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Technology has been, for a long time, recognized as the key factors in accelerating effectiveness and efficiency to bring back companies competitiveness
Chapter 1 Introduction Technology has been, for a long time, recognized as the key factors in accelerating effectiveness and efficiency to bring back companies competitiveness. In high and increasing competition of the world market, technology gradually confirms itself as main source for sustainable competitive advantages and plays a crucial strategic role for the future success. For the Less Developed Countries, Technology development is really considered the most important part for the national strategy to strengthen the health of its national economy to catch up with developed ones. Michael Porter [1985] stated that technology change is one of the principle drivers of competition. Therefore, it is important at national level as well as firm level to consider technology as the most significant weapon to compete and secure the development in long term. There are two sources for technology development: Indigenous or local technologies or and imported or transferred technologies. In developed countries, technology development is basically based on indigenous research or R & D within these countries but in developing ones, technology transfer plays the most crucial role. Past experience indicated that without careful management of an imported technology, the technology transfer does not lead to enhance the technological capabilities. However, the advantages of technology transfer are those: it is possible to get tested, standardized and proven technologies and with scarce resources, developing countries do not find it appropriate to invest their resources in R&D for available technologies in market. It is often more efficient to import and assimilate technologies which lay the foundation upon which the future technological capabilities could be built. For most of the Less Developed Countries, importing new technology for a leapfrogging in technology development to shorten the distance or to catch up with the advanced countries has been considered as the only one and effective strategy. But how to select the technology and adapt it to a specific condition is even more important. Depending on the circumstance of a specific country, the way of acquiring and assimilating technology may be modified. Post harvest technology is considered a major area of Vietnamese economy, which need be developed to enhance both agriculture and post harvest industries. The Vietnamese Government has recently paid a lot of attention to this area such as importing new machines and equipment as well as reducing taxation and financial supports to related companies. Under pressure from the market for higher quality of product, many Vietnamese companies have been seeking new technology and adapt them to their circumstances to improve their product quality to satisfy its hard-tempered customers. Coffee industry of Vietnam is an example for the effort of upgrading technology in post-harvest processing sector. In recent years, with the supports from the German Government, most coffee Vietnamese companies have spent a large amount of money on purchasing new machines and facility to upgrade their processing plants or set up a joint venture with foreign companies. But mere import of machines and equipment and poor management are not sufficient for enhancing company’s capabilities because of the lack of software technological components. With the aim at studying the acquiring and assimilating new technology in two companies in Vietnam- one joint venture and one state owned, we intended to learn the actual processes that the company adapts a newly imported technology into the company’s circumstance. 6 1.1Problem Statement Coffee industry highly contains characteristics of agricultural business but the post harvest technology itself actually plays an important role in creating customer-attractiveness to improve competitiveness. At present, the world market requires an increase of coffee quality because of the changes in consumer's taste and habit of drinking coffee and the existence of variety of substitute drinks. The need of quality improvement forces coffee producers to seek for new technology in processing coffee to match their customer’s requirements. Transfer of technology is a main way for all Vietnamese Coffee Companies to upgrade their technological capability. The way transferee companies acquire and digest newly imported technology to improve their technological capabilities is very significant especially in post harvest processing sectors. There is an interest of studying specific processes of technology transfer and the way to assimilate new technology effectively to draw out some lessons that can help Vietnamese companies to acquire and assimilate new technology effectively through a right mechanism. Studying two typical mechanisms of technology acquisition and assimilation in Vietnamese coffee industry is an active instance to analyze, compare and draw out problems and suggestions to improve the possibility of success of technology transfer in this sector. 