paper commissioned for the 25th Philippine Business Conference by the Philippine Exporters Confederation, Inc. (PHILEXPORT) through its Trade and Investment Policy Analysis and Advocacy Support Project (TAPS). Roussel, P.A., K.N.Saad, and T.J. Erickson, (1991), Third Generation R&D: Managing the Link to Corporate Strategy. Boston: Harvard Business School Press. Schlie, T. W., (1996), "The Contribution of Technology to Competitive Advantage", in G. H. Gaynor (ed.), Handbook of Technology Management. New York: McGraw-Hill. Sumanth, D. J. and J. J.Sumanth, (1996), "The Technology Cycle Approach to Technology Management", in Gerard H. Gaynor (ed.), Handbook of Technology Management. New York: McGraw-Hill. Yu, S., (1995), "Korea’s High-Technology Thrust", in D. F. Simon (ed.), The Emerging Technological Trajectory of the Pacific Rim. Armonk, New York: M.E. Sharpe, pp. 81-102.

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On foreign direct investment. FDI was seen as a good medium for technology transfer. It was pointed out that the Philippine economy can absorb much more foreign direct investments. In ASEAN, the level of foreign direct investment has been used to gauge the speed of development of member countries. With the advent of globalization and WTO, technology transfer may have to be pursued differently from the path taken by Asian tiger economies in the 60s to 80s. The Philippine Investment Priority Plans were not very successful in attracting investments. FDIs should help upgrade local technology but should be managed more efficiently. Proper target setting can help reap more benefits from FDIs. Solutions of greater relevance to specific industries. There is a need to go beyond broad recommendations and instead move toward finding technology and R&D solutions for specific industries and sectors. This would mean in-depth assessments of the problems and needs of specific sectors and adequate assessments of the requisite funding to complete projects. Creation of a coordinating agency. It was proposed that a KOTRA-type organization be established and a study be made of the massive investment requirements of foreign postings for technology specialists, economic attaches or technology attaches that will serve as listening and monitoring posts. This effort must be complemented with permanent stands in world trade centers to showcase Philippine products and to provide information on the country’s level of technology. In addition, a more aggressive approach to image-building, and in promoting the country’s technological outputs abroad should be pursued. This proposal was particularly supported by the SME sector, since it was pointed out that most small and medium-scale enterprises do not really have the luxury of investing heavily on promotion nor in R&D. Another proposal was for the government to establish a coordinating agency that will manage funds, identify areas where research should be focused, set up technology information exchange, and coordinate with international bodies for cooperative undertaking. The objective is to identify priority sectors whose state of technology need to be improved to a level that is globally competitive. The next step would be to conduct business encounters that will provide opportunities for Philippine firms to enter into strategic alliances with foreign companies. Clustering. There was consensus that clustering is a more efficient method of focusing R&D efforts and providing funds to related industries and sectors. A viable Philippine system of managing technology. The Philippines has to evolve a better system of managing technology and a responsive, efficient, interrelated institutions that will provide a holistic approach to technology governance. This should commence with the legislative and executive branches of government. It was noted that the main problem is not in

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innovating technologies but innovations in terms of organizational and institutional interrelationships and synergies. Japan is not really creative in producing new products but they are good at incremental innovations. More than that, they are innovative in managing organizations. R&D budgeting. With regards to the question of efficient allocation of funds, R&D institutions involved in rapidly developing industries would require more flexible budgeting system since annual budgeting may not be responsive to the demands of keeping up with technological developments. Therefore, timeline for budget approval, allocation and allotment releases should be different in the case of R&D organizations. Lack of government support for local inventors. Inventors present in the forum lamented the lack of support from government. Complaints include inadequate information support from government agencies regarding proper procedures for applying for loans or patents, promotions, certifications, testing, etc. Legislation designating the UP-TMC as a Center for Excellence. The body was informed that a bill has been filed in Congress designating UP-TMC as a national Center for Excellence on technology management and forecasting. Efforts are also being undertaken to ensure that the bill is passed in the Senate. The Center may then work for the inclusion of technology management courses in degree programs in business, engineering, science, economics and public administration.