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JSTPC
2,2 Technology transfer in China:
literature review and policy
implications
122
Leong Chan and Tugrul U. Daim
Department of Engineering and Technology Management,
Portland State University, Portland, Oregon, USA
Abstract
Purpose The purpose of this paper is to review international technology transfer issues and
contribute to the development of effective technology policies in China.
Design/methodology/approach The construct of this paper is based on comprehensive review of
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recent literatures in technology transfer and innovation. Detailed discussions follow to give
implications in policy making.
Findings Technology transfer policy needs to consider influencing factors from various sources
and levels. Government should strive to nurture indigenous innovation capacity, and improve the
efficiency of international technology transfer.
Originality/value The environments and conditions for international technology transfer have
changed significantly in the last decade. Due to Chinas rapid development in recent years, many
traditional channels of technology transfer are no longer efficient or effective. This paper brings
related research issues up to date by reviewing some latest literatures from the perspectives of
innovation and technology development. The findings and implications are meaningful for both
industry and policy makers.
Keywords China, International technology transfer, Technology policy, Innovation systems
Paper type Research paper
1. Introduction
Technology transfer to China has been a widely studied topic in academia. As the
largest technology importer in the world, China generates many business opportunities
and attracts a lot of investments from developed countries. The lucrative Chinese
market is a focal interest globally not only because of its growing rate and size, but also
due to its increasing involvement and influence in world economy. International
technology transfer serves as a major channel for China to shorten the learning curve,
enjoy the latecomer advantage, and achieve technology leapfrogging. It is an important
approach to improve national technology level and strengthen national competence. It
has been almost a decade since Chinas entry into World Trade Organization (WTO),
the environment and conditions for international technology transfer has considerably
changed during this period. Along with the growing trend of globalization, innovation
resources are allocated more diversely around the world, especially, collaborative
Journal of Science and Technology innovation networks have emerged to link together both developed and developing
Policy in China countries. However, barriers still existed because of huge gaps among countries in
Vol. 2 No. 2, 2011
pp. 122-145 terms of social values, economic development, and technology level. Technology
q Emerald Group Publishing Limited
1758-552X
policies vary significantly from country to country, which have complicated the
DOI 10.1108/17585521111155192 process of international technology transfer.
This paper explores recent international technology transfer issues between Technology
Western developed countries and China. It brings major research topics up to date transfer
by reviewing some latest technology management literatures. The paper will
investigate technology transfer from the perspective of innovation systems, and in China
identify obstacles faced by major players. Based on literature findings, discussions
emphasize on the development of policies guidelines to overcome the barriers and
promote international technology transfer in the long run. The focus of this paper is to 123
study governments technology policy and its influence on international technology
transfer. Due to the ever changing environment of world politics and economy, there
are numerous uncertainties in policy making for every country. It is not uncommon
some policies cannot meet governments original requirement as they were legislated.
The rapid development of high technology has made stable technology policy a
difficult task. Therefore, it is necessary to study the causal factors and intrinsic
relationship of issues involved. Policy measures in China can typically represent the
interests of many other emerging economies such as Brazil, India, etc. It is meaningful
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production and trade activities within a global market (Figure 2). Leonard-Barton
(1995) proposed a model to describe import substitution (Figure 3), which starts from
import kits, progresses to localization of parts and components, then to product
redesign, and finally to novel product design. As a more practical approach, Hobday
(1995) suggested another linear model for newly industrialized countries (Figure 4): from
cheap labor assembling, through the second stage of original equipment manufacturing
(OEM), then to the third stage original design manufacturing (ODM), and finally to
original brand-name manufacturing (OBM). The author emphasizes the importance of
OEM as a learning platform, calling it an enduring technological training school for
later comers.
Figure 1.
Acquisition Assimilation Improvement
Technological progress
trajectory
Source: Guan et al. (2006)
Figure 2.
New mechanism for Transfer Digestion Absorption Innovation Dissemination
transferring technology to
China TDAID
Source: Wang and Zhou (1999)
Figure 4.