1.2 Organization of the Research Study This study will consist of five parts. In the first part, the rationale and objectives will be explained. The second part will cover the literature review explaining in detail the concept of technology, technology components and related aspects. The following part will be the evolution of Vietnamese Coffee Industry and the company background and overview of coffee processing technology. In the forth part, the actual process of technology transfer of VIETDUC Coffee Company through a pure purchase of processing plant and evaluated and the process of technology transfers through joint venture mechanism of DAKMAN Company is analyzed, compared to withdraw findings. Conclusion and recommendations are given in the last part of this study. 7 Figure 1.1 Organization of the Research Study. 1.3Objectives of the Research Mere Purchase of technology can not lead to a proper transfer of technology. Good results of technology transfer are only achieved through careful selection of technology and a suitable way to upgrade company’s capabilities to adapt the newly imported one into new environment. The way in which new technology being identified and digested determines the success of technology transfer. Therefore, the main objective of this research is to study the ways the two companies selected and assimilated technologies in specific circumstances. Based on that process, recommendations and suggestions for improvements will be given. The specific objectives of the research are as follows: 1. Studying the actual processes of technology transfer through two mechanisms – purchase of plant and joint venture and how to manage them in Vietnamese Coffee Companies 2. Comparison of technological and economic performances between the local firm ( purchase of plant and equipment) and the joint venture. 3. Determining whether and how the technological capabilities of the firms have been upgraded through transfer of technology. 8 Introduction Literature Review Analytical Framework Overview of Industry and Companies Background (Chapter II) (Chapter IV) Analysis of Technology Transfers in the Two Companies (Chapter V) Conclusions & Recommendations (Chapter VI) (Chapter I) (Chapter III) 4. The difficulties that the transferees faced in managing the acquisition and assimilation of technology and steps taken to overcome them. 5. Proposing a mechanism for Vietnamese State Owned company to engage in technology transfer and recommendations to improve the effectiveness of technology transfer 1.4Methodology In order to carry out the research, we used some methods to collect data, analyze and offer some suggestions. Collecting data: The data and information were mainly based on face to face interview and other official documents such as financial statements and reports VINACAFE A face to face interview with Vice director of VIETDUC coffee company and DAKMAN A face to face interview with the heads of the coffee processing plants in the two companies Questionnaires were used as guidelines for interviews Secondary data was carefully selected from newspapers, magazines and other international and domestic publications. Research analysis Qualitative and comparative methods was used to examine technology transfers in VIETDUC and DAKMAN companies to identify critical issues that these companies faced and their corrective actions. 1.5Scope and limitation of the study As mentioned above, the coffee processing plants in Vietnam are basically using imported technology and mostly through purchasing machines and equipment and forming joint venture. New technology is, now, transferred and applied into coffee processing. This study mainly focused on aspects related to processes of technology acquisition and assimilation in coffee industry of Vietnam from a strategic point of view. Figure 1.2: Aspects Focused in the Research 9 Corporate Governance structure Internal resources/ Capability CEO Technological Strategy: Structure Performance External Environment The scope of the study is as follows: The study will focus on the technological strategies and transfer processes of VIETDUC Coffee Company- a state owned and DAKMAN Company- a joint venture by which they upgraded their technology capability. It will concentrate on technological aspects of technology transfer in a resource perspective. One of the major limitations of the study was time limitation. So we just focus on two companies to conduct the research. Among Vietnamese coffee companies, VIETDUC and DAKMAN are chosen to carry out the research. They are two typical companies for most of Vietnamese coffee industry. There are a lot of factors which affect the success of a technology transfer such as the Government's policies and diplomatic relations, maturity of technology and degree of sophistication of the transferred technology but these are not focused in this study. 