From United Nations University
THE IMPACT OF TNCs ON DEVELOPMENT
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15. An overall review of the development process
16. The impact of TNCs on development: some general considerations
17. The transfer of technology: host country perspective (a)
18. The transfer of technology: host country perspective (b)
19. The transfer of technology: a home country perspective
20. The transfer of capital, management skills and entrepreneuship:
the provision of markets
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15. An overall review of the development process
15.1 introduction: alternative concepts of economic development
a) historical approaches and different indicators (GDP per
head, GNP per head, income distribution, quality of life)
b) balanced and unbalanced growth
c) dependencia (Cardoso and Faletto 1979) vs. neo-classical views
on development
d) the structuralist approach (Chenery 1979, 1986)
e) forms of growth: dynamic vs. static comparative advantage
15.2 comparative levels of economic development and types of
developmental paths
a) levels of economic development (as measured by per capita
income, economic structure, housing, education, health care,
etc.) and changes in these over the last two decades
b) an analysis of alternative development strategies (see
especially Cherry, Robinson and Syrquin (1986) and World
Bank (1987); and how views on these have changed over the
past twenty years or so -since the late 1960s)
i) primary goods specialisation
ii) import substituting industrialisation
iii) balanced production and trade
- first stage: non durable goods
- second stage: durable goods
iv) outward oriented i.e. export led industrialisation
c) the contribution of trade and international resource
transfers and TNCs to promoting the development strategies
identified in b) (see especially ECE/UNCTC 1984)
15.3 the role of TNCs
a) potential contribution to mobilisation and allocation of
productive resources
i) the contribution of external resources to filling
(a) the resource gap
(b) the foreign exchange gap
(c) the budgetary gap
(d) the management, technology and technology gap
b) potential conflict between the allocation of resources
desired by TNCs and national development needs; the
structuralist/dependency perspective
c) the cultural dimension; the inability of economic analysis
to explain certain aspects of TNC behaviour in developing
countries or reaction to that behaviour
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Hirschman(1958),(1980)
Streeten in Dunning ed.(1974)
Chenery(1979) Cherry, Robinson and Syrquin(1986) Balassa(1980)
UNIDO(1979)
World Bank: World Development Report (annual)
Lall and Streeten (1977)
Frank(1980) Cardoso and Faletto (1979)
Moran(1986)
Jenkins(1987)
UNCTAD: Trade and Development Reports (annual)
BID: annual reports
CEPAL: Estudio Economico de America Latina (anuales)
Fajnzylber(1989)
ECE/UNCTC (1984) See Bibliography
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16. The impact of TNCs on development: some general considerations
16.1 Introduction: establishing the perspective
a) from which or whose point of view is the impact being assessed
- e.g. the home or host country, a region, the world economy,
a particular industrial sectoral or interest groups (e.g.
competitors, consumers, environmentalists, labour, the economic
elite, political lobbyists etc)? With what time perspective has
the impact been considered? Is the impact assessed EX ANTE or
EX POST (i.e., in terms of project appraisal or evaluating it
with a historical perspective?
b) what particular effects are the subject of concern -e.g. balance
of payments, income distribution, employment and training,
economic sovereignty, consumption patterns, regional development,
cultural identity, industrial performance, technological
capability, collective self reliance?
c) which TNCs are of concern e.g. all TNCs, TNCs from particular
countries, those of a particular size, those pursuing globally
oriented production strategies or participating in certain
sectors?
16.2 TNC/Nation State interaction
a) national policies towards TNCs (including both the explicit
ones and those resulting from other macro-economic, trade
and industrial policies) depend on:
i) the evolving goals of the Nation States and the way in
which the government bureaucracy interpret and apply
them (e.g. as illustrated in 16.1b and the trade offs
between them in conflict situations; e.g. export
generation v. regional development; upgrading of industrial
efficiency v. self reliance, employment generation v.
obtaining up-to-date technology
ii) how TNCs are perceived to affect these goals
iii) how states evaluate their capacities to negotiate and
bargain with TNCs
iv) the ability and willingness of States to adopt macro
and micro economic policies most suited to their
developmental needs, taking account of the presence,
or potential presence of TNCs
b) TNCs and their impact on the extent and form of global
economic interdependence and the structure of international
capitalism
c) the role of international codes and other multilateral
arrangements on TNC/Nation State interaction
16.3 TNCs and indigeneous firms
a) the resources (assets) e.g. capital, technology, management
skills, entrepreneurship, markets etc. - privided by TNCs vs.
