Technology acquisition & absorption

Technology Acquisition

and Absorption

Technology Transfer

• Over the course of time, technology has advanced at varying rates. • After the Industrial Revolution, technology began to advance at a rapid rate. • Beginning in the Information Age, technology advancement boomed and plays a large role in the current rapid advancement of devices such as the computer.

Technology Transfer

• However, in order to protect the interests of those who create new pieces of technology, an established method known as technology transfer was created. • Technology transfer offers protection for inventors, while still being able to share the necessary knowledge that allows the expansion and advancement of that technology.

Technology Transfer

• Technology transfer, also called transfer of technology (TOT), is the process of transferring skills, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities among governments or companies or universities and other institutions to ensure that scientific and technological developments are accessible to a wider range of users who can then further develop and exploit the technology into new products, processes, applications, materials or services.

Technology Transfer

• Technology transfer is the practice of exchanging new information on technologies between groups and companies. • Technology transfer can occur between both groups and companies within a country, as well as between other countries. • Many groups, such as companies and universities, have a technology transfer department in which technology transfer is handled. • Another common function of these departments is to find or create a practical purpose for which a technology is used.

Technology Transfer

• Why is Technology Transfer Used?•Technology transfer is used as a means to exchange new information of technologies, expanding knowledge. • It works in the same way as the ideal that two heads are better than one. • One individual or group may discover or create a new product, while another previously uninvolved group or individual may find a practical use for that discovery or product.

Technology Transfer

•It also provides groups, such as third-world countries, with access and knowledge of a technology, further helping to develop that economy. • This then, as previously mentioned, could prove to further advance the creation or use of a technology.

Technology Transfer

• It is closely related to (and may arguably be considered a subset of) knowledge transfer. • Kinds of Technology Transfer: (1) Horizontal Technology Transfer(2) Vertical Technology Transfer• Horizontal transfer is the movement of technologies from one area to another. • At present transfer of technology (TOT) is primarily horizontal.

Technology Transfer

• Horizontal Technology Transfer:• Horizontal Technology Transfer is the transfer of a commercialized or operational (usually mature) technology from one organization in a specific socio-economic context to another organization in a different socio-economic context, through intra-firm, cross-industry, or cross-border channels.• It may be possible to horizontally transfer technology at any stage of the technology life cycle.

Technology Transfer

•Examples: (1) reverse/back engineering(the reproduction of another manufacturer's product following detailed examination of its construction or composition) (considered under non-commercial channel of International Technology Transfer/a non-formal channel of HTT) (2) Technology Licensing, OEMs(manufacturers who resell another company's product under their own name and branding) arrangement or subcontracting (under formal channels of HTT).

Technology Transfer

**Note that Technology Licensing is a HTT and not a VTT, the main reason being that the technology already has market value. Commercialization in full scale is HTT. A commercialized product already has value in the market.

Technology Transfer

• Vertical Technology Transfer:• Vertical Technology Transfer refers to the transfer of technology from Basic Research to Applied Research to development and then to production.• It is a managerial process of passing a technology from one phase of its life cycle to another.• It is the transfer of an embryonic technology (i.e. a pre-commercialized or generic technology) from an individual or institutional inventor (e.g. a government or university laboratory) to an organization that can either commercialize it into a new product or process or make it publicly available for the practical solution of a problem in society.

Technology Transfer

• A very usual example of embryonic technology would be nanotechnology.• Significant amount of vertical technology transfer occurs between developed and developing country firms.• The tremendous growth of international outsourcing, which helps the developed-country firms to buy part or all of the outputs from the developing countries, certainly creates the need for considering vertical relationships between the firms.

Technology Transfer

• A large body of empirical evidence shows that vertical knowledge transfer occurs as firms from industrialized countries have bought outputs of firms from Asian newly industrialized countries• Vertical technology transfers between developed and developing country firms, we show how patent protection in the developing country affects developed-country interest in the presence of vertical technology transfer.

Technology Transfer

• Under vertical technology transfer, a developed country firm transfers its technology to a developing country firm, which produces the product for the developed country firm. • However, vertical technology transfer may create competition in the developing country by creating knowledge spillover, which, in turn, may create entry in the final goods market.

Technology Transfer

• Is the process by which technology is disseminated.• It involves communication of relevant knowledge by the transfer to the recipient. • …may or may not legally binding.• TYPES OF TECHNOLOGY TRANSFER• Scientific Knowledge Transfer•Direct Technology Transfer•Spin-off Technology Transfer

Technology Transfer

• SCIENTIFIC KNOWLEDGE TRANSFER• Transmission of knowledge gained through basic research & development activities. • Through information exchange and presentation of technical papers at scientific meeting.

