This is the essay
that contains summary of key findings on how international business act as a
source of innovation in countries behind technology frontier and the role that
MNCs in enhancing innovation in developing countries and explanation on scope
of theoretical advancement.
How international
business acts as a source of innovation in countries behind technology frontier
Globalization has facilitated
international business through trade expansion due to greater integration of
economic and social activities around the world. In the same vein expansion of
international trade has been propelled due to reduction in communication and
transportation costs combined with trade liberalization (Dahlman, 2008). Moreover,
Globalization has facilitated world economy through openness to trade, Foreign
Direct Investment of Multination firms, the use of international location as
sources of patenting by MNCs and international migration of world population
between countries (Athreye & Cantwell, 2007).
International business has assisted
the generation of technology in the developed and developing countries especially
in the general purpose technologies such as Information technology and Bio
technology. This has been made possible due to demand of new technological
innovations, human capital and existing technology. Moreover it has caused new
nations to emerge as technology producers. For example there has emerged some
countries without US patenting of technology such as Singapore, S. Korea,
India, Taiwan, Sweden, China, Israel, Finland, Russia and New Zealand (Athreye
& Cantwell, 2007).Among these countries, for example, Singapore has emerged
as new technology producers through FDI while Korea didn’t depend much on FDI
but depended on trade, copying, reverse engineering and technology licensing
plus enhancing the R&D policies and development in higher education (Glass
and Sagi, 1998).
Additionally, International
business has made possible new emerged technological producer countries to have
a share of patents and licensing revenues which are the measure of technology development
of a country. This is facilitated by private R&D and Government policies
that have enabled the upgrading of technologies in these countries. Licensing as
a measure of technological innovation has gained large speed from 1990’s to
date. Nonetheless, licensing is more sensitive to local institutions and Governance
of a specific country; this implies licensing flourishes in the countries with
adequate institutions (Athreye & Cantwell, 2007).
THE
ROLE OF MULTINATIONAL COMPANIES IN INNOVATION OF COUNTRIES BEHIND TECHNOLOGY
FRONTIER
Piscitello (2003) argued that Multinational companies have become important economic
agents with respect to generation, commercialization and international transfer
of technological knowledge. Technology generated by the MNC can be used in its
home country or to its subsidiaries to generate rents. MNC and FDI observe that
knowledge is the key source of ownership and advantage held by them; hence, multinational
firms are viewed as distributor and integrated innovation network that enables
the firms to assimilate, generate and diffuse knowledge on a global basis.
Knowledge or technology flows from multination firms manifests itself in terms
of R&D capabilities and equipment,
manufacturing know how, marketing resources, work practices and managerial
techniques, supplier and distribution expertise; it involves physical transfer of resources to new
locations or sharing resources without physical transfer between parts
involved.
Liefner, Hennemann and Xin (2006)
argued that in the process of technological
upgrading and innovation; companies in the developing world make use of
knowledge originating from foreign companies or universities or Public research
organizations. Cooperation with foreign companies helps domestic companies to
get new ideas that enable them to enter the market with new products. Moreover,
Balcet and Evangelista (2005) argued that
subsidiaries of MNC tend to rely more than domestic
firms on innovations developed externally and on tight technological linkages
with parent company and other firms of multinational group they belong to.
This implies that domestic companies can absorb new knowledge from different
sources including foreign companies. Furthermore, domestic companies make use
of international linkages in innovation process depending on their absorption
capacities which is in the form of knowledge base, skilled human resources and
some form of in house knowledge generation.
This concur with Cantwell and Athreye(2007) statement that MNC through
their FDI promotes technological catch up to the countries that have already acquired
sufficient absorptive capacity and spill over through skilled labour and innovation
infrastructures such as R&D institutions.
Marin and Bell (2005) argued that Multinational Companies’ subsidiaries are leaky
containers at the end of the technological transfer process of technology spill
over. This implies that MNCs subsidiaries own knowledge creation and have
significant source of spill over potential.
However, limited absorptive capacity of the domestic firms can act as a
constraint of the technology transfer tunnel. Innovation Spill over occur in
the advanced industries such as electronics than traditional industries because
they employ skilled workers and undertake more of R&D. Moreover Glass and
Sagi (1998) argued that technology transfer from FDI is linked to the rate of
imitation of best technology available by the local firms.
