JMay 2005        Issue: 35

Journal of Conceptual Modeling
www.inconcept.com/jcm

Modeling the Transfer of Technology to Taiwan from China
Chun-Chu Liu
Department of International Business, Chang Jung Christian University, Taiwan, R.O.C.

Abstract

For decreasing their cost, the Taiwan's traditional industries' companies move their production base to the areas the income is lower. In the meantime, the China's technological research and development departments lack the expenditure to maintain their operation. This study wants to know how let the Taiwan's companies cooperate with the China's technological research and development departments. This study found the Taiwan’s companies cooperate with the China's research and development departments because the technologies they need are too advanced or the other country’s' companies they own this technology ask higher prices. The objects the Taiwan's companies cooperate with are including not only the companies but also the research and development departments. The model they use are including buying in the market, alliance and cooperating between the companies. From these foundlings of this study, we found five propositions: 1. The ability to absorb technical knowledge influences the method used to build such knowledge. 2. The industry life cycle affects the type of technical knowledge transfer. 3. Those whose technical knowledge has relatively little external exposure will bring in large numbers of specialized personnel from Mainland China; in the case where the technical knowledge has relatively high external exposure, the manufacturers will tend to not bring in specialized personnel from Mainland China. 4. The manufacturer’s ability to absorb technology affects the manufacturer’s ability to bring in specialized personnel from Mainland China to assist the manufacturer in receiving technical knowledge. 5. Manufacturers that prepare tenders for the transfer of technology that have relatively high external exposure will resort to purchases in the market and strategic alliances, while manufacturers that prepare tenders for the transfer of technology that have relatively low external exposure will adopt the external assistance/ internal R&D approach.

Key words: Technology Transfer Model, Taiwan, China
JEL classification: M10
Modeling the Transfer of Technology to Taiwan from China

1. Introduction

      After Communist China and the former Soviet Union broke up with each other, the former Soviet Union not only stopped providing the Communist Chinese with assistance, but it also suddenly cut off China’s main source of technology. In view of its defense requirements, Communist China was thus forced to rely on its own ability to develop various kinds of technology. However, as reforms were slowly introduced, the focus of the research activities of the research units at various levels of government and also among domestic enterprises shifted from being primarily defense-oriented to that where equal consideration was given to both defense and the people’s livelihood. Furthermore, in certain specific areas, Communist China’s technology was already as good as that of the advanced countries, while many people were trained as basic-level technicians and R&D personnel. However, in later years as the economic reforms and market-opening policies were implemented, not only did many publicly-run institutions go bankrupt, but also the national budget was used up. In an attempt to economize on national expenditure and enable public enterprises to survive, the vast majority of research units were forced to accept market competition, and hence they maintained a relatively positive attitude towards technological cooperation and technology transfer.

    In the past, Taiwanese manufacturers were able to obtain the technical knowledge that they needed from the industrialized nations, including European countries, the U.S. and Japan. However, as Taiwan has become stronger in terms of its production, manufacturing and R&D activities, it has gradually placed greater emphasis on value added within the overall value cycle. Taiwanese manufacturers are now finding it increasingly difficult to obtain the technical knowledge that they need from the advanced countries, as was the case in the past. Furthermore, because Taiwan and Mainland China share a similar language and culture, and because industries on the two sides of the Taiwan Strait are characterized by a high degree of complementarity, for this reason, the transfer of technology from Mainland China to Taiwan is the main focus of our research. Based on the research questions mentioned above, our specific research objectives are as follows:

1.      To understand the types of technical knowledge needed by Taiwanese manufacturers that are currently being transferred from Mainland China to Taiwan, the reasons why the technical knowledge is being transferred, and the actual procedures being followed for bringing in the technology.2.      To analyze the special features of both parties involved in the importation of technical knowledge, the special characteristics of the technical knowledge, and the effects of new product development on the process by which the manufacturers bring in the technology.

