Labour-intensive technology or intermediate technology
Another conclusion is that the diffusion of technology is facilitated by the setting-up of international clusters of R&D activities. Indeed, John Dunning (1993, pp. 308) argued that because of MNCs’ strategies more and more based on an increasingly concentration of R&D activities and a greater geographical dispersion of R&D, many MNCs, “particularly in the technologically-intensive sectors, are finding it desirable to have an innovating, as well as a manufacturing presence in the main industrialized countries” .
Moreover, Peter Dicken (2003, pp.116) pointed out that local innovation clusters, by being the heart of “national innovation systems”, give the opportunity to benefit from locally differentiated characteristics that can “help to influence the kind of technology system that develops and its subsequent trajectory. ” This last aspect has been reinforced by Robert Pearce who analysed under what circumstances MNCs have internationalised their research and development capabilities and engaged in foreigh-based R&D, and the way it is acting internationally on the technological diffusion.
Regarding the average responses of Pearce’s questionnaire on conditions and circumstances considered to have most influenced recent multinational in order to extend their R&D activities, three main drivers of the international process are underlined : country-specific factors, such as “the desire to exploit
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But usually speaking, “it should be recalled that there are powerful locational reasons for both the centralization and decentralization of R&D” (John Dunning, 1993, pp. 309). The main assumption extracted from the analysis of both John Cantwell and Robert Pearce is that MNCs provide a positive impetus in the process of technological development in the whole world.
“To the extend that technological development consists of mastering the “know-how” (operational procedures) of a given technology”, it is assumed that MNCs, both by transmitting state-of-the-art knowledge and providing the means to make it operational, have a positive effect. (John Dunning, 1991).
Moreover, by the means of some strategies, such as making “the adaptations needed to make the technology function efficiently” or by updating “affiliate’s technology as local circumstances dictate” (UNCTAD, 2001, pp.56), MNCs also seems to participate in the improvement of host developing countries who can enjoy greater technological development and benefit from the networks of MNCs, thus stimulating “local competitors to perform more efficiently”. Multinationals are also responsible for a more widespread international diffusion of technological expertise because of the changing nature of international business that occurred since the 1980’s. MNCs needed a transformation to follow this change, that is why international business networks appeared.
“The increasing appreciation of the role of technological accumulation and learning within the TNCs had been facilitated by the recent trend for TNCs to establish international networks to support that process” (UNCTAD, 1996, pp. 157). According to J. Child and D. Faulkner (1998), network is a solution to reduce uncertainty, to provide flexibility, capacity with links inside the networks between firms and speed in order to take rapidly advantage of opportunities. It also allows the access to resources and skills not owned by the company itself, and to information.
Networks are of two kinds. First are “the logical outcome of the shift by TNCs away from local market-oriented investments towards internationally integrated strategies”, that is to say networks of international production and R&D activities, integrated into MNCs. Second are the inter-firm networks, including “the growing number of strategic alliances between TNC competitors and a greater variety of local networks” enabling links between foreign affiliates and, their suppliers and customers, where MNCs are increasingly present (UNCTAD, 1996, pp.157).
However, the will of MNCs to establish networks and to enter into them “are believed to be a means of raising the rate of innovation of the TNCs, and hence its technological competitiveness” (UNCTAD, 1996, pp. 157). However, MNCs do face some weaknesses in the way they transfer and diffuse product-related technologies and research and development capabilities, this conducting to unequal access of the technology and knowledge between MNCs and host firms.
All the same, host firms might remain disadvantaged relative to multinationals, even with the intensive widespread of technology and the access to the superior technology. The question arise here is whether the technology transferred is appropriate or not and if it has a positive impact on host countries. The concept of appropriate technology leads to some ambiguity, however, according to the UNCTAD (1996, pp. 194) “it is very much used in the context of developing countries to mean labour-intensive technology or intermediate technology”.
