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How much
is
technology worth?
With greater globalization of manufacturing, the transfer of technology across
national boundaries has become more common and the forms of technology
transfer more complex. Increasingly the "trade channel", where technology is
transferred through sale or licence, is being superseded by the "investment
channel
",
where transfer is facilitated through joint ventures, technology
collaborations and co-production agreements. The complexity of such
arrangements prompts the question of how much technology is worth when it is
transferred between suppliers and acquirers. Our research on the transfer of
machine tool technology to China has highlighted this problem. Many
UK
machine tool manufacturers think Chinese enterprises try to negotiate low
prices without appreciating the value of technology to be transferred. On the
other hand, interviews with Chinese machine tool enterprises have revealed
that foreign technology suppliers are often thought to over-value their
technology by underestimating the existence of competing technologies and the
capability of Chinese enterprises to acquire and develop technology from
alternative sources.
Closer examination of this problem reveals that there are several different
concepts of value. Our research has identified four of these:
First, there is the "owner's value" which is the current worth of the technology
to the ownel; based on the cost of its production and distribution together with
the cumulative costs of any other upstream activities. There may also be
opportunity cost considerations where there are existing transfer channels
which might be affected.
Second, there is the "substitute value
",
being the price that the acquirer could
expect to pay for an equivalent technologyfrom another source. This in general
refers to the price of alternative technologies in the market, if such a market
exists for that particular technology.
The third value concept is "traded value
",
which is the income that could be
derived ifthe technology was sold-on by the acquirel; or its value ifthe
acquirer was bought-out by a third party.
Finally, there is the "transfer value
",
which is the potential worth of the
technology to the acquirer, taking into account the proportion of added value
genera fed further downstream in the value chain which could be captured by
the acquirel:
These four value concepts are highly interrelated. From the point of view of the
current owner or supplier of the technology its value will be based on costs
incurred upstream in the value chain from the point where it is being
transferred. Howevel; both the potential acquirer and the owner can readily
compare this with the price of an equivalent technology, if available in the
market. Potential acquirers of technology will, in addition, be concerned with
the traded value since it provides an indication of the gain if the technology is
subsequently resold. Transfer value is of concern to the acquirer since it
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TeCHNOUXjY STRATEGIES, JULYIAUGUST
1996
3
I:
represents the worth of the technology, taking into account any downstream
value added that can be captured. This would also be of interest to the supplier
where a royalty is to be paid or other benefits can be gained in return for the
use of the technology by the acquirel:
From the above it can be seen that for a supplier to value transferred
technology it is not simply a matter of determining its cost and adding a
notional profit. Neither for the acquirer is it just a matter of judging its worth in
the market. The relevant value concepts need to be quantijied, their importance
determined, and an overall assessment made based on a balance between the
components of value.
Our current research is aimed at developing a technology valuation model with
the principal focus on machine tool technology being transferredfrom the
UK
to foreign countries. It is being facilitated through collaboration with
institutions in China and the results will assist companies in developing their
technology transfer and global manufacturing strategies. Our research
investigations include case study analyses and surveys of Chinese and foreign
machine tool manufacturers with experience of technology transfer at different
points along the value chain and under different arrangements, such as sale of
equipment, sale of equipment with technical support, long-term technology
sharing agreements and joint ventures of diferent forms. We are also
conducting surveys in both countries and analyzing databases of currently held
information on technology transfez
The overall aim of the research is to develop a generic technology model using
empirical data gatheredfiom the machine tool industry in both countries. The
investigations will identify the factors that both technology suppliers and
acquirers consider when valuing transferred technology. The model will also
consider the components of value, their relative weights, the balance between
them and how they are related to the form of technology transfer mechanism.
Technology valuation is one of the keys to matching the strategies of suppliers
and acquirers of transferred technology. Taking a strategic view toward valuing
technology will signijicantly increase the mutual benefits of partners and the
chances of success.
David Bennett and
Kirit
Vaidya
Aston
Business
School,
UK
4
TECHNOLOGY STRATEGIES, JULYIAUGUST
1996