indigeneous firms
b) the control exercised over the use of these and other
resources acquired by TNCs -particularly by corporations
pursuing integrated production and marketing strategies
c) the distribution of the benefits of TNC activities
i) differences in allocative and sectoral efficiency
between TNCs and other firms
ii) differences in goods and services produced by the two
groups of firms
d) the concept of Local Value Added (LVA) and its determinants;
how TNCs cf. indigenous firms, may affect LVA
e) differences in the responsiveness of TNC affiliates cf.
indigenous firms, to host government policies
f) the political and cultural impact of TNCs and/or their
affiliates
16.4 structural determinants of impacts (a checklist)
a) industry specific factors: key variables
i) primary/secondary/tertiary
ii) high/low technology (scale intensive; science based;
specialized suppliers and traditional technology)
iii) consumer/producer
iv) integrated/non integrated
v) assembling/processing
vi) market structure; barriers to entry; price and non-price
competition
b) firm specific factors: key variables (other than nationality
of ownership)
i) age
ii) size
iii) experience of FDI
iv) organisational strategy
v) product or process diversification
vi) % equity involvement
vii) degree of transnationality
c) country specific factors: key variables
i) environmental/resources/markets
ii) system (market/centrally planned/mixed economy)
iii) attitudes, policies and regulations
(This is sometimes called the ESP paradigm in the literature;
see Koopmans and Montias (1971))
d) some specific sectors in which TNCs are predominant (e.g.,
automobiles, electronics, pharmaceuticals, etc.)
16.5 A hypothetical case study
a) assumptions
i) viewpoint of host country
ii) goal of Nation State to maximum GNP i.e. obtaining the
right resources at the right price and the optimising
allocating and technical efficiency (nb. this may not
be the most important criterion by which TNC activity
is judged)
b) direct and indirect effects on Nation State objectives
i) sectors in which TNCs tend to concentrate
ii) performance of TNCs in these sectors vs. indigeneous
firms
iii) spillover effects of TNC presence on other firms in
economy
c) items to be considered in assessing effects
i) resource acquisition
- technology
- capital
- management
- skills
- entrepreneurship
ii) access to markets
iii) allocation of TNC activities and resources
- TNC involvement in more (or less) productive
- more (or less) efficient market structure
- more (or less) product diversification
- production of appropriate/non appropriate products
iv) technical
- appropriate factor mix
- efficiency at which individual factors are employed
v) the absorptive capacity of host countries; institutional
and/or cultural constraints
vi) the valuation of inputs and inputs (e.g., to what
extent are these values distorted by government or
TNC-induced distortions (e.g., subsidies, transfer
pricing, etc.))
d) trade off with other economic objectives, e.g. self reliance,
employment, technological capability, balance of payments
e) the time path of the impact
16.6 Control aspects of TNCs international resource allocation
a) the market structure in which TNCs operate
b) the barriers erected by governments to the market mechanism
of allocating resources
c) the role played by governments in providing an environment
in which TNCs can operate effectively
d) the distinction between corporate and national (or regional
integration)
e) the assumptions made about the alternatives to TNC
involvement; e.g. acquisition of resources through the
market; the development of domestic industry
16.7 Uses and limitations of economic models
a) the political dimensions
b) critiques of neo-classical approaches
i) the dependencia school
ii) the bargaining approach
iii) the structuralist approach
iv) the neo-institutionalist approach
c) the TNC as an instrument of international capitalism
16.8 the changing dynamics of the interaction between TNCs and
developing countries (Chaudhuri, 1988)
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Dicken(1986) Bierstecker(1978) Lall(1975)
Hood and Young(1979) Frank(1980) Cardoso and Faletto(1979)
Lindsey(1981b) Moran(1986) Senkuttuvan(1981) Tambunlertchai(1977)
Kirchbach(1982) Chay(1982) Weigel(1987)
Jenkins(1987) Radice(1975)
Bornschier and Chase-Dunn(1987) See Bibliography
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17. The transfer of technology: host country perspective (a)
17.1 Some typologies;
a) the distinction between 'hard' and 'soft' technology,
embodied and disembodied technology, technology and
technological capacity, proprietary and non-proprietary
technology, codifiable and non-codifiable technology;
b) the distinction between the creation, use of, dissemination
and absorption of technology
c) technology as an input to different stages of the value added
e.g. purchasing, R & D, manufacturing, marketing, etc., the
distinction between product, process, managerial, information
