Methods Of Technology Transfer

Methods of Technology Transfer

There are many reasons that a company might want to expand its operations on an international level: growth, profitability, and local market saturation are just a few examples (Beamish, Morrison, Inkpen, & Rosenzweig, 2003). Because different types of companies have different priorities when they expand into global markets, it is important to choose an appropriate method of internationalization. The purpose of this paper is to discuss the benefits and challenges associated with four basic methods of internationalization and to compare and contrast the methods. Finally, this paper will evaluate how changes and advances in technology have served to drive the internationalization of business.

Methods of Internationalization

The four basic methods of internationalization - licensing, exporting, joint ventures, and wholly owned subsidiaries - each have their own benefits and challenges. Below, all four methods are described and compared. Some methods are clearly more appropriate for large, well-established organizations, while others could be used by small or large businesses alike. Understanding the similarities and differences among these four methods is important when a company is trying to identify its approach to expanding internationally.

Licensing occurs when one organization authorizes another organization to independently sell/resell their technology and collects a licensing fee, typically called a royalty payment. Licensing is a method used by companies looking to expand their product lines into new markets, not for globalizing internal business processes. The benefits of licensing are the low level of investment required and the high margin generated through sales in a new market. However, licensing relationships tend to include restrictions, such as that the licensor will not sell in the same region as the licensee. These types of restrictions don't give the licensor much control over revenue growth and profits, which are tied to the performance of the licensee. Licensing typically provides the a low level of technology transfer because it puts the entire sales and support structure in the hands of the licensor.

Exporting involves an organization selling their technology or product into a new market by shipping it from one region to another. This approach delivers end products and services to new markets without making any significant investments. However, organizations need to understand the regulations of the country they are exporting to as every country has its own set of rules, duties and processes that must be followed. Exporting typically provides a low level of technology transfer as the organization is serving a foreign region from their home base. This means limited resources are being put into the new region to provide knowledge and create new offerings.

Joint ventures occur when an organization forms a partnership with a local firm within a new market. An international partnership helps provide the foreign firm with a stronger local presence in a new country, and can favourably affect the firm's credibility in a new market, assuming the local partner has a solid reputation. When the partnership is used to introduce a product to a new market, joint ventures typically provide a high level of technology transfer; the partner tends to be responsible for the creation and/or distribution of the product in the new market. This would tend to require significant training of partner staff on the product and how it is to be manufactured - including potentially highly confidential processes.

In some cases, joint ventures are set-up to globalize internal processes - for example, providing call centre services to support products or providing localization services to ensure that a product created with English content is properly translated to another language. This type of joint venture tends to increase the capacity and expertise of both partners (Kotelnikov, 2006), diversify operations geographically, and often leads to cost savings due to lower wage rates in less developed countries. However, joint ventures can also negatively impact the jobs of employees located in higher cost regions, and can create a more complicated operating environment for both partners.

Wholly owned subsidiaries occur when an organization acquires or creates a 'branch' or local division to run the activities in a given market/country/region. The organization faces the same legal and cultural factors as described under the exporting approach, but must also comprehend employment and labour laws and other local factors that impact businesses in this new market. Companies looking to globalize internal business processes would likely use this approach, though it is also effective as a means of introducing products into new markets. Wholly owned subsidiaries typically represent the highest level of technology transfer as this approach represents an organization moving entire processes and/or construction/sales/support to the local arm of the company.

The following table summarizes the similarities and differences among the four methods of internationalization discussed above; a company could use this table to select an appropriate method based on internal priorities.

Method Cost Margin Control Other

Licensing Low High Low * Appropriate for small and large businesses

Exporting Low High Medium * Appropriate for small and large businesses* Lower local presence than JV and WOS.

Joint ventures High Low Medium * Entry requirement for some foreign markets - e.g. banking industry in China (Pearce & Robinson, 2005)* Expose organization to expectations of partner as well as internal expectations* More