China still has very little capability for technological development and thus technology transfer and the implementation of packaged technology from foreign firms probably provides the best initial basis for upgrading its technology base. Most local firms understand that they must upgrade and transform their technologies and are willing to co-operate properly with foreign firms. Heightened market competition in China drives most international strategic alliances to use technology effectively, and this requires that they deal with each other in fairness, honesty and good faith if they are to meet this market competition. The proprietary technology, knowledge and capabilities possessed by a strategic alliance are an important type of firm-specialized asset that must be supported
internally by the partner firms. When a strategic alliance’s internally developed proprietary assets become valuable and difficult to replicate, it is more likely to improve its performance in the marketplace. The policy of deregulation through foreign investment is perceived as a significant incentive by the government, and most local firms encourage inward technology transfer from foreign firms to China with great enthusiasm.
The government may support certain local firms as ‘promising’ cases for technology importation and provide them with R&D grants and tech- nology support. The mapping of a foreign firm’s technology invest- ments onto the needs of Chinese businesses requires significant attention to each of the following four critical elements that are mainly associ- ated with process of technology transfer in a strategic alliance.
Technology resources and knowledge endorsement may bolster a local firm’s technological legitimacy and competitiveness. To create more value from the available foreign technology, local firms need to mobilize complementary external resources to enable them to adapt the foreign partners’ resources, knowledge and capabilities for their overall business development. Foreign firms in China transfer ‘hard technologies’ in patentable forms to a strategic alliance, but they also create positive externalities by transferring ‘soft’ technologies such as managerial skills.
This stimulates competition within particular and adjacent industrial sectors. The Chinese government’s strategies for international technology transfer involve the creation of greater opportunities to co-operate with foreign technology exporters. Foreign firms treat international technology transfer as an attractive way to overcome the restrictions of a host coun- try’s market. Lack of in-house technology development capabilities in domestic industries explains the high percentage of technology hardware in Chinese imports.
Technology transfer involves co-operative and bilateral relationships in which firms give or take resources and maintain long-term ties through the formation of a strategic alliance. A strategic alliance’s tech- nology transfer is expected to prompt local competitors to be more efficient and acquire the equivalent technology, imitate production processes and assimilate the managerial practices necessary to compete.
The technology transfer evident in most strategic alliances often requires them to hire good senior managers and staff from local Chinese firms, and the terms and conditions offered are often good enough to attract the best. The hybrid forms of corporate governance in an international strategic alliance enable continual rapid growth as their technological activities are unbundled and globally dispersed through- out the firm. The developments occurring with strategic alliances mean
that technology transfer can become a two-way street between the developed countries’ firms and the emerging countries’ firms. Direct assessments of comparative technological advancement are generally possible for hard technology transfers. Soft technology, taken essen- tially as management know-how, is measured through a series of com- parative items that include managerial skill requirements and the overall efficiency and effectiveness of technological advance.
Decisions about the type and level of the technology transferred to a strategic alliance will be made by a partner firm on the basis that the power accruing from the technology depends on its availability. If a local partner firm is highly dependent upon another partner’s technology within a strategic alliance, then the foreign partner firm will have power over the local partner firm. Resource dependency theory proposes that technological factors are critical in determining the dependence of one partner of a strategic alliance upon another and therefore their relative power. The more important the technology controlled by one partner, the more the other partner will be dependent upon it and the greater will be the power of the transferring firm over other partners.
The fewer alternative sources there are for technology controlled by a given partner, the more other partner firms will be dependent upon it for that resource and the greater will be the power of the technology- endowed partner. The greater the degree of discretion that a partner has in the deployment of the technology, the greater will be others’ dependence on it and the greater will be its power.
International technology transfer can be increased by the use of tech- nology development projects that involve suppliers or customers in active involvement in technological co-operation. International technology transfer via horizontal or vertical linkages is assessed by using a range of variables including associability in terms of those memberships of trade associations, state grants and human capital developments that are perceived to significantly impact on business competition in China.
Strategic alliances in China are increasingly extending the application of their technology through business co-operation to maximize the use of those technologies. When a firm’s technology is transferred inter- nationally, technology application extension is seen increasingly as a means whereby a strategic alliance or joint technology project can globalize production operations as they allow investing firms to take advantage of market-related factors.
The quality of technology transfer is measured by the achievement of certain significant benefits from the point of view of a host country.
International technology transfer is expected to influence local Chinese
firms’ performance not only because a technology transfer can improve local firms’ technology strength, but also because the transferred tech- nology may lead to successful commercialization in the local market- place. Teece (1986) suggests that the level of technology, the existence of a dominant design in an industry and the presence of complementary assets are critical conditions for successful commercialization of techno- logy. His studies suggest that a strategic alliance’s capability to integrate technology into the local production and commercialization systems is critical for the commercial success of a foreign market entry. The quality of technology transfer of this type of capability is especially important when a foreign firm enters an emerging economic region in which established distribution networks, technical specifications and designs rarely exist.