Technology Transfer

• DIRECT TECHNOLOGY TRANSFER• Usually through formal arrangement between any of the following• Enterprise Elements• Enterprise To Enterprise• Govt. to Enterprise• Govt. to Govt….. Indo-Russia agreement on transfer of defense technology…..Indo- US agreement on transfer of nuclear technology for civilian use.

Technology Transfer

• SPIN-OFF TECHNOLOGY TRANSFER •Technology developed by one enterprise in one technical area, and usually for one purpose, is applied and used for different technical area, for different purpose or for market application other than those foreseen at the time when R&D is initiated.

Technology Transfer

• MODE OF TECHNOLOGY TRANSFER• Informal & Formal• Informal Technology Transfer•…through published matter either in print media….or electronic media….or scientific meeting/symposia…individual exchange s between scientists/researchers• Process of training scientists in academic research institutions• Acquisition of critical technical personnel

Technology Transfer

• Formal Technology Transfer• Outright procurement of technology through its sale, licensing or acquisition of the enterprises in which technology is embedded.

Technology Transfer• Internal Technology Transfer & External Technology Transfer•Internal Technology Transfer• Such technology transfer where control on the ownership and usage of technology resides with the transferor.• Retaining control after transfer.• Transferor normally holds substantial, majority or full equity ownership in the transferee or recipient entity/organization/department. •…Involves movement of technology from R & D department to manufacturing units and then to marketing of products/services in the target markets.

Technology Transfer

• Complex Process Involving Following Decisions:• Timing….Guided by the objective of preventing the competitor from gaining any technological advantage. • Location…influenced by technological & marketing skills and capabilities of the organization , technological relationship and dependence of suppliers and customers.• Multifunctional teams• Communication methods and procedures

Technology Transfer

• Barriers To Internal Technology Transfer:• R & D goal not known to production department• Stopping current production to test new processes• R & D dept. Does not understand need & capability of the production dept.• Production dept resists innovation• New technologies are not linked to marketing/customer needs

Technology Transfer

• Overcoming Barriers To Internal Technology:• Support of top management• Supportive organisational culture• Use of multifunctional teams• Effective communication in the organisation• Bridging the gap between R & D and production• Rotation of personnel between R & D and production• Linking and participation of marketing element in technology process.

Technology Transfer• External Technology Transfer• …..Control On The Ownership And Usage Of Technology Usually Does Not Remain With The Transferor And It Passes On To The Recipient..Solely or As Joint Venture• Successful Transfer Depends Upon The Following Factors Type & Complexity of The Technology Being Transferred Transfer Mechanism Selected Relationship Between Parties Core Competencies of The Parties. Organizational Culture of The Parties

Technology Transfer

• Commonly Used External Technology Transfer Mechanism:• Licensing agreement: Software Licensing• Enterprise acquisition…IBM & VIVISIMO…..Tata- Jaguar Rand Rover from Ford Motors….in 2008 Tata’s 80% stake in Italy based design & engineering company TRILIX…2010• Contracting agreement:

Technology Transfer• Co-operative and collaborative ventures / strategic alliance (technical exchange, cross licensing agreement, co-production agreement)….Roche….Swiss Company….AIDS/HIV medicine…..with the companies of Developing countries…..2006….2008….• Marketing Agreement: • Joint product development….Tata – Daewoo…jointly developed truck range for SAARC market…and South Africa….2009• Joint venture with equity ownership….Tata-Marcopolo (Brazil)…….2006

Technology Transfer

• Factors/Reasons Necessitating External Technology Transfer: • Saving time and efforts• To meet growth objectives or competitive goal• Lack of risk taking ability for innovations• Lack of internal resources• Lack of core competency to deal with• Need to keep up with competitors• Need to cope up with acceleration of technological change• Complex technological development.

Technology Transfer & Technology Acquisition• Difference between Technology Transfer & Technology Acquisition:• It is the process of acquiring new technology, new product, process or service by the efforts of an individual, or an enterprise, or any other macro entity. ….either internally or externally.

Technology Transfer & Technology AcquisitionSN

Technology Transfer Technology Acquisition

1 Slightly wider in scope Slightly lesser in scope

2 Includes both formal & informal arrangements/processes

Usually includes formal arrangements/processes

3 May or may not have legal boundaries

usually have legal boundaries

4 Focus on transfer from transferor to recipient

Focus on the transaction from the angle of acquirer


• Internal Technical Acquisition:• It is the result of efforts that are initiated and controlled by the firm itself. It requires existence of technological capability in the firm. • It involves:• Seizing tacit knowledge • Promoting internal R& D


• Steps/activities involved in internal acquisition process:1. Planning new Products/services/processes to

be offered – planning must incorporate voice of the customer and user needs.

