The choice of technology transfer method should be based on the future strategy of collaboration with technology analysis, the company's supplier, investment resources, and the company's technical capabilities.
When choosing the transfer method, it is necessary to understand that the more complex the technology is, the greater the relationship between buyer and supplier should be. As mentioned earlier, technology transfer does not end with device delivery. By themselves, devices do not generate new capabilities. Real changes in the work of the company can be introduced by the transfer of knowledge, skills and intellectual property rights.
Let us try to consider the main technology transfer methods, their strengths and weaknesses:
Licensing
Licensing is an agreement under which the owner of a patent, trademark, or other intellectual property during a certain period of time permits another company in a certain area to use technology developed by him (her).
There are two main types of licenses: 1) one that gives a special right to use the technology; 2) Another with non-exclusive right, meaning that the patent owner can transfer the right to use the technology to other companies in the same area.
Additionally, the licensing agreement may include a subselection clause that allows the licensee to give someone else the right to use the technology.
The advantage of purchasing licenses / patents is that it costs less than other technology transfer methods. However, the purchase of licenses requires adequate knowledge, experience, relevant expertise and manufacturing base for the implementation of further in-house technology.
Support Agreement
According to the agreement, the technology owner participates in technology implementation, which provides at each stage of transfer technical support, as well as training personnel.
The technology developer's participation in the technology transfer process ensures close cooperation between the two parties that favors the complete transfer of all technology-related knowledge and skills. In this way, to improve the transfer contract, the support contract can be a part of the licensing agreement.
Joint Venture
A joint venture is an agreement between two or more companies to execute a particular business. Joint venture refers to mutual wealth, management, risk, profit sharing, co-production, services and marketing.
The benefits from a joint venture in terms of technology transfer are the following: long-term collaboration between the parties, the motivation of all participants in a successful transfer, lower costs than if companies are operating separately.
The disadvantages of a joint venture are often associated with the different attitudes and goals of the two partners, the inability to be independent in management. In addition, companies are not always able to purposefully determine the value of capital contributed by each and, therefore, the subsequent profit distribution. (The foreign company provides innovative technology and management capability, while the local company is familiar with the market and regulation. In the end it is difficult to determine the value of each asset).
Franchising
Franchising is an agreement where one company gives the right to use its trademark and business model to another. The buyer of the franchise begins manufacturing and selling goods according to the seller's specification. Generally, the owner of the trademark also shares his or her experience in operating and managing the franchised product / technology.
The main advantage of franchising is the fact that the company gets an already created brand. With a franchised product, the company gains a proven business model, knowledge in management and marketing.
The disadvantage is the company's dependence on the technology owner. In most cases, the company has to purchase raw materials, equipment and other products from specific vendors. It should follow the internal rules and procedures of the technology owner. Generally, the company cannot sell the franchise along with bringing the product to other markets. In addition, the decline in the reputation of the franchise owner may also affect the company that has purchased its franchise.
Strategic Alliance
A strategic alliance agreement is usually concluded between two or more large companies so that each of their new skills can be used to develop new innovative technologies. A strategic alliance can be in the form of joint laboratories, research programs, production and promotion of a new product.
Generally mutual efforts of different partners give better results than independent development of a new technology. During joint operations, each company can gain the necessary experience in new areas and in various forms of management.
The major weakness of strategic alliances is the complexity in managing companies with different cultures. There will be at least two teams of managers with different perspectives. Companies may have different goals and strategies in the development of new technology.
Turnkey Agreement
In the case of a turnkey agreement, the general contractor is responsible for all processes related to technology transfer, such as technology design, financing, equipment supply, construction and commissioning.
The advantages of a turnkey agreement are that the company concludes a contract with only one supplier who takes full responsibility for the execution of the project; Excluding a force table, the project will have a fixed value; The supplier guarantees performance and technology efficiency.
Disadvantages can be the following: The company should know in advance about all the features and output parameters that the technology should have after its launch; A complex or large-scale technology requires in-depth knowledge in a related field (in this case an independent specialist organization can be employed to determine the characteristics and output characteristics of the technology); The transfer price under a turnkey agreement is typically much higher than any other method (the higher the risk the supplier takes, the higher the price); During transfer implementation, a company assumes complete control over the progress and quality of each phase of the transfer; The financial problems of the contractor can lead to suspension of the project (it is difficult for the company to determine the financial capacity of the supplier and the ability to self-finance at all stages of the transfer).
One of the ways to mitigate the risks of a turnkey agreement is to involve the supplier in the capital of the new entity. This will motivate the supplier to ensure the quality of the new technology, plus it will bring the supplier's experience in further operational processes.
Equipment Acquisition
Equipment acquisition is a simple and, therefore, one of the most common methods of technology transfer. The main disadvantage of this method is the fact that the company is limited to the technical knowledge involved in the equipment and does not find any new competition in management and production. Furthermore, the equipment available in the market does not give the buyer unique privileges, as this equipment can be purchased by another competitor.
Management Contract
Technology can be transferred through a competent specialist, who may be "tempted" from another company.
This method of technology transfer involves minimum cost. But, in general, it can be effective only for small projects with relatively simple technology. Furthermore, the technology should not be patented.
Acquisition of Foreign Company
A company may acquire a foreign startup that is developing a new technology. As a result, the company will not only acquire the technology, but will also have a team capable of developing it in the future. In addition, the acquisition of a foreign firm automatically places the company in the new international market.
Among the main risks of buying an existing firm is the possible resignation of key employees after the acquisition. In addition, the founders of successful startups will agree to sell it at a significantly higher price than the market. This increases the risk of future profitability.
Foreign Direct Investment
Foreign direct investment is one of the main methods of technology transfer at the state level. Generally, a foreign company invests in developing countries to create a new market, remove export barriers and gain access to cheap labor.
In this case, a developing country receives all the benefits of technology transfer, particularly the development of its own research environment. In addition, it is a way of creating new jobs and raising taxes.
However, to attract foreign investors, the developing country's government generally has to make some concessions in its policy. As we can see in practice, without these concessions large international corporations are not motivated for long-term investment in developing countries.
Buy-back Contract
Buy-back contracts are a form of agreement between developing countries and large foreign companies. Under this agreement, a foreign company supplies industrial equipment in exchange for profits derived from the sale of raw materials or goods produced on this equipment. Such technology transfer is often used in the construction of new plants in developing countries. In that case the state-made enterprise becomes a shareholder.
There is a possibility for a developing country to get high-tech equipment without direct investment in it. In addition, the foreign company is responsible for the performance of supply technologies.
The potential disadvantages of buy-back contracts are the motivation of the foreign company to start production at the least cost, which will certainly affect the quality of execution. Typically, a new technology under a buy-back agreement costs a lot in terms of direct investment.
Original Equipment Manufacturer (OEM)
OEMs can be thought of as subcontracting, where a local firm starts manufacturing according to the specifications of a foreign company.
A foreign company transfers a part of its technologies and equipment. It restructures training and management. Later, the foreign company sells goods produced through its own channels and under its own trademark.
The OEM agreement enables local companies to absorb new technologies and reorganize their production. With new equipment and skills, these firms can produce new goods for the domestic market under their own brand.
The main drawback of this agreement is the obligation to supply the products of the foreign company at a fixed price which is much lower than the market in general.
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