Late industrializing Cheap labor Original equipment Original design Original brand
countries development assembling manufacturing manufacturing manufacturing
model
Source: Hobday (1995)
Most of the above models connect international technology transfer with the concept of Technology
innovation or improvement in technology. However, implementation in the real world is transfer
not as easy as the models have depicted. Many papers have conceded that there are many
problems, and at least it is still difficult task for China. Wang and Zhou (1999) argued in China
that lack of sufficient technological capability is a major inadequacy at the firm level for
implementation. The restructuring of the Chinese research and development (R&D)
system from a centrally planned mechanism into a flexible system should be an attempt 125
to solve the problem. Guan et al. (2006) reported that China spent more on technology
acquisition the earliest stage of the technological progress trajectory, but much less on
the last two stages than Japan and Korea when their economy started booming. Chen
and Sun (2000) also pointed that the proportion of hardware transfer is still high. Except
for some large-sized companies, most importers stay at the level of cooperation in
transferring hardware. This is a negative influence on Chinese industry in that it is
mature technology which is still largely transferred. Many authors from developing
countries focus on how latecomers can catch up with advanced countries by
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leapfrogging or direct innovation at the technological frontier (Mathews, 2001; Lee and
Lim, 2001; Ernst and Kim, 2002). Lee (2005) identified two catch-up modes: Taiwan
followed the sequential steps of OEM, ODM, and OBM, by learning from foreign
countries; Korea jumped from OEM directly to OBM without consolidating
design technology. The author suggests that China might be a third model mixing
both Korean and Taiwanese models in it, but more researches are needed.
It is generally accepted that technology transfer activities alone may not necessarily
result to sustainable innovation. Relying too much on foreign direct investment (FDI)
has brought many disadvantages in the domestic industries. Technology acquisition
from firms in more advanced countries is obviously important to firms in
industrializing countries that are trying to catch up technologically (Guan et al.,
2006). However, since technology suppliers are not usually willing to disseminate core
technology to other enterprises, China can acquire only some medium- or low-level
technology using this source so a technology gap exists when compared with the
international latest technology (Wang and Zhou, 1999). Therefore, Guan et al. (2006)
suggest that the innovation activities in Chinese manufacturing firms could not be
boosted substantially merely through the acquisition of key equipment and apparatus
from abroad. Enterprise should formulate viable technology transfer strategies for
strengthening new product development and managing innovation process rather than
simply attaining for production scale or speed.
The above motivations cannot be easily realized, and major barriers or difficulties for
Western companies exist in many aspects. One of the most possible threats to foreign
companies arises from losing the technological lead to China in high-tech sectors. Most
foreign companies are aware of this threat and are sensitive about raising potential
Chinese competitors (Bruun and Bennett, 2002). In the short run, there might be
more common interests rather than conflicts between the foreign companies and their
Chinese counterparts, such as growth in local market share and profit. However, in the
long run, the Chinese counterparts might emerge as international competitors and capture
more market share globally. Considering all the good prospects of the original
motivations, this issue might therefore be a double-edged sword for the foreign
companies. Literatures also examine the question of technology transfer from the
perspective of techno-economic security and how companies respond to the possibility of
losing competitive advantage through misappropriation or leakage. Techno-economic
security raises the issue from a company level to a political level. Since this risk is often
exacerbated by insufficient legal protection of intellectual property rights in China, Europe
Union (EU) officially urged China to strengthen the protection of IPR. The issue of
techno-economic security relating to technology transfer to China has a special
significance also because of uncertainty about, and non-transparency of, the legislation
compared to Western systems (Bruun and Bennett, 2002).
Wu and Pangarkar (2006) MNCs, SMEs, SOEs Explores how local firms in emerging markets can counter the threat posed by the entry of MNCs.
