This article was downloaded by: [University of Bath]On: 02 November 2014, At: 06:28Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registeredoffice: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK

The International Trade JournalPublication details, including instructions for authors andsubscription information:http://www.tandfonline.com/loi/uitj20

Transferring technology to chinaJack N. Behrman a , William A. Fischer b & Dennis F. Simon ca Luther Hodges Distinguished Professor of International BusinessAdministration at the University of North Carolinab Professor of Business Administration at the University of NorthCarolinac Associate Professor of International Technology at the FletcherSchool of Law and Diplomacy at Tufts UniversityPublished online: 21 Jun 2007.

To cite this article: Jack N. Behrman , William A. Fischer & Dennis F. Simon (1989)Transferring technology to china, The International Trade Journal, 4:1, 49-67, DOI:10.1080/08853908908523683

To link to this article: http://dx.doi.org/10.1080/08853908908523683

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of all the information (the“Content”) contained in the publications on our platform. However, Taylor & Francis,our agents, and our licensors make no representations or warranties whatsoever as tothe accuracy, completeness, or suitability for any purpose of the Content. Any opinionsand views expressed in this publication are the opinions and views of the authors,and are not the views of or endorsed by Taylor & Francis. The accuracy of the Contentshould not be relied upon and should be independently verified with primary sourcesof information. Taylor and Francis shall not be liable for any losses, actions, claims,proceedings, demands, costs, expenses, damages, and other liabilities whatsoeveror howsoever caused arising directly or indirectly in connection with, in relation to orarising out of the use of the Content.

This article may be used for research, teaching, and private study purposes. Anysubstantial or systematic reproduction, redistribution, reselling, loan, sub-licensing,systematic supply, or distribution in any form to anyone is expressly forbidden. Terms &

Conditions of access and use can be found at http://www.tandfonline.com/page/terms-and-conditions

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

TRANSFERRING TEC3NOLOGY

TO CHINA

Jack N. Behrman William A. Fischer

Dennis F. Simon

The Chinese government has placed great emphasis on acquisition of foreign technology which would enhamce the capahlities of existing enter- prises. Yet China lacks many of the conditions which would make such trans- fers efective. The mere acquisition of tecfwzology does not assure the contribu- tions sought. There must be a system for receiving the technology and utilizing it effectively, as well as a process of car& selection, so that it is not wasted through inefficiency or non-use. Transnzational corporations (nuC5) them- selves are not always aware of what is necessary for recipients to utilize the technology efectively. Some have simply transferred technology embodied i n equipment or in written or oral commu~ication, leaving the recipients to use it in the best way they see Jt. In m a n j cases there is insufficient ability i n China to receive and utilize current technology.

Efictive technology transfws have! four pre-requisites: the ability and willingness of the owner of the technolop to transfw it, and the willingness and ability of the recipient to absorb it. lIfany of these is absent, the expected contribution is not obtained. Most of th# attention paid to technology trans-

Jack N. Behrrnan is Luther Hodges I?istinguished Professor of Interna- tional Business Administration at the Vniversity of North Carolina.

William A. Fischer is Professor of Busibess Administration at the Univer- sity of North Carolina.

Dennis F. Simon is Associate Professor of International Technology at the Fletcher School of Law and Diplomacy at Tufts University.

ISSN 0885-3908. THE INTERNATIONAL TRALIEJOURNAL, Volume IC: No. I , Fall 1989 49

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

JO THE INTERNATIONAL TRADE JOURNAL

fers is focussed on the willingness of the licensor and the willingness of the licensee or his government to participate i n the transfw. Much less attention has been paid to the relative abilities of each partnw, but these are much more important i n consummating the actual transfw and making it effective.

