In today’s economically and technologically divided world, only a few countries are exporters of technology while the large majority is of importers. Countries which export technology are mostly developed and therefore enjoy a higher per-capita income and much better quality of life compared to a large number of developing countries that remain technology deficient and host majority of the world’s poor. The process of globalization accompanied by free flow of capital, highly skilled people, technology, goods and information has not resulted in the reduction of differences in productivity and income levels in the world as a whole (Frageberg and Godinho). Indeed it has had the opposite effect: the rich countries have become richer, and the poor countries have become poorer. In the past 50 years only a few countries in East Asia, Japan, South Korea, Taiwan and Singapore and lately China have managed to catch up (narrow the income and productivity gap against a lead country). Their examples have demonstrated that building local technology capabilities can result in bridging the social and economic gaps between nations. The industrialization efforts in all these countries are attributed to their respective governments’ dedicated efforts of investing in human resource development and diffusion of infrastructure technologies including water, energy, health, sanitation and transport and in building scientific and technology capabilities in public laboratories and private firms.
Technology Transfer is not Transfer of Machinery
Technology capabilities are now widely recognized as essential for sustainable economic and social development. International technology transfer is not about purchase of equipment, machines or blue prints only. It is a costly, time consuming and knowledge intensive process and requires transfer of both codified (purchase of blue prints, licenses or data exchange etc.) and tacit knowledge (transfer of scientists, engineers, management or other skilled personnel (Mowery and Oxley). Accumulated general technical knowledge, management and organizational expertise are also essential. In order to achieve competence for absorption of external technology, the transferee requires investment not just in technology purchases but also in hiring highly skilled personnel, including management consultants, building facilities for experimentation, reverse engineering and for research and development.
Modes of Technology Transfer
The primary formal channels of international technology transfer are: 1. Foreign Direct Investment (FDI) 2. Licensing 3. Joint ventures, 4. Strategic alliances, 5. Capital goods purchases. The informal modes of transfer include mobility of scientists, exchange of technical information, research publications etc. Modes of transfer could be different for each country. Japan and South Korea used capital goods imports as the main channel for technology transfer, local firms were encouraged with several incentives to reverse engineer and improve upon imported capital goods to achieve self-reliance in technology. Singapore and China have used FDI as a major source of technology by negotiating technology transfer with Trans National Companies (TNCs). It is generally believed that TNCs transfer knowledge to host countries through technological spillovers via imitation, competition, labour mobility and exports. Positive impacts of FDI depend on host country’s negotiating and absorptive capacities, which in turn depend on quality of institutions, human capital, infrastructure and commitment to development. TNCs integration in the local economy is important for knowledge spillovers (UNCTAD).
Technology Transfer Policies
East Asian countries used legal instruments and incentives to encourage local firm reverse-engineer imported technology. While competition in the local market was encouraged, FDI was restricted or negotiated for joint ventures. In South Korea, the Technology Development Promotion law provided financial incentives to private sector to encourage technology development and to promote technological learning in the private enterprises. The law for Engineering Service Promotion stipulated that all engineering projects, should be given to local firms as major contractors with foreign firms as minor partners.
In China, market access to foreign firms is provided on conditions of advanced and continuous technology transfer as part of the future joint venture agreements. TNC, which are involved in joint production of goods are required to export 70 percent of manufactured products whereas those involved in labour intensive joint ventures are required to export 100 percent of products. The growth of electronics industry in China is attributed to joint ventures.
Lost Opportunities and Future Directions
Unlike East Asian countries, where institutions such as Ministry of International Trade and Industry (MITI) in Japan and Korean Institute of Science and Technology (KIST) in South Korea played an active role in directing technology transfer, in Pakistan both the Ministry of Science &Technology and the Ministry of Industries and Production have yet to formulate and execute proper technology transfer policies. Consequently Pakistan has missed several opportunities for building its technology and engineering capabilities. During 1970s we invested in huge mechanical engineering and electrical engineering capacities i.e. the Heavy Mechanical Complex and the Heavy Electrical Complex, Taxila, the Machine Tool Factory in Karachi, the Electronics and Telecommunication laboratories in Haripur and Railway Carriage factory near Hasan Abdal. Most of these capacities remain under-utilized and some have become obsolete. For example, we should have negotiated with the International Power Producers (IPPs) for manufacturing of power plants in joint ventures locally, which could be converted to gas or coal fuel. The Information Technology Policy should have encouraged indigenous manufacture of mobile telephones in collaboration with foreign firms and railway carriages could be manufactured locally with public, private partnership or in joint venture with foreign firms.
In the past five years Pakistan has lost a large number of highly skilled engineers and production workers to foreign countries due to deindustrialization process that is caused by energy shortages and high-energy prices. Our policy of sending people abroad to earn foreign exchange is short sighted; no country has developed or advanced by relying on remittances. Pakistan is a market of 180 million people; we should make all out efforts to attract FDI linked with technology transfer. We need to provide opportunities for large number of young graduates to serve their own country by creating jobs not only in the public sector but also in private firms. Our economy would not have taken a deep plunge if we had made dedicated efforts to achieve self-sufficiency in a few production technologies, and linked those with international value chains to enhance our exports. Our economic planners should draw lessons from Sri Lanka where despite internal conflict that lasted for 25 years the economy grew on average by 6 percent and above.
Role of Public Policy
The government’s role is to facilitate the process of entrepreneurship and industrialization by ensuring access to capital and information, training highly skilled personnel, and providing standards and quality related services and, where needed, intervening in market formation. Public policies, such as macro-economic and financial policies at macro level and industrial policy at sectoral level, legislations, i.e. protection of selected intellectual property, competition laws and fast commercial courts can help facilitate the process of entrepreneurship. This has to be complimented with a visionary Science and Technology policy that is focused on training of high-level human resource, building of technology infrastructure and providing incentives for private firms to indulge in “learning by doing” practices to build their absorptive capacity for external technology. Encouraging joint venture for production of value added goods and services and collaboration with foreign firms could greatly help Pakistan build its local technology capabilities.
Prof. Atta-ur-Rahman is the President, Pakistan Academy of Sciences, former Federal Minister for Science & Technology and former Chairman of Higher Education Commission.
Dr. S.T.K. Naim is an expert on STI Policy and a Consultant at COMSTECH, Islamabad
We are thankful to Abdul Baseer Qazi, PhD Fellow, United Nations University-MERIT, The Netherlands for his editorial inputs