United Nations
Commission on Sustainable Development

Background Paper

Commission on Sustainable Development                Background Paper No. 12
Sixth Session
20 April - 1 May 1998

                      Technology Cooperation and Assessment

                                I.  INTRODUCTION

1.    Technology cooperation (or technology partnership) is defined
here as an interaction between firms to exchange or share information
and knowledge that underlay technical change and innovation.  In many
cases, the motivating factor for inter-firm technology cooperation is
not technology per se but includes other objectives such as
production, trade and market access.  Indeed, a distinction is
sometimes made between technology-related partnerships and those based
on other objectives such as production and trade.  As shown below,
however, distinguishing between the two types of partnerships is not
always easy.  Usually, technology partnership embraces other
subsidiary objectives such as establishing joint production
facilities, training and joint marketing.

2.    The arrangements for technology cooperation take various forms
including direct participation, for example, in the form of joint-
venture or formal joint research and development (R&D) agreements, or
it may take an indirect form, for example licensing, subcontracting or
original equipment manufacturing.  The latter forms of technology
cooperation are regarded by some as one-way relationships because
usually one of the partner tends to be technologically more advanced
and thus the learning and technology transfer process invariably tends
to move predominantly in one direction.  Technology cooperation can
also take place among a number of firms forming a consortium.  In a
consortium, there is usually no equity involvement and often one firm
takes the lead and full responsibility for the coordination of
activities.  By pooling the complementary resources of different
partners, a consortium enhances the competitiveness of the group by
saving on time and costs and strengthens the technological, financial
and managerial capabilities of the firms as a group.

3.    It is now widely recognized that inter-firm technology
cooperation can be an effective mechanism for learning, knowledge
sharing, technology transfer, market access and the development of
technological and innovative capability. 1/  Firm-level studies have
also shown that partnerships between firms and their clients and
suppliers have been instrumental in fostering technological upgrading
and improving the quality of products in textile, clothing,
electronics and machine tools industries. 2/ However, the impact may
differ from one type of partnership to another depending on, inter
alia, the types of sectors involved and the specific objective(s)
prompting the partnership.  For example, the skills and technological
capabilities acquired from inter-firm partnership in the field of
biotechnology are likely to be different from those involving the
textile sector or machine tools production.  Similarly, the impact on
learning and technology transfer of a partnership based on a specific
objective such as R&D will be qualitatively different from one driven
by the need for knowledge sharing or market access.  These diversities
have implications for policy and the role of governments in promoting
inter-firm cooperation.  They imply, for example, that policies and
support measures can be designed to influence inter-firm partnership
in a specific sector or aimed at achieving specific goals.

4.    Inter-firm technology cooperation has over the past decades
become a prominent form of business conduct among firms mainly in the
developed countries and increasingly between firms from developed
countries and those from developing countries and countries in
transition. The evidence available indicates, moreover, that this
phenomenon affects all sectors, although it has been predominant in
new generic technologies such as information technology and
biotechnology.  The main factors behind the recent upsurge in
technology cooperation and the opportunities for developing countries
as well as the learning processes involved in inter-firm technology
cooperation agreements and their effects on competitiveness and
technological capability are discussed below.

5.    A special concern will be the role of government in promoting and
supporting technology cooperation.  While many inter-firm cooperation
agreements are market driven, empirical evidence shows that agreements
have been particularly successful in situations where they were
prompted by an array of policies, incentives and supportive measures. 
The role of regional organizations has also been important in
motivating firms to engage in technology partnership.  Where evidence
is available in this respect, the possible lessons for governments
will be identified.  Most of the empirical studies carried out so far
on the subject have centred on technology cooperation among developed
country firms.  However, a new trend is emerging in North-South and
South-South inter-firm technology cooperation and the implications for
policy and support measures of these experiences will be discussed.  

                            IN TECHNOLOGY COOPERATION

6.    One of the most fundamental changes to take place in recent years
has been in the knowledge-intensity of production. 3/  By "knowledge"
is meant here not only research and development but also product
design, process engineering, quality control, management, knowledge
about markets and investment opportunities, and the skills and
capabilities needed to undertake changes in products and processes. 
With increasing knowledge-intensity of production, the traditional
sources of comparative advantage (i.e., static resource endowments,
factor costs) and competitiveness (i.e., prices, the cost of labour
and exchange rate) are being eroded, even in the so-called traditional
industries.  Increasingly, competitiveness is being determined by the
ability of firms to innovate and their capacity to adjust to a rapidly
changing economic environment.  