2. Literature Review

2.1 The Definition of Technical Knowledge Transfer

   Technical knowledge is not the same, generally speaking, as a product-type good, and it is not produced to be sold. The reason why technology transfer takes place is because of the needs that both sides to the technology transfer have. Because significant differences exist in terms of the level of technology of the technologically-advanced and the technologically-backward, and it is also difficult to rely on one’s own efforts to upgrade one’s own level of technology, those that are technologically-backward will cooperate with technologically-advanced organizations. The market for technology may thus be seen as a market in which monopolistic competition prevails. Both the product and the manufacturing process have their own special characteristics, to the extent that each of them has different patents. For these reasons, because of competition, the technology itself actually becomes a kind of product. It is actually quite difficult to make technology a monopoly. In Table 1 below, we list the various definitions of technology transfer as follows:

                Table 1 The Definition of Technology Transfer

     From Table 1, we can see that scholars frequently define the transfer of technical knowledge as a process. It is a process by which an organization or a country transfers scientific or technological achievements, new uses for technology, designs and the technical knowledge needed for administrative projects or the knowledge that can be used in production, i.e. patents and scientific principles that can be used in a wide variety of ways to transfer the technical knowledge to another entity.

2.2 The Transfer of Technical Knowledge Model

      Studies by researchers on the types of technology transfer are too numerous to mention, and each scholar seeks to explain the different types of technology transfer in his own way. However, since many of these approaches are difficult to classify in a concrete manner, we adopt the approach of Mansfield (1968) who categorizes the sources of technical knowledge into horizontal transfers of technical knowledge within the same industry and vertical transfers whereby research institutions transfer technical knowledge to firms. We also adopt the categorization of Solow (1972) who distinguishes between the uses put to the technology after the recipient manufacturer has received it. There is that where the transfer takes place without any change in the use to which the technology is put, i.e. a single-track transfer, that where a partial adjustment takes place following the transfer, i.e. a new-track transfer, and that where the technology is used for a different purpose, i.e. a cross track transfer.

2.3 Methods of Transferring Technical Knowledge

     When studying the ways in which technical knowledge is transferred, most researchers focus on the recipient of the technical knowledge and the timing of the transfer (Johnson, 1976; Schive, 1987), these being the two main considerations from the point of view of the purchaser. They never seem able to look at it from the angle of learning and knowledge. Helleloid, Duane, Simonin and Bernard (1994) believe that, in order to maintain the organization’s competitiveness, the organization must learn and strengthen its core competitiveness. Learning includes the acquisition, handling and gathering of knowledge, while the acquisition of knowledge involves five different methods:

1. Developing it oneself: Organizations have frequently had the relevant technology to make decisions to develop potential products themselves. It is likely that this is pure research or basic research.
2. External assistance/ Internal R&D: Many companies that have developed products in-house have had assistance from outside. This has enabled such firms to use outside personnel to monitor external resources and knowledge.
3. Purchases in the open market:  Organizations that use this kind of approach to obtain knowledge will also frequently find that other organizations use such an approach to obtain knowledge. For this reason, the organization will focus on keeping up with developments in the outside world.
4. Strategic alliances: When different organizations possess different types of specialized or complementary knowledge, they can learn from and complement each other by means of strategic alliances.
5. Mergers and Acquisitions: When knowledge cannot be obtained anywhere, or else when knowledge is built into other organizations and cannot be separated from them, this approach is likely to be the best approach for acquiring knowledge.

      In this study, our emphasis is on modeling the recipient of technical knowledge’s transfer of knowledge and not on pure technology transfer, and for this reason we adopt the standpoint of Helleloid, Duane, Simonin & Bernard (1994).

2.4 Special Teams for Developing New Products

   The so-called teams are necessary for such teams to have a common objective and a significant ability to coordinate their activities if they are to complete their common tasks. Furthermore, new product development teams are teams that are formed by the organization to receive technical knowledge and develop new products. Clark & Wheelwright (1992) distinguish four kinds of teams based on the relationships between their members:

1. Functional teams: Functional teams are teams that are formed as part of traditionally functioning organizational structures, and agreement among departments is reached within the scope of work or through meetings convened for this purpose.
2. Lightweight teams: The structure of these lightweight teams is similar to that for functional teams except that there is also a coordinator. This coordinator is frequently a relatively low-ranking manager within the organization.
3. Heavyweight teams: The heavyweight team’s special purpose manager can directly lead those personnel assigned to this special task. At the same time he is directly responsible for the success or failure of the project. Such a manager often has much authority within the organization.
4. Autonomous teams: Autonomous teams are formed when personnel with different functions are brought together, and cooperate together and wholeheartedly involve themselves in these special projects.

2.5 Factors Influencing the Transfer of Technical Knowledge

    The factors influencing the transfer of technical knowledge have always been the focus of attention on the part of scholars. However, the factors that influence the transfer of technical knowledge have in general been categorized into three main groups, namely, technological factors, organizational factors and environmental factors.

