Dr. Wahyudi Wibowo, Business School, University of Pelita Harapan Surabaya, corresponding address: University of Pelita Harapan Surabaya, Tokyo Tower, 7th Fl., Cito Superblock, Jl. A. Yani no. 288, Surabaya (60234), Indonesia, email: This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..
Abstract
Internatonal technology transfers are crucial for developing economies since they may operate as one of the key drivers in the economies’ development path. Previous studies have acknowleged some channels of technology transfers for developing economies. Nevertheless, the precise mechanisms of how the technology transfers would occur and take effect in each of the recipient economies and their domestc companies are stll to be explored. Furthermore, understanding domestc companies knowledge management is important since it would determine the absorptve capacity of the company toward advanced foreign technologies. This study uses a case of technologically intermediate-level Indonesian manufacturer to show evidence of internatonal technology transfers and their impacts on the development of indigenous technological capabilites of the domestc company, as well as to examine the company’s knowledge management.
This study confrmed some benefts of internatonal technology transfers for the domestc company, especially through the major mechanisms of technical license assistances, capital goods imports, turnkey projects, technical consultancies, backward-vertcal flows of foreign direct investment, and partcipaton in overseas markets. However, the impacts toward the domestc company’s technological capabilites were generally at intermediate level. This implies that the domestc company needs to spend more investments on in-house R&D actvites and to improve its knowledge management systems.
Keywords: technology transfers, technological capabilities, reseach and development, knowledge management, developing economies.
Introducton
One of the most important factors which explain the remarkable economic development in many developing economies during the past four decades is the existence of internatonal technology transfers. The involvement of internatonal technology transfers has been acknowleged as bringing positve roles on the economic developments of some East Asian and Latn American developing economies since 1970s. This includes their roles in encouraging the accumulaton of indigenous technological capabilites (hereafer referred to as TC) in the manufacturing sectors (Tolentno, 1993).
However, the roles of internatonal technology transfers have apparantly appeared to vary in each of the developing economies. Some successful economies have made a technologically closer catch-up with the developed economies, for instance, in the cases of the newly industrialized economies of Hongkong, Taiwan, South Korea, Singapore, and Brazil. But many others performed moderately or poorly in their technological developments. Furthermore, while technology transfers may occur in an economy, eventually the true challenge is how the domestc companies or workers in the host economy could absorb and master the transferred technologies and how not to let the technologies remain isolated in the foreign companies or expatriate workers (Thee, 2005).
In this regard, there are two clear observatons. First, many developing economies have benefted from internatonal technology transfers. The majority of the world’s research and development (hereafer R&D) actvites is in hands of few industrially developed economies, yet productvity gains are widespread across developing economies. Second, internatonal technology transfers are not frictonless and their impacts on the productvity of the recipient economies are neither automatc nor evenly distributed (Xu and Chiang, 2005; Unesco, 2010). The later implies that technology transfers might be stpulated under certain conditons, in which absorptve capacites of the economies such as human capital, technological level, and other insttutonal factors play important roles (Thee, 2005). This raises a queston on the precise mechanisms of the technology transfers and how they give effect to the recipient economies.
The main objectve of this paper is to give a case in point on the impacts of foreign technology transfers on the TC level of domestc company which operated in developing economy. Furthermore, it aims to study how the company manages its absorptve capacites toward the foreign technologies. This is partcularly discussed in relaton to the knowledge management of the domestc company.
The evidences revealed in this study may enrich the previous fndings and contribute to deepening the analysis on the studies of internatonal technology transfers in developing economies. Moreover, the focus on the impacted domestc company will give more understanding on the developments of indigenous TC in a developing economy. This offers a distnctve feature compared to the previous studies in this feld which ofen did not exclude the case of foreign companies in their examinatons. The results also suggest several important managerial implicatons regarding the issue of knowledge management for domestc companies in developing economies.
Literature review
This secton provides a survey on the theories of internatonal technology transfers and knowledge management in developing economies, including some of the related empirical works. To begin with, these are some defnitons of the key terms used throughout this paper.
Technology is broadly defned as the producton methods, managerial practces, codifed know-how and other tacit knowledge by which a company transforms capital, labor, and materials into a product (Blalock and Gertler, 2005). Another useful defniton is to describe technology as the knowledge and machinery needed to run a company, which include both hardware (machineries and other capital equipment) and sofware (blueprints and manuals) of the whole company (Thee, 2001; Chee, 1981).
Internatonal technology transfers are acknowleged as the cross-border transfers of embodied technology in imported machineries and other capital equipments, as well as other diffusions of skills and technical knowhow. Internatonal technology transfers can be divided into two categories, based on their modes of transfer. Technology transfers that come from direct economic actvites are categorized in the formal mode, while ones that come from indirect economic actvites are categorized in the informal mode. The formal mode of technology transfers is made possible because technology as a form of knowledge has an important property of economic commodity. Technology is a nonrival good that can be disseminated and used simultaneously in many economic enttes (Grossman and Helpman, 1992).