2. Screening new products, processes, or services to select only viable/feasible items.

3. Initiating development process, which must be properly designed and carried out so that it felicitates success…..enterprises should:


• capable of adapting to the dynamics of change• organise the system around problem solving• have flexible management system…not rigid one.• use multifunctional teams• proper integration between r& d, production & marketing sub-systems• ensure effective communication.


4. Carrying out trial production on small scale and test marketing

5. Improving design and production process based on experiences/feedback

6. Commercialization i.e. Mass production and sales


• Advantage of internal technology acquisition is that any innovation becomes the exclusive property of the firm.

• Resulting technology is tailored to meet the firms’ needs.

• It creates a culture of self reliance.


• Risks/Disadvantages Of Internal Technology Acquisition:

• May take longer time in internal development and transfer as compared to external technology acquisition

• Many a time, it is an expensive process due to substantial investment and efforts

• Many time, there may be time delay thus providing competitor an edge due to delays

• There may be failures leading to high costs.


• External technology acquisition:• It is the process of acquiring technology

developed by others for use by the acquirer enterprise.

• Advantages of external acquisition process:

• Technology already developed by others…saves time….efforts….andv firm can avoid risk.

Technology Acquisition• Disadvantages of external acquisition process:• Inappropriateness of technology• High costs• Technological dependence• External technological acquisition can be

accomplished by/through any of following processes/methods:

1. Outsourcing2. Strategic alliances3. Collaborating research and development4. enterprises acquisition


• Outsourcing: purchasing of know-howor machinery with embedded technology or both from outside firm.

• Strategic alliance and joint venture: • Technical exchange and cross licensing• Co-production and marketing

programmes• Joint product development programme• Stand alone joint ventures with equity

partnership.


• Collaborating research and development :• May be carried out by a group of

technologists or group of companies with common need.

• Enterprise acquisition: it involves acquiring enterprise having essential/required technology elements.

Technology Acquisition• ACQUISITION OF TECHNOLOGY BY A NATION:• Factors affecting technology acquisition by a nation:1. Level of economic development of the nation2. State of technology3. Appropriateness of the new technology4. Impact of technology transfer and acquisition on

existing technologies and products/markets5. Likely technological dependence on external sources6. Associated costs involved in the technology transfer

and acquisition likely benefit through technology diffusion

Technology Acquisition• National strategies for technology acquisition1. Internationalization oriented strategy• This strategy aims at seeking technological

development with the objective to become internally self reliant. Seeking technology transfer by MNCs via FDI

2. Externalization oriented strategy• This aims at seeking technological development with

the objective to tap the external market. Restricted role to be played by MNCs….seeks to foster/encourage indigenous technology development ie. Developing domestic technology capabilities.

Technology Acquisition• Methods/Steps for Technology Acquisition by a

Nation:1. Attracting TNCs/MNCs through…• Direct Measures i.e. making a positive list of

industries open to FDI• Indirect measures i.e. by offering incentives and

subsidies2. Attracting TNCs/MNCs into natural resource

processing and inducing greater value additions.3. Using TNCs/MNCs to attract/encourage their

overseas suppliers to invest into the country


4. Improving skills and training of local technologists by involving TNCs/MNCs

5. Developing industrial parks/technology parks to attract high technology investors

6. Offering incentives to existing investors to move to more complex technologies and to increase or upgrade technological R&D house

7. Changing the competitive environment and existing incentive structure to encourage world class technology and management


8. Improving technological access for local firms for outsourcing/technology transfer

9. Collecting, organizing and disseminating information about technology development


Regulation of Technology Transfer by Nations:

It is undertaken in two directions:1. Regulation of import of

technology/technology inflows2. Regulation of export of

technology/technology outflows and setting-up of joint ventures (JV) and wholly owned subsidiaries (WOS) abroad

Technology AcquisitionAdvantages of Import of Technology/ Free inflows of

Technology:1. Often technology transfer is quicker2. Leads to expansion of production base3. Acquisition of advanced/latest/emerging technologies

may be facilitated4. There are benefits through technology absorption and

diffusion like cost-cutting benefits to suppliers and customers etc.

5. Boost to exports6. Increase in employment levels7. Boost to industrialisation of the nation8. Increase in economic development of the Nation

Technology AcquisitionDisadvantages of Import of Technology/ Free inflows

of Technology:1. Forex outflow through technology transfer

payments2. Adverse impact on balance of payment3. Inappropriateness of technology – non-suitability

and non-compability with the current technological level and infrastructure. Inappropriate technology may be transferred.

4. Likely technological dependence on external sources even for minor technological problems/issues


5. Likely technological discontinuity /technological obsolescence of existing technology products, services or processes etc.

