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The Transfer of technology to Taiwan : a look at the question of technical dependency and several factors… Hoy, Thomas Richard 1980

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THE TRANSFER OF TECHNOLOGY TO TAIWAN: A LOOK AT THE QUESTION OF TECHNICAL DEPENDENCY AND SEVERAL FACTORS AFFECTING THE CHOICE GF TECHNOLOGY by THOMAS RICHARD HOY B.A., The University of British Columbia, 1976 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF Master of Business Administration in THE FACULTY OF GRADUATE STUDIES Department of Commerce and Business Administration We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA May, 1980 (c) Thomas Richard Hoy In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of Br it ish Columbia, I agree that the Library shall make i t freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the Head of my Department or by his representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department nf Cow«wvte and cW.'ftrtS Arfiw»'i WrW^fa) The University of Brit ish Columbia 2075 Wesbrook Place Vancouver, Canada V6T 1W5 £ - 6 B P 75-5 1 1 E ABSTRACT The term Ttechnologyf refers to the totality of means employed by mankind to harness a variety of resources to its economic benefit. Levels of technology seriously affect economic growth. In the less developed countries (LDCs), where levels of economic development are by definition low, vast amounts of technology must be transferred in before any significant economic growth can become possible. This study is divided into three main areas. The first looks at channels for the transfer of technology with special attention to the question of continuing technical dependency. The second and third look at factors which, i t is hypothesized, have an important bearing on the choice of technology namely: technology information, and a number of general, technology related factors. Continuing technical dependency is a widely discussed phenomenon in the literature on technology transfer. Much criticism has been directed at the transferor, especially the multinational corporation (MNC), for variously restricting the transferee^ ability to gain the maximum advan-tage from the transferred technology. Because of the widespread nature of such criticism, i t is expected that such restrictions w i l l also be a problem in Taiwan. The aim of this part of the study is simply to ascer-tain the extent of the problem or, i f there is l i t t l e or no problem, to formulate hypotheses as to why this is the case. Information is essential in a technology transfer decision. Such information can eome from inside the firm but the most important sources, i t is expeeted, are those from the outside; commercial enterprises, government agencies, business associations, and special linkages (in i i particular subcontracting, and personal friends). It is expected that commercial sources will be the most prolific. The academic literature, however, describes such sources as often incomplete or biased. Thus, i t is hypothesized that LDC transferees, despite their relative technical ignorance, wil l also perceive such sources thus., and wi l l try to corro-borate or supplement any information they receive. Government agencies for the gathering and dissemination of tech-nical information have been established in a number of LDCs and i t is expected that the government on Taiwan will have done likewise. However, i t is hypothesized that, firstly, the ability of such an agency to provide relevant and timely information to potential transferees and, secondly, the willingness of such potential transferees to seek out and/or use such information wi l l be limited. Business associations, on. the ether hand, are expected to be a much more popular source of technology related information. Based on the Japanese model, i t is expected that firms in Taiwan wil l have access to a high flow of information within their various associations, especially between the larger, more established firms and the smaller, newer firms, and especially in those industries characterized by distinct market areas, standard product lines and/or well established technologies. Sub-contracting is one kind of special linkage between firms which serves as an important source of technical information for small firms in Japan. As with the case of business associations, i t is hypothesized that close historical as well as contemporary economic links between Taiwan and Japan wil l mean that such a source is also important in Taiwan. Another special link i s , of course, personal contact. Given the extra degree of uncertainty involved in a LDC transfer of technology from a i i i foreign, developed country, i t is hypothesized that such personal contacts w i l l play a role out of proportion to their real worth. The third main area of this study takes as its basic premise that the object of any transfer of technology is economic advantage. Three factors are looked at, however, which i t is hypothesized, w i l l have a major influence on the perception of this economic advantage. These factors are the complexity, compatibility and divisibility of the tech-nology. Given the extraordinary technical adjustments which transfers to a LDC often demand, i t is expected that such factors may well play a special role in the choice of technologies in such settings. As to the question of why do a study on the transfer of technology to Taiwan in particular, the answer is simply that, of a l l possible LDCs, Taiwan was the only one where the writer was equipped and able to do extensive field work. Taiwan,, of course, has many features in common with what might be thought of as the average LDC: i t is in Asia, in a hot climate, has very few natural resources, is densely populated, has suffered serious social and economic disruptions within the lifetime of most of its citizens and has received generous amounts of foreign aid. Thus, i t is in many ways representative of LDCs in general. More important, how-ever, is the fact that despite these similarities, Taiwan's recent, rapid development has been so markedly dissimilar to the general pattern observed in LDC economies. This would seem to indicate that perhaps Taiwan has somehow been more successful in its experience with technology transfer. If so, a study of this experience might produce insights of value to other less successful transferees. iv ACKNOWLEDGMENTS I would like to thank Professor J.W.C. Tomlinson, my supervisor, for his help and assistance; also, Professors P. Nemetz and S. Swartz for their valuable comments and advice. A tremendous debt of appreciation is also due to those people in Taiwan who helped set up so many valuable tours and interviews. In particular, I would like to thank Chiu Han-Sheng and Li Cheng-Lung, two old and good friends. Thanks also to Mrs. Jean Wrinch for her excellent work in checking and typing the final draft. Most of a l l , however, I would like to thank my wife for her patience, support and assistance throughout this whole undertaking. I am sure no one is happier to see the successful completion of this theseis than her! v TABLE OF CONTENTS Page ABSTRACT i i ACKNOWLEDGMENTS V I. INTRODUCTION 1 A. Technology Defined 1 B. Transfer Channels and Criticism Thereof 4 1. Continuing technical dependency 5 1. Restriction on employment and training of local personnel 6 i i . Restriction of local R&D 7 i i i . Restrictions on field of use 8 iv. Restrictions on sub-licensing 9 v. Restrictions on acquisition and use of competing technologies 9 v i . Restrictions on purchases of spare parts, components and processed materials 9 II. EXAMINATION OF SEVERAL IMPORTANT FACTORS AFFECTING THE CHOICE OF TECHNOLOGY 10 A. Technology Information 1. The importance of information 10 2. Sources and channels 11 i . Inside sources 11 i i . Outside sources 12 a) Marketer controlled 12 b) Government agencies 12 c) Business and professional associations 20 d) Special linkages 22 B. Technology Related Factors 24 III. TAIWAN: AN OVERVIEW 27 A. The Land and the People 27 B. History 28 C. Economic Development 31 IV. SUMMARY OF THE DATA 35 V. CONCLUSION A. The problem of Continuing Technical Dependency in Taiwan 50 i . Restrictions on training and employment 51 i i . Restrictions on R&D by the transferee 55 i i i . Restrictions on field of use 58 iv. Restrictions on sub-licensing 58 v. Restrictions on the acquisition and use of competing technologies 59 v i . Restrictions on the purchase of spare parts, components and processed materials 60 vi TABLE OF CONTENTS - continued Page B. Technology Information 62 1. Inside Sources 62 2. Outside Sources 64 i . Marketer controlled sources 64 i i . Non-marketer controlled cources 69 a) Government agencies 69 b) Business associations 72 c) Special linkages 76 C. Technology Related Factors 82 D. Lessons From Taiwan*s Experience with the Transfer of Technology 98 VI. APPENDICES 1. Cases 102 2. Government Agencies Involved in the Provision of Technical Information 170 i . The Science and Technology Information Centre 170 i i . The Small Business Service Centre 176 i i i . The Union Industrial Research Laboratories 177 3. Government Regulations Relating to Investment and Technology Transer 183 A. Investment by Foreigners 183 B. Investment by Locals 185 C. Investment by Government 188 TABLES AND MAP 190 FOOTNOTES 198 BIBLIOGRAPHICAL NOTES 207 v i i TABLES Page TABLE I. SUMMARY OF THE DATA: GENERAL INFORMATION 44 TABLE II. SUMMARY OF THE DATA: TECHNOLOGY INFORMATION 47 TABLE III. SUMMARY OF THE DATA: TECHNOLOGY RELATED FACTORS 48 TABLE 1. PER CAPITA R&D EXPENDITURES IN LDCS 190 TABLE 2. INFORMATION SOURCES OF SMALL FIRMS IN JAPAN 191 TALBE 3. TAIWAN: COMPOSITION OF EXPORTS 192 TABLE 4. TAIWAN: STATISTICS ON OVERSEAS CHINESE AND FOREIGN INVESTMENT BY YEAR 193 TABLE 5- TAIWAN: STATISTICS ON FOREIGN INVESTMENT BY YEAR AND BY AREA 194 TABLE 6. TAIWAN: STATISTICS ON FOREIGN INVESTMENT BY INDUSTRY AND BY AREA 195 TABLE 7. NATIONAL ORGANIZATIONS FORMALLY COOPERATING WITH STIC 196 MAP: Island of Taiwan 197 v i i i 1 I. INTRODUCTION A. Technology Defined The popular idea is that technology is simply machines and equipment— •the tools of man* so to speak. However, a more complete definition would include the requirement 'and the knowledge to use them*. To distinguish i t from other branches of human knowledge, however, the distinction is made that such knowledge must be of an applied nature. Technology thus is the "application of knowledge to practical purposes...the totality of means employed by a people to provide itself with the objects of material culture." Because of its direct link with man's material culture, such know-ledge has great economic importance. Technology has always played an important part in man's li f e on this planet whether he realized i t or not. Certainly, the primitive cave man didn't conceive of himself as living in an era of 'stone age' technology, nevertheless,he most certainly realized the importance of his tools and weapons to his well-being and, indeed, very existence. A fuller appreciation of the important role of technology in our lives, however, only began to emerge with the epochal changes wrought by the industrial revolution. In the works of the classical economists, Malthus, Ricardo and Mills, technological change for the first time became a consideration of economic theory. Increasing interest in this matter was later shown by Adam Smith and Karl Marx. In the twentieth century, the work of Joseph Schumpeter added further weight to the view of the importance of technological change in the economy, both as a factor giving 2 rise to short-run instability and long-run economic dynamism. 2 Gradually then, economists have come to realize the importance of the so-called 'technology factor' in economic development. In the last three decades expecially, a large number of econometric studies have attempted to quantify the contribution of this so-called 'technology factor' to economic development. Although disagreeing on exact numbers, the consensus is nevertheless clear that this factor is one o f t h e s i n g l e most i m p o r t a n t 3 variables i n economic g r o w t h . Thus,growth in a nation's technological capacity can be seen as setting a c r i t i c a l ceiling on a nation's long term rate of economic growth.^ Growth in this technological capacity is directly influenced by two important factors: f i r s t l y , the amount of indigenous research and development work being done and , secondly, the amount of developed tech-5 nology being transferred in. However, as the amount of indigenous research and development (R & D) work done in the less developed countries (LDCs) is generally quite small, especially relative to the tremendous amount of technical adjustments which must be made i f an LDCs level of economic development is to catch up to that of the developed countries, the role of technology transfers from abroad assumes tremendous importance in such development. Speaking in more practical terms, i t can be seen that such technology as may need be transferred to an LDC can relate to any one or more of a vast number of applications. Broadly speaking,technology associated with industrial projects consists of knowledge needed to appraise, design and construct the project; knowledge needed to operate the project and to market i t s output; and knowledge needed to keep the project from becoming obsolete because of world-wide technical progress. More specifically, industrial projects need some or a l l of the following elements of technology:^ 3 a) feasibility studies, market surveys and other pre-investment services; b) determination of the range of, and subsequent choice of, technologies; c) industrial processes; d) engineering design; e) plant construction, installation; f) training of technical and managerial personnel; g) management and operation of production facilities; h) marketing information, and i) improvements to processes and product designs. Often, however, an LDC firm finds itself needing technology in more than just one area and so 'packages' of technology are put together by either a single transferor from its own resources or by a transferor acting, in effect, as a general contractor and gathering the technologies of a number of separate firms. Conceptually speaking, technology can be considered as coming in two forms. Firstly, and most simply, i t can come 'embodied' in a tangible, physical form. This is closest to the popular conception of technology. The object 'embodying' this knowledge may be the actual means of production, a machine, or i t may be something necessary for the establishment or main-tenance of that production facility, such as a tool, or i t may be the documentation, blueprints or technical specifications that are required to get the machines and tools working. Using the jargon of the computer programmer, i t can be seen that 'embodied' knowledge can be either hard-ware or software. Either way, i t is a tangible good. 4 The second and more subtle form which technology can take is the so-called intangible or 'disembodied* form. This refers to knowledge which exists separately from physical objects, residing instead in the hands and minds of its human masters. Such disembodied technology has been variously described as 'know-how*, 'do-how* and * show-how*. Despite its insubstan-tive nature the importance of such knowledge to a transfer of technology is often found to be critica l . JB. Transfer Channels and Criticism Thereof with a Special Look at the .Problem of Continuing Technical Dependency Broadly speaking, there are three types of channels through which flows of technology can take place: philanthropic, military and commer-cial. Because, however, transfers in the first two channels are generally limited in their effect on economic development by comparison to the effect of commercial transfers, and because of the difficulty of getting infor-mation in these areas, I have chosen to concentrate on commercial channels alone. Technology can be transferred commercially through one or a com-bination of means including 1) foreigm direct investment (FDI), in particular by means of branch plant, subsidiary or joint venture operation; 2) the purchase of machinery and equipment with documentation on operation, maintenance, repair, etc.; 3) license agreements for proprietary or otherwise unique tech-nology and, 4) independent professional services including those of various engineers, technicians, managers, etc. Traditionally FDI, generally by MNCs, has been the single most 7 important means of transferring technology to LDCs. The importance of such firms as developers and suppliers of technology will of needs con-tinue. However, increasing criticism of them by IDC governments, inter-national bodies and academics has encouraged the greater development and utilization of the other channels mentioned. One of t,he main points of criticism has been that the present technology transfer (TT) system has 8 tended to perpetuate the technological dependency of the transferees. Before passing on to Section II then, I propose to examine in more detail the various general aspects of this problem. Hopefully, the specific data in the case materials later on will provide further insight into why this i s , or isn't, a problem in Taiwan. 1, Continuing technical dependency Technical dependency is generally taken for granted in the case of local branches and subsidiaries of MNCs. Certainly?the superior technical expertise of the parent is often one of the main factors leading to the 9 original decision to establish such an operation in the first place. Once such a relationship of technology dependence is established i t is usually taken for granted and is unlikely to change. In a study in Mexico for example, Strassman found that out of thirty local affiliates of MNCs, only one had ever purchased any additional production machinery on its own. The rest simply continued to take whatever the parent firm chose for them. Technological dependence, however, is not just a problem experienced by MNC subsidiaries,but also, to a very important degree, by otherwise •independent' local firms. To a degree, this problem of continuing depen-dency is a result of factors within the LDC or firm itself, such as the 6 inability or unwillingness of the local firm to undertake R&D and the local firm's valuation of local as opposed to foreign technology. These will be examined later. Here, however, we shall concentrate on just the external factors. Often contractual restrictions will be placed on the local firm by the transferor regarding use of the technology and other related matters. Some of these restrictions may be justified by the transferor as necessary to protect certain bits of proprietary knowledge which i t developed at some cost to itself and to ensure a reasonable rate of return for its disclosure. Many contractual restrictions, however, have been viewed by the transferee, local governments and international agencies as being excessive. It has been charged that in many cases such restrictions pre-clude the fullest use and/or development of local materials, technical skills and management abilities in constructing and operating the projects and, furthermore, that they often displace rather than complement local innovative skills. Several specific areas of such restrictions have been identified.^ These are outlined below. i . Restriction on employment and training of local personnel -The claim has often been made that MNCs have been unduly restricting the training and advancement of local nationals within their operations, thus perpetuating an undue dependence on foreign personnel. Chang, however, in his study on the transfer of semiconductor technology, reports that because of the high costs of providing home country managerial and tech-nical support to offshore operations there is a recent tendency in such IS operations toward training and employing more lower cost local personnel. Nevertheless, there would s t i l l seem to be a tendency to reserve certain key positions for expatriate staff. Such a decision may be justified in part by the non-availability of trained local personnel, the risks involved in training and introducing local staff in key positions, and the desire of head office to maintain close control over the key decisions in the operation. Restriction of the training of local personnel is also possible where an independent local firm contracts for technical training as part of a technology transfer package. Thus, although contracted to give a complete training in the operation and maintenance of a certain technology, the transferor may choose to withhold certain bits of know-how so that he may charge again separately for them sometime in the future. Conversely, i f not careful the transferee may find himself contracted to an overly long and overly detailed (not to mention overly expensive) training. i i . Restriction of local R&D - MNCs, i t has been noted, generally do very l i t t l e R & D in their overseas operations. A study of U. S. A. multinationals found, for example, that only 6% of their total R&D expen-13 ditures were .done abroad. One important explanation for this is given 14 by the product li f e cycle theory. According to this theory, products produced in LDC operations are generally already in or well advanced towards a 'mature' stage of commercial production. Thus,the associated production technology has probably already been fully developed and operationalized at the MNCs main, developed country plant. When eventually transferred to the various lower production cost LDC operations, there is then often felt to be no need for further development or modification of the 'proven' technology. Even i f an MNC does do some R & D in its overseas operation, its effect on the local economy may be quite limited. This is especially so i f the operation is export oriented. In such a case, the MNC will seek to integrate the local facility into its world-wide scheme of materials 8 supply, production, distribution and marketing. Thus 'extroverted*, the operation has l i t t l e contact with the rest of local industry. Once traditional intra-industry relationships, such as those of raw material suppliers and sub-contractors to the producer have been superseded, an important informal means of technical diffusion is lost. As a result, much of the technology introduced locally by the MNC into i ts own plant remains locked in there. In addition to severely limiting R & D in their own overseas opera-tions, i t has been noted that many transfer .of technology arrangements place limitations on the independent transferee's freedom to undertake 1 5 his own research. Such limitations may vary widely in their scope, de-pending largely on the transferor's own market and research activities. Limitations may even be placed on adaptive research or on the recipient's freedom to introduce changes in the technology acquired. Where there are no such limitations, the transferee may instead be required, through a so-called 'grant back' requirement, to pass back to the transferor, often free of charge, any future inventions or modifications related to the original technology. Furthermore, such grant backs are not always reciprocal: the contract may not require the original transferor to update the transferee's technology when the former makes technical advances. The original transferee may also be limited as to whom i t can sell or license its own, newly developed technology. Obviously, such restrictions as these may act as a powerful disincentive to the development of a local R&D capacity and hence wil l tend to perpetuate the technical dependence on foreign MNCs. i i i . Restrictions on field of use - Here the transferor may only license the technology for specific applications, reserving other areas 9 of application for itself or third parties. iv. Restrictions on sub-licensing - Licensors of technology generally impose the obligation not to transfer, assign or sub-license rights to a third party. Sometimes this obligation even continues after the expiry of the licensing agreement and even after the expiry of the patents themselves. New entrants thus are not able to acquire the tech-nology locally and must purchase i t abroad with a subsequent unnecessary burden on the country's balance of payments. v. Restrictions on acquisition and use of competing technologies -Suppliers of technology may attempt to justify this as necessary to ensure certain levels of quality, especially where the supplier's trademark or brand name is involved. However, the room for abuse is obvious. v i . Restrictions on purchases of spare parts, components and processed materials - This, i t has been stated, is "one of the most 16 significant—and common—forms of restriction." - The tied purchase of such items from the i n i t i a l suppliers not only means in many cases higher costs to local buyers but also reduced opportunities for existing or potential local suppliers. It is expected that in Taiwan today, because of the tremendous economic growth and,hence,experience with TT over the last two decades and, further, because of the well publicized criticisms of the MNC, often touching on many of the points raised above, the business and industrial community will be well aware of the nature of these problems and will actively seek to avoid such limitations in any TT contracts they enter into. It is also expected that the government will, given its important interest in the broader question of economic development, have enacted legislation to prohibit the more disadvantageous of such contractual limitations. II. EXAMINATION OF SEVERAL IMPORTANT FACTORS AFFECTING THE CHOICE OF TECHNOLOGY The most critical step in a technology transfer project is that 17 where the actual choice of technology is made. After that point the die is usually cast: once a poor choice is made, i t is often very difficult i f not impossible to achieve the original economic goal. I therefore intend to examine a number of factors which have an important influence on this choice. These pertain, firstly, to the quantity and quality of information available on the technologies and, secondly, to the potential transferee's evaluation of the technologies in the light of several basic technical considerations. A. Technology Information 1 . The Importance of information The choice of technology implies a great deal of risk for the decision maker. Because this risk is a function of possible consequences and the uncertainty of these consequences, risk can be reduced in two way3, firstly, by reducing the possible consequences of a bad choice or, secondly, by increasing the certainty of a good choice. The first is basically a negative approach: the possible consequences of a wrong de-cision can be reduced simply by reducing the size of the commitment, that is to say by purchasing less or no new technology. The second is more positive, and here information is the key. The more you know about the technology and the ramifications of its transfer the greater wi l l be the 18 chance of achieving a successful transfer. It is for this reason that we now look at the matter of information and its sources in the technology transfer process. 1 1 2 . Sources and Channels Information on technology and technology suppliers can be distin-guished as to its source and the channels by which i t is communicated. Sources of information on technology can, like the technology itself, originate from inside or outside a firm. If the source of the information is outside then we can further distinguish i t as to the channel used to communicate i t ; either marketer controlled or non-marketer controlled. The former includes most importantly the •commercial agent1 employed by technology suppliers to promote the sale of their technology. At his disposal is usually a large amount of documented technical information in the forms of charts, graphs, specifications and brochures. Non-marketer controlled sources include primarily government agencies, business and professional associations, as well as the informal industry grapevine. The reason for the increasingly important role of these, especially government agencies, is the perception that marketer controlled sources of technical information by their very nature usually f a i l to present a broad, unbiased picture of the technology available. i . Inside sources - In developed countries, in-house R&D can provide a major portion of technical information leading to technology 19 adoption choices. Given the observed much lower levels of such R&D expenditures in LDCs, as shown in Table 1 , i t is to be expected that such inside sources of technical information are relatively unimportant in Taiwan. The ability to do R & D in LDCs is largely restricted by historical factors limiting the economy as a whole: lack of resources, both capital, financial and human, absence of economies of scale, and foreign control of important sectors. However, i t has been noted that even where the 1 2 ability, not to mention the need, to perform in-house R&D does exist, such work is often not undertaken. One reason is that the value of such work is not appreciated. As one observer reports: Innovation as a process is not understood. Small changes or modifications are frequently viewed as insignificant, an attitude intimately connected with prevailing conceptions of 'science*.... To many in industry, science means men in white coats in large laboratories with expensive equipment. There is l i t t l e awareness that research is an on-going process performed on many levels. Little effort or encouragement is devoted to research that could be economically conducted within the firm. Even i f an LDC firm does understand the process of technological innovation and the importance of R & D, i t may s t i l l feel intimidated by the technological advantages of large foreign firms. In such a situation i t may simply be easier to buy what is needed abroad. Such a course wil l often have its economic justification. However, sometimes i t is motivated by an unjustified feeling of technological inferiority. Thus, we would expect that whether i t be from an inability or an unwillingness to undertake in-house R&D, inside sources of technical information will generally be relatively weak in LDC firms. i i . Outside sources - Outside sources can be broken down into marketer controlled (i.e., commercial) sources, and non-marketer sources. The latter includes government agencies, business associations as well as so-called 'special linkages*. (a) Marketer controlled Research in the developed countries has shown that whereas non-marketer controlled information channels are the most important sources of information in regard to determining general consumer attitudes, marketer controlled sources are far more important as sources of informa-21 tion leading to the actual purchase choice. Especially c r i t i c a l in this process is the human element...the so-called commercial agent who presents and persuades. Given the often radically different social and economic environments found in the technology transferor's and transferee' locales, we expect that the importance of the commercial agent in inter-preting and presenting his employer's information to the local market wi l l be even more critical. The importance of such an agent was under-scored by the research of Cochrane in Puerto Rico where he found that although American trade literature was widely read, i t apparently had l i t t l e affect in terms of actual purchases unless combined with a variety 22 of commercial contacts. Research in Mexico similarly led Strassman to observe that in that country, "salesmen and manufacturers' agents may 23 well be the most extensive carriers of technical information." Given the importance of the commercial agent in the purveying of such marketer controlled information, we would expect the availability and usefulness of such information to be directly tied to the numbers of such agents. Given what one by definition assumes to be the relatively small and technically unsophisticated industrial structure of an LDC economy, we would expect that the numbers of such commercial agents would be relatively small and that this would prove a bottleneck in the flow of such information. Quantity aside, there is also much concern about the quality of marketer controlled technical information. A recent UN study on this topic observed: An organization trying to sell its technology to a developing country will only rarely give such com-plete and unbiased advice that a proper selection of technology can be made on that basis alone. 24 This of course avoids the question of whether such an organization is fully capable of providing the requisite information. Unfortunately, this does not always seem to be the case. Often the experience of poten-t i a l suppliers is limited to that gained in operations in radically dif-ferent social, economic and natural environments. Even more basic is the question of the supplier 1s mastery and understanding of his own tech-nology. As one researcher noted, "Unfortunately, many equipment manufac-turers. . .lack sufficient knowledge about the characteristics and the 25 physical and economic performance of their equipment." Assuming a constant environment, there is no need for a technology supplier to spend the time and money required to generate such knowledge. However, i t is more the exception than the rule that transfers of technology to LDCs encounter environments similar to those of the transferor's country. The result is then often that the LDC transferee is sold 'off-the-shelf* technology that turns out to be quite inappropriate to his needs. One possible .means of avoiding the pitfalls inherent in an over_ reliance on technology suppliers as sources of information i s , i f the anticipated transfer project is of sufficiently large si<ze^ , to employ 15 professional consultants to generate information and aid in the technical decision making at anyone or more of the project's stages or in regard to any one or more of the various elements of technology required. Even assuming that such consultants are technically competent to undertake work in the often radically different LDC environments, however, there sometimes arise other problems. As one critic sees i t , "Developed country engineering organizations which take part in LDC investment pro-jects have their own logic; to promote the sale of equipment from their 2 6 country of origin." Another critic states furthermore that, "the part played by the engineering consultancy firms which are subsidiaries, whether they recog-nize i t or not, of multinational firms... / i s / to...secure the conversion of the product into a 'merchandise* packageensure the pre-eminence of world technological processes, ... /and toj enlarge the distribution channels for the merchandise, coordinate them, etc. for the sole benefit 27 of the multinational firm." Another critical, although less conspiratorial, view is that, "When planning the lay-out, supervising construction and initiating production, the consultants usually consider familiar patterns to be satisfactory i f they are feasible at a l l . Technologically, consulting engineers tend to be 'satisficers' with the familiar, not optimizers from among possible alternatives. And what is familiar to them is the practice in an 28 industrialized country." Which ever view is taken, however, i t can be seen that the infor-mation value of such technology consultants is not without its short-comings. 16 Clearly'then, the quality of such marketer controlled information, whether i t be from the ultimate supplier or from an independent foreign consultant cannot simply be assumed. We would thus expect that in cases where the transferee is unable or unwilling to critically evaluate the proposed technology on the basis of other than just marketer controlled information, serious problems may occur. (b) Government agencies Increasingly aware of the inherent limitations of marketer controlled sources of technical information, many LDC governments have undertaken the responsibility of improving access to technical information. This has necessitated work in several areas, most importantly in the acquisition of information, its re-organization or re-formulation into relevant form, its storage and finally i t s dissemination. The need for and potential advantages of such government involvement have been succinctly stated by UNCTAD: .... Availability of information on alternatives is a prerequisite for obtaining technology on the best possible terms and conditions.... The search for alter-natives, however, is likely to be expensive and d i f f i -cult for any single enterprise. That enterprise may wish to purchase technology only very infrequently and hence be unwilling to maintain an up-to-date l i s t of alternatives. A centralized body, however, could provide such a service for a l l enterprises; its expertise and permanent interest in the available technological possibilities would enable i t to give information to each enterprise which that enterprise could otherwise have obtained only at great cost. The advantages of having a centralized body collect and distribute information about alternatives are not confined to the improvement of the terms obtainable by each buyer. There is , in addition, the possibility that enterprises which had previously not perceived any technological oppor-tunities may now realize that i t is advantageous for them to enter the market for technology. Hence the provision of < such information could increase the number of buyers of technology at the same time as making possible the conclusion of each contract on more favourable terms. 29 The National Scientific and Technical Information and Documenta-tion Network established in Mexico is a good example of the institutional 30 form such a programme can take." The Industrial Information System part of the network includes three main services: 1) Technical Information Service; 2) Technical Inquiry Service, and 3) Technical News Service. The Technical Information Service publishes a monthly bulletin containing selected technical abstracts and also undertakes direct visits to small and medium sized industrial firms to determine the kind and amount of information they need. The Technical Inquiry Service responds to technical questions by first going through its own resources and i f they are inadequate eventually contacts international organizations such as UNIDO. The Technical News Service publishes and distributes industry specific newsletters to firms in a number of important industries as well as a general newsletter on administration and pollution. How well such a system works is another question however. This depends on two factors—the quantity and quality of the information available and the attitude of the potential users towards the source. In regard to the first point, i t has been observed that the infor-mation actually available in such developing country programmes is not always as complete as the complexity of the network might suggest. In Korea, for example, a 1974 report on the "information capabili-ties and needs of academic, governmental and industrial organizations" found that, ...information of a l l types was unavailable and what was available was too old...only the organizations associated with universities and the university library systems had 18 adequate access to published literature. Even that literature was late by several months, which was a reflection of the attitudes of the people involved.... The absence of special and national libraries and collections was especially noted along with the absence of any system such as information analysis centres for production of special studies to meet the needs of the industry. Also, the infrastructure to handle informa-tion was almost totally missing. 31 On this basis we might expect that whereas Taiwan may well have agencies in place charged with the tasks of gathering, organizing and disseminating technical information, the quantity and quality of such technical information and the efficiency of its delivery may be low. As to the question of user attitudes regarding such institutional-ized sources of technical information, a Japanese study on small firms showed a definite tendency for firms to avoid government related and 32 academic sources of information. (See Table 2 )• For example, in a total sample of 499 companies in a range of industries, only 37 or 7.4$ reported seeking information on industrial technology from the respective government agency involved, while only 83, or 16.6$ of the companies sought information from national or public R&D institutes. Only slightly more sought information from academic sources—86 or 17.2$. The study concluded that information from such sources was per-ceived as not as immediately usable as information from non-government sources. That is to say, such information tended to be of a more general or theoretical nature than what the practical Japanese businessman often required. It is expected that government information in Taiwan will be similarly perceived. The attitude of a potential user towards a government information service may be largely influenced by his attitude toward the government as a whole. Unfortunately, i t has been noted in Taiwan, business1 attitude Is one of suspicion and wariness. Managers of both large and small firms feel they operate at the will of the government, which is considered at best capricious. Mo matter what their commitment to the state, people in industry feel strong antipathy, mixed with awe, toward government officials. These officials are felt incapable of continual and effective action and, like the government they compose, are felt frequently to 33 behave arbitrarily and with a haughty manner. Such a negative attitude of course may also be a result of the businessman's perception of the importance of his own individual accom-plishments. He may thus resent even the best intentioned approaches of a sympathetic government agency. As one Puerto Rican businessman remarked: Then these development boys come and ask i f they can help me or other managers with our problems. Now isn't that ridiculous? I spent years building up this business. I've lived with these problems day after day and know them like my own children. Maybe I had decades of experience before and these characters come and say 'Let me solve your problems.* They never saw a plant like this before. 