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ESTUDO DA COMPETITIVIDADE
DA INDÚSTRIA BRASILEIRA
_____________________________________________________________________________________________
THE ACCESS OF DEVELOPING COUNTRIES TO
NEW TECHNOLOGIES: THE NEED FOR NEW
APPROACHES TO MANAGEMENT AND
POLICY FOR TECHNOLOGY IMPORTS IN
BRAZILIAN INDUSTRY
Nota Técnica Temática do Bloco
"Condicionantes Internacionais da Competitividade"
O conteúdo deste documento é de
exclusiva responsabilidade da equipe
técnica do Consórcio. Não representa a
opinião do Governo Federal.
Campinas, 1993
Documento elaborado pelos consultores Martin Bell e José Cassiolato (Science Policy Research Unit/University of Sussex).
A Comissão de Coordenação - formada por Luciano G. Coutinho (IE/UNICAMP), João Carlos Ferraz (IEI/UFRJ), Abílio dos Santos
(FDC) e Pedro da Motta Veiga (FUNCEX) - considera que o conteúdo deste documento está coerente com o Estudo da Competitividade da Indústria
Brasileira (ECIB), incorpora contribuições obtidas nos workshops e servirá como subsídio para as Notas Técnicas Finais de síntese do Estudo.
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ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
CONSÓRCIO
Comissão de Coordenação
INSTITUTO DE ECONOMIA/UNICAMP
INSTITUTO DE ECONOMIA INDUSTRIAL/UFRJ
FUNDAÇÃO DOM CABRAL
FUNDAÇÃO CENTRO DE ESTUDOS DO COMÉRCIO EXTERIOR
Instituições Associadas
SCIENCE POLICY RESEARCH UNIT - SPRU/SUSSEX UNIVERSITY
INSTITUTO DE ESTUDOS PARA O DESENVOLVIMENTO INDUSTRIAL - IEDI
NÚCLEO DE POLÍTICA E ADMINISTRAÇÃO EM CIÊNCIA E TECNOLOGIA - NACIT/UFBA
DEPARTAMENTO DE POLÍTICA CIENTÍFICA E TECNOLÓGICA - IG/UNICAMP
INSTITUTO EQUATORIAL DE CULTURA CONTEMPORÂNEA
Instituições Subcontratadas
INSTITUTO BRASILEIRO DE OPINIÃO PÚBLICA E ESTATÍSTICA - IBOPE
ERNST & YOUNG, SOTEC
COOPERS & LYBRAND BIEDERMANN, BORDASCH
Instituição Gestora
FUNDAÇÃO ECONOMIA DE CAMPINAS - FECAMP
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ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
EQUIPE DE COORDENAÇÃO TÉCNICA
Coordenação Geral: Luciano G. Coutinho (UNICAMP-IE)
João Carlos Ferraz (UFRJ-IEI)
Coordenação Internacional: José Eduardo Cassiolato (SPRU)
Coordenação Executiva: Ana Lucia Gonçalves da Silva (UNICAMP-IE)
Maria Carolina Capistrano (UFRJ-IEI)
Coord. Análise dos Fatores Sistêmicos: Mario Luiz Possas (UNICAMP-IE)
Apoio Coord. Anál. Fatores Sistêmicos: Mariano F. Laplane (UNICAMP-IE)
João E. M. P. Furtado (UNESP; UNICAMP-IE)
Coordenação Análise da Indústria: Lia Haguenauer (UFRJ-IEI)
David Kupfer (UFRJ-IEI)
Apoio Coord. Análise da Indústria: Anibal Wanderley (UFRJ-IEI)
Coordenação de Eventos: Gianna Sagázio (FDC)
Contratado por:
Ministério da Ciência e Tecnologia - MCT
Financiadora de Estudos e Projetos - FINEP
Programa de Apoio ao Desenvolvimento Científico e Tecnológico - PADCT
COMISSÃO DE SUPERVISÃO
O Estudo foi supervisionado por uma Comissão formada por:
João Camilo Penna - Presidente Júlio Fusaro Mourão (BNDES)
Lourival Carmo Mônaco (FINEP) - Vice-Presidente Lauro Fiúza Júnior (CIC)
Afonso Carlos Corrêa Fleury (USP) Mauro Marcondes Rodrigues (BNDES)
Aílton Barcelos Fernandes (MICT) Nelson Back (UFSC)
Aldo Sani (RIOCELL) Oskar Klingl (MCT)
Antonio dos Santos Maciel Neto (MICT) Paulo Bastos Tigre (UFRJ)
Eduardo Gondim de Vasconcellos (USP) Paulo Diedrichsen Villares (VILLARES)
Frederico Reis de Araújo (MCT) Paulo de Tarso Paixão (DIEESE)
Guilherme Emrich (BIOBRÁS) Renato Kasinsky (COFAP)
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
José Paulo Silveira (MCT) Wilson Suzigan (UNICAMP)
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
CONTENTS
SUMMARY EXECUTIVE ...................................... 1
1. INTRODUCTION: THE CHALLENGE FACED ................... 15
2. PAST PATTERNS OF TECHNOLOGY IMPORTS AND TECHNOLOGICAL
DEVELOPMENT BY BRAZILIAN INDUSTRY ................... 20
2.1. Technology Imports in the Import Substitution
Era ............................................ 20
2.2. Technology imports in the 1980s ................ 23
2.3. The Role of Government ......................... 29
2.4. The Overall Pattern ............................ 33
3. NEW UNDERSTANDING ABOUT TECHNOLOGY,
COMPETITIVENESS AND INTERNATIONAL TECHNOLOGY
TRANSFER ............................................ 36
3.1. Technical Change: A Continuous, Not
Intermittent, Process .......................... 39
3.2. The Active and Creative Role of Technology
'Users' ........................................ 43
3.3. The Resource Base for Technical Change:
Interacting, Not Individual Firms, and
'Engineering' More Than 'R&D' .................. 46
3.4. Industrial Firms as Creators of Human Capital .. 48
3.5. Complementarity I: Technology Imports and
Domestic Technological Capabilities ............ 50
3.6. Complementarity II: Markets and Governments ... 54
4. THE INTERNATIONAL CONTEXT FOR TECHNOLOGY ACQUISITION
BY BRAZILIAN INDUSTRY ............................... 61
4.1. Changing Patterns and Processes of Industrial
Technical Change ............................... 64
- The intensification of technical change ...... 65
- The IT-intensity of technical change ......... 67
- The increasing significance of organisational
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
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change ....................................... 71
- User-producer interactions and innovation .... 72
- The knowledge-intensity of industrial
production ................................... 73
4.2. Access to International Technology: New Patterns
and Conditions ................................. 76
- New patterns or old continuities? ............ 76
- The technological capabilities and bargaining
power of technology importers ................ 81
- The institutional basis for acquiring
foreign technology ........................... 83
5. CONCLUSIONS: NEW APPROACHES TO MANAGEMENT AND
POLICY .............................................. 86
5.1. Approaches to Management ....................... 89
5.2. Approaches to Policy ........................... 93
BIBLIOGRAPHY .......................................... 96
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SUMMARY EXECUTIVE
1. TECHNOLOGICAL DEVELOPMENT AND IMPORTS IN BRAZILIAN INDUSTRY
Since the mid 1970s Brazilian payments for imported
technology have fallen steadily to very low levels. If, for
instance, imports of technology are measured by payment for
technology contracts registered at INPI, the reduction was from
US$ 321 million in 1980 to US$ 174 million in 1987. The ratio of
payments for technology transfer contracts as a percentage of
GDP, which increased during the last phase of import substitution
to more than 0.35 per cent in 1972, consistently decreased during
the following period to 0.24 per cent in 1980 and to 0.07 per
cent in 1987. Imports of capital goods also declined during the
1980s.
This collapse in payments for imported technology has come
to reflect an almost total disconnection of Brazilian industry
from an important source of inputs to enhance its international
competitiveness. Something of the significance of that can be
glimpsed in the corresponding data for South Korea during the
1970s and 1980s as that economy strengthened its international
competitiveness in existing lines of production, and opened up
successive new areas of competitiveness. During that period,
payments for imported technology (licensing and consultancy
payments) massively increased 13-fold in absolute terms between
1972-76 and 1982-86.
This highlights one of the major technology-related
challenges now faced: the need to reverse the recent trend of
technology imports and re-connect industry to international
sources of technology. But there is a second challenge. This is
not about the 'quantity' of technology acquired from abroad; it
is about how technology is acquired. If increased volumes of
imported technology are to play their full potential role in
enhancing competitiveness in the 1990s, it will be totally
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inadequate just to go back to the typical ways of acquiring
imported technology in the past. Those approaches must be
radically altered. There are two broad sets of reasons for this.
1) There is now much greater understanding about the process
of technological change, its role in the competitiveness of
industry, and its interaction with technology imports. This
understanding, a benefit from hindsight that was not then widely
available, suggests that the dominant approaches to acquiring
foreign technology in Brazil in the period up to the 1970s failed
to exploit its full potential. Different approaches will be
needed in the 1990s if any increase in the 'quantity' of imported
technology is to contribute as effectively as it might to the
competitiveness of Brazilian industry.
2) Beyond that, an obvious but important point is that the
1990s are not the 1970s and the international context for
technology acquisition by Brazilian firms is now radically
different. The rates, direction and processes of technological
change have fundamentally altered as have the opportunities and
constraints facing firms seeking to acquire technology in the
international 'market'. These changes are a further set of
reasons for radically changing Brazilian industry's earlier
approaches to the acquisition of imported technology.
The dominant approaches to acquiring imported technology in
Brazil, in the past, with a few notable exceptions, have been
characterised by two basic features.
1) Technology imports were typically disconnected from
significant innovative activity in the technology importing
firms: they were usually not preceded by, accompanied by, or
followed by substantial complementary research, development or
engineering efforts.
2) As a consequence, technology imports were only rarely
assimilated into continuous processes of rapid technical change.
Obviously they were often followed by some degree of improvement
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in process efficiency and product performance as 'learning-by-
doing' and minor adaptation occurred, but the intensity of such
'incremental' technical change was often inadequate to sustain
competitiveness in technologically dynamic international markets,
and it rarely created new bases of competitiveness in
progressively higher value-added activities.
Some of the new understanding about technology,
international transfer and industrial competitiveness that has
become more widely accessible since the 1970s suggests that these
aspects of Brazilian experience were neither inevitable nor
similar to the experience of a few other industrialising
economies that have exploited imported technology much more
effectively. Older perspectives must be replaced by new
understanding if more effective approaches are to be developed
for acquiring imported technology:
a) to create and sustain industrial competitiveness,
technical change must be a continuous, not intermittent, process;
and imported technology must ve incorporated into that continous
technological dynamism;
b) 'adopters' and 'users' of technology play active and
creative roles in generating these trajectories of competitive
technological dynamism, and they depend on a variety of
interactions with other firms doing so;
c) industrial firms play important roles as creators, not
just employers, of the human resources required to generate and
manage technical change;
d) technology imports and local innovative capabilities are
complements, not alternatives, in the process of technical
change;
e) market mechanisms and government intervention are also
complements, not alternatives, in providing the necessary
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framework of inducements for investment in technology
accumulation in industrialising economies;
f) infrastructural technology institutes can only
complement, not substitute for, the innovative activities of
industrial firms.
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2. THE INTERNATIONAL CONTEXT IN THE 1990s
The assessment of the main features of the international
context for technology acquisition in the 1990s must emphasise
the significance of new challenges that stem from the combination
of:
(i) new patterns of technical change (the so-called 'new
techno-economic paradigm'); and
(ii) new factors that may influence the accessibility of
foreign technology and the terms of its acquisition.
Several key features of new patterns of technical change
have become increasingly important during the 1980s.
a) Technical change has been intensified in ways that result
in the whole structure of technology underlying the
competitiveness of most industries now changing much faster than
in the 1960s and 1970s.
b) The rising IT-intensity of technical change both
contributes to much faster rates of technical change and alters
the organisational basis for generating that change.
c) In particular, IT-intensive forms of technical change,
especially those involving networks and systemic change, usually
have to be highly localised and specific to the particular
characteristics of firms and the markets they face. Consequently
various forms of interaction between users and producers of IT
devices and systems are becoming increasingly important as the
basis for effective generation of technical change.
d) The growing importance of change in the organisation and
management of production ('lean' production, flexible
especialisation, etc.) reinforces the overall intensity of
technical change - acting as an increasingly significant
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IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
complement to, but not substitute for, more 'hardware-centred'
technical change.
e) These intensified and diversified patterns of technical
change have greatly increased the overall knowledge-intensity of
industrial production, with a correspondingly massive increase in
the importance of investment in knowledge assets and human
capital as sources of competitiveness.
These changes in the nature of technical change reinforce
the significance of issues already emphasised. If imported
technology is to contribute effectively to competitiveness in
both natioinal and international markets, it must be incorporated
into localisec processes of significant technoological dynamism;
the 'users' of imported technology, interacting with other firms,
need to play active and creative roles in generating that
dynamism; and firms themselves need to be significant investors
increating the human resources they require in order to play
those roles.
The general accessibility of foreign technology, and the
terms for its acquisition may not have changed in systematic ways
over the last decade. However, views on this issue are
contradictory, and evidence is lacking. On the one hand it has
been argued that factors such as the rising costs of innovation
in the advanced industrial countries, changes in intellectual
property systems, and increased technological complexity combined
with greter 'tacitness' in many areas of technology have reduced
the accessibility and transferability of technology, while the
terms for access have become more onerous.
It is not clear, however, whether there are indeed such new
problems. One can argue just as convincingly (with similar
inadequate evidence) that many areas of technology are becoming
increasingly accessible and transferable, while the conditions
for access may be less onerous than in the past.
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IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
Despite their obvious importance, key features of the
international transfer of technology have attracted only limited
systematic analysis over the last decade or so. This, however,
has not precluded numerous comments about the emergence of new
trends and patterns. Many of these suggest that industrialising
countries face increasing problems in their efforts to acquire
technology from the more advanced industrial economies. In
particular, the following issues have been noted.
a) With innovation coming to depend on rising levels of R&D
expenditure, higher payments may be required for licensing and
other forms of access to the technologies involved.
b) Changes in intellectual property rights systems in the
industrialised countries, together with pressures for more
stringent enforcement of those regimes in industrialising
countries, are reinforcing such trends - as well as bringing into
the scope of those systems areas of technology previously
excluded (e.g. in software and biotechnology).
c) The characteristics of some new technologies are making
them inherently more difficult to transfer. It has been
suggested, for example, that many areas of information technology
involve particularly high levels of tacit and firm-specific
knowledge that are less easily transferred than more equipment-
embodied technologies.
d) The growing importance multi-firm collaborative
arrangements for developing new technologies across a wide
spectrum of industries, combined with the rising importance of
basic research in some areas, may hinder the access of developing
countries to the knowledge involved.
Several studies have provided a modicum of support for such
views. For example, drawing on interviews, the UNCTAD Secretariat
has suggested that royalty rates on patents and know-how may be
rising and it has been observed a relatively slow growth of
technology licensing as compared with other technology transfer
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activities, such as imports of capital goods. However, one can
also find equally convincing arguments that point in opposite
directions.
a) With increasing R&D investment levels, often associated
with shorter product life cycles, there are pressures to
increase, not reduce, access to the technologies involved:
"innovators must reap profits faster, sometimes by licensing
their technology rather than by exporting it or establishing
affiliates abroad."
b) More specific studies of the international diffusion of
advanced technologies like telecommunications systems have
suggested that intense competition among technology leaders in
international markets has pushed monopolistic profits from
innovations lower and lower, and that "the 'appropriability' of
innovations has greatly declined in recent years."
c) Advanced information and communication technologies may
enhance, not constrain, international access to technology; and
this may be further increased, not reduced, by the growing use of
collaborative networks for technology development - networks into
which firms in industrialising countries may be incorporated.
d) Advanced information technologies may well involve
greater elements of tacit knowledge and greater degrees of user-
specificity, while yielding their greatest gains as total system
integration is achieved. But, at least in some situations, this
does not seem to have been a great obstacle to their
international diffusion, combined with (i) their localised
adaptation to meet user-specific requirements, (ii) their
efficient application to yield significant benefits from
cumulative partial steps towards integration, and (iii) their
further development and improvement by users after initial
implementation. Perhaps the key issues are less about any
inherent general characteristics of 'new technologies', and more
about differences between the situations for which they are
acquired and into which they are introduced.
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In short, it is not clear that any broad generalisations can
usefully be drawn in these areas at this stage. In any case,
there are more focused arguments that may be more significant for
some Brazilian industries. These are about the problems of
limited access to technology that arise as firms and industries
in the NICs begin to approach particular segments of the
international technological frontier.
At a general level, it is obvious enough that, as firms in
the NICs begin to approach the international technology frontier,
they will face changing conditions in seeking to acquire
technology through international channels. However, the
significance of those changing conditions is not so obvious.
What this seems to suggest is two general points. First, if
there are obstacles and barriers to technology acquisition as NIC
firms approach the international frontier, they do not all seem
to be insurmountable or impermeable. Second, and more generally,
it seems highly likely that as the age of the technology falls
the openness of international channels for acquiring it probably
narrows; and the terms and conditions for acquisition will almost
certainly also change, perhaps becoming more onerous, reflecting
the greater commercial value of the technology to the user and
the greater opportunity costs for the supplier. However, the
precise outcome in any situation will depend primarily on the
interaction between four sets of conditions: (i) the
characteristics of the technologies involved; (ii) the
characteristics of the supplier firms and their industries; (iii)
the technological capabilities of would-be technology importers,
together with other elements of the bargaining power they can
draw on; and (iv) the institutional arrangements they use in
approaching the acquisition of technology.
To summarise then, firms and industries in particular
countries can approach the acquisition of foreign technology with
(i) widely varying technological capabilities, (ii) wide
differences in other elements of bargaining power, and (iii)
widely differing organisational bases. Strategies for technology
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acquisition that rest on weak technological capabilities, weak
bargaining power, and weak institutional bases may well result
quite often in the licensing of product designs and/or the
acquisition of equipment, know-how and other inputs for
production. But, they are also likely to result in some
combination of (i) limited or zero access to the technology in
the first place, (ii) the acquisition of limited 'depths' of
knowledge and expertise through such channels of access as are
opened up, (iii) the payment of relatively high costs for what is
acquired, and (iv) limited dynamism in the subsequent
assimilation of what was acquired.