Although technology transfer from MNCs are often considered to be beneficial to host countries , critiques have cropped up since the earlier lecture of the relation between MNCs and technology transfer. One of the negative side in the diffusion of technological expertise by MNCs is that, even if local operations of foreign MNCs might be desirable for stimulating knowledge spillovers to the host country, they might be some cases where the domestic technology falls into the hands of foreign competitors.
According to empirical studies made on whether MNCs contribute less to host country knowledge than they gain from it, it has been shown that MNCs learn more from their host countries than the host countries learn from MNCs. Indeed, there is a gap in the knowledge exchange between MNCs and their host countries (UNCTAD, 1996, pp. 195). Another main critique has been highlighted by Gerry K. Helleiner (1994) through a survey analysing the concepts and issues of technology and technology transfer by MNCs.
He argues that Vernon’s product life cycle theory is not applicable because MNCs not only earn monopoly profits, but also can make transfer of inappropriate or even unnecessary technology to host countries. Consequently, “the result was greater unemployment problems based on the conception that inappropriateness is the use of an inadequate factor mix” (UNCTAD, 1996, pp. 193). The responsibility of MNCs in the international diffusion of technological expertise is also confirmed by the significant role of governments and authorities on technology transfer, cooperation and capacity development issues.
By the means of national policies and programmes, governments try to support MNCs’ role of “creators, transferors and disseminators of technology”, not only in terms of its technological goals, but also in terms of its impact on the country’s general welfare ( John Dunning, 1993, pp. 319). Indeed, governments have the ability “to affect indigenous technological capacity” and to “directly influence the level and structure of innovatory-related activities” ( John Dunning, 1993, pp. 319). Likewise, according to John Dunning (1993), the behaviour and actions of host countries’ governments, in which MNCs operate, are very important factors.
Another economist, W. H Davidson (1988) also claimed that “innovatory competitiveness in a modern global economy depends, first and foremost, on the pursuance of pro-competitive public policies and on the provision of adequate supportive infrastructures”. The main reason for governments to help MNCs and to influence the technological impact of MNCs is that almost all governments feel uncomfortable not to have the organizational competences and certain technologies under their own control and ownership (John Dunning, 1993).
By the means of policies, governments aim at both maximizing and minimizing the benefits from technology transfer. Government policies, with the goal of benefits’ maximisation can be divided into two categories. The first, including “trade policies, FDI policies, R&D policies and investment in human capital”, consists of establishing an environment beneficial for the host country’s economy through the diffusion of appropriate technology and the creation of spillover effects.
The second consists of “specific policies towards the regulation of technology imports” (UNCTAD, 1996, pp. 200-201). As examples of specific policies, governments usually encourage MNCs to set up more R&D facilities in host countries, to perform cross-border collaboration within firms in R&D activities or to conduct market structure towards “efficient inflow and dissemination of technology” (John H. Dunning, 1993, pp. 321). This has been also highlighted by Carlos Correa (1981) who mentioned that those government policies have other several issues.
They can permit to reduce costs or to minimize the consequences of restrictive practices and the competition occurring with advancing industrial MNCs, but also to assure the appropriateness of transferred technologies. Nevertheless, John H. Dunning (1993, pp. 320-321) made the point on the fact that the limitation of “the amount of inward investment”, “certain sectors to domestic ownership” or also “technology payments to foreign firms” are some of those policies which can alter the good diffusion of technological competences between MNCs and host countries.
In conclusion, multinational companies play a key role in determining the international diffusion of technology and, are now looking for more efficient methods in order to efficiently widespread the diffusion of technology and have greater interactive relations with affiliates or external firms. Their greatest challenge resides in creating a business environment that allows them to exchange information quickly, securely and efficiently from anywhere in the world, this by the means of production-related technologies and research and development capabilities, with the formers quite more easy to diffuse than the latters.
However, multinational companies acquire new technologies from their own research and development activities or through the work of these educational and research institutions, facilitating the transfer of technology through spin-offs. Nevertheless, some weaknesses are present in the diffusion of the technology, (inappropriate technology, foreign competitors, etc. ), but by the means of policies governments, which are another way to permit a widespread international diffusion of technological expertise, they can be water down.