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Technology Transfer in SMES


Importance of technology transfer in SMEs

Technology is used to better commercialize products or to improve management structure, control and communication, reducing cost of production, maintain consistency in quality, improve productivity and finally develop the competitiveness of the enterprise.

In this globalised era, where markets are evolving incessantly with launch of products with new functions or designs on a regular basis, companies are forced to innovate comprehensively by acquiring or developing new technologies. In other words, technological innovation has now become critical element for the competitive advantage of any enterprise, big or small, high-tech or low-tech.

Emerging markets integration of domestic and international markets through continuing deregulation and liberalization has further strengthen a thrust on all firms, especially small and medium enterprises worldwide thus created a strong urge to access new technologies. While larger enterprises in developing countries have been able to enhance their performance by borrowing technologies available in the world, for SMEs technology access is still a grave challenge. In fact SMEs lack in the information access for the various technology transfer routs such as MNC subcontracting, technology licensing, joint ventures, access to research institutes and various government initiatives.

With the limited resources and funding opportunities, SMEs have to struggle in decision making of whether to develop Technology in-house or to obtain it from others. While technology creation seems highly expensive and risky, however, it can help SMEs in reducing and preventing technological dependence on others thus enhancing its technological and innovating capability according to their own specific needs. On the other hand technology transfer can help them overcome this struggle.

What is Technology Transfer

Technology transfer is the process of sharing of skills, knowledge, technologies and methods to develop and exploit the technology into new products, processes, applications, materials or services. Generally, technology transfer is considered as knowledge transfer. Transfer here does not mean movement or delivery; transfer can only happen if technology has already been used.

Technology Transfer can be classified into following categories:

International: in which transfer is across national boundaries; e.g. from industrialised country to developing country

Regional: in which technology is transferred from one region to another of a country; e.g. From Florida to Alaska

Cross industry or cross sector: in which technology is transferred from one industry sector to another; from industry to commercial

Inter-firm: in which technology is transferred from one firm to another firm; e.g. from CAD to CAM, manufacturing to production etc.

Intra- firm: in which technology is transferred within the firm from one location to another; e.g. from New Delhi to Bangalore etc.

What are the channels of technology flow?

Technology is in tangible that flows easily across the boundaries provided the channel of flow of technology is established. There are three types of channels that allow flow of technology:

General channels: in which the technology is transferred from the channels where the information is made available in the public domain with limited or no restriction on its use. For example, websites, publications, conferences, exchange visits etc.

Reverse- engineering channels: in which technology coding is broken by a person who wishes to acquire the technology so as to make the duplicate for his own purpose. In this case that person has to ensure that there is no legal violation of the intellectual property rights. For example, technology coding of a product made by company A is purchased by company B, re-engineered, and new product is launched in market by him as a competitor of company A. This is powerful method of technology transfer which is generally gained in the product development process.

Internal R & D in which company relies on its own human and technical resources to develop the technology in house. This required sound technical workforce and financial backing for R&D operations. For example, GE, AT&T and Du Pont have their own laboratories to develop the new technology.

Sub Contracting in which the company get the technology developed from outside the organization such as R&D laboratory, a technical institute, a manufacturing organization, experts etc.

Planned Channels: in which the technology transfer is done intentionally according to the planned process and with consent of the technology owner. This is done through technology transfer agreements of varied type and purposes, though which user is given the permit to access, use and understand the technological know how. Various channels of planned technology transfer are as follows:

Licensing in which the receiver purchases the right to utilize someone else’s technology.

Franchise is the form of licensing with continual support to the receiver like marketing support, supply of raw material, training etc.

Joint Venture in which two or more entities combine their interests in a business enterprise in which they can share knowledge and resources to develop a technology produce a product, or use their respective know how to complement one another.

Turnkey projects in which a country buys a complete project from outside source and the project is designed, implemented and delivered ready to operate. As part of agreement, provision of continual support may be included, like training or operation support. Turnkey projects is like selling/ buying a machine at the plant level.

Foreign Direct Investment (FDI) in which usually, a multinational firm decides to produce product or invest its resources overseas. This is the most beneficial channel of the technology transfer as it allows investors to control the technology, while gaining the access to the labor force, natural resources, technology or markets with the tax advantage of the host country. On the other side the host country receives technological know how, employment opportunities for its people, training and investment capital to develop infrastructure while getting the leverage of the tax advantage from its country.