7.    In the new environment, the pressure for innovation and change to
attain competitiveness affects most firms regardless of size, market-
orientation (i.e., exporting as well as those supplying domestic
markets only), and location (i.e, whether they are in developed
countries or developing countries and countries in transition).  With
the dismantling of restrictive regimes which in the past sheltered
inefficient firms from international competition, the boundaries
between the domestic and external markets have become blurred, forcing
firms to change old habits and practices and making the need to learn
and innovate critical factors for their survival.  Innovation here is
understood in its broader sense to include "...the process by which
firms master and implement the design and production of goods and
services that are new to them, irrespective whether or not they are
new to their competitors - domestic or foreign". 4/  Defined in this
way, the process of innovation involves continuous learning to
identify and solve problems in product quality and design,
maintenance, marketing and production organization.  It also means
that firms of all sizes and levels of development and competence must
place learning and knowledge-creation at the centre of their strategy. 

8.    However, firms do not innovate or learn in isolation but in
interaction with each other and other key players in their community
such as R&D institutes, technology suppliers, clients, credit
institutions and policy makers.  This need for interaction has
intensified in recent years in part because of the knowledge-intensity
of production mentioned above and also because of other recent
developments including the intensity of competition in both the
domestic and international markets and the rapid development and
diffusion of new 'generic' technologies such as information
technologies and biotechnology.  The new technologies require diverse
but complementary knowledge and skills for their production and
distribution.  Studies on technology cooperation agreements during the
1980s and early 1990s show, for example, that there was a threefold
increase in technological agreements, from around 200 in 1980 to more
than 670 in 1994.  Nearly 40 per cent of these were in information and
communications technologies, while 20 per cent were in biotechnology. 5/

9.    The increasing intensity of competition and the rapid advancement
of technological innovations in recent years resulted in the reduction
of product life cycles, adding pressure on firms to introduce new
products into the market at a much faster rate than in the past.  This
in turn resulted in an escalation of both the costs and risks involved
in R&D activities.  The new competitive environment has also made
marketing a critical but a costly operation.  All these developments
prompted firms to seek partnerships with other firms that could
provide access to complementary technologies, share the costs and
risks involved in product development and help create technological
synergies.  For SMEs, in particular, pooling resources together was
necessary to overcome the obstacles deriving from minimum production
scale requirements and problems relating to lack of information and
R&D base and the capacity to acquire and adapt advanced technology,
which are essential for enhancing competitiveness.  In developed
countries inter-firm technology cooperation efforts were prompted and
sponsored by governments. 6/  

10.   Government support is likely to be even more important in
developing countries and economies in transition where most firms lack
the technological competence and the skills and funds needed to
attract potential partners and establish effective technology
partnerships. It should be noted, moreover, even if firms have the
competence and desire to engage in technology partnerships, it does
not necessarily mean that the partnerships will evolve spontaneously. 
Firm-level study of inter-firm technology partnership experiences
confirm that, ultimately, the decision to enter into a technology
partnership agreement is determined by a range of inter-related
factors, important among them the policy and legal frameworks of the
environment in which the partnering firms are operating.  Indeed, an
examination of specific experiences with inter-firm technology
cooperation among firms in the developed countries and also between
firms from developed countries and those from developing countries
shows that support from governments, both through direct measures
aimed at promoting inter-firm cooperation and indirectly by creating
an environment conducive to cooperation, was critical.  The question,
is why should governments be concerned with inter-firm technology
cooperation?  More importantly, what can governments do to promote and
strengthen inter-firm technology cooperation?  

                             TECHNOLOGY COOPERATION?

11.   Governments' interest in inter-firm technology agreements
emanates from several perspectives.  They include: (a) the choice of
technology, more specifically the questions regarding what is being
chosen, who makes the choice and how; (b) technology assessment,
particularly with regard to the relevance of the technologies selected
to national economic development objectives and their impact on
society and the environment; and (c) the contributions of technology
cooperation/partnership to learning, technology transfer, market
access and the development of technological capacity-building.