10 Chapter 2 Literature Review 2.1 Concepts of technology transfer It is not easy to clearly define “ technology transfer”. Different philosophers often employ different concepts for their literature and, sometimes, they seem to have contrast conclusions. In some points of view, technology transfer is just the transfer of machines and equipment to a new environment but others take into accounts both hardware and software of technology. These points of view basically stem from different perspectives such as " technology as a transformer", " technology as a tool", technology as Knowledge" or " technology as embodiment form". Mingsarn [1981] used four concepts of technology transfer, which can be often found in the literature: Technology is transferred only when the local work force has ability to use and responsible for the imported technology and do it efficiently. Technology is regarded transferred when it is used effectively in a new environment regardless of the origin of inputs of production. For this concept, technology is only considered transferred to other constitution when it is assimilated and adapted in new condition even if every thing is done by outside people. As long as the technology is employed efficiently, technology is considered transferred. Technology transfer occurs when technology spreads to other local productive units in the recipient economy. When imported technology is fully understood by local workers, and when these workers begin to adapt the technology to a local environment for particular needs or modify it for other purposes. Therefore, technology transfer can be understood according to one of all the four concepts. For example, when local workers acquire all skills needed to operate the machines properly or they can solve all problems probably happening, technology is actually transferred. Depending on the requirements of transferees, technology transfer is recognized when some technological capabilities demanded are gained and improved. Robinson [1988] firstly used the term of “technology transfer package”. It is shown in the following diagram: 11 Finance Marketing Processes product Social OrganizationManagement Know-how transferred Manuals Engineering & skilled workers Machine tools Blue prints Figure 2.1: The technology transfer package (Source: Michael Z. Brooke, selling Management Service Contracts in International Business. The technology transfer package concept is widely used and covers many areas of technology transfer. Marketing may not be included in technology transfer even though it seem not to be a part of technology, unless in very special cases. In manufacture of industrial goods like machinery and equipment, marketing may be viewed as a part in technology package. In this case, marketing is also included because the marketing staff needs to have certain technical and engineering skills to introduce how to install and offer after sale service for such goods. Technology transfer consists of one or more indivisible technology modules, which may be core technology or peripheral one. " Core technology" is indispensable to a process or the use of a product or performance of a service. The modules may also contain peripheral technology, which may not be necessary for a process. These modules may be transferred via technical documents and blue prints and/ or personal explanation, demonstration, or training or “ know how” assistance. Permission to use various rights, knowledge, or assets (that is, under license, franchise, or lease). Hard goods- "embodies” technology which may take the form of Capital Equipment Intermediate goods Final goods Soft goods- “disembodies" technology, which may take the form of written documents, computerized package, and photographs, or oral transmission whether telephonic, recorded or face to face. The embodiment forms of technology -UNCTAD, Geneva, [1990] are described as follows: The embodied form Includes capital goods and intermediate goods as presented in plant, machinery and equipment. It also includes human labor… skilled and specialized manpower to use equipment and technique accurately and to resolve problems that may occur in production process or in the implementation of a plan, design or activity. Disembodied technology consists of information recorded in tangible form, whether in words such as the written description of a production process, or in a diagrams or some other forms of graphic presentation, such as production drawing, specifications or plan, figures symbols and so on. Technology can be said to encompass the thousands of detailed steps that are necessary for the development and manufacture of a product including the design and development of manufacturing processes and equipment. As Baranson [1976] defined it, knowledge transmission enables the recipient enterprise to manufacture a particular product or provide a specific service. Other researcher e.g. Teece [1977] defined technology transfer like the transfers of know how. As distinct from the sale of machinery and equipment which embodies technology, they argue that the transfer of technology, in most cases, calls for a sustained relationship between two enterprises over a period of time. So the receiving enterprise can reproduce the product with the desired level of quality standards and cost efficiency. This relationship model 12 of international technology transfer is consistent with the work of Contractor [1980] Robinson [1988]. Chesnais [1986] argued that the transfer of technology implies the transfer to the recipient not only of the technical knowledge needed to produce the products but also of the capacity to master, develop, and later produce autonomously the technology underlying these products. The transfer of “ know how” and “know why” component of technology is rarely defined in detail in philosophies. Ramanathan [1994], has considered technology as the “ hardware” and “software” components in detail through the definition of Polytrophic components of manufacturing technology, which can be used for mapping the technology transfer successfully. 