Performance levels depend on the strategy adopted by the firm
Fan (2006) SOEs Domestic firms should focus on in-house R&D development to build their innovation capability,
supplemented with external alliances
Siu et al. (2006) SMEs Examines the interplay of government intervention, manufacturing systems and business
approaches and impacts upon the new product development of SMEs in China
Chen and Reger (2006) MNCs The motives for German FDI are long-term based and market-oriented, which can be characterized
through seeking new markets and enlarging market shares. Technology transfer is mainly
dedicated to production and managerial facilities
Duanmu and Fai (2007) MNCs, SMEs Investigates vertical knowledge transfers from inward-invested MNEs to indigenous Chinese
suppliers
Liu and Buck (2007) FR&D Foreign R&D activities by MNEs in a host country significantly affect the innovation performance
of domestic firms
Gao et al. (2007) MNCs, SMEs, SOEs Development of strong manufacturing capabilities will not necessarily be an effective strategy for
local firms competing against MNEs. The way to go is developing innovation capabilities and core
technologies
Motohashi and Yun (2007) SOEs, SMEs, PRIs, Chinese manufacturing firms still possess only a low level of technological capability. Collaboration
University with PRIs and universities needs to be promoted
Hutschenreiter and Zhang SOEs, PRIs Technology imports, and international technology transfer will continue to play an important role in
(2007) Chinas development, but the country needs to continue investing in R&D and education and to
overcome the institutional and structural weaknesses
Hu (2007) Technology parks Examines Chinas technology parks growth in response to the policy incentives and external
economies from the concentration of high-technology firms
Chen and Kenney (2007) PRIs, University, Explores the role of URIs in the development of the Chinese economy through the comparison of
Clusters developments of regional technology clusters
Liu and Zou (2008) FR&D Foreign R&D activities by MNCs in China significantly affect the innovation domestic firms and
there exist both intra-industry and inter-industry spillovers
Fisher-Vanden and SOEs Explores different purpose of internal R&D and technology import. Chinese firms simultaneously
Jefferson (2008) expend resources on disparate forms of technical change that embody different factor biases
Zheng et al. (2009) SOEs Chinas reform measures often resulted in one-time level effects on productivity, but further
institutional reforms are required to consolidate Chinas move to a full-fledged market economy
(continued)
Technology
transfer
129
Table I.
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2,2
130
Table I.
JSTPC
Hong (2008) University Examines university-industry collaborations in China, and shows a decentralizing/localizing trend
in knowledge flow
Girma and Gong (2008a, b) SOEs, MNCs Reforming the largely inefficient SOEs presents a major challenge. Limited regional linkages and
low level of absorptive capacity are found to be the main reasons for the disappointing performance
Kim and Zhang (2008) SOEs, MNCs This paper investigates the clustering of Chinese electronics manufacturers with foreign producers.
It analyzes how MNCs collaboration with local firms fosters local economic development
Ge (2009) Clusters Investigates the linkage between globalization and industry agglomeration in China. Export-
oriented and foreign-invested industries have a higher degree of agglomeration than other
industries
Asakawa and Som (2008) FR&D, MNCs Explores and compares the uniqueness of MNCs in managing their R&D in China and India. The
paper supports the trend that more innovation is required by firms and managers to strategize
about their R&D investments in China
Girma and Gong (2008a, b) SOEs Competition from sectoral FDI has a deleterious impact on the growth and survival probability of
SOEs
Kiyota et al. (2008) MNCs, CMOs Examines the determinants of the backward vertical linkages of Japanese foreign affiliates in
manufacturing, focusing on the local backward linkages, or local procurement in China
Ying (2008) FR&D, CROs Technological latecomers growth is depending on spillovers of the pioneer R&D. The Chinese R&D
productivity growth depends on the simultaneous expansion of the domestic and foreign knowledge
stock in China
Kroll and Liefner (2008) University, SMEs Spin-offs has been proved as an appropriate solution for technology transfer at Chinese universities,
but many of the companies still suffer from defective incentive structures and lack of performance
Zhou (2008) MNCs, CMOs Examines how the synergy between Chinas domestic and the international market has affected its
most competitive indigenous companies
Bin (2008) FR&D, MNCs Investigates the direct and interactive contributions of four technology acquisition channels
including: in-house R&D, foreign technology transfer, domestic technology transfer, and inter-
industry R&D spillover
Girma et al. (2009) MNCs, SOEs Inward FDI in the sector level has a negative effect on innovative activity in SOEs in average, but
there is a positive effect of FDI on SOEs that export, invest in human capital, or undertake R&D
Chen et al. (2009) MNCs As emerging markets develop, foreign firms are being viewed less and less as providers of capital
and/or technology, and more as integral parts of society
Swan and Allred (2009) MNCs The relationship between a perceived influence of China on technology strategy and MNC
subsidiary process technology sourcing strategy is moderated by the innovation context
(continued)
