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Financial Management Appraisal of Technology Transfer to Developing Countries Via Multinational Corporations

By Swamy, M. R. Kumara | International Journal of Business, Winter 2002 | Go to article overview

Financial Management Appraisal of Technology Transfer to Developing Countries Via Multinational Corporations


Swamy, M. R. Kumara, International Journal of Business


ABSTRACT

By presenting a new measure of degree of monopoly power in Multinational Corporation--controlled developing countries in contrast with the A.P. Lerner Measure valid in the case of multinational corporation--parented industrialized countries, the author has analysed brilliantly, employing the minimum marginal cost pricing technique, the financial management implications of technology transfer from industrialized (developed) countries to developing countries.

JEL: D4,D42,D43,F2,FO2,F23,03,014,019

Keywords: Punctured investment cycle tyre; Technology transfer; Developing countries; Monopoly power; Period analysis; Knowledge management; Multinational Corporations

I. INTRODUCTION

As an illustration, a 7 per cent growth rate of the U.S. economy is not the same thing as 7 per cent growth rate of the Nigerian economy as the U. S. is an adult and Nigeria is a child. Like a father has to look after his child, developed countries resort to techno-capital transfer to developing countries through Multinational Corporations (MNCs) who, unlike a real mother, takes the role of a hypocratic parent. MNCs export capital to developing countries and the abnormal profit made, from their operations, is again repatriated to developed countries. Thus, developed countries become expartriates in developing countries. The MNCs, through transfer of sophisticated technology and manpower, venture into setting up assembly plants (without supporting local technical manpower) and would find profitable to operate at less than break-even capacity (say at 20 per cent) and show the host country (developing) that they are operating at break-even capacity (60 per cent) by taking advantage of non-disclosure of proper and accurate accounting information--to this extent, MNCs may accumulate excess stock and when market conditions prevail to suit their convenience, the stocks are released and goods are overpriced. Thus, from a long-term perspective, setting up assembly plants poses a financial liability to the developing country.

Research studies have confirmed that MNCs parented in developed (industrialized) countries through their sub-subsidiaries (in developing countries with selfish interests like gamblers) begin the game with a small stake (initial investment) and by laying a carefully, meticulously and manipulatively laid down pipeline invest in "good political risk" developing countries continually plough back their winnings, into the game of gambling making the parent-MNCs grow richer and richer through abnormal profit earnings of anywhere between 400 per cent and 600 per cent on one hand; and on the other hand, the developing countries, acting as gambling den with MNC-supported management consultancy-cum-financed expensive loans (like Euro-dollar) and through transfer of sophisticated and inappropriate technology via sub-contracting from the industrialized countries--all in the name of so called economic development--would continue to remain in a state of volatile and inorganic development path causing techno-economic overdependence and the MNCs, finding gambling a losing game in developing countries, would land them in lurch causing overcapitalization--all leading to "punctured investment cycle tyre" and consequent stagflation.

II. RELATIONSHIP BETWEEN INVENTION/INNOVATION AND FURTHERING OF PRODUCTIVE CAPACITY VS. PERIOD ANALYSIS

Seasoned economists have opined that the relation of monopoly and competition to innovation is a relatively unexpolored area, and more serious is the fact that the literature abounds with simple and sweeping statements which are seldom supported by evidence, and with scattered and often casual remarks. There has been remarkably little thorough and systematic research on the subject and consequently, little advance in our scientifically-founded knowledge of the matter (Swamy, 1964, 1965, 1968, 1989).

Let us examine the crucial issue of the relevance of the concept of innovation under conditions of monopolistic competition.

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