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European Operations Management Association Annual Conference, June 3rd-4th 1996
TRANSFERRING MANUFACTURING TECHNOLOGY TO CHINA:
SUPPLIER PERCEPTIONS AND ACQUIRER EXPECTATIONS
David Bennett
1
, Zhao Hongyu
1
, Kirit Vaidya
1
and Wang Xing Ming
2
1
Aston Business School, Birmingham, UK
2
The Business School of the People's University of China, Beijing, China
ABSTRACT
Results of complementary surveys of foreign and Chinese engineering
enterprises with respect to their objectives and expectations regarding
technology transfer into China show that the major strategic objective of
foreign enterprises, to gain access to the Chinese market, fits well with
Chinese enterprises' main objective of improving domestic competitiveness
but less well with that of accessing world markets through technology
transfer. Foreign firms rate highly the capability of Chinese enterprises to
learn new technologies but they are much less sanguine than Chinese
enterprises about the managerial capabilities, level of technological
development and equipment quality of the latter and regard the inadequate
legal framework as a significant obstacle.
INTRODUCTION
The transfer of manufacturing technology to China has become an important part of the
strategy of many manufacturers in industrialised countries. The Chinese government has
recognised the role of technology transfer in improving the performance of Chinese
enterprises and its contribution to the overall increase in China's industrial development
and has therefore actively encouraged imports of foreign technology. Chinese enterprises
are also enthusiastic to acquire technology from abroad.
Although the amount of foreign technology being transferred into China has been growing
there remain questions regarding the influence of a number of factors on the effectiveness
of technology transfer transactions namely:
(a) the possible differences in objectives between foreign and Chinese firms;
(b) the level of mutual understanding about different objectives;
(c) the willingness to resolve differences between the two sides, and
(d) differences in perceptions and expectations about resources and capabilities of
the respective enterprises and the economic, political and institutional
environment.
These questions are addressed in this paper which describes the results from two
complementary questionnaire surveys which were conducted as part of a wider
programme of research concerning technology transfer under China's economic policy
reforms. One survey investigated the objectives, perceptions and expectations of UK and
UK-based foreign companies with an interest or actual involvement in China (Zhao et al,
1995); the other survey of Chinese companies investigated their views and expectations of
foreign technology suppliers. The results add to the findings of other studies carried out
elsewhere which are either more limited in scope or have a particular focus such as on
national technology policy (see for example Ball et al, 1993 or Oldham, 1991).
COMPANY SIZE, PAST EXPERIENCE AND CURRENT INVOLVEMENT
Completed questionnaires were received from 207 UK and UK-based foreign companies
and 193 Chinese enterprises, in a range of engineering and related sectors. The matching
sectors in the two surveys were aerospace, automotive, electronics, power generation and
electricity, engineering components, machinery, machine tools and tooling.
Approximately 1200 questionnaires were sent out in each survey giving a response rate of
17 per cent. In the UK, questionnaires were sent out in cooperation with the China-Britain
Trade Group to companies with a known interest or involvement in China. The
questionnaires in China were sent to members of the Machinery Industry Ministry
Technology Import Information Centre network and for sectors outside the machinery
industry a random sample of companies was selected from directories of Chinese
enterprises.
Both the surveys included large, medium sized and small companies. In the UK survey 32
per cent of firms had a turnover exceeding £50 million and 40 per cent had a turnover of
less than £10 million. In the Chinese survey, 28 per cent of enterprises had a turnover
exceeding RMB 500 million (equivalent to £38.5 million) while 50 per cent had turnover
less than RMB 100 million (equivalent to £7.7 million). The percentages in each size
group according to turnover are therefore comparable, although as would be expected, the
number of employees per enterprise was much higher in China than in the UK.
STRATEGIC OBJECTIVES OF ENTERPRISES
Figure 1 shows that for foreign companies the most important strategic objectives were
access to the Chinese market and for technology transfer to be part of their global
strategies. These are complementary objectives as companies incorporate the growing
Chinese market and production location in their global strategy. The third reason for
technology transfer into China, saturation of the existing markets, and the relatively low
importance of cheap labour confirms that the most important objectives for technology
transfer in these industries are related to the Chinese market and not the use of China as a
production location for exporting. Economic incentives were considered to be significant
for only a small proportion of firms but it is likely that once a company has decided to
focus on the Chinese market, incentives for encouraging technology transfer as opposed to
exporting to China swing the balance in favour of the former.
