Strategic Management: Formulation and Implementation

Efficiency Seeking Investment

Between countries with dissimilar economic structures
The transfer of technology associated with this kind to facilitate investment is likely to have the greatest effect on domestic employment as they are labourintensive activities. This kind investment is strongly criticized. However, it is not the transfer of technology by MNEs per se which is the root of the concern, but the general dissemination of technology from developed countries to developing countries, coupled with the consequence of free trade.
Between countries with similar economic structures
This type of transfer is likely to promote a crossborder division of labour, provided that it is undertaken to overcome endemic market failure rather than to advance the market power of the investing firm or, to take advantage of governmentinduced price and other distortions.

Strategic Asset Acquiring Investment

While this type of activity will increase MNE technological capability, the extent to which home country gains will depend, in the short run, on the effect of the acquisition on the form and distribution of the technological capacity. In the long run, it will depend on the global competitiveness of the acquiring firm.

It is important to distinguish between the consequences, for technology exporting countries, of transfers of technology to developing countries and those of the transfer of technological capabilities to developed countries. While the former is likely to give considerable cause for concern among labour leaders in advanced countries, the latter is more likely to have more far reaching significance to the longterm competitiveness of the exporting countries (Ohmae, 1985).

To illustrate the possible conflicts between a foreign investor and its host country, Exhibit 22 presents two extreme positions:

At one extreme, the investment is considered from the viewpoint of the investor, who focus on the benefits of investment to the host.

At the other extreme, the investment is considered from the viewpoint of the host government, which examines the cost of the investment to its society.

Therefore, the question of whether the export of technology is a "good" or a "bad" thing takes on completely new meaning, if the activities of MNEs are seen not as a threat to domestic investment, jobs and technological capacity, but as a means of:

  1. gaining or protecting access to foreign markets,
  2. acquiring resources and capabilities vital to the competitiveness of the capitalexporting country,
  3. ensuring a stake in the prosperity of developing countries,
  4. protecting or advancing the international competitive position of one industrialized country relative to another.

There are divergences of interest between home and host countries as to the technological impact of MNE activity.

To the host country, the opportunity cost of obtaining technology via inward investment is the cost of obtaining it by other routs or by the internal generation of that technology.

To the home country, the cost is essentially the impactbeneficial or otherwise which the sale make to its overall competitive position. The possible costs to the home country include an erosion of its longterm competitive advantage and a weakening of its balance of payments position. However, it is important both to take account of the (opportunity) costs of not exporting technology; and of the opportunities FDI might provide for a restructuring of domestic technological activities.

There are legal and managerial approaches to protecting technology. Legal means include patent, trademark, copyright, and contracts.

The appropriate strategy depends on the type of technology. If the knowledge possessed by the firm is a manufacturing process that produces a new product, that process and the product can be protected with a patent in most countries. If the knowledge is embodied in a book or manual that can be sold, then a copyright will protect the document against copying, though the knowledge itself will need patent protection as well. If the knowledge is embodied in the product, and it implies a high standards of quality or service, then often a trademark can be obtained for protection.

Other methods for protecting technology include hiding if from competitors. This strategy work especially well when the key aspect of technology is simply to understand but embodied in the product in a complex manner. Then, unless competitors can obtain the "formula" for using the technology, the proprietor can preserve its advantage. Another method is to require employees developing new products to sign a contract prohibiting their use of the new technology outside the firm, so that they cannot leave the proprietor firm and use their knowledge of the new technology to compete against it.

Despite the methods of protection discussed above, there are still many situation in which adequate protection may not available. For example, Hong Kong, South Korea, Singapore, and Taiwan are notorious form producing imitations of branded, patented, copyright, and otherwise protected products.

A problem with multinational firms in particular have to deal is the difference in rules on technology use and technology transfer in different country.

A critical aspect of succeeding in an international environment of rapid technological change is the ability to transfer technology from one location to another.

Especially, the multinational firm is the agent for transferring benefits of advanced technology across border. That is, technology is a the heart of companies that operate across national boundaries. Thus, the technology plays a key role on a firm's business strategy.

Moreover, the success of the firm depends on the appropriateness of a particular technology to a specific location. Therefore, it is important to understand the connections between competition and technology as well as the unique considerations of each of these aspects of doing business internationally.

Issues stem from the transnational scope of the multinational corporation and a realization that its actions may at times conflict with specific interests of their host or home country. Especially, large differences between the relative technological capabilities of different countries create fears and special challenges about MNE activities that transfer technology across borders. Therefore, managers should understand the implication of global decisions making in a private corporation and to know where the process converges with and diverges from interests of national sovereignties.

This chapter is intend to give managers a basic knowledge of these issues.