Transfer of Technology and R&D to Developing Countries - Essay Example

Transfer of Technology and R&D to Developing Countries I. Introduction Transnational corporations (TNCs) are regarded as the business enterprises that are similar to multinational or global companies performing which perform their business activities in more than one country. TNCs are identical to multinational or global companies conducting their businesses in excess of one country. It has been apparently observed that the TNCs usually own or control their respective business operations or business activities particularly in foreign countries through the mode of Foreign Direct Investment (FDI). Moreover, TNCs may be involved with production activities in foreign countries by cooperative association with overseas firms. Increased globalisation as well as advancement of technologies has been observed since last few years. These two factors ultimately facilitated the TNCs to perform their necessary business activities worldwide in an effective manner (United Nations, 1994). TNCs are typically related with making huge financial investments as well as transfer of technologies in foreign countries. Moreover, they are also assigned with commencing new production processes in varied countries for generating more profit as well as attaining superior competitive position (Petkovic & Rakic, 2010). In this similar context, Foreign Portfolio Investment (FPI) is regarded as an important aspect that is generally made by the investors with the motive of generating profit. Moreover, FPI investors possess full ownership but no control on foreign firms. In contrast, FDI investors possess both full ownership as well as control over foreign firms (Itay & Razin, 2005). This discussion will emphasize upon describing the forms of international operations of MNCs or TNCs, theories of international trade and investment. Moreover, different forms of technology transfer will also be portrayed in the discussion. II. Forms of International Operations of Multinational Corporations (MNCs) There are varied forms of international operations that follow by the MNCs while operating in the international market. The different forms have been described hereunder. Indirect and Direct Exporting Firms are often engaged in indirect exporting with the motive of minimising risks that evolves while with conducting their respective business activities especially in foreign countries. In indirect exporting, goods are sold to an intermediary who sells those goods in overseas markets. These firms have minimum involvement in international market (Delaney, 1998). In direct exporting, firms are usually engaged in exporting products or services straight to foreign countries and overseas customers (Delaney, 1998). Licensing and Franchising In licensing, a firm of one country allows another country’s firm to possess the right of utilising intellectual property such as patent, technology as well as trademark among others (Cherunilam, 2007). Conversely, Franchising is a type of licensing in which a parent company grants right to an independent firm for conducting business activities in a structured manner (Cherunilam, 2007). Joint Ventures Joint Venture signifies that two or more companies perform business activities in collaboration. International Joint Ventures are of two types that include Equity Joint Venture and Contractual Joint Venture. In Equity Joint Venture, a new company is formed in partnership between two or more companies, whereas in a contractual joint venture, no new or distinct company is formed (Yan & Luo, 2001). Management Contracts Management Contract signifies that the operational activities of a company grant other company to perform necessary managerial functions. Moreover, a contract agreement is generally formed between two companies (Ismail, 2002). Turnkey Projects In a turnkey project, a particular firm undertakes the functions of developing various operational facilities for MNCs such as progressing manufacturing plants by charging a fee in return (Sharan, 2008). Cross Border Mergers and Acquisitions (M&As) Cross Border Mergers signifies the alliance between two or more companies that is established with the motive of performing different business activities effectively (Halibozek & Kovacich, 2005). On the other hand, Acquisition represents acquiring ownership as well as control over certain or whole part of a company by MNCs (Halibozek & Kovacich, 2005). FDI FDI is fundamentally regarded as direct investments that makes by a particular company in other country.FDI is generally made for the purpose of expanding the business activities particularly in the international market (Froot, 1994). An Analysis of Conditions or Sectors Preferred by MNCs Joint venture is considered to be one of the most common methods that would broadly prefer by the MNCs for conducting business in the foreign nations. This is owing to the fact that this method will support them in expanding business activities in international market (Shenkar & Luo, 2007). Mergers and Acquisitions can also prefer by the MNCs ensuring that their profitability along with possibility of risks can be enhanced and minimised respectively by a significant level while expanding their businesses in the foreign nation (Shenkar & Luo, 2007). FDI is regarded as an imperative form of international operation that would prefer by the MNCs in order to avail the significant benefits of performing business with minimum tax rates and employing labour forces at cheaper wages (Shenkar & Luo, 2007). III. Theories of International Trade The different theories relating to international trade has been described hereunder. Classical Theory In the classical theory of international trade, Adam Smith model of Absolute Advantage states that the utilisation of internal resources is quite efficient for enhanced export. Conversely, David Ricardo model of Comparative Advantage relating to classical theory signifies that the countries involved in conducting efficient business trade will be beneficial in comparison to other countries (Universitatea din Craiova, 2012). Heckscher-Ohlin Model The main motive of this particular model is to determine the pattern of trade in products or services between two nations on the basis of different factors such as capital, technology and labour (The Regents of the University of California, Davis Campus, 2012). Neo-Classical Theory Neo-Classical Theory depicts that the valuable resources such as capital are required to be utilised in an efficient manner for improving trade activities (Hansen, 1995). Leontief Paradox The theory is mainly based on the concept that labour and capital are utilised for enhanced export but the result of the test was opposite. The unexpected result of the test gave it the name ‘Leontief Paradox’ (Arizona Board of Regents, 2012). Recent Development in International Trade Theory The recent development in