I. TECHNOLOGY TRANSFERS

Though Chinese enterprises and government agencies (national, pro- vincial, and municipal) are willing (even eager) to accept foreign technol- ogy, the willingness of the foreigner to release it and to incur the costs of transfer is often less strong. This is a result of a lack of information about China or a simple lack of interest. A Chinese radio factory interested in acquiring EMOS semi-conductor technology approached four major American CMOS manufacturers, but none were interested except at very high fees; the project seemed small to them. The Chinese domestic mar- ket was either closed to them, or unattractive, and there was concern that a future competitor might be generated. Rather than open up domestic markets to outside interests, China has sought technology through li- censes and joint ventures for the explicit purpose of serving export mar- kets. In one instance, a radio speaker enterprise spent $3.8 million for technical imports between 1983-87, resulting in exports of $1.5 million in 1987 and on anticipating level of $13 million in 1988.

China's efforts to limit the term of joint ventures have made some TNCs even less eager to do business here. This willingness is also reduced by a historical lack of appreciation in China (as in Taiwan) of the need to protect intellectual property, such as trade names, copyrights, and patents. Although China has enacted a patent law, increased competitiveness

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

Behrman et al.: Tran$m'ng Zchnol@gy to China 51

within the domestic Chinese market appears to be causing them to be more protective of intellectual property, whether or not there is a law.' Still, the development of enterprise which arises through invention and innovation that leads to profit for the principal actors neither permeates China's economic history nor is a major vehicle at present.

Case A: Cotton Textile Factory2

Approximately 20 percent of this factory's output was pro- duced using imported technolob, embodied partly in foreign machinery from Europe and Ja an. The gap between the fac- tory and world technological st ndards was not large until the P mid-1970s, though prior to that /ime there was little interaction between the factory and forei n equipment manufacturers. i: Consequently, it had little kno~ledge a new technologies, and there was little diffusion of inforbation among textile factories.

With the modernization pc/licies in 1978, this factory be- came a leader in importation of foreign technology, looking to overseas markets. If the productb were competitive enough to export, the factory received a hjgher price and the workers a larger bonus. I

The criteria for selection of /he source of new technology were: (1) price; and (2) approprlateness (that is, could China use it? Could it be adapted to factor conditions? Could it produce good quality products?) /n this case, the answers were

'see Fiwher, William A and Simon, F., "The Acquisition of Foreign Technol- ogy by Chinese Enterprises," in & Economu Pdomance in the People? Republzc of China, Washington, DC: The woodhw Wilson Center (Forthcoming).

his, and the following case illustrations are drawn from Simon, Dennis F and Fis- cher, William A., Technology Transfpr to Chzna, Cambridge, M A : Ball' mger, 1989.

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

THE INTER NATIONAL TRADE JOURNAL

affirmative, and the enterprise was able to export the resulting product. But, the enterprise managers concluded in retrospect

that they did not need to import so much foreign equipment.

They did so not understanding the international market and sought to be a "model" for others. It did succeed in this, and assisted others, but the cost was high.

The willingness of the owner of proprietary technology to engage in

transfers is also related to the terms of the agreement and the pursuit of common adjectives.

A reluctance to transfer technology has arisen at times from disagree-

ments over policies of a joint venture-such as markets to be entered and

rates of expansion. In the case of the joint venture between Parker- Hannifan (Ohio) and the Hubei Automotive Industry Corp., considera-

ble technology was transferred to the venture to rectify the poor state of

seal technology in China. Several Chinese engineers were sent to P-H labs to learn quality control and high precision mold design and use. Disagree- ment arose over markets, with Hubei insisting on expanding exports

promptly, especially through Parker-Hannifan; while P-H sought sales in

China. Hubei also wanted to expand production and open a new plant to

serve a dynamic auto industry in China. P-H considered this growth much too fast and was fearful of being pressed itself to take an oversupply of the Chinese product. A fast production pace at Hubei damaged some

of the tools and equipment, reducing quality. The Chinese considered that

P-H's disagreement on policy was reflected in a loss of interest in the venture and inadequate support of production. After much tension, the problems were somewhat relieved through compromises on each side.'

There are some 30 provisions in a usual licensing agreement over which disagreements can arise and thereby alter the eagerness of the li-

cense. For example, the right of the licensor to receive back any improve-

'~usiness China, May 16, 1988, May 30, 1988, and June 20, 1988.