2.2. The Polytrophic components of manufacturing technology Traditionally, technology can be viewed as basic forms of tool or “technology as a tool” perspective. In this perspective, there is an emphasis on the importance of machines and human-machine interactions. Technology is also defined as knowledge or “technology as knowledge “ perspective. This perspective highlights the importance of “ know why” and “know how” and implicitly gives out the role of human skill in gathering, using and upgrading knowledge. Finally, “technology as transformer” perspective is used to stress on the importance of organizing activities in order to achieve desired transformations. In general, they are viewed as comprising two major parts: “ hardware” and “software”. Hardware: The physical items related to the task of technical production. Software: The work roles and division of labor, which surrounds it. The definitions given by the Technology Atlas Team [1986], Asian and Pacific Center for Transfer of Technology [1987] and Sharif [1989] made a further step and break down these two major parts into four components: Object-embodied form or “ Technoware” Human embodied form or “ Humanware” Documents/ record embodied form or “Inforware” and Institution Embodied form or “orgaware” Ramanathan [1994] defined these four elementary and interacting components in detail and the importance of them at the firm level. In fact, he confines these comprehensive forms of technology in a comprehensive definition of manufacturing technology. Technology embodies the four components, which are hardly transferred well especially the software because the software of technology is often associated with human being such as skill of employees, skill of manager and the communication and information system as well. 2.3 Concept of appropriate Technology Bourrieres [1979] from a micro-system perspective, suggested that appropriate technology should be defined in the context of complex system and five levels have to be considered: The objective of the decision making unit, resource available, the action intended, the actors and the results. 13 From an economic perspective, suggested that appropriate technology should be defined as one that makes possible the production of a given good at a price not exceeding the current world price, taking into account the scarcities and opportunity cost of production, exchange rate, and the rate of interest or discount. From the financial perspective, the World Bank defined appropriate technology as one that provided the highest net present value relative with capital investment. Although there are various definitions of appropriate technology, there is general agreement that such technology must be efficient, not be obsolete, and that it must vary according to the particular situation of each country under that consideration. There is not an appropriate technology for all countries but the appropriateness of a technology with one circumstance. 2.4 Concepts of Technological Capability Many researchers give typologies of technological capabilities. From a social perspective, Dunning [1981] identified five elements of technological capability: people, operation experience, an effective organization, a problem sensing and solving mechanism, and necessary values and attitudes. Westphal, L. E. Kim and Dahlman [1985] made a functional classification of capabilities (production, investment, and innovation). Baranson and Trends [1985] distinguished four types of technological capabilities: capability in purchasing technology, plant operation, duplication and expansion, and innovation. Ramanathan [1994] based on an extensive literature review has pointed out six types of technological capability that will be needed by a transferee: Acquisitive capability, operative capability, adaptive capability, innovative capability, marketing capability, and supportive capability. These conceptual distinctions, although not always easy to make in practice, are helpful in interpreting inter-industry and cross-country differences. Technology transfer is not as simple as purchasing a capital good or the acquisition of its blueprints. The transferees have to devote substantial resources to assimilate, adapt, and improve upon the original technology. The successful trends of transferred technology use are to be dependent upon transferor firms and countries to develop their own technological capabilities. 2.5 Acquisition of technological Capability Many studies proved that acquisition of a technology does not automatically lead to acquisition of technological capability. Katz [1985], based on his studies of six Latin American Countries, concluded that the kind of technological capability that emerges and develops in any given social setting depends on the type of economic agents in such a setting, the resource endowments. They are affected over time. He further pointed out that the size of the firm, its field of activities, type of production organization, the degree of product standardization, and type of ownership are all important determine the factors in the development of indigenous technological capability. Dunning [1981] said that, after more than two generations of control of the local Trinidad- 14 Tobago oil industry by foreign MNCs, a local technological capability still does not exist over the whole range of activities necessary