At the other end of the spectrum of strategies, firms and
industries that are approaching the international technology
frontier will usually need considerable technological, bargaining
and institutional strengths in order to acquire foreign
technology effectively, or at all. On that account alone, the
costs of technology transfer may well rise as the frontier is
approached, but those rising costs are not 'payments' for
technology (which may well rise also). They are investments in
domestic resources for acquiring and assimilating technology;
and, until one is at the cutting edge of the frontier, those
costs are likely to remain substantially less than the costs of
original development of the technology. However, that distinction
frequently ceases to have much meaning as one approaches the
frontier: technology acquisition and technology development
become blurred into various combinations of engineering,
development and research - probably in that order!
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3. MANAGEMENT AND POLICY IMPLICATIONS FOR BRAZIL
At the firm level, action should be taken not only during
the acquisition of technologyh but also, before the acquisition
of technology - when management should be concerned with
creating, enhancing and 'assembling' the technological and
organisational capabilities needed to define in adequate detail
the technology required, to locate its possible sources, to gain
access to it, to minimise its financial and other costs, and to
acquire and absorb the 'depth' and 'breadth' of knowledge and
expertise sought - and after the acquisition of technology, when
management should focus on the dynamic assimilation of what had
been acquired - not just on using the technology, but on further
improving and developing it.
There are four broad areas for management attention during
each time period. Management should concentrate on creating
intra-firm organisational structures, creating inter-firm
organisational structures, investment in knowledge and expertise
and investment in implementing technical change.
Policy in this area must obviously be part of a wider policy
regime concerned more broadly with technology and other aspects
of competitiveness. Within that, it can be emphasised that:
1) Policy prescriptions should recognise that since firms
are the main locus of technological accumulation, a firm’s
possession of internal R&D capacities cannot be replaced and
there is no possible substitutability between internal and
external R&D. Another novel feature of technical change is the
promotion of a wide range of technical activities within industry
and commerce itself involving not only R&D but also scientific
and technical services - including design, quality control,
product engineering, technical information services, etc. - which
reinforce and interact with R&D.
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2) Policy prescriptions should also recognise that, if R&D
inside the firm or outside the firm cannot substitute for each
other, they are necessarily complementary activities. Another
major determinant of success in technological accumulation lies
in the nature and intensity of the interaction with external
sources of technical change, particularly with contemporary and
furture users of the technology. Policies, then, should
concentrate in promoting these linkages and management attitudes
should contemplate cooperation with buyers and sellers instead of
conflicting or mere commercial relations.
Within that, some broad orientations can be pointed out
here.
First, the focus of policy in this area must concentrate on
the industrial firm - not to the exclusion of action concerned
with a wide range of technological institutions, but in
recognition of firms as the necessary driving forced of
industrial technological dynamism and as the core agents in
acquiring and absorbing foreign technology.
Second, it must be emphasised that key elements of the
strategic management of technology acquisition involve investment
by firms in their own resources as complements to their
expenditures on foreign technology. Clearly this requires an
adequately stable macro-economic environment within which firms
will undertake any significant investment in assets that yield
their returns over the relatively long term future.
Third, its is clear that competitive pressure plays an
important role in stimulating firms to change the technology they
use, and hence to invest in the resources of foreign technology
and domestic technological capabilities required to do so. Other
things being equal, therefore, policies that enhance those
competitive pressures are likely to increase, and increase the
effectiveness of, the acquisition of foreign technology.
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Fourth, however, much of Brazilian industry appears to have
limited technological capabilities to respond to such competitive
pressures; and, just as important, it has limited experience of
investing in the accumulation of those resources. Moreover, much
of that investment involves investment in knowledge and human
capital where markets operate very imperfectly. There are
therefore strong grounds for government intervention that
stimulates investment in such assets.
In particular, one must recognise the limitations of
financial institutions in this area. Most of them are accustomed
to financing investment in fixed, physical assets which
themselves provide significant security for the finance. Some
more specialised institutions are also accustomed to financing
innovative technical change projects for which the potential
returns are reasonably evident, even if somewhat uncertain.
However, much more risky and uncertain for such institutions, as
for firms themselves, in investment in knowledge and human
capital. Yet these are the kinds of assets that have become
increasingly important for dynamic competitiveness in
increasingly change-intensive and knowledge-intensive industrial
production in the 1990s. This appears to be reflected in the
shifting patterns of public policy that focus increasingly on
stimulating and subsidising investment in knowledge assets in the
industrially advanced countries. In an economy where investment
in these assets has not become a significant component of
industrial behaviour and 'culture, such policy intervention is
even more important. In particular, innovative new measures may
be needed to link government intervention to the operations of
industrial financial institutions.
It is true that there is no possible alternative policy
proposal which do not concentrate in strenghtening internal (to
the firm) R&D capabilities. However, in general terms, as
recently shown by the 'OECD industrial support programmes
database', it is advisable a shift away from general-purpose,
horizontal policies such as general investment aids to more
focused support measures, such as aid to R&D which comprise
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programmes supporting general private R&D efforts and others
supporting certain types of technologies, sectors and
enterprises.Even in developed countries which, apparently, have
relied since the 1980s on 'market forces' to lead their
industrial development the above mentioned type of intervention
is being implemented. For example, in the US, the R&D tax credit
and the National Cooperative Research Act were made permanent and
in the UK, the main R&D policy focus of the Department of Trade
and Industry is a number of programmes on the encouragement of
pre-competitive collaborative research in firms.
Fifth, important elements in the strategic management of
technology acquisition involve the development of institutional
linkages and networks. This suggests that other types of
government intervention may be important - types of intervention
that involve governments playing a catalytic role in facilitating
collaboration in a wide spectrum of technological activities.
Action to stimulate such technological partnerships may be
particularly important in linking users and producers of
technology, especially in the areas of industrial automation and
other types of information technology - areas where governments
in many of the industrialised countries play a substantial role.
For example, in the Netherlands, one of the key policy actions is
the subcontracting and outsourcing programme aimed at mutual
cooperation in the field of technology and product development
and at improvement projects in the field of just-in-time
delivery, logistics and quality management.
Finally, in ways illustrated in the experience of Japan,
government policy may have an important role in shaping the
structure of markets to create conditions that enhance the
competitive pressures on firms in ways that stimulate, rather
than constrain, investment in technological capabilities to
complement the acquisition of foreign technology.
15
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
1. INTRODUCTION: THE CHALLENGE FACED
Since the mid-1970s Brazilian recorded payments for
technology (royalties, technical assistance fees and commissions)
have fallen steadily to very low levels, both in absolute terms
and as a proportion of GDP - for the latter see Figure 1.
1
When
associated with the stagnant levels of domestic R&D,
2
this trend,
closely linked to low levels of industrial investment since the
early 1980s, also seems to reflect a collapse in the overall
demand for new technology, not a shift towards greater domestic
sourcing of technology. The trend also indicates that Brazilian
industry has become increasingly disconnected from an important
source of inputs to enhance its international competitiveness.
Something of the significance of that can be glimpsed in the
corresponding data for South Korea where payments for imported
technology (licensing and consultancy payments) were rising
rapidly as a proportion of GDP during the mid 1980s. That
reflects a longer trend through the 1970s and 1980s as Korea
strengthened its international competitiveness: during that
period, payments for imported technology massively increased -
13-fold in absolute terms between 1972-76 and 1982-86.
This highlights one of the major technology-related
challenges now faced: the need to reverse the recent trend of
technology imports. Rapid growth of imported technology must be
set in motion, so re-connecting industry to international sources
of technology. The driving force at the heart of this growth must
be a corresponding resurgence of investment in new plant and
equipment incorporating the new vintages of technology required
to enhance competitiveness across the whole spectrum of industry.
That revival of industrial investment will depend heavily on
1
As it is well known, technology payments are just a proxy for imported technology. In the
Brazilian case they do not include, since 1971 - when INPI was created - any payment between
subsidiaries of multinational firms and their parent companies. Given the importance of such
firms in Brazil, it could be argued that data on Figure 1 underestimates technology imports.
This is certainly true for the 1970s when the last phase of import substitution took place and
investments were peaking. However, since the early 1980s investment by these firms have
substantially declined and, then, there is no reason to believe that this underestimation
persisted. The final result is, probably, a much sharper decline on technology payments over
GDP, starting by the mid-1970s, then what is suggested by Figure 1.
2
This trend is examined in greater detail in Section 2 of the report.
16
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
macro-economic reform and the return of stability and confidence.
These issues are addressed in other papers in the overall study,
and are not examined further here.
FIGURE 1
PAYMENTS FOR TECHNOLOGY TRANSFER CONTRACTS AS A PERCENTAGE OF GDP
BRAZIL - 1967-1987 AND SOUTH KOREA - 1983-1987
67 68 69 70 72 73 74 79 80 81 82 83 84 85 86 87
0,0
0,1
0,2
0,3
0,4
0,5
0,6
Brazil
Korea
Year
Notes:
Amount refers to payments effectively made during each year as registered in the Central Bank.
They include technical assistance fees, royalties and commissions.
Sources: Brazil: own calculation, basic data in Biato et al. (1973) for 1967-1970 data, Fung &
Cassiolato (1976) for 1972-1974 data and Cardoso (1988) for 1979-1988 data; South Korea: KDB (1988).
But there is a second challenge that is the main focus of
this paper. This is not about the 'quantity' of technology
acquired from abroad; it is about how that technology is
acquired. If increased volumes of imported technology are to play
their full potential role in enhancing competitiveness in the
1990s, it will be totally inadequate just to go back to the
typical ways of acquiring technology in the past. Those
approaches must be radically altered. There are two reasons for
this.
17
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
1) There is now much greater understanding about the process
of technological change, its role in the competitiveness of
industry, and its interaction with technology imports. This
understanding, a benefit from hindsight that was not then widely
available, suggests that the dominant approaches to acquiring
foreign technology in Brazil in the period up to the 1970s failed
to exploit its full potential. Different approaches will be
needed in the 1990s if any increase in the 'quantity' of imported
technology is to contribute as effectively as it might to the
competitiveness of Brazilian industry.
2) Beyond that, an obvious but important point is that the
1990s are not the 1970s and the international context for
technology acquisition by Brazilian firms is now radically
different. The rates, directions and processes of technological
change have fundamentally altered, as have the opportunities and
constraints facing firms seeking to acquire technology in the
international 'market'. These changes are a further set of
reasons for radically changing Brazilian industry's earlier
approaches to the acquisition of imported technology.
The most evident implications of these two points are for
the management of industrial enterprises. In summary, managing
the acquisition of imported technology will have to be linked
into much more intensive and strategic investments in the firms'
own resources for generating and managing their technological
dynamism. These enhanced investments in innovative capabilities
will be required not as alternatives to technology imports, but
as essential complements that will be needed to gain the greatest
possible competitive benefits from what is imported. Indeed,
they will be needed even to gain any access at all to some areas
of foreign technology.
There are, however, implications for government policy as
well. In part, these are about continuing the changes in
economic policy that have sought to bring greater competitive
pressures to bear on enterprises. In part also, they are about
other measures designed to overcome the limitations of market
18
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
mechanisms in stimulating 'optimal' investments in knowledge and
related intangible assets - measures that will (i) enhance the
technological responses that firms make to greater competive
pressures in the shorter run, and (ii) increase the extent to
which they create the technological basis for new areas of
competitiveness in the longer run.
The next section of the report sets out the background for
our examination of these needs for change in management and
policy in this area. It outlines the dominant approaches to
acquiring imported technology since the 1950s, and emphasises
that, with a few notable exceptions, those approaches have been
characterised by two basic features.
1) Technology imports were typically disconnected from
significant innovative activity in the technology importing
firms: they were usually not preceded by, accompanied by, or
followed by substantial complementary research, development or
engineering efforts.
2) As a consequence, technology imports were only rarely
assimilated into continuous processes of rapid technical change.
Obviously they were often followed by some degree of improvement
in process efficiency and product performance as 'learning-by-
doing' and minor adaptation occurred, but the intensity of such
'incremental' technical change was often inadequate to sustain
competitiveness in technologically dynamic international markets,
and it rarely created new bases of competitiveness in
progressively higher value-added activities.
3
Some of the new understanding about technology,
international transfer and industrial competitiveness that has
become more widely accessible since the 1970s suggests that these
aspects of Brazilian experience were neither inevitable nor
3
It is worth pointing out the existence of important exceptions to this general pattern. Also,
that there have been some sectors - such as paper and pulp, shoes, steel and petrochemicals -
which attained very high exports during the 1980s. However, it is worth recalling that exports
in these sectors tend to be restricted to commodities and that exporting firms lack
technological capabilities to produce higher value-added goods and are finding difficulties to
penetrate more sophisticated market segments at international level.
19
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
similar to the experience of a few other industrialising
economies that have exploited imported technology much more
effectively. These issues are outlined in Section 3. Section 4
then examines features of the international context for
technology acquisition in the 1990s. It emphasises the
significance of new challenges that stem from the combination of
(i) new patterns and processes of technical change (the so-called
'new techno-economic paradigm'), and (ii) new factors that may
influence both the accessibility of foreign technology and the
terms of its acquisition.
Section 5 summarises the new approaches to management and
policy that will be needed if Brazilian industry is to exploit
the full contribution to competitiveness that can be made by
imported technology.
20
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
2. PAST PATTERNS OF TECHNOLOGY IMPORTS AND TECHNOLOGICAL
DEVELOPMENT BY BRAZILIAN INDUSTRY
The aim of this section is to outline patterns and trends in
Brazilian technology imports during and after the era of import
substituting industrialisation. However, it sets this outline in
the context of the broader technological behaviour of Brazilian
firms. In particular, it suggests that, across most firms,
imported technology has been used merely as the basis for
achieving one-off steps of increased competitiveness by acquiring
the designs and specifications for new products and/or the
specifications, equipment and operating know-how for new
processes. With a few exceptions, those imports of technology
were not being incorporated into a significant process of
technological development and change within Brazilian industry
itself; nor were they being used to augment the importing firms'
own technological capabilities for generating such paths of
technological dynamism.
2.1. Technology Imports in the Import Substitution Era
Import substituting industrialisation increased the demand
for foreign technology. Table 1, for instance, summarises the
findings of research conducted in 1971 among 454 of the 500
largest manufacturing firms in Brazil. It shows that,
particularly after 1945, these firms tended to rely increasingly
on foreign technology at the time they were set up. Of the
national firms which were installed between 1946 and 1955, 54.2
per cent needed foreign technology. This proportion grew to 62.9
per cent for those which started production between 1956 and 1965
and to 68.2 per cent for those created between 1965 and 1970.
Foreign-owned firms, obviously, counted on foreign technology,
but as Table 1 also shows this reliance grew as industrialisation
deepened and more complex production methods were required.
21
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
TABLE 1
BRAZIL - ORIGIN OF TECHNOLOGY USED WHEN INDUSTRIAL FIRMS WERE
INSTALLED (454 LARGEST FIRMS)
------------------------------------------------------------------------------------------------------
------
PERIOD OF
INSTALLATION
NATIONAL FIRMS FOREIGN FIRMS
Local Techn. Foreign Techn. Local Techn. Foreign Techn.
------------------------------------------------------------------------------------------------------
------
Before 1930 53.1 46.9 16.2 83.8
1931-1945 63.7 36.3 21.2 78.8
1946-1955 45.8 54.2 13.3 86.7
1956-1965 37.1 62.9 10.4 89.6
1965-1970 31.8 68.2 _ 100.0
Total 51.4 48.6 14.5 85.5
------------------------------------------------------------------------------------------------------
------
Source: Biato & Guimarães (1971).
TABLE 2
BRAZIL - TECHNOLOGY CONTRACTS BY THE INDUSTRIAL SECTOR
1962-1969
------------------------------------------------------------------------------------------------------
------
SECTOR N° % SECTOR N° %
------------------------------------------------------------------------------------------------------
------
Metallurgy 308 18.50 Non-metallic Minerals 76 4.56
Mechanical 202 12.13 Pharmaceuticals 130 7.80
Chemicals 204 12.27 Textiles 108 6.48
Electric and Communic. 193 11.60 Paper and pulp 22 1.32
Car Industry 178 10.69 Wood 7 0.42
Plastics 35 2.10 Rubber 19 1.14
Leather goods 3 0.18 Furniture 7 0.42
Personal Appliances 25 1.50 Clothing & Shoes 18 1.08
Food Industry 32 1.92 Beverages 20 1.20
22
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
Tobacco 3 0.18 Editorial 6 0.36
Others 69 4.15
------------------------------------------------------------------------------------------------------
------
Note: Total (1665) refer to the sum of the five categories (technical assistance, patents, trademarks,
engineering services and projects) of the 1224 contracts of the transformation industry.
Source: Biato et al. (1973).
23
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
A detailed account of technology imports can only be made
for the period since 1962 when Law 4131 (of 27/09/1962) was
implemented. This attempted to regulate the entry of foreign
capital into Brazil and introduced for the first time regulations
regarding payment for transferred technology
4
.
From 1962 to 1969, 1,224 contracts for technical assistance,
patents and trade marks licences, engineering services and
projects of manufacturing industries were registered at the
Central Bank. Table 2 shows the sectoral distribution of
contracts. The sectors responsible for the bulk of import
substitution, such as metallurgy (18.50 per cent), chemicals
(12.27 per cent), mechanical (12.13 per cent), electric materials
and communications (11.60 per cent) and the car industry (10.69
per cent) were those which accounted for most of technology
imports as represented by the contracts registered
5
.
For the firms which registered contracts in INPI, there was
no correlation between transfer of technology and internal
efforts to develop innovative capabilities. The only available
survey of the period points to a very inadequate situation. Of
the above mentioned 454 largest firms, only 290 (64 per cent)
reported any internal effort to develop technology following the
acquisition of foreign technology. Even with these firms, the
internal undertaking was very limited: no single firm informed
of R&D leading to a new product or process. The bulk of
technological activities was directed towards introducing small,
less complex, modifications to existing products or processes
(66.7 per cent). Prototype experiments came a distant second
(16.9 per cent) and major adaptations and changes to existing
products or processes in third place (16.4 per cent) (Biato &
Guimarães, 1971).