When the technology transfers take place indirectly, it is usually called technology spillovers. Technology spillovers apply when: (1) companies can acquire knowledge created by others without paying for that knowledge in a market transacton, and (2) the creators or the current owners of the knowledge have no effectve recourse, under prevailing laws, if other companies make unauthorized use of the acquired knowledge (Grossman and Helpman, 1992)
Technology transfers in developing economies
Internatonal technology transfers have been intensively studied in the literatures. In this regard, there are some channels of technology transfers available for developing economies. First, the formal mode of transfer which consists of FDI, technical licensing agreements (hereafer TLA), imports of capital goods, foreign educaton and training, turnkey projects, and technical consultancy. Second, the informal mode of transfer which may take place via partcipaton in overseas markets and reverse engineering (Thee, 2005; 2001).
The next parts of this secton will discuss the importance of each of the channels of technology transfers. TLA, imports of capital goods, foreign educaton and training, turnkey projects, and technical consultancy are ofen considered as important channels of technology transfers where domestc companies in developing economies can utlize them through direct transactonal ways. They ofen involve the transfers of older technologies from advanced industrialized economies that do not offer the recipient a longterm compettve advantage in the global market. However, for companies in developing economies these channels provide affordable ways to increase their level of technological development. In additon, imports of intermediate inputs are also regarded as formal mode of technology transfers (Grossman and Helpman, 1992; Markusen, 1989). Companies which import intermediate inputs from advanced economies may also enjoy productvity gains.
With regard to FDI, it is important to note on the aforementoned classifcaton that technology transfer through FDI is ofen considered in the literatures as a formal mode of transfer. That is to see it as technology transfer from the parent multnatonal corporaton (hereafer MNC) to its own foreign afliate. However, technology transfer from FDI to the non-afliated domestc companies actually occurs informally. Hence, as much of the concern of this study, technology transfers through FDI will be regarded as an informal way of transfer. Another way to explain it is to see that MNCs have to be good at preserving their specifc advantages from domestc compettors. Therefore technology transfers through FDI may only take place indirectly in terms of technology spillovers (Dunning, 1993).
Moreover, technology transfers from FDI toward domestc companies can be distnguished into two major channels, namely horizontal- and vertcal-flows. In the horizontal-flow spillovers, MNCs may provide positve technological spillovers to domestc compettors through several mechanisms. First, domestc companies can learn simply by observing and imitatng the MNCs’ product innovatons and business practces (demonstraton effects). Second, increased competton from foreign owned companies may induce domestc companies to reduce their inefciencies (competton effects). Third, employees may leave MNCs to create or join domestc companies.
The vertcal-flows of spillovers may occur through the supply chain relatonships in either backward linkage, i.e. from MNCs to domestc suppliers, or forward linkage, i.e. from MNCs to domestc buyers. In this regard, there are two arguments which suggest that the spillovers may more likely to take place through backward linkage mechanism. First, while MNCs seek to minimize technology leakage to compettors, they have incentve to improve the productvity of their domestc suppliers, especially in the areas of training, quality control, and inventory management. Second, while the technology gap between foreign and domestc producer may limit withinsector full technology transfer, MNCs likely procure inputs requiring less sophistcated producton technology for which the gap is usually narrower (Blalock and Gertler, 2005).
Partcipaton in overseas markets can also be a channel of technology transfers when domestc companies do learning by exportng. Interactons with foreign customers and compettors provide important informaton on new products and technologies that allow domestc companies to efciently produce and improve their product qualites. Exportng creates opportunites of direct contacts with various levels of demand and preferences in foreign markets, and doing export to technologically more sophistcated markets presumably generates higher spillovers (Thee, 2005). Furthermore, foreign customers from advance economies may offer technical assistance to exportng companies to adapt their products and technologies to the requirements of internatonal markets. This is partcularly evidenced in the cases of developing economies’ outsourcing manufacturers (Pack and Saggi, 2001).
Reverse engineering is another important channel of technology spillovers in developing economies, especially regarding their limited R&D spending (Unesco, 2010). Reverse engineering is a process of discovering the technological principles of a machine through the analysis of its structure, functon and operaton. This process in developing economies ofen involves taking apart a machine from technologically advanced economies and analyzing its functons in detail for the purpose of maintenance work or sometmes in order to make a new machine that does the same functon but with minor modifcatons.
Indigenous technological capabilites and knowledge management
Internatonal technology transfers may increase the level of indigenous TC for companies in developing economies. TC means the skills, technical, managerial and insttutonal capabilites that enable manufacturing enterprises to utlize capital equipment and technical informaton efciently (Thee, 2001). TC can be differentated into two types, i.e. know-how and know-why. Know-how is about practcal knowledge of certain producton processes, maintenance, or applicaton of a product and of its sales. Know-how is acknowledged in the form of formula, designs, procedures and methods, together with the accumulated skills and experience which are usually known as tacit knowledge. In contrast, know-why is about the scientfc knowledge which represent the understanding of the principles of nature and usually codifed.
At the early stage of TC development, transfers of one type of TC named know-how are needed. However, in order to let companies from developing economies catch-up with the same level of development of the companies from developed economies, another type of TC named know-why is required. Therefore, in order to further develop TC at a more advanced level of development, purposeful investments in searching for new technological innovatons through R&D are essentally needed (Tolentno, 1993). In this respect, technology-importng economies have the challenge to maximize the transfers of the most relevant technologies. This is not simply about importng advanced technology machineries or acquisitons of the formula of sophistcated materials, but more importantly, its relaton to the development of TC. Further development of TC, partcularly a forward from know-how to know-why through investments in R&D, is crucial for the compettve advantage of manufacturing companies in developing economies (Thee, 2005).