(1) Technical factors
    Samli (1985), Yu Cheng  (1987) and Wei-Suei Tsai  (1991) are of the opinion that the types of technical knowledge, the extent of the technology’s newness and the products resulting from cooperation are all factors that influence the transfer of technical knowledge. However, based on the cases observed in this study, it is also found that Polanyi’s (1967) reference to the extent to which the technical knowledge has been outwardly exposed is one of the important factors influencing such technical knowledge.

(2) Organizational factors
    As regards the influence that organizational factors have on the technical knowledge transfer model, Wei-Suei Tsai (1991) points out that expenditure on the establishment of a research department and on R&D itself as a share of turnover are two important factors. However, in this studies we also conclude that the recipient of the technical knowledge having patents as well as the ability to absorb technical knowledge are two important organizational factors. That the recipient of the technical knowledge has patents refers to whether or not the recipient of the technical knowledge has received patents and ownership rights related to that technical knowledge. Such patent rights in terms of the right to own technical knowledge are not merely rights to use such technical knowledge. The ability to absorb technical knowledge is based on two main considerations, namely, the extent to which the recipient of the technical knowledge is familiar with that technical knowledge and whether or not the manufacturer in the case being considered has experience of receiving such technical knowledge.

(3) Environmental factors
    Scholars such as Baranson (1970), Samli (1985), the Ministry of Economic Affairs’ Science and Technology Advisory Group (1990), Shen-Lin Chang (1991) and Ming-Chieh Lin  (1992) each refer to certain influential factors that affect the transfer of technical knowledge. However, none of them do so very clearly, so that it is difficult for them to make concrete proposals. Therefore, in this study we use the industry’s life cycle to denote that industry’s environmental conditions. Lowe (1993) is of the opinion that the maturity of an industry can be analyzed from that industry’s life cycle. When the industry is categorized as one which just happens to be in its initial growth period, and a period of maturity has been established in which a division of labor system is in place, the impact of the industry’s environment on the transfer of technology can be understood.

   From the above discussions in the literature, it can be seen how previous scholars viewed the factors influencing the transfer of technology. In this study, we bring together the different scholars’ viewpoints referred to above as well as some of our propositions to serve as our conceptual framework prior to modification, as Figure 1 shows. We also use this conceptual framework to discuss how each case is progressing. The symbol “*” which appears before some of the variables indicates that this has been mentioned by scholars in the past, whereas “．” refers to a proposition put forward in this paper.

3. Methodology

3.1 Research Design

      Because of the complexity of the political and economic relationships between the two sides of the Taiwan Strait, it is not possible to use a survey approach to concretely explain the mutual relationships that exist in terms of the transfer of technical knowledge from one side to the other. Furthermore, Taiwan’s manufacturers have in the past had the technical knowledge that they needed transferred from the so-called technologically advanced countries to Taiwan, as opposed to bringing in technology from developing countries such as Mainland China. For the above reasons, in this study we attempt to conduct research on a case-by-case basis by first looking back at related theories in order to complete a preliminary conceptual framework, and only later discussing in depth the actual experiences of manufacturers, as a means to verifying the accuracy of our inferences and hypotheses, and modifying them where deemed necessary.

3.2 Scope of the Research

    In this study we selected ten private sector firms or research institutions registered with the Ministry of Economic Affairs’ Investment Commission that had already brought technology from Mainland China into Taiwan. After examining each of these cases, we were left with eight cases of firms or research institutions, which we refer to as Case 1, Case 2, Case 3, Case 4, Case 5, Case 6, Case 7 and Case 8.

3.3 Limitations of the Research

1. Because in this study we conducted our research on a case-by-case basis, our research results are by analogy somewhat limited.
2. In this study we used a qualitative approach to interpret the data, and often proceeded with the logical inference approach, and thus there is the problem of subjective judgments being made.
3. When those being interviewed gave their reports, there were some items or concepts that depended on various individuals’ subjective interpretations or predictions, and which sometimes were misrepresented due to absent-mindedness.

4. Research Findings and Propositions and Hypotheses

   When discussing the transfer of technical knowledge by Taiwanese businesses from Mainland China, it is necessary to first of all understand the reason why the technical knowledge is being transferred, and then secondly to determine the method being used to obtain the technical knowledge, as well as the types of technical knowledge transferred and the project teams involved.

