ArticlePDF Available

Technology Transfer to the China Machine Tool Industry: The Need for a Technology Valuation Model

Authors:

Abstract

Due to its fast growth China is rapidly becoming a focus for globalized manufacturing strategies and is now one of the world's largest markets for technology. The international transfer of manufacturing technology has also contributed significantly to the recent sharp increase in the rate of China 's industrial development. The Chinese machine tool industry, for example, has exhibited an annual growth of more than 12% between 1980 and 1995 and is now one of the largest markets for machine tool technology. Technology transfer agreements are not motivated only by the willingness of foreign suppliers but also by the desire of Chinese enterprises to acquire technology. One of the major problems in technology transfer is how to establish the value of the technology. ' In many cases partnerships between foreign companies and Chinese enterprises fail to become established because the value of technology cannot be agreed by both sides. It is therefore important to establish a method for valuing transferred technology. This paper outlines the concept of a technology valuation model which is being developed using empirical data from the machine tool industry. It is based on research carried out in the UK and China, and draws on selected case studies of technology transfer in the machine tool sector supplemented by information obtained from questionnaire surveys carried out in both countries.
Technology transfer to the
China machine tool
industry
The need for a technology valuation
model
David Bennett, Kirit Vaidya, Zhao Hongyu and
Wang Xing Ming
Due to its fast growth China is rapidly becoming a focus for globalized
manufacturing strategies and is now one of the world's largest markets for
technology. The international transfer of manufacturing technology has
also contributed significantly to the recent sharp increase in the rate of
China 's industrial development. The Chinese machine tool industry, for
example, has exhibited an annual growth of more than 12% between 1980
and 1995 and is now one of the largest markets for machine tool
technology. Technology transfer agreements are not motivated only by the
willingness of foreign suppliers but also by the desire of Chinese
enterprises to acquire technology. One of the major problems in technology
transfer is how to establish the value of the technology.
'
In many cases
partnerships between foreign companies and Chinese enterprises fail to
become established because the value of technology cannot be agreed by
both sides. It is therefore important to establish a method for valuing
transferred technology. This paper outlines the concept of a technology
valuation model which is being developed using empirical data from the
machine tool industry. It is based on research carried out in the
UK
and
China, and draws on selected case studies of technology transfer in the
,
machine tool sector supplemented by information obtained from
1
questionnaire surveys carried out in both countries.
David Bennett is with the Technology and Innovation Research Centre of the Aston
Business School, Aston University, Aston Triangle, Birmingham 64 7ET, UK. Tel: +44 121
359
361 1. Fax:
+
44 121 359 5271. E-mail: d.j.bennett@aston.ac.uk. Kirit Vaidya andZhao
Hongyu are also with Aston University. Wang Xing Ming is with the People's University of
China, PR China.
China is among the world's top five machine tool
industries in terms of output value. However, its
production capacity still cannot meet the rapidly
increasing domestic demand which in recent years
has grown annually at a double-digit rate, making it
currently the world's third largest market for
machine tools. The major users of machine tools in
China are the automotive and general machinery
industries which are two of that country's 'pillar
industries' and are designated as priority sectors for
the government's promotion policies. The shortage
of domestically produced machine tools of sufficient
quality has resulted in large numbers of imports
from the major industrialized countries. As a result,
INDUSTRY
&
HIGHER EDUCATION
February
1997
35
... From our case studies and interviews with various organisations in China, and surveys conducted in earlier research, we have identified 5 basic reasons why suppliers and acquirers often do not agree on the value of the technology being transferred (Bennett et al, 1997). ...
Conference Paper
Full-text available
Technology is at the core of both products and processes, so to improve competitiveness and access markets it must be acquired, absorbed and developed. Moreover, as manufacturing has become more globalised, technology is also increasingly being transferred as part of collaborations between companies and has therefore effectively become a commodity in itself. It can be sold for a direct financial return or exchanged for a share in the local market, for example when being transferred through foreign direct investment from developed to the newly developing economies. This paper describes the concept of a “technology valuation and collaboration” model that has been developed using empirical data gathered from along the UK-China value chain for machine tool technology. It can be used to assist the negotiations and ongoing technology transfer arrangements of manufacturing companies that are supplying or acquiring technology.
... Elsewhere we have described the main factors which make it difficult to determine a value for technology that is acceptable both to suppliers and acquirers. We have also discussed the framework for a 'technology valuation' model being developed using empirical data gathered from various points along the UK-China value chain for machine tool technology [2]. In the development of the model four components have been identified. ...