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

Behrman et al.: Transfwn'ng Technobgy to China 53

ments made by the licensee would tend to reduce the royalties requested. Similarly, extension to the licensee of an exclusive right to use the tech- nology would increase the royalty rate. As with most developing coun-

tries, China has continued to undervalue technolog (seeking to negotiate

low royalties) as compared to world practices or what a potential licensor considers appropriate. Thus, under a license from an American producer

of generator technology, the licenscbr receives royalties on all exports by the Chinese enterprise but only the contracted transfer fee for any level of

domestic sales. This reflects a "zero.sum" mentality in which the Chinese

side considers that anything given up to the other party must represent an absolute loss to itself. This attitude perhaps is the result of China histori-

cally being ~ r i n c i p a l l ~ a trading saciety. A tape recorder factory which

bought production equipment and technology from Japanese sources has found its line down frequently for lack of Japanese components. The

delays were attributed by the lice~see to Japanese favoritism to other customers rather than the equally likely inadequacies of the Chinese

transportation system.

Case B: Central Transformer Facqory

A factory producing a varijty of electrical and electronic

products determined that it1 needed foreign technology- mainly in the form of new equipment for production-in or-

der to (I) upgrade its technical capability; (2) gain a competi-

tive edge in the Chinese market; (3) improve export ability;

and, (4) achieve a tie-in with the technology supplier so as to use it as an export channel.

The existing processes wpre largely manual, while more modern machinery was autobatic and computer-controlled. The factory management wad aware of developments abroad but could not afford new eqdipment. When it was informed

(through government channds) that used equipment was available in the United states, it moved quickly to acquire 56

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

THE INTERNATIONAL TRADE JOURNAL

old machines and 24 new ones needed to complete the lines; the latter coming from Poland, Holland, Switzerland and the

U.S. The factory was to pay for some purchases from the American supplier through exports of final product, to be

sold by the latter, thereby establishing an export channel for later Chinese production.

Before the purchase of machinery, the factory produced

40,000 pieces per year, with a quality rate of between 40 and

60 percent acceptable. The Chinese management thought that the comparable U.S. output of the equipment was 150,000 pieces a year, with 70 to 80 percent acceptability. Once the machines were in place, the managers recognized that several

technical problems would have to be overcome. But, accom- panying documentation was not sufficient to allow operation of the equipment, and much of it remained idle.

Because of the lack of understanding by the transferrer,

and by the transferor of the operating environment and the accompanying technology needed, the factory's ability to ex- port and generate the foreign exchange expanded by the tech-

nology acquisition was severely limited. Without the addi- tional technical know-how, the transfer was approaching a disaster.

The factory managers provided the following comparison of national suppliers of technology. Germans were seen as the

most serious, and diligent, but least easy to negotiate with, being resistent to bargaining on prices. Japanese were seen as ready to come to an agreement, being more flexible on prices ("starting high and cutting easily"), but reluctant to transfer

"real technology" (meaning the most advanced); they pro- vided excellent service until final completion of the transfer.

Americans were seen as ready to bargain, making concessions even after agreements were reached, and willing to share exist- ing technology; however, they left the job when their time

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

Behrman et al.: Transj&ring Technolo@ to China TT

was up. "They are very caref~l of their own time and don't want to stay in China too lonf;."

Each of these attitudes affdcted the willingness of the sup- plier to support the technologty and equipment transfer with full "working know-how". In addition, without adequate knowledge of what it "needs lo know", the Chinese factory often obtained less than was hecessary to make the transfer successful.

Of even greater importance to the effectiveness of technology trans- fers is the ability of the licensor to transfer the technology so that it can be readily understood and put into dractice by the licensee. Not all poten- tial licensor are so capable. TNCs +th extensive practice in technology transfers are more likely to know hbw to do so effectively, but the trans- ferred technology may be so standakdized both in design and in transfer approach that the transferor cannc t make appropriate adaptations for different cultural or economic/soc f a1 settings4 Some TNCs essentially transfer a standardized package and $t the licensee sort out how it is used. Other companies, who are new to t#e game, learn by doing and therefore are not to adapt it to different codditions and different materials. The radio factory mentioned above turded to a smaller U.S. company which agreed to supply know-how and gui/de the purchase of appropriate equip- ment to OEM companies in the u./. But, the licensor had little previous experience with technology transfed and did not know whether it could successfully transfer all software or/ could get permission from the U.S. Department of Commerce to do sb. Preliminary trips at a presumably high cost to the licensor and a Co+merce official were required to pro- vide assurances of potential success&l transfers.