Furthermore, the level of TC at the company level can be classifed as follows: (1) Producton or operatonal capability, which refers to the knowledge and skills required for the efcient operaton and control of producton process and the machinery in the plant, including maintenance and repairs; (2) Investment or acquisitve capability, which refers to the knowledge and skills required to search, assess, negotate, and procure the relevant technologies. Moreover, it includes the capability to install and start-up the new producton facilites; (3) Adaptve or minor change capability, which refers to the knowledge and skills required to digest the transferred technologies and to carry out minor modifcatons or improvements in the existng process or product technologies in response to changing circumstances and/or to raise productvity; (4) Innovatve or major change capability, which refers to the capability required to carry out signifcant in-house R&D in order to make radical process or product modifcatons and develop new products or processes (Thee, 2005; Kim, 1997).
The development of TC, with respect to the influence of internatonal technology transfers, will need aproper organizatonal learning. Organizatonal learning is considered as the company’s absorptve capacity toward foreign technologies (Dutrenit, 2000; Cohen and Levinthal, 1990). Organizatonal learning here is understood as the process through which companies create knowledge and acquire TC.
The process of organizatonal learning is created via a rather complex mechanism. The process basically takes place at two levels: individual and organizatonal. Learning process at the organizatonal level is not an automatc process of the accumulaton of individual knowledge and, vice versa, what an individual learns depends on what is already learnt by the other members of organizaton at the organizatonal level (Dutrenit, 2000). Learning process usually frst occurs at individual level and aferward needs to be intentonally converted into organizatonal level, in order to spread the individual knowledge to the other members in the organizaton. This process is typically made possible by effectve coordinaton of learning and knowledge integraton.
The more complex innovatonal actvites faced by an organizaton, the higher the need to integrate knowledge across technological and organizatonal boundaries. Companies need to integrate knowledge all the tme at different organizatonal levels in a way that allows the internal structure and processes to: (1) identfy and develop specialized knowledge within technological felds, business functons and producton divisions, (2) exploit this knowledge through integraton across technological felds, business functons and producton divisions (Dutrenit, 2000; Pavit, 1991).
Therefore, knowledge management is fundamental for a company to build its TC. Knowledge management is a set of purposeful efforts in an organizaton to coordinate learning processes and to integrate knowledge across functons and at all organizatonal levels. This is a departure from the traditonal method of knowledge specializaton. The objectve is to get the strategic use of the acquired knowledge at the organizatonal level. In this sense, the knowledge management of a company in developing economies is suggested to proceed at different stages (Dutrenit, 2000). At the inital stage, a company has to build and accumulate a minimum essental knowledge base of TC to engage in innovatve actvites. This inital stage of TC includes the capabilites to reduce costs, improve product’s quality and upgrade the equipment to achieve parity with the leading compettors. This stage deals with the accumulaton of some basic to intermediate-innovatve level of TC.
Aferward, the company needs to move into the transiton stage to pay adequate atenton to two partcular issues: (i) the organizatonal and managerial aspects of TC building throughout the company, and (ii) as the company approaches the internatonally technological fronters and seeks to build more complex and integrated knowledge bases, an advanced stage of technological accumulaton is needed to make the strategic use of that knowledge. At this transiton stage, the emergence of embryonic strategic capabilites in some technical-functons or knowledge felds are expected. Therefore this stage deals with the accumulaton of some intermediate- and advanced-innovatve levels of TC.
Then, at the fnal stage, the company is expected to build its strategic capabilites which distnguished the company compettvely from its compettors. At this stage, the company should also contnually maintain and renew its strategic capabilites. This stage especially deals with the accumulaton of advanced-innovatve TC in all of the technical functons.
Major channels of technology transfers in Indonesian manufacturing sector
Indonesia has long ranging aims on industrializaton. Afer some periods of isolaton, since 1967 the economy has gradually opened for foreign investment in order to boost productons and to speed up its technological development. Since the mid of 1980s the economy has also adopted greater openness to trade, including imports of machineries and intermediate goods, in order to enhance its exports of manufactures. In this regard, like many other developing economies, Indonesia is categorized as a net importer of advanced technologies. However, its level of technological development, when compared to the East Asian’s newly industrialized economies, is relatvely stll under-developed (Thee, 2005); suggestng its low level of absorptve capacites.