34 Because of such attitudes then, we might expect that business wil l tend to avoid government information sources. Whatever role such special factors may or may not play in affecting business attitudes, however, i t is clear that there naturally exists a certain amount of passive disinterest. Such was the case in the United Kingdom where that country*s Technical Advisory Service (TAS) found that, even offering a free technical advisory service, they could elicit l i t t l e spontaneous response from the target business community. TAS concluded that, just like commercial agents, they too must actively and persistently push their services before business before the latter would respond: A proportion of the time of the staff had been spent visiting firms and telling them what can be offered. As soon as this process is reduced the number of en-quiries falls so a continuous effort has to be made. 35 Given the already very negative attitude of business toward govern-ment then, one would expect that the Taiwanese government will have to actively promote its service i f i t is to serve a useful function. In spite of these generally negative expectations about the ability of the Taiwanese government technology information service to help local firms, i t should be noted that in the Japanese study on small firms cited earlier, an important minority of firms did indeed make use of these sources. These firms were often identified as being R&D oriented and tended to be Tearly adopters1 of technology in their respective industries. Thus, we may expect that in Taiwan there will also be such an innovative minority. Indeed, perhaps i t will be found sufficient for government to simply service these few firms in the vanguard of industry and to let the rest learn by imitation from them. This point will be explored further in the following sub-sections. (c) Business and professional associations It has often been suggested that business and professional associ-ations be developed in the LDCs to assist local firms in the transfer of 36 technology. A successful general model of such an institution is the Japenese one. Although Japan is no longer considered an LDC, the history of i t s present system of business associations extends back well over half a century to the days when Japan was just beginning to develop her industry. In that country business, albeit with considerable cooperation and assis-tance from government, has organized itself into a strong, cohesive body. 21 Although various of its functions have changed over the years one of the Japanese business associations continuing and most important ones 3 7 has been the dissemination of technical information. In this regard, the numerous associations form 'nodal points' in a national network of technical information flow, receiving information directory from abroad as well as from government agencies, processing i t and distributing i t in the form of pamphlets, reports and journals. Perhaps more important, however, is their function as a meeting place where ideas can be exchanged and discussed informally. As one observer of Japanese business remarks, Managers of the top class of companies attend the meetings of business associations, and exchange managerial, technical and market information. Early introducers speak to members about their ex-perience in the use of new machines, ^productivity and so on. Other members thus learn of new tech-nology and of the possibilities of introducing i t . 3 8 The business association would thus appear to be an important poten-t i a l source of technical information in the LDCs, especially for the smaller v firm. Whether or not the Japanese model is lasily reproduced elsewhere, however, is a difficult question. Taiwanese business and industry have developed from quite different social and cultural roots. Indeed, the business association has a long history in pre-industrial China. Thus, despite strong economic ties and a great admiration of the Japanese economic success, factors which incidentally are generally shared'through-out the region, i t does not necessarily follow that Taiwan is willing or able to successfully imitate such an institution. We would, nevertheless, assume that Taiwan will have some form of business associations and that they will play some role in the diffusion of technical information. The cases will hopefully provide more insight into the questions of the similarity and the comparative efficiency of such associations in the two countries. It is expected that the amount of technical information diffused throughout any one business association will not be the same as in another but wil l largely depend on a number of specific industrial factors. For example, i t was noted in the case of Japanese business associ-ations that the exchange of technical information was greatest in those industries producing nationally standardized products with the same quality and design, and those producing items with high weight to value. It should however be noted that a l l the firms in that particular study were in technologically non-intensive, traditional sector industries. The usefulness of the business association in the technologically more intensive, modern sector industries such as electronics and chemicals therefore remains unclear. One would suspect,though,that given the often very high costs incurred by the i n i t i a l transferee,not to mention the probable restrictions placed on him by the transferor,the transferee i s unlikely to part with i t freely. The role of business associations as sources of technological information in such industries would thus probably be much more limited, (d) Special linkages Apart from the general linkages discussed above, a firm may also have access to important information through a number of special linkages. These may be the result of ownership, whereby one firm owns a l l or a major portion of another, or commercial relations, where one firm*s success i s closely tied to that of the other, or simply personal contacts. The most obvious example of special information linkages arising through ownership is that of the MNC subsidiary. However, since the subsidiary is really only an extention of the MNC i t makes l i t t l e sense to talk of linkages as information flows freely at the wil l of the parent. Where ownership can be important, however, is where small, independent local firms are linked to larger, independent local firms. 'Certainly, an outstanding example of this can be seen in Japan where 53$ of a l l small 39 firms are owned and controlled by larger firms. The implications for the flow of technical information are obvious. Thus we expect that in Taiwan, to the extent that such an industrial structure exists, i t wil l prove very effective in disseminating technical information. The exploitation of existing commercial relations, as for example between supplier and producer or between contractor and sub-contractor(s), can also be important. Because of the symbiotic nature'1 of the relation-ship, there wil l probably be less of a desire to withhold information than would be the case in an association of firms in the same business. In Japan, for example, approximately 25% of a l l small firms have under-taken independent sub-contracting work (in addition to the 53% mentioned above who are controlled by larger firms and do such work on a non-40 independent, directed basis. In such a relationship, i t is often to the advantage of the larger, senior firms to strengthen the productive abilities of their associated junior firms and so indirectly improve their own competitive position. Often in such relationships, the senior firm can itself provide the technology required by the junior firm. These senior firms in Japan, however, do not monopolize the information sources of the sub-contractor junior firms. In many cases they may only provide information leading to contact with an outside supplier. Thus although over k0% of a l l Japanese sub-contracting companies reportedly desired technical guidance from the 41 senior, contracting firm, outside sources were also very important. Either way, the search for information and the choice of technology are made much easier for the junior firm by its special linkage with the senior firm. The exploitation of personal contacts to gain important technical knowledge is another firm of special linkage. Research tells us that personal recommendation is an extremely important factor in any purchase 42 decision. We would thus expect the transferee to fully exploit such sources in technology transfer decisions, especially where the perceived complexity of the technology is high and his personal experience low. B. Technology Related Factors Research confirms the common view that economic advantage is the primary motivation in a decision to transfer technology. That is to say, "The more profitable this investment is to others that are available the greater is the chance that a firm's estimate of the profitability w i l l be high enough to compensate for whatever risks are involved and i t wi l l 43 seem worthwhile to install the technique rather than wait." It has been observed, however, that even in the developed countries, the calculation of expected profitabilities for new technologies is much more difficult than is generally acknowledged. Especially in cases where experience with similar technology is scarce or contradictory, the final 44 decision is often a function of other, less quantifiable factors. In LDCs, such formal calculations are, i f anything, even less rigorous. Wells observed in Indonesia, "Rarely do studies, whether by foreign or local firms, evaluate alternative technologies and ask what the incremen-t a l return is on extra capital employed in the more capital intensive processes. If the return on the proposed technology is satisfactory, the 45 matter is generally not further investigated." 25 It is therefore expected that a number of non-quantifiable technology-related factors wi l l play an important- role in the technology choice. These factors are: 1) compatibility, 2) complexity, and 46 3) divisibility. Compatibility refers to the degree that the new technology is congruent with not only existing technology but also with existing values. A number of studies on the diffusion process in general indicate that the degree of compatibility, as perceived by the members of the social system themselves, directly affects the rate of adoption. Complexity refers to the degree to which a new technology is re-latively difficult to understand and use given a present level of tech-nology and associated knowledge. Studies generally suggest a negative correlation between technological complexity and technological adoption. One study even rates this as the most important technology related factor in the diffusion process, second only to relative economic advantage. Thus, a l l things being equal,, we would expect a firm with a relatively low level of technical sophistication to be less likely to adopt newer, more sophisticated and.hence relatively more complex technology than would another.firm with a higher level of technical sophistication. Divisibility denotes the degree to which a portion or sub-set of the technology may be used in a t r i a l operation. The adoption of a new tech-nology is a risky undertaking, especially for the early adopter. Evidence has shown that early adopters in particular perceive divisibility to be a very important technology characteristic. Later adopters, on the other hand, being able to observe the results of their predecessors face 2 6 less risk and so are less concerned with divisibility. It is expected that these non-quantifiable technology related factors w i l l play an especially strong role in the choice of technology in Taiwan. This is because not only do we expect profitability calculations to be weak, but also because of the relatively greater amount of technical ad-justment which must be achieved to bring the LDC firm up to its target level. That is to say, the transferee, aware of the risks involved in such a great adjustment, will pay especial attention to these crit i c a l technical factors. 27 HI. TAIWAN: AN OVERVIEW A. The Land and the People Taiwan is an island approximately 240 miles long and 90 miles wide situated 40 miles off the China coast halfway between Shanghai and Hong Kong. Although the island covers 13,800 square miles, about two-thirds of this area is virtually uninhabitable, being broken by a rugged range of mountains that stretches from north to south along the whole central and eastern portions of the island. Most of the arable land and human settle-ment are found along the western coastal plain or, as in the case of Taipei, the capital, in flat river valleys. Except for its rich s o i l , which can yield up to three rice crops a year, Taiwan is relatively poor in natural resources. Other agricultural crops include tropical fruit, sugar cane, and tea. Twenty-five per cent of the total land area is now under c u l t i -vation. However, that amount already includes many marginal areas. Non-agricultural resources include modest amounts of coal, natural gas and hard woods. Despite considerable hydro-electric development, energy is a problem. Uncertainty as to supply has pushed the government into looking for o i l in the Straits of Taiwan and embarking upon an ambitious nuclear power program. The population of Taiwan in 1978 was approximately 17 million. Settlement is concentrated around three major urban areas: Taipei in the north, Taichung in the middle, and Kaoshiung in the south (see map). Taipei has grown the fastest. However, recent government economic policies have tried to shift industrial development to the other two cities as well as to smaller centres. A l l three major centres are served by harbours and are interconnected by a recently upgraded r a i l and highway network that has much improved transportation. 28 The population of Taiwan, with the exception of several thousand aborigines of Malayo-polynesian descent, is Chinese. A popular distinction is made between those whose families were the original settlers, and who presently make up over 80$ of the population, and those whose families came from various parts of mainland China following the Communist victory. The former group mostly speaks a distinct Taiwanese dialect while the late-comers, while perhaps also having their own regional dialects, primarily use the Mandarin Chinese dialect. This latter dialect is in fact the universal dialect amongst a l l Chinese, and most of the native Taiwanese also speak i t fluently. Bv History Although the roots of Chinese civilization sprang up in northern China nearly three millennia ago and had spread as far south as what is today northern Vietnam two millennia ago, the first permanent Chinese settlers only arrived on Taiwan near the end of the Ming dynasty (1368 to 1662). In the early decades of the Ch'ing Dynasty (1662 to 1911), such migration was actively discouraged by the government. However, during the 19th century, increasing numbers of Chinese from the adjacent coastal provinces of Fukien and Canton crossed the Straits of Taiwan to escape the poverty and communal strife of their home areas. Central government control of Taiwan was always weak. As a popular expression, s t i l l recalled today, states, in Taiwan there was "a small 47 rebellion every three years, a big one every five". Since the inclusion of the island in the Ching Empire, i t had been only loosely administered as part of adjacent Fukien province. However, in 1885, as the Ching Dynasty became increasingly fearful of the intentions of various foreign powers in the area, Taiwan was quickly upgraded to f u l l provincial status. 29 Unfortunately, in 1895 China became embroiled in a war with Japan over spheres of influence in Korea. As a result of her shattering defeat, China was forced to make an ignominious settlement which included the cession of Taiwan to the victorious Japanese. At that time the Chinese population on the island was about three million. Although local gentry quickly proclaimed the establishment of the Republic of Taiwan (Asia's fi r s t ! ) , organized resistance among the people was quickly suppressed by an efficient and sometimes ruthless Japanese force. Under the new colonial administration, an impressive economic infra-structure was soon established. By 1903, for example, a railroad connected the north and south. Roads, harbours, telegraph lines and postal service were also soon established as were land reform, public health services and a limited public education system. The cornerstone of this new administra-tion, which operated on a strict though generally fair rule of law and order, was a large, efficient police force. The people of Taiwan were comparatively well off during the 50 years of Japanese rule which ended in 1945- Compared to their brethren on the mainland, they enjoyed a reasonably comfortable and secure existence free from the host of natural and man made calamities that plagued the rest of China during this period. Although there was at times some popular agita-tion for more local c i v i l rights, there was l i t t l e widespread nationalistic feeling or even great dislike of the Japanese. Nevertheless, the return of the island to the Nationalist Chinese government of Chiang Kai-shek in 1945 was greeted enthusiastically. Unfortunately, the shortsighted imposition of a corrupt and ruthless military administration soon antagonized the local populace. As the c i v i l war on the mainland between the Nationalists and the Communists spread, the Taiwan economy was bled white to support the Nationalist cause. On February 28, 1947 spontaneous riots broke out in Taipei against the new administration but were quickly put down in a bloody reign of terror that extended a l l over the island. Memory of that event continues to play a part in the consciousness of the people even today. As Nationalist control of the mainland slipped quickly away in 1948 and 1949, Taiwan became a haven for increasing numbers of refugees. By December 1949, when the defeated Nationalists formally moved their government to Taiwan, there were nearly one million of them in addition to an original population of seven million. Initially, the fate of the exiled government was unclear, however, with the outbreak of the Korean war, the United States once again firmly committed itself to the support of Chiang Kai-shek' Nationalists. On the military side this meant an important mutual defense treaty and military supplies. On the economic side this meant a massive infusion of American aid (see below) and eventually the encouragement of private investment. Government in Taiwan today s t i l l remains the monopoly of the Nationalist party. Although popular representation and freedom of political expression is quite great at the local level, while somewhat less at the provincial level, at the highest, so-called national level, the government entertains l i t t l e public debate on critical policy questions. Recent changes in the international political climate, including the replacement of Taiwan's representative at the United Nations by that from Peking, and the recognition of the latter government by Japan and the United States, have severely isolated Taiwan politically. Although there has been no indication that this has had much effect on the Taiwanese economy, i t nevertheless does seem to be having a marked affect on internal politics. The Nationalist party and government, now under the more prag-matic leadership of Chiang Ching-kuo (who succeeded his father, Chiang Kai-shek, upon the latter's death in 1975), have made well publicized moves to include more local Taiwanese people in positions of authority. A government slogan currently being given much emphasis underlines this new concern— Tung Chou Kung Tu, or literally translated, fwe are a l l in the same boat...'. C. Economic Development Economic development under the Japanese was primarily in agriculture. To increase production, the colonial administration invested heavily in agricultural research, land improvement, irrigation, fertilizer and trans-portation as well as in the organization and training of farmers. Although some light industry was developed, the Japanese gave no thought to developing heavy industry. Taiwan was to serve primarily as the bread basket for the home country. The debacle on the mainland leading to its exile on Taiwan was not without lesson for the Nationalist government. One of the main reasons i t saw for this defeat was its inability to control the economic situation. Thus, economic development was to be a primary policy objective on Taiwan. Government policy in the early years was summarized by the slogan, "Developing agriculture by virtue of industry and fostering industry by virtue of agriculture". Rising productivity in agriculture, i t was planned, would provide a strong base for industrialization. As its first step, the government instituted a comprehensive program to reconstruct and develop Taiwan's agriculture which had been run down during and after World War II. An important part of this program was extensive rent reduction 32 and land redistribution. During the same period the government also began to encourage import substitution in consumer and some intermediate goods. However, by the mid and late 1950's, the easy stage of import substitution had ended and the government had to re-think its strategy. In the early 1960fs a new economic strategy was embarked upon which sought to capitalize upon Taiwan's most abundant natural resource, cheap labour, and to develop export industries. At the same time, an effort was to be made to improve the local investment climate for foreigners and to expand the necessary economic infrastructure. Another economic goal was to be the continued diversification of agricultural production and the improvement of agricultural productivity. These objectives were summarized in the new slogan, "Developing agriculture by virtue of industry, and 49 fostering industry by virtue of foreign trade". ' By the mid 1960's, the value of exports had increased dramatically, moreover, their composition had clearly swung from the agricultural to the industrial. (See Table In the decade of the 1970's the government has continued to stress the great importance of export industries, however, i t has changed the emphasis from labour to capital and technology intensive ones. As well as actively encouraging private investment in this area by locals and foreigners 50 alike, i t has itself undertaken major projects in a number of key areas. Most notable are the 'Ten Major Projects' which include, as well a number of large infrastructure projects, a nuclear power plant, a shipyard, an 51 integrated steel mill and a petrochemical complex. - Another important thrust of present economic policy is the increased mechanization of agricul-ture. Economic growth, however, has not been the only objective of the Taiwan government. As Samual Ho observes, 33 .... From the moment i t retreated to Taiwan in 1949, and continuously thereafter, the Nationalist govern-ment pursued three major objectives—rapid economic growth, stable prices, and a strong military presence— that at times have been In sharp conflict with one another. Because of Taiwan's great needs and its limited resources, the strains created by conflicting objectives were intense. Without foreign aid to re-lax binding constraints on the economy, i t is unlikely that these objectives could have been achieved. ... 52 Fortunately for Taiwan, the resumption of American military and 53 economic aid with the Korean war provided such assistance. In the period of 1946 to 1967, i t was estimated that the Americans provided $2.7 billion (U.S.) worth of military assistance to the Nationalists. In the period from 1951 to mid 1965, when i t was terminated, American AID provided 54 , $1.5 billion (U.S.) worth of economic assistance. Without wishing to downplay the critical role of the Nationalist government in making Taiwan's development an economic 'miracle', the tremendous importance of this assistance, measured not only in straight financial terms but also in terms of the tremendous amount of technical advice and assistance provided, can not be underestimated. Foreign investment, as well as aid, has played an important part in Taiwan's economic development. Between 1952 and 1977, foreigners (including 55 overseas Chinese) invested over $1.7 billion (U.S.) locally. (See Table 4). This has mostly come from the United States and Japan, (see Table 5 ), and has been concentrated in the manufacture of electronics and electrical appliances, chemicals, and machinery and equipment (See Table 6). As a result of the above mentioned factors—supportive government policy, and massive foreign aid and investment and, not to be forgotten, the initiative and industry of the people themselves—Taiwan has had one of the world's highest sustained rates of growth otfer the last three decades. During the 1960Ts and up until 1973 real gross national product expanded annually at a rate of over 10$. In 1974 and 1975, this rate slackened due to the worldwide economic slump. However, in 1976 growth picked up to 11.8$ and in 1977 was 8.08$, bringing the GNP to $19.5 billion (U.S.) and 56 per capita income to $1,079 (U.S.). By raising its per capita income beyond $1,000 (U.S.), Taiwan had officially raised itself from the ranks of the less developed countries. IV. SUMMARY GF THE DATA 35 The various experiences of a diverse group of fourteen companies and organizations in Taiwan with technology transfer were studied during two months of interviews in the summer of 1978. The main findings are summarized in precis - and tabular form at the end of this section. A fuller description of each case is to be found in the appendix. It was felt that to concentrate on one industry or one technology would have required a technical expertise which the writer does not possess. Furthermore, because of the limitations of available contacts in Taiwan, such a priori selectivity was impossible. Instead, i t was hoped that a broader data base would make i t easier to draw conclusions more representa-tive of Taiwan's experience with technology transfer as a whole. To this end, data on a wide range of experiences was gathered covering different industries, different technologies and different degrees of sophistication and cost. Transfers from, as well as to, Taiwan were examined as was the f u l l range of ownership and transfer forms. The usual procedure used in gathering data was to visit the actual plant or factory and interview as many people involved with the choice and implementation of the transfer as the situation would permit. Failing that, the writer would interview key participants or knowledgable parties wherever they could be found. Introductions were generated through a number of personal friends. This resulted in visits to a wide range of firms. Because of these personal introductions, the writer was invariably given a good reception and was able to gather 'inside' information on the transfer to the extent of the respondent's knowledge. A possible bias in the data, however, arises from what may have been a tendency of the respondents to point to successes while downplaying or omitting to mention any unsuccessful transfers with which they were in-volved. Thus, i t was noted in particular that none of the respondents in the small and medium sized firms interviewed reported any failures or even major difficulties in their transfers of technology. (But then perhaps i f they had had such problems, they would no longer have been in business.) It was only the employees of larger firms and industry con-sultants who described such difficulties. Another possible limitation-- of the data may lie in the fact that, especially in some of the larger firms, the writer was often only able to interview top line personnel and could not meet their staff counterparts and/or superiors. Thus, although the actual implications of a particular technology choice, as experienced by the line manager, could be well docu-mented, i t was sometimes the case that the f u l l range of factors affecting the original choice were not so clear. Be that as i t may, however, the cases summarized below are s t i l l thought, together, to present a good picture of the technology transfer experience in Taiwan. Yuan Pao Company Ltd. Today Yuan Pao is a large, vertically integrated leader in Taiwan's agro-business industry. With about $50 million (U.S.) in annual sales, i t provides animal feeds and a variety of food products for local and export markets. In the early 1960's the fledgling company became one of the first local firms to upgrade its animal feed milling and mixing capabilities by contracting for the design and erection of a highly automated Swiss milling plant and the transfer of related Japanese know-how in the area of scien-t i f i c mixing of special feeds. Despite some i n i t i a l start-up problems, both transfers were highly successful. 37 Tung Meng Textile Company Ltd. Tung Meng is the main synthetic textile plant of the huge family owned Tuntex Group of companies. Started in 1968, Tung Meng now employs over 1,000 workers and has worldwide sales of over $10 million (U.S.). In such operations, speed and reliability are generally the overriding criteria in the choice of technology. At the outset, the best names in European and Japanese equipment were purchased. In the early 1970fs,several expansions of the plant fs original capacity were undertaken. At that time the company was reportedly experiencing a shortage of funds for such capital expansion and so opted in a number of areas to try out locally made equip-ment. The results were mixed,but in one important operation were a complete failure with the locally made> equipment having to be totally replaced by imported Japanese equipment despite the fact that the locally made product was supposedly an exact duplicate of the Japanese. Ta Yhun Industrial Company Ltd. Ta Yhun manufactures a variety of non-ferrous, die-cast items, including aluminum motorcycle parts, for primarily local industry. Started in 1964, the small family operation has gradually expanded its operations so that today i t employs about 60 people. In 1970, the firm began to gradually upgrade its plant to increase production speed and gain more precision. A number of transfers of technology from various Japanese manufacturers followed. In an industry characterized by hundreds of small operators, Ta Yhun is considered one of the more progressive. Despite cut-throat competition, Ta Yhun has remained successful and continues to grow. 38 Liang Chi Industry Company Ltd. Liang Chi's main product is fiberglass reinforced plastic (FRP) water cooling towers for large commercial and industrial air conditioning and cooling units. The firm currently employs about 400 people and has over $5 million (U.S.) in sales to markets as far away as the Middle East and Europe. In the mid 1960fs the firm sensed a developing market for such products. Up to that time i t had been involved on a small scale in the manufacture of a variety of small plastic products but had been doing some experimentation in the use of FRP. In order to obtain special know-how in the areas of chemical mixing and production, i t contracted for the trans-fer of Japanese technology. Although the know-how obtained at that time has since been diffused throughout the industry, Liang Chi has managed to maintain its position of leadership in the industry established at that time. Chi Lu Industries Ltd. Chi Lu is a large corporation with strong government connections arising from its traditional involvement in the manufacture of such strategic products as synthetic rubber tires and explosives. In 1972 the company decided to diversify its operations to include the manufacture of FRP panelling for the burgeoning local building industry. At that time the market was already well served by traditional, labour intensive methods. Chi Lu, however, felt that a certain highly automated, capital intensive technology from Denmark would be more profitable. Unfortunately, a number of critical operational cost factors were not fully anticipated and the new technology proved both uneconomical to use and uneconomical to modify. As a result, the whole operation was closed down in 1978 after several years of losses. 39 Epoch Ltd. Epoch is a small, family run firm employing about 60 people involved primarily in the printing of polyester fabric for foreign and local garment manufacturers. Shortly after its establishment in 1972, the firm was successful, partly as a result of the experience and innovativeness of its founder and partly as a result of industrial piracy, in developing a low cost alternative to a highly revolutionary and expensive French tech-nology in the field of synthetic fabric printing. Epoch consequently enjoyed a brief period of windfall profits, however, industrial piracy soon removed the firm's technical advantage. This increased local competiveness, accompanied by rising labour costs, has encouraged a trend towards the establishment of subsidiary operations throughout the lower labour cost areas of Southeast Asia while at home the smaller firms are gradually giving way to the larger, better capitalized ones using capital intensive European technology. Firm X. Firm X is a small firm producing various sizes and shapes of FRP containers. Its experience is instructive for what i t reveals about the government control mechanisms for the control of the licensing of foreign technologies. In 1976 the firm applied through the proper channels for approval to license Japanese technology for the production of certain FRP products. After a thorough review, however, the government ruled that the know-how in question was no longer unique or valuable, having for the most part already been diffused locally following Liang Chi fs transfer of tech-nology in the same field some ten years earlier. The application was therefore turned down. 40 San Hsing Hardware Works Ltd. San Hsing is the special case of an LDC firm which has not only-developed its own technology but which, through constant R&D, has made that technology the best in its field worldwide. Originally involved in themanufacture of door hinges and related hardware in the mid-1960Ts, the dynamic founder of the firm became interested in nut forming machines when i t was rumoured that a local businessman had paid nearly $100,000 (U.S.) for an imported German machine. By 1968, San Hsing had developed, on their own, their first nut forming machine. Although having only 60$ of 1 the production speed of the imported model, i t was already faster than anything else made locally and, what is more important, cost less than $3,000 (U.S.) to make. Since then, continuing R&D has resulted in newer models that have become recognized as the best in the world. This success is seen in'an increase of sales to approximately $10 million (U.S.) in 1977 to a l l parts of the world, including Japan and Western Europe. Presently over 70 members of the 560 member work force are directly involved in R & D as the firm is embarking on plans to develop and market improved production systems in related technical areas. Fu San Ltd. Fu San is a small manufacturer of steel reinforcing rods and the machinery used in their production. Although this technology reportedly "hasn't changed in over two decades" since its original introduction locally, and is in fact reportedly about to be replaced by a radically more energy efficient technology of recent local invention, i t is s t i l l in demand in other, lesser developed countries where low cost and ease of operation and repair are important factors. The cost of such a technology purchased in Taiwan can be significantly lower: approximately $80,000 (U.S.) as opposed to $100,000 (U.S.) or $160,000 (U.S.) in Japan and Europe. 41 Taiwan VCM Limited (TVCM) TVCM was established in the late 1960's as a joint public-private company to build the first vinyl chloride monomer (VCM) plant in Taiwan. VCM is an essential material for the manufacture of a variety of plastics. Two plants were erected; the first one in 1971 using a package of traditional technology purchased from an existing Japanese user, and the second one, slated to open in 1974 but delayed to 1976, using a package, including radically new and untested technology, contracted for with a large American engineering firm. In both cases TVCM opted for the least expensive alterna-tive available, to their later regret. In the first case, the older tech-nology was soon found to be significantly more expensive to produce than production available from other sources and, in the second case, the un-tested nature of much of the technology package resulted in long and very expensive delays in f u l l start-up. Electronics Industry Research Centre (EIRC) The EIRC was established in 1974 by the Taiwan government as part of a master plan to encourage the rapid evolution of the island's indus-tries toward a more knowledge intensive state. The specific plan in this case was to establish a vital R&D capacity in the fast moving electronics field and to link to i t a 'model factory' which would develop commercial prototypes and the related production technologies and then sell them off to local industry. With the f u l l resources of government behind i t , the EIRC conducted a careful search of available technologies finally choosing a package offered by RCA. Full operation of the model factory was not slated until 1980. However, the R&D side has already achieved a number of important accomplishments, especially in the field of IC design and manufacture. 42 Texas Instruments (Taiwan) Ltd. The electronics giant, Texas Instruments (TI), established its Taiwan operation in 1968. Today i t employs over 3,000 people a l l of whom but two are local nationals'. The basis of its broad product line is the so-called integrated circuit (IC). Although the knowledge intensive stages of R & D and product design remain in the United States, more of the criti c a l work of 'wafer1 fabrication is being done locally in addition to the vast majority of labour intensive assembly and testing. TI has instituted extensive training programmes for its personnel in a l l areas of its opera-tions and these people, especially those in the actual line operations, are in great demand in the local electronics industry. Thus, a large amount of especially production technology has been diffused locally. Kuang Pao Electronics Company Kuang Pao is perhaps the most successful of a number of firms producing light emitting diodes (LED) for the local electronics industry which have directly 'spun-off from Texas Instruments. Four individuals, with separate expertise in each of the areas of planning, engineering design, production and maintenance, provide the solid technical base of the firm. Interestingly,the unique TI style of 'management technology' has also been carried into the new operation. ABC (Taiwan) Ltd. ABC is the disguised name of. a well known MNC manufacturer of wrist watches with over 20 factories world-wide. The Taiwan operation, started in 1968, today has over 4,000 employees a l l of whom but two are local nationals. The operation is primarily one of manufacture and assembly of components. What components aren't made in-house are received from the MNCs other plants and 100$ of production is exported. Al l R&D for new prototypes continues to be done i n the United States. However, recently for the f i r s t time, i n i t i a l production of a complicated model of quartz d i g i t a l watch was undertaken in Taiwan. This resulted in a significant upgrading of local s k i l l s and responsibilities in the area of production engineering. This technology, now perfected, has since been transferred by the Taiwan personnel to other Asian operations of the MNC. TABLE I SUMMARY OF THE DATA: GENERAL INFORMATION Source Switzerland Japan local 'pirate Switzerland local 'pirate' Germany I!" " = s Japan Denmark Subsequently •pirated* to CD o« CO to o c Adoption cycle (H C cd o a> rH TJ TJ S S C •a f i c c c cd Q) cd o> early K-h re-quired to operation-alize low high c! c c c rH |... high low I Transfer method (transfers •out1  in brackets) purchase service con-tract purchase it it Q) u c s c u licence & service contract purchase Approximate date developed to o m £ c to o v O C S C o rH CO CO CO CO O O O v D •» >? tt) H 4 ) h TJ cd cd c * H rH 0) g » o •» . TJ i H S late '60s Date acquired CO o v O U E cd Q) 1973 1973 1973 CV U"\NO CO t> t> O - t> o O O o i—1 rH rH i—1 O v O ON rH 1972 Company ; Technology(s) Yuan Pao feed milling plant mixing technology Tung Meng double twist ; machines 1 weaving machines j dyeing machines ' final setting Ta Yhun i various models of automatic, non-ferrous die cast-i ing machines Liang Chi fiberglass rein- \ forced plastic (FRP) K-h | Chi Lu automated FRP panel manufacture TABLE I SUMMARY OF THE DATA GENERAL INFORMATION - continued © U 8 to c o •rl I c •H Vi •a 0) (0 s I .5 3 p c — © x) f t ® CT P © 05 0) U £> «H 5 a CO •-0) CO o § •H O . ( H O O •v v. cd 0) © 3 V l o 13 c * o 13 © H -P Vi cc) crj i H CD I I O C CO -P o V i i H X> -P •C o at 9) I h h N cr o co St Q C C 3 8 v, < H T J 91 O CO C -C OS -p EH £ +3 6 CO (-< © C 0) « H -H p © AS o S» O Vi • JO CO c •CO © « O A w C n fx, CO CO c © o •o m . s >> -P CO -r) © © to 3 1 CD CO O JS.