technology
d) the concept of technology development; the distinction
between 'know-how', 'know-why', and 'know-what'(Lall 1987)
17.2 technology and the TNC/host country interaction
a) the goals of host country
i) industrial strategy and technological development
ii) obtaining and absorbing technology
- importing embodied technology in machinery,
plant or final goods
- importing technology and know-how
- producing indigeneous technology
iii) obtaining technology and services from TNCs
- through the foreign affiliate
- through 'depackaged' purchase
b) the nature of the interaction
i) proprietary technology and intra-firm technology transfer
ii) TNC generated technology in the socio-economic
environment of developing countries
iii) the absorptive capacity of developing countries
c) the goals of TNCs (see 16)
i) TNC interests in the extent, form and conditions of
technology transfer
ii) conditions under which will TNC transfer innovatory
activities to developing countries
d) the appropriateness of TNC technology; e.g. do foreign
affiliates adapt their technology to relative factor prices,
market size and customer tastes better than do indigeneous
firms? What kinds of adaptation e.g., materials, product
design, machinery and equipment, manufacturing methods do TNCs
make? Are TNCs do more or less capital intensive than
indigeneous firms? Do joint ventures adapt their technologies
in LDCs more readily than do 100% owned affiliates?
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18. The transfer of technology: host country perspective (b)
18.1 evaluating the (perceived) benefits and costs of the technology
transference through alternative modes to host developing
countries. (see also 36)
i) reasons why TNCs and governments might have different views
on preferred modes
ii) perceived benefits and perceived costs of alternative modes
(a) as viewed by the TNC
(b) as viewed by the host government
(c) as viewed by the recipient company
iii) the balance of private and social costs and benefits
iv) negotiating and pricing technology transfer
(a) technology supplier and purchaser bargaining
(b) influence of government on the terms of purchase
(c) the issue of access to new technologies
v) an examination of some developing countries policies and
their effects
These issues will be discussed in terms of the three main schools of
thought on the role played by TNCs in technology transfer to
developing countries identified in UNCTC 1979 viz. the orthodox,
radical and reformist.
18.2 policies of governments towards TNCs, related to technology
creation, acquisition, adaptation and absorption (see also 36)
a) unilateral policies
i) options (or policies applied at different times) include
- do nothing
- set conditions (for new and/or existing foreign investors)
- reserve certain sectors for local producers (e.g. Brazilian
market reserve policy in informatics)
- specify performance requirements of TNC affiliates with
respect to local value added, R & D facilities
- try and eliminate restrictions on technology use by TNCs
- influence terms and conditions of technology transfer
(e.g. by controlling forms, types and bases of remuneration;
and by limiting rates and levels of remuneration)
- solicit competitive bids from alternative technology
suppliers
- encourage TNCs to sell technology on contractual
basis (i.e. unbundling technology from the
package of FDI
- liberalise technology import controls
- foster market structure most conducive to
effective technology transfer and absorption
- encourage (by subsidies, etc) indigeneous firms
to engage in innovatory activities
- impose training obligations on TNC affiliates
- promote development of state owned enterprises
(e.g. as in Brazil, India and Indonesia)
ii) constraints on host country latitude for action
(i.e. bargaining power)
- lack of information about cost, availability and
sources of technology and/or ability to make
sensible choices from options available
- lack of bargaining and negotiating skills
- lack of available alternatives in certain sectors
or for certain products and processes
b) multilateral policies
i) types
- collective decisions of host governments
- international agencies
ii) functions
- provide information: costs, sources, contractual terms
- technical assistance in:
- evaluating costs and benefits of alternative
technology modes
- bargaining and negotiating strategies
- appropriate technology policies, to ensure TNCs make
optimum contributions to development goals
- formulate codes and guidelines
18.3 the international patent system: its nature, effects and defects
a) the different propensity to patent by Tncs. The role of
patents in technology transfer agreements. Patents and
import monopolies. Recent moves towards greater patent
protection
b) the role of trademarks in technology transfer agreements
by TNCs. Trademarks and product differentiation activities
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UNCTAD(1987) UNCTC(1974)(1979)(1987a)(1988)