Comprehensive assessments by Thee (2005, 2001) toward internatonal technology transfers across industries in Indonesia, which include the textle, garment and electronics industries of the late 1990s, indicated that there had been only four major channels of technology transfers in Indonesian manufacturing sectors. Those are FDI, TLA, capital goods imports, and partcipaton in overseas markets. Morever, the studies concluded that the technology transfers typically took place successfully only at the producton or operatonal level of TC. There are only a few of them performed at the investment or acquisitve level. Note that the study observed the cases of internatonal technology transfers in foreign-owned companies in Indonesia. Most of them were under large controls of foreign managers and technical experts. Hence local workers did not learn much from the imported technologies
Lipsey and Sjoholm (2005) conducted a survey of empirical studies on technology spillovers in Indonesian manufacturing industry. The study found statstcally signifcant effects of intra-industry technology spillovers, with only litle effects that came from inter-industry mechanism. It means that backward-vertcal flows of FDI spillovers, through supply chain transactons between multnatonals and domestc companies, had been an important conduit for technology transfers, for example, in the cases where some of the American, Japanese and German MNCs confered technical and producton advice to their qualifed domestc suppliers (Blalock and Gertler, 2005). Some other multnatonals even provided useful guidance on how to access internatonal loans, expand the producton capacity and how to design new products.
Another study by Jacob and Szirmai (2007) found that the involvement of Indonesian manufacturers in internatonal trade, both via imports and exports, was also regarded as an important channel of technology spillovers. In this sense, capital goods imports from advanced economies were positvely associated with technological learning. However, the contributon from exports was found to be less important than imports.
Research method
In order to pursue its objectve, this study reviews the case of technology transfers in TRST, an intermediate-level technology Indonesian manufacturer. The company’s data for the period of 1979-2008 was gathered through various ways, i.e.: literature survey on the company’s ofcial documents, indepth interviews with some of the executves and plant managers, and several direct observatons. The observatons were conducted via plant visits which were combined with seat-in atendances on some of the daily operatonal meetngs and employee training events during the periods of 2006-2008. The status of the company as a public listed entty gives advantage for the disclosure of the data.
The utlizaton of company-level data allows this study to focus on the detail mechanisms of the technology transfers throughout the company, as well as on the many aspects of the company’s knowledge management systems. Hence this study is expected to give more explanaton on the transfer mechanisms of foreign technologies. Also, this may help researchers in this feld to further examine their econometric model and statstcal analysis. This is in relaton with the nature of a case study analysis which gives advantage of being rich in details. However, a caveat for this approach is that the fndings might be merely indicatve than explanatory, thus the fndings may not be generalized.
TRST: a forward move from domestc to global player
TRST is a flexible packaging manufacturer which was established in November 1979. The company started its inital commercial producton with the installed capacity of 4,500 MT per annum in 1986. Currently, its total producton capacity is 65,000 MT Biaxially Oriented Polypropylene (BOPP) per annum and 32,000 MT Biaxially Oriented Polyester (BOPET) per annum, making the company the largest flexible packaging flm manufacturer in Indonesia. The development of the company’s producton capacites is presented in Table 1.
| 1986 | 1989 | 1993 | 1995 | 1996 | 2003 | 2005 | 2007* | |
|---|---|---|---|---|---|---|---|---|
| BOPP | 4,500 | 12,000 | 24,000 | 24,000 | 40,000 | 50,000 | 50,000 | 65,000 |
| <BOPET/td> | - | - | - | 12,000 | 12,000 | 12,000 | 32,000 | 32,000 |
| * The additonal capacity in this period was due to the acquisiton of a producton plant in China. source: PT. Trias Sentosa, Tbk., various periods. |
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TRST envisions to be the most innovatve and preferred business partner in flexible packaging industry with a globally recognized brand. The company has been engaged in domestc and global markets. Its clients range from cigarete, snack and food, MSG, printng and laminaton, electronic, to adhesive tape industries. Since 2007, the company has commenced its internatonal producton in China.
Flexible packaging industry covers the manufacture, supply and conversion of plastc flm for retail-food packaging such as snacks and nonfood packaging applicatons such as cigaretes, personal care, household detergents, pharmaceutcals, and labeling. The products can be made from single-web substrates such as flexible plastcs (PE, PP, or PET) or can be coated or laminated with other materials like aluminum foil and paper. Product grades are determined by the combinaton of clarity, surface gloss, stffness, heat sealability, and deadfold propertes. Therefore product innovaton is the key compettve advantage for the industry. Technology wise, according to ISIC classifcaton, flexible packaging products are categorized at intermediatelevel.
While in the global market the degree of competton is high, domestcally the flexible packaging industry tends to create oligopoly structure, due to the protectons from import tariffs and investment regulatons. The Indonesian flexible packaging industry is concentrated into three key domestc players, where each of them has strong afliates in the domestc tobacco and food industries.
The Indonesian Ministry of Industry in 2007 forecasted flexible packaging industry to contnue to develop sustainably, following the growth of food and pharmaceutcal industries. However, due to the poor development of chemical industry in the domestc market, the industry is stll highly dependent on raw material imports, especially on polypropylene and polyethylene resin. Therefore the industry faces critcal challenge from the rising cost of oil-based raw materials.
The following parts will present the milestones of the company’s TC development, where a large porton of them shows the company’s reliance toward various channels of internatonal technology transfers. Aferwards, further parts will discuss the mechanisms in which internatonal technology transfers give effect to the TC development of the company. The last part will present the assesment on the company’s knowledge management.