4
The law stated that any contract which included payment for technologies acquired abroad
should be registered at the Central Bank.
5
It is important to point out that registered contracts represent only a fraction of all
imported technology since they refer only to technologies which were paid for. For instance,
it may be that when a subsidiary of a MNC was installed technology would be introduced without
external payment.
24
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
Low levels of internal R&D activities were accompanied by
very weak linkages with government-owned industrial research
institutes and universities, as documented by this and other
studies which analyse the technological behaviour of firms in the
early 1970s (Biato et al., 1973; Figueiredo, 1972; Erber et al.,
1974). The general impression was that:
"industrial entrepreneurs were 'satisfied' with a low
level of local technological activities and a strong
reliance on imported technology and such 'satisfaction'
can be understood in the light of the pattern of
development followed in Brazil since the mid-fifties -
which reduced the importance of some of the reasons for
a policy of more technological self-reliance" (Erber,
1980:422).
2.2. Technology Imports in the 1980s
Imports of technology 'embodied in capital goods fell at the
beginning of the 1980s. They then steadily increased over the
next decade to the point where they exceeded the level of the
early 1980s (Table 3). This rising trend accompanied the overall
reduction in domestic capital goods consumption (and production)
over the decade: despite the temporary increase in both in the
mid-1980s, by 1991/92 consumption and production of capital goods
were only at about 60 per cent of their 1980/81 levels. The
combination of these two trends resulted in the share of imports
in total capital goods consumption doubling between 1980/81 and
1991/92 from around 8 per cent to 16 per cent.
In contrast, imports of 'disembodied' technology (referred
to hereafter simply as 'technology') appear to have declined
during the 1980s. If, for instance, these imports of technology
are measured by payment for technology contracts registered at
INPI, the reduction was from US$ 321 million in 1980 to US$ 174
million in 1987 (Table 4). This decline in absolute levels was
also evident in relative terms - as earlier indicated in Figure
1, which shows payment for technology transfer contracts as a
percentage of GDP for the 1966-1987 period. This ratio, which
25
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
increased during the last phase of import substitution to more
than 0.35 per cent in the mid-1970s, consistently decreased
during the 1980s to 0.07 per cent in 1987.
TABLE 3
BRAZIL - CAPITAL GOODS - INTERNAL PRODUCTION, EXPORTS, IMPORTS
AND CONSUMPTION
1975-1992
(1992 US$ Billion)
------------------------------------------------------------------------------------------------------
------
YEAR INTERNAL PRODUCTION EXPORTS IMPORTS CONSUMPTION (IP-X+M)
------------------------------------------------------------------------------------------------------
------
1975 15.71 0.33 1.65 17.03
1980 24.89 1.76 2.75 25.88
1981 22.19 1.81 3.20 23.58
1982 18.19 1.30 2.06 18.95
1983 14.90 1.24 1.25 14.91
1984 15.63 1.54 1.06 15.15
1985 18.40 1.74 1.17 17.83
1986 21.04 1.55 1.51 21.00
1987 21.59 1.77 2.02 21.84
1988 20.96 2.34 2.55 21.17
1989 20.10 2.44 1.99 19.65
1990 18.34 2.18 2.60 18.76
1991 15.19 2.08 2.47 15.58
1992 13.72 2.19 2.31 13.84
------------------------------------------------------------------------------------------------------
------
Source: ABIMAQ/SINDIMAQ.
TABLE 4
BRAZIL - TECHNOLOGY IMPORTS
1979-1988
(US$ Million)
------------------------------------------------------------------------------------------------------
------
YEAR PATENTS &
TRADEMARKS
LICENSED
TECHNOLOGY
OTHERS TOTAL (2+3) TECHNICAL SERVICES TOTAL
------------------------------------------------------------------------------------------------------
------
1979 9 6 11 17 287 313
1980 12 11 14 25 284 321
1981 12 18 12 30 234 276
1982 5 17 10 27 208 240
1983 12 10 14 24 182 218
1984 9 8 8 16 177 202
1985 5 21 41 62 108 175
1986 2 20 43 63 119 184
1987 3 39 26 65 106 174
1988 3 12 27 39 93 135
26
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
Total 72 206 162 368 1798 2238
(%) 3.2 9.2 7.2 16.4 80.4 100
------------------------------------------------------------------------------------------------------
------
Source: INPI.
It is instructive to compare this trend of falling
'dependence' on technology imports with the experience of South
Korea. During the same period, as that country increased it
international competitiveness in existing industries while also
creating bases of competitiveness in new industries, its payments
for foreign technology increased in absolute terms from US$ 150
million in 1983 to US$ 637 million in 1987 (KDB, 1988), and then
to US$1.18 billion in 1991 (OECD, 1992). Also, as a proportion of
GDP, those payments increased from 0.19 per cent in 1983 and 0.57
per cent in 1987 (Figure 1). In other words, rising industrial
competitiveness was accompanied by an increase - not a reduction
- in imported technology.
Even more striking, however, was the fact that this rapid
growth in technology imports was linked to yet faster growth in
domestic innovative activity - as reflected only imperfectly in
data on domestic R&D expenditure. While payments for imported
technology in 1982-86 were 13 times larger than in 1972-76, total
domestic R&D expenditure was 33 times larger, and private R&D
expenditure was nearly 70 times larger. Thus, as South Korea
increased its competitiveness across a wide range of industry,
the country's rapidly rising payments for imported technology
constituted a falling proportion of total innovative effort. In
short, South Korea (like Taiwan and Singapore)
6
was vigorously
exploiting the international stock of technology within a much
broader spectrum of even more intensive domestic efforts to
strengthen the technological basis of its international
competitiveness.
The contrast with Brazil is striking. Not only were
technology imports steadily falling, they were not accompanied by
any significant increase in R&D expenditure by local firms. A
6
See the companion paper for this project: Mike Hobday, The Development of Technological
Innovation Capability in Developing Countries: Strategies of East Asian NICs for Catching up
in Electronics, 1993.
27
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
detailed evaluation of technology expenditure by private firms
using income tax forms (technology expenditure is subject to tax
rebates) estimated that in 1976, the Brazilian manufacturing
sector as a whole devoted only 0.1 per cent of sales to R&D (M.
Cassiolato, 1981). Another survey carried out in the mid-1980s
(FTI, 1986) concluded that in 1982 the technology expenditure of
the Brazilian manufacturing sector represented only 0.15 per cent
of operational revenues. This can be compared with equivalent
figures of 1.5 per cent for the US (ten times larger) and 2.5 per
cent for Japan (Ferraz, 1989).
Another assessment was a study carried out at CNPq which,
based on a survey of 1,118 firms, suggested that in 1983, private
firms' R&D expenditures accounted for only about ten per cent of
the country's total R&D expenditure (Paulinyi, 1984). But that
may overstate the relative importance of private sector R&D. The
1985 Brazilian industrial census introduced, for the first time,
questions related to the technology behaviour of firms.
Preliminary results show that, in 1985, only 1,288 firms (two per
cent of firms included in the census) reported to have made R&D
expenditure (Table 5). Also, according to the census, these firms
spent US$ 311 million in R&D in 1985. Government-owned
enterprises were responsible for 54.7 per cent of expenditure (US
$ 170 million) and private firms for the remaining 46.3 per cent
(US $ 141 million). The share of industrial R&D of total R&D was
17 per cent, with state enterprises accounting for 9.3 per cent
and private firms for only 7.7 per cent.
These figures have not been very much disputed since the
number of firms which are engaged in any type of formal R&D is
very small. Table 6 shows the absolute and relative number of
R&D active firms from the largest 3,869 firms in 1985. Of these,
only 366 (9.5 per cent) are regarded as performing R&D in a
systematic way. Not surprisingly, they are heavily concentrated
in the most dynamic sectors of metal-mechanics, electronics and
the chemical-petrochemicals complex. But even inside these
sectors, apart from electronics, where 34.9 per cent of the
largest firms performed R&D, the relative number of active R&D
28
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
firms was very small: 9.7 per cent of the metal mechanics firms
and 16.6 per cent of the chemicals and petrochemicals firms.
TABLE 5
BRAZIL - R&D EXPENDITURES BY INDUSTRIAL SECTOR
1985
------------------------------------------------------------------------------------------------------
------
SECTOR NE (1) EARNINGS
(2)
% R&D (2) % R&D AVERAGE
(3)
R&D INTENSITY
(4)
------------------------------------------------------------------------------------------------------
------
Metallic minerals 32 3528 5.5 39.5 12.7 1.23 1.12
Non-ferrous
metallurgy
23 768 1.2 39.3 12.6 1.71 5.12
Electronic
equipment
92 1813 2.8 45.6 14.7 0.5 2.52
Auto industry 36 8181 12.7 45.0 14.5 1.25 0.55
Chemicals 23 3715 5.8 34.8 11.2 1.51 0.94
Oil refining &
petrochem.
39 21310 33.0 38.2 12.3 0.98 0.18
------------------------------------------------------------------------------------------------------
------
Notes: (1) Number of firms reporting spending on R&D.
(2) Amount in US$ Million.
(3) Average R&D expenditure by firm.
(4) R&D expenditures as a percentage of earnings.
Source: FIBGE, 1985 census, preliminary results, special tabulation.
TABLE 6
NUMBER OF R&D ACTIVE FIRMS IN BRAZIL AMONG THE 3 869 LARGEST
MANUFACTURING FIRMS
1985
------------------------------------------------------------------------------------------------------
------
INDUSTRIAL SECTOR N° OF R&D ACTIVE TOTAL % OF ACTIVE FIRMS
------------------------------------------------------------------------------------------------------
------
Metal-Mechanics 111 1 145 9.7
Electronics 90 258 34.9
Chemicals/Petrochemicals 102 635 16.1
Non-Metallic Minerals/Paper and Pulp 21 362 5.8
Others (Mostly Traditional Sectors) 42 1 469 2.9
Total 366 3 869 9.5
Subtotal 245 39315 61.0 242.4 78.0 0.99 0.62
Others 1043 25208 39.0 68.5 22.0 0.07 0.27
Total 1288 64523 100 310.9 100 0.24 0.48
29
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
------------------------------------------------------------------------------------------------------
------
Source: Dahlman & Frischtak (1990).
External technical relations did not substitute for the low
level of firms' own R&D. A study of CDE (the Council of
Industrial Development of the Ministry of Industry and Trade), as
described by Braga and Willmore (1990), may help to clarify this
issue. Table 7 gives alternative sources of technology for a
survey of the 4,324 largest industrial units. It shows that, for
all types of technology considered - product design, tool design,
product engineering, process engineering and layout - the main
source of technology used was reported to be in-house
development. This is so even if it is recalled that only a small
portion of the sample acknowledged having any internal formal R&D
activity. Brazilian R&D institutes made a very insignificant
technological contribution (apart from project engineering where
13.1 per cent of firms relied on this source). Also, as a
reflection of the above figures on payment for foreign
technology, imported technology seems negligible.
TABLE 7
BRAZIL - ALTERNATIVE SOURCES OF TECHNOLOGY OF 4 324 LARGEST
MANUFACTURING FIRMS SOURCE OF TECHNOLOGY
------------------------------------------------------------------------------------------------------
------
TYPE OF TECHNOLOGY IN-HOUSE BRAZILIAN
SUPPLIERS
BRAZILIAN R&D
INSTITUTES
IMPORTED
------------------------------------------------------------------------------------------------------
------
Product design 81.3 22.5 2.8 9.1
Tool design 65.4 32.1 5.6 7.2
Product engineering 86.4 9.8 4.3 5.2
Project engineering 75.2 17.5 13.1 5.9
Layout 82.3 11.4 9.6 4.0
------------------------------------------------------------------------------------------------------
------
Note: Multiple sourcing explains why total adds up to more than 100 per cent.
Source: Braga & Willmore (1990).
30
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
As for Brazilian suppliers, their contribution was not very
significant. The only types of technology for which suppliers
contributed are the design of tools (32.1 per cent of firms
acknowledged that suppliers provided them) and of products (22.5
of firms received their product designs from suppliers). On the
other end, only 9.8 per cent of the 4,324 largest manufacturing
firms acknowledged that suppliers were an important source of
technology for product engineering and only 17.5 per cent
recognised that they contributed to project engineering. Also,
customers were not considered as an important source of technical
change. In the end, the use of external sources of technology
seems at least precarious. This was confirmed by two studies
made by FINEP (Carvalho et al., 1985; Façanha, 1988) which,
through a survey conducted with all the firms which received
financial support for their technology programs, concluded that
independently of the sector, the use of external sources of
technology was very limited.
In short, the steady reduction in technology imports during
the 1980s was not an isolated phenomenon that was at odds with
other aspects of the technological behaviour of Brazilian firms.
Instead it was merely one facet of that broader pattern of
behaviour: firms were acquiring limited technology from foreign
sources, from other Brazilian firms, from domestic institutions
and from their own innovative activities.
2.3. The Role of Government
As Brazil lacked a coherent industrial technology strategy
during the import substitution phase, policy towards technology
imports was essentially 'defensive' and 'negative'. It
concentrated on legal regulation - attempting to regulate
conditions associated with contracts for technology transfer.
INPI was created in 1971 at the Ministry of Industry and Trade
with the aim of registering and evaluating these contracts. Its
role was mainly concerned with controlling the financial payments
for technology (part of the so-called 'costs' of technology) and
31
ESTUDO DA COMPETITIVIDADE DA INDÚSTRIA BRASILEIRA
IE/UNICAMP - IEI/UFRJ - FDC - FUNCEX
legal aspects (for example, examining the restrictive clauses in
licensing agreements).
Apart from very general conditions imposed on licensees
(such as the need for them to invest in R&D or to engage in joint
work with industrial R&D institutes) which were generally never
fulfilled, there seems to have been little or no direct support
for training, learning or R&D in association with the acquisition
of imported designs, specifications, equipment and operating
know-how. The ADTEN programme of FINEP (which was under the
Ministry of Planning) apparently did include a sub-item to
finance technology licensing, but this appears to have been of
minor significance - probably reflecting the generally 'passive'
nature of the broader technological behaviour of firms. Also the
RHAE Programme provided support for overseas training of
personnel from firms, but this does not seem to have been
directly linked to broader technology acquisition projects and
programmes of firms and was not very substantial (and limited to
the few selected 'high tech' areas). Apart from these limited
programmes, no other aspects of explicit policy, except for those
affecting segments of the informatics industry, were ever
directed systematically towards strengthening the role of local
technological development either as a substitute for, or a
complement to, the country's imports of industrial technology.
Other aspects of government support for industrial R&D did
not help very much. Most of the government's support to R&D in
the late 1960s consisted of building up an R&D infrastructure.
Continuation of this approach achieved considerable success
during the 1970s: as shown in Table 8, the share of R&D as a
proportion of GDP was estimated to be 0.24 per cent in 1970 and
it more than doubled to 0.58 in 1980 (approximately US$ 958
million)
7
. However, crisis conditions during the 1980s resulted
in a collapse of government expenditure on the R&D
infrastructure, and long term finance for R&D deteriorated. As a
consequence, overall R&D expenditure as a proportion of GDP
7
In 1980 according to the Central Bank of Brazil, GDP was US$ 165.26 billion (Central Bank of
Brazil, 1989 annual report.
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stagnated throughout the 1980s. Table 8, for instance, provides
two alternative hypotheses for the behaviour of this indicator
throughout the 1982-1987 period
8
. Both alternatives converge
around the stagnating trend throughout the period. If the
pattern of the 1970s is compared with the corresponding patterns
of the 1980s, the change in pace is notable.
TABLE 8
BRAZIL - TOTAL R&D EXPENDITURES OVER GDP
1970-1987
------------------------------------------------------------------------------------------------------
------
YEAR R&D/GDP (1) YEAR R&D/GDP (2) R&D/GDP (3)
------------------------------------------------------------------------------------------------------
------
1970 0.24 1982 0.80 0.66
1971 0.24 1984 0.62 0.51
1975 0.51 1985 0.74 0.63
1980 0.58 1986 0.80 0.66
1981 0.58 (4) 1987 0.90 0.66
------------------------------------------------------------------------------------------------------
------
Notes:
(1) Cassiolato (1981). Based on CNPq's statistics.
(2) MCT (1988). CNPq's statistics. Include expenditures by federal and regional governments and an
estimate
of expenditures by private sector of 20 per cent of total expenditures, based on a survey made in
1983.
(3) Dahlman & Frischtak (1990).
(4) After a change of methodology CNPq revised the 1981 figure to 0.7 per cent of GDP. A most
debatable
inclusion in S&T expenditures, after those methodological alterations, are current expenses of
several
federal agencies not dealing directly with science and technology.
Regardless of which estimate one considers, Brazil fares
very badly in international comparisons for the 1980s. Table 9
presents estimates of gross expenditure on research and
development (GERD) as a proportion of GDP in 1985 for some OECD
and developing economies. It is notable that estimates for all
countries are substantially higher than Brazil's even if we
choose the most optimistic estimate of CNPq. For the OECD
economies, they range from 2.20 per cent (U.K.) to 3.20 per cent
8
The first consists of official CNPq (the Brazilian National S&T Council) statistics which
include actual expenditure by federal agencies and estimates of expenditure by regional
agencies, state governments and the private sector. they tend to overestimate the total
expenditure since they include, after 1981, the current expenses of several federal agencies
which could hardly be considered S&T commitments. The other alternative also relies on CNPq's
statistics but in a more precise way (Dahlman & Frischtak, 1990).
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(West Germany) and for the other developing countries they range
from 0.90 (India) to 1.78 per cent (South Korea), all
substantially above CNPq's hypothesis regarding the Brazilian
GERD (0.74 per cent of GDP).
But perhaps more significant than the aggregate level of R&D
expenditure is the fact that the government has been responsible
for most R&D expenditure, and a very large part of that
expenditure has been used to execute R&D in government
institutions. This pattern is very different from that in other
countries. For example, Table 9 summarises the share of the
private sector and government in total R&D expenditure in 1985
for some selected OECD and developing countries. In the most
advanced OECD economies, the private sector was responsible for
at least 40 per cent of total expenditure and in some countries,
such as West Germany and Japan the private sector contributed
more than 60 per cent. As far as some of the largest developing
countries are concerned, the private sector was responsible for
68 per cent of total R&D expenditure in South Korea in 1983/84,
54.3 per cent in Taiwan in 1982/83 and 23 per cent in India in
1982/83. In contrast, the Brazilian private sector was
responsible for only 7.7 per cent of total expenditure in 1985
when the only comprehensive evaluation of private sector R&D
expenditures was compiled by the industrial census (Vaitsos,
1990).