4~eece, David J., The Multtnatzonal Co oratcon and the Resource Cost of Internattonal Technology Fan& Cambridge, M A Balling r, 1976; and Davidson, William H., E x p m c e Efects zn Internatzonal Investment and Techno ogy Transfers, Ann Arbor, MI: U.M.I. Research Press, 1980.

e

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

56 THE INTER NATIONAL TRADE JOURNAL

Not the least of the problems facing licensor is their unfamiliarity with different cultures and the way in which they are related to technol- ogy. Without such background knowledge, they cannot anticipate the problems likely to be encountered and they will sometimes underestimate the costs of transfer, only to become frustrated later as costs rise in meet- ing unanticipated situations. Accordingly, the desire on the part of many developing countries, including China, for technology from medium or even small-size companies frequently gains a license agreement, but not necessarily an effective transfer, because of a lack of appropriate experi- ence.

Given time and a willingness on the part of both parties to go through the process of learning, most licensor eventually find a way of transferring technology effectively. Some, however, simply give up the game, being unwilling to take the time or make the effort to do so.

Case C: Northeastern Office Equipment Enterprise

The enterprise produced six different office copiers and con- trolled 47 percent of the Chinese market, selling 30,000 units annually. It anticipated producing 50,000 and exporting 60 percent of this to Southeast Asia, earning some $2 million in foreign exchange.

The technology transfer was from Japan to help produce photo receptor drums, using Japanese equipment, at a cost of $4 million for technology and know-how. Of the 217 pieces of equipment use in production, 184 were imported along with the technology.

An underlying objective of this technology acquisition was to upgrade domestic production quality so as t o be able to export. Some exports were, in fact, made to the Japanese licen- sor. The Japanese company was selected because its copier was suitable to production by the Chinese enterprise, the licensor

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

Behrman et al.: Transfewing Technology to China

was strong in copier technolc)gy, its delivery schedule was 10

months earlier than the others, and a preferential price was

given for technology since t h ~ e e production lines were being ordered also.

Some of the required teqhnology had been shared with another licensee of the same Japanese company, and suppliers in China had been assisted. The indigenization of supplies and

technology had also been assi~ted by the Municipal Economic

Commission who helped find an R&D institute which could design components and sub-assemblies not included in the transferred Japanese technoldgy. Even so, not enough atten-

tion had been paid to the prbblems of indigenization of the

toner and photo receptor technology when first imported. In the future, managers concluded, they should use more Chi-

nese raw materials. The activity was hampered also by inabil-

ity to talk directly to suppliets of the Japanese OEM licensor.

The Chinese management felt it lacked sufficient blueprints and technical materials to mbter the technology on its own.

The Chinese learned a lessor^ not to let such an inadequacy arise again. The Chinese factrpry continued without complete

information on maintenancq. Sometimes replacement parts for machinery were difficult tio obtain-again because the Chi-

nese could not deal directly with subcontractors to the Japa- nese licensor, which also halhdled all equipment sales in the

agreement.