Start-up period (1979-1988)
The start-up period was indicated by the company’s dependence on highskilled foreign engineers and technicians to set up its inital operaton. The early tmes of this period were situated under the conditon where knowledge on flexible packaging producton was considerably new for the Indonesian economy. This was as well true for the operaton of the fully and semi-automated machines used in the plant. Therefore, in this period the installaton of major imported machineries and equipments was primarily conducted by foreign engineers and technicians provided by the suppliers. On the other hand, the constructon of plant facilites and other minor equipments, such as water and energy utlites, were installed by the local engineers.
When the company was built in 1979, there were not enough local engineers who have the capabilites to set up the plant operaton. The local engineers at the middle supervisory level consisted of few inexperienced engineers who graduated from local universites, except only one of them who had been educated and trained abroad. The majority of the workers at the frst supervisory and operatonal level were graduates from high-school or vocatonal school with many of them having some years of experience in low-level technology manufacturing.
Therefore, in the early periods of producton the company relied on few key foreign engineers to lead the set up and operaton of the plant. The overall set up and operaton of the plant were actually done by foreign engineers through a turnkey project. Those engineers were hired for their experience in the same industry abroad. In this period local engineers and technicians learned much about the new tacit knowledge and technology from their foreign companions. In additon, the local engineers also benefted from the technical assistance and support from foreign technicians of the machine suppliers.
The company started its inital commercial producton of BOPP products in 1986, which at that tme primarily focused on serving its domestc afliates. Over the next years, in order to enter foreign markets, the company also hired other foreign professionals at the managerial level. They were hired especially due to their knowledge and networks on foreign markets and technical product licensing. As a result, in March 1987 the company began exportng abroad. This practce of hiring expatriates has been contnued in the following periods. However, the number of foreign professionals decreased to reach the minimum level while the number of local professionals holding key positons contnued to grow.
In summary, in this period TRST was in the early stage of building its minimum essental knowledge base. The focus was to develop some basic TC, especially to acquire and master some technical functons which related to the daily operatons of producton and maintenance. In regard to the managerial functons, the company was a beginner in learning how to market its products overseas, where most of the knowledge was in hands of its foreign workers
Rapid growth period (1989-2006)
This period witnesses a rapid development of TRST’s producton capacites as well as its TC. TRST had gradually increased its producton capacites by the installaton of several new plants and product lines, namely metalizing, BOPET, PVdC, and thermal-laminaton. The development in the company’s TC was indicated by huge investment in new imported machineries, extensive products diversifcaton, a growing number of skilled local workers in the technical and managerial functons, and signifcant organizatonal developments.
In this period, the company made huge investments in the utlizaton of advanced automated machineries imported from Japan and UK, especially for the major machines such as extruder, winder, and cuter; while most of the heavy equipments were imported from Germany. The utlizaton of cutng-edge technologies from abroad was based on the reasoning that technological development in the producton systems is a crucial part for the overall productvity of the company.
Furthermore, it is important to recognize that during this rapid growth period, all of the major projects including the assessment and installaton of new producton machineries and the building of new plant facilites were successfully conducted by the company’s local engineers of the Project Department. This department was basically responsible for the evaluaton of new producton facility, procurement of the appropriate machineries, and the supervision of the installaton and start-up processes of the new producton investment.
During this period local engineers showed their technological developments in maintaining and to some extent in making several minor modifcatons to the machineries. This was apparent, considering that some of the imported machineries were second-hand machineries from different manufacturers, therefore they usually needed additonal adjustments and modifcatons. Stll, most of the main parts for the machineries repairs were imported. Also, to fulfll the need of high-quality raw materials, which can not be afforded locally, the company depended on foreign supplies mainly from Thailand, Japan, Singapore, and South Korea.
In this growing period, R&D actvites were frst introduced. The actvites were initally delivered to seek more efcient methods in the producton processes, partcularly to help reduce the rate of defects. Aferward, the research actvites aimed to discover new product innovatons in support to the product diversifcaton strategy and to serve the growing demand of specialized products. However, within the limited budget of R&D, the company was able to conduct only on a small number of research projects which all employed fewer than ten researchers. As a result, there were no product innovatons produced. In one of the big R&D projects, new product development was almost realized. However, the stability of the product’s quality was difcult to achieve, so the new product was never brought into producton. Therefore to acquire the knowledge of new products formula the company relied a lot on the TLA mechanism, mostly from UK based insttuton, which was considerably less costly.
To support its growth strategy, TRST initated some important progress regarding its organizatonal development. New functons of R&D, quality assurance, and technical project were taken over by independent departments and embedded into the organizatonal structure of the company. In 1990 the company entered the Indonesian stocks market. Furthermore, as the opportunites of internatonal sales contnued to increase, TRST opened its internatonal representatve ofces in the USA, Singapore and China, where all of the internatonal sales managers were Indonesians. The company also ctvely partcipated in some internatonal packaging exhibitons.
Since 1995, the Quality Management Systems of TRST has been meetng the ISO 9002 standards and it received certfcaton from the Llyod’s Register Quality Assurance Ltd., London. The certfcaton was aremarkable achievement for the organizatonal development of the company. This development was initaly delivered in response to the requirements of becoming a preferred supplier for MNCs operated in Indonesia, such as Unilever and Britsh American Tobacco. Likewise, in the early 2000s the company decided to make a huge investment in the implementaton of ERP system, named SAP. This was intended to adopt to the world’s best manufacturing systems, and opened wider opportunites toward global supply chains.
