3. What are the major benefits that an organization can have from effective absorption of imported technology? Give example in support of your answer.
The real success of technology absorption projects and technology enhancement schemes has always been a subject matter of debate between the administrators and technologists. Our experience of serial license – production agreements - reveals the yawning gap between certain types of licensed manufacture and development of indigenous capability. Hence while finalizing offset contracts, apart from the commercial angle, it is very important to ensure that the requirements of short and medium term goals of developing indigenous capability and know how are ensured.
This answer attempts to highlight the “Technology Inflows” as emerging from the implementation of offsets as well as “Challenges” foreseen in such implementations and suggested “Methodologies” for its effectiveness. This paper primarily deals with technology concerning Defence Electronics as the applicability in other sectors may need suitable adaptation.
Technology Inflow Routes
Over the period, some of the important commonly accessed routes for technology inflow through offsets to the recipient countries are following:
a. Co-development and Co-production:
Co-development and co-production is seen as a very effective mechanism in state of the art technology induction and absorption. In joint development programs, the access to technology that individually the partnering companies / countries could not have developed is realized at substantially less cost and time. The joint development also ensures that the part of production work along with the jobs it creates is ensured to the
Indian partner also.
By this process, the companies / countries will become partners at specific contribution levels. There are financial benefits connected with the contribution, the primary benefit being the access to advanced technology and an advanced product. Further, it provides the Indian vendors with the necessary skill sets through their contribution in the joint program.
Joint Intellectual Property (IP) rights and shared international market space should be part of the negotiated contract thereby providing international exposure and a fair share of the resultant revenues to the Indian firms.
b) Sub- contracting / Contract Manufacturing:
Sub-contracting / contract manufacturing occurs when a foreign vendor procures defence-related components, subsystems or products for export from industries in countries where the vendor has to meet offset obligations.
In the short timeframe sub-contracting / contract manufacturing is an effective mechanism in bringing the technology. This could, however, get limited to fabrication, assembly and related services. The sub-contracting can either be through ‘Build to Print” or “Build to Spec.”
Build to Print:
The foreign vendor provides the complete documentation package to the (Indian) defence industry. The documentation package could include manufacturing drawings, Quality requirements, Test methods, Acceptance / Rejection criteria, etc. The Indian industry executes the task based on user-supplied data, being able to source / manufacture the parts, assemble and test the sub-assemblies / product before they are delivered. The design issues, if any, is an essential responsibility of the supplier while Indian industry could share the responsibility for design verification, especially while implementing modifications to the original documents.
- Build to Spec: The foreign supplier provides the detailed Technical Specification, Quality requirements, etc. to the (Indian) vendor who undertakes the design, development, manufacture and supply of the product. This method may also go through the phases of development of prototypes, user trials and evaluation, etc. as applicable to the product or sub-assembly.
- During contract negotiation stage the IP related issues are to be resolved so as to avoid legal problems later.
Joint Ventures
The technology inflows can be affected through establishment of Joint Ventures (JVs). However, the investment level remains a critical factor affecting the success of a Joint Venture. In a Joint Venture with foreign equity participation restricted to 26 per cent, the OEMs, since they guard their IP, may inhibit / hesitate the collaborating partners to bring in cutting-edge technology. There are instances where the JVs have become non-functional due to technology obsolescence, with the foreign partner limiting his investments and continue up gradation to his technology.
c)Licensed Production:
The transfer of technology (ToT) to a local defence industry capable of absorbing the technology, if implemented in true sprit, where both the supplier and the recipient are competent organizations, the local industry will be able to further develop the technology and this result in leapfrog on the existing technology lag. However, it has been experienced / seen that the absorption of technology and later its enhancements are often critical issues in its implementation.
From the seller’s viewpoint, he would be throwing away his competitive advantage if he transfers all of the technology related to the product being sold. Further, from seller’s perspective, he would be giving away know how to a partner who may later become his competitor. The seller therefore, may estimate the opportunity cost excessively causing avoidable increase in ToT costs. Also, precise verification of technology cost is difficult due to non-availability of sufficient details.
Invariably, the depth of technology being transferred becomes selective at the hands of seller. The proprietary items included by the seller in the TOT contract results in buyer being dependent on the seller. The buyer is unable to leverage the ToT. There are always gaps between the needs / expectations of the buyer and the offer from the seller. While these aspects are primarily applicable to hardware related programs, the issues become further complicated where there is substantial software content also. Generally, the executable codes of software are transferred to the buyer who will be able to copy the same for implementation in another module. The ‘know why’ is not normally part of the transfer without which the buyer can not carry out any enhancement /modification of the product for its uninterrupted usage or even marginal up-gradations to overcome obsolescence related issues during its service life.
Issues and Challenges associated with Technology Transfer
While the technology inflows may be through various means as explained, there are many issues and challenges foreseen in respect of our goal of achieving self-reliance and becoming leading technology house through technology transfer. Some of the critical issues related to technology transfer are the following:
Relevance and Depth
The vendor may offer transfer of technology not directly related to the product or system being procured. Hence, the offers from foreign vendors need very careful and in-depth scrutiny to ensure that the technology being offered is relevant to defence applications both current and futuristic. Also, the depth of technology being offered for local manufacture for the systems / products is crucial to the development of local industry. The practice of holding back critical technologies by the vendors calling them proprietary and necessitating continuous dependence on them for local manufacture of products need to be addressed during contract negotiations.
