Globalization and technological developments

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Globalization of economies combined with social and political reforms led to the enhancement of technology transfer and for speedy economic development importing technology from already flourishing countries was a key.(12) Technology transfer is defined as the attainment , development and consumption of knowledge by a country besides the one where it was  initiated and is considered as an important strategy variable for a country's development plan (25)inationalsherebycreating jobs and wealth for consumers in global markets which results in global economic growth and help developing nations become more stable and reduce cross border conflict by stimulating commerce and development. Established firms expand their operations for their own self interest through which they not only  gain greater efficiencies but also discover new sources of innovation.(Serving the worlds poor B).In this essay we focus on how high technology MNC's  establish themselves from domestic to international markets and the role of FDI in this process. Their contribution to the host country, advantages and disadvantages will be discussed in the latter half with relevant examples from countries like India and China which have embraced maximum benefit from technology transfer by becoming economic superpowers in a short time followed by countries such as Taiwan, Thailand, Singapore, Korea, Vietnam and many more.(12)

Most countries in recent years welcome foreign direct investment (FDI) in comparison to the 1960s and 1970s when developing countries would generally restrict or keep a check on multinational corporation (MNC) activities( 2). This transformation of attitude in favor of FDI is due to a series of technological developments towards a new paradigm of production adopted by emerging economies and due to a change towards more open and market responsive policies. The increasing globalization of economic activity and liberalization of markets is highly acknowledged by governments in countries such as India, Mexico and Vietnam. An understanding of why transnational corporations( TNCs) undertake FDI is important. The policies of the host country, location, legal issues, resources and competitive advantage affect the level and composition of that investment. With the changing demands of consumers, technological advancements and economic developments, the interest of foreign investing firms keep changing. (BOOK) Technology transfer helps reduce the gap that distinguishes developed countries from developing. The high involvement of research and development(R&D)  in developed countries is transferred through the primary channel of FDI . This facilitates the introduction of new production processes and techniques to the new economy and thus increases labor productivity . This knowledge helps improve effectiveness as new ideas and processes are developed which seem to have lasting effects in the long run for the receiving country.Firms consider their technological development as a huge asset to operate in countries to balance their logistical weakness and to compete successfully in local markets of which profit maximization is the sole aim.   Technology licensing and joint ventures are other channels for technology transfer. Also trade in goods and services and labour movement between countries are other indirect channels.FDI benefits both companies in host country as well as consumers who now have access to new high quality products that were unavailable earlier and strengthen local industry. FDI increases employment opportunities and government income.(11) Companies benefit through what is known as the 'DEMONSTRATION EFFECT' in which a local firms adopts technology from overseas after observing its success and trained people from these firms provide added benefit when they change jobs or start new ventures. Also firms that either supply the MNCs with raw material or buy their product  engage in technology transfer. Sustained economic growth of a country is not only dependent on the availability of resources but the application of those to productive purposes. By investing in local education and infrastructural advancement and by providing MNCs free unrestricted access to their markets and openness in competition of trade, developing countries can maximize benefits from this transfer. India's software industry can be a relevant example of this where the government did not restrict trade in this sector .( Kamal Saggi 10)

Technology transfer from western nations is not always successful. Often MNCs do not transfer the right technology to the less developed countries ( LDCs). Various external and internal factors like legal agreements and flaws in management reduce the willingness of the receiving countries to produce the same expertise themselves. By evaluating their own strengths and weaknesses they may influence their success by adopting the appropriate technology and the capability of maintaining an effective production system. Also manager's ability to innovate and sensitivity to their environment is an important factor in the successful implementation of new technology. Other social , political and cultural factors of the country where technology is being transferred is very essential and MNCs must adopt to their behavioral strategies. The first factor for successful technology transfer is to prioritize the needs and to formulate objectives to be realistic and achievable. The next is to identify the capabilities in terms of capital, land, resources and others which will improve certain industries and reduce costs  of transferring certain types of technology. Proper education and training in areas such as productivity improvement and industrial exposure can be achieved through appropriate education system in LDCs. Innovation and R&D are key factors to make transition and advancement in high technology. It further leads to a long term growth in economy , worldwide trade and competition. Training of local manpower is considered the knowledge base for FDI. A relevant example can be taken from China and Latin America's failure to transfer computer technology as a result of less trained professionals in the IT field. Multinationals use their skilled staff to help LDCs to further reduce their future risks. In all the structural interdependence of education, R&D and training are required by any developing country to solve the problem of successful implementation of technology transfer and participation of local and MNCs experts to progress. The management process is another factor for technology to be effectively relocated. Managers need to be committed and familiar with the dynamics of organizations to implement an orderly change. An efficient management will lead to an appropriate utilization of natural resources and their ability to manage change, understand changing needs and to forecast future is highly useful to any host country. Analysis of public policies in LDCs is essential before multinationals engage in foreign investment. Restrictions in joint ventures and foreign exchange have hindered FDI in the past for countries like Yugoslavia. Therefore governments should encourage enterprises to negotiate collaborations and promote more  libaral friendly policies.(25) There needs to be absorptive capacity and capability to adapt new technology, both of which are attributed to human capital . For example China's policies at a certain point were more in favour of joint ventures than FDI in order to protect local firms from foreign competition. Therefore the host countries may be lowering the quality of technology transferred by forcing MNCs to license their technologies. Also important is for the host country to improve the investment climate by having a stable, transparent and an effective infrastructure ad to further reduce entry barriers to attract skilled workers form developed nations. Japan is another eminent example of a country where rapid growth and industrialisation was due to a system that adopted innovation and promoted dispersion of knowledge and encouraged  foreign firms to license technologies to Japanese firms.(17)

The degree to which both the unaffiliated firm and the host benefit can never be certain. While foreign investors transfer technologies to their subsidiaries or suppliers to increase productivity and have diverse motives, they also enter emerging markets to exploit new capabilities. Outcomes of FDI are not always beneficial, at time incumbents are unable to absorb changes and productivity may stagnate. In order to reduce risks and spillovers developing countries should welcome investments only  in certain sectors and act strategically keeping in mind their own benefits.(16) To summarise it can be stated that well managed multinationals companies offer unique opportunities for the host nation's development and in turn incorporate their own growth plans. By constructing new policies in their favour by eliminating cartels and monopoly arrangements, by introducing fair trade practises, offering incentives for training and by using available resources selectively along with progressive corporate procedures can stimulate a countries overall development and further lead the world towards prosperity.(13)