Transfer of Technology and R&D Activities by TNCs - Report Example

Transfer of technology and R&D activities by TNCs to developing countries al affiliation Transfer of technology and R&D activities by TNCs to developing countries A Transnational Corporation (TNC) is a type of company whose operations are located in more than one country, through asset ownership and direct business activities. A firm does not just transform itself from a domestic producer into a TNC overnight. Ietto-Gilles (2012, pp.10) concurs with this view point by stating that a TNC should be able to distribute its products and services to many countries under the same goals and strategies. There are several reasons as to why a company chooses to internationalize product and service production and delivery. This paper seeks to analyze the reasons why most TNCs have in recent decades been proactive in the transfer of technology and R&D activities to developing countries. In addition, the paper will examine the role played by TNCs in world development, through the transfer of technology and R&D activities. In order to fully understand the factors facilitating technological transfer and R&D services to developing countries by TNCs, it is important understand the terms “technology”, “technology transfer” and “R&D”. According to Kiely (1998, pp.58) technology is the methodical knowledge of how to produce goods and services. Technology transfer, therefore, refers to the process of commercially spreading such knowledge. R&D on its part is concerned with the investigation, experimentation, and verification phases of product and service innovation or improvement (ibid). Technology plays a very fundamental role in the development of any country. Accordingly, developing countries consider the acquisition of technology as the surest way to attain development to the level of their developed counterparts. In prior years, most TNCs with the capacity to develop advanced technology were solely located in industrialized countries. Consequently, developing countries were left behind in the development of technology (Roberts, 2008 pp.260). This scenario has however changed in the last twenty years. Factors enabling TNCs transfer of technology and R&D services to developing countries in recent decades. There are numerous aspects that have led to increased presence of TNCs in developing countries over the last two decades. Growth of transport and communication systems For any company, whether domestic-based or transnational, the logistics associated with transport and communication is a major influence on operations. Fundamentally, any TNC wishing to set base in a foreign country must first analyze the transport and communication sector of the host country (Ietto-Gilles, 2012 pp.208). Realizing this, most developing countries, through their governments invested a lot in the transport and communication industry in the last two decades. In turn, many TNCs were able to set base in these countries and run their operations smoothly. According to dunning &Lundan (2008, pp.155) the development of information and communication technologies (ICTs) over the last two decades has eased the operational activities of TNCs in developing countries. Government incentives According to Caves (2007, pp. 363) home governments in developing countries have been at the fore front in initiating technology transfer. Since this technology and R&D activities are offered by TNCs, most governments in the said countries have come up with a number of incentives to attract TNCs to their countries. Most have used tax reduction measures to attract TNCs. For example, when Dell was setting up an operational facility in Malaysia, the host government gave Dell tax holidays during which the company was exempted from paying taxes (Kraemer & Dedrick, 2002 pp.7-8). According to Ricken & Malcotsis (2011, pp.221) governments in developing countries also ensure that TNCs do not have any obstacles to land acquisition and setting up of facilities. Expertise In the last two decades, people in both developed and developing countries have gained a lot of expertise in technology and R&D activities. Essentially, developing countries have made it easier for TNCs to bring technology, research and development to these countries owing to increased expertise (Navaretti & Venables, 2004 pp.250). Such expertise is fueled by more advanced educational opportunities in developing countries. As opposed to the period prior to the 1990s, there are significantly more institutions of higher learning in developing countries that are producing experts capable of running R&D activities. For a majority of TNCs, their initial entry into developing countries is characterized by the export of products and services via sales agents, who are experts in marketing and distribution of products and services (Buckley &Ghauri, 1999 pp.198). Increased mergers and acquisitions of local-based firms According to Kenwood & Lougheed (2002, pp.259) developing countries have increased their contribution to R&D activities as TNCs in the last twenty years. For example, in the 1990s developing countries formed only 10 per cent of TNCs, but by 2006 the figure has gone up to 23 per cent (ibid). Developing countries are often more willing to sell out to foreign investors, the latter who are economically more powerful than the former. According to Bhagwati (2004, pp.276), most countries seeking to invest in developing countries conduct a research on existing firms which offer similar services and products and choose from among them, the most popular firm to merge with or acquire. Once a local-based firm is identified, the TNC enters into an agreement with the former to allow for the two to combine their operations. As a result, the TNC is able to tap into the local market. Cheap labor There exists a large discrepancy between developing countries and industrialized countries in as far as worker wages and salaries are concerned. Dicken (2011, pp.442) states that TNCs have been able to transfer technology and R&D activities to developing countries because these countries offer cheap labor. TNCs are able to exploit workers in developing countries especially because labor unions are non-existent or are weakly organized. Basically, although workers in developing countries are more educated and possess the required skills, these workers are hired at a very low cost. How do TNCs contribute to world development through technology and R&D activities transfer to developing countries? Throughout the twenty years that TNCs have been actively