-*. CO C P -P & CD CO C a O H T ) i j CO - H to 2 r H •>— rH co a) PH CD P tj CD CD a+a > Pu aj CD «: XJ XJ o CD P M H ' a) >>» CO CD I \ b 0 CD CD C CO CD -H cd CO CO £ £ C O O CD U Vi O a as » CO CD CD O 8 CO o XJ •H S NO C - C > O O O H r i H CO O O CO CO o Vi r H CO CD 13 Q XJ CD V. •H & U CO CV P-o u o XJ NO CO t> a a a cfl i H sO t>- O O O O H H r l CO o V) rH -4-C- £> O O r-i H if a CO o 6 o o © CJ EH O O •H 13 -P c CO t H •H P JSi o 81 Vi JO M cd CVH Vl © CO © c•H Vi P. 1 1 e FRP c • H 0} c' c0 CO I a © +3 X! C 3 O © C CO O a 5!l 3 60 5 to p o 43 C cd •H « H g > -P « H CO © C0 Vi © XJ/-N • H a v. p o > ( H • O V i P © O G C p •H Q V i > M P. Company Technology(s) Date acquired Approximate date developed Transfer method (transfers •out* in brackets K-h re-quired to operation-alize Adoption cycle Subsequently * pirated* Source Texas Instruments various elect-ronics technolo-gies including light emitting diodes (LED) mid 1970s early f70s FDI high early yes MNC parent Kuans Pao LED mid 1970s early '708 spun-off high early yes MNC subsidiary ABC watchmaking, including quartz digital watches 1975 mid '70s FDI (sub-sequently lateral to other LDC plant medium i early — MNC parent 47 TABLE II SUMMARY OF THE DATA: TECHNOLOGY INFORMATION Problems from use of personal friends CO CO fl) I o o Q> 1 1 j l o o o o 1 C C 1 1 1 I C C O C Use of personal friend n co co co a) o> o> a> I j i I o o o o Subc ont ract ing as source co 0 0 0 ) 0 0 0 I O 1 o o o o C C ^ C C C I C I C C C C Business Assoc. value as informal • source high high high nil nil nil nil low high nil nil Business Assoc. value as formal source JS £ ^ r-i r-i r-t r-i £ * rH rH o o q -H - H - H 'H O O - H H rH r-i C C C C H CV • i H fl - C Government in-formation sources used 0 0 0 0 0 0 0 0 0 0 1 0 1 C C C C C C C C C C I C 1 Foreign or local consultants used rH ciS O O O O O O O O O O l O 1 C C C C C C C C O C I C 1 rH i Actual inspection i of technology 0) CO CO CO CO CO CO CO o> <p o> o> o I o) o 1 a) i a> Language of materials ._. _ r rt - \ <L I I II W W ^ ^3 M ^ *-» 1 I W W W W Importance of commercial agent in choice 00 S rH aO rH rH rH rH rH (0 •H 9 "d 'd - d * H ! *H «H -H i H X i o - r H C X i C O . C 1 C" G C C r-i to r> R&D as source of information leading to choice a CO CO td 0 0 0 0 ) 0 0 0 0 ) 0 0 1 1 I r - f Company Yuan Pao Tung Meng Ta Yhun Liang Chi Chi Lu Epoch Firm X San Hsing Fu San TVCM Texas Instruments Kuang Pao ABC Company Technology new or in -cremental compatibil- relative com-plexity of operation divisi-b i l i t y major pro-blems encoun-tered modifica-tions ultimate success Yuan Pao feed milling plant mixing technology new new low low high high low low yes no yes yes yes yes Tung Meng double twisting weaving dyeing final setting incremental it I I ti high ti it it low •t ii it high n it low yes no no no yes no yes no no yes yes yes Ta Yhun various models of automatic, non-ferrous die-casting machines incremental high low high no — yes Liang Chi FRP K-h incremental high high low no yes yes Chi Lu automated FRP panel manufacture new low high low yes no no Epoch sublistatic printing of poly-ester fabric incremental high low high yes yes yes Firm X FRP K-h incremental high low low — — — Company Technology new or in-cremental compatibil-ity relative com-plexity of operation . d i v i s i -b i l i t y major pro-blems encoun-tered modifica-tions ultimate success San Hsine various genera-tions of nut forming machines incremental high low high J yes yes yes TVCM VCM production (old) " 11 (new) new new low high high high low low no i y e s no yes yes yes EIRC electronics R&D and manufacture new high high low no i yes yes Texas Instruments various electronic technologies in-cluding LED s new high high low i 1 ; ! no j ! j yes Kuang Pao LED new high low high i i 1 no I [ ? yes ABC watchmaking incremental high low low i t no yes yes 50 V. CONCLUSION A. The Problem of Continuing Technical Dependency in Taiwan The present system of technology transfer has often been c r i t i c i z e d by academics, politicians and participants as being, i n many ways, highly inequitable for the LDC transferee. One of the criticisms most often raised i s that transfers of technology, rather than alleviating the pro-blem of technical dependency inherent i n an LDCs lesser developed state, often tend to perpetuate i t . In Section I, a number of externally imposed restrictions on the technology transfer process were examined which, i t i s charged, tend towards the perpetuation of such technical dependence. They were: 1 ) restrictions on the training and/or employment of local personnel; 2) restrictions on R & D by the transferee; 3) restrictions on the f i e l d of use of the transferred technology; 4 ) restrictions on sub-licensing; 5) restrictions on the acquisition and use of competing technolo-gies, and 6) restrictions on the purchase of spare parts, components and processed materials, or i n other words, the requirement that the transferee must purchase such items from, the technology transferor; so-called H ied purchases'. The most popular target for these charges, especially the f i r s t two, has been the MNC, especially where i t i s involved i n FDI. Where FDI i s not undertaken and technology i s transferred through some supposedly arms length arrangement, the other restrictions, i t i s expected, come more into play. Observations and conclusions regarding the nature and extent of these various restrictions in Taiwan will be presented below. i . Restrictions on training and employment - Both of the MNC subsidiaries looked at confirmed Chang's observation that there is a trend 57 towards training and employing more lower cost local personnel. Besides the obvious cost advantage, two other factors were noted, namely the fore-shortening of the product li f e cycle and, to a lesser degree, cultural tension. Such foreshortening of the product l i f e cycle was seen most clearly in the case of ABC where that company set up its i n i t i a l production of quartz digital watches in its Taiwan plant. Clearly, to efficiently accomplish such a tremendous technological adjustment from its previously exclusively mechanical watch production, a great deal of training of local personnel had to take place. Today, both ABC and Texas Instruments have reduced expatriate per-sonnel in their local plants, which employ over 4,000 and 3,000 people respectively, to a bare minimum: only two permanent top executives each. By a l l admissions, both plants are models of well run and managed opera-tions. To what degree the decision to reduce the numbers and roles of expatriates within the subsidiary was motivated by a perceived need to reduce cultural tensions or, indeed, whether or not such tensions were culturally rooted or simply based on personality conflicts is not clear. However, i t is clear that the ongoing program of training and promoting local staff has served to produce a cohesive and efficient management and production team. In the cases, i t was noticed that there are three areas of training that the MNC parent may undertake; R&D, production, and management. The area of R & D wil l be discussed below. Suffice i t to say here that training and employment locally were very weak in this area. Training in the production areas of the MNC subsidiaries was, in line with what has been said above about the foreshortening of the product l i f e cycle, very significant. In this regard, a definite trend was ob-served in the approximately ten years of local operation. Originally, a l l training was on site with expatriate experts guiding the local staff through the various operations. Now, i f a new technology is to be intro-duced locally, Taiwanese engineers fly to the United States for training in the parentfs home plant. Laterally, another trend in training has been observed where Taiwanese engineers are used to train their counterparts in new plants set up in other LDCs. Such was noted with ABC setting up another plant in the Philippines and Texas Instruments in Korea. The value of such trained personnel to the MNCs in production related areas is great. Their value to the local economy as a whole is attested to by the demand for their skills, as measured by the competitive bidding up of their salaries noted in both cases. Turnover at ABC among engineers was not thought exceptional'at 2 0 $ . No figures were available at TI but indications are that such turnover there is at least as high. Training in management skills in the MNC subsidiaries was mostly of an informal nature, unlike the more structured nature of the training in production technology. Texas Instruments did hold periodic management seminars, but these were usually designed for the government and business community in general and thus were more of a general, often public relations nature. Internal training for managers was described basically as familiari zing oneself with the imported system and then adjusting so as to be able to operate efficiently within i t . Despite its apparent informality, how-ever, managers at both plants reported such training very rigorous and were convinced that i t made them more productive managers than their counter parts working in independent local firms. It was noted, however, that such management technology was less valued than the more substantive production technology. A middle level manager at Texas Instruments, for example, complained that a skilled tech-nician in the company was making more than some lower management people. Local industry also tended to discount such managerial skills. One reason cited was the cultural differences between the two styles. Also important was the intangible nature of such skills as opposed to the specific and immediately productive nature of the production technology. Local independent firms thus receive l i t t l e indirect benefit from 53 the managerial training in the MNC subsidiaries. The only exception here, and a very successful one at that, was the case of Kuang Pao Electronics. It, however, was spun-off, with its technology fully complete, from Texas Instruments and thus is not really an 'independent, local firm*. Training in the operationalization of production technology was recognized as important by every local independent firm looked at. Not one attempted a technology transfer without some degree of training in its operation and maintenance. Earlier, i t was hypothesized that some transferors might try to reserve certain areas of know-how during training so as to exploit them later or might try to over extend the training period so as to increase their remuneration. Although the transferees interviewed agreed that the former behaviour certainly agreed with their impression of transferors in general, they had no personal experience or knowledge of specific occur-rences. As for the point of over extending the training period to the detriment of the transferee, Yuan Pao had such an experience in the early 1960s with a Japanese firm. However, that was the only case. Yuan Pao at that time was in a special situation inasmuch as i t was attempting to establish a modern production technology, essentially from the ground up, at a time when the industry was not yet as competitive as i t was to be-come later. Thus the cost of 'too much rather than too l i t t l e ' was not a critic a l factor. The amount of training involved with the various transfers of tech-nology studied was something that was in a l l cases negotiable. Traditionally, the amount of training has been kept fairly low for cost reasons, especi-ally in small to medium sized firms. Such training usually takes the form of a foreign engineer supervising start-up of the new facility and providing a few days advice and direction. More recently, however, the average transferee has become increasingly aware of the limitations of such abbre-viated training and has tended toward longer training periods, especially where conducted in the transferor's home plant. This is true of small firms like Ta Yhun, and Liang Chi, as well as large ones like Tung Meng, Chi Lu and the EIRC. Although more expensive, the consensus is that such training is worthwhile, especially where one is able to study and inspect the whole operation of the transferor. Generally, the transferors were reported to be quite open in the training and observation they allow? However, in several instances strong criticism was heard of Japanese firms as being unnecessarily secretive. In conclusion then, i t would seem that i f there are to be any restrictions on the training of personnel in independent LDC firms involved in transfers of foreign technology, they are generally not imposed so much by the reticence of the transferor but rather by the unwillingness to accept the value of and/or the ability to pay for such an investment,by the transferee himself. As for the case of training in the subsidiaries of MNCs, i t was seen that the parent wi l l spare no expense in training the required numbers of local production and managerial personnel. Whether or not such training eventually benefits the local economy as a whole, however, is a question of only secondary interest to the MNC and to a large extent beyond its control. In Taiwan two important factors were observed at work, however, which did result in a great deal of diffusion of the effects of such training. Firstly, there was a buoyant local economy which was willing to pay a premium for the technical skills learned in the isolated, totally export oriented MNC subsidiaries. Secondly, there was a widespread spirit of entrepreneurship and optimism which gave an impetus for individuals to 55 leave the security of a good job with a high paying foreign firm to strike out in search of something more challenging and rewarding. i i . Restrictions on R & D by the transferee - In regard to the limitation of R & D by MNCs in their LDC operations, i t was hypothesized earlier that particularly where such subsidiaries were producing primarily for export, or where they were set up to produce in the later stages of a product l i f e cycle, very l i t t l e i f any local R&D would take place. This was certainly found to be the case for both ABC and TI's operations as regards product related R&D. In neither case were new products conceived, researched or developed locally. However, i t was found that both sub-sidiaries were given considerable responsibility for substantially modifying existing production technologies. In this regard, i t was noted in the case of ABC in particular an instance of the foreshortening of the product li f e cycle by the transfer of product technology directly from the prototype stage in the U.S.A. to f u l l production in the lower production cost opera-tion cost operation in Taiwan without the intermediary stage of production in the U.S.A. This required the development in Taiwan, with naturally head office direction and support, of a totally new production technology. The production technology developed was completely successful and was later transferred to other ABC operations in the third world. However, despite the fact that this adaptive and developmental work is increasing at the branch level the fact remains that for both firms, the vast majority of R&D work s t i l l takes place in the United States. It was noted earlier that technology transferors sometimes restrict the R & D of otherwise independent local firms through contractual limita-tions on adaptive research or through the requirement 'granting back* technological information developed in such work. Although information in 56 this area was far from complete, i t did not appear that any firm was con-tractually prevented from doing adaptive research. As for 'grant back1 requirements, no firms reported being tied to such agreements. Interes-tingly though, the training contract of Yuan Pao with the Japanese firm for its mixing know-how in the early 1960s had the same effect,for anything that was developed in the former's laboratories automatically became the knowledge of the resident Japanese engineer. More recently, however, i t has become increasingly uncommon for transfers of technology to be over-seen by a resident foreign expert. More common is the pattern observed in the second transfer of VCM technology to TVCM where United States engineers made frequent short visits to Taiwan during the various stages of planning, construction and trouble shooting. Especially during the latter stage, the U. S. engineers were able to gather valuable feedback on their new technology's operation. Such reliance on foreign engineers of course is the easiest and simplest course for any firm in the short run; however, in the long run i t would mean the loss of experience valuable in the solu-tion of future problems. The Japanese are generally recognized as the unrivaled masters in the gathering of such technical feed back from their client firms. This is usually facilitated by the originally 'package' nature of the transfer including such elements as home plant training, on site assistance in start-up and annual junkets to Japan for top managers and engineers to participate in so-called seminars and training courses, a l l covered by the original stated price. Another essential part of such a package is the frequent, thorough service calls made by the company's engineers on the client company. Although the often secretive and uncommunicative nature of these visits is sometimes disapproved of, the transferees greatly 57 appreciate the thorough attention and service they get. As the chief of technology at the large Kaohsiung TVCM plant remarked, often the supplier firm knows what's happening in his plant better than he does himself. With such complete access, the Japanese are able to observe and evaluate any technical developments practically as soon as they occur. From the cases examined, one can conclude that generally, a l l trans-ferred technology wil l require some degree of adjustment to local conditions. Such conditions may be climatic, as in the case of Yuan Pao's plastic bottle production line overheating, or may be directly the result of the local cost-price structure, such as the significant expense of getting Swiss replacement parts at Yuan Pao or the cost of imported release film and of electricity at Chi Lu. All of the firms studied carried on adaptive research to some degree. On the one end of the scale were small firms like Epoch which pirated foreign technology and in the process made i t better suited for local conditions. On the other end were large corporations such as Yuan Pao and Tung Meng who were seeking to modify and adapt foreign technology which they had purchased earlier and were now operating successfully. The willingness to undertake such adaptive research would seem to be very important to the success of a technology transfer. Yuan Pao and Chi Lu, for example, both purchased a complex technology package including plant design, equipment and operating know-how. Both also experienced i n i t i a l difficulties: only Yuan Pao, however, was to transcend them. Chi Lu failed largely because of its inability to adapt the technology to local conditions and its unwillingness to consider imaginative alternative pro-duction uses for i t . 58 i i i . Restrictions on field of use - Transferor firms, i t was claimed, may sometimes seek to restrict the field of use of the transferred tech-nology i f the transferor itself is involved in the use of that technology to produce other commercial products. On the other hand, i f the trans-feror's only product is the technology itself, i.e., production machinery and associated know-how, i t will be less likely to restrict such expanded use. Whatever the transferor's predilections, however, his freedom to im-pose contractual limitations in this regard is denied by local legislation. As a result, none of the transfers examined had such specific provisions. It would seem though . that despite the absence of formal agreements limiting the transferee's market, tacit understandings to this effect may sometimes exist. This was possibly the case in Liang Chi's purchase of FRP techno-logy from a large Japanese producer. In 1973, some five years after the i n i t i a l transfer of production know-how, Liang Chi decided to start ex-porting its FRP cooling towers abroad, especially to South East Asia, a market which had been nearly totally monopolized by Japanese firms, in-cluding Liang Chi's mentor. This latter firm protested strongly but to no avail. iv. Restrictions on sub-licensing - Very few of the transfers of technology examined involved licensing. Unfortunately also,awareness by the people interviewed of restrictions on sub-licensing in the respective contracts was not great as these people were usually involved with the present day to day operation and management of the technology rather than in its original negotiation. TVCM's second VCM plant using the new ethane process involved a package of licenses which had been put together by the contracting American firm to complement its own, just developed but not yet tested, technology. The contractor then was, in effect, the sub-licensor of a number of other firm's technologies. Although the American contractor was apparently not restricted in the sub-licensing of its package of technologies, this was not the case with TVCM. Although i t is not clear whether or not TVCM itself can re-use the technology in other of its plants, i t is clearly not permitted to sub-license i t outside of Taiwan. At the outset this was certainly not on TVCM's mind as, by its own statement, i t is a production not an engineering firm. San Hsing Hardware Works was also involved in technology licensing, as licensor, to a Japanese firm. However San Hsing declined to disclose any details of the contract. Although the actual details are not known, what would seem to be an ideal contract as far as the limitations on sub-contracting are concerned is that negotiated by EIRC a n d with RCA. As the whole purpose of this technology transfer was to develop a solid research and development facility and a model production plant from which a whole national industry can grow, i t was necessary that there be no limitations on the secondary use of the original or subsequently generated technologies. Not a l l prospective licensees, however, have at their back the economic resources and negoti-ating strength of a national government. v. Restrictions on the acquisition and use of competing technologies As for this fifth possible area of contractual limitation , once again l i t t l e information on the specific nature of the contracts was available because of the average interviewee's preoccupation with the technical aspects of the transfer. In none of the transfers looked at did such 60 restrictions seem to play a part, however. Nearly a l l purchasers of machinery and equipment had tried out and/or purchased technology from other suppliers. Repeat buying was apparently motivated more by an ob-jective recognition of the quality of that supplier's product or for the sake of convenience or to avoid duplication of such sunk costs as training, replacement parts stock, etc., than by any contractual requirement. vi. Restrictions on the purchase of spare parts, components and  processed materials - As for 'tied purchases'—the contractual require-ment that the transferee purchase a l l needed spare parts, components and/or processed materials from the original supplier—despite the fact that at least one of the interviewees reported knowing of such a situation in his firm, none of the cases actually studied carried this explicit requirement. In the instance referred to, the American air conditioning firm Carrier specified that i f the operation of its equipment at the huge Tung Meng factory was to be guaranteed, then Carrier replacement parts must be used. Although not contractually required to do so, a number of local firms came to similar conclusions regarding the operation of their trans-ferred technologies. Yuan Pao, for example, after much experimentation found that a number of key components in its feed mill machinery had to be purchased from Switzerland, despite considerably higher costs, i f the machinery was to run properly. In conclusion then, i t would seem that Taiwanese firms are generally able to avoid contractual restrictions associated with transfers of tech-nology which might clearly tend to perpetuate technical dependency on foreign sources. However, although Taiwanese firms are generally able to avoid the more serious contractual restrictions on their own activity, i t would seem that they are less able to predict and/or prevent possible contrac-tual loopholes available to the transferor. This was seen especially .. clearly in the Taiwanese petrochemical industry. TVCM, for example, ostensibly had a right of refusal vis-a-vis the contracting American firm i f the latter was failing to meet certain specified performance require-ments. However, by the time the basic problem became apparent, TVCM had already paid out 9 0 $ of the total cost. At that point, the right of re-fusal was meaningless. In another example referred to, Chung Tai just assumed, and therefore failed to specify in the contract, that the German contractor would provide equipment of a certain make and quality. Of course when the contractor began to foresee cost over-runs he simply sub-stituted cheaper equipment. Generally, however, there would seem to be an important learning curve effect in a series of technology transfers within an industry which helps later transferees avoid many of the problems faced by their predecessors. 62 B. Technology Information Information needed for making a technology choice can be generally distinguished as to source, that is to say whether the information is generated within the prospective transferee firm itself or whether i t must be acquired from outside. If the source is within the firm, as where for example i t has its own R&D facility or has employed individ-uals with particular expertise, control of such information is inherently in the hands of the firm itself. If, however, the information is coming from a source outside the firm then its control also rests outside the firm. Such outside control can be further distinguished as to control by marketer sources (i.e., commercial sources such as machinery and equip-ment manufacturers, or technical consultants) and non-marketer sources (i.e., government agencies, business associations and special linkages within the local industry). 1. Inside Sources The search for technical information as an aid to technical decision making obviously becomes unnecessary i f that individual is not going to be actively involved in the technical decision process. Such a decision might be regarding the choice of a new technology. On the basis of Strass-man's observation that in Mexico only one out of thirty MNCs subsidiaries studied chose their own machinery and equipment, I thus hypothesized that there would be l i t t l e effort on the part of subsidiary companies in 58 Taiwan to search out and gather technical information. Although the situation at TI was not clear this basically was the case at ABC. Although the great majority of technical information at ABC was passively received from head office, some was actively sought by the 63 local staff especially in the area of production tooling. This area had gradually become an exclusive local responsibility as expatriate staff were reduced in numbers and the scale and complexity of local production increased. Unlike the machines used in the actual production and assembly operations, which are a l l American made, the majority of machines in the production tooling area now come from various west European countries. When asked why they had purchased the machines from a large number of different manufacturers, the engineer in charge stated that in each case they wanted to get the best. Thus, i t would seem that even in a sub-sidiary of a large MNC, local management, i f given f u l l responsibility for technical decisions, will not necessarily be satisfied with just the information supplied by the parent but may well seek additional informa-tion from outside sources. The outside sources in this case were the experience of the staff and documented technical information available from sales representatives in Taipei. The number of the latter was said to be quite high. Independent local firms faced with choices regarding the adoption of technology which they have not used before sometimes also draw on •inside 1 sources of information to guide them. The main inside source of such information is in-house R&D. Because of the observed fact that such work is generally very limited in LDCs, i t was expected that such an in-formation source would be quite weak in Taiwan firms. This indeed seemed to be the case. Although a large number of the independent local firms looked at were engaged in modifying existing technology, apparently only, one, 59 namely San Hsing, was undertaking any significant amount of R & D. According to both company executives and outside observers, the amount of this R&D work was atypical of the local machine industry as a whole. 2. Outside Sources San Hsing aside, the rest of the private firms studied relied primarily on technical information originating outside the firm. These outside sources can be classified as either marketer or non-marketer controlled. i . Marketer controlled sources - Marketer controlled sources of technical information, including direct sales presentations, technical specifications, catalogues, brochures etc., are generally considered the most important outside source of information in the technology decision making process, especially as regards the making of specific choices. However, as expected, such sources are not without their disadvantages. A serious complaint against marketer controlled information is that i t tends to be biased and incomplete. Although i t is impossible to directly substantiate such a charge without actually critically examining the technical information in each case, i t was nevertheless possible to gather evidence from the cases of an indirect nature that would seem to substantiate this view. Firstly, there was an observed tendency of firms to not rely simply on information from one market controlled source but to seek information from other potential suppliers as well. This would indicate a reticence to trust in the information of just one specific commercial source and therefore, expanding from this, from commercial sources in general. After gathering information from a number of suppliers, the firms would then usually attempt a comparative evaluation. Increasingly in the last decade they would also seek to substantiate the various technical claims by actually observing and inspecting the technology in operation overseas 6 0 as for example was done by Ta Yhun, Tung Meng and EIRC . Secondly, i t was observed that nearly a l l firms went to non-market controlled sources to seek corroboration or at least a general opinion of the potential supplier's technical claims. Most firms sought a more or less independent evaluation in this regard but at least two (see below) made their decisions on the advice of close personal friends who were at the same time the local sales representatives of a foreign supplier. The purpose in both cases was the same: to gain a more reliable estimation of the capabilities of a certain technology than was volunteered by the usual means. Once again the inference is clear: marketer controlled technical information is seen as incomplete and perhaps biased. It was noted that market controlled information was in almost a l l cases not in the Chinese language. Interestingly, the one exception encountered, technical information on a line of American made industrial sewing machines requested by Tung Meng, was probably intended for the •other China* as the American supplier had no sales representatives in Taiwan but a number in Hong Kong where the use of English is certainly more widespread than in Taiwan. The two foreign languages used almost exclusively in Taiwan were Japanese, for firms from that country, and English, for firms from North America and Europe. Respondents generally felt themselves well able to handle information in these languages because of extensive English language training starting in Junior High School and 66 extending into university, where, as a matter of fact, nearly a l l tech-nical courses are taught with English language text books. Japanese, as well as being a popular course in universities and night schools, also remains a second language for many educated native Taiwanese who received schooling under the former Japanese colonial government. However, the question of how good these language skills are on average and how much foreign language technical information is effectively assimilated remains unclear. It was noted amongst the managers and engineers interviewed that foreign language technical journals were infrequently subscribed to and regularly read even less. Thus, a similar situation may well exist in regard to commercial information. This would then tend to increase the importance of the local sales representative in the flow of technical information for in such a situation he must not only serve as a conduit for the delivery of this information but also as translater and inter-preter of i t to local business. Local sales representatives have indeed become important sources of marketer controlled technical information in Taiwan. In the last decade especially their numbers have grown tremendously. Today they re-portedly number in the thousands. They usually are organized in the form of agencies carrying a number of related lines, although many of the larger foreign manufacturers in certain key industries have their own, often expatriate, representatives. Japanese manufacturers usually rely on the services of the various large Japanese trading companies. Questions of the a v a i l a b i l i t y of such marketer controlled informa-tion aside, i t can be appreciated that the value of such information depends on the commercial agents' technical expertise. Unfortunately, this often seems to be quite low amongst local nationals. The head of the technology section at TVCM's Kaoshiung plant remarked that in the Taiwan petrochemical industry, for example, technically competent local sales representatives are very few. From the transferor's standpoint, one of the main advantages of such local representatives, regardless of their technical expertise, i s their ability to establish and utilize personal relationships with prospective customers better than a foreign national could. While such relationships may be useful for the prospective transferee, on balance his benefit is usually placed second to that of the transferor in such situations. Two cases were noted in which local firms relied heavily on the advice of friends of management who were at the same time sales representatives. In the case of Yuan Pao, the friend was perhaps more careless than incompetent, and, as i t turned out later, slightly dishonest, so his failure to plan for different current electrical motors and his attempt to overcharge for replacement parts were both correctable. In the case of Chi Lu, however, the friend cum local sales representative got the firm involved in a costly undertaking which ultimately ended in total disaster with the expensive new facility being closed down completely. Both cases once again underlined the limited technical competence of such local commercial agents. In conclusion then, the limitations of local sales representatives stem from considerations of quality rather than quantity. The imperfection of the local sales representative as a conduit for the technical information aside, the question s t i l l remains as to how good is the information which he has at his disposal. Earlier, the view was noted that, "Many equipment manufacturers lack sufficient knowledge about the characteristics and physical and economic 6 1 performance of their equipment." This view was corroborated by findings in several cases, especially those where significant unforeseen technical problems occurred. Here the most obvious example was the large U. S. firm contracted to transfer a complete package of VCM technology to Taiwan. Clearly, that firm did not have sufficient knowledge when i t undertook the transfer. Indeed, its purpose in offering to transfer the technology at such a relatively low cost was apparently to acquire such knowledge through the t r i a l and error of actual experience. Also noteworthy was the transfer of Danish FRP technology to Chi Lu, although in that case i t is hard to say whether the supplying firm simply didn't know about the potential operating problems of its machinery in Taiwan or whether i t simply chose to disregard them. It would also seem that even where the supplier does know the physical and economic performance of his technology, he is often unwilling or unable to adjust i t to meet a particular new need or environment. This is seen very clearly in the case of the new, ethane based VCM tech-nology where the U. S. supplier reportedly did a l l its engineering calcu-lations on the assumption of an ideal steady state which ultimately proved unattainable in the Taiwan situation. This rigidity on the part of technology suppliers seemed to hold true in most cases. A number of firms gave examples of small but annoying problems which occurred as a result of the supplier's inability to antici-pate or adjust to special local conditions. For example, Yuan Pao had a highly automated plastic bottle production line set up by German engineers. For some reason, key electromagnetic automatic switches failed to work properly after the Germans left resulting in serious disruptions to pro-duction. The problem, the Chinese engineers later discovered, was simply caused by overheating. A special fan was installed and the problem was solved. In this regard, the head of the technology section at TVCM's Kaohsiung plant remarked that in his experience, foreign suppliers of heat and humidity sensitive equipment always failed to properly adjust their products to conditions in Taiwan. This, i t would seem, creates an anticipatory compensation effect. If anything goes wrong i t is expected that i t will happen for these usual reasons. Thus, when the huge cooling unit at TVCM's Kaohsiung plant began experiencing problems, the engineering staff immediately thought i t was because i t was not designed or adjusted to operate in the area's sub-tropical climate. i i . Non-marketer controlled sources -(a) Government agencies There are several government run technical information services on 6 2 Taiwan. Organizationally, these various information services appear very complete despite the fact that they have only been in operation for a relatively short period of time—in the case of the main service, the Science & Technology Information Centre (STIC), only since 1973—and that their manpower is very limited—only 48 people for STIC. The question of their efficiency and effectiveness, however, is something which must be looked at separately. As for efficiency, i t was noted earlier that a study on technical information in Korea done in 1974 found that in that country "information of a l l types was unavailable and that which was available was too old... infrastructure to handle information was almost totally missing," and that even where there were collections of information, "that literature was late by several months, which was a reflection of the attitudes of the 63 people involved." Such was not the case with STIC, however. The centre has well established procedures for the acquisition, processing, storage and dissemination of technical information. If""for some reason the desired information is not available at the centre, i t can, through its knowledge of other technical libraries gained through its central purchasing of books and periodicals, as well as its collection and editing of data on the professional activities of Chinese scientific and technical experts, quickly refer the inquiry to the suitable institute or individual. The effectiveness of such technical information, however, can only be gauged by looking at the response of potential users. One statistic which the centre uses to show thatthis response is increasing dramatically is that of requests for copies of articles abstracted or referenced in the centre's various technical publications. These grew in the three years 64 from 1974 to 1976 from 5,560 to 14,457 to 17,955. Unfortunately, the individual case studies turned up l i t t l e data on this question of effectiveness. One reason for this is simply that the centre restricts distribution of its publications to only 1000 organiza-tions and firms. On an island where there are an estimated 70,000 manu-facturing and construction firms, such a distribution will reach only the 65 large and medium-large companies. Therefore firms such as Ta Yhun, with only 60 employees, and Epoch, with about 30, not only did not receive any such information and help but did not even know that such facilities existed. Another reason why l i t t l e data was turned up on this point may have been because such technical information was not widely circulated within the receiving firms. This would seem to be especially true in the larger firms where there was a wider separation of functions. In Tung Meng's 71 case';/', such information was apparently always sent to the corporation's head offices in Taipei: the head of purchasing at the southern plant, although aware of such government technical information, never received any. Silin's observation of Taiwanese business firms' generally negative attitude toward government in general, one of "strong antipathy mixed with awe", towards officials who "are felt incapable of continual and 66 effective action/ 1, was largely substantiated by casual conversation with a number of businessmen and by visits to several government ministries. However, how this affects the dissemination of technical information from government sources is not completely clear. Basically the present tech-nical information system is highly impersonal with l i t t l e opportunity for business—government interaction. Apart from a relatively small number of technical experts attached to the Small Business Service Centre and UIRL, most technical information is documented and cheaply and readily available through the mails. Such technical experts as there are are available only upon application and after an often lengthy waiting period. There is thus l i t t l e chance of the kind of business resentment resulting from unsolicited technical visits by government experts as was noted in 67 Puerto Rico. Another factor is that the costs for such technical ad-vice and related services are a l l officially set out and quite reasonable. How much the present system of technical information is influenced by a government sensibility of private business 's wariness of its inten-tions is unclear. However, i t is clear that the government agencies directly involved would like to increase their exposure to the business community. In this regard, they recognize,as did the British government's 72 Technical Advisory Service referred to earlier, that a public service, no matter how good or how inexpensive, must be actively promoted before the 68 intended beneficiaries will respond in significant numbers. Unfor-tunately, these agencies are not only constrained by limited resources but also by restrictive government legislation which presents government agencies from advertising, (b) Business associations The role of business associations in Taiwan as lobbies and pressure groups on government is much weaker than in the west or Japan. Although, in the words of one of f i c i a l of the Taiwan Machine Industry Association, the business association serves as a bridge between business and govern-ment, traffic is mostly one way with the government using i t to pass on new policy and regulation changes to the business community. The bulk of these communications from government to business via the business associations generally are not concerned with the dissemination of information on technology. Usually they are concerned with such matters as 'allocation of import or export quotas, quality control, taxation and the like. Because of the limited staff at STIC and the Small Business Service Centre, however, there is some cooperation between these agencies and one or two of the largest business associations. In such cases the association helps choose and translate important articles which are then published by the respective government agency. Although not a l l local firms belong to business associations a majority do. Foreign subsidiaries are special cases: Texas Instruments belongs to an association while ABC does not. TPs membership in the Electrical Appliance Manufacturer's Association, however, seems more of a symbolic and/or social nature. It and other foreign members of the association reportedly rarely use the association 1s technical library. Furthermore, TI is more likely to be giving technology talks to the in-dustry than attending those organized by the association. The Petro-chemical Industry Association of Taiwan which TVCM belongs to is also a spe cial case. In that industry government involvement is particularly strong and so the cooperation between government and association experts in the gathering and dissemination of technical information is extremely close. Membership in a business association is usually to the advantage of, and sometimes a necessity for, firms hoping to do a lot of business, especially i f that business involves importing or exporting. However, as a source of technical information, whether from local or foreign sources, business associations in Taiwan are much weaker than their Japanese counterparts. Unlike in Japan, where business associations actively seek to gather and disseminate technical information, associations in Taiwan play l i t t l e such formal role. On the one hand, government agencies usu-ally seek to contact individual firms directly through their various publications and reader inquiry and reference services, while on the other, most associations have done l i t t l e to satisfy their member's needs on their own. The vast majority have no formal technical information system whatever. Only a small number have libraries. A large number have their own association newsletters but these generally contain l i t t l e useful 69 technical information. Technical seminars are held periodically but these are often with the help and sometimes upon the suggestion of govern-ment agencies who contact and pay for the speaker and perhaps even provide the meeting place. Because of this weakness, i t is easy to see why in none of the cases examined were business associations reported as sources of useful technical information. 