for running the industry. Mytelka [1985], in his study of the textile industry in Africa, concluded that substantial technological effort is essential to the acquisition of technological capability. Lasserre[1983] emphasized the importance of training. They correctly pointed out that the geographical transfer of technology might be of little use unless the appropriate human resources are simultaneously available. The transferee countries pay a lot of effort towards the continuous adaptation of imported technology to local conditions and to the firm’s operational characteristics and productive constraints. Empirical studies have showed that adaptation takes place through changes that stretch the capacity of existing plants, break bottlenecks in particular processes and product designs. However, such positive actions do not take place easily or cheaply in any environment. 2.6 Problems of international technological transfer encountered by LDCs Balasubramanyam [1987] has pointed out lack of efficient sources of components as a major problem in adapting and using imported technology. Poor quality of components supplied, lack of adherence to delivery schedules and lack of continuity in supply were cited. Thomas [1973] pointed out that the transfer of technology to the African countries is usually in the “embodied” form in imported technology. Lack of appropriate manpower to exploit these technologies to meet local conditions and needs and the obstacles by the mechanism of transfer have fostered complete dependence on foreign technology and limited indigenous technological initiative. For example, agricultural technology (for food production and processing) “embodied” in imported tractors, irrigation systems, fertilization processes, new cropping, canning, and refrigeration have not been advantageously used due to improper adaptation to tropical agriculture, lack of effective organizational know how, and requisite marketing techniques. Imported technology needs to be restructured to suite indigenous labor needs, the climate and the culture. The imported design and equipment may have to be restructured to fit the local needs and conditions. 2.7 Main elements of technology transfer process The main elements of technology transfer process are Transferor, transferee, Technology, linking mechanism, Transferor environment, transferee environment and the greater environment (see figure 3) Transferor: Supplier of technology Transferee: The receiver of technology Technology: Includes tangible parts as well as intangible part such as “know how”, “know why” suitable to the technology. Linking mechanism: the means by which technology is transferred from the transferor to transferee. The linking mechanism may be as indirect or direct one. Direct mechanism refers to a case when transferee is in direct contact with the transferor of the technology. Indirect mechanism is the one when an intermediary partner engaging for acquiring the technology. Market oriented mechanism: these are initiated with profit motive as a major consideration in 15 [...]... the most important personnel in a company because he eventually 24 determines the choice of company’s competitive strategy He determines way for a company to meet its future demands and he is also the final one to prepare a competitive strategy to deal with its rivals For technological strategy, CEO will determine what mechanism used to upgrade and acquire company’s technological capability based on... requires little machinery The method involves drying the whole cherry There are variations on how the process may be carried out, depending on the size of the plantation, the facilities available and the final quality desired The three basic steps, cleaning, drying and hulling, are described below Firstly, the harvested cherries are usually sorted and cleaned, to separate the unripe, overripe and damaged... machine drying is sometimes used to speed up the process after the coffee has been predried in the sun for a few days The drying operation is the most important stage of the process, since it affects the final quality of the green coffee A coffee that has been over dried will become brittle and produce too many broken beans during hulling (broken beans are considered defective beans) Coffee that has not... Processing 30 Foreign Material Red-skin Pulp of the fruit After drying, the wet-processed coffee, or parchment coffee as it is commonly known, is stored and remains in this form until shortly before export The final stages of preparation of the coffee, known as 'curing', usually take place at a special plant just before the coffee is sold for export The coffee is hulled, to remove the parchment, then passes... are as follows: - Improve quality Renewing the processing plant with higher capacity and quality of material transformation subsystem To achieve a good internal rate of return on its investment VIETDUC finally decided to purchase a new processing plant, put it into operation to achieve these goals 4.4 DAKMAN company profile DAKMAN (full name: BUON MA THUOT COFFEE PROCESSING & EXPORT JOINTVENTURE COMPANY) . technology which may take the form of Capital Equipment Intermediate goods Final goods Soft goods- “disembodies" technology, which may take the. out the role of human skill in gathering, using and upgrading knowledge. Finally, “technology as transformer” perspective is used to