11. TECHNOLOGY ABSORPTION

The most important aspect of successful technology transfer how- ever, is the abzlity of the host counlry and licensee to absorb the technol-

ogy effectively. This ability is taken for granted on the part of most developing countries. As a consequence, not enough is done to make

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

58 THE INTER NATIONAL TRADE ]OUR NAL

certain that the receptiveness actually exist^.^ This is frequently the case in China, and the inability particularly to absorb sophisticated technology is

not always recognized by the Chinese recipient. In the case of Shanghai- Foxboro, the Chinese wanted a more sophisticated technology, before

they had mastered basic analog technology in its process control devices; Foxboro refused to acquiesce.('

A substantial effort is required in building a scientific and technologi-

cal infrastructure not only within the recipient enterprise but in the insti- tutional environment surrounding and supporting it. The recipient should be adequately prepared technically (as well as managerially and

psychologically) to accept, adapt, and use the technology. And suppliers and vendors should learn to raise their own abilities to match the im-

ported technology so at not to undercut the value of the technology received from abroad, by producing components of a quality lower than that needed by the manufacturer of the filled product or not knowing

how to maintain and repair the product. Such gaps will lead to break-

downs with the equipment in disuse longer than is appropriate, leading to high costs and low returns for the technology transfer.

The licensee itself must be technically, psychologically, and organiza- tionally prepared to use the technology, else it simply sits on the shelf or

is applied ineffe~t ivel~.~ An enterprise in northeast China was urged by the of the Electronics Industry to acquire semi-conductor technology. Consequently, it bought a used assembly line from a U.S. Company pro-

ducing CMOS chips, but did not acquire the "know-how". It could not produce CMOS chips with it so it reverted to its usual production of

'~obinson, Richard D., The International Transfer of Technology, Cambridge, M A : Bal- linger, 1988. See especially Chapter 6.

'~tisiness China, June 27, 1988. 7 ~ h a t this can occur even in technically sophisticated environments such as the United

States is seen by the persistence of American machine tools users to employ expensive "flexible" machinery in exactly the same fashion as they used the traditional technologies it replaced. See Juikernow, Ramachandran, "Post Industrial Manufacturing," Harvard Business Review, November-December 1986, pages 69-76.

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

Behrman et al.: Transferring Techncilogy to China 59

bipolar 10 micron chips, of a 20-;/-ear old vintage. It has been unable to enhance the "technique" to use the line for CMOS or any improved

chips. The reasons for technology iimport problems are manifold. A com-

mentary in Shanghai's Libation lpaily points out three major problems. (I) Lack of industrial branch development plans to guide technology im- ports, with the result that emph~sis is placed on short-term economic

benefits to the neglect of long-tertm considerations and assimilation; (2) ineffective functioning of the techhology import organizations and tech-

nology assimilation bodies, with a, lack of coordination and unified com- mand by an authoritative body; jnd (3) a shortage of funds to assist in assimilation, with the result that many key technology projects remain

unfinished. In addition, there is often a lack of understanding of the basic manu-

facturing techniques, limited corapetence of engineers and technicians,

maintenance problems, and acquibition of equipment that requires too

high a degree of sophistication. The late Frank Bradbury, one1 of the pioneer students of technology

transfer, observed that "a characteristic of technology transfer is that some change must occur: either in the technology transferred or the recip-

ient ~r~aniza t ion ."~ Despite a williingness to receive technology, however,

there is frequently an unwillingne~s to make the necessary adaptations or changes in the enterprise's organization, power structure, production lay-

outs, employee skills and level ob employment-all of which upset the

existing system. Relatively few developing countries have created the sci- entific and technological infrastructure necessary to receive, adapt, and use technology transferred from at~road.~ To conserve the resources of the

' ~ r a d b u r ~ , Frank R., "Review of Technology Transfer Studies," in Setron, k M., Davidson, H., and Goldbar, J., (Eds.), Industrial Application of Technology Transfer, Leydon, Netherlands: Nordhoff, 1977.

'see Behrman, Jack N. and Wallentfler, N.W. Transfer of Manufacturing Technology within Multinational Enterprises, Boston: Ballinger, 1976; and Behrrnan, Jack N. and Fischer, W.A., Overseas R&D Actrvities of Tiansnational Companies, Cambridge, M A : Oelges- chlager, Gunn, and Hain, 1980.

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

60 THE INTERNATIONAL TRADE JOURNAL

host country and make certain that the development occurs in the most effective manner, it is necessary to have a scientific community that can assess "appropriate" technology and can also distinguish between what is necessary for the national interest as distinct from what is desirable from the interests of the receiving enterprise.