74 Perhaps one of the main reasons why such associations have refrained from taking a more active role i n this area i s because their memberships have been too broad. The membership of the E l e c t r i c a l Appliance Manufac-turer's Association, for example, has over 1800 member firms while the Taiwan Machine Industry Association has over 1300. Although such associa-tions have often established special committees to concentrate on one or 70 the other special part of the industry, these i t seems have continued to be largely subordinated to and restricted by the association as a whole. Recently, however, a number of smaller specialized associations have sprung up and are becoming more ambitious in this area. The FRP Manufacturer's Association, for example, now publishes i t s own industry and technology news bulletin. However, some of the problems associated with such an undertaking are seen in criticisms that the articles are often irrelevant academic research reports, random unsystematic transla-tions of foreign industry news, or simply self-congratulatory, non-detailed reports on how one or two leading firms (whom i t was charged monopolize the editorship) achieved commercial success with such and such a technology. Similarly, a number of firms i n the non-ferrous die casting industry are hoping to form their own association. Perhaps aware of the problems faced by other, similar associations i n gathering and disseminating tech-n i c a l information, they hope to establish a close technology information exchange relationship with their Japanese counterpart. Earlier, a number of hypotheses (largely based on Japanese experience) were proposed concerning the degree of cooperation exhibited i n business 71 associations i n regard to the sharing of technical information. B r i e f l y they were that the degree of such cooperation would vary inversely 75 with the degree of competition experienced in marketing the individual firm's products and directly with the degree of standardization and the ratio of weight to value. Unfortunately, because of the general weakness of Taiwanese business associations, there was insufficient data to form any conclusions as to their validity. From personal observation and the statements of many local business-men i t would seem safe to conclude that cultural factors are very important in explaining the weakness of business associations. Individual business-men often referred to a peculiarly Chinese inability to cooperate with each other and with government for their mutual benefit as, they pointed out, the Japanese and the Koreans had done so successfully. One mainland Chinese of f i c i a l in the MOEA felt this lack of cooperative spirit was especially strong amongst locally born 'Taiwanese* Chinese. Although very weak as a formal source of information on new tech-nology, the business associations nevertheless appear to be an important informal source inasmuch as they provide a convenient meeting place for individual members. In such a setting individual experiences and opinions would seem to flow freely. Small to medium sized firms seem to find such information must useful, especially i f they have l i t t l e experience with transferred technology. Both Yuan Pao and Ta Yhun for example specifically mentioned being influenced by what was *general knowledge* within their respective industries as regards the particular kinds and sources of foreign technology. Such an industry *grapevine*, however, can also be extremely useful to larger firms as was evidenced by the valuable lessons learned by other firms in the Taiwan petrochemical industry from the TVCM and other similar experiences. (c) Special linkages It was hypothesized earlier that special linkages established on the basis of ownership ties, shared commercial advantages or simply personal friendship might prove an important source of information in the choice of new technology. The importance of such international special linkages for the local subsidiaries of MNCs is obvious. However, i t was noticed that technical information within MNCs flows in a number of different directions, not just in the obvious parent-subsidiary one. The main flow i s , as expected, from the parent in the developed country to the subsidiary in the LDC. As was discussed earlier, such local subsidiaries will generally rely heavily, often exclusively, on information from this source, the key exception being where they are given greater responsibility for operations. Where MNC subsidiaries, because of this independence are able to develop some unique bits of technical knowledge from their operational experience such knowledge may be immediately absorbed by the parent. Such centralization, however, may be very costly in terms of time and effort considering the very likely largely intangible nature of the knowledge and the unlikelihood of its immediate usefulness. Rather, i t can be concluded from the examples of ABC and TI that the parent may find i t more expedient to simply leave the new knowledge in its LDC subsidiary until needed else-where, most likely in another LDC. This was noted in the case of ABCfs transfer of specially developed digital watch technology from Taiwan to its plant in the Philippines and TI*s transfer of certain aspects of IC technology to its plant in Korea, both of which were developed a few years earlier in the respective Taiwan plant. In both cases, i t was teams of Taiwanese engineers who over saw the installation of the equipment, trained the local staff and over saw operations during the start up period. The subsidiaries of MNCs are of course special cases. Amongst purely local firms, ownership ties generally seemed a weak source of tech-nology related information. This, i t can be surmised, i s probably in large part because of the basic make up of the private sector in Taiwan characterized, as i t i s , by a large number of often very small, privately held companies. Thus we observed no information from such a source. Subcontracting amongst local firms was also observed to be a very limited source of technical information, contrary to our expectations based upon our knowledge of the Japanese situation. Only one firm, namely Ta Yhun, did any subcontracting work and that, interestingly enough, was for a local affiliate of a large Japanese motorcycle manufacturer. Be-cause of its buying power, the latter was able to play off the various potential suppliers of components as to price and quality. Ta Yhun did not express any resentment at such behaviour, perhaps because of its only partial reliance on that customer, but rather seemed to appreciate being kept in the know as to what new technology the other firms in the industry were using. One obvious reason why subcontracting was limited was perhaps the contractor*s fear that, given Taiwan's often cut-throat economic competition and weak regulatory climate, any valuable know-how which he directly or indirectly imparted to the subcontractor would be 'stolen* and used to his disadvantage. Such a threat, however, was unimportant to San Hsing who expressed confidence in its ability to always keep one step ahead of the competition by constant innovation. What they claimed prevented them from subcontracting out work was the lack of adequately equipped and qualified local firms to do the work. This was said to be a problem in many fields. These two factors have in turn contributed to a trend observed in the bigger firms, namely towards vertical expansion. I use the term vertical expansion rather than vertical integration because there were no cases found where one firm bought out another to gain some important technology, nor, for that matter, for any other reason. Rather they would start up their own operation. For example, San Hsing not only manufactures nuts, but also researches new ideas, develops > operational prototypes, manufactures primary and related production systems, and then markets them around the world; Tuntex is involved in the manufacturing of raw fibres, their manufacture into textiles, then into garments and finally their sale overseas; Yuan Pao not only mixes its own feeds, but also manufactures its own cans and plastic containers for its own related agricultural processing and canning operation and markets its own products at home and abroad under its own labels. The problem with such closed vertical expansion as regards the diffusion of technology is that the information of one level of the operation has only limited relevance to that of another. The role of personal relationships im the general transaction of business is important. This is certainly no where more true than in the choice of technology. Earlier, we hypothesized that the importance of such relationships would increase, firstly, with technical complexity, assuming that the personal contact was, or claimed to be, competent in the area, and, secondly, with the prospective transferee's inexperience. Data on these points was seen in three cases where the transferees relied heavily on the advice of friends working for technology suppliers. In Yuan Pao, the complexity of the milling technology was quite high and the technical experience of the owner quite low so i t seemed natural for him to rely heavily on the advice of a knowledgable friend. Similarly in the Chi Lu case, the complexity of the technology was very high and the ex-perience of the firm, while high in other chemical related areas, was quite low in the area of FRP panel manufacturing. Both cases thus supported the original hypotheses. In Liang Chi's transfer, however, the technol-ogy was neither highly complex nor was the transferee inexperienced in its use, but the company s t i l l relied heavily on its special relationship with an individual working for the ultimate transferor. Obviously then, convenience is also an important factor for as the management of Liang Chi said, they didn't really know who else had the technology they wanted and so called upon the only source they knew. The value of information coming from such friends and otherwise 'special'contacts is not an assured thing despite whatever value the transferee may place on the relationship. Firstly, the veracity and rele-vance of such information may be low, and secondly, the personal loyalty of the friend may be subordinated to his greater loyalty to his employer and ultimately his own ends. Examples of this were seen in both Yuan Pao and Chi Lu. In conclusion then i t can be seen that personal contacts are an important, popular source of technical information and will be solicited regardless of the complexity of the technology in question or the related experience of the transferee. However, no less than in the case of i n -formation gathered from other non-personal sources, such information should be subjected to a critical and objective analysis. One practical method used by the head of the FRP Special Section of UTRL is simply, in cases where he wants information on foreign machinery, to write his foreign materials supplier friends for their opinion. If he wants information on materials, he simply writes his foreign machinery supplier friends To such unbiased 'inside* information he adds his own experience and common sense. Unfortunately, he adds, very, very few companies in Taiwan can avail themselves of such a broad network of private information sources. One form of special linkage between firms that is of immense impor-tance is the diffusion of technology, but which was totally unanticipated^ is industrial piracy. Such piracy, whether i t be by the duplication or modification of foreign machinery and equipment,or by hiring away of the skilled local personnel able to operate and maintain i t , is reportedly very widespread. It certainly appeared time and time again in the companies visited. One official of the MOEA showed great embarrassment over this situation. He moralized that at least such practices were less common in Taiwan today than they were previously in Japan and are currently in Korea. This relative restraint was, he felt, due to the traditional Chinese be-li e f in hsin-yi, or trustworthiness. Such moralizing aside, a more accurate picture of the government's concern over this 'problem' can be 7 2 gained by a cursory examination of the patent law situation. It is obvious that the laissez-faire attitude which the government shows in this area not only condones but actually encourages industrial piracy. The businessmen and engineers interviewed showed no such ambivalence, however. Although they might be a l i t t l e reticent about discussing their own involvement in such acts, they were clearly f u l l of admiration for such acts performed by others. Even San Hsing, for example, took a very benign and forgiving attitude to a l l but the most recalcitrant and flagrant of its imitators. Similarly, Epoch, although stripped of its once tremendous technical advantage by a host of pirates, did not show bitterness. Generally, there seemed to be a great deal of respect for this aggressive, entrepreneurial kind of behaviour. Economically, the advantages to an LDC of such an individual are very great. Quite simply, i t would seem that the faster the rate of technical diffusion brought on by such pirating the less likely the need for unnecessary re-transfers of the same or similar technology. This was quite obvious in the case of FRP technology, for example, where a re-quest before the government in 1976 to permit the licensing of Japanese FRP technology was refused because such technology was already largely diffused via pirating from a transfer by Liang Chi some ten years before. Such pirating also has the effect of increasing competition by reducing the monopoly advantage inherent in one firm having its exclusive use. It would also seem that such pirating tends toward the rapid adjustment of technology to changes in local cost factors. As soon as these cost factors change, for example, labour becomes more expensive, the pirated technology is no longer profitable to operate and another, technical adjustment must be made or the firm may go out of business. This results in an upgrading of local technology levels. At the same time, however, the older cost factors may s t i l l be approximated in other LDC and so the pirated technology can be transferred there to the profit of the Taiwanese manufacturer. 82 C. Technology Related Factors The choice of technology, i t was hypothesized, is not a simple matter. Economic advantage, while perhaps being the prime motivator in any commercial undertaking, including the transfer of technology, is not an easy thing to define or measure. Important to the decision then may be such general technical factors as compatibility, complexity and divisibility. It was thus hoped from an examination of the transfer cases studied to gain a clearer picture of the importance of these several factors to the technology choice and, laterally, to its successful im-plementation. In the case of the two MNC subsidiary operations looked at, ABC making watches and Texas Instruments (Tl) making, among other things, light emitting diodes (LED), unfortunately no information was to be had on the original technical decision making process as none of the local informants were involved in the head office decisions some years back. However, i t is probably safe to assume that such MNCs with their abilities to scan for global opportunities specifically chose Taiwan on the basis of information which indicated some significant economic advantage. Both these MNC operations employ relatively complex technologies, especially TI fs electronics plant. However, this apparent complexity would not have necessarily been perceived as.a negative factor for the majority i f not a l l the technology had been used by the MNCs elsewhere. The Taiwan opera-tions thus were in effect late adopters of technology which had been adopted elsewhere within the same organization earlier. Such a technolo-gical choice was thus perfectly compatible with previous MNC operations. 83 Its use in Taiwan was incremental rather than innovative therefore the perceived risk was much reduced. In the case of Kuang Pao, the decision regarding the secondary •transfer*, or spin-off, of technology by former employees of TI was in-fluenced by both the high compatability and the low complexity of the technology transferred. The high compatability was the natural result of the founders* extensive experience with the same technology at TI. The low complexity,however, was a deliberate choice that was closely tied to the factor of relative economic advantage. By producing LED instead of other electronic components, both capital costs and technological com-plexity, especially in the production area, were lower. Also, Kuang Pao acting when i t did was able to get into an expanding local market that was relatively wide open. Producing more sophisticated electronic components, such as ICs, would have required tremendous capital outlays, a competitive search for scarce technological skills and a head on confrontation with several large MNCs for a share of the market. It was hypothesized that the divisibility of a technology into a number of small units which could be used in t r i a l operation would increase the likelihood of its eventual complete adoption. Such divisibility i s , however, not always possible, as seen in the case of the Yuan Pao feed and mixing mills. In the case of Yuan Pao, there was not in the beginning a sufficient base of in-house experience and expertise to evaluate separate portions of the technological complex which the firm eventually contracted for. Furthermore, the technology they needed was of a complex system rather than simple unit nature and therefore did not lend itself to separate testing. Yuan Pao thus was more or less forced to buy a complete package of technology despite the relatively high complexity and low divisibility. 84 Whatever hesitation these two negative factors may have engendered i t was in the final run overcome by the positive example of a number of other mills who had purchased similar physical plant and mixing know-how and used i t with apparent success. The overriding factor was the expected economic advantage of the new technology. In the late 50*s and early 60*s, tremendous growth and change were taking place in the Taiwan animal feed industry. Firms which aspired to a greater share of the market, or even a continuation of their present positions, had to utilize new technology. Most of the 'successful* firms, i t was stated, undertook transfers of technology at or around that time. In the case of Yuan Pao, however, i t was noticed that although divisibility was not a c r i t i c a l consideration in the original technological choice, once a technological base had been established in terms of both physical plant and operating know-how, i t became increasingly relevant in subsequent technological decisions. Thus, in several instances either parts of the original plant were copied or new locally made machinery was introduced for t r i a l operation. The importance of divisibility was also seen in the Tung Meng case where local machines were tried out in the double twisting and dyeing areas. The results of both of these trials was the purchase of additional units. The importance of divisibility for t r i a l operation was apparently less important where well known foreign manufacturers were involved as reliable local information on on the supplier, his machinery and its operating characteristics could be obtained fairly easily. The question of com-patibility in general was not critical in the Tung Meng case because of the extensive related experience the parent, Tuntex Corporation, had in 85 related textile and clothing manufacturing fields. However, in smaller, specific instances compatibility was an important factor. For example, when a second and third final setting machine were purchased, the techno-logical choice was constrained by the fact that a new machine from a different manufacturer would require the establishment of an expensive duplicate stock of replacement parts, the complete retraining of operators and maintenance people and, in spite of this last act, an increased like-lihood of expensive mix-ups. Compatibility was also a factor, though admittedly a less important one, in the case of the dyeing machines. There, complicated, electronically controlled, U. S. made equipment was scheduled to be replaced by simpler, locally made equipment, that was more suited to local technological skills especially in regard to repair and main-tenance. Ultimately though, the main factor in the choice of new dyeing machines was the fact that the local machinery cost considerably less than the imported kind. In fact, in a l l instances of technology transfer examined at Tung Meng, the overriding factor was ultimately economic advantage. In some instances i t was expressed in a negative sense as the desire to reduce capital costs by purchasing locally made double twist and dyeing machines. In other instances, however, and these were the most important whether one looks at the number of machines, the complexity of the technology or the dollar value of the transfer, i t was the positive desire to take advantage of some economic opportunity by investing in foreign technology which would improve both production quantity and quality. In the Ta Yhun case, compatibility and complexity did not seem to be explicit considerations in the evaluation of the available technology because of the firm's long experience in the field of non-ferrous die-casting and the basic similarity of the newer with the older technology. Divisibility, however, seemed to be an important factor. This may have been because in spite of good local word-of-mouth estimation of the technologies finally chosen in each case, the firm had no really substan-t i a l or reliable information to go on. In almost a l l of its several expansions and upgrading of technical capacity, the firm chose to first purchase one machine and try i t out for a year or so before purchasing the f u l l complement of machines. This was perhaps due to the fact that Ta Yhun tended constantly, as in the case of its first transfer, to be an early adopter of technology and thus was unable to draw on the experience of other local firms. Of course the firm may also have been under some financial constraints at the time. However, later statements to the effect that price was secondary indicate that divisibility of the transfer into stages was of itself an important factor. The opportunity for such divisibility is of course inherent in any transfer of independent units of technology such as the hydraulic presses purchased here. However, as will be seen, not a l l firms avail themselves of i t . The technology which Liang Chi licensed was generally highly com-patible with its own technological base and therefore the question of compatibility was not a cri t i c a l factor in the evaluation and subsequent operationalization of the technology. This technology was fairly complex but the significance of this factor was reduced by the experience the firm had gained in its previous moulded plastic operations and its recent ex-periments with FRP. Divisibility was irrelevant here as what the firm needed the most was an integrated body of production know-how to operationa-lize the separate elements of technology rather than the elements themselves. Once again, the prime consideration was economic advantage. The firm specifically stated that when they were looking for the technology know-how, 87 they were one of the first firms into what they foresaw as a«rapidly growing market. By transferring the technology early, they hoped to capture a major share of the market before any potential competitors. In the Chi Lu case, the prime consideration was clearly also econ-omic advantage. Although the FRP panel and partition market was well served already by local labour intensive technology, the firm felt i t could capture a major portion of this market by employing a radically new, highly automated technology. This apparent, although as i t turned out unreal, economic advantage led the firm to ignore the constraining factors of compatibility, complexity and divisibility which were a l l unfavourable. The new technology was quite different in both production and product aspects from that used in the firm's other explosives and rubber tire manufacturing operations. This lack of compatibility only served to under-score the disadvantages of the new technology's complexity as the firm had no appreciable in-house experience in this area. Even i f Chi Lu had wanted to isolate and try out a portion of this new technology, however, its integrated and highly automated nature would have made i t impossible. In the case of Firm X's applications for the approval of a transfer by licensing of Japanese FRP technology, compatibility and divisibility were secondary considerations. The technology to be transferred, was highly compatible with that currently used by the firm in its own FRP operations. The question of divisibility was irrelevant as what the firm wanted was integrated know-how to operationalize various elements of technology, many of which i t apparently already had. Looking at the complexity and economic advantage factors, however, we observe a paradox. The technology was relatively simple, however, the proposed cost was quite high therefore seemingly reducing the economic advantage below that of local alternatives. 88 Perhaps, as was suggested, the economic advantage of this transfer of technology was to be gained surreptitiously in the form of transferor rebates deposited illegally in an overseas bank account. Both Epoch and San Hsing were faced with technology choices shortly after their establishment and although neither ultimately chose to transfer the foreign technology in question, preferring instead to develop their own, both were s t i l l faced with the problem of technological evaluation. For both firms the overriding factor in their eventual decisions was once again economic advantage. Both thought that new technology offered a way to greater economic advantage and both, i t turned out, were right. Never-theless, the other three factors which we have hypothesized as been impor-tant in the evaluation and success of a transfer of technology were also important. Firstly, the technology which they each developed subsequent to their learning of the relevant foreign technologies was highly com-patible with their own technological backgrounds. Furthermore, although in the case of San Hsing in particular, the technology has become increas-ingly more complex with continual technological refinements, originally the technology in both cases was relatively simple. Lastly, the matter of divisibility: this was obviously important in both cases. Both of the founder-innovators started small, working with limited facilities and limited resources and only gradually expanded operations as their proto-types proved successful. The importance of this divisibility was further underlined by the degree and the rapidity with which other local firms later attempted to copy this technology. This 'diffusion* was most complete in the case of Epoch*s sublistatic printing technology. In this case Epoch chose not to, or was unable to, further significantly develop its technology. As a result, a l l firms in the industry soon had the same or similar technology. San Hsing, however, has continued to invest tremendous time and money into maintaining its technological leadership. One means by which i t hopes to accomplish this is through developing newer more efficient technically more complex editions of its original technology as seen in the various models of nut forming machines. Another means is by attempting to reduce the divisibility of its technology. This is done by developing integrated production and support systems, including technology for materials handling o i l lubrication and cooling, and also in the near future, new technology for manufacturing screws and bolts. San Hsing management claims that by doing this, the overall productivity of the system is raised thus giving the firm an edge on its imitators. With the tremendous expansion in a l l sectors of the Taiwanese economy in the 1960*s and the resulting increase in industrial demand for plastics and other petrochemical products of a l l kinds, the potential economic advantage to a local producer of VCM was quite tremendous. Since, however, the TVCM Kaoshiung plant was to be the first of its kind on the island, there was perceived-to be a high degree of risk involved. Furthermore, the technology promised to be both highly complex and highly indivisible. As a result, TVCM management pursued a two-fold policy to reduce the per-ceived risks; one negative, whereby the firm reduced the amount of invest-ment that was to be 'risked 1, and one positive, whereby i t tried to increase the certainty of the outcome. In this case, however, both means were coterminous in one choice; that of the older, well tried and cheaper Japanese technology. On the one hand, i n i t i a l capital requirements were reduced while on the other the certainty of the outcome was increased by the comparatively simple nature of the technology. Production costs were i n i t i a l l y considered unimportant since at that time TVCM was the only local producer of ii/CM and was, until 1973, given complete protection from lower cost imports. In the choice of technology for the second TVCM plant at Tou Fen, however, although economic advantage was s t i l l the prime; concern, a com-pletely negative means was employed to reduce risk; buying the techno-logy package with the lowest price. In the evaluation of economic advantage in this second transfer, much more consideration had to be given to the changed economic conditions, especially the increasingly competitive VCM market where production costs were a key factor. However, lower produc-tion costs could be achieved from a number of different technologies other than the one finally chosen. It was chosen clearly because i t was the cheapest and this despite the fact that its complexity was greater and its divisibility less than the other available technologies. It was certainly also less compatible with the technical expertise and experience found in the Kaoshiung plant than were the other, less radical technologies. The decision by the Taiwanese government to transfer a large package of highly sophisticated IC technology to its recently established Elec-tronics Industry Research Centre (EIRC) was done with the expectation that such a move would have the greatest benefit for that industry in particular and the economy of the island in general. Regarding the choice of the actual technology, the matter of com-patibility did not present much of a problem as there was already a con-siderable base of expertise and experience on the island, albeit more in the assembly than design and fabrication areas. Furthermore, as the whole purpose of the technology transfer was to encourage an evolution of the industry away from its then labour intensive state to one of capital and technology intensive production, i t would be inconsistent to purchase a 91 technology which was too close to that presently found on the island. Similarly, the complexity of the transfer, although very high, was not seen as a negative factor but rather was viewed as the whole point of the transfer. What the government wanted was the latest IC technology. Only thus would i t be possible to quickly develop its own independent and complete electronics design, fabrication and production facilities. The need for divisibility was also unimportant. Whether or not such complex technology indeed could be broken up into discrete units is not clear, however, the Taiwanese government definitely wanted a complete package. Not only did they know exactly what kind of technology they wanted but they were also able to visit and inspect at first hand the facilities of various prospective transferors thus further increasing their confidence. Furthermore, the transfer had a large training component which promised to increase the likelihood of success without the need for a more cautious piecemeal approach. How great the economic advantage of the RCA technology finally chosen was is not clear. On the negative side, RCA*s technology was re-latively less expensive, though not the cheapest. On the positive side, and perhaps more importantly, their technology seemed to be better in some areas, especially household applications, which the Taiwanese were especi-ally interested in. Information on the actual evaluation and choice, however, was very limited and so l i t t l e more can be said. However, re-gardless of how the relative economic advantage of the competing tech-nologies were evaluated, i t is amply clear from the EIRC,s declared pur-pose that economic advantage was to be the most important factor in the evaluation and choice of technology. To summarize then, no technology was chosen that did not have economic advantage as the prime attraction. Sometimes the perceived ad-vantage was of a positive nature, that is to say i t promised increased sales and revenues from the capture of a new or enlarged market; some-times i t was of a negative nature, promising to reduce cost through greater speed, more reliability or lower maintenance and repair costs. Either way, perceived economic advantage was the main factor in the choice However, as hypothesized, these expectations were often not given a f u l l and critical review. In some cases, no comparison of the profitability of alternative technologies was seriously undertaken. In the cases of Liang Chi, Chi Lu and Yuan Pao, for example, this was so because in the early stages of the technology search, the owner-managers established exclusive links with friends who represented one particular option. Ta Yhun, on the other hand looked at the technical capacity of several different machines in each of its transfers. However, i t too did not undertake any calculations to determine the relative costs and benefits of each one. Rather, i t simply looked for what i t felt was the fbest f technology in terms of production speed and precision; price, i t stated, was secondary. Once i t decided what the *best? was, only then did i t do some economic calculations to decide what was the most i t could afford to pay. Similarly, Liang Chi when negotiating the price for its trans-fer of Japanese FRP know-how reported that i t had no idea what the price of such technology held by other foreign firms was. It simply tried to determine the most i t could afford and then tried to negotiate i t down-wards. The tendency towards cursory calculation of expected economic ad-vantage is not just seen in smaller firms. Chi Lu, for example, was a very large firm in other chemical related areas before i t decided to go into the manufacture of FRP sheeting. TVCM is another example of a large company that undertook very limited economic calculations before estabr? lishing its first and second plants. In the first case perhaps they were unnecessary because of the company's then monopoly position. In the second case, however, the company was in a more competitive situation. Although the technology i t chose claimed to have the lowest production costs of a l l similar technologies, a claim then s t i l l untested, l i t t l e comparative analysis was done. Rather, i t was chosen simply for the fact that i t was by far the cheapest. From these two cases, then, i t can be seen that size alone, although perhaps indicative of a company's ability to undertake a rigorous examination of alternate technologies does not indicate the company's willingness to do so. None of the transfers looked at took place just because the tech-nology in question was or was not highly compatible, divisible or complex. In each case the primary condition was economic advantage. However, once that condition was satisfied, even in the most partial or subjective way, i t was found that the secondary factors of compatibility, complexity and divisibility could then, in certain situations, play a very important role. Where the purpose of the technology transfer is to replace part of or incrementally expand an existing facility, as with the Tung Meng final press and double twist machines, the need for technological compatibility is more important. Where the purpose of the transfer is to effect a major expansion, as with Tung Meng's weaving division or to establish a totally new facility as in the cases of ABC, Yuan Pao, Chi Lu, TVCM and EIRC, compatibility may be relatively less important because the new technology 94 can operate independently or with a minimum of conflict with the old. In such a situation, however, the question of the local availability of the skills necessary to successfully operationalize the technology becomes an important consideration and so the question of compatibility, this time expressed in terms of intangible know-how rather than tangible machinery and equipment, once again occurs. From the cases examined, i t would seem that generally such technological skills already exist at high enough levels, or can be developed quickly enough to sufficiently high levels, or can be developed quickly enough to sufficiently high levels in Taiwan, to make the likelihood of failure in a transfer of technology project solely due to the incompatibility of imported technology with domestic technological skills quite unlikely. It is doubtful, however, i f this can be said of every LDC. It was hypothesized that the more complex a new technology i s , that is the more difficult i t is to understand and operationalize given an existing level of technology, the less likely i t would be chosen. Where a firm is in a relatively stable, uncompetitive market situation this might certainly be true. However, the situation observed in Taiwan in practically every case was one of keen, sometimes cutthroat, competition. In such a situation the economic advantage of moving to a newer, albeit relatively more complex technology may well outweigh the potential problems involved. In such a situation, the competitive pressure may be such that a firm may have to react very quickly in making a technological adjustment i f i t is not to be pushed under. This largely explains the beehive of pirating activity that follows any technical innovation in Taiwan. One of the benefits of such activity of course is that i t often modifies, and thus reduces, the complexity of foreign technology, making i t more 95 compatible with existing technologies. In many of the larger firms studied, such as Yuan Pao, Tung Meng, Chi Lu and TVCM, i t was observed that i n i t i a l transfers of technology were of, relatively speaking, a very high level of technical sophistication. Such transfers were, however, followed by a two phase program of, firstly, developing the in-house skilly necessary to operationalize the new technology and, secondly, trying to modify its unnecessarily complex aspects so as to make i t more compatible with the existing technological base. Both of these adjustments, i t would seem, require a great deal of dynamism and flexibility. In the cases examined there were many attempts at such modification, most notably at Yuan Pao and Tung Meng. Transfers in both these cases were on the whole quite successful. In the case of Chi Lu, however, where no significant modification to the very inappropriate FRP technology was undertaken, the transfer was an unmitigated failure. Thus i t would seem that technical complexity will not necessarily have a detrimental affect on the chances of a technology's successful operationalization i f accompanied by an effort on the part of the trans-feree to upgrade his own operational skills and simultaneously to modify the inappropriate aspects of the new technology. Where the imported technology comes in discrete, physically embodied units i t is possible for the transferee to try out one or sometimes more competing units to find the one best suited to his particular needs before contracting for the total of his needs. The importance of such divisi-b i l i t y would seem to increase in proportion to both the novelty of the technology and the inexperience of the transferee. This was certainly 96 the case in Ta Yhun's cautious t r i a l of the various kinds of die-casting machines as one of the 'early adopters' of such technology in Taiwan. Where the technology comes in integrated systems or packages in-cluding a high know-how, or disembodied content, such as was the case with Yuan Pao's mixing technology, Liang Chi's FRP technology, TVCM's VCM technology and EIRC's IC technology, divisibility, although perhaps theoretically possible, becomes very difficult and perhaps even counter-productive. Indeed, the very importance of such technology lies in the fact that i t serves to integrate what would otherwise be useless bits of technical knowledge. This, however, is not to say that such an integrated body of knowledge cannot be tailored to meet the specific needs of a transferee and be transferred in smaller, less costly packages. A good example of this was seen in Liang Chi's transfer of FRP technology. Although what they purchased remained an integrated, coherent whole, they nevertheless were able through hard negotiation to limit the transfer to only those areas of know-how which they actually needed. Technology which they already had or which could be gained elsewhere for nothing was ex-cluded from the package as was the purchase of any new Japanese equipment. Yuan'Eao, on the 'other hand with less technical background in the area of mixing bought an inflated package of mixing technology that, turned out to/be fill e d with a lot of know-how which was available elsewhere for free. Nowhere is the influence of the three factors of compatibility, complexity and divisibility more important in estimating the economic advantage of a particular technology than where, as in the case of Epoch and San Hsing, a local firm with limited financial resources tries to develop its own technology subsequent to an awareness of an economically 97 very advantageous technology existing elsewhere. Whatever the perceived economic advantages of the foreign technology, however, the local imitator-innovator can only hope to succeed in such a risky undertaking i f his project is highly compatible with his existing technological base. Similarly, the less complex and the greater the divisibility of the tech-nology under development, the greater the chances of success. Such compatibility is of course near 100$ where, as in the case of Kuang Pao, technology is spun off from a technologically more sophisti-cated foreign firm through the medium of former employees going into business for themselves. In such cases, concern for the complexity of the technology becomes unnecessary as there will be no uncertainty in the new firm as to its viability. Similarly, divisibility will not be impor-tant as a means to reduce risk although i t may be important where the local firm has limited financial resources and is unable to afford an ini t i a l l y high capital investment. D. Lessons From Taiwan's Experience With the Transfer of Technology-Taiwan's overall experience with the transfer of technology can be termed highly successful. This success is defined simply by the fact that Taiwan's economy has grown much faster than the average for LDCs in general. Evidence of this success was seen in nearly a l l of the cases studied. Factors leading to this success, as discussed in this study, can be grouped under three headings; technical information, transferee capabili-ties and regulatory climate. The quantity of technical information available to aid the prospective transferee in his choice was certainly ample. Today, countless foreign suppliers have local sales representatives and even twenty years ago, marketer controlled technical information could be obtained relatively easily. The government too has recently developed a considerable system for the delivery of such material. Whether or not this is true in other LDCs, however, can not be assumed. Even i f i t i s , though, the quality of such information can not be so easily taken for granted. The attitude of prospective transferees towards marketer controlled information in Taiwan indicated certain reservations as to its completeness and veracity. Until they themselves were able to discriminate objectively, they relied heavily on information from such informal, secondary sources as business associa-tions and personal contacts. The ability to discriminate objectively can only come in two ways: through experience, and/or through education. In the first regard, there was noted a definite learning curve in the experi-ence of transferees in a number of industries. Such a process on one's own can, of course, be very slow and costly. In Taiwan, however, i t was noted that contacts through the business association with other firms in the industry were an extremely important means whereby a prospective transferee could share the experience of others. Although, contrary to our expectations based upon the model of the Japanese business association, the Taiwanese business association prove to be a weak formal source of technical data, i t nevertheless proved to be a very popular source of i n -formal, 'word of mouth* information that was seen as very helpful to prospective transferees, especially smaller firms and those contemplating an i n i t i a l transfer. Because of this importance, a comparative study of the role of business associations in other LDCs might well prove useful. If they are weak or non-existent, perhaps their development should be encouraged. The differences observed between the role and effectiveness of the Taiwanese and Japanese business associations, however, suggest that cultural and/or historical factors may well have a criti c a l bearing in this regard. As for the role of education in developing the ability to discriminate objectively amongst technical information, i t would seem that this is an area in which the Taiwan government has undertaken several positive steps. A l l the government information agencies examined reported that the various lectures, seminars and tours which they conduct are very popular and are increasing in number as fast as the agencies' limited.resources and. the present bureaucratic constraints allow them. The popularity of this rather informal method of disseminating technical information (often done with the cooperation of the respective business association) is in contrast to the general ignorance of and/or disinterest in the voluminous published technical information coming from the government. Since more and more LDC governments are establishing technical information services to assist local transferees, i t might prove valuable to further explore the relative merits and interrelationship of these two functions of a government tech-nical information service. The second general factor found to be important to the success of technology transfer in Taiwan was the obvious ability of the workforce to respond quickly to a demand for an upgrading or development of tech-nical skills. Taiwan has always had an extremely open, competitive education system which continues to produce university graduates of the highest calibre. Recently, too, much emphasis has been placed on the expansion of technical schools. Both groups of graduates are highly pro-ficient, hard working and mobile. In addition to such formal education, such people have also been adept at picking up skills and know-how while employed in local MNC operations and later being instrumental in their diffusion throughout the local economy as a whole. These factors help to explain why a difficult transfer of technology can often be successfully achieved despite i n i t i a l concern over such negative factors as technical complexity, incompatibility and indivisibility. What provides the motiva-tion for the Taiwanese to develop these skills i s , of course, another question. A number of possible factors were identified during the field work which are perhaps suggestive: equal access to education and advance-ment on the basis of merit; a distribution of wealth reportedly the most equitable in South East Asia; the effect of living in a resource poor, export oriented, island economy with an uncertain political future; and, above a l l , a tremendous spirit of hard work, sacrifice and entrepreneurship found across society as a whole. Although the effect of these various factors is impossible to measure, herein most certainly lies much of the explanation for the drive that has made Taiwan's economic development a success. Government regulatory climate is the final general factor which can be cited as important to Taiwan's success with the transfer of technology. Some government involvement has been noted above in regard to the provision of technical information and education. More important, however, has been the establishment of sound government policies in the areas of investment and technology transfer. Taiwan has been defining its medium and long range economic goals with ever increasing clarity for the last three decades and has formulated its regulatory system to work toward them. FDI, within clearly defined guidelines, has been actively encouraged. Other forms of technology transfer have been similarly channeled and encouraged. Review and approval of a l l such activities are reportedly done fairly quickly and with a minimum of bureaucratic red tape. By removing much of the uncer-tainty and delay in the transfer process, the chances of its initiation and successful completion are improved. Today nearly a l l LDCs have enacted regulations to control the transfer of technology. Given the successful example of the Taiwan experience in this area, an international comparison might point out possible areas of improvement. 