4.1 Reasons for the Transfer of Technical Knowledge

    Those factors that affect the manufacturers’ transfer of technology are arranged in Table 2. From Table 2 we can discover that all eight manufacturers want to speed up their product development by receiving technical knowledge, learning and using core technology (Skowronski, 1987; Kuang-tao Hsueh & Tain-jy Chen, 1986). Since there are some manufacturers who, because their products are currently part of their respective industries’ growth stage, or else the domestic manufacturers of these products are unable to make them or else they lack substitute products that can really substitute for them, foreign enterprises may as a result enjoy a monopoly position in regard to such products in Taiwan. Based on these two above-mentioned factors, European manufacturers are unwilling to transfer their technical knowledge to Taiwan. Cases 6, 7, 5 and 8 are somewhat different. Although U.S. and European companies are willing to sell or transfer the technical knowledge that these four manufacturers need, the prices charged are extremely high, and therefore based on cost considerations the manufacturers have turned to Mainland China to transfer the technical knowledge that they need.

    As far as the manufacturers that have been viewed on the basis of cost considerations are concerned, apart from Cases 7, 5 6 and 8 that have been referred to above, the manufacturers represented by Cases 1 and 2 were unable to obtain the technical knowledge that they needed from U.S. and European firms. They thus turned to former Warsaw Pact countries such as several Eastern European countries and also Russia, as well as Mainland China. After comparisons were made, for similar technological levels, it was found that Mainland China could provide relatively inexpensive technical knowledge.

   Although the greatest advantage to be derived from cross-Strait cooperation is the easier communication resulting from both sides sharing similar language and racial characteristics, only two manufacturers have seriously considered cooperation on this basis. This is mainly because Taiwanese manufacturers have for a long time accepted the assistance provided by foreign technology, and have become accustomed to interacting with firms where different languages are spoken. Thus language is not the main consideration when it comes to engaging in technical cooperation with foreign firms.

Table 2 Environmental and Organizational Factors for the Transfer of Technical Knowledge

     From the above we can learn that there are two main reasons why Taiwanese manufacturers transfer technical knowledge from Mainland China, these being as follows:

1.          The knowledge that Taiwanese manufacturers ask to be transferred is relatively advanced, and the goods that they produce are in their growth stage. In addition, Taiwanese manufacturers lack knowledge regarding manufacturing and equipment, with the result that U.S. and European manufacturers monopolize the Taiwan market. Thus, in order to prevent Taiwanese manufacturers from entering the market and thereby increasing the number of competitors, European manufacturers adopt a relatively conservative stance toward the transfer of knowledge.

2.          There were European manufacturers that on a case-by-case basis were willing to provide or transfer relevant machinery and equipment or knowledge to Taiwanese manufacturers, but the fees that they asked Taiwanese manufacturers to pay were so high that none of the manufacturers could afford them.

4.2 Types of technical knowledge transferred

(1) The ten cases are compiled in Table 3 in accordance with Solow’s (1972) classification followed by an explanation.

Table 3 Environmental and Organizational Factors for the Transfer of Technical Knowledge

    From Table 3 it can be seen that, for those cases characterized by single-track transfers, because the transferors of technical knowledge can fully match the desires of the Taiwanese manufacturers or else because the manufacturers are insufficiently capable of conducting research into technology, the transferor of the technical knowledge is asked to provide the whole of the product’s technology or else the production equipment.

   In the case of new-track transfers, after the manufacturers bring in the technical knowledge that is relatively unfamiliar to them, they rely either on their own abilities or those of the transferor of technical knowledge to see that the technical knowledge conforms to the firms’ expectations.

    No examples of cross-track transfers are found in this study. This is probably because it is required that a firm have a deep understanding of what constitutes technical knowledge in at least two industries, which also requires that the firm have a strong research capability. It would appear that none of the manufacturers in our sample are characterized by such ability.

(2) Our ten cases of manufacturers are now compiled in accordance with Mansfield’s (1975) classification in Table 4 below, which is followed by the necessary explanations.