involved in the process of transferring technology and R&D activities to developing countries, the whole world has felt the impact of this process. Employment TNCs are instrumental in the creation of employment in host countries. When a TNC sets up an operational facility in a host country, then the local people are employed to provide skilled labor. As a result, the unemployment gap in the host country is significantly reduced, thereby improving the economy of the host country (Tolentino, 1993, pp.121). This is then reflected in the world global statistics, where the number of unemployed and poor people has notably reduced due to the presence of TNCs. Infrastructural development and improved economy According to Roberts (2000, pp.268) developing countries have been characterized by the presence of vast natural resources, yet these countries are lacking in infrastructure. The role of most TNCs, therefore, has been to make use of these resources that lie in waste and in return develop the infrastructural systems of these countries. Essentially, developing countries have benefited in terms of better and state-of-the-art roads, schools, hospitals, among other types of infrastructure. Johnson (2009, pp.111) gives the example of how TNCs from china have made an agreement with the Democratic Republic of Congo (DRC) for the former to mine in DRC, while the latter gets better infrastructure. Generally, TNCs have led to improved infrastructural development in developing countries and the spill effects have been felt all over the world. Today, developing countries are at a fairly competitive level with developed countries economically, thus ensuring that world economy is uplifted. Trade facilitation According to Pitelis (2000,pp.53) the entry of TNCs into developing countries through technology transfer and R&D activities in the last twenty years has led to the facilitation of world trade. In fact, trade facilitation and the entry of TNCs into developing countries are two interrelated factors. Whereas the relaxation of trade tariffs has enabled TNCs to venture into developing countries, the TNCs have in turn led to more trade activities between developing countries and the rest of the world (Dunning, 1993 pp.322). Through TNCs, developing countries have been able to form links with industrialized countries and join the global chain of product manufacture, marketing, and distribution. A case study of Dell Computer Company Apart from having operations in the Americas and Europe, as a TNC, Dell has several operational facilities in Asia and Africa, two of the continents that host the highest number of developing countries. In Asia, Dell opened its original center for manufacturing in Malaysia in 1996 (Kraemer & Dedrick, 2002, pp.7). Several reasons contributed to the decision by Dell to transfer its computer manufacturing technology to the Asian-Pacific region, particularly to Penang Malaysia. Kraemer & Dedrick, (2002, pp.8) state that when Dell opened up the Malaysian company, the company was awarded five years tax-free operations by the Malaysian government. In addition to the incentive by the Malaysian government, Dell chose Malaysia because the workers demanded reasonable wages and because it was easy to take supplies to Malaysia (ibid), since the country is at the centre of Asia. Apart from Asia, Dell also has operations in North American countries, particularly Tennessee. In Tennessee Dell was prompted to set up a manufacturing facility by the availability of cheap labor, good communication systems, especially transport, and reduced taxes for Dell’s operations. In Brazil, Dell was convinced to set base by the reduced trade tariffs in the country and the whole South American region as a whole. Conclusion In conclusion, the last twenty years have witnessed a shift in the location of TNCs as most are becoming more involved in developing countries. The benefits of this trend are mutual to both TNCs and the host countries. The TNCs have expanded their markets and developing countries have had their economies strengthened through the activities of these TNCs. However, some TNCs are known to exploit workers in developing countries by underpaying them (Casson, 2000 pp.241). In as much as developing countries need the TNCs in order to attain development, this development should not be more important than the citizens. Governments in developing countries should be more cautious and protect the interest of their citizens against exploitation by the TNCs. This way both the economic and social aspects of world development will benefit from TNC related activities. References Bhagwati, J. 2004. In Defense of Globalization. Oxford: Oxford University Press. Buckley, P., & Ghauri, P. 1999. The Internationalization of the Firm. Oxford: Cengage Learning EMEA. Casson, M. 2000. Economics of International Business: A New Research Agenda. Massachusetts: Edward Elgar Publishing. Caves, R. 2007. Multinational Enterprise and Economic Analysis. Cambridge: Cambridge University Press. Dicken, P. 2011.Global Shift Sixth Edition: Mapping the Changing Contours of the World Economy. New York: Gilford Press. Dunning, J. 1993. The Globalization of Business: The Challenge of the 1990s. New York: Routledge. Dunning, J., & Lundan, S. 2008. Multinational Enterprises and the Global Economy. Massachusetts: Edward Elgar Publishing. Ietto-Gilles, G. 2012.Transnational Corporations and International Production: Concepts, Theories and Effects. Massachusetts: Edward Elgar Publishing. Johnson, D. 2009. International Business: Themes and Issues in the Modern Global Economy. New York: Taylor & Francis. Kenwood, G., & Lougheed, A. 2002. Growth of the International Economy 1820-2000: An Introductory Text. New York: Routledge. Kiely, R. 1998. Globalization and the Third World. New York: Routledge. Kraemer, K., & Dedrick, J. 2002. Dell Computer: Organization of a Global Production Network. Retrieved 14 October 2012. From www.Citro.Uci.Edu Navaretti, G., & Venables, A. 2004. Multinational Firms in the World Economy. New Jersey: Princeton University Press. Pitelis, C. 2000. The Nature of the Transnational Firm: Second Edition. New York: Routledge. Ricken, B., & Malcotsis, G. 2011. The Competitive Advantage of Regions and Nations: Technology Transfer through Foreign Direct Investment. Burlington: Gower Publishing Ltd. Roberts, T. 2000. From Modernization to Globalization: Perspectives on Development and Social Change. New York: John Wiley & Sons. Tolentino, P. 1993. Technological Innovation and Third World Multinationals. New York: Routledge. Read More