                              A.  Technology Choice

12.   In acquiring technology, special attention should be paid to the
choice of technologies that are critical for economic growth, social
progress and sustainable development and which will set the parameters
for future development direction.  Effective transfer of technology
depends on a whole set of factors such as support structures, training
programmes, local R&d capability and skills which need to be taken
into account in selecting technologies.  It is also important to
ensure that, in addition to economic factors, the processes of
innovation and technology diffusion take into account social and
environment-related problems.  This means taking strategic decisions
not only with regard to the choice of technology but also how the
technology is used and diffused.  Governments have a special
responsibility in these respects, particularly in situations where the
market mechanism is not yet fully developed and, therefore, cannot be
used as a channel for the development of socially and environmentally-
conscious technologies.  

13.   Firms play a central role in the generation, adaptation and
diffusion of technology.  However, governments also exert a
significant amount of influence in the way technology is created and
shaped through their role as technology suppliers (as financiers of
R&D and other science based activities), the users of technology
(through procurement policy), and regulators (i.e., of technology-
related standards, intellectual property rights, etc,.).  In
technology cooperation agreements, governments' interest goes beyond
the technology dimension and includes the regulation of markets to
ensure that firms' joint activities do not promote oligopoly and
restrict competition.

14.   Ideally, decisions on the types of technologies acquired,
especially those with wider social and environmental implications,
should be made on the bases of well informed debate on the choices of
technologies available and their impact on society as a whole.  This
principle could equally apply to the choice of technologies in inter-
firm partnerships.  How can governments influence this process?  There
are various modalities.  Continuous consultation with those directly
involved in the generation of technology is one possible approach. 
The Japanese experience shows, for example, that the system of regular
management and worker consultations to elicit feedback and new ideas
from the workforce was important in enhancing innovation.  In France,
the interactions with consumers facilitated through the Minitel
service have been important in informing innovative firms about the
choices and preferences of the public at large.  

[Another model is to organize a nation wide debate - e.g., the debate
in Denmark on alternative energy technology sources and their long-
term impacts on the environment.] 

                            B.  Technology Assessment

15.   Assessments of broad areas of technology or specific trends in
technology development are frequently needed by policy makers to
ensure that the technologies generated or selected and used by local
firms and consumers do not have long-term detrimental social and
economic effects.  Regular assessment of technological development
trends may also be needed by firms in order to keep up with best
practices.  The tasks may involve surveying particular areas of
technical change to identify opportunities and threats or it may go
further to identify ways of capturing the benefits or avoiding the
costs of particular technological developments.  

16.   In developed countries, technology assessment is carried out by
firms themselves or by research centres (public/private) which
routinely carry out technology assessments.  Some of these research
centres focus primarily on supporting public decision making, such as
the studies carried out by the Office of Technology Assessment (OTA)
of the US Congress or those undertaken for the US Environmental
Protection Agency (EPA), while others concentrate on supporting
strategic decision-making by firms.  In most developing countries,
such centres are non-existent and local firms do not have the capacity
to carry out regular technology assessments.  Invariably, therefore,
in many developing countries, the responsibility of technology
assessment, both for purposes of technology selection by firms and
public policy making, falls on government.

                       C.  Building technological capacity

17.   As noted above, inter-firm technology cooperation can be an
effective mechanism for technology transfer, technological and
innovative capability-building, the development of new products or
processes (or improving existing ones), upgrading management and
marketing skills and developing R&D capacity.  It can also be a
vehicle for entering international markets, gaining access to the
global business network and learning new business culture, especially
for small and medium firms.  However, the effects of technology
cooperation are not the same for all firms and countries.  Nor do all
attempts to forge technology cooperation agreements end up
successfully.  Much depends on, inter alia, the level of development
(competence) of the cooperating firms, the objectives prompting the
partnership, and the economic, social and, particularly, the policy
environment prevailing in the country(ies) where the partnering firms
are based.  Selected examples of inter-firm technology cooperations or
partnerships are presented below to illustrate both the scope of their
contributions and the importance of external support in the promotion
of such agreements.  The examples provided include partnerships
between firms from different countries and different regions,
including North-North, North-South, and South-South.