These distinctions are necessary if an approval process is to be useful at all. The Chinese government, for example, seeks import substitution as a means of generating economic growth, but the protection of the domes- tic market, characterized by large amounts of unsatisfied demand, pro- vides little incentive for a Chinese enterprise to apply technological changes either to expand the market or to reduce costs.1°

Thus, there is little linkage between the development strategy of the government and the interests of enterprises. Only if there is competitive pressure-generated either by additional enterprises in the local market or an opening to the international market through imports or exports-does the pressure increase to make effective adaptations and use of imported technology.

Case D: Eastern Electric Motor Factory

This factory began research into submersible pump technol- ogy for oil recovery in 1975 and went into production in 1979. Subsequently, it had produced 910 pumps for use in Chinese oil drills in more than ten different models of its pumps. However, they did not meet quality expectations and could not be produced in enough volume to meet domestic demand. Complaints about the product had come in from the fields.

'O~his is referred to as "Big Market Mentality" in Fischer, William A. Chinese Manu- facturing Capabilities, working paper, Cneter for Manufacturing Excellence, The Graduate School of Business Administration, The University of North Carolina at Chapel Hill, March 1989.

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

Bebmzan et al.: TranSfewing Technologb, to China

To remedy this situation the factory bought technology from an American firm plus equipment for $8.5 million. It

required three years (1984-19837) to begin production of the

new models..Meanwhile, American-Produced pumps were im- ported in the meantime. The technology transfer involved over 8,500 documents, includinig some 870 technical specifica-

tions and drawings. The factory mobilized 100 engineers to translate and digest this material. The licensor trained the Chi-

nese engineers in the U.S. and provided 20-man months of technical assistance on site in China. To digest the informa-

tion, an additional $1.5 milliopl was spent for sophisticated machine tools; additional tools were produced by the Chinese

enterprise to American designs, The enterprise anticipated having all technology absorbed

in five years. It had established a Technology Information Of- fice to conduct visits, develop engineering specifications, data

collection, training, and indigebization of the imported tech-

nology so Chinese suppliers coruld be substituted e v e n t ~ a l l ~ . ~ ' The 20 engineers trained in thct United States became trainers

in China of the remaining staff', the best people being chosen for these positions.

The process of absorption was guided by two command-

ments: (1) change nothing; and (2) pay attention to quality. To be sure and learn all the licengor had to offer, the enterprise wished to follow the specificatipns and directions explicitly.

major problem arose relative to the second guideline; the Chi- nese had their own QC systed and the American system was

nor considered "appropriate." ?'he American licensor required every worker to "be very alert," but this was not possible in

"~echnology information offices are a recent organizational innovation, created by -. Chinese enterprises to fac~litate the acqu~sitiqns and implementation See Simon & Fischer, Technology %an& to @nu, op. ctt.

of foreign t,

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

62 THE INTER NATIONAL TRADE JOURNAL

China, according to the manager of the chinese enterprise. American workers were seen as well-trained and able to make decisions, but, said the manager, "Chinese workers are not so capable of participation. We figure it will take two more years to reach the level for them to be able to participate in the way assumed by American quality control systems." Japanese qual- ity systems were studied but not wholly adopted, either. The manager observed, "The Japanese give their workers drawings and expect them to live up to these drawings. We have been trying this for four years, but some of our workers falsify their reports. They don't do their job well."

111. DIFFUSION OF TECHNOLOGY

To make the import of technology most effective in supporting eco- nomic growth, it is necessary for acquired technologies to be diffused throughout the society. Lead sectors should be stimulated to employ ad- vanced technologies, which can then impress both suppliers and vendors with the necessity to raise their technical abilities. In turn, these second- ary and tertiary industries will require scientific and technological sup- port from the national industrial research network. If there is no such network, the imported technology is likely to be less well suited for the nation's needs, though it is seen as desirable by the enterprise itself. In China, there are some formal networks for diffusion through the Minis- tries of various industries, but there are few R&D institutes attached to them that are also knowledgeable about what is needed by enterprises. A radio factory was assisted in the design of CMOS semi-conductors by several research institutes under the Chinese Academy of Services; these institutes helped with mass-consumer products while custom designed products were generated by the factory itself-just the reverse of what might typically be expected in the West.