Following the technological and organizatonal developments in the producton and managerial felds, in this period human resources development began to atract more atenton. For example, the employee profle in 2006 presented a development toward the frst period. The total number of employees was 971 people. It was about fve tmes higher compared to the fgure in 1988. Importantly almost a quarter of them were university graduates. Training and development actvites were also introduced and conducted regularly. Training programs were primarily intended to endorse the disseminaton of tacit knowledge in the producton and maintenance processes from senior engineers to new engineers and operators. This was important since the company contnued to expand the producton capacity through the additon of more plants and producton lines, and thus consequently needed a lot of new engineers and technicians to handle the daily operatons. In contrast to the previous period, where traning programs were all conducted by foreign engineers, many traning programs in this period were delivered by the local senior engineers. Later in the mid of 2000s training programs also included some managerial and behavioral trainings.
Other developments were made under the knowledge management systems of TRST, i.e.: the implementaton of daily producton meetng and the establishment of Engineering Department. The daily producton meetng of all managers and engineers in the producton units was an important medium for the company’s organizatonal learning. The daily meetng was conducted through online conference network that enabled personels at all plants to have a meetng at the same tme. The daily meetng was quite conducive to generate knowledge sharing across producton units, especially on the many issues of daily technical problem solving and quality improvement. Next, the establishment of Engineering Department, which consists of all senior engineers, was also another conduit of organizatonal learning. This department primarily functoned to facilitate the disseminaton of tacit knowledge in the producton processes and the regeneraton of engineers and technician, as well as to give assistance on non-routne improvement actvites in the producton units.
During this period, TRST signifcantly improved its domestc sales performance by acquiring large sales contracts as main supplier for foreign MNCs operated in Indonesia. One of the MNCs operated in personal care industry, while the others operated in tobacco and MSG industries. The contracts demanded a lot of endeavors for the company, especially in fulflling the standard requirements of quality management (ISO) and logistc management systems. This conditon was different from the cases of domestc buyers who did not require high standards on quality management or logistc management systems.
In the early tme of 2000s, the company signed a valuable insourcing contract with a Japan based manufacturer, the accomplishemtn of which required great efforts. Before the agreement ensued, the Japanese manufacturer sent its managers for a plant visit, in order to assess the plant’s facilites and partcularly its concern for the quality management systems and other product quality standards. The Japanese manufacturer then asked the company to send its product samples. Afer that, consecutve technical assistance and joint quality control were conducted by the Japanese technicians in the TRST’s plant to ensure common language on the products’ qualites. Considering the value of the project, the company dedicated one of its producton lines to serve the contract.
Another big project which was accomplished in this period was a sales contract with a U.S. based MNC. Before the U.S. MNC appointed TRST as its supplier, some managers had come for a plant visit. Unlike the Japanese manufacturer, the U.S. MNC preferred to conduct a comprehensive and procedural audit toward the plant’s producton systems and facilites as well as the quality management systems and other requirements such as safety and health standards, security systems, and some of the environmental concerns. The result from the frst audit was quite satsfactory. However, it lef few requirements to be completed, especially on the implementaton of CT-PAT security systems. Responding to the feedback from the prospectve buyer, the management of TRST then assigned a special task force to fulfll the requirements. The MNC also asked the company to send its product samples. Within several months aferward, the company had successfully completed the requirements and won the buyer’s trust.
The years of 2005 to 2006 were tough for TRST, facing the increase of the raw materials prices following the hike of oil prices. Therefore, the company strived to conduct the producton processes more efciently, especially in terms of material and energy consumpton. Since 2005 there had been serious efforts to improve producton efciencies by learning and adoptng new producton management systems, such as: 5S, Lean Producton Management, and Total Productve Maintenance. As informed by one the company’s executves, these efforts were in accordance with the guidance from a multnatonal company, Unilever-Indonesia, where the company once had a chance to conduct a benchmarking study, under the MNC’s supplier development program.
In summary, this was a very dynamic period where the company showed some signifcance progress in its TC development, partcularly strengthening its minimum essental knowledge base in the technical functons of producton and maintenance. The company also made some valuable progress in some of the managerial functons such as in the quality management, logistc management and security systems. All this progress was caused by two determinant factors: large influence of internatonal technology transfers and the building up of organizatonal learning and knowledge management in TRST.
Additonally, in this period TRST also performed beyond its inital stage of TC development to move to an early phase of transiton stage. The early phase of transiton stage was indicated by the facts that the company paid some concerns regarding the organizatonal and managerial aspects of TC development. However, the emergence of embryonic strategic capabilites was not evidenced.
Internatonalizaton period (2007-2008)
This period was indicated by the fact that while technologically TRST’s developments was at its early phase of transiton stage, the company’s growth was mainly driven by its capital intensive investment abroad. In July 2007, TRST took over the full ownership of a BOPP plant in China with a producton capacity of 15,000 MT per annum. The plant was previously owned by a Japanese MNC. The investment cost the company 5.5 million dollars and was expected to create additonal sales of 23.5 million dollars. During this period, local engineers were ofen sent to the plant in China to conduct technical consultatons with their partners in China. This overseas investment gave another evidence on the capabilites of the company to asses the feasibility of internatonal investment.