the theory of international trade represents that the trading behaviour possessed by the individual firms establishes a strong link between productivity and trade. Moreover, the recent development also affirmed that trade plays an imperative part in the advancement of a nation (Ciuriak & et.al., 2011). IV. Theories of International Investment The various theories associated with international investment have been depicted hereunder. Theory of Portfolio Investment This theory assists an investor in determining the area of investment that will ultimately minimise risk and most significantly would aid the MNCs in terms of acquiring expected returns on investment (Omisore & et al., 2012). Location Theory of FDI The location theory of FDI represents the aspect of locating the most appropriate position for conducting production operations at lower cost for maximising profit (Sukhoruchenko, 2007). Ownership, Location and Internalisation (OLI) Factors Ownership, Location and Internalisation (OLI) factors depict the reasons for the development as well as the growth of TNCs and motivate them towards implementing the approach of FDI. In this similar context, the Ownership factors support the TNCs in efficiently performing business activities with increased income or at minimised cost. The Location factors aid the TNCs through acquiring enhanced technologies in order to recognise best location for effective performance of businesses. Finally, the internalisation factors help the TNCs in examining varied ways or procedures through which they can collaborate with other foreign company for the purpose of expanding their business activities in international market (Denisia, 2010). Production Cycle Theory of Vernon Production Cycle Theory of Vernon assists in determining the types of FDI that are required to be invested by investors for the development of manufacturing companies. There exist four particular phases that are involved with production cycle which include Innovation, Maturity, Growth and Decline (Denisia, 2010). Theory of International Production This particular theory suggests that FDI is chiefly determined by OLI factors. These factors comprise Ownership, location and internalisation aspects (Denisia, 2010). Organisational Theory of FDI This theory argues that certain major factors such as cost and inventory among others motivate MNCs or TNCs to establish their respective subsidiaries particularly in the host nations (Denisia, 2010). V. Multinationals and World Trade A drastic increase of globalisation as well as advancement of technologies has been observed in recent times. These are regarded to be the major factors that are responsible for the development of TNCs or MNCs or global companies by a greater extent (Dunning & Lundan, 2008. It has been apparently observed that the TNCs may often involve with performing intra-firm trade that signifies conducting trade activities by TNC Mother Company with its subsidiaries. World Trade activities facilitate the companies to be more involved with international market for expanding business as well as to improve profitability. Moreover, it also encourages transfer pricing i.e. analysing and adjusting prices of goods or services among companies. Furthermore, host countries of MNCs develop Export Processing Zone (EPZ) with the motive of generating more export income. In this regard, EPZ signifies the industrial aspect that involves in export manufacturing with the support of foreign investment. Moreover, it has also been viewed that the TNCs also adopt international production method for producing as well as distributing different products or services through international division of labour (Seng, 2009). VI. Transnational’s and World Development The main drivers of globalisation that include minimisation of trade barriers and advanced technologies ultimately supported the TNCs to enhance their business performance in global context. These drivers also raised considerable business networks and enhanced internationally integrated production by a greater extent. Drastic globalisation has assisted the organisations to trade their different goods as well as services in international market. Moreover, the factor of globalisation facilitated transfer of money capital as well as labour forces to foreign countries (Oxford University Press, 2012). Companies involved with production activities in overseas market along with the assistance of certain important strategic initiatives such as M&A would ultimately support them to develop their business networks in the overseas market (Dicken, 2011). VI. Technology Transfer The aspect of technology transfer signifies shifting of technology from one country to another. Technology transfer is usually conducted in two forms that include formal and informal method. In formal method, technology is transferred through the method of licensing, contract manufacturing, joint venture and FDI. In informal method, technology is transferred through labour movement as well as reverse engineering methods. It can be stated that the facet of technology transfer facilitates the host countries to employ innovative technologies as well as aid in developing their Research and Development (R&D) segment by a considerable level (Shamsavari, 2011). Case Study Dell is regarded as a MNC or a TNC that performs its operational functions in almost 34 countries. The business operations of the company are mainly concentrated in different regions of Middle East, America and Japan among others. The different products of the company are mainly produced in the United States and are customised as well as sold in accordance with the preferences of its valuable customers living in different parts of the world. The company invest substantial amount of funds in its manufacturing along with R&D segments for the motive of reducing excessive production costs and enhance productivity (Kraemer & Dedrick, n.d.). On the basis of the above discussion, it can be stated that Dell endeavours to follow different theories of international investment as well as trade that can be regarded as one of the main themes of this particular essay. Conclusion Globalisation and advancement of technology have facilitated the growth as well as the development of the TNCs by a significant level. TNCs assist the host countries by delivering innovative technologies as well as enhanced R&D facilities. There are varied forms of international operations that utilise by the TNCs for conducting business activities in foreign countries. Furthermore, TNCs have also aided in enhanced movement of money capital such as FDI and FPI as well as outsourcing of labour forces in overseas countries. All these elements have assisted TNCs in improving profitability as well as to operate competitively worldwide. These factors have helped in the development of TNCs and trade on global prospects. 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