102 CASES Page Yuan Pao Company Ltd. 103 Tung Meng Textile Company Ltd. 110 Ta Yhun Industrial Company Limited 116 Liang Chi Industry Company Limited 123 Chi Lu Industries Ltd. 127 Epoch Limited 130 Firm X 135 San Hsing Hardware Works Company Limited 137 Fu San Limited 146 Taiwan VCM Limited 149 Electronics Industry Research Centre and the IC Model Factory 158 Texas Instruments (Taiwan) Limited 162 Taiwan Kuang Pao Electronics Company Limited 165 ABC Taiwan Limited 166 VI. APPENDICES 103 1. CASES Yuan Pao Company Ltd. Yuan Pao is a leading firm in Taiwan's agro-industry. Although the firm has recently begun to diversify, i t is s t i l l primarily involved in the milling and mixing of animal feeds, mostly for domestic fowl and pigs, and in the extraction of cooking o i l and by-products, such as bean paste from soya beans. Together these two operations employ a permanent workforce of over 700 people. Last year total sales for the firm were the equivalent of approximately $50 million (U.S.). Although some sales are to Hong Kong and Singapore, the vast majority are local. When asked about the degree of competition in the local market, one manager laughed and commented that just as in every industry in Taiwan, market competition was very intense. This case will concentrate on only the feed milling and mixing operations at Yuan Pao. Most of the processing of feed meals is done vertically. When the raw materials are received they are usually stored in huge bins high above the mill floor. When required, they are run down shutes, passing through succeeding processes at each level. Take the example of corn. It is first run down a shute from an elevated bin, through a machine which screens out large foreign objects and into a tank where i t is dampened with water to make the removal of the husks easier. It is then dropped into a large rotating drum which scours the softened husks off. From there i t is dropped to a special vibrator machine which separates the corn by weight. Next, i t is dropped into a rolling mill which crushes and cracks open the 104 kernels; the crushed kernels are then dropped into a hammer mill whose sharp cutting blades produce the final corn meal. This meal is then drawn up into large elevated storage bins where i t awaits either packaging for sale as is or for mixing with other ingredients to produce a variety of special animal feeds. During mixing, any number of ingredients including corn meal, sorghum, fish meal, milk powder, bone meal, molasses and special vitamin supplements are added together in scientifically determined and, most recently, computer controlled amounts to meet the specific nutritive requirements of the flock or herd in question. The mixture is then cooked. After cooling i t is bagged and stored for shipment. With the exception of this last stage, a l l the processes are highly automated. Yuan Pao*s animal feed operation started in I960. The founder of the firm and the present Chairman of the Board is reputedly an astute businessman. However, with only a high school education, his technical knowledge was quite limited. In the late 50*s, he made the acquaintance of the local sales representative of a number of Swiss manufacturers. This man was a graduate mechanical engineer from the neighbouring university. Gradually this acquaintance developed into a close friendship and Yuan Pao's founder came to rely quite heavily on his new friend for technical advice. The sales firm for which this friend worked had offices throughout Asia. Although the sales function was left exclusively to local nationals, at least one of the Swiss firms represented, an internationally known manufacturer of machinery and equipment for food processing and related industries, had one or more "Head Office Delegates" resident locally who handled such specialized technical functions as designing plant layout, 4 105 supervising machine installation, and after-sales trouble shooting. In ordinary technical natters, however, the technically trained local sales representative would generally take the leading role. Yuan Pao's founder was readily convinced of the merits of the p a r t i -cular Swiss manufacturer1s technology. The firm had an extablished, world reputation for quality and service which had been confirmed locally by the experience of a number of local firms. It i s unclear what, i f any, other foreign suppliers were considered. Japanese firms were definitely not considered at the time because they were f e l t to only have cheap, lower quality imitations of western equipment. Even today, i t was stated, Japanese technology in this area i s weak. At the time, there were also no local manufacturers of this kind of equipment. As a result, the contract for the physical plant went to the Swiss firm. The Swiss provided a complete technology package, including design of the general layout of the plant and supply of specific items of machinery. Charges for the former were included i n the price of the equipment. Many non-precision items, especially those of great bulk or weight were built locally to Swiss specifications. These were charged for separately. When a l l the machinery and equipment was ready, Swiss engineers supervised their assembly and installation. This service was charged for separately on a per diem basis. After spending a great deal of time and money to purchase the best technology, Yuan Pao was extremely annoyed and dismayed when the plant would not run properly. Although there were a number of problems they a l l were related by one common factor: energy. In Taiwan, the standard v o l -tage of an e l e c t r i c a l current i s different from that i n Switzerland. Somehow this fact was overlooked. However, when i t became known i t was 106 corrected quite quickly. More d i f f i c u l t , though, was the problem of d i f -ferent horsepower ratings on the e l e c t r i c a l motors. These had a l l been purchased locally. Local models came only i n 1/4, 1/2, 1, 2 etc. ratings, whereas Swiss specifications sometimes called for capacities which f e l l i n between. Since the whole production process was time controlled by a central punch card system, different motor speeds at various points would mean varying outputs. Blame for these problems was directed at the local sales represen-tative. He had acted as liaison on the project and as a trained engineer should have anticipated or at least detected such problems earlier onl These problems were eventually a l l corrected. Today, Yuan Pao's opinion of the Swiss firm continues to be quite high. Perhaps the most important factor mentioned i n this regard was service. It was said that i f a major technical problem occurs, a Swiss engineer can be contacted in Taipei and i f he can't come that very day, he w i l l certainly be there the next. Although they speak no Chinese, the Swiss engineers are nevertheless able to communicate very well using English. English i s also the language used for most technical information, i n particular machine operating instructions. The Swiss firm publishes! a glossy monthly magazine in both Japanese and English introducing new technology and showing the varied locales and applications in which i t finds use. A recent edition featured a front cover a r t i c l e on a new flour m i l l in Taiwan. Since installation of the original plant, a number of attempts at modification have taken place. These are the result of three factors; f i r s t , the high cost of calling in Swiss engineers and/or purchasing original manufacturer replacement parts; second, the delay i n getting such replacement parts; and third, the increasing technical competence of the firm and local suppliers in meeting Yuan Pao Ts technical needs. The firm does not feel the cost of the original plant exorbitant considering the high precision nature of much of the machinery and the general engineering services which were included. However, i t i s a l i t t l e more sensitive to the additional costs of bringing in Swiss engineers to trouble shoot. The present hourly charge, for travel as well as work time i s over $21.00 (U.S.). Furthermore, as one manager pointed out, this charge i s often increased by a 'complicated* set of overtime and holiday rates. Replacement parts were definitely seen as costing too much. Manage ment conceded that some premium should be paid to compensate the local representative for his time and effort, however, they feel they are gener-a l l y overcharged. On one occasion they even discovered that an item for which they were being charged 8000 SF by the local representative was originally b i l l e d to him, c . i . f . , at 2000 SF. After a complaint to the Swiss firm, the price was dropped to the original figure. Yuan Pao now insists that a l l such b i l l s from the local representative be accompanied by the original invoice. The firm also feels that the local representative does not keep a large enough stock of parts on hand, thus often necessitating delays of up to half a year. This has led the firm to adopt a policy of, where possibl making the part needed in i t s own machine shop. This f a c i l i t y was f i r s t established when the plant was opened and has grown gradually. Sometimes, when Yuan Pao i t s e l f i s unable to make the part, i t i s sent outside. A good example of Yuan Pao's efforts i n this area i s the case of special steel cutting blades used in the hammer m i l l to chop crushed corn kernels 108 into a fine meal. Original replacement blades were thought too expensive so the firm had a local manufacturer make some. Although they wore out and had to be replaced considerably more often than the Swiss originals, these Taiwan made parts nevertheless proved more cost effective and today they are used exclusively. In addition to trying to have an increasing number of replacement parts made locally, Yuan Pao has in several cases also tried to have whole machines made in order to reduce plant expansion costs. For example, the firm tried out a locally made r o l l i n g m i l l for crushing corn. However, the machine proved unsatisfactory as the inferior quality of steel used caused the rollers to distort after a short period of use. Yuan Pao has also tried out complete machines developed (or copied) by local manufacturers. For example, locally made vibrator separators, used for separating different sizes of grains and removing foreign particles, were tried. However, they proved to be significantly inferior to the Swiss machines. Although a few were purchased, they were later replaced with the more efficient Swiss ones. These Taiwanese made separators, i t was reported, were being sold in large numbers to countries in South East Asia. The Swiss firm provided the physical plant for Yuan Pao*s feed meal operation but the firm s t i l l needed specialized know-how to make i t run. This know-how i s especially c r i t i c a l i n the mixing process. To get this know-how, Yuan Pao entered into a know-how and technical assistance agree-ment with a large Japanese corporation which had extensive experience in the food processing area, including feed meal mixing. This firm was also using physical plant purchased from the same Swiss supplier. 109 I t i s u n c l e a r h o w a n d w h y t h i s p a r t i c u l a r f i r m w a s c h o s e n , n e v e r t h e -l e s s , o n e m a n a g e r n o t e d t h a t , a t t h a t t i m e , m a n y l o c a l f i r m s w e r e s e e k i n g s u c h o u t s i d e t e c h n i c a l a s s i s t a n c e . T h e l e v e l o f l o c a l e x p e r t i s e i n t h e i n d u s t r y t h e n w a s g e n e r a l l y q u i t e l o w a n d i t w a s f e l t , b o t h t h e n a n d n o w , t h a t t h o s e f i r m s t h a t w e n t o u t s i d e f o r h e l p u s u a l l y d i d b e t t e r a s a r e s u l t . A n o t h e r f a c t o r w a s t h a t , i n t h e w o r d s o f o n e m a n a g e r , u n l i k e t h e J a p a n e s e , " T a i w a n e s e h a v e t h e b a d h a b i t o f n o t h e l p i n g e a c h o t h e r o u t " . T h e r e f o r e , t h e r e w a s l i t t l e c o o p e r a t i v e e f f o r t i n t h e i n d u s t r y a t t h a t t i m e t o i m p r o v e t h e g e n e r a l l e v e l o f k n o w l e d g e . T h e c o n t r a c t f o r m i x i n g k n o w - h o w w a s f o r j u s t u n d e r f i v e y e a r s . A s w a s r e p o r t e d l y t h e c a s e i n a l l s u c h a g r e e m e n t s i n t h e i n d u s t r y a t t h a t t i m e , n o t r a d e m a r k s o r m a r k e t i n g a g r e e m e n t s w e r e i n v o l v e d . T e c h n i c a l a s s i s t a n c e w a s p r o v i d e d b y a J a p a n e s e e n g i n e e r w h o l i v e d a t t h e p l a n t . H e a c c o m p a n i e d c o m p a n y r e p r e s e n t a t i v e s o n v i s i t s t o c u s t o m e r s ' s t o c k r a i s i n g f a c i l i t i e s , h e l p e d a n a l y z e t h e i r n u t r i t i o n a l r e q u i r e m e n t s a n d t r a n s l a t e d t h e m i n t o m i x i n g f o r m u l a e f o r c o m m e r c i a l p r o d u c t i o n . W h e n h e f i r s t c a m e , t h e J a p a n e s e e n g i n e e r c o u l d s p e a k n o C h i n e s e b u t p i c k e d u p s o m e d u r i n g h i s n e a r l y f i v e y e a r s t a y . C o m m u n i c a t i o n h o w -e v e r w a s n o p r o b l e m a s s e v e r a l o f h i s l o c a l c o u n t e r p a r t s c o u l d s p e a k s o m e J a p a n e s e . I n a b i n d , b o t h s i d e s w o u l d s i m p l y w r i t e o u t t h e i r m e a n i n g u s i n g t h e c o m m o n m e d i u m o f C h i n e s e c h a r a c t e r s . P a y m e n t f o r t h i s k n o w - h o w w a s i n t w o w a y s ; f i r s t , t h r o u g h a n a n n u a l l u m p s u m p a y m e n t a n d , s e c o n d l y , t h r o u g h t h e r e s i d e n t e n g i n e e r ' s s a l a r y . W h e n a s k e d a b o u t t h e e q u i t y o f t h e t o t a l p a y m e n t , m a n a g e m e n t m a d e a s h a r p d i s t i n c t i o n b e t w e e n t h e t w o f o r m s . T h e l u m p s u m , a n n u a l p a y m e n t w a s h a r d l y m e n t i o n e d , i n d i c a t i n g t h a t i t p r o b a b l y d i d n o t b o t h e r m a n a g e m e n t t o o m u c h . W h a t d i d s t i c k i n t h e i r m i n d s , h o w e v e r , w a s t h e s a l a r y p a i d t o t h e r e s i d e n t 110 engineer. "At first we didn't know that much," one manager recalled. "However, later we realized that much of what he was teaching us could simply be found in books." Thus, as time wore on, the firm began to feel increasingly that they were not getting their money's worth from the resi-dent engineer. In spite of these feelings, however, relations with that individual remained amicable. When he finally left, Yuan Pao's own engineers and technicians took over with no subsequent problems. Tung Meng Textile Company Ltd. The Tuntex Group is one of Taiwan's largest corporations. In a l l , i t controls twelve companies including one in Singapore. Although i t has recently tried to diversify its activities, i t is s t i l l basically involved in various aspects of the textile industry. These include everything from the manufacture of ar t i f i c i a l fibres to the manufacture of finished garments. This study in particular examines the Tung Meng Textile Company, a major producer of 100$ polyester knit and woven fabrics. Tung Meng's factory is located in the south of Taiwan, halfway be-tween Kaohsiung and Tainan. Opened in 1968 to take advantage of the just then developing market for polyester fabrics, the modern, highly automated factory presently employs approximately 1,000 workers in three shifts. Last year, despite recent downturns in the international polyester fabric market, Tung Meng had export sales of approximately $10 million (U.S.). The Tung Meng factory is divided into four line divisions: false twisting, weaving, knitting, and dyeing finishing. In false twisting, the raw polyester filaments are first twisted together to form polyester yarn. This yarn is then set by heat to keep the filaments from completely un-ravelling. Next, the yarn is partially untwisted. This partial untwisting I l l produces a yarn that is less dense and better suited for textiles. The above steps take place in one continuous operation. The filaments in the yarn, having been set, continue to retain a 'memory* of their previous, completely twisted shape. In order to prevent the yarn from naturally coiling up in one direction, i t is double twisted; that is, two pieces of yarn of opposing tendencies are twisted together to form another, stable yarn. This yarn is then ready for the other divisions. If the yarn is to be woven, i t is removed directly to the weaving division. After being woven, i t is taken to the dyeing-finishing division where the great long lengths of cloth are run through pre-finishing, washing, dyeing and final finishing operations. The purposes of washing and dyeing need no explanation. Finishing, however, is a more complicated operation wherein heat and chemicals are applied to the cloth while being run through a long series of special rollers to give i t a desired texture as well as certain special physical characteristics such as water repellancy, flame resistance, crease resistance, etc. If the yarn is to be knit, i t is first removed to the dyeing-finishing division. After being processed, i t is then ready for knitting. Although a public corporation, Tuntex is s t i l l basically a family owned and controlled enterprise. The president of Tung Meng, for example, is a brother-in-law of the corporation's founder. Although he majored in economics while at university, i t is said that he has since become quite knowledgable in technical affairs. Normally, however, he remains quite remote from plant level matters. Most of the time he is abroad—up to eight months of the year i t was estimated. While in Taiwan he operates from the corporate headquarters in Taipei. One of the president's main activities while he is abroad is to gather information on new technology. To this end, he frequently visits 1 1 2 machinery shows and exhibitions. It is also to him, or his office in Taipei, that local representatives of foreign machinery makers make their main sales presentations. The president then acts as a f i l t e r , sending down to the line managers what he feels might be useful information. Occasionally, he has bought single pieces of machinery and sent them down for t r i a l use. The line managers themselves are sometimes approached by sales representatives. Often these are from local machine manufacturers wanting to sell their own, or more likely copies of imported, machinery. In some instances, i t was reported, such manufacturers offer to instal a piece of equipment free and let Tung Mengi test i t in actual operation. Usually such a t r i a l period is from three to six months. The hope of the local manufacturer is that the factory manager will be pleased with the t r i a l and w i l l put in a good word at head office. Part of the manufacturer's expense will of course be recouped i f Tung Meng subsequently buys the equipment. However, i t was said that the real bene-fits will come later from the additional sales stimulated by the advertising effect of Tung Meng's choice. Final decisions regarding major purchases of machinery are generally made at an executive level meeting where the line managers are called on to express their opinions. In cases of conflict, i t was said, the line managers will usually not forceably argue a point but instead will stoically defer to a president's opinion because, "after a l l , it's the boss's money". It was noted, however, that the boss had generally made choices that turned out well. When the Tung Meng factory was opened in 1 9 6 8 , six Japenese double twist machines were installed as original equipment. In 1 9 7 3 , i t was found 113 necessary to double this number as part of an overall expansion of facilities. Because of the strain the overall expansion placed on the firm's finances, i t was decided to seriously consider a certain locally made machine. This locally made machine was in fact a pirated edition of the very Japanese machine then in use. Asked how the local firm got enough informa-tion to enable i t to make an exact duplicate, the head of purchasing for Tung Meng at first replied, rather vaguely, that they must have friends somewhere. Under further questioning, he referred to the possibility that someone with first hand knowledge of the machine might have had a copy made locally. The machine shop that did the work would then be able to make other copies on its own. Whether or not Tung Meng itself actually had the copy commissioned was not clear. The locally made machine was subsequently tried out and, when the test proved satisfactory, five were bought. The price for the local model was roughly 60$ of that of the Japanese original. It was also anticipated that great savings would be made on the cost of replacement parts by buying locally as i t was generally felt that original manufacturer parts were overpriced. Tung Meng was not naive. They paid less for the new double twist machines and expected a somewhat lower level of performance. As the chief of purchasing said, "we paid 6 0 $ of the original price for the copies but s t i l l hoped for 80% of the original's efficiency". Unfortunately, this did not work out. As was explained, "any machine will work O.K. in the short run." Eventually the down time with the machines became too much and Japanese machines had to be purchased to augment their capacity. Today, except during peak busy periods, the local machines sit idle while the Japanese machines stay busy. Management concluded that in areas of their 114 operations requiring high speed, high precision, non-stop operation, locally-made alternatives were not yet acceptable. When opened in 1968 the Tung Meng factory was equipped with sixty weaving machines from a certain well known Japanese manufacturer. In 1973, Tung Meng's president, foreseeing a style trend towards woven as opposed to knit polyester fabrics, decided to expand capacity in this area. A number of manufacturers were considered; a l l foreign. Although there were then about three or four local manufacturers, Tung Meng did not consider them because their machines were too slow. Furthermore, they were more prone to breakdown. Japanese, German and Swiss machines were considered. Although the cheapest of the three, the Japanese machine was rejected as too slow. The German was the fastest but also the most expensive. Considerably cheaper and almost as fast was the Swiss machine. A l l three manufacturers had sales representatives in Taiwan. The Swiss firm was especially strong having been on the island for over twenty years. The company president negotiated directly with the respective head offices. Finally, the choice was made and the contract signed. The Swiss firm was to deliver 400 weaving machines and train four Tung Meng engineers in Switzerland for half a year. Al l training and associated expenses, exclusive of travel to and fro, were to be picked up by the Swiss firm. The cost of this to Tung Meng was approximately $5 million (U.S.). Al-though there was no clause requiring Tung Meng to purchase replacement parts, the chief of purchasing noted that in the case of such sophisticated machinery they would generally do so anyway. The weaving machines were installed, and continue to operate, with no major problems. Because of the aforementioned expansion of the weaving division, additional dyeing machines had to be purchased to handle the increased 1 1 5 output. The company had originally purchased an expensive, electronically controlled unit from a leading American firm. However, they found this unit unnecessarily sophisticated for their needs. Tung Meng has a small development section staffed by four engineers. As well as handling customers' technical complaints and doing time and motion studies, they are also responsible for modifying imported machinery to meet local conditions. If somebody in one of the operating divisions encounters a problem i t is referred to them. The section has a small machine shop. However, i f the modification is too large, i t is sent out-side. When sent outside, Tung Meng will often specify the materials or components to be used so as to ensure certain quality standards. This is what was done in the case of the new dyeing machines. As the dyeing machines are essentially just big vats i t was extremely simple and cheap to have them built locally. The controls have also been greatly simplified. So successful are the new machines that there is talk of replacing the sophisticated American unit with one soon. The final setting machine, originally installed in 1 9 6 8 when the factory was built, was purchased from a well known German manufacturer. Details of the original choice are not known but i t is clear that the supplier had a reputation for the highest quality and had a local sales representative. Installation was with the help of a German engineer and no major problems were subsequently encountered. In 1 9 7 0 when a second machine was needed, apparently no other manu-facturers were seriously considered. Three reasons were given; first of a l l , the machine had performed well; second, there was the need to stock-pile a lot of very expensive parts as the local sales representative's stock was incomplete and a new machine from a different manufacturer would require an expensive duplication; and third, purchase of a new machine 116 from a different maker would require additional outlays for training opera-tors and maintenance people. Moreover, using two different kinds of machines might be confusing. Once again a German engineer supervised installation and aided in the start up. In 1973, a third machine costing around 40 million NT was added in a similar manner. The German engineer stayed a l i t t l e over a month and, as in the previous cases, was paid by Tung Meng. This time the charge was $50 (U.S.) a day. Communication was said to be no problem, with English being the common language. Questions and answers were not spoken, but written on l i t t l e pieces of paper and passed back and forth. Ta Yhun Industrial Company Limited Ta Yhun Industrial Company Limited is a small family owned firm producing a wide variety of non-ferrous, die-cast parts. Approximately 90$ of its sales are local and include a large contract to supply light weight components to a nearby motorcycle manufacturer. The other 10$ goes to the United States. The firm was started in 1964 and has grown steadily but slowly ever since. Two years ago i t moved to a nearby, recently opened industrial park. Today i t employs just under 60 employees, but this number wil l be expanding soon as a new 330 ton capacity die-casting machine is installed and brought into production. The casting industry, of which the non-ferrous die-casting industry forms a part, is characterized by a large number of small to medium sized firms; "perhaps a thousand", in the words of one of the brothers in charge. Most,simply produce components for other firms who then assemble them, often for export. Production technology is generally distinguished as to speed and precision by the pounds per square inch rating of the machine. The higher 1 1 7 the rating the higher the level of technology involved. There are three distinct ranges; under 5 0 tons, 50 to 3 0 0 tons, and over 3 0 0 tons. For the first six years, Ta Yhun operated with machinery manufactured locally in the under 50 ton range. In the last decade, however, the firm has undertaken numerous transfers of foreign technology, gradually expanding and upgrading its technical capacity. In 1 970 , a 1 2 ton, fully automatic die-casting machine was purchased from a certain Japanese manufacturer for an unspecified amount. The reason given for the purchase was stated as a desire to increase capacity. An important criterion in searching for a supplier was a desire for "the best". To this end, price was said to be secondary. Details of the search for this technology are unclear. However, i t was said that at that time the eventual Japanese supplier did have a sales representative in Taiwan and did have a reputation in the industry as having the best machine in the under 50 ton range. At that time, no local machinery manufacturers were making such sophisticated machines. Ta Yhun's purchase of this Japanese machine made i t one of the first two or three local firms to do so. The price of the machine included installation and instruction in its use, maintenance and repair. This instruction, for the most part, took place during a one month stay at the Japanese factory by one of the brothers. Although he was later to remark that the instruction was generally unsystematic, he was nevertheless able to learn enough to operate and service the machine with no subsequent problems. Approximately two years later, Ta Yhun decided to further expand its capacity in the under 50 ton range. By that time, Taiwanese machine manufacturers were already offering pirated editions of Japanese die-casting machines in that range at about 75$ of the price of an original. Although 118 production speed was the same, product quality was lower and the machine itself was more likely to break down. No other foreign machines were seriously considered. Ta Yhun's favourable operating experience with their original 12 ton machine decided them in that supplier's favour and they subsequently bought a new 10 ton and a new 50 ton, fully automatic machine from him. In 1975 a second transfer of technology was undertaken, this time in the 50 to 300 ton range. Once again, Ta Yhun insisted on buying the latest model. According to common knowledge in the industry, the best machine was a 125 ton, cold chamber, semi-automatic unit manufactured by a certain other Japanese firm. This firm had only been exporting die-casting machinery for the last couple of years and so reportedly had no sales representatives in Taiwan. Ta Yhun thus made inquiries directly of the Japanese head office. It is not clear how many other manufacturers' products were considered. However, in the end, Ta Yhun undertook serious discussions with only the one firm. After general agreement had been reached by mail, the Japanese equipment manufacturer flew in a company official to negotiate the final contract. The result was that one machine was purchased for the equivalent of an estimated $30,000 (U.S.). Apart from installation and test running, which were included in the price of the machine, one week of training at the Japanese plant was to be received and paid for separately by Ta Yhun. The charge for the training, however, was apparently quite reasonable. The brother who attended both this and the other equipment manufacturer's training course earlier commented favourably on the systematic nature of the later course. Thus, despite its brevity, i t was found to be very helpful and no problems were subsequently encountered in operating or main-taining the machine. 119 Originally, the need for new capacity in 1975 was such that two new 125 ton machines could have been used. After postponing the purchase cf a second machine for a year, Ta Yhun finally bought another identical machine from the same Japanese manufacturer in 1976. As Ta Yhun was very satisfied with i t s i n i t i a l experience, i t undertook no search for alternatives. In 1978 a third transfer of technology was undertaken, this time in the over 300 ton range. As in the two previous transfers, the basic motivation was to expand production capacity and improve product quality. Ta Yhun reported that very few Japanese die-casting machine manu-facturers have sales representatives in Taiwan, therefore, when they began their search for information, they wrote directly to the head offices of a number of l i k e l y firms. One of these firms had previously supplied Ta Yhun with i t s 125 ton machines. All of these firms had machines in use in local industry and a l l had an established reputation for quality. A l l responded with Japanese language technical information. No approaches were made to American or European firms. Management stated that none of these firms had local sales representatives and that their head offices were too far away to bother contacting. Similarly, no local machine manufacturers were considered. Ever since i t started to expand i t s die-casting capacity, Ta Yhun had insisted on high production speed, r e l i a b i l i t y and reasonably high product auality; three conditions that local machines could not always satisfy. After reviewing the technical data, Ta Yhun requested follow-up sales representations from three firms. These in some ( i f not a l l ) cases were arranged by large Japanese trading companies with offices i n Taiwan. A l l negotiations were in Japanese. Although the Japanese language a b i l i t y of the brothers was somewhat limited, this did not present a problem as 120 they were assisted by a senior staff member who was quite fluent in the language. After approximately six months of negotiation and review, the de-cision was finally made to purchase a 330 ton unit from one of the three firms considered with which Ta Yhun had previously had no experience. The reasons given for this decision were that i t was common knowledge in the industry that this firm made the best die-casting machine in the over 300 ton range (several of their machines were already being used elsewhere in Taiwan) and that a careful examination of the available alternatives con-firmed Ta Yhun in this opinion. Price, i t was stated, was secondary. Anyway, the price for this particular machine was only slightly higher than that for the others. How much this price was, however, was not specified as there were s t i l l some 'details' to work out. As with a l l previous purchases of machinery, the purchase price was a flat amount with no royalties or tied purchase of spare parts. This price included instal-lation and test running. To keep the total price down, Ta Yhun negotiated with the supplier on this point to reduce the time Japanese engineers were actually involved to a mere three days. Such a short time was felt suf-ficient in light of the firm's extensive experience in the die-casting industry and because one of the firm's engineers would, by that time, a l -ready have been trained in the Japanese plant for one week. The cost of this training was also included in the price of the machinery. Despite the brevity of the training period, the Ta Yhun engineer was well satisfied with his experience and stated that he felt such visits to foreign plants were much more valuable than visits to local plants by foreign instructors. With the foreign visits, he claimed, you saw and therefore learned much more. 1 2 1 A Note on Ta Yhunfs Sources of Technical Information Ta Yhun identified roughly five sources of technical information. The present and potential usefulness of these sources was described as follows: 1 ) Machine suppliers. As already mentioned, the majority did not have sales representatives in Taiwan and, furthermore, did not send unsolicited technical information. When solicited infor-mation was received i t was, however, quite important in influen-cing the purchase decision. 2 ) Special Journals. Only one journal was subscribed to; a general interest, English language engineering publication. No special non-ferrous, die-casting related journals were received. 3 ) Government. Ta Yhun was aware of the existence of the Industrial Development Bureau and Small Business Service Centre of the Ministry of Economic Affairs in Taipei^ however, Ta Yhun had only the vague impression that i t was useful for borrowing money from the government sponsored Small and Medium Enterprise Bank. The firm was completely unaware of its potential as a source of technical information or management advice. (Ta Yhun, inciden-tally, is located in the southern city of Tainan). Similarly, the firm had no knowledge of the Science and Technology Informa-tion Centre of the National Science Council, also established in Taipei. Management was, however, aware of the Metal Industrial Research Laboratories established by the Industrial Technology Research Institute some twenty miles away at Nan Tse, though they had had no contact with i t . They felt that the laboratory's research work was probably of l i t t l e relevance to their situation. 4) Trade Association. Ta Yhun reported that a general casting in-dustry association had been founded the year before but was s t i l l not well established. However, what they claimed they needed more was a special, non-ferrous die-casting association. One of the brothers cited the example of such an organization in Japan which he had observed there while taking training courses. The Japanese organization had formal monthly meetings, special tours of local and foreign factories and laboratories, and periodi-cally published practical technical data in journal and book form. He hoped the industry in Taiwan could develop an association along similar lines. However, he felt that Taiwanese were basi-cally less 'cooperative' than the Japanese. He nevertheless hoped that such a local association would be formed and that in the future i t could exchange information with its Japanese counter-part. A large technical delegation, comprised mostly of university professors, was expected to arrive shortly from the Japanese association to tour a number of Taiwanese research centres and factories, including Ta Yhun. 5) Informal Sources. Despite the lack of formal organization within the industry, Ta Yhun nevertheless seemed well aware of important developments in other firms, in particular regarding the acquisition of new machinery. It was also aware of generally how such machinery performed. One source of such information was reportedly informal communications with other firms in the in-dustry. Another important source was said to be one of the firm's largest customers, a local subsidiary of a Japanese motor-cycle manufacturer, who purchased parts from a number of local manufacturers. 