Conference Paper
Full-text available
In recent years technology transfer has been used increasingly within international manufacturing as a means of reaching new markets and is playing a critical role in establishing collaborative ventures between companies in developed and developing countries. This paper considers the concept of transfer value within the context of a technology valuation model which is being developed using empirical data gathered from the machine tool industry in the UK and China. The paper presents the preliminary results from surveys in China and describes some case studies of technology transfer collaborations. Some of the main issues arising from the cases and the surveys are discussed.
... Suppliers often felt that the acquirers tried to drive down prices without appreciating the full benefits of the technology and by contrast acquirers felt that suppliers always wanted to charge higher prices and did not appreciate the availability of alternatives or local development capabilities. From research carried out to date the following are the main factors which make it difficult to determine a value for technology which is acceptable both to the supplier and acquirer (Bennett et al, 1997). ...
Conference Paper
Full-text available
As manufacturing becomes increasingly globalized the value of technology has become a crucial question when being transferred from suppliers to acquirers. Under many forms of transfer arrangement the value of technology cannot be considered in isolation from the nature of the arrangement itself which could range from one-off transactions to an equity joint venture or other forms of close partnership. The distribution of costs, risks and benefits varies substantially between types of arrangement as well as the specifics of the agreement. Previous research by the authors into the transfer of technology between the UK and China has revealed that the issue of reaching mutual agreement on the value of technology was a major handicap to many transfer negotiations. This paper describes the framework and progress with development of a technology valuation model. The main focus of the research is on machine tool technology being transferred from the UK to China. The results will assist companies in developing their technology transfer and global manufacturing strategies. The overall aim of the research is to develop a model using empirical data gathered from both countries to identify the factors that both technology suppliers and acquirers consider when valuing transferred technology. The model will provide a framework for assessing the components of value, their relative weights, the balance between them and how they are related to the form of collaboration between the supplier and acquirer.
... Suppliers often feel that acquirers try to undervalue the technology without appreciating its full benefits, while by contrast acquirers consider that suppliers always place a high value on their technologies and did not appreciate the availability of alternatives or local development capabilities. The following are the main factors making it difficult to determine a value for technology that is acceptable both to the supplier and acquirer (Bennett et al, 1997b). ...
Conference Paper
Full-text available
International technology transfer through collaborative partnership arrangements provides a means whereby companies can obtain many of the benefits of globalisation. They can take advantage of resource and market factors while, at the same time, sharing costs and potential risks. They can also make best use of their proprietary resources by extending the application of their know-how through its transfer to international partners. This paper examines some of the issues and considerations associated with partnership arrangements for international technology transfer. It focuses on four main issues that emerge when such collaborative arrangements are being considered. As its frame of reference the paper uses cases of technology transfer between Europe and China. It is based on research undertaken over a number of years with funding from the British Council, the UK Engineering and Physical Sciences Research Council and the European Commission. Recent evidence has been drawn from a study of joint ventures funded by the EU-China Higher Education Cooperation Programme. The focus of the paper is on the machinery and machine tools, electronics and telecommunications industries, where China's economic policy has especially encouraged technology transfer through foreign investment for the purpose of upgrading these sectors.
... Valuing the technology is a crucial question in most technology transfer negotiations and collaboration arrangements (de Bruijn and Jia, 1993). Bennett et al. (1997a) have identified the main factors which make it difficult to determine a value of technology and form of transfer acceptable both to technology suppliers and acquirers. A ``technology valuation'' framework has been developed based on the influences of four components, owner's value, transfer value, substitute value and traded value. ...
Article
Full-text available
The value of technology and the appropriate form of transfer arrangement are important questions to be resolved when transferring technology between Western manufacturing firms and partners in industrialising and developing countries. This article reports on surveys carried out in the machine tool industries in the UK and China to establish the differences and similarities between owners and acquirers of technology regarding the relative importance of the factors they evaluate, and the assessments they make, when considering a technology transfer. It also outlines the development of a framework for technology valuation. The survey results indicate that the value of product technology is related to superior technical performance, especially on reliability and functionality, and the prospects of premium prices and increased sales of the technology transfer based machine tools. Access to markets is the main objective of UK companies, while Chinese companies are concerned about improving their technological capability. There are significant risks, especially related to performance in the market, and while owners and acquirers have benefited in the short term, the long term collaboration required for strategic benefits has been difficult to achieve because of the different priorities of the owners and the acquirers.
... The technology also adds value downstream (for example, by enabling more efficient manufacture of better quality products). Based on these considerations, four components have been identified for incorporation into the Technology Valuation model (Bennett, et al., 1997). " Owner's value " . ...