      (a) Parametric Technology Corp. (USA) and China First Automotive
Corp. (China).  Main impacts: sharing knowledge in R&D, technological
capability-building and improved market access.  With the assistance
of the US partner, the Chinese company carried out adaptation R&D on
Engineer software used in automobile design.  This enabled the Chinese
partner to gain access to advanced products and the opportunity to
build its technological capability.  For the US partner, the main
benefits included access to knowledge about operating conditions in
China and low-cost engineering talent. 7/  

      (b) Texas Instruments (USA) and Acer (Taiwan, Province of China). 
Main impacts: transfer of technology, technological capability-
building, and market access.  The partnership, which was in joint-
venture form, led to the establishment of a large wafer fabrication
plant (for 1Mb DRAMs) in Taiwan and the sharing of knowledge in the
production of computer chip.  Acer's main contributions were capital,
management and a captive market for a sizeable portion of the output. 
Thus, through this partnership, Texas Instruments was able to co-own a
new memory chip plant at very little cost to itself and gain access to
a new captive market.  The benefits to Acer were equally important. 
It gained access to Texas Instrument's state-of-the-art semiconductor
process technology and with it an opportunity to build its
technological-capability and a guarantee of a steady supply of core
components that are critical to its computer business. 8/

      (c)  Biotica (Argentina) and Sementes Agroceres [SA] (Brazil). 
Main impacts: knowledge sharing and joint development of a new
product.  The technology cooperation agreement between these two
agribusiness firms was striking for a number of reasons: first, it
involved firms from developing countries, symbolizing the new trend in
South-South technology cooperation; second, it demonstrated that
small-scale firms with specific areas of competence but which lack the
financial, technological and marketing capability could overcome their
deficiency by forging partnership with larger firms; and third, the
Biotica and SA partnership was marred with difficulties highlighting
the importance of commitments from both parties at all stages of the
collaboration process and the need for mutual benefits and continuous
flow of information between the collaborating parties.

18.   The partnership between Biotica and SA was orchestrated by the
Brazilian-Argentinean Centre for Biotechnology (CABBIO), a joint
government funded but privately run association of firms and
individuals, which was set up to foster the development of
biotechnology in Argentina and Brazil in the context of MERCOSUR's
biotechnology industry protocol. 9/  Biotica is a small research-
oriented firm (28 employees), specializing in vegetable
micropropagation and new potato seed technology, while SA (2500
employees) is a leading manufacturer of agricultural seeds and animal
food in Brazil.  The primary objective of the partnership was to
develop a new variety of potato seed using Biotica's accumulated
knowledge in propagation technology and financial contributions from
SA and then move the new product into the market using SA's large-
scale production and marketing competences.  

19.   A new variety of potato was successfully developed and within
five years of the inception of the partnership, the first trial batch
was sold in Brazil, accounting for 2 per cent of the Brazilian market
and competing successfully with imports from Europe which is the main
source of supply for the Brazilian market.  The cost of the first
batch of the new potatoes was US$90,000 per hectare which was reduced
to US$10,000 per hectare after the first year of full production and
is expected to go down as low as US$6,000 per hectare making it
competitive by any standards.  In spite of the success of the
partnership, however, the relationship between the partners was bumpy
partly because of lack of awareness, on the part of the small-scale
partner, about the business culture and partly because of different
perspectives of achievements with management from SA focusing on
financial results while that of Biotica was more concerned with
technical advance.  

      (a) Biobras (Brazil) and Eli Lilly (USA).  Main impacts:
knowledge and information sharing, training and the development and
manufacture of insulin. 10/  The partnership between Biobras, a
large Brazilian-owned pharmaceutical firm with substantial experience
in research, development and production of enzymes and insulin
crystals, and Eli Lilly, a US transnational pharmaceutical company and
a world leader in the extraction of insulin from living organisms, was
prompted by the Brazilian Ministry of Health in the hope that the
partnership will enable the local firm to acquire additional knowledge
and techniques in inulin production and the opportunity to establish a
joint-venture for manufacture insulin within Brazil.  The role of the
Ministry of Health was critical from the inception of the partnership
to the establishment of a joint-venture plant.  

