Exploring the Technology Transfer Mechanisms by the Multinational Corporations: A Literature Review

Article excerpt

Abstract

The main objective of this paper is to contribute to the existing technology transfer literature by reviewing and outlining the mechanisms (channels) of technology transfer. This review aims to stimulate and generate dynamic ideas for future researchers i.e. to further identify and understand the technology transfer's channels, the processes prior to the transfer, the parties involved, the type of technologies in the transfer process, and the justification for selecting specific mode of transfer. Since technology transfer literatures cover a wide research area, this paper sets its perimeter by focusing on the transfer mechanisms which involve both intra and inter-firm technology transfer.

Keywords: Technology transfer mechanism, Formal and informal market channels, Malaysia

1. Introduction

In the context of a developing country, technology is viewed as an important catalyst of corporate success and national economic growth (Millman, 2001). Due to lack of resource capacities such as weak research and development (R & D) base, limited investment in R&D, production and manufacturing capability, weak infrastructure and technological disadvantage (Lado and Vozikis, 1996; Tepstra and David, 1985) many developing countries depend mainly on foreign direct investments (FDIs) from the multinational corporations (MNCs) as their primary source of technology to enhance the technological capabilities and competitiveness of local industries (Lee and Tan, 2006). This is mainly because MNCs own, produce and control the bulk of world technology in which they undertake nearly 80% of all private R&D expenditures worldwide (Dunning, 1993). The technologies which are transferred by MNCs benefit the host country in terms of achieving long term economic growth (Marton, 1986; Blomstrom, 1990), providing a higher potential of innovation performance/capabilities (Guan, Mok, Yam and Pun, 2006; Kotabe, Dunlap-Hinkler, Parente and Mishra, 2007), increasing technological capabilities (Kumar, Kumar and Persaud, 1999; Madanmohan, Kumar and Kumar, 2004), enhancing the organizations' competitive advantage (Liao and Hu, 2007; Rodriguez and Rodriguez, 2005), enhancing the organizational learning effectiveness (Inkpen, 2000; Inkpen and Dinur, 1998), providing a positive effect on productivity (Caves, 1974; Xu, 2000; Liu and Wang, 2003), and increasing the technological development of local industry (Markusen and Venables, 1999). Other research studies have proposed technology transfer as one mechanism by which developing countries can break the vicious cycle of economic underdevelopment (Lado and Vozikis, 1996; Samli, 1985). From the technology transfer initiatives, the host-country will also benefit in terms of improving quality of life, achieving technology progression through research and development, and increasing tax revenue. For the MNCs, the benefits are in terms of more equitable trade agreements, global expansion and increase in market share (Madu, 1989).

As the main source of technology and knowledge, the multinational corporations (MNCs) provide their technologies to the host countries through various channels. In order to achieve their economic objectives, MNCs must carefully consider the appropriate mechanism of transfer in their strategic decision especially the type of entry modes. Among the main and effective technology transfer channels are exporting, foreign direct investment (FDI), licensing and joint venture. The choice of technology transfer channels depends on the nature of the technology such as age, complexity, characteristic of the host country, education level of the workforce, labor skills, technology transfer requirements and local competition (Sinani and Meyer, 2004). Sazali and Raduan (2011) suggest that a strong understanding on the theories underlying technology transfer is necessary to enable the interested parties (such as private sectors, government departments, academics, researchers and students) to relate with the practical and empirical aspects of various technology transfer models, mechanism, issues and challenges. …