In some instances, at the initiative of the licensees, technolog will be shared with other Chinese enterprises-unless prohibited in the agree-

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

Behrman et al.: Transferring Technolo& to China

ment. In one case, the Chinese licensee was able to adapt an automated Japanese production line to less-autqmated function. It then passed this adaptation on to other Chinese facto~ies. Diffusion of the imported tech- nology is often thwarted by the inabblity of supplier companies in China to absorb the technology appropriate for the components they are to produce. The efforts of the Shanghqi-Foxboro joint venture to increase local value-added, from 10-20 perca t up to 30-40 percent, were frus- trated because suppliers could not pnbduce high quality sophisticated elec- tronic components, could not handle the special metals, and at times could not find appropriate materialinputs. For technology transfers to make their maximum contribution tio China's development, an indepen- dent scientific and technological copmunity is necessary. The Chinese community was systematically destr~yed in the cultural revolution, but even this group was not oriented toiards science for application and was hardly independent. Support of applikd science must be provided in enter- prises by both the government and c~ducational institutions. To some ex- tent this is being done by governmerbt policies removing the Academy of Science research institutes from graQts-type funding and into a market- driven, fees-for-success approach. Tbis is a major departure from tradi- tion. However, and it will take timei to become established.

IV. NEGOTIATIONS

Only if there is sufficient scientfific manpower and technological ex- pertise available to assess imported tt/chnology will the country be able to determine the most appropriate techbology for the country's needs and to bargain for it effectively. It must havk sufficient ability to determine some of the needs beforehand, not relyin6 wholly on the foreigner to suggest them. China's present orientation to technology transfers through joint ventures is to wait for the foreigner 110 take initiatives, which is basically a function of the fact that China does hot have sufficient information about what is available, nor who is capableland interested. The Chinese do make some prior technology selections through pilot licensing agreements and

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

THE INTER NATIONAL TRADE JOURNAL

through searching the literature and asking Chinese companies to identify acceptable foreigner suppliers of similar products. For example, a textile

machinery enterprise (a dominant producer in the Chinese market)

turned to Chinese customers of European manufacturers to identify the best foreign technology supplies. The subsequent examination of poten- tial suppliers took three years, however, because of a basic lack of contin-

uing information and contacts. The enterprise was forced to learn all it

could from magazines, brochures, reports, and then visit end-users in Europe, before narrowing the field. The final supplier decision was based

on price-as is usual in Chinese negotiations-since several potential licen- sor have similarly advanced technologies.

Negotiation of joint ventures are more complex, since the contribu-

tion of the foreign TNC is more than technology. More information is needed, and this is difficult for the Chinese to obtain. This lack of infor-

mation limits the Chinese bargaining position and makes them wary in the process, simply because they do not have an adequate appreciation of

the universe with which they are dealing. China feels itself weak com- pared to the strengths of the foreigner and the information which he

might have; therefore, they often bargain from an extreme and rigid posi-

tion, which makes it difficult to come to an appropriate agreement. Without an adequate scientific and technological network, it is virtu-

ally impossible to plan for international technical cooperation or to make certain that the resources of the country are used effectively. The for-

eigner, therefore, faces "on-again, off-again" behavior, resulting in a high frustration level, an erosion of "goodwill", and a reduction in the contri-

bution which they are willing to make.

Case E: Tanggu Chemical Factory

During 1972-1974, the State Planning Commission, the Min-

istry of Chemicals, the Municipal Chemicals Bureau, and the Technology Import Corporation decided among themselves

to expand the output of petro-chemicals at the Tanggu Chemi-

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

Behrman et al.: Fansfwring Technolo@ to China

cal Factory (TCF) in Northeastern China. A modern process- ing facility would be imported from abroad, along with the requisite technology for produgtion of an intermediate chemi-

cal and maintenance of the eqvipment. A German company

was finally seiected as the souirce. TCF was the supplier of over half of the existing Chi~ese domestic market for the

chemical it produced. TCF had some of the best petro-chemical technicians and

technical experts in its rnanagerplent and had examined foreign technologies on occasion. It wab also an adviser to other petro-

chemical plants and to the Burpaus responsible for this sector on technical matters and maghinery imports. Negotiations

were conducted between the German company and the Tech-

nology Import Corporation though various other agencies and, TCF representatives also participated.