Table 4 Type 2 Transfer of Technical Knowledge

    From Table 4 we can learn that the principal reason why the above vertical transfers of technical knowledge from Mainland China took place was because U.S. and European companies were unwilling to transfer technical knowledge to those particular manufacturers. For this reason, these manufacturers turned their attention to Mainland China in order to find appropriate technical knowledge. Moreover, because research institutions in Mainland China needed to compete in the market based on national policy considerations, they were willing to transfer the results of their research to those who needed them in order to obtain sufficient funding. Because the flow of information in Mainland China is relatively closed, these research institutions are not well informed of the market value of their technical knowledge and the way in which it can be used. From the point of view of the manufacturers in these case studies, the costs associated with buying such research are relatively low, and the manufacturer often has the upper hand.

    As for the horizontal transfers of technical knowledge, although the manufacturers represented by Cases 5, 6 and 7 could have transferred the technical knowledge that they needed from Europe and the U.S., by transferring the technical knowledge from Mainland China these manufacturers were in a position to save a portion of the costs associated with transferring the technical knowledge. Although the local market for the product for which the technical knowledge needed by the manufacturer in Case 1(2) to produce it was still monopolized by a foreign firm, because European and U.S. companies were unwilling to transfer the needed technology, this particular manufacturer turned to Mainland China for help. Because these Mainland Chinese companies on the one hand were faced with a huge domestic market and did not have any plans to export their products, and on the other hand the technical knowledge was very backward when compared with that for the industry as a whole and thus did not have any added value to the Chinese firms, transferring the technical knowledge to the outside world would at least bring these firms some income. Therefore, following the transfer, the needed technical knowledge could be further improved and developed by these Chinese firms.

4.3 Types of Project Teams for Receiving Technical Knowledge and Product Development

    We now list the project teams used in the process of developing new products in accordance with Clark and Wheelwright’s (1992) classification in Table 5, followed by an explanation.

Table 5 Types of Project Teams for New Product Development

     From Table 5 we can see that the main reason why the manufacturers in the above cases use these types of project teams is because they take into consideration their own resources and abilities. The three manufacturers that use lightweight teams are all Taiwanese small and medium-sized enterprises. Because they have limited resources in terms of personnel, each of them has designated a member of their respective organizations as a project manager with responsibility for receiving technical knowledge from Mainland China and for new product development. In their study, Clark and Wheelwright (1992) point out that the leaders of such project teams frequently have little status or wield little influence within their respective organizations. Such people often have many years of experience working in their respective functional departments. For them to now be appointed as a project manager is merely an outcome of their rich experience. The key resource of these lightweight project teams rests in the hands of the managers of the various functional departments, and it is very hard in practice for the project managers to have any effective control over related resources. However, in two of the three cases referred to above, the firm’s highest-ranking officer is also the project team leader, while in the other case it is the firm’s chief advisor who holds this position. Because in these cases the project team leaders are very high up within their respective organizations, they each exercise a significant degree of control over their companies’ resources.

   The companies that use heavyweight project teams have relatively large scales of operations and, compared with other firms, they have an abundance of resources and personnel. In order to ensure that company objectives are achieved, the manufacturers in the cases listed above are prepared to engage a relatively large number of personnel in for the purpose of receiving the technical knowledge. In the case of these manufacturers, in order to receive the technical knowledge transferred and with it develop new products; a firm will typically form a rather large project team that will be made up of the firm’s resource research personnel or managers. Because the prospects for the future development of these project-related firms are especially significant, the project leaders will be particularly powerful within their respective organizations. At the same time, they will also carry a relatively large amount of responsibility. In this respect, our research findings tend to agree with those of Clark and Wheelwright (1992).

   With regard to our failure to find any of the cases here using functional teams or autonomous teams, a probable reason for this is that functional teams tend to be rather loosely structured, and autonomous teams have too much autonomy, and so the manufacturers considered here are all inclined to use lightweight or heavyweight teams.

4.4 Bringing in Specialist Personnel from the Chinese Mainland

   We shall now compile the information regarding whether or not the case examples of manufacturers bring in specialized personnel from Mainland China in Table 6 and follow this with an explanation.

Table 6 Bringing in Specialized Personnel from Mainland China

    From Table 4-6 we discover that those manufacturers that brought in specialized personnel from Mainland China did so because of the technical knowledge they needed. They were all relatively inexperienced, the main reason for this being that these manufacturers had limited opportunities for growth within their respective industries, and thus in order to grow they crossed over into areas with which they were unfamiliar. Or else it may have been that the technical knowledge that these manufacturers needed was not the core technical knowledge that they needed, but rather that, because of government regulations, they needed some extra equipment in the manufacturing process, or that these manufacturers had brought in the designs for the production equipment, but they lacked the relevant testing personnel. Since these manufacturers were insufficiently capable of overcoming the problems they had encountered, they tended to bring in specialized personnel from Mainland China to assist in receiving the technical knowledge.