6. Associated costs may be high since the nation pays not only for the technology but for the whole package brought by TNC s/MNCs including its brand names, finance, skills and management

7. Risk of getting old/out-dated technology

Technology Acquisition• Because of these disadvantages, restrictions and

regulations are often imposed by nations on technology inflows

• The GoI currently restricts and regulates technology inflows to certain target sectors in the following ways…

Technology transfer agreement are subject to approval as per guidelines issued by Govt.

Payment of royalty/technology as transfer fees is subject to Govt. policies/approval

The Govt. has laid down sectoral caps for FDI. These caps influence technology flows as MNCs transfer technology to their Indian affiliates in permitted areas subject to sectoral caps.

Technology Absorption

• Refers to the acquisition, development, assimilation and utilization of technological knowledge and capability by a firm or some macro entity.• Between transferring and receiving entities.• Wider in scope than acquisition.• Acquired technology may or may not be put in use. • It may involve some or no change in parameters of acquired technology.• Technological Adoption & Technological Adaptation


• Technological Adoption:• Technology absorbed without changing the parameters of acquired technology. Is called Technology Adoption.• Technological Adaptation:• Technology absorbed by changing certain parameters of acquired technology is called Technology Adaptation.


• Need for Technological Adaptation:• Non availability of the supporting infrastructure• For meeting location/market specific needs• To make it compatible with existing plant & machinery• Non availability of ancillary units for components• To meet legal requirements (BVO in soft-drink forced cola companies to change their formulation)• Pressure from NGOs, environmentalists, human rights….


• Technology absorption has two dimensions:1. Acquiring and absorbing information about

physical phenomena, equipment, machines, analytical concepts, framework, operating techniques etc.

2. Affective regarding feelings, attitudes, understanding required between two parties to be successful in passing know-how from one to another.


• Structure/Components of Technology Absorption:• Hardware: physical structure…logical lay-out• Software: know-how to carry out tasks• Brain-ware: application and justification of hardware, software, know-how…how…what…when…• Support net: complex network of physical, informational1. Acquiring and absorbing information about physical

phenomena, equipment, machines, analytical concepts, framework, operating techniques etc.

2. Affective regarding feelings, attitudes, understanding required between two parties to be successful in passing know-how from one to another.


• Difference between Technology Acquisition & Technology Absorption:• Focus on the same technology• both may take place simultaneously• may lead to complete overlap… • ….sometime time-lag/delay between these two stages• …absorption may be delayed because of different reasons…lack of….. management support……initiative….supportive organisational structures….


• S.N. Technology Acquisition Technology Absorption

1 Focus is on acquiring technology i.e. becoming its owner

Focus is on putting the acquired technology to use i.e. reaping the benefits from technology acquired

2 Leads to firm specific technological knowledge and advantage

Leads to market competitive advantage

3 Requires substantial costs for acquisition

Involves some costs for putting the technology to use and leads to increases in revenues, improvement in efficiencies etc.

4 Precedes technology absorption

Succeeds technology acquisition


• Enterprise/organization plan for technology absorption within reasonable time/planned time as it provide advantages like early use of acquired technology and reaping benefits there-from, gaining technological competitive edge.•Absorption may be delayed because of different reasons…• Lack of- Management Support, Initiative Supportive Organizational Structures….• Likely adverse impact on existing technology/products/services, strong resistance by existing workforce, requirement of lot of time & investment to absorb.


• Steps For Faster Technology Transfer:1. Developing good technology and mutual trust

between technology transferor and technology recipient organizations.

2. 63. developing time-bound and target oriented

schedule for technology absorption


4. Top management support5. Multifunctional team6. Regular review of absorption progress7. Installation of effective communication system 8. Seeking workers participation …involving one

and all.9. Hiring of requisite skilled workforce10. Actively complying with various govt

directives and requirement on tyechnology up-gradation and absorption.


• Govt. Guidelines for Technology Absorption in India: • External technology acquisitions Involves substantial forex outflow and carry substantial impact on the forex reserve.• Delay in absorption may have adverse impact on both, the enterprise and the nation.• …additional cost and adverse effects for the technology acquiring enterprise and extra cost to the nation.• so govt. encourages and insist on quick use of acquired technology


• It benefits as under…• more efficiency, more productivity • better quality of national products or services• stability in sales and profits• capability to fight foreign competition and thus retaining control over strategic economic assets• employment generation and improvement in standard of living• growth of national economy


• while seeking approval from GoI, time bound schedule is required to submit for technology absorption.• board’s report is required to include commitment for the absorption of technology u/sub-s (e) of the section 217(1)• technology diffusion: the spread of applications/usage of a new technology and its related products, services or process from one nation to another; from one entity to another; from one enterprise to another; from one industry to another;……from current user to prospective user.


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Technology acquisition & absorption

Education