1 2 3 Liang Chi Industry Company Limited Liang Chi Industry Company Limited is one of the largest manufacturers of air-conditioning and industrial cooling towers in Taiwan. It employs nearly 400 people and last year had sales the approximate equivalent of $5 million (U.S.). As well as supplying much of the local market i t also exports its cooling towers to South East Asia, the Middle East and even Europe. Cooling towers are used in conjunction with large, centralized air-conditioning and industrial cooling systems. Such systems draw off more heat than they can effectively dissipate by themselves and therefore need their own cooling system. This secondary cooling system uses water as the heat transfer medium. Cool water is pumped into the bottom of the primary cooling unit and hot water is drawn out the top from whence i t flows into a nearby cooling tower. A revolving sprinkler inside near the top sprays the water onto a thick plastic mesh. As the water trickles down i t is met by a strong updraft of air created by an exhaust fan at the top of the tower. This draft of air draws off the heat and dissipates i t into the atmosphere. At the bottom of the tower the cooled water is collected in a sump and pumped back to the primary cooling unit. The main components of a cooling tower are a l l made from fibreglass reinforced plastic (FRP). FRP's advantages are several, most notably strength with lightness, low production cost and, since the colour is per-manent and the material won't rust, low maintenance requirements. In the mid-1960's, Liang Chi began experimenting with the use of FRP for cooling towers. The market was just then developing and i t soon became apparent that FRP was the ideal material. Up until then, Liang Chi had been involved with plastic injection moulding. Although related in a 1 2 4 broad sense, the technologies were i n fact quite d i f f e r e n t . In 1 9 6 7 there were, as w e l l as Liang Chi, two other firms who had rece n t l y entered i n t o the production of FRP water towers. Liang Chi f e l t t hat the market offered great p o t e n t i a l . However, i t also f e l t i t s t e c h -n i c a l capacity i n FRP production was s t i l l quite l i m i t e d . Thus, i t decided t o purchase sophisticated FRP know-how from abroad. The technology i t required consisted mainly of know-how; very l i t t l e new machinery was required. Because of the a v a i l a b i l i t y of cheap labour, the production process would remain labour i n t e n s i v e . Furthermore, most of whatever machinery was required was already i n place. Liang Chi's search f o r technology was simple and d i r e c t . One of the firm's engineers had been i n Japan and knew someone i n that country's largest producer of cooling towers. The t e c h n i c a l know-how which Liang Chi needed had been developed and used i n that p a r t i c u l a r firm f o r about f i v e years. Contact was made d i r e c t l y with the Tokyo o f f i c e , the f i r m having no sales representative i n Taiwan. No other firms were contacted i n Japan or elsewhere. After an i n i t i a l exchange of communications, Liang Chi's general manager and c h i e f engineer t r a v e l l e d to Japan where they spent a month inspecting the Japanese plant, discussing the technology and f i n a l l y nego-t i a t i n g an agreement f o r the l i c e n s i n g of Japanese know-how. Before the l i c e n s i n g agreement could become e f f e c t i v e , however, i t needed to be approved by the Taiwan government. In making i t s a p p l i c a t i o n on behalf of i t s e l f and i t s co-applicant, Liang Chi used the services of a l o c a l lawyer experienced i n such matters. T h i s , management stated, was standard p r a c t i c e . A f t e r a s i x months wait, approval was received. In a d d i t i o n to an i n i t i a l lump sum payment of 2 , 0 0 0 , 0 0 0 ¥= r o y a l t i e s were t o be paid at the rate of 3% of net sales f o r f i v e years. This price, i t was stated, was worked out between the two parties without Liang Chi having information on the prices of similar technology held by other foreign firms. Nevertheless, in its negotiations on this point, Liang Chi tried to do a rough cost-benefit analysis to at least get an idea of what the maximum acceptable price might be. The contract provided for a Japanese engineer to aid in the start up of operations. A couple of Taiwanese engineers also went to Japan for about a month. The start up was without any problems and the Japanese engineer shortly returned home. Later on there were several times when Liang Chi ran into special problems and needed to call for help from the licensor. Such special consultations were paid for separately as the occasion arose. Generally, however, the firm felt itself quite able to assimilate the technology on its own. This was in part because of the clearly documented form of the technology; chemical formulae, mixing direc-tions, product specifications, etc., but also, i t was stated, because of the firm's previous couple of years of experience in the manufacture of such items. Management described the infusion of Japanese technology in 1968 as giving the firm a great head start. Without reservation, they expressed their satisfaction with the terms and results of the transfer. This satis-faction stems not only from Liang Chi's ability to assimilate the original technical know-how, but also from its ability to modify and adapt i t to new needs. In this regard, management commented that there had been many, many subsequent modifications in a wide number of areas. Presently, Liang Chi tries to keep up with outside developments in the field through two publications, one the monthly bulletin of the recen-tl y formed Taiwan FRP Manufacturer's Association and the other the bulletin 126 of the counterpart Japanese trade association. The former was thought generally^less helpful, often containing academic reports of local or translations of foreign research, or articles of a broad general nature that were of l i t t l e use to engineers facing specific applied problems. The Japanese bulletin was not received directly from that country's trade association but indirectly from a Japanese friend in one of that associa-tion's member firms. Its articles and reports were thought much more helpful, being addressed more to practical problems than to basic research. At the time of the transfer, there were only two other firms beside Liang Chi producing FRP cooling towers. Since then the number has grown to include at least five major ones. Because of its early initiative, however, Liang Chi was able to capture a large portion of the market. Today, that share remains at over 3 0 $ . None of the other firms in the industry have subsequently had to re-transfer from abroad the know-how which Liang Chi originally contracted for. The reason for this is that many engineers and technicians from Liang Chi have been enticed elsewhere by higher pay, taking with them the firm's technical knowledge. Liang Chi, the chief engineer acknowledged with a smile and a shrug of the shoulders, was powerless to stop such leaks. The contract for the transfer of technology had no provision limiting the market area of Liang Chi. Regardless, during the five years of the contract l i f e , from 1968 to 1973, Liang Chi was primarily concerned with building up its ability to produce for the domestic market. By coincidence, however, the expiration of the contract marked the beginning of the firm's interest in export sales especially to the nearby South East Asia market. This brought them into direct competition with the original Japanese licensor who, as well as selling ready made cooling towers to parts of the 127 region, had also entered into several licensing agreements with local firms. The Japanese firm thus made a strong remonstrance with Liang Chi to abide by the spirit of the original licensing agreement and restrict sales to the domestic market, or at least refrain from direct competition in South East Asia. Liang Chi ignored this request and sales to the region have continued to grow. Chi Lu Industries Ltd. Chi Lu Industries has traditionally been a large producer of ex-plosives and synthetic rubber tires. Recently the firm undertook a major expansion into a third area; the production of fibreglass reinforced plastic (FRP) roofing and partition panels for the burgeoning local construction industry. At the time of Chi Lu's decision to enter the market in 1972, FRP roofing and partition materials were already being widely produced by labour intensive methods. No other manufacturers at that time were using highly automated, capital intensive techniques. Chi Lu decided to be the fir s t . Chi Lu's search for suitable technology was very simple. One of the firm's senior managers had a good friend in a local firm representing a Danish manufacturer of various types of machinery including highly auto-mated machinery for the production of FRP panels. Since Chi Lu had no experience with FRP, i t relied heavily on this friend for technical advice. No other local representatives or foreign suppliers were contacted. The highly automated production machinery that the Danish firm made incorporated technology developed less than three years before. Despite its newness, this new technology was reportedly widely diffused and avail-able from a number of manufacturers. In world terms, the Danish firm was 128 only medium sized and had established no particular reputation. Its business was building machines, only a portion of which were for FRP related uses, and i t therefore had l i t t l e direct knowledge about their commercial opera-tion. In the case of the FRP machinery that Chi Lu was interested in, the machinery would often be built to buyer specifications. Otherwise, a 'standard' machine would be built incorporating the 'best' features of previous machines. Chi Lu representatives flew to Denmark to see the machinery in operation. Pleased with what they saw, negotiations were entered into and finally a contract was signed. The Danish firm was to manufacture, ship and install equipment for the manufacture of FRP roofing and partition panels. A number of Taiwanese engineers and technicians would be trained in Denmark. No limitations were placed on Chi Lu in regard to the marketing of final products or the purchase of replacement parts. The cost to Chi Lu was a lump sum payment of approximately $350,000 (U.S.). Set-up and test running of the new equipment in 1973 went smoothly. After a brief stay, the four Danish engineers a l l went home. Training of the Taiwanese engineers also proceeded as scheduled; two groups of two engineers went to Denmark where they stayed for approximately a month each. As well as inspecting the supplier's factory, they also visited factories using this equipment. These tours were a l l arranged by the supplier. Despite an apparently smooth start, however, the production facility soon began encountering serious difficulties. These difficulties were encountered when an attempt was made to modify the production system in the face of unexpectedly high operating costs. These high operating costs were traceable to three technical factors. Firstly, the dies for pressing out the FRP panels were made to standard European specifications. In 129 Taiwan, however, thinner and hence cheaper panels were acceptable. Thus Chi Lufs products, in the eyes of local consumers, were more expensive but not necessarily better than those of other local manufacturers. These dies could not be adjusted. Secondly, because of the speed of production, the Danish equipment went through more release film than did the local, more labour intensive method. Release film was used to prevent the FRP panels from sticking to the dies. In Denmark this release film was re- \ latively cheap and so was not considered an important cost of operation. However, in Taiwan, where i t had to be imported, the relative cost was much higher. Whereas with the local, labour intensive method a sheet of release film could be used approximately 100 times, with the Danish technology i t could only be used about five times. Thirdly, when originally estimating the cost of production, not enough thought was given to relative energy costs. Electricity costs are, however, significantly higher in Taiwan thus pushing up the costs of production. Chi Lu was reluctant to cal l on the Danish supplier for technical assistance in tackling these problems because of the tremendous cost of bringing consultants a l l the way from Europe. Instead, the firm continued to try on its own to modify the technology and reduce costs. Finally, in 1976, i t contacted the recently established FRP Special Group of the Union Industrial Research Laboratories (UIRL). After seeking technical advice on a number of minor technical problems, the firm finally sought the assistance of the FRP Special Group in addressing the basic problems of the firm. The Special Group recommended, in short, that Chi Lu end its pro-duction of FRP roofing and partition panels completely, scrapping the expensive Danish dies, and go into the production of related FRP products such as exterior casings for refrigerators, TV sets and the like, where higher standards of quality and appearance were more important. 130 Chi Lu, however, balked at accepting such radical changes and sought a. 'guarantee' from the UIEL for the success of such an undertaking. Such a request was, in the words of one UIEL staff member, 'ridiculous'. Com-munication on the subject was subsequently ended and Chi Lu continued on in the production of FRP roof and partition panels. In mid-1978, however, the whole FRP production facility at Chi Lu was finally closed down. Today the manufacture of FRP roof and partition panels in Taiwan continues to be relatively labour intensive. No other firms have attempted the degree of automation tried by Chi Lu. Epoch Limited Epoch Limited was founded in November, 1972 with an i n i t i a l capital investment the equivalent of $5,000 (U.S.) to produce printed, 100$ poly-ester fabric for local and foreign clothing industries. It was and continues to be a wholly family owned and run business with the father, four sons, and at least one of the son's wives taking an active role in operations. Epoch's printing factory presently employs about thirty people including a number of skilled artists and designers as well as a large number of basically unskilled labourers. (The firm also has a garment factory at a separate location employing approximately another thirty workers.) Although presently employing such a small work force, Epoch's printing factory has nevertheless been one of the largest producers of 100$ polyester printed fabric on the island. Management estimated that there are presently around thirty firms involved in printing polyester as either a main or sideline activity. The majority of these firms have only one or two paper transfer printing machines whereas Epoch has three. Due to a recent drop in the demand for printed 100$ polyester fabric, however, Epoch rarely runs at f u l l capacity. Nevertheless, in an industry which 131 has recently seen an extraordinarily large number of firms fail—the figure of 5 0 $ was given in casual conversation—Epoch is s t i l l in business and hopeful about the future. The market for printed polyester only developed in the early 1 9 7 0 T s as a result of changing style factors, which have made brighter, patterned, synthetic fabrics more popular, and because of technical factors, which have made the printing of such fabrics much cheaper. The technical break through which made this cost reduction possible first occurred in France. The French inventor soon began to manufacture and export production machinery incorporating this new technology. Epoch was just at that time getting started and had neither the means nor the inclination to purchase this foreign technology. Instead, i t chose to acquire the technology in another way. The founder and present general manager of Epoch, brother A, is the eldest of four sons. The father, who runs a separate family shoe factory, is president. Brother A studied fabric dyeing for three years in a Taipei technical institute. After completing his military service, he entered the employment of a large fabric dyeing and printing firm where he stayed for seven years, eventually rising to the position of plant manager. In 1972, he decided to go into business on his own and bought a small plot of land just down the road from his former employer. Although i t is not clear what professional journals brother A had access to at his previous employment, since going out on his own, he has only subscribed to two local, Chinese language ones; one, an infrequently published academic publication from his technical school and another published monthly by the local textile association. It was from a report in the latter that he learned of the French innovation. 132 B r o t h e r A a l s o used t o r e c e i v e E n g l i s h language t e c h n i c a l b u l l e t i n s from s e v e r a l l a r g e c h e m i c a l f i r m s who s o l d him d y e s t u f f s , but l a t e r t h e s e stopped coming. He a l s o does not s u b s c r i b e t o any o f the t e c h n o l o g y b u l l e t i n s p u b l i s h e d by t h e S c i e n c e and T e c h n o l o g y I n f o r m a t i o n C e n t r e n o r does he make any use o f t h e i r o t h e r f a c i l i t i e s . As a n o t h e r b r o t h e r says o f him, "he doesn't work from t h e o r y , j u s t e x p e r i e n c e . " B e f o r e t r y i n g t o s e t up h i s own o p e r a t i o n , b r o t h e r A f i r s t t r i e d e x p e r i m e n t i n g w i t h ways t o improve the e x i s t i n g p r o c e s s . As i t t h e n e x i s t e d , t h e p r i n t i n g o f 100$ p o l y e s t e r f a b r i c was slow and c o s t l y because o f c e r t a i n l i m i t a t i o n s i n h e r e n t i n t h e m a t e r i a l s used. The t r a n s f e r o f water-based dyes d i r e c t l y onto t h e p o l y e s t e r f a b r i c r e q u i r e d a c o n s i d e r a b l e p h y s i c a l p l a n t and e x t e n s i v e human s u p e r v i s i o n . There was a l s o t h e problem t h a t water-based dyes were l i a b l e t o fade i n t h e wash. While b r o t h e r A was u n d e r t a k i n g h i s e x p e r i m e n t a t i o n , he r e c e i v e d word o f t h e r e v o l u t i o n a r y new F r e n c h t e c h n o l o g y known as s u b l i s t a t i c p r i n t i n g . A l t h o u g h t h e t e c h n i c a l d e t a i l s were kept s e c r e t , he was n e v e r t h e l e s s a b l e t o l e a r n o f t h e b a s i c p r i n c i p l e s o f the p r o c e s s . I n s t e a d o f a p p l y i n g a water-based dye d i r e c t l y t o t h e p o l y e s t e r f a b r i c , an a l c o h o l based dye was f i r s t a p p l i e d t o a s p e c i a l t r a n s f e r paper arid t h e n t h e dye was t r a n s f e r r e d t o t h e p o l y e s t e r f a b r i c by t h e a p p l i c a t i o n o f a p r e - d e t e r m i n e d amount o f heat and p r e s s u r e . A l t h o u g h t h i s i n v o l v e d two s t e p s i n s t e a d o f one, i t n e v e r t h e l e s s s e r v e d t o g r e a t l y s i m p l i f y and speed up t h e p r i n t i n g p r o c e s s . The F r e n c h f i r m had a s a l e s r e p r e s e n t a t i v e i n Taiwan and t h e new t e c h n o l o g y was f o r s a l e . However, b r o t h e r A had n e i t h e r t h e means n o r t h e i n c l i n a t i o n t o buy i t . I n s t e a d , working from t h e g e n e r a l knowledge he had o f t h e new t e c h n i q u e , he s e t out f i r s t t o r e - d e v e l o p t h e know-how needed t o make i t o p e r a t i o n a l on an e x p e r i m e n t a l s c a l e . The key elements o f t h i s 133 know-how were in mixing the dyes (for their colours might change during the process), choosing the right transfer paper, and determining the correct degrees of heat and pressure to be used in transferring the printed pattern from the paper to the fabric. After much experimentation, he succeeded in producing single prints. The next stage would be to produce i t i n con-tinuous commercial runs. The printing of the transfer paper presented mo problem as standard printing technology was applicable. The machine needed to transfer the patterned print from the paper to the polyester was, however, unique. Such a machine would cost about $375,000 (U.S.) from the French firm. Instead, Epoch decided to build their own 'pirate 1 model. To this end, brother A had a friend obtain a copy of the French firm's catalogue from their local sales representative. Another local firm had by this time already purchased one of the French machines and had begun production. Epoch, i t was implied, had another contact who apparently observed this machine in operation. With the information thus gleaned, brother A then drew up his own s p e c i f i -cations and had a similar machine built i n a local machine shop just down the street from his small factory. The cost was only about $125,000 (U.S.), or one-third of the cost of the original. Brother C, a graduate e l e c t r i c a l engineer who serves as factory manager and jack-of-all-trades i n the company remarked on the poor quality of the locally made machines as opposed to what he assumed was the quality of the foreign machines (a second European firm has also begun manufacture of sublistatic printing machines). Making reference to a locally made brand of automobile, he jokingly called one of his largest machines a "Taiwanese Mercedes-Benz". Nevertheless, despite the need for more main-tenance, he noted that these same machines were extremely easy to operate and maintain. Furthermore, whenever a breakdown occurred, repairs could be effected quickly and cheaply. The effect on the local, 100$ polyester fabric printing industry of the new technology was electric. Capital investment for the new process was estimated to be only one-tenth of that for the old, and manpower require-ments were similarly reduced. As one of the first firms in, Epoch in i t i a l l y made windfall profits. Despite attempts by Epoch.to keep its new process secret, within six months other firms had begun to establish similar operations. As the process became diffused throughout the industry, competition pushed prices down to roughly half their original level. The new process became diffused through one of two ways. Firstly, i t could have been purchased from one or the other two European manufac-turers. Brother C estimated that there are currently about a dozen subli-static printing machines in Taiwan from that source. Most of these, i t was said, were imported by large textile companies for whom printing 100$ polyester fabric was a secondary activity. Secondly, i t might have been, and probably was, stolen either directly or indirectly from Epoch. As brother C said, "what can you do i f somebody offers one of your workers 10,000 NT a month when you're only paying him 3,000 NT?" In this manner, the pirated machine was in turn pirated. It was estimated that such locally made machines now outnumber imported ones by about five to one. Although the printed 100$ polyester fabric market is currently in a slump and two of Epoch's three machines often sit idle, the international market looked good enough in 1976 for the firm to set up another plant in the Philippines. By that time, Epoch's early technical advantage in Taiwan was gone and local competition was becoming increasingly s t i f f . By 135 locating a plant in the Philippines, Epoch hoped to take advantage of that country's significantly lower labour costs. To this end, they had a complete set of sublistatic printing machines made in Taiwan and shipped to that country. To the firm's knowledge, their Manila operation was the first of its kind in that country. Since then, approximately five or six other Taiwanese firms have followed suit, setting up operations in Indonesia, Malaysia and other South East Asian countries. The recent slump in the international market has forced Epoch to shelve plans to expand the Manila facility to include pattern design as well as printing operations. Indeed, instead of expanding, the polyester fabric printing operation has been shut down completely and has been re-placed by a small, felt rug manufacturing operation. Firm X Firm X has traditionally been a fairly large manufacturer of pleasure boats using fiberglass reinforced plastic (FRP) materials. In 1976, the firm began to see a potential market for various large containers made of the same material, particularly for use as water tanks and for the storage and transportation of grains. Such FRP containers would be light, durable and impermeable. They were seen to be a great improvement over existing systems. Water tanks, for example were costly brick and cement structures. Rice was often being stored in make-do granaries or in rough sacks. Either way, i t was easily damaged by insects, rodents or moisture. At that time there were only about four firms making such containers in comparison to an estimated twenty today. Furthermore, the firm had special contacts with the Provincial Farmer's Association which would have given i t an immediate market. 136 In late 1976, the firm contacted an established Japanese manufacturer of such containers, seeking a transfer of some of the latter's technology. An agreement was subsequently reached whereby the Japanese firm agreed to supply mixing formulae, manufacturing directions, product specifications and also the services of an engineer during the i n i t i a l start up. In re-turn, the local firm agreed to pay a U% royalty on net sales for a period of 10 years. Mo trademarks were included. Before such licensing agreements can take effect, however, they must be reviewed by the Investment Commission of the Ministry of Economic Affairs. That body then forwards the application on to a technically expert individual or body for their opinion. In April, 1977, the FRP Special Group of the Union Industrial Research Laboratories (UIRL) received the application by Firm X and its Japanese associate for the licensing of the latter's technology to make FRP water tanks and other similar containers. Within the five working days allowed by the government for processing such documents, the recommendation was made to disallow the license. The carefully documented reasons were as follows. Firstly, the information sought was for the most part already available in various technical journals and could be had simply by searching. Furthermore, other factories were already using this technology and so knowledgable people could be found locally to assist in the proposed project. Secondly, the cost was much too high. Perhaps, i t was said, a figure of one per cent might have been allowed. However, four per cent of net sales for 10 years was exorbitant. As a result of the FRP Special Group's recommendation, the Invest-ment Commission rejected the application. Firm X did not make any further 137 a p p l i c a t i o n s f o r the l i c e n s i n g of foreign technology. Shortly afterwards, however, the firm began to produce FRP containers on Its own. In d escribing the general, level, of technology t r a n s f e r r e d to l o c a l firms, the head of the FRP Special Group was very blunt. "FRP technology sold to Taiwan i s u s u a l l y t h i r d rate...not second rate, but t h i r d r a t e ! " Foreign firms are u n w i l l i n g to s e l l t h e i r newest, f i r s t rate technology, he claimed, while l o c a l firms are unable to t e l l the t h i r d rate from the second rate. These firms are perhaps aware that they aren't ge t t i n g the best technology a v a i l a b l e , but often are unaware they are paying second rate prices f o r t h i r d rate technology. He had s p e c i a l c r i t i c i s m f o r the Japanese. He reported seeing i n -stances where Japanese firms had taken old machinery, cleaned i t up and painted the outside casings and t r i e d to pass i t o f f as new. Japanese, he claimed, are too closed and secretive i n business dealings,unlike Americans whom he found to be more open and d i r e c t . Japanese firms, he f e l t , are generally l e s s trustworthy. San Hsing Hardware Works Company Limited The San Hsing Hardware Works Company Limited was founded i n 1965 by Mr. Yuan-Ho Lee to make metal door hinges f o r the l o c a l construction i n -dustry. Since then, Mr. Lee has gone on to develop innovative, new t e c h -nology i n the f i e l d of nut manufacture. As w e l l as producing nuts f o r l o c a l and foreign markets, the firm also manufactures the p r e c i s i o n machinery used to produce them. The technology developed by San Hsing i s now generally acknowledged to be the best i n the world i n i t s p a r t i c u l a r f i e l d . As w e l l as s e l l i n g equipment and machinery to a large number of for e i g n countries, i n c l u d i n g advanced i n d u s t r i a l i z e d countries such as Germany, A u s t r a l i a and South A f r i c a , San Hsing has a l s o entered into a 138 production licensing agreement with a Japanese firm and has recently sold a complete 'turnkey1 plant to a Korean firm. Sales have grown phenomenally from only about the equivalent of $16,000 (U.S.) in i t s f i r s t year of sales in 1968 to over $7,000,000 (U.S.) in 1977. Today the firm employs over 56O people, including some 70 in R & D. The driving force behind San Hsing i s the founder, Yuan-Ho Lee. Although he had only four years of primary education, he had many years of practical experience before he opened his own small factory in 1965 to produce door hinges. His paid-in capital was only the equivalent of about $5,000 (U.S.). In 1968 he heard from people i n the metal working industry that a local producer of nuts had spent close to $100,000 (U.S.) on a set of German nut blanking and nut finishing presses. Unable to v i s i t the nearby plant and inspect the machinery at f i r s t hand, Lee started on his own to experiment on making a similar machine. Working from what he could learn of the 'basic principles' involved and trying out his ideas on a small press which he had purchased for that purpose, he was, within a year, able to produce a single nut forming machine which combined the two functions of forming and d r i l l i n g which had been separate in the West German tech-nology. Furthermore, this unique new machine cost less than $3,000 (U.S.). Its rate of production and also i t s rate of wastage were both better than what was found locally with older technology. Its rate of production, however, was s t i l l much slower than that of the West German machines: 120 vs. 200 nuts per minute. Lee continued to work on developing the capacity of his nut forming machine and by 1973 he had developed a second generation machine which not only outproduced local machines but also every other machine in the world. It was also superior i n other respects as well; cheaper than European and 139 A m e r i c a n m a c h i n e s , more compac t , e a s i e r t o o p e r a t e , l o w e r on e n e r g y c o n -s u m p t i o n , and r e q u i r i n g l e s s m a i n t e n a n c e . A t h i r d g e n e r a t i o n nu t f o r m e r p r o t o t y p e was s u b s e q u e n t l y d e v e l o p e d i n 1974 and a f o u r t h g e n e r a t i o n i s now b e i n g p l a n n e d . A f t e r h i s e a r l y s u c c e s s w i t h t h e nu t f o r m i n g m a c h i n e , Lee a l s o began t o work on t h e d e s i g n and p r o d u c t i o n o f a nu t t a p p i n g mach i ne f o r g i v i n g t h e n u t s t h r e a d s . U n l i k e t h e German nu t f o r m i n g m a c h i n e s , i n t h i s c a s e he was r e p o r t e d l y a b l e t o o b s e r v e a t f i r s t hand f o r e i g n m a c h i n e s . As a r e s u l t , h i s f i r s t g e n e r a t i o n o f nu t t a p p i n g mach ines was more s i m i l a r i n d e s i g n t o f o r e i g n mach i n e s t h a n was t h e c a s e w i t h t h e nu t f o r m i n g m a c h i n e s . D e s p i t e t h e a p p a r e n t s i m i l a r i t i e s , p e r f o rmance was s i g n i f i c a n t l y l o w e r . Subsequen t deve l opmen t h a s , howeve r , g r e a t l y improved on t h e f i r s t mode l so t h a t t o d a y San H s i n g nu t t a p p i n g mach i ne s a r e t h e f a s t e s t i n t h e w o r l d . San H s i n g i s g e n e r a l l y r e c o g n i z e d a s h a v i n g one o f t h e l a r g e s t and most e f f e c t i v e R & D d e p a r t m e n t s o f i t s k i n d i n T a i w a n ; a p r o d u c t d e v e l o p -ment g r oup p r e s e n t l y has 20 p e o p l e and a d e s i g n g r o u p 5 0 . O v e r h a l f a r e p r o f e s s i o n a l e n g i n e e r s . A l t h o u g h t he company f o u n d e r now h o l d s t h e a d m i n i s -t r a t i v e l y l e s s a c t i v e p o s i t i o n o f Cha i rman o f t h e B o a r d , l e a v i n g t h e g e n e r a l management t o h i s y o u n g e r b r o t h e r , he n e v e r t h e l e s s c o n t i n u e s t o t a k e a d i r e c t i n g r o l e i n deve l opmen t and d e s i g n . As one s u b o r d i n a t e c l a i m e d , " a l l i d e a s s t i l l come f r om t h e b o s s ( i . e . , t h e C h a i r m a n ) . One o f t h e bos s* b a s i c p r i n c i p l e s i s t h a t mere c o p y i n g o f a d e s i g n i s n o t good enough . W i t h j u s t c o p y i n g , he p o i n t s o u t , y ou a r e n e v e r a b l e t o s u r p a s s t h e o r i g i n a l . The f i r m s t i l l s e e k s t o know t h e c o m p e t i t o r ' s p r o d u c t s , g a t h e r i n g whenever p o s s i b l e o t h e r m a n u f a c t u r e r s ' c a t a l o g u e s , handbooks and o p e r a t i n g m a n u a l s . The b o s s has a l s o been o v e r s e a s s e v e r a l t i m e s and has v i s i t e d many f o r e i g n f a c t o r i e s and m a c h i n e r y e x h i b i t i o n s . 140 So far, development and design have been primarily focused on nut forming and tapping. Recently however, San Hsing has developed the proto-type of a new screw making machine. S t i l l in the testing stage, this m machine nevertheless would seem to be leading the firm into a new avenue of technological development. Since most of the development and design work at San Hsing is very specialized and applied, they rely on very few outside sources of technical information. For example, although there are 70 people involved in this area, the firm subscribes to only two foreign technical journals. Manage-ment is aware of the government sponsored Metal Industry Research Laboratory located only some 25 miles away. However, they have l i t t l e contact with i t because of what they report as its emphasis on general research which is of l i t t l e use in solving the firm's more specialized development and design problems. Similarly, the firm receives monthly technological bulletins and reports from the government sponsored Science and Technology Information Centre; however, these too are thought too general to be of great help. There had also been no contact with any government technical advisors, i f in fact they did exist. If San Hsing had a problem requiring additional ^ technical information, i t was thought that the large number of university graduates in the department would be quite able to ferret i t out. When, for example, asked specifically how and where they would get technical information on new developments in the field of metallurgy that might possibly have* an important influence on their machine's capacity, a manage-ment spokesman replied that they would get i t from the various overseas suppliers with whom they maintained contacts. (Many high quality steels s t i l l have to be imported). Thirdly, San Hsing's work on development and 141 design would continue to lead to improvements in machine performance. Thus, even though i t sold its present technology, the firm would always have something better to take its place. Also, the returns from present sales would in part finance future advances. The decision to actively promote the transfer of its special tech-nologies was only taken by San Hsing after much consideration. The decision, i t was stated, was supported by three reasons. First, some markets, especially those of the developing countries are, or are becoming increas-ingly, closed to the export of nuts. The relevant tariffs in many South East Asian countries are, i t was reported, close to 50$. Recently also, the EEC tariff against nuts from Taiwan (i.e., San Hsing) was raised to 26$. Secondly, San Hsing realized that foreign producers would continue to offer st i f f competition to San Hsing nuts whether they were using San Hsing machines or not. Best then, i t was thought, to at least profit by the sale of the machinery. Thirdly, San HsingTs work on development and design would continue to lead to improvements in machine performance. Thus, even though i t sold its present technology, the firm would always have something better to take its place. Also, the returns from present sales would in part finance future advances. San Hsing*s General Manager noted that although most of Taiwanese machinery, for example lathes, is sold on the basis of cost, low cost is not a factor in sales of San Hsing's machinery. Quality of materials and workmanship is foremost in the minds of foreign buyers of nut making machinery. San Hsing has sold production machinery to a l l parts of the world including such highly industrialized countries as Germany, Japan, Australia and South Africa. In addition to exhibiting in certain foreign machinery 142 shows, San Hsing also has a number of selected foreign representatives. Very often though, sales are made directly from head office. To spread the company's name, San .Hsing has sometimes taken out advertisements in trade magazines; however, they have found this to be generally ineffective. As the General Manager explained, foreign buyers simply don't expect precision quality from Taiwan machine makers and therefore tend to discount any claims to that effect, especially when in the form of commercial advertise-ments. Instead, San Hsing has found word of mouth to be much more effective. The General Manager noted that, unlike local buyers in the reverse situation, foreign buyers of Taiwanese equipment insist on first visiting the factory to see the machinery being made and in actual operation, regardless of the amount of travel required. The reaction of such foreign visitors to the San Hsing plant was, he reported, almost always one of favourable surprise. Impressed with what they saw and often confirmed in this impression by subsequent purchase and operation of the machinery, these foreign indus-trialists and engineers helped to spread San Hsing's name. As a result, in spite of a modest advertising and promotion budget, the firm continues to receive a large number of unsolicited inquiries regarding the sale of machinery. In 1974, San Hsing licensed Naitoh Company Ltd. of Japan to manu-facture and sel l its second generation nut forming machine in that country. For an undisclosed amount, Naitoh received detailed production plans and technical advisors. Further information regarding the transfer was not available. San :Hsing stated i t is willing to consider other licensing requests, although no such undertakings are presently being considered. In late 1976 an agreement was signed with a Korean firm for the building of a complete 'turnkey' nut manufacturing plant in that country. 143 The impetus for this project came from changes in the EEC tariff structure. Taiwanese (i.e., San Hsing) nuts had been virtually flooding the EEC market and, in an attempt to protect local manufacturers, the EEC authorities had upped the basic tariff then in effect against Taiwanese nuts from 11 to 26$, thus effectively closing off that market to San Hsing. The tariff against Korean nuts, however, remained zero. A group of Korean business-men thus conceived the idea of establishing a modern nut factory in their country to export to the EEC. Through the introduction of a firm of Korean-Chinese businessmen, the Koreans made contact with San Shing. When the Koreans ultimately came to Taiwan to discuss the undertaking in detail, they were so impressed with what they saw at San Hsing that they virtually came to an agreement on the spot. Getting Korean government approval, however, turned out to be a much more difficult and lengthy proposition. The Korean government has a basic policy of requiring local industry to purchase locally made machinery. When not available or technically inadequate, foreign purchase is allowed but only of the best foreign machinery. This usually means that the pur-chase will be from one of the leading industrialized countries such as the U.S.A., Germany or Japan. Thus, the application for the importation of not only machinery but a complete 'turnkey* plant from Taiwan, another developing country, was rejected outright. The Korean businessmen persisted, however, and offered various engineering data on San Hsing and its com-petitors* technologies by way of comparison. The authorities nevertheless remained unconvinced, questioning the veracity of the documentation and doubting the ability of the San Hsing machinery to maintain its claimed levels of high performance over an extended period. However, after a year and a half of review, the proposal was finally approved. The total cost for the turnkey plant including training was approxi-mately $1.2 million (U.S.). As well as the basic nut forming and tapping machinery, auxiliary equipment, such as that for wire pulling and o i l separation which San Hsing had also developed or modified, was also supplied. The important nut forming machines were a l l second generation. Although a much improved third generation machine was developed at the time, management claimed that i t was not then fully proven and, anyway, the second generation machines were already better than anything then available. The nut tapping machines were also of an earlier generation. This model, i t was said, was easier to maintain. The General Manager admitted that San Hsing made a substantial profit on the deal (two independent outside sources with contacts in the industry reported that the basic machinery component of the package was only worth about $300,000 (U.S.). Despite the large profits, San Hsing's price for the plant was less than that bid by American and European manufacturers and only slightly more than that of a Japanese firm. The Korean factory, when in f u l l operation, will employ approximately 120 people, thus making i t a l i t t l e over half as big as San rising's own nut making operation. So far, fourteen Koreans have been trained at the San Hsing plant for periods of from one to two months each. The contract also calls for seven Taiwanese to go to Korea to help in production and quality control. English is the common language. Management stated that, since this was the firm's first turnkey project, they did not charge separately for training though they might do so in the future. Technical piracy has long been a problem for San Hsing. Taking the case of the second generation nut forming machine invented in 1973, manage-ment estimated that there are today in Taiwan about twenty imitators. 