20.   The Ministry initiated the first formal contact between the two
firms, provided information to the foreign partner, Eli Lilly, about
Biobras's research and development capacity and its intention to
manufacture insulin in a joint-venture arrangement, assisted in the
negotiations for equity arrangements and the finances needed for the
joint-venture, which was provided by Brazil's official development
bank BNDES, and created a captive local market by ensuring that the
insulin needed for the Ministry of Health diabetes programme was
supplied by the partners.  As part of the cooperation agreement,
personnel from Biobras's administration, research and development,
production and marketing departments were trained by ELI Lilly. 
Through the partnership, Eli Lilly gained production capacity in
Brazil and access to a captive market.  

21.   The joint-venture arrangement was terminated, on the bases of
mutual consent, after six years of operation.  Eli Lilly's 45 per cent
share was bought by Biobras.  However, the partnership experience has
had a significant impact in upgrading Biobras's technological
capability and creating a domestic capacity for insulin production. 
Biobras now produces insulin which is competitive both within Brazil
and in the international market.  

      (a) Biocon India Ltd. and Quest International (The Netherlands). 
Main impacts: knowledge sharing, product development and market
access. 11/  Biocon India's main operations included developing and
manufacturing industrial enzymes, although recently it had also built
a strong R&D base especially in the area of solid substrate
fermentation and bio-reactor design.  It was the R&D capability that
attracted potential partners from the North.  In the partnership
between Quest International and Biocon India, the latter developed new
products exclusively for the partner which marketed them worldwide. 
Biocon India retained the exclusive right to market the products in
the home market. For Quest International, the partnership provided
access to expertise and R&D capacity for producing new products at a
much lower cost than its own R&D capacity would allow. For Biocon
India, cooperation with Quest International brought several benefits
including knowledge about patenting procedures and global marketing of
its products.

      (b) Visualsoft India Ltd. and Konsortium Bumi Komputer [KBK]
(Malaysia). 12/  Main impacts: sharing of complementary knowledge
and technology.  In 1997, Visualsoft, which specializes in software
development for networks, signed a Memorandum of Understanding (MOU)
with KBK of Malaysia for cooperation in the area of software
development and services.  The MOU included an agreement to set up two
joint-venture centres - one to be built in Hyderabad, India, catering
to the needs of KBK on an exclusive basis and the other in Malaysia
under the super corridor scheme.  For the Indian firm, the partnership
brought new capital and the opportunity to upgrade its technology and
establish a strong presence in the Southeast Asian markets. It
provided KBK with technological and R&D support and a steady and
guaranteed supply of network softwares needed for the Malaysian

      (c)  Volkswagen (Germany) and Shanghai Automobile Industry
(People's Republic of China). 13/  Main impacts: technology
transfer, new product development and technological capability-
building.  The partnership started as a joint-venture between
Volkswagen of Germany and Shanghai Automobile industry of China to
manufacture cars using technology developed by Volkswagen.  The
Chinese firm gained access to advanced design and manufacturing
technologies. Capabilities acquired through the partnership were also
responsible for the dramatic increase in local content rate of the
model Santana B2 from a mere 2.7 per cent in 1985 to 90.5 per cent in
1996.  Similarly, the local content rate for the latest model Santana
2000 increased from 60 per cent in 1995 to 80 per cent in 1996.  The
joint-venture is currently expanding and upgrading its technical
centre to include, inter alia, a testing track and the capability for
developing body parts and accessories.  Through the technical centre,
the local firm will have the opportunity to learn, innovate and
manufacture higher quality cars.  Volkswagen, in turn, gains access to
a large and important market and the opportunity to remain competitive
in that market through low cost local production.

      (d) Digital Applied Research & Development [DART] (Singapore). 14/
The experience of DART, which is a small software design and
development firm based in a science park in Singapore, illustrates the
advantages for small-scale firms of working in a consortium of
strategic partners.  Although DART is a small firm, it often
participates in a bid for large projects such as simulators for
airports and power stations.  The firm's core strengths are in
engineering, system design and development. For other activities such
as manufacturing, R&D and marketing, it forms a consortium of firms
with the necessary skills and technological and production capacities.
Recently, for example, DART won a bid to design and supply smart cards
to one of the Government agencies in Singapore.  To win the bid, DART
formed a consortium with a local plastic manufacturing firm which
produced the plastic cards, and OKI of Japan which manufactured the
semiconductor chip embedded into the plastic card.  DART designed and
developed the software that is incorporated into the chip.  In such a
consortium, each firm complements the capabilities of the others,
thereby enhancing the consortium's competitiveness.