Technical consortium and joint R&D projects, which is generally, takes place between two countries or two conglomerates in order to combine their technical and financial resources to develop expensive technology. For example, consortium was formed between France and England to make the supersonic plane (the Concorde) etc.

What is the technology transfer process?

Major steps involved in a technology acquisition process are:

Identification of technology need: The first step is to identify the need and the exact requirement of the technology, its nature and component, technology with or without continual support etc. In this step the company performs its own SWOT analysis in their competitive business environment. For example if a company is involved into production of particular tool and wants to produce tool with higher specification then, acquiring of design and specification, rather than the entire machine would help is saving a huge cost. Apart from that, evaluation of their own technological capabilities and life cycles, human abilities, and know-how is completed in this stage.

Sources of Technology: This is anticipation stage where, company identify the sources from where the required technology can be acquired, mode of transfer, choice of potential partners and clients and typical agreements like protecting intellectual property. Some of the sources are manufacturers, R&D organizations, technical institutes or experts, appropriate mix of some or part procurement and part development strategy.

Further, standing of the technology supplier shall be ascertained in terms of integrity, reputation, rating amongst past buyers, level of expertise in the area, its share in national and international market etc.

Technology evaluation: During this phase companies also evaluated price of technology, Evaluation of the package offered by supplier shall be done including guarantees offered, training, R&D and marketing support, buy back arrangement, intellectual property. Also, packaging, quality and efficiency of technology, payment terms, commitment for technology absorption and adaptation, assistance in establishing R&D set up, patent rights etc.

Apart from that evaluation shall take place for suitability to local resources, raw materials, utility usage, pollution, safety norms, environment etc.

Negotiations: Negotiations for technology acquisition are very critical and difficult. A suitable strategy and appropriate preparation is very much necessary that shall include formation of effective negotiating team consisting of specialists dealing with technical, financial, legal aspects and representative of an in-house R&D with clear designation of the team leader. Team must keep in mind the various situations and steps while negotiating such as implicit payments that are generally several times more than the payment for the technology per-se.

Agreement: After the negotiations have been successfully completed, Technology Transfer Agreement shall be made considering all aspects. Though there is no one agreement, which is applicable to all across the board. However, international bodies such as UNIDO, APCTT and others have given outlines of such agreements as guide. The basic objective of the agreement is that whatever has been agreed to by the two parties is put down in writing so that any misunderstanding or disputes are avoided. Some of the major provisions that may be kept in view while making the agreement are as follows:

  • Definition of the technology
  • Technology Package
  • Payment
  • Duration
  • Access to improvements in Technology
  • Guarantees by the supplier
  • Rights and obligations
  • Indemnification
  • Exclusivity or non-exclusivity
  • Force Majeure
  • Arbitration
  • Governing Law etc.
Who are the stakeholders in technology transfer?

Technology transfer process has many dimensions, thus requires involvement of number of potential stakeholders, including innovators, developers, owners, suppliers, buyers, recipients, users, consumers, financiers, donors, governments, policy makers, regulators, insurers, international institutions, and non-governmental and community-based organizations. The stakeholders involved in any specific transaction will depend on the type and status of the technology and the associated nature of the transfer pathway.

What are the expected deliverables of technology transfer process?

The right: to use the technology in order to make products/ solutions in a specified location for specified time frame, as defined in technology transfer agreement signed by the concerned parties.

Licensing: of the patent or intellectual property in order to suffice the legal aspect mentioned in the ‘register of patents’ or other relevant section in the agreement.

Documentation: all relevant and necessary documents required for the successful functioning and maintenance of the technology such as engineering drawings, user manuals, process charts etc.

After sale Support: including providing trained personnel on site for setting up technology and fixing technical problems and demonstration etc.

Who pays for the execution of the technology transfer agreement, due diligence and legal advice required?

All the payments have to be made by innovator and entrepreneur for executing their respective agreements with supplier. They also divide the cost of the technology transfer, legal advice, travel and stay, and due diligence equally between themselves.

Organizations/ possible source of information for technology transfer and development
  • Ministry of Science and Technology
  • Research centres and councils
  • Universities and research institutes
  • Data banks and directories,
  • Industry and trade associations,
  • Exhibitions and trade fairs,
  • International organizations such as UNIDO, UNCTAD World bank
  • APCTT information Centre,
  • Govt. information systems and others.
What are Domestic & International agencies relating to technology transfer & commercialization?