Cost of technology licensing and the transfer of technology

International Journal of Technology Management

Volumn 19, Issue 1, 2000, Pages 77-97

  Pack, Howard ^a,b  

^a UNIVERSITY OF PENNSYLVANIA   (United States)

^b UNIVERSITY OF PENNSYLVANIA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

COSTS; DEVELOPING COUNTRIES; INTERNATIONAL TRADE; PRODUCTIVITY; SUSTAINABLE DEVELOPMENT;

INDUSTRIAL PRODUCTIVITY; TECHNOLOGY LICENSING;

TECHNOLOGY TRANSFER;

EID: 0033880375     PISSN: 02675730     EISSN: None     Source Type: None    
DOI: 10.1504/ijtm.2000.002808     Document Type: Article

References (48)

1. For a careful analysis of such policies in Indian manufacturing firms see [2].
2. Basant, R. and Fikkert, B. 'The effects of R&D, foreign technology purchase, and domestic and international spillovers on productivity in Indian firms', Review of Economics and Statistics, Vol. 78, pp. 187-99.
3. While DFI was important in Latin America, it was viewed primarily as a source of investment and employment and not encouraged for its technology transfer component as it was in countries such as Korea, Singapore, and Taiwan.
4. For a discussion of such policies see The World Bank, [5].
5. The World Bank (1993) The East Asian Economic Miracle, The World Bank, Washington, D.C.
6. Two publications of UNCTAD [7,8] and the references contained in them reflect the consensus perception of the dangers of most forms of technology acquisition and the compulsive listing of pitfalls to licensees [8,Chapter4]. In contrast, in my own discussions in the late 1970s with Korean government officials responsible for licensing oversight they repeatedly argued that licenses were a bargain, given the range of terms that existed, compared to the cost of internal generation of technology.
7. United Nations Conference on Trade and Development (UNCTAD) (1978) Handbook on the Acquisition of Technology by Developing Countries, New York, United Nations.
8. ... (1981) Planning the Technological Transformation of Developing Countries, New York, United Nations.
9. Given the TRIPS agreement, some of these issues may now be of (recent) historic interest. A pessimist might view them as continuing to be relevant.
10. Ozawa, T. (1974) Japan's Technological Challenge to the West, 1950-74: Motivation and Accomplishment, Cambridge, M.I.T. Press.
11. Nagoaka, S. (1989) Overview of Japanese industrial technology development', Industry Series Paper 6, World Bank Industry and Energy Department, Washington D.C.
12. For India see Kumar [13]; for Latin America, Mytelka [14].
13. Kumar, N. (1985) 'Cost of technology imports: the Indian experience', Economic and Political Weekly, Vol. 20, No. 35, August, M103-M114.
14. Mytelka, L.K. (1978) 'Licensing and technology dependence in the Andean group', World Development, April.
15. Kim [16] demonstrates for a number of Korean firms the important role of technology licenses in establishing new product lines and improving efficiency.
16. Kim, L. (1997) From Imitation to Innovation: Dynamics of Korea's Technological Learning, Boston, Harvard Business School Press.
17. The investment requirement per worker in either plant brings into question the view that spinning is a labour-intensive process suitable for LDCs.
18. Pack, H. (1982) 'Aggregate implications of factor substitution in industrial processes', Journal of Development Economics, Nov.
19. Rhee, Y.W., Ross-Larson, B. and Pursell, G. (1984) Korea's Competitive Edge: managing entry into world markets, Baltimore, Johns Hopkins.
20. Rhee, Ross-Larson, and Pursell.
21. Official government statistics indicate that through the end of 1976, a period of extraordinarily rapid industrial growth, total cumulated royalty payments amounted to $87.5 million, hardly a sum to suggest an industrial development program fueled by the inflow of proprietary technology. See Korea: Development of the Machinery Industries (The World Bank 1979 p. 134). For the machinery sector itself, usually a technology-intensive sector, total royalty payments were about $14 million.
22. Arrow, K. (1962) 'Economic welfare and the allocation of resources for inventive activity', in R.R. Nelson, ed., The Rate and Direction of Inventive Activity, Princeton, Princeton University Press.