22.   In recent years, technology cooperation agreements have grown in
number and importance prompted by the increasing knowledge-intensity
of production and the growing costs and risks associated with it -
making it even more necessary for firms to cooperate if they wish to
innovate and remain competitive.  Moreover, although most of the
existing technology cooperation agreements are among firms in
developed countries, a new trend has emerged where inter-firm
partnerships are arranged between firms from developed and developing
countries and among firms in developing countries.

23.   Empirical evidence - mostly from developed countries - indicates
that technology cooperation agreements between firms have, in most
cases, led to learning, an effective transfer of technology and the
development of technological and innovative capability.  Inter-firm
cooperation, therefore, represents a possible response to technology-
related problems faced by firms from developing countries.  However,
the evidence available also suggests that in many cases the
partnerships did not evolve spontaneously. A variety of policies,
incentive measures and institutions were often needed to catalyse and
support the partnership. 

24.   It should be noted, moreover, that effective partnerships at the
firm level need time and effort to develop.  In some cases, they are
the outcome of a long interaction and strenuous negotiations, often
characterized by a process of trial and error and gradual building of
trust.  Thus, government support will be indispensable for firms from
developing countries and economies in transition which often lack the
information, finance, negotiating skills and the technological and
innovative capability needed to attract potential partners.  However,
what can governments do to promote and support effective inter-firm
technology cooperation?


25.   A useful starting point in examining what governments can do to
facilitate inter-firm partnerships is to understand first the
processes involved in establishing and consolidating  partnerships. 
The findings of firm-level studies of partnership experiences reveal
the following. 

      (a) Awareness. Many firms, especially those in developing
countries, are not fully aware of the potential for and the advantages
(both the short- and long-term) of cooperating with other firms.  A
recent study of technology cooperation between firms in the Latin
American region concluded that most firms "were not fully aware of the
emerging trends in international technology development and
partnership already evident to many firms elsewhere". 15/  

      (b) Preparing the ground.  The process of technological
cooperation begins when each partner consciously sets out its goals,
parameters and the criteria for technological choice.  Unfortunately,
however, the information necessary to make decisions on all these
factors is not always easily accessible to all firms, especially those
from developing countries and economies in transition.  The findings
of a recent firm-level study of technology cooperation experiences in
Latin America reveals, for example, that many of the firms included in
the survey did not have the information needed for the management to
evaluate the pros and cons of cooperating with other firms.  In some
cases international consultancy firms were used to help decide on the
advantages of forming a partnership.  But, most firms, especially
SMEs, do not have this option since the cost of hiring consultancy
firms, let alone an international one, is often prohibitive.  

      (c)  Searching for a partner.  Once the decision to form a
partnership with another firm has been taken, the next task is finding
the right partner.  Searching for an appropriate partner is a costly
and arduous exercise for many firms, especially those from developing
countries seeking partners from abroad.  A firm may need to establish
the precise technical competences and organizational culture of a
potential partner and their compatibility and complementarity to its
own competences and needs. This requires considerable managerial
search and financial resources.

      (d) Negotiations.  Agreeing on the mode of cooperation is another
important task that the collaborating firms have to accomplish before
commencing their joint activities.  The negotiations that follow the
decision to cooperate determine the format that the partnership will
take.  For example, whether or not the partnership will involve equity
participation, joint-venture activity, R&D, transfer of technology,
exchange of personnel, new investment, training, product development,
knowledge sharing and marketing.  Given also that sometimes foreign
partners are involved, there may be a need to examine thoroughly
national business culture diversities, such as financial disclosure
rules and the style of management, because, if radically different,
they could easily become impediments to the partnership.  It should
also be noted that the eventual success of the partnership depends, to
an extent, on the negotiation and communication skills of the partners
and the trust and understanding developed during this phase of the
partnership arrangement.