For the Chinese companies, improving competitiveness in the Chinese market and
responding to competitive pressures were among the most important reasons for
importing technology. These reasons match the main objectives of foreign suppliers.
Development of technological capability and the importance of acquiring technology as a
part of company strategy also indicate the importance of technology transfer for
developing competitiveness. However, the second most important objective; that of
gaining access to the world market, is at variance with the short-term objectives of foreign
companies and might be seen as a long-term threat if the Chinese recipients of technology
are potential competitors in world markets. However this could be avoided if as part of a
global strategy foreign firms produce within China in collaboration with local enterprises.
Figure 1 Strategic objectives of foreign and Chinese companies
(Percentages are those of companies citing each reason)
Figure 1(a) Foreign companies
0% 20% 40% 60% 80% 100%
P olic y
C ost
M a teria ls
B arrie rs
P rofits
L inks
L a bour
Sa tura te
Stra te gy
A c c e ss
Key
Access: access to Chinese market
Strategy: part of company's global strategy
Saturate: existing markets saturated
Labour: access to cheap labour
Links: benefit from foreign partner links
Profit: falling profit in existing markets
Barriers: overcome trade barriers
Materials: access to cheap raw materials
Cost: use standard technology more cheaply
Policy: take advantage of favourable policy
Figure 1(b) Chinese companies
0% 10% 20% 30% 40% 50% 60%
Government
Attraction
Policy
Cost
Markets
P rofits
Capability
Competition
Strategy
Access
Competitive
Key
Competitive: improve competitive capability
Access: gain access to world markets
Strategy: part of company strategy
Competition: competitive pressure
Capability: develop technological capability
Profits: increase profits
Market: develop new domestic markets
Cost: reduce costs
Policy: take advantage of favourable policy
Attraction: increase attraction to foreign
investors
Government: arranged by the government
ASSESSMENT OF CAPABILITIES AND RESOURCES OF CHINESE FIRMS
Figure 2 shows the ranking in importance and assessment by foreign and Chinese firms of the
capabilities and resources of Chinese enterprises. For each attribute the shaded column shows
its importance indicated by an average score between 1 and 7. The unshaded column shows
the rating of the attribute of Chinese enterprises on a similar score range but with negative
scores to indicate poor assessments. Foreign firms found quality of management, quality of
equipment, technological development and ability to learn to be the most important aspects
for the success of technology transfer. Their assessment shows that ability to learn is high
whereas the other three factors are identified as important inhibitors.
Chinese firms broadly agreed that the factors identified by foreign firms are important. They
also agreed that ability to learn was a positive attribute and the other three factors mentioned
above pose obstacles. In addition, shortage of capital was identified as the most serious
constraint. The striking difference between foreign and Chinese firms is that the latter
assessed the problems to be less serious than the former.
Figure 2 Importance and assessment of attributes of Chinese companies
Figure 2 (a) Assessment by foreign companies
-1
0
1
2
3
4
5
Manage Level Ability Capital Infra Skill Inform Quality
Importance
Assessment
Figure 2 (b) Assessment by Chinese companies
0
1
2
3
4
5
6
Capital Manage Level Skill Infra Ability Inform Quality
Importance
Assessment
Key
Manage: managerial know how
Level: level of technological
development
Ability: ability to learn advanced
knowledge
Capital: access to capital
Skill: labour skills
Infra: infrastructure support
Inform: access to international
technical and commercial
information
Quality: quality of currently used
equipment
ASSESSMENT OF THE BUSINESS ENVIRONMENT
The business environment (Zhu et al, 1995) has macro and micro aspects. The macro
aspects include the performance of the economy, government macroeconomic and
industrial policies and the broader political and social conditions. The micro aspects
include the more specific influences on business relationships and transactions. Examples
are the specific role of government agencies and the cultural and legal context of business
relationships.