Indicators of leaking of MNC subsidiaries technological innovation
to domestic firms are such as R&D intensity(Reported expenditures on
R&D), employees’ training intensity, Skills intensity of employment of
people employed in production such as engineers, professionals and technicians;
others are Investment in licensed
technology (Evidenced in licensed designs, know how), Investment in capital
embodied technology-Investment on IT, Investment on equipment for innovation
and report on expenditure to introduced
new products. However, Spill over is not automatic phenomenon as it occurs to a
particular group of domestic firms that do
investment in technology infrastructures and in training of human
resources (Marin & Bell (2005)
Eapen (2012) argued that domestic
firms with network ties to foreign firms compared to those without ties are
better positioned to overcome innovation technological search and technological
search constraints. Additionally, the network ties based on friendship basis facilitate
technological search between foreign and domestic firms. This is because
knowledge transfer is not easy as many MNCs fear competitive cost of sharing
information with domestic competitors. This is because knowledge and
information given to competitors costs the giver in terms of relative
competitive position. However at times the foreign firms can have incentive of
sharing information with domestic competitors due to personal relationship
between decision makers on both sides of foreign and domestic firms as well as
due to anticipation of future reciprocity of information that is valuable they
expect to receive in return. Moreover, domestic firms with past ties with
foreign firms are likely to possess complementary routines and capabilities
relevant to the technology. Network with foreign firms help to reduce innovation
technology search and transfer constraints.
Meyer and Sinani (2009) argued
that Local firms experience inward FDI as both competitors
and a source of advanced technologies and managerial knowledge. Spill over
benefits increases with technological gap between local recipient firms and
foreign investors. Although Institutional development attracts FDI, Very poor
and very rich countries benefit alike from inward FDI. This argument is also
supported by Zhou and Xin (2003) who found that relationship between MNC and
local firms is interdependent and evolutionary. This imply that when local
firms collaborate with MNC; the MNC provide them with vital technological and
organizational training of which local firms can use them strategically to
develop market networks and innovative capacity. Learning capacity is however
improved by research and development facilities, presence of other related
enterprises and developmental state in a market oriented cluster. Moreover, MNC
depend on local firms for marketing and servicing of their products, they
transfer considerable technical and management expertise resources to local
firms such as R&D capacity, firms market expertise and opportunity for
advancement and growth.
Balcet and Evangelista (2005)
argued that the international spread and
decentralization of innovation activities takes place from MNC to domestic
firms when the combination of various factors are in operational such as good
scientific infrastructures and human capital in the host country, Size and
growth rates of foreign markets, High R&D intensity, capacity of the MNC to
manage efficiently complex research systems and innovation networks, firms with
complimentary or similar technological capability abroad, high cost of research and lack of scientific infrastructure
in the home country.
Greatest scope for continued theoretical advancement
Governments and policy makers should
not only concentrate on attracting foreign investors but they should encourage
appropriate ties between domestic firms and foreign companies that will serve
as channels of innovation spill over. Target should be to specific groups of
domestic firms that have higher potential for absorbing innovation spill over; those
domestic firms with complimentary capabilities and lower resistance to change
(Eapen, 2012)
Moreover technological innovation
catch up such as licensing tend to flourish in the countries with adequate Institutions.
This means ethics has a role in facilitating technological innovation.
Therefore theoretical advancement should be geared on the areas of ethics to explain
the importance of enforcing good governance among developing countries nations since
local institutions and good governance of a specific country play a great role
in making innovation possible; put it differently licensing flourishes in the
countries with adequate institutions (Cantwell and Athreye, 2007).
Conclusion
International business has
assisted the emergence of new nations as technology producers without US
patenting of technology. This has been possible due to openness to trade,
Foreign Direct Investment of Multination firms, use of international location
as sources of patenting by MNCs and international migration of world population
between countries (Athreye & Cantwell, 2007). Additionally, MNCs has
enhanced technological innovation flows in developing countries technology through
R&D capabilities and equipment, manufacturing know how, work
practices and managerial techniques, supplier and distribution expertise; firms
market expertise and opportunity for advancement and growth through innovation
technology search and transfer. Furthermore scope for
continued theoretical advancement should focus on encouraging
appropriate ties between domestic firms and foreign companies as they serve as
channels of innovation spill over; additionally enforcing adequate institutions
should be prioritized since it is a prerequisite behind innovation catch up.
No comments:
Post a Comment