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. II. THE DRIVING FORCES BEHIND THE RECENT UPSURGE 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? III. WHY SHOULD GOVERNMENTS BE CONCERNED WITH INTER-FIRM 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 market. (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. III. SUMMARY OF KEY ISSUES ARISING FROM INTER-FIRM TECHNOLOGY COOPERATION EXPERIENCES. 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? IV. THE ROLE OF GOVERNMENTS IN PROMOTING INTER-FIRM 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 measures. 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 activities; (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. Notes 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