145 Although San Hsing processes and products are protected l o c a l l y , as w e l l as abroad i n about twenty countries by numerous patents, management complained that the l e g a l protection thus provided i s often inadequate to prevent such copying. Also a factor, i t was stated, was so-called 'jen ch ing* or 'human considerations'. For a large, s u c c e s s f u l firm to act too harshly against a smaller imitator, i t was sai d , would r e f l e c t poorly on the former. The importance of 'human considerations' i s w e l l i l l u s t r a t e d i n the case of a former San Hsing worker who was more blessed with ambition than with scruples. During the day he worked at San Hsing but at night he worked i n his own l i t t l e machine shop t r y i n g to p i r a t e his boss' machines. To t h i s end he even went so far as to 'borrow* c e r t a i n important t o o l s and drawings. When San Hsing f i n a l l y caught him he was not charged with t h e f t nor even f i r e d , but was merely required to express h i s c o n t r i t i o n i n a formal l e t t e r of apology. This was not the end of h i s p i r a t i n g ambitions, however, and he l a t e r l e f t t o go i n t o production on h i s own, c l e a r l y v i o l a t i n g various San Hsing patents. Given the man's extreme audacity, San Hsing f i n a l l y took him to court where he was found g u i l t y and closed down permanently. Generally, however, San Hsing i s content to l e t such p i r a t e manu-facturers operate i n v i o l a t i o n of i t s patent r i g h t s . As the General Manager observed, most pi r a t e s have i n s u f f i c i e n t t e c h n i c a l know-how and inadequate production equipment to produce q u a l i t y , precision machines capable of competing with San Hsing products. In t h i s l a t t e r regard, a management spokesman noted that the firm had had to purchase s e v e r a l large, c o s t l y foreign metal working machines that i t used only i n f r e q u e n t l y . This was done, i t was sai d , because i t was not possible to contract out such jobs H 6 locally. As a result, San Hsing machinery and tooling facilities are both large and well equipped including, for example, a number of numeri-cally controlled machines. Fu San Limited Fu San Limited, with about 20 permanent employees, is one of a large number of small to medium sized firms manufacturing steel reinforcing rods for the local construction industry. These rods, tied together, form the rigid skeleton around which concrete i s poured to make so-called reinforced concrete structures. Recently, in addition to manufacturing steel rods, Fu San has been manufacturing the machinery and equipment necessary for their production and exporting them as complete production units. They have been very successful in this with sales in Taiwan and abroad, in-cluding, for example, sales of four complete plants to Nigeria. Presently, Fu San is awaiting final agreement on a plan to s e l l such a facility to a firm in F i j i . Despite recent technical innovations both in Taiwan and abroad, which among other things have reduced energy consumption by 80$, the majority of Taiwanese firms s t i l l use technology that hasn't changed basically in over two decades. Normally, the first stage in the process is the melting down of scrap steel in a special furnace. The molten steel is then poured into special molds to form long bars. While s t i l l red hot, these bars are removed manually and fed into a drawing machine which has up to six rollers. As the rollers draw the red hot bar through, they gradually compress and shape i t until a long, thin rod emerges at the far end. The rods are then left to cool and are later.stacked-manually, ready for shipping. The only difference between the process used at the Fu San factory and that mentioned above (which is the kind that is usually exported) is 147 i n the f i r s t stage. Since the nearby port c i t y of Kao Hsiung has what i s said to be the largest ship scrap yard i n the world, large sections of s t e e l p l a t i n g are purchased cheaply and cut into long straps. These straps are then heated i n a s p e c i a l furnace u n t i l they are red hot and then removed to the drawing machine. From that point on the process i s the same. A complete plant for export would include, i n addi t i o n to the furnace and the drawing machine, various tongs for handling the metal, shears f o r cu t t i n g the rods, and equipment for machining the r o l l e r s and bearings, etc. In the past, Fu San has made contacts for f o r e i g n sales e i t h e r on i t s own i n i t i a t i v e , getting the names of interest e d foreign buyers from government trade p u b l i c a t i o n s , or through the i n i t i a t i v e of Taiwanese import-export companies who have t h e i r own, private sources of information. The contact that led to the proposed t r a n s f e r to F i j i was i n i t i a t e d by the l o c a l Ju Kao Engineering Corporation on behalf of a F i j i a n c l i e n t . Ju Kac i s a medium sized engineering consulting company with a s t a f f of fourteen engineers and a present t o t a l s t a f f of 300. It f i r s t made contact with the F i j i a n c l i e n t a couple of years ago through the intr o d u c t i o n of a Chinese import-export company. Shortly afterwards, Ju Kao was able to purchase a large s t e e l foundry sand b l a s t i n g machine f o r t h i s c l i e n t at a great saving to the l a t t e r . The F i j i a n c l i e n t was apparently well pleased with Ju Kao's s e r v i c e s . E a r l y i n 1977, he n o t i f i e d Ju Kao that he was interested i n purchasing a complete s t e e l r e i n f o r c i n g rod plant. Ju Kao had had previous experience i n searching out and organizing the t r a n s f e r of a s i m i l a r small scale i n d u s t r i a l plant to Pakistan which, unfortunately, had f a l l e n through. The f i r s t step i n the search f o r a suitable s u p p l i e r was an examina-t i o n of the trade d i r e c t o r i e s . This was followed by v i s i t s to a number of 148 l i k e l y firms. Ju Kao then s p e c i f i e d the machinery and equipment i t wanted and took bids. In the end i t came down to two firms; Ju Kao chose Fu San, the higher of the two bidders f e e l i n g that the other was too low and that i t was doubtful whether that firm could r e a l l y produce the machinery needed at the q u a l i t y s p e c i f i e d . In August, 1977, the F i j i a n c l i e n t a r r i v e d i n Taiwan to inspect the Fu San plant at f i r s t hand. Pleased with what he saw, he signed a c o n d i t i o n a l agreement to buy. The price for the machinery and equipment alone was to be approximately $80,000 (U.S.). Although i t was impossible to know, Ju Kao f e l t that the F i j i a n c l i e n t had made no s i m i l a r v i s i t s to other Asian c o u n t r i e s . Even i f he had, i t was f e l t that the Fu San price couldn't be beaten, q u a l i t y considered. It was estimated that t h i s plant, which cost $80,000 (U.S.) i n Taiwan, would cost anywhere from $100,000 (U.S.) to $160,000 (U.S.) i n Japan or the west. Separate from the cost of the physical plant were the unspecified charges for t e c h n i c a l assistance i n i n s t a l l a t i o n and s t a r t up (which i t was estimated should require at least one month) and also f o r t r a i n i n g of personnel (which i t was estimated could take up to three months). The standard fee for these services, i t was stated, i s approximately $1,000 (U.S.) per month f o r engineers and $800 (U.S.) to $900 (U.S.) per month for technicians. However, as the chief engineer for Ju Kao pointed out, i t i s only r a r e l y i n such cases ... "perhaps one i n t e n " ... that the buyers of such r e l a t i v e l y unsophisticated technology ask for any t e c h n i c a l assistance. Preferring to his knowledge of s i m i l a r complete plant t r a n s f e r s to west A f r i c a and the Middle East, he stated that often the foreign firm runs into unforeseen problems and eventually has to c a l l i n Taiwanese engineers f o r help. 149 At the time of w r i t i n g , the signing of the f i n a l contract was being delayed by a regulatory r e s t r i c t i o n of the F i j i a n government. Ju Kao would not specif y how much i t s rate of commission would be on the deal save that i t was within the usual range of f i v e to twenty per cent. I f the deal f e l l through, however, Ju Kao would receive nothing f o r i t s e f f o r t . Taiwan VCM Limited VCM, or v i n y l c h l o r i d e monomer, i s an important intermediate produce of the petrochemical industry. From i t PVC, or p o l y v i n y l c h l o r i d e , and vinylidene chloride are made. These i n turn are used to make p l a s t i c pipes, f i l m , i m i t a t i o n leather, mouldings, synthetic f i b r e s , and numerous other products. VCM has been produced commercially f o r over twenty years. The t r a d i t i o n a l means has been to d i s t i l l naptha from crude o i l and then crack i t to produce, among other things, ethylene, which i s further processed to make EDC, or e t h y l d i - c h l o r i d e , which i s i n turn processed to make VCM. As t h i s general process has been around for a number of years, there are already several generations of s p e c i f i c technology a v a i l a b l e to choose from. A completely d i f f e r e n t process, however, has recently been developed f o r use with c e r t a i n kinds of natural gas. This process i s much simpler and le s s expensive. In i t , the natural gas i s d i s t i l l e d to give ethane which can then be d i r e c t l y processed i n t o VCM. There are presently two firms producing VCM i n Taiwan, Formosa P l a s t i c s , with a one plant capacity of 2 4 0 , 0 0 0 metric tons a year, and Taiwan VCM (TVCM), with two plants, each with a 6 0 , 0 0 0 metric ton capacity. The t r a d i t i o n a l process, based on naptha, i s used e x c l u s i v e l y by Formosa P l a s t i c s and by TVCM i n one of i t s r e f i n e r i e s . Both of the aforementioned operations are located i n Kaoshiung i n close proximity to the Chinese Petroleum Corporation's (CPC) main r e f i n i n g and cracking plants f o r imported 150 o i l . The newer orocess i s used by the second TVCM plant located at Tou Fen i n the north of the i s l a n d . Nearby i s an ethane cracking plant which uses l o c a l natural gas as raw material. The Taiwanese petrochemical industry can be conceptualized as having three general stages i n a stream of production. Upstream i s where the crude o i l i s d i s t i l l e d and refined into various o i l products, some of which, such as gasoline, are immediately marketable; others of which, such as naptha and ethane, need further treatment. Midstream i s where such products are further treated and transformed into usable raw materials f o r down-stream manufacturers. Downstream i s where these materials are f i n a l l y transformed into f i n i s h e d products. In the upstream, investment i s e x c l u s i v e l y by the government: i n the downstream, i t i s completely by private e n t e r p r i s e . In the midstream, there i s found investment from both sources depending upon the s i t u a t i o n . When the idea of a VCM plant was f i r s t raised i n the l a t e 1960's, there was apparently some h e s i t a t i o n on the part of l o c a l investors, therefore the government was obliged to invest quite heavily i n TVCM. Some years l a t e r when Formosa P l a s t i c s was founded there was, however, no problem i n i n t e r e s t i n g private investors and, as a r e s u l t , the firm i s completely p r i v a t e l y owned. TVCM's f i r s t plant went into production i n Kaohsiung i n 1971. The technology selected was an older, well t r i e d one. It and the associated engineering design work were supplied by a large Japanese petrochemical company. Since the technology was r e l a t i v e l y o l d , i t s cost was comparatively low. Newer, more expensive technologies were apparently considered. However, two f a c t o r s , TVCM's lack of experience and the higher cost of the newer technologies, decided the firm against them. Furthermore, as 151 i n i t i a l l y the only l o c a l manufacturer of VCM, the higher production costs associated with the older technology were not seen as s i g n i f i c a n t . However, l a t e r as l o c a l demand for VCM increased and other sources, in c l u d i n g im-ports, became a v a i l a b l e , t h i s became a serious problem. Today, i t is estimated production costs at TVCM's Kaohsiung plant are 20% higher than at the newer Formosa Plastics' plant nearby. Shortly after the Kaohsiung plant commenced operation, plans were started for another plant at Tou Fen to use local natural gas. Three firms bid on the contract including the Japanese petrochemical company that had originally built the Kaohsiung plant and two large, internationally famous, United States based engineering firms, A and B. Firm B had never built a VCM plant. Nevertheless, i t had extensive, closely related experience and, what is more, had recently developed what i t felt was a revolutionary new technology for directly refining ethane into VCM that would make for tremendous energy, and hence production, cost savings. To further strengthen its abilities in this area, firm B also licensed extensive traditional, VCM production related know-how from two large American petrochemical companies. The chief of the technical section at the Kaohsiung plant recalled that in the Tou Fen decision, as in the earlier Kaohsiung one, total cost was the single most important factor in the final decision. When the bids were received, i t was seen that United States firm B's total of $7.5 million was significantly below that of the others and so the decision was made to go with i t . However, as became obvious later, the American firm had purposely bid low in order to get the contract. Although they had great faith in their new technology, i t had never been put into actual commercial operation and so the world petrochemical community was reluctant to buy. TVCM was to be the test. 152 The contract specified that the American firm was to do a l l basic and detailed engineering design. Actual mechanical construction was to be sub-contracted to the large local engineering firm, China Technical Consultants Incorporated (CTCI). Overall responsibility for start up, as well as whatever training was necessary, would remain with the American firm. The new plant was scheduled to start f u l l commercial production in 1974, however, i t was plagued by continual problems. What exactly was wrong was not always clear. As a result, American engineers were constantly flying back and forth across the Pacific to troubleshoot. This state of affairs dragged on, much to the engineers* bewilderment and TVCM*s extreme annoyance. According to the contract, TVCM legally had the right of refusal i f the project were not completed satisfactorily within a specified period of time. However, to their dismay they found that i n fact their recourse i n this regard was effectively worthless. The contract, for example, had specified payment of various percentages of the tot a l cost at certain stages of the project. Thus, by the time the plant was f u l l y erected and the f i r s t test oroduction runs began, the American engineering firm had already received 90$ of i t s money. Furthermore, i f TVCM were to take the American firm to court in an attempt to get some of i t s money back, the latter could point to a number of contractual conditions that TVCM had been unable to f u l f i l l . For example, TVCM*s in a b i l i t y to ensure a constant quality and quantity of ethane as raw material might be pointed to as preventing the successful operation of the whole plant. TVCM thus felt i t s e l f obliged to let the American firm keep on trying to get the process running properly. This went on for two years. In the 153 opinion of the chief of technology of the Kaohsiung plant, the American firm was just experimenting and never r e a l l y knew what the problem or problems were. F i n a l l y , there was a shake up at TVCM. The f i n a l i n s t a l l -ment on the contract was paid o f f and a new general manager was appointed to the Tou Fen plant. His f i r s t job was to ask the American firm's engineers to leave. A f t e r a concerted s i x months e f f o r t , he and his s t a f f were f i n a l l y able to solve the t e c h n i c a l problems and, i n 1976, the plant f i n a l l y began f u l l , commercial operation. The c h i e f of the technology section had a number of s p e c i f i c c r i t i -cisms f or both sides i n t h i s t r a n s f e r of technology. F i r s t of a l l , he f e l t there had been inadequate communication between the two sides. Almost a l l the design work was done i n the United States although there were a number of v i s i t s to Taiwan. The American firm on i t s side f e l t very confident i n i t s a b i l i t y to handle the project on i t s own and t h i s i t b a s i c a l l y was, as was shown by t h e i r work on an unrelated expansion of the older plant at Kaohsiung i n 1975. However, the new technology present >d n problems. TVCM on i t s side was too unquestioning and u n c r i t i c a l of the American firm's proposals. For example, a l l the l a t t e r ' s c a l c u l a t i o n s were made on i d e a l , steady state assumptions which sometimes proved u n r e a l i s t i c i n the ac t u a l s i t u a t i o n . As was pointed out, i n the United States a VCM plant could access i t s raw materials from several sources i f necessary whereas, i n Taiwan, you had to take what was available i n regard to quantity, q u a l i t y and d e l i v e r y . He also c r i t i c i z e d the American firm's basic motivation..."they just wanted a chance to experiment." However, he a l s o acknowledged that i t was a great mistake for TVCM to be guided p r i m a r i l y by cost i n t h e i r o r i g i n a l choice. This was compounded by a lack of expertise i n negotiating 154 and formulating the contract. Since the e a r l i e r Japanese-directed t r a n s f e r was without any major problems, TVCK had gained l i t t l e i n s i g h t into the possible p i t f a l l s that might l i e i n the path of such a complicated t r a n s f e r . The package of technology transferred by the American fi r m was not, however, t o t a l l y new and u n t r i e d . In fact, a good p o r t i o n of i t consisted of older, w e l l established technology which the American fi r m had l i c e n s e d from a number of other firms. The question was thus asked the c h i e f of the technology section why TVCM had not i t s e l f undertaken, or had a l o c a l engineering firm undertake, to contract the t r a n s f e r of the separate element As for TVCM, he r e p l i e d that the firm was a production and not an engineerin f i r m . Although they had some expertise, i t was not b a s i c a l l y i n the design and layout areas. As to the question of l o c a l engineering firms, he r e p l i e d that i t i s only r e c e n t l y i n the petrochemical f i e l d that there i s a firm, CTCI, with s u f f i c i e n t expertise and experience to handle such jobs. Formosa P l a s t i c s , i t was pointed out, p a r t i a l l y as a r e s u l t of observing the problems that TVCM had got i n t o , s p e c i f i e d i n i t s contract that a l l d e t a i l e d engineering design was to be done l o c a l l y and as a r e s u l t CTCI was given the job. However, there s t i l l remains the problem f o r any p o t e n t i a l general contractor i n Taiwan of assembling the required b i t s of proprietary technology. Much of t h i s i s held by the very f o r e i g n en-gineering companies who would be bidding against a l o c a l firm and so would be reluctant to s e l l i t cheaply, i f at a l l . News, i t was observed, t r a v e l s very fast within the small, c l o s e -knit Taiwanese petrochemical industry. One of the r e s u l t s of t h i s , already noticed i n the case of Formosa P l a s t i c s requiring that d e t a i l e d engineering design be done l o c a l l y , i s a c e r t a i n learning curve e f f e c t throughout the industry i n regard to technology t r a n s f e r s . Despite t h i s , however, 155 unanticipated problems s t i l l occur. A case c i t e d was that of Chung-Tai Chemical Industries' $30 m i l l i o n (U.S.) caprolactam plant i n Kaohsiung, errected i n 1975. There, the general contractor was a West German engineering firm using, i n large part, Dutch technology. Because of the large scale and complicated nature of the process, both basic and d e t a i l e d engineering were done i n Germany. The problems that developed a f t e r the plant was put i n t o operation, however, were not traceable to poor design or untried technology but rather to the most basic of f a c t o r s , poor q u a l i t y equipment. When Chung-Tai signed the contract with the German firm, i t apparently assumed i t would be getting German or Dutch equipment. However, when the l a t t e r saw that there were going to be cost over runs, i t switched the source of i t s equipment to Spain where costs were admittedly l e s s but q u a l i t y , unfortunately, was also lower. Chung-Tai, i t was s a i d , should have paid c l o s e r attention when the plant was being erected. Such problems, the c h i e f of technology f e l t , wouldn't happen i n a more developed country. News, i t was noted, also t r a v e l s very quickly w i t h i n the i n t e r n a t i o n a l petrochemical community. Because of the American firm's f a i l u r e with i t s new VCM technology i n Taiwan, no one else has bought i t . TVCM, however, has proved to i t s e l f that t h i s technology can indeed be s u c c e s s f u l l y com-mercia]ized. Recently, a c e r t a i n middle eastern country with the necessary kind of natural gas has shown i n t e r e s t i n b u i l d i n g a large VCM plant. The American engineering f i r m i s s t i l l eager to prove i t s e l f i n t h i s f i e l d and so i s reportedly planning on entering a very serious b i d . However, the f i r m s t i l l lacks the c r i t i c a l b i t of know-how that TVCM developed on i t s own a f t e r severing contacts. E a r l i e r t h i s year, two vice-presidents of the American firm were i n Taiwan to propose a j o i n t venture i n the middle east. At l a s t word, TVCM was s t i l l 'considering'. 156 Serious t e c h n i c a l problems occasionally a l s o occur i n the day to day operations of TVCM's plants. An important part of a VCM plant i s the r e f r i g e r a t i o n unit necessary to cool down the superheated chemicals at ce r t a i n points i n the process. The r e f r i g e r a t i o n u n i t i s the Kaohsiung TVCM plant reportedly cost nearly $ 1 m i l l i o n (U.S.) The heart of such a unit i s a high speed, p r e c i s i o n made, c e n t r i f u g a l compressor. The American made unit o r i g i n a l l y i n s t a l l e d was of the most advanced design and, i n spi t e of i t s consideragle capacity, r e l a t i v e l y compact. Assembly and i n s t a l l a t i o n of t h i s complicated, precision made un i t was done on s i t e by a team of engineers sent by the American manufacturer. After an i n i t i a l t r i a l , they a l l returned home. Shortly l a t e r , the unit began to experience serious operating problems often leading to complete shutdown. At f i r s t TVCM suspected that the problems were a r e s u l t of inappropriate design; f o r example, f a i l i n g to onsider the considerably higher l o c a l average temperature and humidity. However, subsequent examination eventually proved t h i s not to be the case. Frequent r e p a i r was needed. Unfortunately, there was no one i n Taiwan, not to mention TVCM i t s e l f , capable of working on such a s p e c i a l i z e d , highly sophisticated machine. As a r e s u l t , American engineers had to be flown i n three times at TVCM's expense. S i m i l a r l y , expensive replacement parts had to be purchased from the o r i g i n a l manufacturer. I t was not u n t i l the t h i r d v i s i t that the American engineers were f i n a l l y able to f i n d and correct the basic problem. For such a s o p h i s t i -cated machine the problem was s u r p r i s i n g l y simple; when o r i g i n a l l y assembled, one of the feeder pipes leading from the c e n t r i f u g a l compressor was not quite s t r a i g h t . During operation, tremendous hydraulic pressures b u i l t up which had influenced the system i n strange and completely 157 unforeseen ways, causing i t s frequent malfunctions. The c h i e f of the technology section of the Kaohsiung plant had several very s p e c i f i c observations on foreign t e c h n i c a l services a v a i l a b l e i n his industry. F i r s t l y , the t e c h n i c a l c a p a b i l i t y of l o c a l sales represen-t a t i v e s of f o r e i g n equipment manufacturers (mostly l o c a l n ationals) i s uniformly low. This, however, i s less of a problem f o r Japanese firms. Due to t h e i r geographical proximity, they can e a s i l y bring i n top t e c h n i c a l people from head o f f i c e . Perhaps because of t h i s geographical proximity, Japanese firms reportedly show a more aggressive attitude towards the local, market. This leads Japanese head o f f i c e s to organize more l o c a l v i s i t s than do t h e i r American competitors. The Japanese, however, don't n e c e s s a r i l y get along better with the Taiwanese than do the Americans. Like the Americans, only r a r e l y are they able t o speak Chinese. Furthermore, the c h i e f observed, they are extremely close mouthed and se c r e t i v e . Unlike American engineers, a Japanese engineer sent around on a sales-service v i s i t "might only speak one sentence the whole time, . . . o n his second v i s i t next year he might speak another...". Nevertheless, i t was said that during t h e i r v i s i t s , the Japanese gather tremendous amounts of data on the company, i t s physical plant and operations. This thoroughness was g r e a t l y respected. American firms also gather information to a s s i s t i n making furt h e r sales, however, i t was said the difference i s that the Japanese generally have a better system to store and evaluate i t . This allows them to o f f e r f a s t e r , pin-point service when anything goes wrong. Since they are dedicated to such thorough s e r v i c e , the Japanese are w i l l i n g to o f f e r more extensive guarantees than the Americans. Thus, even though the Japanese q u a l i t y may be less than that of the American, and the 158 p r i c e as much as 25% higher, l o c a l buyers w i l l often prefer the former because of the extra assurance of a one year, unconditional guarantee. The Japanese are a l s o more responsive, i n at least one important way, to l o c a l needs and d e s i r e s . Although American firms* t r a i n i n g pro-grammes are quite popular—American engineers are more open and w i l l i n g to discuss a broad number of problems than are t h e i r Japanese c o u n t e r p a r t s — i t was stated that l o c a l firms sometimes prefer to do business with a Japanese firm because of the 'extras* that are provided. S p e c i f i c a l l y , American t r a i n i n g programmes are e s s e n t i a l l y just that and are charged for separately from any machinery sa l e s . The Japanese programmes, however, include an important 'holiday' aspect and are 'free'; that i s to say, are paid for i n the higher p r i c e of the machinery. This holiday aspect, i t was stated, i s very important to l o c a l engineers because of the r e s t r i c t i o n s on pleasure t r a v e l abroad. Thus, for example, every year two engineers from the Kaohsiung plant f l y to Tokyo f o r two weeks of ' t r a i n i n g ' at the head o f f i c e of a large Japanese instrument maker. Although they pay t h e i r own plane fares, room and board are without charge at the Japanese firm's s p e c i a l dormitory. S i m i l a r l y , the t r a i n i n g , although c l e a r l y l i m i t e d i n what they see and are t o l d , i s free. The main a t t r a c t i o n , however, i s outside, not i n s i d e , the company walls. E l e c t r o n i c s Industry Research Centre and the IC 'Model Factory* In September, 1974, the I n d u s t r i a l Technology Research I n s t i t u t e , (ITRI) at the d i r e c t i o n of the M i n i s t r y of Economic A f f a i r s (MOEA) estab-l i s h e d a s p e c i a l E l e c t r o n i c s Industry Research Centre (ERIE). The purpose of t h i s centre was: l ) to introduce from abroad technology f o r the design and f a b r i c a t i o n of t h i r d generation large scale integration (LSI) semiconductor 159 devices, i n p a r t i c u l a r , metal oxide semiconductors (MOS); 2) to develop independent, l o c a l design and f a b r i c a t i o n s k i l l s ; 3) to select various end-use products incorporating integrated c i r c u i t s (IC) technology and concentrate design, development and production a c t i v i t i e s i n these areas. And, as a broader goal, 4) to encourage the evolution of the whole of the e l e c t r o n i c s industry from a present state, characterized by labour i n t e n -sive production, to one of c a p i t a l intensive and technology intensive production. In July, 1975 ITRI and MOEA formalized a 'plan for Research and Development i n the E l e c t r o n i c s Industry'. The main feature of t h i s plan was to be the establishment of a 'model factory' to produce advanced IC devices. T h i s f a c i l i t y was to be operated separately from, but i n close conjunction with, an IC research and development f a c i l i t y . The 'model factory' was to be established i n three states: plant construction, t e s t run production, and f u l l commercial production. The f i r s t two stages, i t was estimated, would take about two years each. Toward the end of the plant construction stage, work would begin on developing prototypes. In the t e s t run stage, design and production of some components would begin f o r ce r t a i n commercial customers. In t h i s stage i t was hoped the f a c i l i t y would begin to show a p r o f i t . In the f i n a l stage of f u l l commercial pro-duction, the related technology would be d i f f u s e d i n t o the p r i v a t e sector through e i t h e r sale of the f a c i l i t y to private industry or through j o i n t venture. The search f o r technology was limited to Europe and America. Japan was excluded from consideration for two reasons; f i r s t l y , serious trade 160 imbalances had caused the Taiwan government to place r e s t r i c t i o n s on the import of machinery and equipment from that country; secondly, Japan had just formally recognized the communist government of Mainland China. Assuming that the Japanese holders of such technology would be w i l l i n g to negotiate with the Taiwan government (an assumption which may not have been reasonable at that time given the desire of many Japanese companies to enter the Mainland China market and the threat by the government of Main-land China to exclude any firms that dealt with Taiwan), i t would be a serious loss of face on the Taiwan side to o f f i c i a l l y seek technology from a country which had so recently snubbed them. Serious consideration was given to only four firms, three American: Texas Instruments, RCA, and Hughes Corporation, and one European: the Dutch based firm, P h i l l i p s . Chinese engineers v i s i t e d plants of a l l four firms. F i n a l l y , s p e c i f i c a t i o n s were given and closed bids received. The r e s u l t was that the contract was l e t to RCA, the second lowest bidder, the f i n a l agreement was signed i n March of 1976. T o t a l costs of the undertaking were projected at over $13.5 m i l l i o n (U.S.). Of t h i s amount, approximately $3.7 m i l l i o n (U.S.) was for technology fees and r o y a l t i e s with another $300,000 (U.S.) for t r a i n i n g . An unspecified, major portion of the $4-3 m i l l i o n (U.S.) to be spent on equipment w i l l also go to RCA. One reason given for choosing RCA was stated to be that firm's stronger p o s i t i o n i n the area of consumer e l e c t r o n i c s , e s p e c i a l l y i n home applicances. Furthermore, i n addition to the M0S technology o r i g i n a l l y sought, RCA also agreed to s e l l even more advanced CMOS technology and to provide t e c h n i c a l supervision during factory construction. An important part of the technology package was the t r a i n i n g of Chinese personnel. As of August, 1977, a t o t a l of 37 l o c a l personnel had been sent overseas for a t o t a l of 279 man/months of t r a i n i n g by PCA. 1 6 1 Since returning to Taiwan, these engineers have train e d another 23 tech-nic i a n s i n production techniques. RCA also sent i n management experts to give short courses for l o c a l s t a f f . Eight people were t r a i n e d i n t h i s manner. The Chinese expressed great s a t i s f a c t i o n with the r e s u l t s of t h i s t r a i n i n g . The model f a c t o r y i s , as scheduled, now i n the second, or t e s t run production stage. (This stage was to have begun i n February, 1978, but was entered i n October, 1977, four months ahead of schedule.) The model plant alone now employs 270 workers. Recently completed prototype developments include most notably a Chinese character computer keyboard and d i s p l a y screen, a f u l l y automatic washing machine con t r o l unit and a power outage recording device. Products s t i l l i n the development stage include s p e c i a l timing devices f o r the m i l i t a r y , and sophisticated remote control toys and burglar prevention devices f o r private industry. Successful design of IC wafers has been accomplished and f a b r i c a t i o n i s just now g e t t i n g under way. Although the model factory i s s t i l l two years away from f u l l com-mercial production, the tremendous economic advantages of having t h i s technology and the a b i l i t y to produce highly sophisticated e l e c t r o n i c components l o c a l l y are already apparent. For example, i t i s estimated that by 1980, the model factory w i l l be able to produce domestically 12 kinds of LSI t o t a l l i n g approximately 3,000,000 u n i t s . This w i l l mean a saving i n foreign exchange of at least $10,000,000 (U.S.). In addition to reducing imports of components, the l o c a l design and production of such components w i l l allow the l o c a l manufacture of more end-use products. For example, l o c a l l y made automatic washing machine c o n t r o l u n i t s w i l l , i t i s estimated, save over $2.5 m i l l i o n (U.S.) annually i n foreign exchange. 162 In addition, i t i s expected that the technology introduced and d i f f u s e d by t h i s f a c i l i t y w i l l have a stimulatory a f f e c t on the export competitive-ness of the e n t i r e l o c a l e l e c t r o n i c s industry. In 1976 alone, exports from t h i s industry were around $700 m i l l i o n (U.S.). Texas Instruments (Taiwan) Limited United States based Texas Instruments (TI) i s one of the world's largest and most dynamic e l e c t r o n i c s companies. I t s plants and sales cover the globe. In 1968 i t established a major f a c i l i t y i n Taiwan for the assembly of integrated c i r c u i t (IC) devices. This operation c u r r e n t l y employs around 3,000 people, mostly highly s k i l l e d female operators , who do the a c t u a l assembling. There i s also a small, highly t r a i n e d group of technicians who maintain and r e p a i r the p r e c i s i o n machinery required, f o r assembling and t e s t i n g . A l l the above personnel, with the p e r i o d i c excep-t i o n of s p e c i a l t e c h n i c a l support s t a f f attached following the Introduc-t i o n of some new technology (see below), are l o c a l n a t i o n a l s . This i s also the case at management l e v e l s where nearly a l l p o s i t i o n s are held by l o c a l s with the important exceptions of General Manager and Manager of Operations. A l l research work as w e l l as the design and f a b r i c a t i o n of the wafers that are the basic components of IC's i s done i n the United States. Although i t has encouraged the development of l o c a l technicians and managers, TI apparently has no p o l i c y of t r a n s f e r r i n g such personnel within the i n t e r n a t i o n a l organization or otherwise promoting them from the Taiwan assembly operation to the U. S. design and f a b r o c i a t i o n operations. It has, however, temporarily transferred groups of t e c h n i c a l and management personnel t o other assembly f a c i l i t i e s t o aid i n the s t a r t up of operations with which the Taiwan f a c i l i t y i s already f a m i l i a r . The recent s t a r t up of a Korean assembly plant where a large number of Taiwanese technicians 163 and managers played an important role i s an example. The t i n y wafer that i s the heart of an IC device i s very expensive, accounting for up to 60% of the cost of the t o t a l device. In a d d i t i o n , i t i s f r a g i l e and extremely d i f f i c u l t to work with. The operators who do the actual assembly work, therefore, must be c a r e f u l l y t r a i n e d . This often takes up to three months working on r e a l machines and with r e a l wafers. The cost of t h i s t r a i n i n g i n l o s t wages and materials i s thus considerable. Technicians u s u a l l y have a t e c h n i c a l school or u n i v e r s i t y education. In addition to on-the-job t r a i n i n g , they are sometimes sent to the United States to f a m i l i a r i z e themselves with new technology before i t i s i n t r o -duced l o c a l l y . The usual period, i n the United States i s about two months. Upon t h e i r return they are accompanied by 'support* s t a f f i n the form of the American technicians who just trained them. I t i s , nevertheless, p p r i m a r i l y the r e s p o n s i b i l i t y of the l o c a l s to make the new technology operational. In the event of problems, however, the American s t a f f w i l l stay on to 'advise'. In at l e a s t one recent case the problems were so i n t r a c t a b l e as to require the American group to stay on f o r two years. Management t r a i n i n g i s very important at T I . One young manager noted the r a d i c a l l y d i f f e r e n t management atmosphere to be found i n an American as opposed to a Chinese firm. One of the most important differences was that managers i n the former were given more c l e a r l y defined r o l e s i n the formulation of goals and review of performance, and had more c l e a r l y defined authority and r e s p o n s i b i l i t y f or t h e i r attainment. T r a i n i n g for t h i s new management s t y l e i s informal as w e l l as formal. Formal t r a i n i n g consists b a s i c a l l y of an i n i t i a l , o r i e n t a t i o n period. In-formal t r a i n i n g , however, i s on going and, reportedly, much more e f f e c t i v e . It takes place i n what was described as endless meetings and paperwork 164 where the pressure to conform i n order to better perform i s subtle yet compelling. The workpace at TI was described as exhausting i n comparison to that u s u a l l y found i n Taiwanese firms. In addition to t r a i n i n g i t s own employees, TI also o f f e r s a number of tours, lectures and seminars on managerial as well as purely t e c h n i c a l t o p i c s to l o c a l industry and government. These, i t was reported, are very-popular. Because of the time and expense involved i n t r a i n i n g at a l l l e v e l s , TI i s loathe to see i t s personnel hired away by other, p r i m a r i l y l o c a l , firms involved i n any one of the numerous areas of the e l e c t r o n i c s industry. To counter the a t t r a c t i v e s a l a r i e s offered to i t s operators outside, TI has increased i t s own package of pay and associated b e n e f i t s . As a r e s u l t , the loss of operators has decreased. In fa c t , a considerable number of operators who had previously been hired away have returned to T I . An important f a c t o r i n t h e i r d e c i s i o n was given as the good working environ-ment and the steady nature of the work to be found at TI, conditions which are not always to be found i n the often boom-or-bust l o c a l e l e c t r o n i c s industry. The s p e c i a l i z e d maintenance and r e p a i r s k i l l s of TI's technicians are also very much i n demand i n the l o c a l e l e c t r o n i c s industry. In order to keep such people, TI has been forced to ra i s e t h e i r s a l a r i e s and benefits considerably. As one young manager remarked, somewhat incredulously, "They're making even more now than some low l e v e l management personnel!" The s a l a r i e s f o r l o c a l management personnel are also considerably higher than current l o c a l l e v e l s — u p to one-third more on the average. It was thought that i t would be quite d i f f i c u l t f o r a TI manager to step out-side and command the same salary. Nevertheless, i t was maintained that 165 such a high salary was j u s t i f i e d within the firm because of the t e r r i f i c workpace that was demanded. TI managers f e l t themselves to be generally more productive than t h e i r counterparts i n the average l o c a l firm. Not only does l o c a l industry place the r e l a t i v e value of a TI manager below that of a TI technician or operator, thus l i m i t i n g the a t t r a c t i v e n e s s of such employment to a TI manager, but the manager himself i s generally unenthusiastic about the idea of switching back i n t o a Chinese management m i l i e u . The usual experience i n such a case i s said to be one of intense personal f r u s t r a t i o n and an i n a b i l i t y to get along with the r e s t of the management group. This, i t was s a i d , leaves open only two avenues for a manager who wants to t r y to advance quickly i n his career; f i r s t l y , f i n d better employ-ment i n another foreign firm with the same sort of management s t y l e or, secondly, go i n t o business on h i s own. Although no figures could be given on the numbers of managers (and technicians) following these two routes, i t was obvious from t a l k i n g to personnel i n these areas that the l a t t e r route was the one most i d e a l i z e d . Often, such a move can be very rewarding as i n the case of the four i n -d i v i d u a l s who l e f t TI to form the Taiwan Kuang Pao E l e c t r o n i c s Company Limited (see below). Taiwan Kuang Pao E l e c t r o n i c s Company Limited Taiwan Kuang Pao E l e c t r o n i c s Company Limited was founded i n 1973 to produce l i g h t emitting diodes (LED) for the l o c a l e l e c t r o n i c s industry. LED are f a m i l i a r today as the e s s e n t i a l element i n illuminated readouts on clocks, watches and other e l e c t r o n i c instruments. At that time, the l o c a l market was supplied almost e n t i r e l y by imports. Kuang Pao was one of the f i r s t to see the p o t e n t i a l i n such a market. Also, u n l i k e many 166 other areas of manufacture i n the e l e c t r o n i c s industry, t h i s one d i d not require a tremendous c a p i t a l investment. Many of the firms that have gone i n t o the manufacture of LED are reportedly founded by former employees of l o c a l s u b s i d i a r i e s of MNCs. In most cases, the founder has only a s p e c i f i c t e c h n i c a l expertise i n one area, u s u a l l y that of production. In case of Kuang Pao, however, a group of four men, representing s t a f f as w e l l as a range of l i n e functions, l e f t t h e i r employer, TI, to form a new company. Th e i r t e c h n i c a l expertise encompassed planning, engineering, production and r e p a i r and maintenance. Although the s i t u a t i o n i n the other firms i s not known, the general management and operations s t y l e i n Kuang Pao i s s t i l l said to be 'American' with a workpace and workload of meetings, deadlines and reporting s i m i l a r to that at TI. Of the four firms that have thus 'spun-off from TI, Kuang Pao i s said to be the most succe s s f u l . With approximately 450 employees, i t i s now oneoof the largest and most stable firms i n an industry which i s extremely competitive. In addition to serving the l o c a l market, Kuang Pao also exports an increasing amount of i t s production. ABC Taiwan Limited ABC Taiwan Limited i s the 100$ owned subsidiary of a leading i n t e r -n a t i o n a l watchmaker. S t a r t i n g from one factory some 35 years ago, the parent company has expanded tremendously u n t i l today i t has twenty f a c t o r i e s around the world in c l u d i n g four i n Asia; one i n each of Taiwan, Hong Kong, Singapore and the P h i l i p p i n e s . The Taiwan operation was started in 1968 with approximately 400 employees. Today there are around 4,000 workers employed i n two s h i f t s . 