TABLE 9
TOTAL R&D AS A PERCENTAGE OF GDP/GNP AND SHARE OF PRIVATE SECTOR
AND GOVERNMENT R&D EXPENDITURES ON TOTAL R&D EXPENDITURES OF
SELECTED COUNTRIES
1985
------------------------------------------------------------------------------------------------------
------
COUNTRIES R&D/GNP PRIVATE (%) GOVERN. (%) OTHERS (%)
------------------------------------------------------------------------------------------------------
------
U.S. 2.94 48.4 49.8 1.8
Japan 2.11 74.0 19.1 6.9
United Kingdom 2.20 44.6 43.4 10.5
France 2.97 41.4 53.0 5.6
West Germany 3.20 60.9 37.6 1.5
Brazil 0.74 7.7 92.3 _
India (82/83) 0.90 23.0 NA NA
South Korea (83/84) 1.78 68.0 NA NA
Taiwan (82/83) 1.20 54.3 NA NA
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------------------------------------------------------------------------------------------------------
------
Sources: R&D/GDP - UNESCO (1987).
Other data - OECD (1987) for OECD countries, CNPq (1986) for Brazil, CSIR (1986) for India,
Rushing
& Brown (1986) for South Korea and Taiwan.
Alongside this pattern of limited investment in R&D, and in
contrast to Japan for example (see Section 3.6), little effort
was made to regulate the entry by firms into particular areas of
technology in order to ensure that the structure of particular
industries was aligned with objectives about incorporating
technology imports into longer term trajectories of technological
dynamism. Indeed, the approach seems to have been simply (i) to
maximise the number of entrants in order to achieve
'competition', rather than (ii) to regulate the structure in
order to create the basis for technologically active forms of
competition. So, policy on industrial entry has fragmented
industries between large numbers of firms which, apart from being
permanently protected from international competition, have been
too small to develop any significant technological dynamism of
their own. Also, although the huge Brazilian market endowed
firms with substantial bargaining power vis-a-vis foreign
technology suppliers (over what they will supply and how they
will contribute to local technological capabilities), the policy
of permitting (and usually encouraging) fragmented entry into new
industries simply frittered away that advantage.
2.4. The Overall Pattern
To summarise then, across the majority of technology
importing Brazilian firms and over four decades from the 1950s to
the 1980s, the acquisition of foreign technology was not part of
a broader process of technologically dynamic industrial
development. Instead, industrial firms - usually technologically
insulated from others and from the wide range of technological
institutions - acquired foreign technology to achieve one-off
steps in changing their products and processes.
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One implication of this pattern has been the limited
intensity of technical change in industry. As is well known from
numerous studies of 'technological learning' during the 1970s,
there was often some degree of adaptation of technology and
significant mastery of its basic operation (for example, Katz,
1984 and 1987, and Teitel, 1981 and 1984). There might also be
some elements of 'learning-based' further improvement and
development of the imported technology - although some detailed
studies suggest that even that type of active improvement and
dynamic assimilation of acquired technology might often be very
limited - for example, the technologically 'passive' adoption of
digital process control technology by firms in the petrochemical
industry during the 1980s (Carvalho, 1992). More generally, it
seems clear that the assimilation of imported technology seldom
amounted to a trajectory of persisting improvement and
development that matched, let alone surpassed, the rates needed
to sustain international competitiveness. These 'ex-post'
patterns of limited dynamism in assimilating what had been
imported were typically associated with only limited 'ex-ante'
efforts to create the technological capabilities required for
effectively exploiting international sources of technology in the
first place. And, as firms' ex-post phases of limited
assimilation of imported technology became the ex-ante phases of
their subsequent technology imports, the trajectories persisted
over long periods.
It is not surprising, therefore, that it is now widely
agreed that poor technological performance is at the core of most
of Brazilian industry's weak competitive position. Firms'
limited capacities to innovate have been identified as central
elements in most recent diagnoses - either from external sources
(Dahlman & Frischtak, 1990) or from extensive internal studies of
industry and technology (Coutinho & Suzigan, 1991).
It would obviously be misleading to suggest that the general
pattern outlined above has been totally uniform across all firms
and all times. It is quite clear that some firms have drawn
intensively on foreign technology to enhance their own
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technological capabilities, and they have linked that to the
development of trajectories of rapid technical change and rising
competitiveness - for instance USIMINAS (Dahlman & Fonseca,
1987). Others have taken aggressive and strategic approaches to
their management of major projects for the acquisition of foreign
technology. They have invested ex-ante in their own engineering
and research capabilities, and then used those as the basis for
searching out, acquiring and absorbing much greater 'depths' of
technology and expertise than just the basic elements needed to
implement a one-off step - for instance, PETROQUISA during the
investment project for the COPESUL ethylene complex (Sercovich,
1980). Others have taken even more aggressive and strategic
approaches. Seeking to link foreign technology directly into
their own intensive product development and design activities,
they have set out not merely to acquire and accumulate technology
from foreign sources, but to do so in the immediate context of
technological development at the international frontier - for
instance, Metal Leve's establishment of an R&D centre in Michigan
to support its technological competitiveness in the automobile
component industry. Unfortunately, such exceptions to the
general pattern are just that - fairly rare exceptions.
Nevertheless, they illustrate possibilities and potentials that
might be much more widely exploited.
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3. NEW UNDERSTANDING ABOUT TECHNOLOGY, COMPETITIVENESS AND
INTERNATIONAL TECHNOLOGY TRANSFER
The approaches to management and policy outlined in the
previous section were, as in other countries, heavily influenced
by pervasive and often very simple ideas about how technological
innovation and international technology transfer contribute to
industrial growth and competitiveness. However, as new
understanding has been generated over the last two decades, the
'mental models' that influenced managers and policy-makers in the
1960s and 1970s have become outdated and misleading in many
respects.
One dominant issue is about the central role of business
enterprises in generating the technological dynamism of industry.
This may seem self-evident in the 1990s, but it was much less
obvious in the 1960s and 1970s. At that time, in Brazil as in
most other industrialising countries, considerable emphasis was
placed on infrastructural institutions as the prime movers of
domestic innovative activity. It was expected that they would be
able to generate new technology on behalf of industrial firms
that were seen as being too small, too foreign or too incompetent
to generate their own.
That simple optimism about the potential role of
technological institutions stemmed partly from correspondingly
simple views about the nature of technology. Apart from the
elements that are embodied in people by education and training,
technology was either seen as 'information' that could be
transmitted fairly easily between organisations, or it was viewed
as being embodied in machinery which could be bought and sold
like any other goods. However, we now understand a bit more
about the complexity of industrial technology. In particular,
much of it is tacit and inherently difficult to transmit; and
much of it is highly specific to particular firms and their
markets. Those firms themselves must therefore play the prime-
mover role in technological development.
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As indicated in the previous section, this point is evident
from the structure of R&D activity in the industrialised
countries, especially the more technologically dynamic ones like
Germany and Japan, where enterprises fund very large proportions
of total industrial R&D and execute even larger proportions. It
is also evident in dramatic transformations of the structure of
R&D funding that have occurred over the last two decades in some
of the East Asian NICs. In South Korea, for instance, government
accounted for nearly 70 per cent of total R&D expenditure in
1975. By 1985, despite huge increases in the absolute level of
government expenditure, that share had fallen to about 20 per
cent, with non governmental sources (mainly industrial
enterprises) accounting for 80 per cent.
In principle, the central importance of industrial
enterprises as the driving force in technological development has
already been well recognised in Brazil - for instance, in several
of the policy statements of the early 1970s - and the issue
therefore needs only brief emphasis here.
The same can be said about another issue: the criteria by
which one would assess the macro-economic impact of industrial
technology imports. In the 1960s and 1970s, the dominant
perspectives centred in growth and structural change. In Brazil,
as in most developing countries, technology imports were seen as
serving the central economic objective of accelerating industrial
growth. More specifically, as in many of the other larger and
more industrially advanced developing countries, technology
imports were seen as contributing primarily to structural change
in the industrial sector - to the relatively rapid growth of
'heavy' industries (e.g. iron and steel and basic chemicals) and
the 'capital goods' industries producing machinery and transport
equipment.
By the 1990s, however, that perspective has changed. The
experience of many economies, especially in Latin America,
Eastern Europe and the former USSR, has indicated the high costs
that may be associated with long periods of emphasis on growth
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and structural change as the dominant objectives of industrial
development. As reflected in the focus of the Brazilian study to
which this paper is a contribution, much greater attention is now
given to issues about international competitiveness and the
efficiency of resource use in industrial growth. Questions about
management and policy concerned with acquiring imported
technology are increasingly addressed in that context: the key
issues are about developing approaches that will more effectively
link imported technology to rising industrial efficiency and
competitiveness.
This section of the report starts from that point and
concentrates on six key issues where available new understanding
must replace outdated perspectives in developing more effective
approaches for acquiring imported technology.
a) To create and sustain industrial competitiveness,
technical change must be a continuous, not intermittent, process;
and imported technology must be incorporated into that continuous
technological dynamism.
b) 'Adopters' and 'Users' of technology play active and
creative, not passive, roles in generating these trajectories of
competitive technological dynamism.
c) The resource base needed to play those change-generating
technological roles includes (i) interacting structures of firms,
not just individual firms acting in technological isolation, and
(ii) a very wide range of engineering and other capabilities, not
just R&D capabilities.
d) Industrial firms play important roles as creators and
diffusers, not just employers, of the human resource components
of those wide-ranging technological capabilities.
e) Technology imports and local innovative capabilities are
complements, not alternatives, in the process of technical
change.
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f) Market mechanisms and government intervention are also
complements, not alternatives, in providing the necessary
framework of inducements for investment in technology
accumulation in industrialising economies.
3.1. Technical Change: A Continuous, Not Intermittent, Process
In the 1960s and 1970s, technical change was seen
essentially as an intermittent phenomenon. Such views were
encouraged by two sets of 'models' of how technology is
incorporated into economic activity. One centred on the role of
technology and investment in the process of economic growth, and
the other on the process of innovation.
Technology, Investment and Economic Growth
Common analyses of economic growth not only emphasised the
importance of investment in physical capital as the vehicle for
incorporating technology in production. They also tended to view
such capital-embodied technical change as involving infrequent
and relatively large 'lumps' of investment - in effect, distinct
new plant and factories.
9
At the same time, these views about
intermittent injections of large lumps of capital-embodied
technology were often set (sometimes only implicitly) within the
framework of 'putty-clay' models of technical progress: the
technical characteristics 'embodied' in particular vintages of
capital were assumed to be fixed by the time of investment
projects, and no further technical progress would occur in the
subsequent lifetimes of those facilities.
All this was consistent with the practical experience of
economists and financiers working in development banks and
ministries of industry or planning in developing countries:
their somewhat attenuated contact with the realities of
9
Following Salter (1966) and others, such 'lumps' of capital-embodied technology were described
as 'vintages and, as Salter described it, such a vintage consisted of "a new outfit of
capital equipment".
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industrial technology tended to centre on relatively large
investment projects for setting up new plants and factories.
Also, the project feasibility studies which they examined in
their banks and ministries almost invariably had at their core a
set of technical (and hence economic) characteristics which
remained fixed through the projected 10-20 year lifetimes of the
projects.
The Process of Technological Innovation
Emerging from a different tradition, common models of
innovation led in very similar directions. They focused on
individual product and process innovations - intermittently
occurring phenomena that emerged from a sequence of research and
development activities. In the 1960s and early 1970s,
therefore, most of the empirical analysis that sought to clarify
the main features of the innovation process focused on individual
innovations - distinct new products and processes that were
examined in isolation from both preceding and subsequent paths of
technical changes (e.g. Sherwin & Isensen, 1967; Myers & Marquis,
1969; Langrish et al., 1972; and SPRU, 1972). These
perspectives also incorporated a feature that was very similar to
the economists' putty-clay distinction: the separation between
(i) the various stages leading up to innovation (the first
commercial application of the new technology), during which the
evolving technology was creatively shaped; and (ii) the
subsequent stage of diffusion, during which it was presumed to
remain fixed as a succession of users simply 'adopted' and 'used'
it as it diffused through the economy.
Thus, within both these perspectives, technical change was
seen as stemming from intermittent 'injections' of technology
into the economy. In addition, both perspectives involved sharp
boundaries between (i) technologically creative phases of
activity in advance of the injections, and (ii) technologically
static, 'post-injection' phases during which the technology was
diffused and used, but not changed. Industry in developing
countries was usually seen as acting on the technologically
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static sides of those boundaries. It was involved in the
'adoption' of given technologies as they diffused internationally
after earlier innovation in the advanced industrial economies;
and, after the investment projects required to implement the
adoption of technology, firms in developing countries were seen
as undertaking the technologically static use or operation of
given facilities and systems.
International technology transfer was seen, therefore, as a
relatively simple affair. It was just a channel used
intermittently to provide/acquire some or all of the product
specifications, process designs, capital goods, operating know-
how, and so forth that were needed to adopt particular
technologies. Usually seen as 'inputs' for investment projects,
these forms of technology were needed for the immediate task of
setting up new production capacity at least cost, and any
problems for policy or management were concerned with short-term
issues about these project-linked inputs and their costs.
Virtually absent from debate were any longer term questions about
whether and how international transfer might be linked into local
processes of technical change and innovation. Indeed for some
analysts, those local innovative activities were simply presumed
to be absent, irrelevant, or unnecessarily costly relative to the
alternative of importing the technology involved.
10
Evidence about the grossly distorting simplifications
involved in these perspectives already existed by the 1960s, but
it attracted little attention. For example, Hollander (1965) had
already shown that the economic gains from continuing technical
change through the operating lifetimes of particular vintages of
capital might be just as significant as the gains from investment
in new plants incorporating complete new vintages of technology.
Enos (1962) had also provided striking evidence to illustrate a
point made by Rosenberg (1972 and 1976): the economic gains from
major innovations (in this case a succession of novel petroleum
10
Alternatively, as outlined later in this section, when the development of local innovative
activity was seen as desirable, international technology transfer was seen as having little or
nothing to do with it - except perhaps as a constraint on the emergence of those activities.
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refining processes) may be matched by the gains from continuing
improvement to each of those innovations during their subsequent
diffusion and use.
Since then, a wealth of evidence has been accumulated to
indicate the importance of seeing technical change as a
continuous, not intermittent, process. This has been associated
with fundamental changes in the basic frameworks used in
theoretical and empirical analysis of innovation and technical
change, and during the 1980s attention came to focus much less on
individual innovations, and much more on paths of technological
learning, trajectories of innovation, and cumulative sequences of
technical change (e.g. Dosi, 1988, and Imai & Baba, 1989).
These altered perspectives on the dynamics of technical
change have been associated with radical shifts in perspectives
about the underlying processes. While neo-classical perceptions
identified technology as being freely available for choice by all
firms, more empirically informed perspectives in the neo-
Schumpeterian tradition have emphasised quite different
perspectives: a large proportion of the stock of technical
knowledge is tacit and highly specific to particular firms and
markets, and its accumulation depends heavily on highly localised
learning processes (Atkinson & Stiglitz, 1969; Nelson & Winter,
1982).
One consequence of this clarification of the continuous and
localised nature of the innovation process is that one can no
longer view the management of technology imports as simply a
matter of securing one-off 'injections' of technology at least
cost. It must focus on the more complex task of ensuring that
imported technology is incorporated into, and contributes to, a
continuing process of technological dynamism.
In addition, it no longer make much sense to draw neat
distinctions between technologically creative 'producers' of
technology on the one hand and technologically passive 'adopters'
and 'users' on the other; and it makes even less sense to presume
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that firms in industrialising countries necessarily fall into the
latter category.
3.2. The Active and Creative Roles of Technology ’Users’
With technical change now more clearly identified as a
continuous process, it has become quite evident that the
diffusion of innovations does not involve the adoption and use of
technologically fixed products and processes. Instead, in
technologically dynamic situations, it typically involves two
stages of technical change in each successive application of the
diffusing technology.
First, the basic features of the technology to be used in
investment in new production facilities may be improved or
adapted for application in the specific situation involved. This
typically entails a complex process of engineering development,
design and re-configuration of the specifications of the
production systems involved - a technologically creative process
which is totally obscured by simple terms like "technology
adoption" or "technology choice".
Second, after initial investment in new production capacity
that incorporates the diffusing technology, technical change may
continue through the subsequent lifetimes of the production
facilities in each adopting firm. With an intensity which varies
between situations, this post-adoption phase of technical change
incorporates a stream of incremental developments and
modifications which further improve the performance of the
technology above the levels initially achieved and/or mould it to
continuing change in competitive input and product markets. The
analysis of "learning curves" in industrial production has
commonly shown the significance of the economic gains from this
continuing improvement in apparently "given" technologies.
However, this 'learning' perspective has typically obscured the
underlying processes by suggesting that the improvement arises as
a more or less automatic product of experience through 'learning
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by doing'. In practice, that experience effect has very little
significance, and the so-called "learning curves" are generated
by continuing paths of creative technical change that are
obviously associated with growing experience, but not simply as
an automatic result of it (Bell & Scott-Kemmis, 1990).
As integral components of the so-called diffusion process,
these two types of technical change are widespread and pervasive.
They are a feature of technologically dynamic industry in both
developed and developing countries - although, within both
groups, some countries appear to pursue these paths of change
more intensively than others.
11
These paths of continuous change
are also common across widely different industries - for example
the semiconductor industry and the brick industry, the machinery
industry and the chemical industry, the textile industry and the
steel industry. They also appear to be common across differences
within industries - for example, in the production of high-
performance coated steels in large integrated plants and the
production of standard construction reinforcing bar in small-
scale 'mini-mills', or in the production of semiconductors at
the IT 'frontier' as well as in the assembly of circuit boards at
various distances behind it.
12
Perspectives on technical change that neglect these
technologically dynamic dimensions of the diffusion process see
only a small part of the way technology and technical change
affect the competitiveness of firms and industries.
