Smaller may be better

International Technology Transfer by Small and Medium-Sized Enterprises

November 20, 1998

Small and medium-sized enterprises (SMEs) are becoming an increasingly significant factor in the economies of developed countries. Typically, SMEs provide about 50 per cent or more of employment and between 30 per cent and 50 per cent of sales value, but in some countries, notably Japan, their importance is considerably greater. The economic share taken by these enterprises is growing and they are absorbing employees released by larger enterprises through rationalisation programmes. Not only do SMEs provide higher returns per research and development dollar than do multinational companies, but they achieve better results per person. In terms of exports, SMEs also perform well, holding their own against larger firms.

The flexibility of the small company and the advantages of hands-on management appear to override advantages of scale, enabling SMEs to become the strongest driving force in modern developed economies. These advantages should be even more significant in developing countries, and the authors have set out to investigate how SMEs can play a greater role in economic progress, focusing on the international transfer of technology among them.

SMEs, unlike multinational corporations, are generally established to fill a niche and are ill-equipped to expand overseas and provide technical support. For this reason, even though technology transfers by SMEs are significant in absolute numbers, they represent only a small percentage of companies and fewer than 2 per cent of overseas investment in terms of value. Yet SMEs can provide particularly valuable technology partnerships to developing countries because they do not tend to have global strategies and a partnership in one market may well open the possibility for export and expansion to others.

How can the development of technology transfers by SMEs be encouraged for the benefit of both the supplier and recipient companies?

When foreign technology transfers have taken place, the authors identify two main reasons. Either the principal company has been looking to develop or protect an existing market serviced by export, or a recipient company with compatible capabilities is looking to extend its product range and seeks foreign assistance to supply know-how.

In the first instance, it was reported that (with the exception of Singapore) there was little government incentive to import technology. In the second instance, recipient countries reported great difficulty in identifying suitable companies to supply technology, limiting their search to nations with whom there was regular trade. Despite this, in cases where cooperations have developed, there was a positive level of satisfaction and a likelihood of further transfers. There were still gripes from both sides. The recipients complained that companies were unable to provide comprehensive support for the technology because of their limited resources and, in some cases, the companies complained their partners were not sufficiently experienced in the industry. Japan provides the main exception, with many SMEs moving to developing countries to bypass high employment costs with the intention of re-exporting to Japan or to support Japanese multinationals overseas.

The authors recommend that provider countries should make available comprehensive information about the technical capabilities of SMEs, while recipient companies should be considered as candidates only if they have compatible experience. Governments of recipient countries would do well to provide tax incentives and infrastructural support.

This is no book to entertain on a long-haul flight. It is the product of a coordinated research project covering a dozen countries, incorporating extended editorial comment and statistical reference. But, despite dedicating a chapter to each country, the research format and findings of individual writers are incompatible, and much repetition occurs. Also, the introduction dates itself by referring to the "impending unified market in 1992", while the statistics date back to the 1980s.

In short, the work could prove useful for academic study or for managers determined to collect every bit of information on international cooperation before making a move. But why did it sit on the shelf for so long?

Paul Brunet is co-founder and chief executive, P.T. Citra Tubindo in Indonesia, and is doing management research at the Business School, University of Oxford.

International Technology Transfer by Small and Medium-Sized Enterprises: Country Studies

Editor - Peter J. Buckley, Jaime Campos, Hafiz Mirza, Eduardo White
ISBN - 0 333 564871 1
Publisher - Macmillan
Price - £65.00
Pages - 477

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