Conference Paper
Full-text available
Previous research into the transfer of technology between the UK and China has shown that the value of technology is a crucial question in most transfer negotiations and collaboration arrangements. To assist with negotiations a technology valuation model is being developed through a project supported by the UK Engineering and Physical Sciences Research Council. The main project focus is on technology transfer from the UK to China. Empirical data are being gathered from the machine tool industry to identify the factors that suppliers and acquirers consider when valuing transferred technology. The aspect of the model examined in this paper is how to assess the added value and secondary gain that can be captured both by technology suppliers and acquirers as a result of introducing more advanced machine tool technologies into Chinese industrial production.
Article
Full-text available
This paper aimed to identify proposals of Technology Transfer models and present a grouping of models, worldwide, from 1971 to 2020. We found that studies with this purpose present TT models within a very limited period, and fewer models are described. A literature review was elaborated employing the databases Scopus, Web of Science, and Science Direct, following formal protocols. The review describes 63 TT models and five literature reviews on TT models, presenting contents such as the distribution of papers over the years, methodological classification, actors inserted in the models and their collaborative links, and the focus of TT models. These models are organized according to the collaborative links between TT actors. Models include, predominantly, TT planning, projects, technology development, technology acquisition, commercialization, TT scope and fundamental elements TT.
Article
This special issue of Industry and Higher Education is devoted to a selection of papers from TTI '96, an international conference on technology transfer and innovation held in London in July 1996. In this introductory paper, the author gives the context of the conference, summarizes presentations made by invited speakers, and sets out some of the points made by participants.
Conference Paper
Full-text available
Acquisition of technology, either from indigenous or external sources, is critical for the development of a country's infrastructure and industrial competitiveness. A fundamental point when understanding how technology is transferred between organizations in different countries is that technology is not just a physical thing but also comprises knowledge embedded in hardware and software. The acquisition of technological capability is therefore not a one-off process but a cumulative one in which learning is derived from the development and use of technology. This paper addresses the question of how strategies devised at the enterprise and national level towards technology transfer are influenced by, and should take account of, the relative perceptions and behaviours of foreign technology suppliers and local acquirers. The particular focus is on technology transfer from developed to developing countries, which is where there are often the greatest differences between the two sides. Their relevance to the Gulf States of the issues raised is highlighted where appropriate. Introduction – Developing technological capability and the technology supplier / acquirer relationship.
Article
Full-text available
Results of complementary surveys of foreign and Chinese manufacturing 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 and also find the Chinese macro environment for business favourable. The survey results provide information that will help managers with their negotiations on co-operating with prospective partners for the transfer of technology as well as assisting policy makers who wish to facilitate more effective transfer arrangements.
Article
Full-text available
Results of complementary surveys of foreign and Chinese manufacturing 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 and also find the Chinese macro environment for business favourable. The survey results provide information that will help managers with their negotiations on co-operating with prospective partners for the transfer of technology as well as assisting policy makers who wish to facilitate more effective transfer arrangements.
Article
Establishing a joint venture in the People's Republic of China is complex and time consuming because of the differences between China and the West in managerial philosophy, market systems, industrial infrastructure, and motives for creating the joint venture. Acquisition of advanced technology is a predominant concern for China. As a result, technology transfer is almost always a key step in running a joint venture in China. However, in practice there are many unexpected problems in the technology transfer process because of the specific Chinese situation. Currently there is increasing interest in building up joint ventures in China, which leads the authors to discuss the key issues for management in the process of technology transfer to China via joint ventures.
Article
Executives who are intrigued by joint ventures in Eastern Europe can learn from the hard-won success of a small number of foreign/Chinese joint ventures in China. To date, most of such profitable businesses are "focused joint ventures." Highly flexible, participative, democratic management is not the key. Instead, "focused joint ventures" have these characteristics: 1) highly prescribed operations, 2) narrow product line, 3) sustained commitment of partners, 4) top-down motivation of employees, 5) strict performance standards for local suppliers. It is these tightly managed organizations that are producing goods up to world-class standards while keeping cost in line. The "focused joint ventures" are setting a needed example of behavior modifications necessary to transform sheltered production into competitive production. Each "focused joint venture" is intentionally inflexible; it succeeds by promptly serving a clear need, and probably has a limited life span. However, adaptability can be attained through a series-progression-of "focused joint ventures."
Transaction Cost Economics and the Multinational Enterprise, University of Reading Discussion Paper in International Investment and Business Studies
  • Teece D.J.