When technology transfer leads to innovation economy

M. Rokonuzzaman | Published: October 26, 2018 21:30:00 | Updated: November 02, 2018 21:52:49

Zhongguancun, a technology hub in Beijing

Many reports and articles have made a case that China has been pursuing a state-led strategy to force foreign firms to transfer technology to the country. In summing up, American think-tank Peterson states, "A broad range of experts and market observers agree that China has repeatedly forced foreign multinational corporations (MNCs) to transfer technology to indigenous firms as a condition for market access and that China has persistently failed to protect the intellectual property of foreign firms doing business in China." It's being argued that many of the applications of China's skyrocketing patent filing reaching 1.3 million in 2016 are basically repackaging of existing technologies belonging to the foreign firms operating in China. Among a global total of 3.1 million applications, China's 40 per cent share with more than 20 per cent growth rate has made major countries like the USA basically paranoid. Will China take over the innovation economy through forceful transfer of technology?

It's understood that technology transfer alone does not allow a firm or country to innovate for succeeding in taking away business from competitors. For example, upon taking over Motorola Mobility's huge patent portfolio in mobile communication, Google could not establish itself as a strong player in the mobile handset business. Similarly, Microsoft could not transfer a similar patent base, manufacturing capability and global distribution system of Nokia into a profitable business. Among others, although Apple has a visible track record in transferring acquired technology into iPhone innovation success story, the process was not just about assembling newly-available technologies into the product. For example, Apple had to undertake rigorous research in upgrading and adapting acquired technologies to fit into the concept of iPhone innovation. Often-cited some of China's successes gained out of the technology transfer are the development of huge high-speed train network, seven Chinese firms out of top ten smartphone makers, boom in digital service transformation, high rate of electric car adoption, and mushrooming AI (artificial intelligence) startups. But how far these are innovation success stories out of technology transfer is worth investigating.

BULLET TRAIN: As far as bullet train is concerned, China has fundamentally succeeded in replicating existing matured technology. Basically, over the last 50 years, there has not been major growth in the technology portfolio around the high-speed conventional train. Many of the patents associated with high-speed train have also already lost their lives.

SMARTPHONES: In smartphone making, it's about the assembling of components supplied by numerous suppliers and loading a bit updated freely-available Android software in it. And many of those component suppliers and also the assemblers are based in China. Upon having access to relatively easy finance, China-based makers starting from Huawei to newborn Xiaomi have been mostly taking this advantage. Should we call it the innovation success of China through forceful smartphone technology transfer? American icon Apple essentially does not make any of the tangible components for its iPhone. To benefit from economies of scale and scope, and specialisation, Apple sources all those components from more than 200 suppliers, many of whom are in China. And those component suppliers are in the market to sell their components to anybody, without raising the question of intellectual property (IP) infringement. As Apple is paying only a small fraction (as low as 40 per cent) of the price it is charging the customers to component suppliers, there is a room for the profitable assembling of third party components in making smartphones. Why should not Chinese and also firms of other countries take this advantage?

DIGITAL SERVICE: In the digital service space, including e-commerce and digital finance, 800 million mobile Internet users are a simple hotbed for innovators to transfer many of the conventional services into the digital space. The role of forceful technology transfer in the success of digital service explosions in China does not appear to be present. Like China, many other developing countries are also making similar progress. For example, mobile financial services in Bangladesh has grown exponentially.

ELECTRIC VEHICLES: As far as electric vehicle (EV) is concerned, the question of forceful technology transfer has a very weak meaning. The market leader, as well as pioneer in EV making, is an American firm: Tesla Motors. Being a proponent of open innovation, under the leadership of Elon Musk, Tesla has made all its EV related patents public. Moreover, major automakers are basically assemblers. They source components from diverse suppliers and assemble them together to make cars with their logos. For EV, the key component is the battery; and major battery suppliers like Panasonic are out there to sell their batteries to anybody. If China-based makers assemble those components and release their own brand of EVs by taking the advantage of the large domestic market, why should it be a success story of forced technology transfer?

AI START-UPS: In the basket of Chinese innovation success stores, the last but not the least is AI innovation start-ups. Basic academic research fueling AI innovation start-ups has a long history. Over the last 40 years, academic community across the world has been publishing research results showing diverse AI innovation possibilities - starting from face recognition to medical image analysis. Is it not a natural outcome that there would be initiatives to assemble those findings and upgrade them further for exploring the commercial innovation potentials?

So far, China's success in the technology space has been driven by the state. Diverse incentives are being given for absorbing state-of-the-art technologies and assembling them to replicate existing products, often termed as re-innovation. Not only R&D (research and development) finance has been made available, there are also incentives for making publications and filing patents. As a result, China has taken the top position in publication and patent filing. Such progress has already created fear among major industrial nations - thereby even triggering trade row between the USA and China. But is there an underlying weakness in this state-sponsored initiative risking the success in innovation? In summing up the learning from a recent visit of MIT's top academic administrators in Russia, Prof. Graham has drawn his lesson from a long journey of studying the history of Russian advancement in scientific discoveries and technology invention, and their translations into innovations. During the 20th century, through state-sponsored research, Russian scientists, technologists, and engineers made tremendous progress in science and technology. Their list of achievements is magnificent starting from two Nobel prizes for the invention of the laser to the very early demonstration of solid-state lighting to the possibility of radio communication. But unfortunately, the same state sponsorship could not lead to the success of exploitation of commercial innovation potentials around them - building a high-tech innovation economy. As a result, Russia has been pumping oil and excavating minerals in fueling the economy.

History tells that there has been a gulf of difference between acquiring technology competence and succeeding in innovations around it. Technology competence alone does not create wealth. It's the innovation around it, offering better quality products at lower cost to get the job done easier at less cost, that creates the wealth. China should find ways to avoid the temptation of getting hands-on technologies, and create the pathway to enter the innovation economy.

M. Rokonuzzaman Ph.D, is academic, researcher and activist on Technology, Innovation and Policy.


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