      (e) Consolidating the partnership.  Finally, the partnership must
be consolidated through regular exchange of information, effective
transfer of technology, regular interactions between management and
staff of the partner firms and by ensuring that the respective goals
of the partners are fulfilled.  Firms may have to abandon old habits
and practices which hamper the smooth operation of the partnership. 
Commitments made during the negotiation stage, for example, concerning
investment, technology transfer, knowledge sharing, product
development and so on have to be kept.  The initial period of the
consolidation phase of the partnership process is often demanding for
many firms.  It was not surprising, therefore, that the findings of
the firm-level study of partnerships in the Latin American region show
that many firms experienced difficulties in their relationships and
even premature termination during this period.

26.   Turning to the question of what governments can do to facilitate
the process described above, they can, first of all, contribute by
creating a stable macroeconomic environment and a legal and regulatory
framework conducive to inter-firm cooperation.  A stable economic and
policy environment can increase the potential for innovation,
technological development and foreign investment, especially when
accompanied by high and sustained growth rates.  In contrast,
uncertainty in macro-policy and an inconsistent legal framework
increases risks and makes long-term planning and commitments
difficult.  Under these circumstances, for example, cooperation with
foreign partner in areas such as R&D, which require long-term
investments, would be unlikely.  Thus, the direction of policies,
their consistency and stability and the credibility of the
government's commitment to maintain the chosen policy framework can
influence the decisions of firms to enter partnering ventures.  But
beyond creating a favourable macroeconomic environment, governments
can play an active role in promoting inter-firm cooperation through
the application of specific policy instruments and targeted incentive

27.   A possible role for governments is conducting an extensive
awareness and publicity campaign on the benefits of inter-firm
collaboration and the opportunities open to firms.  governments have
the capacity to reach firms and transmit the message more effectively. 
A specialized institution could be set up to work, in collaboration
with business associations, towards this objective and to demonstrate,
through pilot projects involving selected firms, the virtues of inter-
firm technology cooperation.  The Technology Partnership Initiative
(TPI) in the United Kingdom, for example, was established to encourage
such cooperation.  TPI is funded by the government and promotes inter-
firm cooperation in the area of environmental technology.

28.   Governments can also assist firms in their efforts to collaborate
with other firms by making information on technology and potential
partners more widely available.  This would be particularly useful to
SMEs which do not have the resources to acquire the information needed
or to hire external consultants.  Governments can provide a forum,
together with business associations, for information exchange and
discussion among local firms.  

29.   As noted above, many firms, especially those from developing
countries, lack the knowledge and resources necessary to undertake an
extensive search for appropriate partners, especially if the partner
is to be a foreign firm.  Governments are in a unique position to play
an important role in this respect.  Some of the measures that could be
taken include: keeping a catalogue of local firms wishing to enter
into partnership and searching for potential partners (both locally
and from abroad) on co-financing bases; matchmaking and brokering
between potential partners as, for example, the role played by
Ministry of Health in Brazil in arranging the partnership between
Biobras and Eli Lilly (see above); assisting in the negotiations,
especially when a foreign partner is involved; and ensuring that the
partnership is founded on a solid bases and the confidence that
governments wish it to succeed.  A useful model in this connection is
the European Union's programme to support partnerships in the area of
technology, production and marketing among firms in member countries
and between them and firms in other regions.  Various specific
programmes function within the framework of European Community
Investment Partnership (ECIP), which operates via a network of
financial institutions and facilitates four critical stages of
business investment, namely (a) project identification and the search
for potential partners, working through chambers of commerce trade
associations and public institutions providing support to firms; (b)
preparing the grounds for partnership, for example, by conducting
partner search; (c) financing of capital requirements; and (d)
training and management assistance.  

30.   The role government is even more critical during the
consolidation stage of the partnership process.  The measures that
could taken to strengthen the partnership may include the following
direct and indirect policies and incentive measures.

      (a)  Introducing a specific funding mechanism in collaboration
with financial institutions for upgrading partnerships, for example,
from R&D focus to commercialization of products or from marketing to
production.  Funds could be made available on concessionary terms. 
Empirical evidence shows that financial difficulties are one of the
major causes of a break-up between partners;

      (b) Simplifying the rules and regulations governing inter-firm
cooperation agreements and harmonizing policies on trade, technology
and investment.  In the case of the partnership between Biotica and SA
(see above), for example, the introduction of import regulations which
restricted trans-border trade in genetic seeds was one of the main
reasons for closing down the R&D unit in SA. It demonstrated
inconsistency in government policy since it was the government which
orchestrated the partnership between the two firms.  