13
They also
obscure the significantly creative roles played by the so-called
adopters and users of technology. These roles are important in
the first of the two stages of technical change noted above:
11
For example, the intensity of continuopus change seems to be much greater in Japanese than US
or UK industry, and much greater in Korean than Brazilian or Indian industry.
12
There are, of course, differences between industries and technologies in the rates of
continuous, incremental change that are attainable over short term periods. There are also
differences in the length of the periods of incremental improvement that occur between more
radical innovative steps - for example, successive novel vintages of semiconductor technology
have followed each other much more rapidly in the last two decades than successive radical
steps in brick-making technology. Nevertheless, across those kinds of difference, the inter-
vintage phases of continous, incremental change are key components of the technological
competitiveness of firms and industries.
13
Debate about whether continuous paths of 'incremental' innovation are more or less important
than more 'radical' innovative steps are about as useful as debates about angels on pin-heads.
Both components of the technical change process are a necessary basis for achieving and
sustaining competitiveness.
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investment in new production facilities. This stage frequently
draws on a range of suppliers for capital goods, engineering
services, project management services and so forth; but
technologically dynamic firms rarely play a purely passive role
in these technological aspects of investment in the production
facilities they will subsequently use. They may generate a
significant part of the technology themselves, perhaps also
incorporating it in the designs of capital goods to be used; and
they may interact with their suppliers in various ways in
developing designs and specifications for the products and
processes involved. These technologically creative roles are
even more important in the second of the two stages noted above:
incorporating technical change into existing production systems.
Although this also will often draw on inputs from external
suppliers, the technology-using firm itself must play a
significant role - both independently and in interaction with
external suppliers.
Playing these roles obviously requires more than the
accumulation of skills and know-how for operating new processes
at their expected performance standards, or for producing
products to existing specifications. Firms must accumulate the
deeper forms of knowledge, skill and experience required to
generate continuing paths of incremental change, which both
improve on the original performance standards of the technology
in use, and modify its inputs, outputs and processes in response
to changing input and product markets. They must also strengthen
their capabilities for seeking out and acquiring technology from
other firms and economies. And they must then build on these
capabilities to introduce more substantial technical changes:
for example incorporating significant improvements into processes
already used or into process technology acquired from elsewhere
for new projects, modifying the existing types of product,
producing substitutes for those already produced, diversifying
into the production of input materials or equipment, or creating
improved process or materials technologies for use by supplier
industries. This phase may then blur into one in which firms
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produce the kinds of technical change which have usually been
thought of as significant "innovations".
So, even if we accept the rather narrow view that the
competitiveness of Brazilian firms will depend on their
efficiency as adopters and users of technology generated by
innovation elsewhere (not on their ability to generate
significant technological innovations themselves), we now know
that this has very different implications from those we might
have drawn in the 1970s. In particular, firms will need to
accumulate significant change-generating technological
capabilities of their own in order to play those roles.
3.3. The Resource Base for Technical Change: Interacting, Not
Individual Firms, and ’Engineering’ More Than ’R&D’
By the 1990s, the importance of the technologically creative
roles of technology 'adopters' and 'users' has become much
clearer. But so also has the fact that technical change is
generated by interactions between firms as much as by individual
firms themselves. Some of these interactions involve suppliers
and customers in the input-output chain - user-producer
technological relationships (Lundvall, 1988 and 1992; OECD,
1990a). Many others, however, involve a wide range of technology
collaboration arrangements between competing as well as
complementary firms (Chesnais, 1988; Cainarca et al., 1992;
Kleinknecht & Reijnen, 1992; Hagedoorn & Schakenraad, 1992)
14
.
Thus, an important part of the resource base for industrial
technical change is not just the technological capabilities of
individual firms; it is the complex structure of change-
generating interactions between the technological capabilities of
firms.
But what are those technological capabilities? In the 1960s
and 1970s such a question would rarely have been asked. at that
time, the nature of the resources required to generate technical
14
For a full elaboration on this point see Helena Lastres' companion paper for the Estudo da
Competitividade da Indústria Brasileira.
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change seemed obvious: they were R&D resources. The various
activities defined as research and experimental development were
clearly identified in the accepted linear models as the 'sources'
of innovations; the advanced industrial countries had developed
a well structured system for collecting statistics on R&D to
provide basic indicators of their 'inputs' to innovative
activity; and international organisations (e.g. UNESCO), together
with bilateral technical assistance agencies, were busy advising
developing countries that their technological capabilities (or
"scientific and technological potential") could be defined
adequately enough as their R&D capabilities.
All that now seems remarkably unhelpful since it focuses on
only a small part of the activities and resources involved in
generating technical change. Clearly major innovations do draw
fairly directly on new knowledge generated by various kinds of
research, and they frequently do require the design, construction
and testing of prototype products and pilot process plants. But
these R&D activities are only the tip of the iceberg - only one
part of a much wider set of activities that contribute directly
to technical change.
We must also include in the total iceberg the wide range of
design and production engineering activities through which the
results of R&D must pass before they result in the commercial,
productive use of technology. We must also recognise that,
without any direct inputs from R&D, those design and engineering
activities are frequently sufficient in their own right as
sources of technical change in production - especially as
generators of the continuous paths of technical change that we
now recognise as integral features of the process of technology
diffusion. Then we must take note of a point that has received
greater attention as we have learned more about the process of
continuous change ("kaizen") in Japanese industrial production:
workers whose primary task is the ongoing operation and
maintenance of existing production systems may also make
significant contributions to the process of technical change.
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Unfortunately, although we now recognise more clearly the
significance of these various change-generating activities and
resources, we can provide very limited information about them.
We have spent years collecting information about R&D. But, apart
from the fragments of information in a few illustrative case
studies, we can say little about the scale of the various design
and engineering resources which, with or without direct inputs
from R&D, are required to generate technical change in particular
sectors and economic contexts. Indeed, we would be hard pressed
even to describe in concrete terms what those resources would
consist of in specific situations. Similarly, while we can
present a little information about the change-generating role of
workers whose primary task is operation and maintenance, we have
only limited understanding about the significance of that role,
about how it is played, or about how it interacts with the
change-generating activities of other components of the
'iceberg'?
In short, if industrial firms are to interact effectively in
generating competitive rates and directions of technical change,
they must invest in acquiring and accumulating a range of change-
generating resources that is much wider than, and may not even
include, R&D resources. Their management of the acquisition of
imported technology will need to take that into account, as will
approaches to government policy. Among other things, this will
require much greater emphasis on the firm as a creator, and not
just an employer, of technological capabilities embodied in human
capital.
3.4. Industrial Firms as Creators of Human Capital
Some perspectives on the role of human capital in economic
growth have given primary emphasis to formal education and
training in institutions operating outside the structure of
industrial firms. And, sometimes with only passing reference to
'on-the-job-training', firms themselves have been seen
essentially as users, not creators, of the human capital they
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require to generate and manage technical change. Such
perspectives understate the central importance of firms as human
capital creators. This has been especially significant in
countries like Japan and Germany which have been particularly
effective in exploiting the dynamic gains of technological
accumulation.
Other perspectives have emphasised 'learning by doing' as an
important mechanism for creating these types of knowledge and
human capital; and recognition of the significance of tacit
knowledge has highlighted the importance of 'doing' as a means of
learning. However, two caveats should be noted about the role
of learning by doing.
First, doing one kind of activity is seldom an adequate
basis for acquiring the capabilities needed for others. This
obvious, but often neglected point, has become increasingly
important as the knowledge base for routine production activities
has become increasingly differentiated from the kinds of
knowledge, skill and experience that are required to generate and
manage technical change (with the latter organised in
increasingly specialised R&D Laboratories, Design Offices,
Project Management Teams, Production Engineering Departments,
etc.). As the gap between these two kinds of technological
competence has widened, the doing of routine production has
contributed less of the kind of learning that can contribute to
the capabilities for generating and managing technical change.
Instead, types of 'doing' that are specifically change-related
have become an increasingly important basis for change-related
learning (Bell et al., 1982; Bell, 1984).
Second, while various forms of 'doing' are central to
technological accumulation, learning should not be seen simply as
a doing-based process that yields additional knowledge
essentially as a by-product of activities undertaken with other
objectives. It may need to be undertaken as a costly, explicit
activity in its own right: various forms of technological
training and deliberately managed experience accumulation. Such
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intra-firm efforts, undertaken as complements to education and
training outside industry, have been especially significant in
Japanese and German firms.
In these ways, the contribution made by firms to an
economy's overall pool of technological capabilities are little
different from the contributions of other institutions more
explicitly concerned with education and training. However, the
two types of institution are not just substitutable alternatives:
particular kinds of skill and knowledge can be acquired only in
firms and through their investments in learning - by doing or by
training. This has fairly obvious implications for the way
firms manage their international technology transfer projects.
However, it also has two important implications for policy.
1) Because of the diffusion of skill and knowledge between
firms, they are usually unlikely to be able to appropriate the
full returns to their investment in learning, and there is
therefore likely to be significant under-investment from a
social, and possibly also private, perspective.
2) These 'externalities' should not be seen simply as
unfortunate problems ('failures' that hinder the effectiveness of
market mechanisms). Instead they can be seen as powerful
channels for the accumulation and diffusion of change-generating
knowledge and skills in industry, and mechanism might be found to
enhance their significance by inducing firms to invest in
creating these kinds of human capital deliberately in excess of
their private needs.
3.5. Complementarity I: Technology Imports and Domestic
Technological Capabilities
It has been very common to see technology imports and
domestic technological capabilities as alternative sources of
technical change in industrialising economies. This was a common
view within the influential 'dependency' perspectives of the
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1960s and 1970s. Technology imports were considered as
substitutes for domestic technology and squeezed out
('marginalised') nascent domestic technological capabilities.
The volume of imported technology should therefore be controlled
as one mechanism for stimulating the development of those
capabilities.
Exactly the same basic view remains common within a totally
different ideological and policy perspective. Domestic
technological capabilities and technology imports are again seen
as alternative sources of inputs for technical change. The
former, however, are usually presumed to be high-cost and low-
efficiency sources; and any measures to protect them and
stimulate their development instead of drawing on imported
technology therefore imposes a burden on technology 'users'.
Those views give little attention to what we have learned
about the experience of the advanced industrialised countries
where imported technology has played a central role in industrial
growth. It was obviously important when those economies were
catching up from behind the technological frontier - as in the
case of Germany in the nineteenth century and Japan in the
twentieth. However, it remains important for those that are
operating close to the frontier: a very large proportion of
total international trade in technology (either as disembodied
knowledge or as technology embodied in capital goods and
engineering services) takes place between the advanced industrial
countries themselves, rather than between them and the
industrialising countries of the developing world. At the same
time, a significant proportion of the 'innovations' developed by
firms in industrialised countries involve large elements of
imitation of technology already developed in other countries (De
Melto et al., 1980; Smith & Vidvei, 1992; Deiaco, 1992), and a
large amount of R and D in the developed countries is also
'imitative': that is, it is performed to monitor, assimilate and
modify the technological developments of competitor firms that
are often located in other countries (Levin et al., 1987; Cohen &
Levinthal, 1989).
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This highlights two issues. First, there is often no clear-
cut distinction between the kinds of activities and resources
required for 'innovation' and so-called 'imitation'. Second, the
argument that importing foreign technology and creating it
locally are alternative (substitutable) means for generating
technical change does not reflect the experience of these
countries, where technology imports and local technological
accumulation have in fact been complementary. This has taken
several forms.
1) Imported technology can contribute directly to technical
change without there being any significant involvement of local
technological capabilities. More often, only some elements of
the necessary total combination of technology are imported and
are combined with elements generated locally. The experience of
European countries in the development of the North Sea oil
industry in the 1970s illustrates both these patterns. In the
early years of the 'infant industry', projects drew directly and
almost totally on American technology, but this was followed by a
rapid transition to more indirect patterns in which imported and
locally developed elements were combined (Bell & Oldham, 1988).
2) Even when technical change depends heavily and directly
on technology imports, these may be complemented by intensive
efforts to accumulate locally the technological capabilities
needed subsequently for improving what was acquired initially,
for generating elements of technology to be combined with
imported elements in later projects, or for building a more
independent position in the long term development of the
technology. This, for example, was the pattern followed by the
US Du Pont corporation when it entered the rayon industry in the
1920s on the basis of imported technology (Hollander, 1965). It
was also very evident in the early industrialisation experience
of Japan. Tanaka (1976) has shown this in the case of the
development of the chemical industry between the 1870s and 1920s;
and, in the development of the shipbuilding industry in the early
part of this century, the licensing of designs and the
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acquisition of foreign expertise was complemented by large
investments in skill and know-how for developing and improving
what was initially acquired from overseas, not just for using it
(Fukasaku, 1986). Similarly, technology acquisition from foreign
firms was necessary in the early development of the automobile,
electrical and railway rolling stock industries, but localised
reverse engineering was also a major channel for accumulating
product design and development capabilities once local firms had
mastered production and component technologies (Nakaoka, 1987;
Odagiri & Goto, 1992). Similarly, in the post-war period, the
high levels of expenditure on imported technology by Japanese
firms was more than matched by their complementary expenditure on
engineering and R&D to ensure the dynamic assimilation of what
had been imported (Ozawa, 1974 and 1985; Tanaka, 1992).
3) The process of importing technology may also be preceded,
not just followed, by local investment in related technological
capabilities. This can provide the knowledge base needed by an
informed buyer of foreign technology, but it also creates a basis
for the dynamic assimilation of what is subsequently imported.
The experience of Japan again provides examples: for instance,
in the 1950s, entry into synthetic fibre production with licensed
technology was preceded by substantial investment in R&D and
related engineering activities (Ozawa, 1980).
4) Imported technology also contributes to local
accumulation itself, and not just to technical change. This is
fairly obvious when technology imports are acquired through
educational and informal channels - as with the training of
design engineers or research scientists in foreign universities
and research centres. It is often less visible in commercial
technology transactions between firms - for instance, when the
licensing of process specifications is accompanied by access to
underlying design data, training in design routines, and
opportunities to acquire experience in design projects. Such
international learning arrangements blur into various forms of
international technological collaboration between firms. The
primary objectives of such linkages and networks are usually less
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concerned about relocating existing knowledge and expertise from
one firm to another and more about pooling intangible assets to
develop new elements of technology. Nevertheless, these
arrangements may then be important mechanisms for transferring
internationally the resulting new technology.
The challenge for managers seeking to link imported
technology into the technological dynamism of their firms is to
exploit these kinds of complementarity, especially the last. As
noted earlier, a few Brazilian firms have already demonstrated
innovative ways of doing so. The challenge for government policy
is to stimulate a very much larger number of firms to follow
similar approaches.
3.6. Complementarity II: Markets and Governments
Much of the analysis of innovation and international
technology transfer in the 1960s and 1970s lacked any reference
to the market contexts in which those activities took place.
That is no longer the case, and issues about the nature of
markets are now often central to analyses of industrial
innovation, international transfer and the accumulation of
technological capabilities.
Emphasis on that issue is not just a reflection of a-priori
presumptions. It is sustained by important empirical evidence.
For example, the importance of competitive pressures and rivalry
as an incentive for technological accumulation emerges from
studies of the origins of competitiveness (for example, Porter,
1990), and from statistical studies of the technological
activities of the world's large firms (Patel & Pavitt, 1992).
Conversely an almost complete lack of competitive pressures was
one reason why production units in centrally planned economies
had no incentive to develop or adopt more efficient techniques.
Nevertheless, it is also evident that government
intervention in competitive markets, together with government
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shaping of their structure and functioning, have been important
in stimulating paths of technological development that are
commonly accepted as having been efficient. Such intervention
has taken several forms.
Trade Protection
During the industrialisation of currently developed
countries, governments typically took measures to protect their
infant industries from the competition of established producers
in more industrialised countries. The objective was to enable
firms to learn and master the technologies involved, and the
extent and duration of protection varied widely. In some cases,
it was provided only for relatively short periods - as in the
case of the Japanese synthetic fibre industry in the 1950s
(Ozawa, 1980). In others it persisted for long periods -
sometimes with questionable justification in terms of local
learning. But at other times the persistence of protection seems
to have been an apparent necessity for developing effective
mastery of the technology involved (e.g. in the case of the
Japanese automobile industry). More recently, trade policy has
been used in this flexible way during the rapid industrialisation
of South Korea: protection has been provided for limited periods
to permit the accumulation of a level of technological and other
capabilities required for competitive survival, and industries
have then been exposed to the pressures of international
competition (Pack & Westphal, 1986). However, such patterns of
trade protection were usually accompanied by other measures to
stimulate the accumulation of significant technological
capabilities.
Education, Training, and Research
Nearly all governments in market economies have a similar
core of policies that are designed explicitly to influence the
rate and direction of technical change, and that are justified
because they correct market failure. In particular, several
areas of government policy have focused on the creation of new
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knowledge through research, and on the diffusion of existing
knowledge through education and training since there are
significant externalities in both these activities, in the sense
that the full benefits are not necessarily appropriable by the
firms investing in them.
With respect to research, all the industrialised countries
have developed institutions outside firms for generating new
industrial knowledge and information. Some of these have been
private commercial institutions (contract research organisations,
industry-funded co-operative R&D centres, and so forth), but many
have been public or quasi public institutions (universities,
government research laboratories, subsidised co-operative R&D
centres, etc.). In a trivial sense, these institutions are
complements to industrial firms: their outputs of knowledge are
inputs to firms. More significant, however, is the
complementarity of innovative activity in the two sets of
institutions. Reflecting the points made earlier about firms as
the primary driving force in innovation, it is very rare for
infrastructural institutions to act as substitutes for the
innovative activities of firms themselves (Foray, 1993; Foray &
Mowery, 1989). Much more commonly, they generate only some
elements of the overall knowledge sets that firms need to
generate technical change. Several studies have found that the
firms that make most use of the R&D activities of these kinds of
institution are not seeking to compensate for the absence of
their own technological capabilities. Instead, they are firms
that have significant in-house R&D of their own, and they are
seeking specific knowledge inputs to complement those in-house
innovative activities (Mowery, 1983; Arora & Gambardella, 1990;
Bell & Oldham, 1988; Kleinknecht & Reijnen, 1992).