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Li (2009) Clusters Government support, the constitution of the R&D performers, and the regional industry-specific
innovation environment are significant determinants of innovation efficiency
Hatani (2009) MNCs Drawing on the global value chain analysis and institutional views, MNCs inhibit technology
spillovers even at the lower tiers of the supply hierarchy within the emerging economy context
Wei et al. (2009) High-tech zones Analyses Suzhous transformation model of development into a globalizing FDI and high-tech
center. Pathway of development is promoted by integrating globalizing regional development with
domesticating globalization, and by moving beyond the divide of globalization and localization
Lee (2009) Clusters The formation of cross-border high-tech regions is shaped and determined at the level of the
industrial system, thus involves the relocation and institutional re-embedding of industrial systems
across the border
Guan et al. (2009) SOEs, SMEs Innovation activities of Chinese firms were mainly directed at quality improvement. SMEs that
obtained support from the government through generally perform better
Fan et al. (2009) MNCs Chinas FDI inflow is inefficiently large because weak institutions deter domestic investment while
special initiatives attract FDI are thus either unsupported or not unique to China
Huang and Sharif (2009) SMEs Foreign-funded companies were less active than Guangdong domestic companies in pursuing R&D
and innovation activities
Technology
transfer
in China
131
Table I.
JSTPC lack of regard for deadlines and profitability, communication difficulties, and
2,2 confidentiality problems.
(but to a much lesser extent), given that the socialist legacy continues to exert a leaden
impact on industrial innovation. To sustain the transition process, the central
government has been forced to pay more attention to developing S&T policy that fits the
strategic orientations of different forms of enterprises, particularly those of SOEs
(Guan et al., 2009).
high-tech areas still grow at relatively slow rate. From the foreign perspective, with a
joint-venture framework the training required may easily extend beyond the realm of the
JV and into spheres involving, for example, suppliers of raw materials and actual
construction of the manufacturing plant. In order to achieve the internationally-accepted
quality standards and other requirements, the foreign companies were compelled to
offer an industry-level education and training (Farhang, 1997; Chen and Reger, 2006). An
observation is that there seems to be a trend away from JVs. Typically the earlier
establishments started as JVs, but today the wholly foreign-owned enterprise is the
preferred legal set-up among many foreign companies (Bruun and Bennett, 2002;
Kim and Zhang, 2008).
understanding of influential factors at each of these levels provides better insight for
policy making.
At a macro level, literature findings show that there are many environmental factors
promoting international technology transfer, which include national policy, economy
growth, and market trend. For example, technology transfer needs appropriate legislation
on intellectual property protection. It is also directly influenced by market need
and investment. International technology transfer and acquisition should align with
national goal in technology development. Macro level regulations and incentives can have
major impacts on the efficiency of technology transfer process. International technology
transfer, especially high-tech exports and imports, are being strictly controlled at national
level. Western developed countries have issued various regulations regarding to
cross-border technological transactions. These restrictions have largely deterred
international technology transfer to China. For example, the USA has limited
technology transfer to China in many high-tech areas, which includes: computer and
communications technologies, ship-building, airplane, satellite, nuclear energy, etc.
This policy even inflicts many other EU countries working in high-tech projects with
China. As a result, China cannot solely rely on international technology transfer in
high-tech industries. Indigenous innovation should be emphasized and promoted
at the national level.
At the meso level, many actors of international technology transfer have been
identified in the above literatures. In the process of technical transactions, strategies of
stakeholders are the determinants for the success of international technology transfer.
Generally, the technology development process can be accelerated by cooperative
interactions among the players. It is closely related to the robustness of technological
innovation systems. Chinas entry into WTO has significantly improved the condition
for international technology transfer. Investments from the MNCs gained extra
freedom in accessing the huge Chinese market. These multinationals are extremely
important sources for China to acquire foreign technologies, but there are many factors
to consider such as intensified competition, crowding out of domestic enterprises and
newcomers. Recent literatures showed that international technology transfer can exist
in many new channels including R&D collaboration, cross border mergers and
acquisitions, and outsourcing. Technology learning has also been enhanced by some
non-formal channels which include academic communication, flow of scientists and
JSTPC engineers, etc. These channels are new opportunities for the emerging economies to
2,2 accelerate their catching up process. The issues faced by host government are to adjust
industrial policies, provide an innovative environment, thus to promote domestic
innovation capability.