      (c) Establishing industrial parks (science parks) and providing
tax and training incentives to firms which set up partnership
operations in the park and which attract partnership in R&D

      (d) Introducing a bidding system for public projects which
encourages and favours participation by collaborating firms;

      (e) On the demand side, governments can influence technological
development, innovation and technological partnerships through public
procurement policy.  This policy instrument has been effectively used
in many developed and developing countries.  


1/  The role of inter-firm technology cooperation in technological
capability-building and the general policy and economic environment conducive
to inter-firm cooperation are examined in the following UNCTAD publications:
"Technological capacity-building and technology partnership: Field findings,
country experience and programmes" (UNCTAD/DST/6), 1995; "Emerging forms of
technology cooperation: The case for technology partnership" (UNCTAD/DST/13),
1996; and "Exchanging experiences of technology partnership: The Helsinki
meeting of experts" (UNCTAD/DST/15), 1996. 

2/  For case studies on textile, clothing and electronics industries, see,
Ernst, Dieter, Ganiatsos, Tom and Mytelka, Lynn (eds) (forthcoming, 1998),
Technological Dynamism and Export Success in Asia, Routledge, United Kingdom;
and for machine tools, see, Desai, Ashok, Lautier, Mark and Charya,
Hanumantha (1998), "Machine tools industries in India and Chinese Taipei: a
comparison", in Mytelka, Lynn (ed), Competition, Innovation and
Competitiveness in Developing Countries.  OECD Development Centre, Paris.

3/  The following pages are adopted from Mytelka, Lynn, K. (1990), "New modes
of international competition: the case of strategic partnering in R&D", in
Science & Public Policy, Vol.14, No.4, pp.296-302; and "Regional co-operation
and the new logic of international competition", in Mytelka, Lynn (ed) (1994),
South-South Competition in a Global Perspective. OECD, Paris.

4/  Ernst et. al. (1998)

5/  Hagedoorn, J and J. schakenraad (1990), "Inter-firm partnership and
co-operative strategies in Core technologies", in Freeman, C and L. Soete
(eds) (1990), New Explorations in the Economics of technical Change, Pinter
Publishers, London; and Narula, R (1996), "forms of International
Cooperation between cooperations", in Jempa, C.J. and A.P Hoen (eds) (1996),
International Trade: a Business Perspective. Longman, Harlow, pp.98-122.

6/  For further details, see, Fransman, Martin, (1990), Trends and Patterns in
Strategic Technology Partnering since Early Seventies.  New York: Cambridge
University Press; and Mytelka, L.K, (1991), "States, strategic alliances and
international oligopolies: The European ESPRIT programme", in Lynn
K. Mytelka, ed., Strategic Partnerships and the World Economy. London: Pinter
Publishers, pp. 182-210.

7/  A number of examples used in this paper are derived from a consultancy
study prepared for UNCTAD by Prasada Reddy on "Inter-firm strategic
partnership and implications for competitiveness, technological capability
building and enterprise development".  (Unpublished - August 1997)

8/  Reddy (1997)

9/  Information about the partnership between Biotica and Sementes Agrocers
and other inter-firm technology partnership experiences from the Latin
American region referred here are derived from Alcorta, Ludovico; G.A Plonski
and C.A Rimoli (1998), "The experience of technological collaborations by
Mercosur countries", Discussion Papers, No.9803, INTECH, The United Nations
University, Maastricht. 

10/  The information on the partnership experience between Biobras and Eli
Lilly was obtained from, Mytelka, Lynn K. (1997), "New trends in Biotechnology
networking", prepared for a special issue of the Journal of Technology
Management (Biotechnology Review); and Alcorta, L, et al (1989), ibid.

11/  Reddy, P (1997), op cit.

12/  See, the "Hindu", 18 August 1997.

13/  Reddy, P (1997), op. cit

14/  Reddy, P (1997), ibid.

15/  Alcorta, L et al (1997), op cit.

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Date last posted: 8 December 1999 15:15:30
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