In an effort to save foreign exchange, and as a direct result

of the intervention of Ministoy of Finance officials, the fac- tory "unbundled" the turn-kq package offered by the Ger- mans and insisted on providing the water treatment facilities

from domestic sources. This wias a serious mistake as the Chi- nese side did not fully appreciqe the rationale behind the pro-

cesses and standards for inconping water, nor could domestic

manufacturers satisfy these requirements. The result could have been disastrous. As it was, because of corrosion from

water impurities, all heat exchanges had to be shut down; and the factory had run for only four months before requiring

major repairs. It required three months to replace the damaged equip-

ment and to institute the suggestions of the licensor, such as putting additives in the water, upgrading the water treatment

facility, and raising turbidity standards. Over the course of 14 months of operation, a variety of problems shut down the

plant 33 times. The total cost of the equipment replaced and

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

THE INTER NATIONAL TRADE ]OUR NAL

the repair work amounted to $4.2 million-compared to the $200,000 saved by unbundling the piping requirements, and

an unreported amount spent on the water-treatment facility. To this must be added the cost of delays. The remedies of the

licensor served to solve the problems and from mid-July 1979 to mid-1980, the factory averaged 90 percent of designed ca-

pacity.

The basic problems stemmed from (a) the assumption by the Chinese that they understood international standards, when they did not, and (b) a lack of expertise within the local science and technology community to adopt and adapt the

incoming technology and find solutions for breakdowns.

There is also too great a distance between the officials in enterprises and those in government for dealing with scientific and technological

matters. The former remain uninformed, while the views of the latter remain largely irrelevant to industrial needs-again leading to difficult or fruitless negotiations. A continuing link between government R&D insti-

tutes and policy-makers and those who are the actual recipients of tech- nology is required. This structure does not exist in China save in a few

instances. In many sectors, such collaboration is entirely lacking. Further- more, although steps are being taken to remedy these problems, during the process of rectification a good many false starts and detours can be

expected. Without correction, however, unsound or irrelevant technolo- gies will continue to be selected; attempts at adaptation will be fruitless;

no adaptation will occur when necessary; and ineffective assimilation or use of imported technology will continue.

The ultimate contribution of imported technology, therefore, will continue to be minimized rather than maximized. Without such a net- work, the government cannot ascertain needs, assist enterprises, nor ex- ploit their latent capabilities so as to make effective use of foreign technol- ogy. Such a network would help to examine the impacts of the

technology and the opportunities which it opens up. Technology is not

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14

1 Behmzan et al,: TYansfwfing Technolo@ to China 67

merely an addition to existing resoulces. It can, and does, change labor- /capital ratios, the amount of labor rbquired, the skills required, and the material inputs required. It also thanes the necessity for repair and main- tenance, and even the patterns of use1 of the final product.

Consequently, it is necessary to hbve a network which can help in the selection of (I) the particular technolbgies to be transferred; (2) the enter- prises which can, and will, make e$eective use of it; (3) the means for making appropriate adaptations to khe technology given domestic de- mands and material supply; and (4) the technologies necessary to stimu- late export abilities and, therefore, qonstituting an engine for economic growth.

China recognizes the need to recteive technology, and it is willing to receive it. It has the ability to search out wdltng suppliers. But Chinese enterprises are less capable of assessi$g the ability of suppliers to transfer the technology effectively. And enteqprises overestimate their own ability to absorb and adapt foreign techn&ogies, especially the more sophisti- cated.

Dow

nloa

ded

by [

Uni

vers

ity o

f B

ath]

at 0

6:28

02

Nov

embe

r 20

14