Today the products and sub-systems are very software intensive. The software has become a component in most of the sub-systems. The know-how transfer should essentially address this even if the processes and procedures for its implementation are considered to be tedious.
In the present day context, where outsourcing of product development activities including design of sub systems, accessories, etc. are in common practice, we must critically assess the foreign supplier’s actual possession of technology and his capability to transfer it. We need to evaluate the suppliers in this regard at a much greater depth during the process of selection.
International status
The technology on offer should be assessed for its current position in the international market and its capability of remaining current for the period of its intended application by the user agency. This will help us avoid the pitfalls of giving credit to sub-standard or obsolete offers for technology transfer.
Capability of Indian Industry
The capability of the local industry to absorb the technology being transferred is a critical factor. Indian Defence Industry with strong R&D base and Defence R&D establishments are certainly capable of absorbing and translating the critical technology into products and systems needed by defence. For example, Bharat Electronics Limited (BEL) spends approximately 5 per cent of its annual sales turnover on Research and Development, with more than 1200 qualified engineers working on R&D projects. Assimilating technology in a related area and building further on it, poses no hurdles to BEL. There are other capable Indian defence industries also and along with OFB and the DRD O labs, the indigenous capability for technology absorption is indisputable.
However, this critical aspect of the Indian industry could face a technical challenge in future endeavors where the absorption of imported technology is carried out within specified time-frames and applied either directly for new products or in related areas for diverse product ranges.
It should be noted, however, that mere substitution of proprietary components with indigenous ones would take us only a limited distance forward in areas of improving existing products. The emphasis should be on internalizing the capabilities in such a way that new and diversified products can be developed in-house by leveraging the transferred foreign technology.
Industrial Returns
Apart from the most important aspect of meeting the vital defence needs for which the technology is imported in the first place, the technology on offer must necessarily bring in industrial returns either from domestic market or from international market or from both and therefore should be assessed for this potential.
License Issues
Frequently, it is found that the technology concerned is subject to approval of the foreign government and hence obtaining latest technology becomes difficult. In many areas of cutting-edge technologies, foreign suppliers do not part with their technologies citing patents, IPRs etc., or may fix enormous prices for the same. Even in cases where the supplier is willing to sell the technology for a price, the governments in question do not permit the same under their respective export control regime. A very expensive and extensive licensing procedure, which is a very time consuming, has to be gone through in order for the product / technology to be exported. Finally, there are certain products / technologies that are barred for exports to certain third world countries and certain organizations.
Determination of Multiplier Factor
Since Technology transfer becomes a key component of the Offset agreement, suitable multiplier factors may need to be worked out, if required, to promote and encourage the foreign supplier who is willing to transfer the necessary technology. The negotiated value of the technology is often based on the foreign supplier’s prior investment in research and development, the market value of the technology or the cost of developing the technology in India
Technology Valuation: Issues and Methodologies
Valuation of technology is highly complex and extremely difficult and at times may appear to be subjective. This is in fact the greatest challenge in the whole process of technology transfer. However, technology valuation is a critical component of the technology transfer process and it is essential that this is carried out in as accurate and transparent manner as possible.
Offset agreements and contracts meet various requirements of the governmental agency entering into the contract with the foreign supplier. If government intends to use the offset value through direct offsets like manufacturing and/or technology transfers in the purchased product area, then the value of the offset is worked out based on the value of the costs of manufacturing, value of the technology that is to be transferred, etc.
Based on the availability of infrastructure for product manufacture, support and future utility of such infrastructures, decisions could be made for offset value considerations. The multiplier issue can also be addressed based on such factors. As far as transfer of technology is concerned, the offset value can be arrived at only after complete analysis of the value of the technology.
Example: Let us take a example of Indian Air Force India Air Force imported the AWACS Technology
After recurring delays, the Indian Air Force (IAF) on Thursday inducted its first "eye-in-the-sky" airborne warning and control systems (AWACS) which will detect incoming flying weapons and listen-in to aerial communication. Dedicating the giant IL-76 heavy transport aircraft, configured in its new avatar, to the nation, defence minister AK Antony expressed his "anxieties" about the other two AWACS being delivered on time.
"The project was signed in 2004... five years is too long a time.... I hope the governments of
The AWACS project is a tripartite contract between
The AWACS flew from
The AWACS, constituting the number 50 squadron, will be based in
With the induction of the
Other countries - notably
With its ability to detect aircraft, cruise missiles and other flying objects at ranges far greater than is possible through existing systems, the AWACS can also collate surface information about troop movements and missile launches even while "listening-in" to highly confidential communications between the enemy's front line units.
To this extent, the AWACS, as a potent force-multiplier, are expected to significantly enhance the effectiveness of the IAF's offensive and defensive operations. Given the intensity and pace of modern-day air warfare, the AWACS will provide an impregnable aerial umbrella to neutralise any incoming threat.
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