   Those manufacturers that did not bring in specialized personnel from Mainland China were themselves relatively familiar in terms of bringing in technical knowledge, or else they had a relatively strong ability to apply the technical knowledge. For this reason, they could rely on their past experience or the extent of their familiarity with the technical knowledge in order to receive what they needed, and they did not have to rely on support in transferring technical knowledge.

4.5 Types of Recipients of Technical Knowledge

  In accordance with the classification by Helleloid & Simon (1994), we divide the manufacturers for the above cases in terms of transferring technical knowledge from Mainland China into three groups, as follows:

Table 7 Methods Used to Build Technical Knowledge

    As Table 7 shows, the manufacturers in these cases use three approaches, namely, purchases in the open market, strategic alliances and external assistance combined with internal R&D to construct knowledge. None of the cases we have considered, however, adopt the completely autonomous development approach to build knowledge. The reason for this is that these manufacturers lack the ability to acquire the relevant knowledge themselves and also lack information about Mainland China. They also do not resort to mergers and acquisitions to obtain the knowledge, and since some of them cooperate with state-owned enterprises in Mainland China, they are unable to engage in M&A activity. If they abruptly merge with or acquire Mainland Chinese manufacturers, this may bring them significant levels of risk and uncertainty.

    There are two manufacturers or research institutions and a total of three cases where purchases of technical knowledge are made in the market. These are mostly case examples of manufacturers or research institutions that have a very strong ability to apply the results of basic research, or where the technical knowledge transferred is very clearly a commodity such as machinery and equipment that can be tendered. The requirement for purchases to be made in the market is that the manufacturer or the research institution should have a strong ability to absorb technology, and that the exposure of such technical knowledge should be relatively high. These three cases not only do not have comparable research departments, but their experiences of receiving such kinds of technical knowledge and the extent of the familiarity of these manufacturers and research institutions with such technical knowledge is relatively high. Because the ability of these manufacturers or research institutions to absorb such technical knowledge is relatively high, they can absorb technical knowledge and engage in new product development without needing to place so much reliance on the transferor of technical knowledge. Furthermore, the extent of the codifiability and teachability that these manufacturers want to receive is relatively high, which causes the extent of the outward exposure of this technical knowledge to be relatively high, and also results in these case manufacturers or research institutions wanting all the more to reduce their reliance upon the transfer of technical knowledge. Such developments are beneficial to engaging in open market purchases. In addition, because they have a relatively strong ability to absorb technical knowledge, none of these types of manufacturers or research institutions bring in specialized personnel from Mainland China to help them absorb technical knowledge. In addition, none of these manufacturers purchase patents in relation to the technical knowledge that they receive, the reason for this being that the transferor of technical knowledge can by repeating such transfers of technical knowledge to different companies increase its own income, and thus the manufacturers do not wish to wish to make their technical knowledge patents easily available to other persons.

   From Table 8 it can be discovered that many of the types of technology transferred by manufacturers as a result of market purchases are “new-track” transfers, horizontal transfers and vertical transfers, there being relatively few “single-track” transfers. This is because the manufacturers who purchase their technology in the market are, comparatively speaking, better able to apply it, and so they can improve the technical knowledge or basic research results transferred with which they are not very familiar. The technical knowledge that the vertical and “single-track” transferors provide to the transferor of technical knowledge can satisfy the needs of the recipient of the technical knowledge. The technical knowledge of the vertical and “new-track” transferors and the horizontal and “new-track” transferors that is the technical knowledge provided by the transferors of technical knowledge is unable to satisfy the needs of the recipient of the technical knowledge; it is still necessary for the recipient of the technical knowledge to engage in necessary improvements.

