The role of foreign direct investment on international technology transfer
By Adina Moloman
Transnational companies can be an important source of introduction of new technologies to local firms. How can this be accomplished? First of all multinational companies for many different reasons (costs, logistics, capabilities, etc) considers to transfer their production base to different countries, preferably developing economies, by establishing subsidiaries companies. For example in Mexico there are known as Mexican Maquiladoras, but can operate in different countries under different names with different rules of operation. The first step of transfer of technology is from the headquarter of a transnational company to their subsidiaries (it is known as a intrafirm technology flow). Second, it’s not only happening the transfer of the equipment with a high technological content used in the production process but also is transfer the model of the administrative organization and operation.
In this exchange of intermediate goods and processes needed for production of a specific good or component, a few of the multinational companies might establish R&D departments where are trained a large amount of technical and professional workers (engineers, production managers, etc). Engineers previously trained in a multinational company can work for a local firm or better they are starting their own business, so this can be the process to generate technological spillovers for local firms. A good number of these ex employees can convert into a local supplier for the transnational companies, where the supplier is pushed to reach higher level of organization and processes to attend the high quality standards demanded by the transnational. So the technology is diffused vertically to their suppliers.
Local firms also are seeking access to technologies through imitation (a good example in China) or technology licensing, or trade in goods, reverse engineering, but it can be possible through many other channels. For instance local firms from countries like Korea or Taiwan could absorb technological know how through trade. Their used trade in goods techniques by studying the design of imported goods (with a higher technological content) and invest in R&D departments and applying the reverse engineering technique to reach a better local product.
Multinational companies can have a positive impact on the productivity and competitiveness of local firms. All this can be translated into economic growth by the host country (endogenous growth), only when the host countries are establishing trade and investment policies that can make the difference on technology transfer, by improving the local investment and climate by establishing fiscal and financial incentives, etc.