23. A good discussion of non-competitive markets and an application to the petrochemical sector is provided by Cortes and Bocock [23].
24. Cortes, M. and Bocock, P. (1986) Transfer of Petrochemical Technology to Latin American, The Johns Hopkins University Press, Baltimore.
25. Cortes and Bocock (1984).
26. Bruno, M. (1972) 'Domestic resource costs and effective protection: clarification and synthesis', Journal of Political Economy, Vol. 80, pp. 16-33.
27. K and L are both vectors of inputs, omitted here for expositional convenience.
28. For insightful analyses of these problems within a duopolistic framework see Saggi [44].
29. Lall, S. (1987) Learning to Industrialize, London, Macmillan.
30. For a careful study of the issue and a survey of the literature on India see Basant and Fikkert [2].
31. This was particularly evident in the national background papers prepared for the 1979 conference on science and technology in development sponsored by the UN. As far as I know, these papers have not been published.
32. Kumar [13] has a good summary of the pricing issues but much of his paper suffers from excess literalness. Although recognizing that there may be benefits, he views these as circumscribed by legal agreements. For example, he believes that diffusion of technology within LDCs is effectively precluded by legal agreements. This contradicts what is known about the difficulty firms encountered in appropriating the benefits of their R&D. Informal knowledge sharing by the local licensee, perhaps for a payment, is almost impossible to monitor by the licensor. Similarly, movement of managers and workers from licensees to other local firms cannot be prevented. It is precisely for these reasons that many firms may demand a large lump sum royalty at the beginning of the licensing process, preferring this to a stream of royalties.
33. See Mansfield, E., Romeo and Wagner (1979) 'Foreign trade and US research and development', Review of Economics and Statistics, Vol. 61.
34. For a detailed analysis and measurement of the benefits and costs of improved technological knowledge see Pack [34], Chapters 6-8.
35. Pack, H. (1987) Productivity, Technology, and Industrial Development, New York, Oxford University Press.
36. Hennart, J.F., 'Can the 'new forms' of investment substitute for the Old forms'? A Transactions Cost Perspective, Journal of International Business Studies, Vol. 20, No. 2, pp.211-34.
37. See Nelson and Winter [37] for the standard discussion of tacit knowledge.
38. Nelson, R.R. and Winter, S (1982) An Evolutionary Theory of Economic Change, Cambridge, Harvard University Press.
39. There are other questions not dealt with here, for example, the alleged excess costs incurred with respect to inputs that must be purchased from the licensor.
40. Evenson, R. and Westphal, L.E. (1995) 'Technological change and technology strategy', Handbook of Development Economics, Elsevier, Amsterdam.
41. Teece, D. (1976) The Multinational Corporation and the Resource Cost of International Technology Transfer, Cambridge, Ballinger.
42. Contractor, F.J. (1980) 'The profitability of technology licensing by US multinationals', Journal of International Business Studies, Autumn.
43. United Nations Centre on Transnational Corporations (1978) Transnational Corporations in World Development, third survey, New York.
44. Saggi, K. (1996) 'Entry into a foreign market: foreign direct investment versus licensing', Review of International Economics, Vol. 4, pp.99-104.
45. Chudnovsky, D. (1981) 'Regulating technology imports in some developing countries', Trade and Development, No. 3, Winter.
46. Hobday, M. (1995) Innovation in East Asia: The Challenge to Japan, London, Edward Elgar.
47. One mechanism for avoiding this conflict is for a trade association to negotiate with a foreign supplier of knowledge to transfer knowledge simultaneously to all member firms. This arrangement would both enhance the transfer of knowledge and presumably allow each firm to acquire the relevant technology for a lower cost than through individual transactions.
48. See, for example, Pack [35] for calculations of the difference in total factor productivity between actual and best practice textile plants in Kenya and the Philippines.