The contribution of government has been particularly large
in the area of investment in education and training. This has
not been limited to the provision of infrastructural facilities
(schools, universities, training centres, etc.), but has involved
measures to stimulate the training and learning efforts of firms
themselves. At least in the case of Japan, such measures seem to
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have been especially important in assisting the technological
accumulation process through more significant discontinuities.
The costs and risks of technical change and technological
learning vary with the 'distance' of the jumps being attempted
from existing bodies of technological competence. Drawing on the
industrialisation experience of Japan, Nakaoka (1987) points out
that government policies assisted firms making relatively large
'jumps' during early learning phases by providing finance to
cover risk, funds for training in the appropriate skills, and a
market for the products developed during the learning processes.
Ozawa (1980) illustrates similar forms of intervention in the
case of the entry of Japanese firms into the synthetic fibre
industry in the early post-war years: the government created
conditions which not only reduced market risks but also
stimulated firms to intensify investment in their technological
capabilities alongside their investment in new production
capacity. However, a significant dimension of that government
role is better described as 'shaping' the market in the first
place rather than just intervening in its operations.
Shaping the Market
A frequent and important feature of government policy as
late-industrialising Japan entered successive new industries was
the regulation of entry. This usually involved some combination
of limiting the number of firms, phasing the sequence of their
entry, and designating criteria for selecting entrants that
included significant issues concerned with their technological
capabilities and management of technology acquisition. These
entry regulating measures were often combined with (i) temporary
limits on the extent of domestic and/or foreign competition, but
also (ii) the predictable termination of those limits.
The primary explicit objective of such measures was usually
to ensure that firms set up production plants at the most
efficient scale and then operated them at full capacity.
However, an additional important consequence was that substantial
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incentives were provided for investment in the technological
capabilities required to generate and manage technical change.
Nakaoka (1987), for example, describes one example of this
approach: the development of the railway rolling stock industry
between 1900 and 1920. Apart from playing a major role in
accumulating and then diffusing relevant engineering design and
development expertise,
15
the National Railways designated only two
private engineering firms as manufacturers of locomotives and two
others for wagons and carriages. What was significant about this
was not that it limited competition, but that it shifted the
timing of intense inter-firm competition: firms not only
competed after entering production, they competed intensely
before that in order to be able to enter. Moreover, the
selection of limited numbers of entrants ensured that the firms
were large enough to accumulate substantial technological
capabilities, and hence to incorporate a significant technology-
centred dimension in their competition. As Nakaoka describes it:
"designated manufacturers were always plural.
Competition was an essential factor in the process.
Though manufacturing opportunities were restricted to
designated firms, the opportunity to become a
designated firm was open to all local firms. Many
ambitious firms competed with each other to become a
designated firm and, after being designated, competed
to manufacture a better locomotive than others". (p.17)
Ozawa (1980) describes a similar example some thirty years
later when Japan entered successive segments of the synthetic
fibre industry in the 1950s and early 1960s. In this case, entry
was usually staggered - with only one firm initially permitted to
enter segment that was protected from international competition,
but with subsequent entry by others and/or the elimination of
protection from international competitors being quite predictable
at that stage. Ozawa indicates that this had striking
implications for the way Japanese firms approached the
acquisition of foreign technology.
15
In principle, this role was very similar to that played by PETROQUISA during the COPESUL
project when it not only organised the acquisition of its own process engineering expertise,
but also mobilised similar accumulation by selected engineering and equipment firms.
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"Clearly there have been many benefits from the
strategy, with the staggered-entry formula particularly
enhancing the Japanese firms' ability to absorb
sophisticated foreign technologies. To be qualified as
an early entrant, a firm had to demonstrate its
technological and financial capabilities to assimilate
the latest technologies. Therefore the industrial
groups competed in searching for new promising
technologies, conducting preparatory research, finding
an appropriate foreign licenser, and securing the
necessary investment funds. (...)
The preparatory research often consisted of 'backward
engineering' and 'patent-literature-based
reproduction'. These approaches enabled Japanese firms,
first, to know the real merits and demerits of a new
foreign technology (...); second to prepare themselves
technologically to absorb only the desired components
of foreign technology (... thereby enhancing their
bargaining power in negotiating with the supplier); and
third, often to come up with significant technological
improvements in the course of 'reproduction'.
(...) the staggered-entry formula also served to
strengthen the bargaining position of Japanese firms in
negotiating with foreign technology suppliers, because
only one (or at most a selected few) was permitted to
enter a new industry at a time". (p.146)
Blind adherence to views views that governments should not
intervene in markets would neglect these aspects of Japanese
experience in which governments shaped the structure and
functioning of markets in ways that enhanced effectiveness in
acquiring and dynamically assimilating foreign technology.
Similarly, blind adherence to views about the importance of
protectionist trade policy as a means of enhancing technological
'learning' would ignore the related aspects of Japanese
experience in which competitive pressures (in particular forms)
played a major role in stimulating aggressive approaches to the
acquisition of foreign technology. It might also lose sight of
two other aspects of that experience: (i)active investment in
acquiring knowledge and expertise (not just 'doing') was the main
basis for technological learning; and (ii) to the extent that
'doing' was important for that learning, it was particular kinds
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of doing - those concerned with designing, developing and
improving the imported technology, not just using it.
In developing approaches to policy in Brazil in the 1990s,
it seems essential not to fall into either of these camps of
blind adherents to outdated preconceptions. Much more useful,
but also much more challenging, will be to find new ways to
exploit the complementarities between markets and governments -
ways that are designed for Brazil, but also ways that are
designed for competitiveness in the international context of the
1990s and beyond.
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4. THE INTERNATIONAL CONTEXT FOR TECHNOLOGY ACQUISITION BY
BRAZILIAN INDUSTRY
This part of the paper examines two aspects of the
international context for technology acquisition by Brazilian
firms. The first, examined in Section 4.1, is about the patterns
and processes of technical change that have become central to
competitive industrial performance during the 1980s. These have
major implications for what Brazilian firms will have to do with
imported technology after they have got it. The second, examined
in Section 4.2, is about new conditions that may be faced by
Brazilian firms as they seek to acquire technology through
international channels. The main implications of these are about
what firms will have to do before they get imported technologies
- approaches to strategy, management and organisation that may be
needed to acquire technology efficiently in the first place, or
even to acquire it all.
First, however, it is important to note two other features
of the international context: the increasing integration of
trade and technology policies at the international level; and key
changes in the international structure of production and trade.
The Integration of International Trade and Technology Policies
Technology and trade policy issues have become increasingly
integrated, during the 1980s; and, as technology-intensive
industries have become more central in the managed trade
environment of bilateral negotiations and disputes, developing
countries are suffering the dual difficulties of (i) greater
difficulty in exporting their own goods, and (ii) the slow
diffusion of new technologies.
Also, under significant changes in the economic and
political balance of power among developed countries in the late
1980s, a new series of international rules and agreements have
been negotiated. Examples include not only new bilateral and
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regional initiatives (such as the various US-Japanese agreements
and the EEC) but also attempts to change multilateral agreements
(such as the 'Uruguay Round' of GATT). While developing
countries are participating more actively in these new
multilateral agreements than they did in the major post-war
arrangements, such agreements are being negotiated under two very
distinct principles. On the one hand, the North-North bilateral
and regional agreements have been increasingly influenced by a
concept of 'fair trade', whereby access to markets depends on its
effects on the economic structure of the recipient
countries/regions. At the same time, various forms of protection
are provided for high-technology industries; and, as noted by one
analyst:
"free trade in high-technology products is a largely
meaningless option - the real policy choice is not
between free-trade and protection but between
appropriate combinations of liberalization and
government intervention that improve national economic
welfare in the short run and sustain a more open
international trading system in the long run". (Tyson,
1992)
In contrast, in North/South relations the old concept of
'free trade' has been pushed further and focused on areas related
to new technology (such as intellectual property rights and
services). Thus protectionism and market liberalisation are
treated unevenly in North-South relations. The North accepts the
principle of protecting both mature industries and novel
technologies, while (i) seeking various forms of market access in
the South and (ii) disputing the validity of Southern ('fair', it
might be argued) structures of protection and other measures to
enhance technological development. The South must respond to
changing international structures of production, trade and
technology-based competition within that kind of imbalance in
ideology (and power) - an issue that may become increasingly
important for Brazil in particular.
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Changing International Structures of Production and Competition
Brazilian industry is competing in a changing international
structure of production and trade - an issue that is well known,
but merits constant re-emphasis in any discussion of technology
and industrial competitiveness. The point is especially
important in the context of structural changes in Brazilian
industry itself. These have involved shifts towards two areas of
current comparative advantage: partly, towards labour-intensive
industries, and more substantially towards industries that are
natural resource-intensive and energy-intensive. While these
shifts open up short term opportunities, they also open up
considerable vulnerability in the medium-to-long term.
Rapidly growing production in other countries with lower
wage rates and rising skill levels is likely to erode the
competitiveness of labour-intensive products like shoes. In
particular, an enormous potential threat is emerging for these
kinds of industry as very low labour costs in China are being
combined with high levels of technical skill and international
marketing expertise that have been accumulated by firms in Hong
Kong, Taiwan and Korea. At the same time, many other countries
are increasing investment in the energy-intensive and natural
resource-intensive industries, most of which are already
suffering from excess capacity. In the basic chemical industry,
for instance, huge increases in capacity are expected in the
Asian Pacific rim - especially in China. International
competition in these industries will be particularly intense for
many years.
In these contexts, three broad types of response are likely
to be critical for sustaining competitiveness:
a) intensive efforts to achieve continuing increases in
productivity and all aspects of process efficiency in existing
lines of production;
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b) intensive efforts to raise product quality and move
'upwards to higher value-added products in the existing
industries;
c) intensive efforts to develop new areas of competitiveness
in related products and industries - moving 'downstream' to
higher value products and 'upstream' to areas of specialised
strength in machinery and equipment, instrumentation, information
systems and software, engineering services, etc.
In short, within the changing international structure of
industrial production, the recently strengthened short term
competitiveness of large segments of Brazilian industry almost
certainly cannot be sustained over the medium-to-longer term by
depending on the 'spurious' advantage of low wages and
devaluation or on natural resource endowments. It will depend
increasingly on resources of knowledge, expertise and
institutional structures for generating and managing technical
change - 'created' bases of comparative advantage.
4.1. Changing Patterns and Processes of Industrial Technical
Change
The preceding sections have emphasised that, if firms are to
achieve efficiency and competitiveness, they will have to
incorporate technology imports into trajectories of continuous
technological dynamism. More specifically, however, sustaining
international competitiveness will require those trajectories to
generate rates of productivity increase and product performance
improvement that at least match international rates. However,
this requirement poses much greater demands than in the past. In
the international context of the 1990s, the required rates of
technical change appear to be greater; the necessary directions
of change are different and more complex; the underlying
processes of change will have to be driven by much greater
investment in firms' own resources of knowledge and skill; and
the organisational basis for change will have to involve more
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intensive patterns of interaction and collaboration between firms
and related organisations.
The Intensification of Technical Change
During the import substitution period of the 1960s and early
1970s, most of the technologies acquired by industrialising
countries like Brazil were relatively 'mature'. This was
particularly true of technologies in sectors such as iron, steel
and other metal products, machinery, pulp and paper, and
chemicals (especially bulk chemicals). This had several
implications.
1) Although competitive performance depended heavily on both
types of incremental technical change discussed in the previous
section (improvements incorporated in new facilities at the time
of investment, and further improvements in the post-investment
period), the intensity of those kinds of change was relatively
low, as was the frequency of more substantial technological
discontinuities.
2) A large proportion of the specifications for products and
processes could be embodied in relatively standardised capital
goods, and could be transferred via 'turn-key' projects - with
only limited needs for innovation and design for application in
specific circumstances. There were correspondingly limited needs
for local involvement in the engineering and design activities
involved in creating new production systems.
3) Most of the capabilities to use and operate the given
product and process technologies could be relatively easily
acquired via training in basic routines and a modest amount of
experience in 'doing' those routines.
There were therefore very limited requirements for
accumulating significant capabilities for generating and managing
technical change, and those requirements were even more limited
in industries with persisting protection against competing
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imports (and/or subsidies for exports) that shielded them from
the effects of the continuing improvements in these mature
technologies that were being generated in the international
economy. In that context, investment in change-generating
capabilities was more of an 'optional extra' that might be added
to routine operating capabilities by a few firms for
idiosyncratic reasons. Not surprisingly, however, the majority
of firms took advantage of the combination of technological
maturity and protection/subsidy, and invested little in
developing their own resources for developing, improving,
creating and designing the product and process technologies they
used. The implications for competitiveness subsequently became
evident.
That international technological environment for Brazilian
industry has changed fundamentally during the 1980s. The whole
spectrum of industries that were technologically mature in the
1960s and 1970s has been rejuvenated by radical changes in
technology or (more often) by an intensification of more
incremental forms of change - or by a combination of both. At
the same time, of course, a wide range of new industries that
were in their infancy in the 1960s and 1970s have emerged on the
basis of rapid technological development to play a substantial
role in international production and trade. As a result:
"in most areas of manufacturing, engineers are
confronted with new criteria for dominant designs and
must adapt to new technological and industrial
paradigms, some of which are compatible with earlier
approaches to design and product management, while
others require a complete break with previous
procedures and ways of thinking". (Chesnais, 1990:15-
16).
At the centre of this technological transformation lie a
relatively small number of well-known areas of rapid
technological development: micro-electronics and information
technologies; radical improvements in old materials and the
development of new ones; and accelerating developments in cell
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and molecular biology. Important as these are, they should not
obscure the much wider diversity of intensified technical change
across all industries, all activities within them, and most of
the technologies they use.
Part of this diversity involves process-centred change with
its implications for rising productivity - increasing efficiency
in the use of capital, labour, energy and materials. But other
parts are reflected in intensified product-centred change which,
apart from reinforcing process efficiency, has (i) shortened the
time gaps between major technological discontinuities, (ii)
reduced life-times and lead-times for less radically novel
products, and (iii) widened the diversity of smaller product
differentiations. At the same time, combinations of process-
centred and product-centred change have been directed more
intensively at reducing environmental costs per unit of
industrial output - an objective that is being achieved
increasingly by forms of technical change that also reduce other
unit costs.
As it emerges from the crises and macro-economic instability
of the 1980s, Brazilian industry therefore faces a world in which
the technological basis for competitiveness is totally different
from that of the 1960s and 1970s. The point is not simply that
there now exist a large number of 'new technologies' that were
not available before. The more fundamental point is that the
whole structure of technology underlying the competitiveness of
industry is now changing much faster than in the 1960s and 1970s.
For such a large industrial economy that did not match the
relatively modest international rates of technical change in the
1960s and 1970s, competing in this new technological environment
of the 1990s constitutes a most formidable challenge.
The IT-Intensity of Technical Change
Within the overall complex of intensified technical change,
the importance and pervasive impact of electronics and
information technologies are well recognised and need no further
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emphasis here (see, Freeman, 1993, for a recent review).
However, three characteristics of IT-centred technical change
require a little elaboration.
First, to an extent that is perhaps greater than in other
areas of technical change, the incorporation of electronics and
IT elements into products, processes and organisational systems
seems to require direct user-involvement in technology
development and design. Compared with some other areas of
technology, the application of many areas of
electronics/information technology requires much less
standardised systems that are highly specific to the
characteristics of individual firms, their products and
processes, and their markets. These system specifications are
not easily transferred in the form of 'ready-made' capital goods
and blueprints and their efficient introduction therefore
requires much more localised technical change. Moreover, that
localisation must often go beyond the routine 'adaptation' of
systems. It has to be deeply rooted in development and design of
the hardware, and especially the software, in the immediate
context of use. Also, since that frequently involves relatively
complex engineering and design, the importance of tacit knowledge
is often particularly great (David, 1992). In particular,
however, what is frequently involved is the integration of
electronics/IT elements and systems within existing products,
processes and organisational procedures, and large proportions of
the tacit and other knowledge needed for localised development
and design must therefore be drawn from the 'user' of those
elements and systems. Thus, the technology users frequently need
to play a particularly significant and direct role in the process
of technology development and design. Then, of course,
subsequent dynamic assimilation of the technology after its
initial implementation requires, as with most other areas of
technology, a yet greater direct involvement of the user in
generating and managing technical change.
Second, most applications of electronics/information
technologies involve systems and networks. This raises important
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issues about 'network externalities' (Katz & Shapiro, 1983;
Allen, 1988), with progressive diffusion yielding falling
transactions costs (Williamson, 1988) and benefits to all users,
not just the marginal adopters. At one level, this has important
implications for change within individual firms. As Kaplinsky
(1988) has emphasised, the gains from using automation and
information technologies rise disproportionately fast with
increasing degrees of system integration. This does not mean
that merely trivial gains can be captured from implementing only
parts of the "electronic jigsaw", but it does suggest that there
are likely to be high returns to rapid intra-firm diffusion of
the technology. Correspondingly, adopters and users of the
technology are likely to gain high returns to investment not
simply in 'the technology' itself, but in the bodies of knowledge
and expertise that are needed to interact with users in
developing and extending their IT systems.
The network characteristics of IT systems also have
important implications at the overall inter-firm level.
Significant benefits accrue to individual firms (as
'externalities' from the actions of other firms) as the overall
density of IT adopters and users increases within the total
population of geographically related and market-linked firms. In
particular, the efficiency of using IT systems increases with
increasing local availability of (i) information about the
technology from other users, (ii) a trained and experienced
workforce, (iii) technical assistance and maintenance services,
(iv) suppliers of equipment and software,
16
and (v) complementary
innovations - both supplier-developed and user-generated, and
both technical and organisational.
Within such evolving structures and processes of collective
learning, the diffusion of electronics/information technology is
frequently accelerated by the presence of advanced user-firms
that not only act as 'demonstrators' for others, but also
16
As he has been stated above, the integration of customers in the development of new products
improves the development work (von Hippel, 1976). This is especially so in the software
field, in which product development is so complicated that it has to be performed for a
specific customer.
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contribute to the development of innovations that improve the
efficiency of the technologies in the specific local context of
their use (von Hippel, 1988)
17
. Given these patterns, it is not
surprising that public policy in many of the advanced industrial
countries has played a significant role in accelerating the
diffusion of information technologies - in particular by
stimulating the emergence of efficient technology users and the
development of user-producer linkages. With respect to advanced
automation technology in Sweden, for example, public policy and
public institutions were crucial in setting up several
'demonstration plants' partly financed by the National Board for
Industrial and Technical Development and the Board for Industrial
Development.