Moxon and Lake in Hawkins ed.(1979)
Germidis(1977) Chen(1983b) (1984)
Chung and Lee(1980) Cheong and Lim(1981) Katz(1987)
Ernst and O'Connor(1989) Unger and Saldafia(1985)
Morton(1986) Jenkins(1987) Lall(1987)
Behrman ans Wallender(1977) Stewart(1977) Michalet(1976)
Kirmin(1986) See Bibliography
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19. The transfer of technology: a home country perspective
19.1 the main concerns of home countries
a) the link between political power and technological
dominance (Gilpin 1975)
b) technology as a major competitive advantage; is one
exporting one's industrial heritage to a potential
competitor (Baranson 1979)
c) defence and security issues
d) the employment effects of technology transfer
19.2 some theoretical issues
a) the distribution between social and private costs and
benefits of technological transfer; the extent to which
trade in technology is a zero or positive sum game
b) the kind of technology and/or technological capacity which
is being transferred (is it competitive or complementary to
that supplied at home?); the distinction between the
technology transferred within industrialised countries and
between these countries and developing countries
c) the extent to which the home firm (or country) possesses
a monopoly in the technology being exported
d) short and long run consequences of the export of technology
e) the costs and benefits of concluding technologically
oriented alliances and technology sharing agreements
19.3 TNC technology transfer and the growth of manufactured imports
into home countries
a) the role of TNCs in developing country manufactured exports
b) a comparison between technology transfer by Japanese and US
TNCs; the Kojima hypothesis
c) the role of developing country exports in developed country
adjustment problems
19.4 reactions of home countries
a) policy options
i) restrict certain types of high technology exports,
and to certain countries
ii) negotiate agreements to limit use made of technology
transferred
iii) extra territorial provisions
iv) restructure economies in light of changing
comparative advantages
v) ensure that the appropriate 'social' price is changed
for technology
vi) encourage the tightening up of patent procedures in
recipient countries
vii) encourage multilateral action to enforce protection
b) the costs of not transferring technology
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Kojima(1978,1982)
OECD(1982) Dunning(1986) (1988b)
Behrman and Mikesell(1980)
McIntyre and Papp(1987) See Bibliography
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20. The transfer of capital, management skills and entrepreneuship:
the provision of markets
20.1 introduction
the TNC as a provider and controller of resources. To what extent,
and under what conditions, are the right kind of resources provided
at the right price; and how far is the control exercised over these
resources in the best interests of the host country?
20.2 capital
a) alternative sources of capital for TNC activity: financing
activities of established subsidiaries vs. new ventures
b) the relative importance of TNCs as capital suppliers to
developing countries; the role of intra-firm capital
transfers
c) establishing host country preferences for alternative
sources of financing
d) the host country's balance of payments situation as a factor
influencing the source of capital
e) options of host country governments to secure capital from
most favourable sources on best terms
f) debt equity swaps and the participation of TNCs
20.3 management skills (see also 14 and 24)
a) the trade off between access to imported human capital and
upgrading indigeneous skills
b) alternative sources
i) buy on the open market
ii) contract with foreign firms
iii) TNC equity investment
c) the role of the consultant and technical advisor
20.4 entrepreneurship
a) that provided by TNCs
b) the impact on the entrepreneurial culture and capabilities
in developing countries
i) within TNC subsidiaries
ii) on other firms
c) the relationship between foreign capital and the local
bourgeoisie and, more specifically, with the large domestic
economic groups
20.5 access to, and control of inputs and output markets
a) possible conflicts of interest between TNCs and host
countries
b) contribution of TNC varies with
i) type of investment
ii) size and age of TNC involvement
iii) policies of host (and occasionally home) governments
(see also 25,26 and 27)
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on 20.2:
OECD(1981) UNCTC(1989) Ch. IX
Dunning(1981) Ch 7
Lichtenjstejn and Trajtenberg(1987)
Riedel in Hawkins ed.(1979) Helleiner(1989) Lessard ed.(1979)
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Lall and Streeten(1977)
Lessard in Hawkins ed.(1979)
Hood and Young(1979) See Bibliography
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-RRojas Research Unit/1996-----------------
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