MNC’s significant contribution is in the field of technology transfer which it offers to host countries. In developing countries, the low intensity of technology restricts investment and competitive development. Technology is essential to generate capital and advancement in developing economies. Technology and innovation are measures of competitive strength for the organization of the developing countries. For example, China has developed its competence for technology and innovation through FDI by MNC spillovers.
The technology could be transferred through the strategies of linkage, leverage, and learning i.e. MNCs backward and forward linkages with host firms is through partnerships and joint ventures, leverage as transnational network, or worldwide web of inter-firm connections and learning through imitation by learning by watching and repeated involvement in linkage and leverage.
Technology transfers are based on the direct and indirect impact of MNCs on the technological development of the hosting industry. The direct transfer is received by inducing capital goods, innovative processing practices, new products, technological licensing, international seminars, conferences and interchange of technical documents and management skills. The indirect transfers contain MNCs spillovers which take in demonstrations, backward and forward linkages, competition effects and trained personnel migration.
The absorptive capability of the host country plays a key role in technology transfer and gaining potential benefits from FDI. Absorptive capability is the firm’s ability to recognize external information. For example, inappropriate technology for the hosting industry makes it unable to compete with the global market. Local organizations have to make investments to benefit from technological inflows.
Technology transfer follows Subsidariary Driven model where its existence depends on intensity in an industry i.e. whether it is capital intensive or labor-intensive industry. Capital intensive industry includes crude oil extraction, organic chemicals, pharmaceutical products, synthetic fibers, automobiles, computers, and aerospace. Labor intensive includes coal extraction, canned food, cotton, silk and woolen textiles, paper processing, and toys. For example, in China, though the inward FDI defer a negative effect due to strong market power and crowding-out effects the majority of MNC investment went to labor-intensive industries for export. Therefore, the negative affect didn’t decline the domestic production. The capital intensive industries are more absorptive capable as local R&D is required to capture technological distribution. Thus the size of spillover is larger in capital intensive and is more responsive to FDI inflows.
To transfer technology the MNCs invest in raw materials, labor and marketing and through technological expertise, advanced production skills and utilization of local labor help in the transfer of technology to the developing countries. R&D of the host country assists MNCs to develop superior products and encourages competition in the host country, thereby, putting an end to the domestic monopoly.
Barriers to technology transfer occur due to organizational structures that reduce the flow of communication between firms, lack of information to the employees and culturally biased firms in the host country. The challenges faced by the host countries could be legal, economic and political elements of the business environment which may include labor supply, security matter, and employment implications. For instance, No improvement has occurred in the technology transfer in Poland due to the barriers such as lack of cooperation by the R&D institutions, incompetent corporate innovation, lack of financial resources, and lack of innovative culture and approach of employees. The barriers can be overcome by generating cross-organizational partnerships, increasing exposure towards technology, and promoting people and corporations in favor of technology transfer.
Thus, the conclusion is that high technology has emerged as the major source of wealth which contributes to rapid growth through the country’s level of inward FDI, home demand conditions and technological infrastructure.