Figure 3 shows the percentage of foreign and Chinese companies which assessed each
aspect of the macro environment to be either very favourable, favourable or moderately
favourable. Foreign firms generally regarded the macro environment to be favourable. The
least favourable aspect of the environment was legal regulations which reflects concerns
regarding the inadequacy of the legal framework for forming agreements and protecting
the proprietary rights to the technology.
Culture in general terms was not thought to be a problem but this could be misleading.
Culture may adversely influence negotiating styles and commercial habits (such as taking
time to establish personal relationships and discussing around a subject before arriving at
the essence of the matter). Other significant problems for foreign firms were difficulties in
understanding organisational structures and authority within them and problems of
dealing with multiple levels of bureaucracy.
Figure 3 Foreign and Chinese companies’ perceptions of China's environmental factors
0% 20% 40% 60% 80% 100%
Political situation
Economic situation
Economic policy
Legal regulations
UK companies Chinese enterprises
DIFFERENCES IN INFORMATION AND CONTACT CHANNELS
To access information on technology and to make contacts with potential suppliers of
technology, the majority of Chinese companies relied heavily on their professional
associations, technical exhibitions, technological conferences and, to a lesser extent,
contact with other companies who had technology transfer experience. This contrasts with
the UK companies who considered that the most effective information sources were direct
contacts with potential purchasers of technology or visits to China rather than secondary
or indirect sources.
OVERVIEW AND CONCLUSIONS
In summary, the surveys show that foreign and Chinese companies are highly motivated
to engage in technology transfer transactions but their respective objectives as well as
differences in capabilities and resources need to be recognised during negotiations. An
obvious difficulty arises if the foreign enterprise has a Chinese market orientation while
the Chinese enterprise seeks access to world markets.
The low rating of Chinese management capability and technological development will
lead to a reluctance to commit to closer collaboration. Chinese firms typically look for
greater collaboration in the form of joint ventures so they need to pay attention to
rectifying these problem areas. Foreign firms on the other hand should not assume that all
Chinese firms are poorly managed and need to be discerning in identifying the more
capable enterprises.
Both foreign and Chinese companies need to be aware of the differences in the manner in
which potential suppliers or acquirers obtain information and make contacts and ensure
that they target the information channels effectively. This is especially the case when
transfer is taking place as part of a collaborative venture. Foreign technology suppliers
need to be aware of the differences that exist between industrial sectors in terms of
infrastructure support, quality of currently used equipment, level of technological
development, skills of the labour force and managerial know-how. In this way suitable
allowances can be made and measures taken to ensure that the transfer of technology is
carried out more effectively.
While there is considerable potential for technology transfer transactions and
collaborations to go wrong, there is also a willingness on both sides to make relationships
work. Over 90 per cent of Chinese enterprises and 86 per cent of foreign firms stated that
they would seek to resolve conflicts by negotiation rather than abandon the relationship.
ACKNOWLEDGEMENTS
This paper is based on research funded by the British Council Academic Links with China
Scheme. The authors gratefully acknowledge this financial assistance and the assistance
of CBTG, the China Society for Research on Economic System Reform and the Chinese
Ministry of Machinery Industry.
REFERENCES
Ball D F, Zhang R and Pearson A W, Perceptions of United Kingdom Exporters in
Transferring Technology into the People's Republic of China, R & D Management, 23, 1,
1993 pp 29 - 41
Oldham K, The Needs and Possibilities for Cooperation Between Selected Advanced
Developing Countries and the Community in the Field of Science and Technology -
Country Report on the People's Republic of China, Commission of the European
Communities, Report EUR 14146 EN, 1991
Zhao H Y, Bennett D J, Vaidya K G and Wang X M, Transferring Technology into
China: Perceptions of Foreign Companies, in Bennett D J and Steward H F (Eds)
"Technological Innovation and Global Challenges" Proceedings of IAMOT European
Conference on Management of Technology, International Association for Management of
Technology/Aston Business School, Birmingham, UK, 1995 pp 827 - 834
Zhu F D, Wang X M, Bennett D J and Vaidya K G, Technology Transfer Under China's
Economic Reforms: Business Environment and Success Factors, Technology
Management, 2, 1, 1995 pp 2 - 17