Table 8 Comparison of Purchases of Technical Knowledge in the Market

    There were three manufacturers and a total of four cases that resorted to strategic alliances to build technical knowledge. Most of them were manufacturers that had been in the process of developing a series of different new products, and who lacked the R&D expertise to fabricate the key components of these products. It was for this reason that they sought to enter into technical cooperation agreements by forming strategic alliances. The Taiwanese manufacturers established the objectives and product specifications and put up the funding, while the Mainland Chinese research institutions developed the technical knowledge needed to manufacture the new products both now and in the future in accordance with preset objectives and product specifications. A condition for such strategic alliances is that the manufacturer’s ability to absorb technical knowledge should be of a medium level or higher, while the external exposure of the technical knowledge should be relatively high. These kinds of strategic alliances are not R&D alliances, but rather involve the manufacturer setting R&D objectives, obtaining research results and meeting the R&D expenses. They are strategic alliances that are formed between institutions for their mutual benefit. On the face of it, the manufacturers participate in these strategic alliances by paying money. However, in order for them to be able before engaging in such R&D to establish research objectives for the research institutions in Mainland China, or to examine progress during the production process, or at the same time develop products and test them after they have been developed, the manufacturer needs to have a certain degree of understanding and familiarity with the technical knowledge that is to be developed by the other partner to the alliance. For this reason, the ability to absorb technical knowledge needs to exceed a certain level.

            In addition, in order for the manufacturers to validate the research results and monitor progress within the R&D process, it is necessary for there to be a high degree of codifiability and teachability if they are to be able to clearly lay hold of the progress and results of the Mainland Chinese research institutions. Furthermore, in order to ensure that what these manufacturers stand to gain and the technical knowledge developed with their funds will not fall into the hands of a competitor, the manufacturers will together buy the patent rights for that technical knowledge. As regards bringing specialized personnel from Mainland China to Taiwan, it was only in Case 4(2), in which case the manufacturer was entering a new field and so was not familiar with the technical knowledge, that it was difficult to find people with the needed expertise within a relatively short period of time and the manufacturer only had one experience of receiving technical knowledge, and so specialized personnel were brought in from Mainland China to assist in receiving the technical knowledge in order to develop new products. In all other cases, the manufacturers did not bring in specialized personnel from Mainland China.

    From Table 9 it can be seen that the technical knowledge transferred involves a vertical transfer, which is because the technical knowledge that the manufacturers need is key technology for making the important parts of the products, which the U.S. and European firms are unwilling to provide. Similarly, Mainland Chinese companies are also unwilling to transfer the technology, and hence all the Mainland Chinese partners that formed the strategic alliances were research institutions. Many of the manufacturers engaged in single-track transfers, while only one manufacturer was involved in a new-track transfer. This was because if the technical knowledge transferor was unable to develop technical knowledge that conformed to what the manufacturer wanted, the manufacturer would not provide a bonus for the successful completion of the R&D project nor pay the remainder of the R&D expenses, and so all of the technical knowledge provided could meet the needs of the manufacturer. As for the new-track transferor, although the technical knowledge that he transferred conformed to the needs of the manufacturer, the technical knowledge transferred was one of many important components of the company’s product, and thus some improvements were needed to the technology in line with the other raw materials, which is why this was a new-track transfer.

Table 9 A Comparison of Strategic Alliances

     There were a total of three cases of manufacturers to which the “external subsidy and internal R&D” approach to building technical knowledge applied. All of them wanted to develop what were to their respective companies relatively unfamiliar products, and so they needed much support provided by the transferors of technical knowledge. None of these manufacturers had established related R&D departments within their firms, with only Case 6 having relevant experience of having absorbed technical knowledge, although it was not very familiar with this type of technical knowledge. Although Case 7 and Case 5 were more knowledgeable of the technical knowledge that they needed, they lacked experience of technical knowledge transfer, and we can thus learn from this that the ability of these manufacturers to absorb technical knowledge was not as strong as in the case of those manufacturers who built their technical knowledge through open market purchases and strategic alliances. On the other hand, in the case of those manufacturers that focused on external assistance and internal R&D to build their technical knowledge, the codifiability and teachability of the technical knowledge that they needed was relatively low, and so the external exposure of their technical knowledge was only medium or less than medium. Those manufacturers whose ability to absorb technical knowledge was inadequate and for which the external exposure of the technical knowledge was low were only able to adopt the external subsidy-internal R&D approach to receive the technical knowledge that their firms needed. Moreover, because the firms’ ability to absorb technical knowledge was relatively low, all of the manufacturers brought in specialized personnel from Mainland China to assist their respective companies in receiving technical knowledge. In addition, because all of the technical knowledge brought in by the manufacturers was core technical knowledge; there were many patents, as they did not want such knowledge to be sold to others.

Table 10 A Comparison of Types of External Assistance/ Internal R&D