At the micro level, many literatures focus on the issues of technology selection and
assessment. Characteristics of technology play a significant role in international
136 technology transfer. These features may include availability, maturity, adaptability,
gaps, etc. From the perspective of developing countries, emerging technology can
provide a window of opportunity for technology leapfrogging. Much has been written
in the literatures about the need to transfer appropriate technology for developing
countries. Therefore, technology adaptability in a foreign market is an important factor
for the success of international technology transfer. Technology gaps describe the
distance between domestic technological competency level and international
state-of-the-arts technologies. Literatures studying institutions and technological
development found technology gap may either enhance or deter the efficiency of
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project.
Literatures have identified the importance of governments management of resources
and related constraints and impetus. Base on a case study, Chinese scholars gave
suggestions on technology transfer activities related to university, which include:
collaboration with enterprises, technology transfer through collaboration with local
governments, establishment of high technology companies, and building-up a S&T
cooperation network of Chinese universities (Liu and Jiang, 2001). However, the authors
did not distinguish the notable difference between SOEs and SMEs. The paper also did
not consider the increasing influence of foreign companies, which have been argued in
many other literatures to have built extensive collaborations with local universities in
R&D. It is necessary to understand the innovation behaviors at the enterprise level or
industrial level, and to see what elements contribute to those innovative actions.
The purpose is to make sure that policy measures can produce practical value to the
industry.
By proposing the model of TDAID (Figure 2), Wang and Zhou (1999) suggests the
following: providing preferential treatment for large multinational enterprises (MNEs),
revising regulation on foreign investment to the countrys central and western regions,
selling of state-owned small enterprise to foreign investors, diversifying FDI to
promote competition among themselves, banning at all levels from collecting random
fees from foreign invested firms, and promoting outward FDI to attract up-to-date
technology. The authors further suggested radical measures to restructure the Chinese
R&D system, including: creating R&D centers within large enterprises, combining
research institutions with R&D units of enterprises and universities through structural
adjustment, transforming independent research institute into enterprises or scientific
research units for public service, creating incentive systems for innovation activities,
and training of engineers and managers. However, these suggestions were given at the
end of the paper, without any guarantee that they are feasible in reality. Some of these
measures may sound plausible, but the authors did not consider the various
constraints and interests among the stakeholders. For example, the authors argued
that if FDI is used to import technology China can acquire much of the technology
available in the world. This has been proved impossible in recent years because the
government tried to trade domestic market access for foreign technologies
JSTPC but not successful. This does not even count the fact that strict technology export
2,2 controls have been imposed to China by Western developed countries.
not only in different stages of the transfer process but also at different levels, which may
include the technology level, the enterprise level and the national level. The legacy of a
centralized system, a poor infrastructure, a distinct culture and foreigners lack of access
to adequate information on the Chinese technology receiving enterprises and their
environment complicate the situation (Farhang, 1997). The construction of a sound and
transparent regulatory framework for investment and a better enforcement of Chinese
regulations on intellectual property rights are prime examples to solve the problems
(Bruun and Bennett, 2002).
Chinas entry into the WTO in 2001 marked a new era in technology development.
