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by Rene T. Domingo (email comments to

Japanese direct investment in developing countries especially in Asia brings in capital inflows, employment, and technology to the region. As Japan invest in and divest from the region, the first two come and go with the investment, while technology continues to have a lasting impact on the host country development long after the investment is gone.

While thre receiving nations have sophisticated infrastructures, policies, and institutions to monitor and control foreign capital inflow and outflow and the resulting employment or unemployment levels, no similar concern have been given to the inflow of foreign technology, its nurture, and indigenization. The only existing controls on technology transfer in the region are of the quantitative and financial type: number and length of stay foreign experts, tariffs on equipment, repatriation of royalty payments, tax incentives and disincentives. Practically none exists on the kind, appropriateness, adaptability, and development impact of incoming foreign technology. The technology transfer bodies of several develping Asian economies only have limited police role of screening out restrictive clauses from foreign technology licensing agreements. Most ASEAN governments grant incentives, including citizenship or permanent resident status, to foreign investors who bring with them a specified amount of foreign capital and generate a certain level of local employment, with little or no regard to the technology they bring in. On the other hand, the South Korea and Taiwan, invite and screen foreign investors mainly on the technology they would introduce in to the country.

Japan, in her early days in industrialization, selectively encouraged foreign investment on the basis of its technological inputs, rather than capital inflows or employment. The only condition was that the foreigners be allowed to be taken over by the local businessmen as soon as the latter had mastered their technology. If the needed technology could be obtained by other means such as inviting foreign experts for a short term but at high cost , or sending some Japanese abroad to study, or licensing agreements- foreign investment, which reduced Japan's economic independence, was avoided as much as possible.

Japan's technological superiority started with copying of foreign technology, reverse engineering, and marketing the cloned product to compete with the West. Similarly, the Koreans and Taiwanese are copying Japanese products and eating into Japan's own market's in the process. Innovation is not the most important step in technology transfer. Developing countries deplore the fact that Japanese companies are not doing R & D or developing new products in their overseas subsidiaries in the region. Their small domestic markets can not justify such expensive activities. Many developing countries mistakenly equate innovation with technology and industrialization. As shown by Japan, Korea, and other newly industriliazed nations, industrialization does not start with innovation. Export markets are not initially conquered with new products and technology. Develping countries in Asia and other regions are not exempt from this natural course in industrial development.

The main question in selecting the type of technology to be transferred is whether it is consistent with the industrial development needs of the host country at the time of the transfer. However, most Japanese direct foreign investment decisions are made on the basis of the global strategy of the Japanese multinationals and trading companies. Technology transfer considerations, much less its appropriateness to the host country development, have the lowest priority in their investment decisions. There are reported instances of overly sophisticated and automated machines which companies in the receiving nations cannot operate, old and inefficient labor-intensive equipment , or hardware that will not endure the region's climate and humidity. This problem can be minimized if developing countries would make technology a major criterion in screening potential Japanese investors to the region.

Another important issue is whether developing countries needs "hardware" technology more than "software" technology considering the region's current stage of development. The former, often preferred in the form of the latest, fastest, and most efficient equipment and systems, does not always guarantee improved or more profitable operations. Overemphasis on hardware has led to losses in many local firms due to underutilization of capacities or expensive downtime. Without paying any royalty, local companies stand to gain more by adopting the Japanese "software' or "management" technologies - techniques in operations management, human resource management, quality control, subcontracting, machine maintenance, and other useful productivity techniques. Developing countries have a major deficiency and weakness in quality control which limit their export capabilities. This technology could be freely acquired from Japan. Even non-Japanese companies in the region which have adopted the Japanese Total Quality technology and some features of Just-in-time production control have reported gains in profits and productivity .

Japan does not have adequate skills for technology transfer. It is a necessary art receiving nations must develop. The phrase "technology transfer" is inaccurate for it implies that the technology supplier has the initiative to transfer the technology while the recipient or the party which needs it just waits for the transfer to take place. The donor of technology is normally an indifferent party in the technology transfer process since it stands to gain minimally if not at all from it, unless technology itself is the main merchandise it is selling. "Technology acquisition", a more appropriate and useful term for developing countries to employ, connotes a more active role on the part of the recipient. It also means that the technology supplier, Japan, may naturally stay passive while the receiving countries determines the technology it needs, negotiates with the supplier, and initiates the "acquisition" process. If the roles are reserved, the supplier will often provide the wrong technology and dictate the terms of the transfer process unilaterally.

Governments of developing countries should set targets for technologies to be acquired and developed and make these national priorities of the same importance as GNP, balance of payments, balance of trade, and other economic indicators.


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