Third, information technology is not just an area of
changing technology, it is frequently also a powerful instrument
for generating innovation and technical change. This is most
obvious in the case of computer aided design systems which not
only permit more rapid and frequent changes in product and
process design, but also allow much more intensive and extensive
exploration of design options. However, the same change-
stimulating role of IT is evident in other ways that 'feed into'
product and process design. In the various types of development
and research, IT systems evidently play an enormously important
role in accelerating the generation of new knowledge, in
acquiring existing knowledge, and in developing new
configurations of technology for incorporation into specific
designs. Perhaps less evident is the change-stimulating role of
IT when applied in production and management processes
themselves. For example, the information that can be generated
by various types of advanced process control technology, combined
with the power of advanced computing, allows the acceleration of
incremental process improvements. Similarly, the knowledge
generated by IT applications for organisation and administration
17
Even when one refers to relatively indivisible technologies, such as basic oxygen
steelmaking, continuous casting of steel, float glass and barrel kilns in brickmaking, it is
shown that their diffusion process is both constrained and dependent upon improvements
generated by both producers and users of the technology (Ray, 1984:87).
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permit more intensive analysis of changes in the 'organisational
technology' of firms.
The Increasing Significance of Organisational Change
Although it has always been important, the significance of
change in the organisational (or social) dimension of industrial
technology has become much more evident during the 1980s. Given
the flood of publications on this issue - Japanese management
methods, 'Lean' production, 'Flexible Specialisation', and so
forth - there is no need here for any general review (see
Humphrey, 1993, for a recent review that also includes several
studies of Brazilian experience). Only one point require
emphasis.
Organisational change is frequently an important integral
component of many other types of technical change that may appear
to be centred primarily on 'hardware'. This seems to be
particularly so in changes involving IT and automation systems.
For example, one survey about the diffusion of flexible
manufacturing systems (Hoffman, 1988) provides evidence to show
that most of the gains in competitiveness arise from the
preparation for, rather than the implementation of, such systems.
Bessant and Haywood (1986) suggest that the extent of the
benefits from the organisational dimension of change is around 75
per cent of the total derived from flexible manufacturing.
This does not mean, however, that organisational change can
simply be substituted for investment in more 'hardware-centred'
technical change. In the short run that is sometimes possible,
especially when there is a large backlog of organisational
inefficiency to overcome. Indeed, there are some cases where
firms have found that substantial organisational change
implemented in preparation for the introduction of IT systems has
made the latter redundant. However, given the intensity of the
overall multi-dimensional process of technical change in most
industries, competitiveness cannot be sustained for long on the
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basis only of changes in the organisational dimension of
production technology.
User-Producer Interactions and Innovation
We have earlier stressed the importance of the technology
'user' as a creative contributor to the process of technical
change; and the importance of change-centred interactions between
technology users and producers has already been emphasised with
particular reference to electronics/information technology. But
the significance of these interactions in raising the rate and
effectiveness of technical change in industry is much more
comprehensive. The work of Lundvall (1983, 1985, 1986 and 1992)
on interactions between innovation users and producers in a range
of industries emphasises that their geographical proximity
constitutes a competitive advantage. On the other hand, the
absence of effective user-producer interactions can lead to
significant inefficiencies (Glete, 1984). The key to
effectiveness is not just the proximity of both agents but the
'quality' of their interaction, which in turn seems to depend
heavily on the technological capabilities of the technology user
as much as those of the producer. Lundvall (1989:16-17) pointed
out, for example, that when producers dominate users (or when
users have a limited technical competence) there has been a
tendency towards 'hyper automation' - that is, users are faced
with designs that do not meet their needs, and with overly
complex and costly capital goods. In such cases, instead of
attaining productivity gains, automation leads to diseconomies.
18
It is important to note that the significance of these types
of interaction appears to increase with (i) the complexity of the
information about technology that has to be sent between the
firms, (ii) the degree of non-standardisation of production, and
(iii) the degree of technological discontinuity involved in the
innovation. In other words, it appears to be much more
18
For example, in the case of waste-water technology and office automation in Denmark, the lack
of local user competence had a negative effect upon the systems developed (Lundvall, 1989).
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significant in the technological environment of the 1980s that it
was in the context of more stable technologies and standardised
production in the 1970s.
The dynamic significance of these user-producer interactions
reinforces a point already made about conventional perspectives
on the international division of technological labour - with
innovation and technological creativity concentrated in the
advanced industrial countries and technologically passive
adopting and using concentrated in the developing world.
19
Our
earlier argument was that such perspectives were misleading in a
world where international competitiveness on the part of adopters
and users of technology in the developing world requires them to
contribute creatively to developing and changing the technologies
they use. To that we must now add the argument that, in the
environment of the 1990s, the dynamic importance of user-producer
interactions calls for the increased presence of technologically
creative producers (not just users) in industrialising countries,
particularly because the importance of those interactions seems
to be greater the earlier they occur in the life-cycles of the
technologies concerned.
In other words, the developments of the 1980s have changed
the forum for debating a key global issue: whether to reinforce
or to reduce the technological dualism of the global economy in
which (i) rich regions reap the dynamic gains of innovation
within interacting networks of technologically creative firms and
institutions, and (ii) industrial firms in the developing world
'specialise' in the technologically passive adoption and use of
technology that has mostly been created within structures and
systems in which they play no part. In the 1960s and early 1970s
that issue was on the agenda of ideological and political debate.
In the 1990s, especially in relatively advanced industrialising
economies like Brazil, that same question must be on the agenda
of economic debate about efficiency and competitiveness.
19
For a related critique of such perspectives, see Walsh (1988).
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The Knowledge-Intensity of Industrial Production
The rising change-intensity of industrial production is
being accompanied by its rapidly growing knowledge-intensity.
Indeed, a fundamental transformation seems to be taking place in
the relative significance of investment in knowledge and
investment in fixed capital. In an ever widening range of sectors
in the developed countries, leading firms' annual expenditures on
R&D are now often larger than their investments in fixed capital
(for Japan, see Kodama, 1991). This requires a fundamental change
in the perspectives of those who are accustomed to see fixed
capital investment as the engine of economic growth. For a
widening range of industries, we need to turn that upside-down
and recognise that, at the international technological frontier,
investment in new knowledge assets is coming to exceed investment
in physical assets as a major source of competitiveness. The
implications for industrialising countries like Brazil are not
wholly clear: it is unlikely that, over the next decade, many
firms will face the need to sustain their competitiveness by
investing more in R&D than in fixed capital, but it is almost
certain that many will have to invest many times more than they
have in the past.
One must also bear in mind the point made earlier about R&D
resources being only part of the total set of capabilities needed
to generate technical change in industry. Although systematic
data are lacking, it is almost certain that the importance of a
wide spectrum of engineering skills is also increasing in
response to various aspects of the rising change-intensity of
production - a trend that may be reinforced by increasingly
localised innovative activity drawing on larger elements of
knowledge that are less standardised and more tacit. Finally,
one must also note an aspect of the experience of western
companies that have sought to learn from Japanese industry and
generate more intensive processes of "continuous improvement"
("kaizen"). As noted earlier, those paths of change draw heavily
on the skills and knowledge of direct production workers. But it
has become evident that those workers cannot play a significant
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change-generating role on the basis of the same stock of skills
and knowledge they used for more routine operational tasks, and
substantial investment in training is required to mobilise those
latent resources.
Across a wide spectrum of capabilities, therefore, many
firms in the advanced industrial countries have greatly increased
their training and related expenditure to raise the levels of
skill and knowledge they have available for generating and
managing change, and they have often developed novel
institutional mechanisms for doing so.
20
A Particularly striking
example is the case of Motorola which, seeking to raise quality
and production flexibility while intensifying technical change,
raised training and education expenditure from $7 million to $60
million per year and developed its own corporate university
(Wiggenhorn, 1990).
Government policy in the advanced industrial countries has
matched these shifts towards increased investment in knowledge
and skill at the firm level. For example, the European Community
is pursuing a strategy of promoting R&D co-operation,
complemented with policies to stimulate competition (Moore &
Harris, 1992). At the national level, there has been real growth
in government R&D budgets in most OECD countries over recent
years, and in many of them this has been coupled with other
measures to stimulate firms' investment in R&D and other
intangible assets. The OECD data base on public support to
industry (OECD, 1992) has identified 159 such programmes among
its member countries. Information about the 'Net Cost to
Government' was available for 144 of these, and the total
amounted to about US$ 6.1 billion in the most recent year, with
direct grants accounting for 50 per cent and tax incentives for
40 per cent. The OECD analysis suggests that these trends are
part of a shift in the general structure of government policies
for industrial support. The most striking aspect of this is a
20
Eurich and Boyer (1985), for example, provide a review of this increased role for "Corporate
Classrooms", and Fortune (3 June 1991) reviews "How Intellectual Capital Is Becoming Corporate
America's Most Valuable Asset".
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shift away from subsidies for general capital costs and
investment aid, and towards more focused support for R&D,
training and related knowledge-centred activities.
4.2. Access to International Technology: New Patterns and
Conditions
New Patterns or Old Continuities?
Despite their obvious importance, key features of the
international transfer of technology have attracted only limited
systematic analysis over the last decade or so. This, however,
has not precluded numerous comments about the emergence of new
trends and patterns. Many of these suggest that industrialising
countries face increasing problems in their efforts to acquire
technology from the more advanced industrial economies. In
particular, the following issues have been noted:
a) With innovation coming to depend on rising levels of R&D
expenditure, higher payments may be required for licensing and
other forms of access to the technologies involved.
b) Changes in intellectual property rights systems in the
industrialised countries, together with pressures for more
stringent enforcement of those regimes in industrialising
countries, are reinforcing such trends - as well as bringing into
the scope of those systems areas of technology previously
excluded (e.g. in software and biotechnology).
c) The characteristics of some new technologies are making
them inherently more difficult to transfer. It has been
suggested, for example, that many areas of information technology
involve particularly high levels of tacit and firm-specific
knowledge that are less easily transferred than more equipment-
embodied technologies (Dosi, Pavitt & Soete, 1990).
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d) The growing importance multi-firm collaborative
arrangements for developing new technologies across a wide
spectrum of industries, combined with the rising importance of
basic research in some areas, may hinder the access of developing
countries to the knowledge involved.
Several studies have provided a modicum of support for such
views. For example, drawing on interviews, the UNCTAD
Secretariat has suggested that royalty rates on patents and know-
how may be rising (UNCTAD, 1992:152-153); and Vickery (1990) has
observed a relatively slow growth of technology licensing as
compared with other technology transfer activities, such as
imports of capital goods. However, one can also find equally
convincing arguments that point in opposite directions:
a) With increasing R&D investment levels, often associated
with shorter product life cycles, there are pressures to
increase, not reduce, access to the technologies involved:
"innovators must reap profits faster, sometimes by licensing
their technology rather than by exporting it or establishing
affiliates abroad." (Soete, 1985)
b) More specific studies of the international diffusion of
advanced technologies like telecommunications systems have
suggested that intense competition among technology leaders in
international markets has pushed monopolistic profits from
innovations lower and lower, and that "the 'appropriability' of
innovations has greatly declined in recent years." (Antonelli,
1991)
c) Advanced information and communication technologies may
enhance, not constrain, international access to technology; and
this may be further increased, not reduced, by the growing use of
collaborative networks for technology development - networks into
which firms in industrialising countries may be incorporated.
For example, Hindustan Aeronautics in India and a leading UK
aerospace company have recently entered into a collaborative
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engineering design programme that will operate through a
sophisticated network of computers and satellite links.
d) Advanced information technologies may well involve
greater elements of tacit knowledge and greater degrees of user-
specificity, while yielding their greatest gains as total system
integration is achieved. But, at least in some situations, this
does not seem to have been a great obstacle to their
international diffusion, combined with (i) their localised
adaptation to meet user-specific requirements, (ii) their
efficient application to yield significant benefits from
cumulative partial steps towards integration, and (iii) their
further development and improvement by users after initial
implementation. These characteristics can be identified in some
situations - for example, in the case of the port management
system in Singapore (Wan et al., 1992), just as their virtual
absence can be identified in others situations - for example, in
the case of digital process control systems in the petrochemical
industry in Brazil (Carvalho, 1992). Perhaps the key issues are
less about any inherent general characteristics of 'new
technologies', and more about differences between the situations
for which they are acquired and into which they are introduced.
In short, it is not clear that any broad generalisations can
usefully be drawn in these areas at this stage. In any case,
there are more focused arguments that may be more significant for
some Brazilian industries. These are about the problems of
limited access to technology that arise as firms and industries
in the NICs begin to approach particular segments of the
international technological frontier. For example, it has been
noted that some of the more technologically advanced firms in
South East Asian have encountered increasing problems in
acquiring technologies through international channels: firms in
the advanced countries "are refusing to license the relevant
technology since they do not want to encourage direct competition
in products which they are still producing themselves" (O'Brien,
1985:214). More recently, as Korea has become a major
competitor, it has been suggested that Japanese firms have become
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increasingly reluctant to sell or license technology in key areas
of components, software, capital goods and machinery (Business
Week, 1992). Moreover, there is a common view in Korea that
Japanese firms have formed a consensus (implicitly at least) not
to supply strategic technology inputs to Korea. Indeed, some
observers within Korea believe that, during the latter half of
the 1980s, they were experiencing the 'tail end' of technology
transfer from Japan, and they claim that in some cases, the large
Japanese conglomerates have begun not only to restrict their own
transfer of strategic technologies to Korean competitors, but
also to pressurise their technology suppliers to do the same.
Again, however, this set of issues is not wholly clear, and
there is considerable evidence that points towards different
conclusions.
At a general level, it is obvious enough that, as firms in
the NICs begin to approach the international technology frontier,
they will face changing conditions in seeking to acquire
technology through international channels. However, the
significance of those changing conditions is not so obvious.
1) The 'price' of relatively young technology may be higher
than that of older technology, but presumably the returns to
acquiring and using the newer technology are also higher. Is one
getting more 'value for money' or less?
2) Other conditions for acquiring and using technology may
well be more restrictive for younger than for older technologies.
For example, restrictions on exporting may be tighter for
technologies that firms in the advanced countries are still
actively using in their own products. However, is that an
insurmountable obstacle or a challenge to find new ways of
acquiring relatively young technologies and exporting products
based on them? The experience of the East Asian NICs (for
example in developing OEM and ODM arrangements with large firms
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in the advanced countries)
21
suggests that, while the former has
been much discussed, the latter has frequently been the focus for
practical action.
3) It is quite evident that some large Japanese firms have
recently restricted what had previously been relatively open
access to technology by firms from Korea and Taiwan. However,
while again generating a considerable volume of Korean comment,
this has also stimulated Korean firms to find other sources for
the technology they need. For example, the Daewoo corporation
has slashed its reliance on Japanese technology (from 85 per cent
of total procurement in the mid-1980s to 15 per cent) by
increasing its reliance on western companies (Business Week,
1992).
4) It is also quite evident that opportunities for such
switching of sources for relatively advanced technology may
narrow with the contracting diversity of potential suppliers that
usually follows the early stages of product/technology life
cycles. However, there are very few segments of industry that are
so monopolised as to preclude the exploration of alternative
sources - although these tend to attract most attention. Also,
the process of concentration in advanced technology industries
may actually increase, rather than reduce, effective
opportunities for access to technology - at least during the
phase of concentration itself. For example, Korean firms
obtained key elements for their entry into semi-conductor
production from relatively small US firms that, being 'squeezed'
by competition from the larger firms, were under particularly
strong pressure to generate revenue from their existing
technological assets.
What this seems to suggest is two general points. First, if
there are obstacles and barriers to technology acquisition as NIC
firms approach the international frontier, they do not all seem
21
The companion paper by Mike Hobday (The Development of Technological Innovation Capability in
Developing Countries: Strategies of East Asian NICs for Catching up in Electronics)
discusses these arrangements for Original Equipment Manufacture (OEM) and Original
Design and Manufacture (ODM).
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to be insurmountable or impermeable. After all, despite all the
talk about growing constraints on Korea's access to technology
since the mid-1980s, the actual payments made for technology have
continued to rise dramatically - nearly doubling between 1987 and
1991. Second, and more generally, it seems highly likely that as
the age of the technology falls the openness of international
channels for acquiring it probably narrows; and the terms and
conditions for acquisition will almost certainly also change,
perhaps becoming more onerous, reflecting the greater commercial
value of the technology to the user and the greater opportunity
costs for the supplier. However, the precise outcome in any
situation will depend primarily on the interaction between four
sets of conditions:
a) the characteristics of the technologies involved;
b) the characteristics of the supplier firms and their
industries;
c) the technological capabilities of would-be
technology importers, together with other elements
of the bargaining power they can draw on;
d) the institutional arrangements they use in
approaching the acquisition of technology.
In the absence of any systematic evidence about the relative
importance of these, one can choose to give more and less
emphasis to any of them. For example, one might focus on the
first two, perhaps seeing those 'external' conditions as
invariant constraints, barriers and obstacles. Here, however, we
focus on the second two - 'internal' conditions over which
Brazilian firms and government policy can exercise some
influence.
The Technological Capabilities and Bargaining Power of Technology
Importers
The recent experience of the East Asian NICs confirms the
validity of a much older general principle: access to technology
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through international channels depends heavily on the strength of
the importers' existing technological capabilities. This
relationship seems to operate in a variety of ways:
1) The 'depth' of knowledge and expertise that can be
acquired and absorbed from particular transfer projects depends
on the strength of related knowledge and skill that are taken
into those projects. This is illustrated in the experience of
several 'heavy' industry projects in Korea (e.g. Enos & Park,
1988), but it is illustrated by Brazilian experience as well -
for example in the PETROQUISA/COPESUL case noted earlier
(Sercovich, 1980).
2) The strength of existing mastery of production
technologies, particularly the ability to increase efficiency and
quality, can open access to increasingly advanced product
technology (and sometimes also elements of new process
technology) via OEM, sub-contracting and similar arrangements.
3) The strength of existing engineering and design
capabilities may permit effective exploitation of only 'partial'
access to technology - for example, via reverse engineering from
existing products and equipment, or engineering around existing
patent specifications.