However, literature found that the WTO agreements do not encompass conditions
imposed on foreign investors (such as requirements to transfer technology and form JVs
with local partners in some sectors) or incentives and subsidies for investors (Bruun and
Bennett, 2002). It is likely that China and other emerging countries will continue to
impose restrictive conditions or regulations on foreign investors. Multinationals may
have to comply with such conditions imposed if they fear loss of market shares to other
competitors who are willing to comply with the conditions. Meanwhile, MNCs may tend
to inhibit technology spillovers even at the lower tiers of the supply hierarchy within the
emerging economy context (Hatani, 2009). Therefore, there is a necessity at the national
level to give better transparency in policy making, especially regulative measures for
foreign companies.
balance between local and global, internal and external innovation (Tidd, 2007). Tylecote
(2006) argued that dual innovation systems co-exist in transitional China. One is an
upper level innovation system which mimics its counterpart in developed economies and
focuses on the development of advanced technology. The other is a lower level
innovation system which has its roots in locally embedded industries. From a macro
perspective, the upper level focus more on research and innovation, while the lower level
focus on exploitation, technology transfer, and dissemination. Li (2009) suggests that
during the catch-up or transition process, overall economic and innovation performance
depends largely on how China coordinates the two system levels. There are relatively
few literatures linking innovation systems at both macro and micro level to how an
improvement in them could result in raising national innovation capacity (Carlsson,
2006). As the innovation systems are becoming more globalized, it is necessary to
identify the influencing factors and construct a framework to get a proper balance.
Chinas NIS is still fast evolving and has caused much complexity in administrative
management. Although the central government has taken initiatives to facilitate
interactions among various innovation players through many national technology
programs, policy actions concerning innovation system reforms which aimed at
improving innovation performance and efficiency are still very limited. There are
many coordination obstacles among the innovation systems at different administrative
regions because local governments tend to consider more of their own interests.
As identified by literatures, the bureaucratic nature of decision making due to
involvement of government agencies has deterred the efficiency of technological
cooperation among innovators. Technology development and strategic planning
directed by local governments should follow the main theme of national technology
planning. This is to minimize any conflicts between national and regional technology
goals. In China, either developed regions or less developed regions claim that high-tech
industries are the pillars for economic development. Many local governments therefore
request the central governments to increase investments on local innovation resources.
However, much of these inputs are not successful because of unbalanced economic
development and insufficient industrial support. For example, 54 high-tech zones or
industrial parks have been established one after another in various cities across China,
but only very few are successful, and the general innovation performance is
unsatisfactory.
JSTPC 7.3 Focusing on an enterprise-centered NIS
2,2 China is shifting from a central-planned system to a socialist market economy, and
its NIS is undergoing a transitional process. However, the legacy of the central-planned
economy has left China a relatively stronger SOE system but a weaker private sector.
According to statistical report in 2010, the revenue of top 500 private Chinese
companies combined cannot win over that of the top two state-owned companies.
140 The business sector should be the mainstay of technological innovation, but Chinese
enterprises are far from capable to become the center of the innovation systems.
Literature reveals that most of Chinese firms prefer to enlarge their productivity and
mass production by importing equipment and apparatus, with limited intention to
develop innovative products. Due to intense market competition, they acquire and
transfer technologies which focus on short-term revenue and financial performance
(Guan et al., 2006). In general, the ratio of R&D investments to sales revenue of the
Chinese enterprises is much lower than that of multinational companies. The direct
result is fewer patents applications and less IPR ownership. Many domestic companies
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rely heavily on technology import and transfer from foreign countries. Moreover, these
enterprises lack innovation capability and accumulated technological know how to
absorb imported technology. Consequently, some domestic companies are deeply
trapped in a technology transfer cycle. Government intervention and regulatory
changes should serve to promote business R&D and innovation. Technology policies
should balance interests of various actors, and offer incentives to encourage innovation
at the enterprise level. Government should also focus on improving innovation
environment for the enterprises, so that transferred technologies from foreign
innovation sources can contribute to sustainable innovation.
channel for catching up and leapfrogging, technology transfer from developed countries
should be strengthened at various levels. Due to the fact that Chinas NIS is still rapidly
evolving from a centrally-planned system to a market-orientated system, technology
policies should be revised at a dynamic manner to keep promoting international
technology transfer and collaborations between domestic and foreign stakeholders. It
would be crucial for government level to emphasize the nurturing of indigenous
innovation capacities so as to sustain the countrys technological advancement. The
review of recent literatures also highlighted some important hints for future research in
the area of technology transfer in China. New theories and models should be developed
and tested to reflect changes in environmental settings. Research focus of technology
transfer to China may include the challenges brought by globalization of industries and
internationalization of the emerging Chinese multinationals.
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