While the company’s producton methods in many areas had been standardized and therefore required a higher rato of unskilled labors, in 2008 a new President Director was appointed. He had wide experience in product development and supply chain management in a world-class manufacturing MNC operated in Indonesia. His expertse and internatonal experience were expected to be a value added to TRST, especially to nurture the culture of innovaton throughout the company. Following the expansion, the company contnued to hire more local professionals preferably thpse with experience in multnatonal companies and in the areas of supply chain or quality improvement management systems. In this period, traning programs which focus on Lean Producton Management and Total Productve Maintenance were also emphasized.
In summary, in this internatonalizaton period TRST focused on improving its TC in some important areas of supply chain and quality improvement management. Some additonal capabilites in these areas were due to the contributon of more capable human resources. However, up to this period it was not yet clear what will be the strategic capabilites of TRST, indicatng that the company’s transiton stage was stll at its infancy.
Discussion
The formal mode of transfers
In the two subsequent parts, we provide a discussion on each of the modes of technology transfers and how it impacts the the company’s level of TC. This part discusses the formal mode of technology transfers which may take place through the mechanisms of TLA, imports of capital goods, foreign educaton and training, turnkey projects, and technical assistance. The informal mode will be discussed separately in the next part. Table 2 presents the distributon of each of the mechanisms of technology transfers in TRST, while Table 3 summarizes the analysis on the impacts of each of the mechanisms of technology transfers.
| Modes | Inital Period (1979-1988) | Rapid Growth Period (1989-2006) | Internatonalizaton Period (2007-2008) |
|---|---|---|---|
| Formal | - TLA - Capital goods imports - Technical consultancies - Turnkey project |
- FDI (backward-vertcal flows) - TLA - Capital goods imports - Technical consultancies |
- FDI (horizontal flows)* |
| Informal | - Reverse engineering* - Internatonal trade |
||
| *Minor spillovers. | |||
| Mechanisms | Level of Technological Capabilites | |||||
|---|---|---|---|---|---|---|
| Producton | Investment | Adaptve | Innovatve | |||
| TLA | S (S) | S (S) | S (S) | NS (NS) | ||
| Capital goods import | S (S) | S (SN) | S (OS) | NS (NS) | ||
| Technical consultancies | S (S) | S (NS) | OS (OS) | NS (NS) | ||
| Turnkey project | S (N/A) | S (N/A) | PS (N/A) | NS (N/A) | ||
| FDI (horizontal) | N/A (S) | N/A (OS) | N/A (OS) | N/A (NS) | ||
| FDI (vertcal, backward) | S (N/A) | S (N/A) | OS (N/A) | NS (N/A) | ||
| Reverse engineering | OS (N/A) | OS (N/A) | OS (N/A) | NS (N/A) | ||
| Partcipaton in overseas markets | S (PS) | S (S) | PS (PS) | NS (NS) | ||
| Explanatory notes: S = Successful, PS = Potentally Successful OS = Occasionally Successful, NS = Not Successful N/A=Not Applicable ( ): comparison with the aggregated data of Thee (2005) |
||||||
With regard to TLA, it was apparent that since its start-up period the company has relied on this mechanism as the prime source of knowledge for producton. Likewise, choosing turnkey projects as a mode of technology transfers during the start-up period was a great success. Moreover, imports of capital goods and technical assistances of suppliers from advanced economies played a signifcant role in the development of the company’s TC. The impacts ranged from the operaton and autonomous maintenances to the assessment and even the modifcaton capabilites of the producton processes along all of the periods. Nonetheless, the impacts of foreign educaton and training were low compared to technical assistance. This was because technical assistance was generally more practcal in use.
Additonal minor impacts from the turnkey projects became visible in the internatonalizaton period, when the company took over a plant in China. It proved TRST successful in applying its producton and investment capabilites into a ready-to-operate plant. More importantly, this partcular TC may potentally be employed in the company’s future internatonal investments.
Since most of the technologies were acquired through direct transactonal mode, then it was secure for the company to maximize its usage throughout the periods. However, this mechanism will not bring the company to have compettve advantage in product innovaton. Therefore the future challenge is to endorse the contributon of the company’s internal R&D functon in order to make radical product innovatons to fght frece compettons locally and globally.
The informal mode of transfers
Some informal technology transfers in TRST has taken place through the mechanism of FDI, partcularly through the vertcal spillovers mechanism. However, the case of horizontal spillovers from FDI practcally had no effect since there was no foreign investment operated in the Indonesian flexible packaging industry; except for a minor indicaton that was likely to take place in the internatonalizaton period, when the company hired some local professionals with extensive previous experience in MNCs.
The influences of backward-vertcal flows of spillovers were revealed in the cases where the company was appointed as the preferred supplier for MNCs which operated in the domestc personal care, tobacco and MSG industries, during the rapid growth period. The MNCs assisted the company in improving its managerial functons in terms of the adopton of ISO and beter logistc management systems.