4) The importer's technology-related bargaining power can
have a significant influence on the willingness of potential
suppliers to enter into transfer agreements in the first place.
As illustrated by Korean experience in the electronics industry,
this link may be quite 'visible and 'explicit' (for example, in
the form of cross licensing agreements), or it may reflect more
'implicit' strategic considerations. For example, Dahlman and
Westphal (1991) note that Korean firms increased their own R&D in
order to be able to negotiate better for foreign technology - as
in the case of VCR technology:
"Korean firms were having trouble licensing video
cassette recorder (VCR) technology from Japan.
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Therefore some firms undertook their own R&D effort in
conjunctyion with a government laboratory to develop
their own VCR technology around the patents held by the
Japanese. Faced with this credible threat, the Japanese
firms agreed to license the technology to Korean
firms".
A similar relationship between domestic technological
capability and access to foreign technology seems to have been
involved in the Brazilian electronics industry as the willingness
of foreign companies to transfer technology increased with the
growing experience and R&D capability of Brazilian firms
(Cassiolato et al., 1992:293-294).
Other dimensions of bargaining power cut across such
technology-related issues - for example, the scale and expected
growth of markets. But, as noted earlier in connection with
Japanese experience, the effective bargaining power arising from
an apparently 'given' market can be highly variable: it can be
harnessed as a powerful means to stimulate a combination of wider
access to international technology and stronger domestic
investment in technological learning. Alternatively, it can be
fragmented and frittered away.
The Institutional Basis for Acquiring Foreign Technology
The influence of the combination of technological capability
and other elements of bargaining power will vary with the
institutional basis used for technology acquisition. This
variation may be a matter of intra-firm arrangements - for
example, the scale, skill composition and lifetime of teams
assembled to prepare for, and implement, technology acquisition
projects. However, this variation may also be a matter of inter-
institutional arrangements:
1) Public or quasi-public institutions may act as
intermediary importers/licensees in particular areas of
technology, providing 'localised' knowledge, hardware, training
and other services for domestic firms. The Industrial Technology
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Research Institute in Taiwan seems to have played this type of
intermediary role to support (or initiate) relatively small firms
in the electronics industry.
2) Groups of firms may collaborate (perhaps with the
involvement of a technological institution) to create a stronger
organisational and technological basis for searching out,
negotiating over, acquiring and absorbing technology in a
particular field. This may involve complementary firms - for
example, technology users, engineering firms and equipment
producers. Alternatively, it might involve potential competitors
that pool their resources and bargaining power in the same manner
that firms in some of the developed countries have collaborated
in 'pre-competitive' R&D.
3) Firms (or groups of firms) may set up technology
acquiring-cum-developing organisations in the advanced industrial
countries in order to get closer to the international
technological frontier and provide a basis for acquiring and
absorbing elements of technical knowledge that are tacit,
embodied in people, transferred through informal channels and
networks, or intimately linked with market-related knowledge.
Japanese firms have used such strategies for many years, and
Korean firms used them to acquire technology for semi-conductor
production. Also, as noted earlier, a few Brazilian companies in
the automobile components industry have followed similar
strategies.
4) Singly or collectively, technology importers may follow a
slightly different approach in cases where the technology sought
is deeply embedded in particular firms in the advanced industrial
countries. They may acquire one or more of those firms - a
strategy widely followed by technology-seeking firms in the
developed countries, and again also used by the Korean
electronics industry.
5) When the technology needed is close to the international
frontier, it is also likely to be in the grey area between (i)
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being 'available', and (ii) needing to be developed. Singly or
collectively (and perhaps in association with one or more
technological institutions) firms may therefore join
collaborative technology-developing networks and alliances
involving firms in other countries. These might consist of firms
in other developing countries in some situations, or may include
mainly firms in the advanced industrial countries in others.
To summarise then, firms and industries in particular
countries can approach the acquisition of foreign technology with
(i) widely varying technological capabilities, (ii) wide
differences in other elements of bargaining power, and (iii)
widely differing organisational bases. Strategies for technology
acquisition that rest on weak technological capabilities, weak
bargaining power, and weak institutional bases may well result
quite often in the licensing of product designs and/or the
acquisition of equipment, know-how and other inputs for
production. But, they are also likely to result in some
combination of (i) limited or zero access to the technology in
the first place, (ii) the acquisition of limited 'depths' of
knowledge and expertise through such channels of access as are
opened up, (iii) the payment of relatively high costs for what is
acquired, and (iv) limited dynamism in the subsequent
assimilation of what was acquired.
At the other end of the spectrum of strategies, firms and
industries that are approaching the international technology
frontier will usually need considerable technological, bargaining
and institutional strengths in order to acquire foreign
technology effectively, or at all. On that account alone, the
costs of technology transfer may well rise as the frontier is
approached, but those rising costs are not 'payments' for
technology (which may well rise also). They are investments in
domestic resources for acquiring and assimilating technology;
and, until one is at the cutting edge of the frontier, those
costs are likely to remain substantially less than the costs of
original development of the technology. However, that
distinction frequently ceases to have much meaning as one
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approaches the frontier: technology acquisition and technology
development become blurred into various combinations of
engineering, development and research - probably in that order!
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5. CONCLUSIONS: NEW APPROACHES TO MANAGEMENT AND POLICY
Two basic orientations underlie our conclusions. The first
is about how the international competitiveness of existing
Brazilian industries can be achieved or sustained in the short-
to-medium term. In a technologically dynamic world that is
possible in only two broad ways. One involves progressively
reducing real wage levels in industry and/or 'finding'
progressively cheaper natural resource inputs for industry. The
other requires industrial firms to generate paths of
technological dynamism that progressively raise production
efficiency and product performance (and/or reduce the cost-
performance ratio of the natural resources used by industry). We
focus only on the second of these strategies.
22
Second, however, even if that strategy is vigorously
pursued, there are limits to which it can sustain competitiveness
in the medium to longer term across the whole industrial
structure while maintaining real income levels. On the one hand,
many other countries are rapidly expanding their natural
resource-based industries, with adverse effects on trends in
international prices. On the other hand, many are eroding
Brazil's existing competitiveness in labour-intensive industries
by combining lower wage rates with (access to) technical skills
and international marketing expertise. In that context there are
again two strategies for maintaining the competitiveness of
industry: (i) managing exchange rates so that Brazilian prices
in international markets remain competitive, but at the cost of
reducing real domestic incomes; or (ii) shifting the structure of
industry towards higher value-added products and more technology-
intensive industries. We focus only on the second of those
strategies.
22
There is, of course, a third strategy: to accelerate the destruction of all uncompetitive
industries and firms, hoping that the 'resources released' (e.g. people unemployed) will
somehow be absorbed in other economic activities. We presume that, given the structure of the
Brazilian economy, there is limited scope for relying much more on this type of British or
Chilean type of strategy for industrial competitiveness.
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These two strategic orientations have one basic feature at
their core: they will require industry to generate trajectories
of significant domestic technological dynamism. While the
precise meaning of "significant" will vary between firms and
industries, one point is clear enough. In most firms and
industries the intensity of firms' investment in technological
accumulation and technical change that will be required to create
and sustain competitiveness will have to be very much greater
than in the past - not only greater than in the immediate past of
the 'lost decade', but also greater than in the two previous
decades which, in terms of these aspects of industrial
technological development, were also largely 'lost'.
The central issue we have highlighted is that technology
imports will have to play a major role in achieving that new
intensity of technological dynamism. This, however, is not just
a matter of increasing the 'quantity' of imported technology.
Important as that is, there are more important 'qualitative'
issues about how technology is imported in order to incorporate
it into the trajectories of technological dynamism pursued by
firms. That involves two sets of issues:
1) Imported technology will have to be used not just as the
basis for one-off steps which raise competitiveness to new
levels, or which permit merely entry into new product markets.
In a technologically dynamic world, fixed levels of
competitiveness are rapidly eroded, and the basis for entering
markets will rapidly become inadequate for remaining in them, let
alone for expanding within them or diversifying beyond them.
International technology transfer projects can therefore
contribute only to very temporary competitive positions on
trajectories of continuing technological change and development.
Moreover, although further technology imports can obviously
contribute to that subsequent trajectory, they can do so only
partially - and often only very partially. Initial imports must
therefore be complemented by substantial and continuing efforts
by the importing firms themselves to generate those subsequent
trajectories of technical change.
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2) International technology transfer will often also have to
be used to contribute more 'indirectly' to those trajectories -
that is, not only by providing inputs to technical change itself,
but by providing inputs to the accumulation of domestic
technological capabilities for generating change. This implies
that technology transfer arrangements will often have to be
managed with two objectives in view, not just one. They must be
managed (i) in ways that add to domestic knowledge, expertise and
other resources for generating technical change, as well as (ii)
in ways that contribute as efficiently as possible to the more
immediate and direct implementation of technical change.
These issues have implications not only for management at
the firm level, but also for government policy. However, two
points should be noted about the conclusions that can be drawn in
these areas in a paper like this.
1) Societies obviously differ. They have different economic
structures and social characteristics, posing requirements for
different approaches to policy and management. In addition, they
have different political systems and underlying structures of
power that fundamentally influence the patterns of what is
feasible by way of policy, and even management. Thus, while much
can be learned from international trends and the experience of
other countries, this is limited to understanding of broad
approaches and principles. The development of practical details
must be rooted in local specificities and processes.
2) Issues concerned with the acquisition of imported
technology cannot be treated as isolated areas of "Technology
Transfer Policy" or "technology Acquisition Management".
Precisely because of the importance of incorporating technology
imports into localised trajectories of technological dynamism,
policy and management in this area must be parts of wider areas
of action concerned with technology, industrial efficiency and
the longer run evolution of firms and industries. At the same
time, they must reflect the specificities of particular firms,
industries and markets.
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We can therefore highlight here only a few key directions
for management and policy in this area, leaving the details to be
elaborated in the light of insights from other components of the
overall study of industrial competitiveness.
5.1. Approaches to Management
Table 10 outlines a simple framework covering the key areas
that may be involved in managing strategically the acquisition of
foreign technology. The table first distinguishes between three
time periods:
Before the Acquisition of Technology. Management in this
period is concerned with creating, enhancing and 'assembling' the
technological and organisational capabilities needed to define in
adequate detail the technology required, to locate its possible
sources, to gain access to it, to minimise its financial and
other costs, and to acquire and absorb the 'depth' and 'breadth'
of knowledge and expertise sought.
During the Acquisition of Technology, management is
concerned with effectively using the organisational and
technological resources and bargaining power created and
assembled in the previous period. In part this would focus on
relatively short-term objectives such as negotiating over price
and other terms, and implementing the immediate technical changes
based on the imported technology. In part also, management in
this period should frequently focus on using the previously
accumulated resources to achieve strategic, longer-term
objectives: using the access to foreign sources of technology to
implement explicit training and learning activities designed to
enhance the firm's capabilities for changing and developing the
technology in future.
After the Acquisition of Technology. Management in this
period focuses on the dynamic assimilation of what had been
acquired - not just on using the technology, but on further
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improving and developing it. However, as noted earlier, within
continuing trajectories of technological dynamism, the period
after one technology acquisition project is likely to blend into
the period before another. Managing the dynamic assimilation of
what was acquired in one period therefore blends into managing
the further strengthening of technological and organisational
capabilities that will be needed for future technology
acquisition.
TABLE 10
A FRAMEWORK FOR STRATEGIC MANAGEMENT OF THE ACQUISITION OF
FOREIGN TECHNOLOGY
TIME PERIODS FOR MANAGEMENT ACTION
AREAS OF
MANAGEMENT
ACTION
BEFORE
Technology
Acquisition
DURING
Technology
Acquisition
AFTER
Technology
Acquisition
CREATING
INTRA-FIRM
ORGANISATIONAL
STRUCTURES
CREATING
INTER-FIRM (AND
INSTITUTION)
ORGANISATIONAL
STRUCTURES
INVESTMENT IN
KNOWLEDGE AND
EXPERTISE
INVESTMENT IN
IMPLEMENTING
TECHNICAL CHANGE
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Table 10 also distinguishes between four broad areas for
management attention during each time period:
Creating Intra-Firm Organisational Structures. This
involves developing the project teams that will play the core
roles during all three phases of technology acquisition. It is
likely to require the 'assembly' of multi-functional and multi-
disciplinary teams and, as noted below, it may require
substantial strengthening of the existing knowledge and skill
resources of those teams.
Creating Inter-Firm Organisational Structures. In many
cases, the transfer of technology may be simply between two
individual firms. However, the effectiveness of acquisition may
depend on technology importing firms linking themselves into
wider networks of organisations that will collaborate in at least
some phases of technology acquisition projects. As noted
earlier, these networks may consist not only of domestic firms
(complementary or pre-competitive), they may also consist of
firms in other countries - either in other industrialising
countries, or in the advanced industrial countries. They may
also involve some form of collaboration with domestic (or perhaps
foreign) technological institutions.
Investment in Knowledge and Expertise. This will often be
the most important area for management attention. Bearing in
mind that the value of the technology one gets out of an
international transfer project seems to depend heavily on what
one brings into it, an important part of this investment in
knowledge and skill may take place in advance of projects. This
can involve a range of activities: for example, training,
research and development that may focus more on the acquisition
of existing knowledge than on creating new knowledge, reverse
engineering, acquisition of information about sources of
technology and their strategic positions of those foreign firms,
and the organised acquisition of relevant experience. Important
components of these kinds of activity may take place during
projects - explicit components that focus on developing the
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knowledge bases needed for subsequent change and improvement, not
just for introducing, marginally adapting and using the 'given'
elements of transferred technology. Subsequently, further
investment in accumulating knowledge by R&D or by other forms of
learning and training will often be a necessary basis for
generating paths of continuing technical change.
Investment in Implementing Technical Change. This is
obviously a central focus for management during the technology
acquisition project itself, and we have emphasised that it must
continue as a central focus for management after the project.
However, it may also be an important area for action before the
project. For example, the credibility and 'weight' of the
bargaining power created by prior R&D may have to be enhanced
further by continuing through to the implementation of at least
small scale or prototype production - an activity that may itself
be an important source of technological learning needed for
effective acquisition and assimilation of the foreign technology.
Our brief review of the past patterns of importing
technology transfer in Brazil (Section 2) suggested that a few
firms had approached the management of technology acquisition in
ways that incorporated several of these strategic elements.
However, the dominant approaches seem to have incorporated few of
them, and many cases appear to have incorporated none -
concentrating only on the immediate short-term tasks. In effect,
the 'typical' past approaches to management have concentrated on
little more than one column of Table 10 ("During Technology
Acquisition") and one row ("Investment in technical Change") -
i.e. on not much more than one of the twelve possible 'cells' of
management action.
The competitiveness of Brazilian industry in the 1990s will
depend on many factors (many of them having little connection
with technology), but among those must be included widespread and
radical change in these past approaches to managing the
acquisition of imported technology.
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5.2. Approaches to Policy
As emphasised earlier, policy in this area must obviously be
part of a wider policy regime concerned more broadly with
technology and other aspects of competitiveness. Within that,
however, the importance of a few broad orientations can be
emphasised here.
First, the focus of policy in this area must concentrate on
the industrial firm - not to the exclusion of action concerned
with a wide range of technological institutions, but in
recognition of firms as the necessary driving force of industrial
technological dynamism and as the core agents in acquiring and
absorbing foreign technology.
Second, we have emphasised that key elements of the
strategic management of technology acquisition involve investment
by firms in their own resources as complements to their
expenditures on foreign technology. Clearly this requires an
adequately stable macro-economic environment within which firms
will undertake any significant investment in assets that yield
their returns over the relatively long term future.
Third, its is clear that competitive pressure plays an
important role in stimulating firms to change the technology they
use, and hence to invest in the resources of foreign technology
and domestic technological capabilities required to do so. Other
things being equal, therefore, policies that enhance those
competitive pressures are likely to increase, and increase the
effectiveness of, the acquisition of foreign technology.
Fourth, however, much of Brazilian industry appears to have
limited technological capabilities to respond to such competitive
pressures; and, just as important, it has limited experience of
investing in the accumulation of those resources. Moreover, much
of that investment involves investment in knowledge and human
capital where markets operate very imperfectly. There are
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therefore strong grounds for government intervention that
stimulates investment in such assets.
In particular, one must recognise the limitations of
financial institutions in this area. Most of them are accustomed
to financing investment in fixed, physical assets which
themselves provide significant security for the finance. Some
more specialised institutions are also accustomed to financing
innovative technical change projects for which the potential
returns are reasonably evident, even if somewhat uncertain.
However, much more risky and uncertain for such institutions, as
for firms themselves, in investment in knowledge and human
capital. Yet these are the kinds of assets that have become
increasingly important for dynamic competitiveness in
increasingly change-intensive and knowledge-intensive industrial
production in the 1990s. This appears to be reflected in the
shifting patterns of public policy that focus increasingly on
stimulating and subsidising investment in knowledge assets in the
industrially advanced countries. In an economy where investment
in these assets has not become a significant component of
industrial behaviour and 'culture, such policy intervention is
even more important. In particular, innovative new measures may
be needed to link government intervention to the operations of
industrial financial institutions.
Fifth, as indicated in Table 10 above, important elements in
the strategic management of technology acquisition involve the
development of institutional linkages and networks. This
suggests that other types of government intervention may be
important - types of intervention that involve governments
playing a catalytic role in facilitating collaboration in a wide
spectrum of technological activities. Action to stimulate such
technological partnerships may be particularly important in
linking users and producers of technology, especially in the
areas of industrial automation and other types of information
technology - areas where governments in many of the
industrialised countries play a substantial role.
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Finally, in ways illustrated in the experience of Japan,
government policy may have an important role in shaping the
structure of markets to create conditions that enhance the
competitive pressures on firms in ways that stimulate, rather
than constrain, investment in technological capabilities as a
complement to imported technology. In particular, output in
several important industries appears to be fragmented between
firms that are too small to build up the scale of technological
capabilities needed to generate the dynamism required for
sustained competitiveness. This problem seems important in a
wider range of industries than just those where 'privatisation'
is likely. However, the existing plans to restructure the
ownership of enterprises may provide especially opportune
occasions also to overcome these other deficiencies in industrial
structure that have been inherited from the past.
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