In the case of TRST, the evidence of reverse engineering as a mechanism of spillovers was not conspicuous, shown merely by the ability of the engineering team to conduct minor modifcatons into the imported producton machineries. In many other cases, they stll depended on technical helps and assistance from foreign suppliers. Product modifcatons were also quite small to consider.
Partcipaton in overseas markets had been one of the important sources of technology spillovers, as revealed in the cases of insourcing actvites to the Japanese and U.S. buyers. Opening the internatonal representatve ofce as well as the partcipaton in internatonal exhibitons offered many advantages of beter communicaton with internatonal buyers, understanding the global market trends and at the same tme learning from the advancement of other producers. Accordingly, TC developments through this mechanism were modest. It is indicated by the abilites of the company to broaden its investments through the opening of several internatonal representatve ofces and the partcipaton in many internatonal exhibitons.
Assesment toward the knowledge management systems
Considering that TRST was highly dependent on foreign technological innovatons, the company implemented some initatves to improve its TC, namely through building some mechanisms of knowledge management. The previous sectons have pointed out some major mechanisms of knowledge management in the company.
First, since its fast growing period, the company has introduced intensive human resources traning and development programs. This was intended to cover knowledge diffusions of both technical and managerial functons at all organizatonal level and across units. Second, the company has established some units which functoned as the knowledge centers. This includes several independent units of R&D Department, Projects Department, and Engineering Department. The R&D Department was reponsible for developing TC in new product development. The Projects Department was partcularly in charge of developing TC in assessing and setng up new investments of plant facility. The Engineering Department functoned to facilitate the disseminaton of tacit knowledge in the producton processes, the regeneraton of engineers and technician, and to give assistance on non-routne improvement actvites in the producton units. Third, the company had insttuted a unique medium of knowledge sharing through the daily online meetng in the producton units. All of these had shown the high concern of the company toward the importance of coordinaton of learning and knowledge integraton.
Furthermore, facing the increased challenges in the industry, TRST eventually expected to acquire TC in product innovatons, which is the key compettve advantage in the industry. For instance, the establishment of R&D Department in the rapid growth period was intended to discover new product innovatons, that is in support to the company’s product diversifcaton strategy and to serve the growing demand of specialized products. Nevertheless, while TRST was able to learn from advanced foreign technology to operate, invest, and to a certain extent make minor changes, the company has not yet shown its capabilites in making product innovatons. A clear evidence on this was the fasco of the R&D Department in producing new innovatve products. This may indicate some limitatons in the company’s knowledge management systems especially in the processes of making the strategic use of the acquired foreign technologies. In partcular, the R&D functon in the company has not yet been able to upgrade its TC from acquiring the know-how to the know-why of product innovatons.
Overall, TRST has been successful on accumulatng a minimum essental knowledge base during the three periods of development, especially on the technological and managerial functons of the producton systems. Knowledge integraton at this stage allowed the company to reduce costs, raise product quality, and improve its producton technology to achieve parity with other advanced manufacturers in this industry. From this point of view, the company has done well in upgrading its indigenous TC to the intermediate-innovatve level. However, this achievement was not enough to maintain the compettveness of the company. TRST needed to contnue doing its best efforts to upgrade the company’s TC to the advanced-innovatve level. At that moment, the company was stll at its early transiton stage to build its embryo of long-term and strategic capabilites.
Conclusion
In support to the previous studies, for instance by Thee (2005, 2001) and Blalock and Gertler (2005), the result of this study found some evidence on the influences of foreign technology transfers on the domestc company of a developing economy. In this case, along its development periods TRST benefted from internatonal technology transfers especially through the major mechanisms of TLA, capital goods imports, turnkey projects, technical consultancies, backward-vertcal flows of FDI, and partcipaton in overseas markets (see Table 2).
This study also found that the impact of technology transfers toward the domestc company’s indigenous TC is at intermediate level, indicated mostly by the producton and investment capabilites and few indicatons of adaptve capability (see Table 3). This is generally in accordance with the aggregated ‘natonal data’ compiled in Thee (2005), except that the results on Table 3 seem to give a more promising fgure. There was also an indicaton of the role of technology transfers toward the company’s TC to assess and deliver its internatonal producton. This is following the typical development of MNCs from developing economies (Tolentno, 1993).
With regard to the fndings, there are some managerial implicatons that can be suggested. First, in order to absorb more benefts from foreign technologies, a domestc company in developing economies needs to make more effort and investment on in-house R&D actvites as well on the human resource and organizatonal developments. All of these could work as catalysts of higher TC developments, especially for a company which produces technology-intensive products.
Second, a domestc company in developing economies needs to make improvements in its knowledge management systems, partcularly with the intenton of serving its innovatve capabilites. In this sense, the domestc company needs to pay more atenton to the aspects of coordinaton of learning and knowledge integraton at all organizatonal levels. This would include some integratve mechanisms of: building small cross-functonals teamwork with broad tasks, setling overlapped problems among different stages of projects and producton functons, creatng a pool of knowledge and expertse, setng boundary spanning integrators (i.e. individuals who stand at the interface between different specialized units or internal and external knowledge bases), making strategic rotaton of personel, and inducing informal communicaton networks in the organizaton (Dutrenit, 2000).
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