167 Production includes sophisticated d i g i t a l and quartz watches as w e l l as simpler mechanical watches produced i n a number of models. D a i l y production can be as high as 10,000 watches. One hundred per cent of production i s exported. Basic research was, and contin es to be, concentrated i n the United States i n close proximity to corporate headquarters. No basic research i s done i n Taiwan. A l l prototype development i s also done i n the United States. I n i t i a l l y , a l l the watches produced i n Taiwan were models which had been s u c c e s s f u l l y mass produced i n the United States. Therefore, there was l i t t l e need for f u r t h e r modification when production was t r a n s f e r r e d t o Taiwan. Recently, however, prototypes have been t r a n s f e r r e d d i r e c t l y from the development stage to mass production overseas without the i n t e r -vening stage of f u l l production i n the United States. This was the case with quartz c r y s t a l watches which were brought i n t o i n i t i a l mass production i n Taiwan i n 1975- A subsequent development has been the t r a n s f e r of the production technology then developed to other Asian operations of ABC. This foreshortening of the p r o d u c t - l i f e cycle has meant that the l o c a l operation and, i n c r e a s i n g l y , l o c a l n ationals have assumed a greater r e s p o n s i b i l i t y f o r the modification of both the product and the production system. O r i g i n a l l y such work was carried out under the d i r e c t i o n of a large s t a f f of expatriates. I n i t i a l l y , there were 20 permanent fo r e i g n technicians and managers i n a t o t a l workforce of 400. At least one Taiwanese manager expressed h i s d i s s a t i s f a c t i o n with the a t t i t u d e of several of the foreign s t a f f members with whom he had to work with at that time. He f e l t they di d not take t h e i r r e s p o n s i b i l i t i e s s e r i o u s l y enough and often d i d not give adequate d i r e c t i o n and assistance to the l o c a l s t a f f . 168 In the l a s t few years, however, the number of expatriates has dropped d r a s t i c a l l y so that now only the positions of General Manager and Manager of Marketing are held by expatriates. Chinese managers and engineers are now t o t a l l y responsible f o r a l l modification, production and assembly operations. Previously, when t r a i n i n g was required, experts were sent i n by head o f f i c e to supplement the permanent s t a f f of expatriates. Now, trainees are sent f i r s t t o the main American plant. A f t e r being thoroughly exposed to the new technology, they are returned t o Taiwan to implement the t r a n s f e r . Often they are accompanied by an American engineer but h i s ro l e i s one of back-up assistance only. Usually a f t e r a few weeks or months he returns to the United States. Thus, despite the reduction of foreign s t a f f , production and management systems are s t i l l s a id to be 100$ American. A l l components used by the ABC Taiwan Limited are produced within the MNC. The B0% which are not made in-house are imported from various other ABC operations. No sub-contracting i s undertaken l o c a l l y . These various components are painstakingly assembled by hand on p r e c i s i o n American made machines. The t o o l i n g for these assembly machines must be changed fo r each d i f f e r e n t model of watch. This i s an important r e s p o n s i b i l i t y of the group of 40 Taiwanese engineers, for even small modifications can lead t o s i g n i f i c a n t improvements i n production e f f i c i e n c y . T h i s group has at i t s d isposal a large, highly sophisticated machine shop equipped almost e x c l u s i v e l y with European made p r e c i s i o n t o o l i n g equipment. Although actual production equipment i s prescribed by head o f f i c e , t o o l i n g equipment i s chosen l o c a l l y . In choosing such equipment, the engineer i n charge stated that his two main c r i t e r i a were machine capacity and p r e c i s i o n . L o c a l l y made machinery was considered unsatisfactory i n these two areas. Manufacturer's a f t e r sales service was also not a c r i t i c a l f a c t o r as the 169 engineering group had the a b i l i t y to maintain and r e p a i r the equipment i t -s e l f . The p r i c e of the t o o l i n g machinery was, i t was stated, also of secondary importance. Direct production costs are a key factor i n the choice of assembly l i n e technology. Although labour costs represent only 10$ of the cost of production, the extremely competitive nature of the industry makes any increase i n t h i s area a cause f o r concern. Thus, recent increases i n the cost of labour have led the firm to consider automating some sectors. How-ever, t h i s was found to require a 20-30 year payback period and so was rejected. The head of production also commented that the problems of main-t a i n i n g and operating such sophisticated automatic machines with the present general l e v e l of t e c h n i c a l s k i l l s i n the plant would be a major problem. It was estimated by management that turnover amongst engineers and technicians was about 20$ a year. This was not f e l t to be an unreasonably high figure. Most of t h i s number l e f t to f i n d higher paying employment i n firms requiring p r e c i s i o n , mechanical engineering s k i l l s u s u a l l y not r e -lated to watch making. Management evinced l i t t l e f e ar that v i t a l t e c h n i c a l s k i l l s or production know-how would be l o s t to competitors. It was further estimated that only a small number of those who l e f t , perhaps 10$, went in t o business for themselves but r a r e l y i n watch related e nterprises. Most had opened small machine shops or gone i n t o the import-export business. 170 2. GOVERNMENT AGENCIES INVOLVED IN THE PROVISION OF TECHNICAL INFORMATION i . The Science and Technology Information Centre The Science and Technology Information Centre (STIC) of the Republic of China was established in 1973 on the outskirts of Taipei by that country's National Science Council. Prior to that, some of the services which STIC was to provide were offered by the Scientific Documentation and Instrumen-tation Centre (SDIC) located on the campus of National Tsing Hua University. This, however, had proved unsatisfactory and the government decided to establish a separate and distinct organization to deal with the important practical problems of gathering and disseminating technical information while assigning the original research and development responsibilities of SDIC to the new Precision Instruments Development Centre. The purpose of STIC was set out by the Executive Yuan (cabinet) as follows: 1) Collect, analyse, and abstract R&D information, periodicals, o f f i c i a l gazettes of patents, etc. in the fields of science and technology and make announcements for public usej 2) Provide technical services such as referral, translation, re-production, etc. in accordance with the needs of local academic research institutes and science and technology institutions^ 3) Cooperate with foreign and domestic science and technology institutions for the exchange of information and other related matters, etc.j 4) Collect and edit data on Chinese scientists and technical ex-perts as well as technical reports, and 5) To concern itself with any other matters related to R & D and 73 science and technology information. 171 Today, STIC has a staff of approximately 48 people, two-thirds of whom are university graduates. Last year the centre had a budget of 14 million NT (approximately $350,000 (U.S.), 60$ of which went to pay for salaries and administration). The relative size of the Taiwan centre was proudly underlined by the director's comparison of i t with i t s Korean counterpart. The Korean Science & Technology Information Center had a budget of around $200,000 (U.S.) and a staff of 22 people. STIC's main ac t i v i t i e s f a l l into four categories: gathering informa-tion, organizing i t , disseminating i t and, later, acting as a reference for subsequent inquiries. In a l i t t l e over four years of existence, the centre has purchased over 15,000 books and 4,500 journals. Approximately 95$ of these are purchased for other academic and research institutions and are sent out after cataloguing. Such centralized purchasing not only results i n cost savings through volume discounts and the avoidance of unnecessary duplica-tions, but also aids immeasurably in the compilation of reference l i s t s of science and technology related publications i n Taiwan li b r a r i e s by the associated Cooperative Organization for Scientific Libraries and Information Units. Not a l l of the books and periodicals are purchased for other i n -stitutions, however. The centre, in addition to a small reference section of technical books, has an extensive, up to date collection of journals i n a wide number of fields including c i v i l engineering, e l e c t r i c a l and electronical engineering, mechanical and metallurgical engineering, food science, physics, chemicals and plastics, textiles and, most recently, management science. As well as complete collections of whatever Chinese language periodicals there might be, the centre usually has a l l the leading 172 English and Japanese language journals as well. Other languages, especially German and French , are in fewer numbers. In addition to gathering foreign S & T information through purchasing books and journals, the centre also has a large number of information exchange agreements both inside the country and abroad. Local agreements include mostly those academic and research institutes for which the centre does central acquisition of books and journals. More important, however, are the reportedly 5 0 international cooperative agreements which include such public or governmental sources as the American Library of Congress, the American Library Association, the (U.S.) National Technical Information Service, NASA, the Korean Scientific and Technological Information Centre, and the Commonwealth Science and Industry Research Organization; such professional organizations as the American Institute of Chemical Engineers, and the American Society for Engineering Education; and such commercial organizations as General Electric, Phillips, and Plessey. This number had reportedly grown from 1 7 in 1 9 7 4 to 5 0 at last count in 1 9 7 6 . As one may gather from the above brief l i s t , the majority of the S & T information exchange agreements are with American organizations. Notable by their absence are cooperative agreements with such important international agencies as the Asian Productivity Organization, the UN and the OECD, although the centre reportedly has a few of the latter*s publications. This is a consequence of Taiwan's increasing isolation in the world body politic. In organizing its information, STIC distinguishes between two pros-pective audiences: the academic, and the industrial. For each one, the centre wil l variously translate, summarize, abstract or simply l i s t relevant articles. For academics there is published the weekly Current Contents of Selected Scientific Periodicals covering eight categories in the fields of 173 engineering and natural sciences. This publication gives the t i t l e and a brief description of the contents and lists the local libraries where the periodical is held. The centre also publishes a bi-monthly l i s t of titles and abstracts on on-going local research projects. For the industrial audience, the centre publishes three monthly bulletins. The first, entitled Science and Technology Briefs, includes brief, but highly technical summaries of standards, specifications, new manufacturing processes, available know-how and features on new products and materials for firms who are already basically familiar with the technology. Science and Technology Briefs is published in six separate industrial classifications: electrical and electronics, mechanical and metal, food, chemicals, textiles and management. One year's subscription costs 50 NT per classification. The second publication, entitled simply Technical Information, is primarily designed to introduce information on new technologies to firms who are basically unfamiliar with the topic. For this reason, i t tends to be much less 'technical* in its descriptions. Technical Information is published in seven industrial classifications similar to Science and Technology Briefs. Instead of an edition on management, however, i t has one on pharmaceutical and another on general consumer product technologies. A year's subscription to one of these costs 150 NT. Lastly, the centre also publishes a monthly bulletin called Introducing Technology which reprints foreign language articles (with one page Chinese summaries) of a theoretical, policy related nature. Since there is generally only one staff member assigned to each industrial category, the centre has to work closely with other government agencies, private firms and trade organizations relying heavily on their assistance in selecting and translating foreign language materials. 174 The main cooperators in each of the several industrial categories are listed in Table 7. It is immediately apparent that the vast majority of these cooperators are government or academic related. Only one, Li Shing Petroleum Corporation, is a private firm. Also notable by their absence are business associations. One staff member at STIC stated that, so far, the contribution of such associations in the gathering and dissemination of technical information has been very limited. He felt that ideally such associations could be an excellent vehicle for expressing their needs to agencies like STIC. However, the number of 3trong, cohesive business associations was seen as too small to perform this role effectively. The documented S & T information which the centre gathers is generally disseminated in two stages. First, the above mentioned bulletins are mailed to approximately one thousand private firms and organizations. Next, i f the recipient's interest is aroused by a particular technology description, he writes to the centre which, for a nominal charge of 2 NT a page, will photocopy the complete original and mail i t out. Originally, this service was done free of charge. However, the centre felt i t was receiving too many inquiries from firms that were not seriously interested. The view was also expressed that recipients tend to value the information more i f they have to pay for i t , even i f the charge is nominal. Another means of disseminating technology information is through answering inquiries. If a firm seeks scientific or technical information in a specific area, i t may write to STIC who promise they w i l l check their holdings, photocopy the material, and send i t out within three days. Once again, only a nominal charge is made. As an indication of the growth of this latter source, the number of copies of articles distributed in the 175 years 1974 through 1976 grew from 5,560 to 14,457 to 17,955. To further improve its service in this area STIC hopes by 1981 to have completely computerized its files on S & T information. A means of disseminating S & T information which the centre has so far not exploited to its fullest is that of holding S & T seminars and/or training classes. Last year, the centre held one large seminar and a number of smaller in-house training sessions: approximately one a month. The main problem holding the centre back in this area was said to be man-power and funding. These training courses, although under the auspices of STIC, are usually organized and run by outside organizations. A problem which the director cited as severely limiting his and similar organizations* ability to disseminate technology information is a govern-ment regulation preventing them from advertising their services. Apart from those firms which were on the centre*s budgeted mailing l i s t , how many of the thousands of other firms knew what the centre could do or was doing at any one time was unclear. Even when the centre had arranged seminars and meetings, i t was unable to advertise the fact and had to rely on word of mouth within the industry or the hope of getting mentioned in the news-paper. 176 i i.The Small Business Service Centre The Small Business Service Centre of the Industrial Development 74 Bureau of the Ministry of Economic Affairs was established i n I960. Its main responsibility i s the improvement of productivity i n the 70,000 odd firms who qualify as small businesses; that i s , those capitalized at less than 20 million NT (approximately $500,000 U.S.) or which employ less than 300 people. With a staff of only twenty, (twelve industry experts and eight support s t a f f ) , the centre i s sorely understaffed and, lik e STIC, must cooperate with other public and private bodies. Often the centre acts as liaison arranging for speakers i n conjunc-tion with a business association while leaving the details up to that group. It was estimated that in 1977, the centre helped organize between 80 and 100 conferences, seminars and meetings. Although a majority were held i n or around Taipei, where much of Taiwan's industry i s concentrated, there was also a large number held in other industrial centres i n the middle and south of the island. The centre's director stated that, from his point of view, the cooperation and results obtained were excellent and he f e l t that the business firms participating were also well satisfied. The majority of these conferences, seminars and meetings, however, had as their subject the introduction of new managerial and financial techniques. The introduction and discussion of actual production technology was much less frequent. The Small Business Service Centre also becomes directly involved in the identification and solution of problems right i n the firm i t s e l f . These problems are sometimes referred to i t by the Board of Foreign Trade after the latter has received complaints from foreign buyers about the quality of loc a l l y made products. Sometimes, requests for help and 177 advice come from the firms themselves. Because of its severely limited resources, however, the centre tries to limit such trouble shooting in favour of spending more time organizing intra-industry tours of the more successful, often larger, firms by smaller firms in the hope that the latter can learn by example. The most popular topic on these various tours is quality control or, as i t is called in the local business parlance, 'QC*. The centre's director reported l i t t l e difficulty in getting the successful firms to open their factories to this kind of tour. Although the Small Business Service Centre does not publish any technical information on its own, i t is involved with other sections of the Industrial Development Bureau in the publication of a monthly bulletin called Industrial Briefs, and with STIC in the publication of a monthly bulletin entitled Operations and Management. 1 7 8 iii.The Union Industrial Research Laboratories Union Industrial Research Laboratories (UIRL) is one of four large research institutes which together form the Industrial Technology Research Institute (ITRI). The three other institutes are the Mining Research and Services Organization (MRSO), Metal Industrial Research Laboratories (MIRL) and the Electronics Industry Research Centre (EIRC). Of these three, only the EIRC is located adjacent to t h e UIRL at its site in 75 Hsinchu, some 40 kilometers south of Taipei. The UIRL was originally established in 1954 but re-organized in its present form as part of the ITRI in 1 973 . Financing for the UIRL comes from a number of sources including government, private industry, indivi-dual organizations and from income received from research contracts and technical services. The UIRL is presently organized into nine research departments as listed below: 1 ) Fine Chemicals 2 ) Industrial Chemicals 3 ) Plastic and Synthetic Fibres 4 ) Plastics/Rubber Processing and Testing 5 ) Material Sciences 6 ) Chemical Engineering 7) Agricultural Products Utilization 8 ) Radioisotope Applications 9 ) Chemical Analysis In addition there is at least one special group, the Fiberglass Reinforced Plastics (FRP) Group reporting directly to the Deputy Director. 179 As can be seen from the above l i s t of departments, and indeed from the i n s t i t u t e ' s very name, the main a c t i v i t y of UIRL i s research. Most of t h i s however has a p r a c t i c a l or applied o r i e n t a t i o n — p r e s e n t l y around 80$ i n the estimation of the Deputy Director who also reported that there i s much debate as to which way t h i s figure should go. In keeping with t h i s predominately 'applied' outlook, the UIRL has also enunciated f o r i t s e l f a number of objectives which go beyond just research. These include: 1) undertaking market surveys, f e a s i b i l i t y studies and economic evaluations, 2) g i v i n g assistance to small and medium scale i n d u s t r i e s on t e c h n i c a l problems, 3) providing f o r the c o l l e c t i o n and dissemination of t e c h n i c a l information and, 4) coordinating the t r a n s f e r of technology t o Taiwan. Of most relevance to t h i s study are the l a s t two o b j e c t i v e s , how-ever, the f i r s t two also bear a b r i e f examination. In these two areas, d e t a i l e d information was gathered on only one small part of the UIRL organization, the small FRP S p e c i a l Group established i n 1976. Today,there are approximately 150 firms using FRP as the basic m a t e r i a l i n t h e i r operations. Their products cover a wide range of uses, from the m i l i t a r y , f o r example for airplane fuselages and armour p l a t i n g ; to the i n d u s t r i a l , f o r machinery casings and e l e c t r i c a l insulators', to the consumer, where any number of l i g h t weight, colour f a s t , inexpensive ' p l a s t i c ' items are made. 180 The purpose of the FRF Special Group is to serve the local in-dustry by providing testing and technical consulting services. The process and product testing laboratory of the group is especially important as many of the firms in the industry do not have their own such facilities. Like the various other testing services offered at UIRL, these services are charged for at a very modest flat rate depending upon the kind of work that has to be done. This special group also does consulting work in the field. In the l i t t l e over two years since its establishment, the group has handled nearly twenty consulting cases with a backlog of requests nearly as long. Industry's reaction to this service has been quite favourable. Despite a small staff of eight, i t would appear that the group has nevertheless made a significant contribution to the firms with which i t has come in contact. Most of the staff are young university graduates. Although hardly any have extensive experience working in industry, their experience gained in the group's test lab and, for the more senior staff, in consulting within industry, has produced an unequalled pool of technical knowledge. Experience and insight gained in one case can be used in another and so on. Furthermore, the experience gained in consulting to industry has not been limited to just technical areas but also includes the commercial side of the operation for i t is found that the two in practice are closely bound. As for the UIRL's objectives of collecting and disseminating technical information, apart from that which i t does informally in its testing and consultation work, its activities have been less than com-pletely effective. 181 The i n s t i t u t e has a very large t e c h n i c a l l i b r a r y reportedly well 76 stocked and up to date i n a l l the relevant f i e l d s . This library,how-ever, i s not linked with the Science and Technology Information Centre i n e i t h e r purchasing nor l i b r a r y cross referencing and exchange. Also, admittance to the l i b r a r y f or the general public i s problematical due to the medium to high s e c u r i t y precautions surrounding some of the i n s t i -tute's a c t i v i t i e s . UIRL, however, hopes to e s t a b l i s h a t e c h n i c a l news-l e t t e r within the next h a l f year and by t h i s means disseminate more t e c h n i c a l information to private industry. The i n s t i t u t e has organized a number of t e c h n i c a l seminars which were reportedly w e l l received. On average such a seminar might be a t t e n -ded by 100 p a r t i c i p a n t s representing anywhere from 60 to 80 firms. In 1977, UIRL had f i v e such seminars; i n the near future i t hopes to organize 15 a year. In regard to the dissemination of t e c h n i c a l information, the Deputy Dir e c t o r c i t e d two d i f f i c u l t i e s facing the i n s t i t u t e ; one of government regulation and one of popular a t t i t u d e . F i r s t l y , by law, as a non-profit, s e m i - o f f i c i a l organization, the UIRL isprevented from a d v e r t i s i n g . De-pending upon the public press for coverage and support i s not enough, the Deputy Director f e e l s , to carry news of the UIRL's important services across to l o c a l industry. Secondly, as he states, "people here are not used to paying for information, they prefer to just sneak around...." Without a popular appreciation of the simple concept, 'user pay', the quantity and q u a l i t y of t e c h n i c a l information a v a i l a b l e w i l l thus con-tinue to be r e s t r i c t e d . As for coordinating the t r a n s f e r of technology to Taiwan, the UIRL becomes involved d i r e c t l y only i f the technology involves a l i c e n s i n g agreement. In such a case the prospective t r a n s f e r o r 182 and transferee make a j o i n t a p p l i c a t i o n to the Investment Commission of the M i n i s t r y of Economic A f f a i r s (MOEA) who then t r a n s f e r i t on to one 77 or more t e c h n i c a l experts for t h e i r review and recommendation. Very often these t e c h n i c a l experts are on s t a f f at the UIRL or one of the other ITRI research i n s t i t u t e s . Their recommendations, though subject to other reviews, are u s u a l l y followed by the MOEA. I f , however, the proposed t r a n s f e r does not involve a l i c e n s i n g agreement the UIRL w i l l not become involved unless, perchance, i t i s requested to do some pre-transfer t e c h n i c a l c o n s u l t a t i o n by the firm i n question and then of course i t s advice i s only that and i s i n no way binding. 183 3. GOVERNMENT REGULATIONS RELATING TO INVESTMENT AND TECHNOLOGY TRANSFER A. Investment by Foreigners The Taiwan government broadly encourages foreign investment in four situations: 1) where i t is intended to satisfy a domestic need, 2) where i t will supply an export market, 3) where the investment is conducive to the development or improvement of important industrial, mining or communications enterprises and, U) where i t is conducive to the economic and social development 78 of the economy. Across the board incentives for such investment include the rights of 100$ ownership, unrestricted repatriation of a l l net profits and interest earnings, annual repatriation of up to 20$ of the total invest-ment capital two years after the investment project is completed and protection against government expropriation or requisition for 20 years provided the foreign investment is at least 51$ of the total 79 registered capital. The government, in addition to the general incentives listed above, also has a special l i s t of incentives for investment in those industries which i t is expected will have the greatest contribution to the island's economic development. Before looking at these incentives, i t might be informative to first examine these industries. In a l l there are nine industries so designated; basic metals, electrical machinery, electronics, machinery and machine parts, shipbuilding, chemical, textile dyeing and 80 finishing, coal mining and organic fertilizers. Several of these categories are further broken down by product. All categories or 184 sub-categories are then designated a minimum level of either capital investment, productive machinery and equipment investment, or present production output. If these levels are met then that particular firm in that particular activity qualifies for special government incentives. One important area of special incentives is in the reduction of corporate income taxes. Here, a newly estimated firm, providing it satisfies the aforementioned criteria, is offered a five year tax holiday or accelerated depreciation of fixed assets; i f an established firm wishes to expand its production plant, i t is offered a four year tax holiday or accelerated depreciation. In addition, the actual amount of corporate income tax and surtaxes shall not exceed 2 5 $ of the firm's annual income. If the foreign firm should further be designated a 'capital- or technology-intensive important productive enterprise', it receives additional in-centives; the tax holiday may be deferred for up to four years and the total amount of corporate income tax and surtaxes shall not exceed 2 2 $ of the firm's annual income. Another important area of incentives is in the reduction of custom duties on imported machinery, equipment and instruments. Even i f a foreign firm does not qualify for special incentives in this area i t can s t i l l elect to pay the duty in installments or, in the case of a totally export oriented productive enterprise which is deemed to contribute to the national economic development or employs advanced technology, the firm may import machinery and equipment with payment of duty deferred for five 81 years. If, however, the foreign firm conforms to the criteria set at by the government, it may be completely exempt from the equipment brought in for its own use. In addition, a number of various other incentives are offered including the reduction of or exemption from a number of local taxes. 185 The a p p l i c a t i o n process f o r foreigners wishing to invest has also been speeded up and now a d e c i s i o n i s promised wit h i n four months. I t would thus seem c l e a r that the government i s a c t i v e l y involved i n encouraging foreign d i r e c t investment i n Taiwan, e s p e c i a l l y i n those areas where there i s the greatest need for new technology. Because there are no r e s t r i c t i o n s on foreign ownership, there have apparently been few j o i n t ventures (JVs) undertaken. Indeed the government has no s p e c i f i c statute to govern such a c t i v i t y as i t does for l i c e n s i n g for example (see helow). Whatever JVs are undertaken are regulated under the general provisions of the Statute for Investment by Foreign Nationals r e f e r r e d 82 to above. One provision i n that statute which,however, does have a p a r t i c u l a r bearing on JVs i s that dealing with the c a p i t a l i z a t i o n of such tangible assets as machinery, equipment, raw materials and/or commodities 83 for sale, and i n t a n g i b l e assets such as know-how. In order to prevent the foreign partner from c a p i t a l i z i n g these at an i n f l a t e d rate, t a n g i b l e assets are valued a f t e r t h e i r importation and the i n t a n g i b l e 'know how' at the time of the i n i t i a l a p p l i c a t i o n for permission to i n v e s t . A l l valuation i s done by the government. B. Investment by Locals In the encouragement of economic development, the Taiwan government makes l i t t l e d i s t i n c t i o n between foreign owned and l o c a l l y owned firms. In f a c t , with the exception of those s p e c i a l sections guaranteeing the foreigners' r i g h t s i n regard to the r e p a t r i a t i o n of p r o f i t s and c a p i t a l , the r i g h t of 100$ ownership and s e c u r i t y against expropriation f o r such firms, the package of incentives offered to l o c a l l y owned firms i s i d e n t i c a l to those discussed above i n conjunction with foreign owned firms. As with foreign firms, such incentives are the most generous for 186 firms which chose to e s t a b l i s h operations i n accordance with government economic guidelines set out for the nine key i n d u s t r i a l s e c t o r s . Again, as with foreign firms, the incentives are even more generous i f the firm i s designated a ' c a o i t a l - or technology-intensive productive e n t e r p r i s e ' . One area where l o c a l l y owned firms are apparently under t i g h t e r regulation, however, i s i n the importation of machinery and equipment. On J u l y 3, 1975, the government promulgated a l i s t of fourteen categories of production machinery the importation of which was 'temporarily' halted. However, as the government statement implied.... "The government i n order to reduce the outflow of foreign exchange, to encourage our c i t i z e n s to use n a t i o n a l l y manufactured machinery and to develop our industry has decided, that i n cases where machinery can already be produced l o c a l l y , 84 t o temporarily prescribe i t s importation. ..." Foreign firms i n v e s t i n g i n Taiwan would not be subject to t h i s r e s t r i c t i o n . Another area of regulation which applies s p e c i f i c a l l y to l o c a l firms i s that regarding l i c e n s i n g . The highlights of the Statute for Technical Cooperation, f i r s t enacted and l a t e r amended i n 1964 are o u t l i n e d below. Licensing may generally be undertaken by l o c a l firms i f the technology transferred leads to either or a l l of: 1.) the production or manufacture of new products f o r e i t h e r the domestic or foreign market, 2) an increase i n production volume, an improvement i n product q u a l i t y or a reduction i n product cost, 3) an improvement i n administrative, managerial, design or 85 operational s k i l l s . 187 Licensor and licensee must make joint application to the Investment Commission of the Ministry of Economic Affairs. As well as detailed information regarding the license agreement itself, both parties must also provide background information on what are termed their 'business conditions'. This requirement is left rather vague for the licensor. However, the licensee is required to state in some detail the nature of his operations, the machinery and equipment currently in use, the technical problems encountered or anticipated and the technical solution offered by the licensor co-applicant. Copies of factory registration documents, or in the case of a proposed new factory, the plant con-struction plan must also be submitted. The amount of royalty, the method of payment and the duration of the agreement should also be specified. No specific limits are set out in these areas,however. On the negative side,though, the statute for-bids limitations on the overseas market for the sale of products manu-factured under a licensing agreement. When the licensor has entered into a licensing agreement with another country for the same technical s k i l l or patent, a copy of that agreement must, according to statute, also be filed. However, according to an official of the Ministry of Economic Affairs,this is not always required. Information on the license agreement must include a detailed description of the technical s k i l l or patent right to be provided, the licensee's plan of utilization and the expected benefits. This should include the names, specifications and quantities of goods or services to be produced under the license. The processing of license applications is usually quite fast taking about one month according to the official in charge in the Investment 188 Commission. Although this commission is responsible for the final de-cision, the actual technical review is done by experts in other depart-ments and branches of the government. Usually these experts are found within the Ministry of Economic Affairs. Sometimes however they are sought in government laboratories, such as those of the Union Industrial 86 Research Laboratories. The expert*s technical opinion must be thoroughly documented before i t is returned to the Investment Commission. Depending upon the complexity of the application and its implications, the department may also call on other government authorities to assist in the discussion and disposal of the case. C. Investment by Government As well as seeking to encourage the transfer of technology through private investment, both foreign and local, the government sometimes also takes a direct role in effecting such transfers. According to the Statute for the Encouragement of Investment, the government may undertake direct industrial development for four purposes: 1) for sole investments in important productive enterprises, as included in the economic development plans, which are beyond the capability or of no interest to private investors, 2) for joint investments in technology-intensive and important enterprises, as included in the economic development plans, which are promoted by private investors with insufficient capital, 3) for financing a technology-intensive and important enterprise, as included in the development plans, which requires the purchase of machinery and equipment for its own use but which is without sufficient capital, or 189 h) in order to upgrade and improve the technology of a productive enterprise, through financing the introduction of special 87 technology, patent or advanced design. Funding comes from three sources. Firstly, from the original development fund, secondly, from long term development bonds and,thirdly, from the proceeds derived from the sale of various public-operated enterprises to private ownership. Most public operated enterprises may be transferred to private ownership after government review, the most notable exception being in defence related areas. Generally, once a public enterprise starts running at a profit, i t is eligible for sale to private investors. In such a situation, holders of development bonds earmarked for that particular enterprise may have preferential rights to purchase the new shares. 190 TABLE 1 R&D IN LDCS COUNTRY YEAR TOTAL R&D EXPENDITURE (in ' 0 00 $US) COUNTRY YEAR. Germany, Federal Rep. 1975 Japan 1975 TOTAL R&D  EXPENDITURE  (in 'OOP $US) $8 , 7 6 0 , 1 0 7 9 , 882 , 3 0 2 PER CAPITA R&D EXPENDITURE (in $US) Bangladesh 1974 $ 14 , 058 $ . 20 Egypt 1973 76 , 514 2 . 1 9 India 1971 242 , 5 82 .44 Iraq 1974 2 5 , 090 2.51 Korea, Rep. of 1976 125 ,826 3.60 Pakistan 1974 15 , 148 . 21 Peru 1974 2 5 ,443 1.75 Philippines 1970 3 3 , 8 6 7 .93 Sri Lanka 1975 5 ,847 • 50 Turkey 1976 3 7 , 3 5 9 . 92 EXAMPLES OF R&D IN DEVELOPED COUNTRIES PER CAPITA R&D EXPENDITURE (in $US) $143.60 8 8 . 2 8 Source: The above data has beer drawn from United Nations, Department of International Economic and Social Affairs, Statistical Office, Statistical Yearbook 1978 (ST/ESA/STAT/SER. S /5 ) , pp 6 8 - 7 2 , 757 -758 and 9 3 3 - 9 3 4 . Universi-ties o • I A I A CV cn • o- cn NO cn rH r-i -4 cn cv on » -4" r-i -4- 11.8 -CO CO CO JICST -4 c-~ cn «> , ON -4; t> NO -4 c-rH rH N O CO CV CO I A . NO CV ON o cv cv t> o CO cv National o public R&t) institutes ' vO vo on rH CO m . ON rH CO cn cn rH NO NO NO CV rH o rH CO OA rH o • in cv tv cn m cv On rH cv cn r-i O NO * NO NO o cv Foreign Journals 21.2 106 C-cn cv in cv • NO cn • rH rH ir-NO on I A I A rH on m cv on r-i in r-i r-i rH on r-i CV cv o CO cv o NO cn ^ cv Academic ass»n_and" its iourna' CV • C-sO rH CO cn O CV CV rH t> N O on on cn rH CO ON NO -4-NO • On rH in NO CV O CO CO NO ' H " I A -4 rH ' . -4 o CO cv Parent company-22.6 113 rH • rH t> • NO cn c-rH rH -4 • rH CV NO -4-O o CV rH CO NO I A cn cv O rH O-I A -4 o NO -4 I A H Exhibition L A • t> O CV H rH -4- -4 cn rH cn on -4 I A cv o • rH rH t>-£V O CV CV rH -4 NO cn -4 r-i CO rH r-i NO CV I A NO CO CV rH on I A cn cv cv o co oi I A NO* cn cv 1 - 1 Study and training seminars 32.5 162 rH -4* -4 cn rH O d co -4- rH cn CO ON -4- CV CO CV ON cn rH O I A CV o-cv rH CV I A CV rH o -4* O -4 -4 o • N O rH .y-r-i -4 <X Meeting,bu] -letins of bus, ass'n 33.3 166 o CV CV o O-NO O N O cn o O CO CO -4 o • t> CV cn cv t> I A o OA rH -4r ON o CV rH I A OANO CV rH NO • NO NO o cv on co cn r n V Products of other comDanies 33.3 166 in O rH CO N O IANO on rH o on CO O-CV rH cv NO rH cn cv rH O-NO I A rH o d £N-L A rH O • I A t> CV rH CV • I A CV cn on o • NO • rH _4 o NO* CO on " Raw materia companies 33.5 167 NO NO I A cn rH o d co -4- r-i o I A I A CV rH o • NO cn I A cn £>-I A O on rH ON I A ON I A rH NO i s o on o on on O "A H -4 -4-CO rH ON Companies in the same ind of ind. in • CV vO CO on H cn c- cn CO [N! [v. on rH O d co cn rH O if\ -4 t> -4 0 • rH I A CV co cn on r-i I A co on -4 cn rH -4* rH on on O -4rH - 4 i H on Machine companies O-• CO C- cn -4 CV cn N O o -4- rH c-NO rH -4; CV r-NO CV CO -4 rH O I A cn -4 OA rH on rH cv co on on rH o CV NO in on -4 • O in NO in O CV on co. r-i NO cn Domestic ne1 -spapers & journals 35.7 178 o O NO cn rH CO CV rH o d -4 -4 CV -4 cv cn CV rH -4-• N O on -4 rH cv rH -4--4 rH NO cv cv NO CV -4 -4 o CO CV t>-NO CO on H Number of sample companies o o -4-H . -4-in -4-o NO CO in CO CV -4 on CO N O rH O I A CV ON -4-Inspection abroad -4-• cn o-i-l NO rH rH L A CV o • NO cn NO -4 c-rH r-i r-i CV OA ON CO rH rH -4 I A rH rH ON O ON CV rH CV • o r-i I A Sources of information Industry rH cd -P O EH -P ft U cd o Furnitures building concrete blocks'-Clay tiles Metal ma-terials for irchitecture Steel sash doors Throwing threads Mono-filamented thread Bags and sacks CO TJ 3 c € cd C TO 0) O rH rH cfl o o _gco O r-i 0) r-i EH g «H CO O 0 CO •H C -A o c o 'ri m «H •ri O a •ri U -P to c •ri 0> -P to cd u O ® r-i O C! x: o CO EH «U O u CD «H CO c EH X CO CO o r-i X! O CO -p cd cd o VH to c cd u O EHSrH cd S "to cd 0 10 TJ cd C S H a> o (H g CO n to * CD C Tt\ cd U (X +j cd co — TJ c, c •ri M O rH 4 XJ -p X! -P I A 192 TABLE 3 TAIWAN: COMPOSITION OF EXPORTS Unit: US* Million Year Industrial Products Processed Agricultural Products Agricultural Products Total Exports Amount % Amount % Amount % 1967 394.8 61.6 148.4 23.2 97.5 15.2 640.7 1968 539.4 68.3 161.5 20.5 88.3 11.2 789.2 1969 776.4 74.0 174.5 16.6 98.5 9.4 1,049.4 1970 1,147.2 80.3 189.6 13.3 91.5 64 1,428.3 1971 1.670.6 81.0 225.8 11.0 164.0 8.0 2,060.4 1972 2,488.8 83.3 295.7 9.9 203.6 6.8 2,988.1 1973 3,793.8 84.6 352.1 7.9 337.5 7.5 4,483.4 1974 4,766.2 84.5 603.2 10.7 269.6 4.8 5,639.0 1975 4,440.6 83.6 572.5 10.8. 295.7 5.6 5,308.8 1976 7,154.1 87.6 606.1 7.4 406.1 5.0 8,166.3 1977 8,188.8 87.5 669.6 7.1 502.3 5.4 9.360.7 Source: Republic of China, Borard of Foreign Trade, Foreign Trade  Development of the Republic of China, 1978, p. 15. 193 TABLE 4 TAIWAN: STATISTICS ON OVERSEAS CHINESE AND FOREIGN INVESTMENT BY YEAR (1952-1977) (U.S.$1000) Year Overseas Cases Chinese Amount Foreign Cases Nationals Amount T o t a l Cases Amount 1952 ~ l l 1,067 5 1,067 1953 12 1,654 2 2,041 14 3,695 1954 3 128 5 2,092 8 2,220 1955 3 ._ 176 2 i 4,423 5 4,599 1956 13 2,484 9 1,009 15 3,493 1957 10 1,574 4 48 14 1,622 1958 6 1,402 3 1,116 9 2,518 1959 820 2 145 2 965 I960 6 1,135 8 14,338 14 15,473 1961 24 8,340 5 ' 5,964 29 14,304 1962 10 1,660 26 3,543 36 5,203 1963 i 2 2 ! 7,703 16 10,347 38 18,050 1964 28 8,007 13 | 11,890 41 19,897 1965 30 6,470 36 35,140 66 41,610 1966 51 8,377 52 20,904 103 29,281 1967 105 18,340 107 38,666 212 57,006 1968 203 36,449 122 53,445 325 89,894 1969 27,499 111 81,938 201 109,437 1970 80 29,731 71 109,165 i _ _ i 151 138,896 1971 86 37,808 44 125,148 i 130 162,956 1972 114 26,466 j 52 100,190 166 126,656 1973 201 55,166 150 193,688 351 248,854 1974 85 80,640 ! 83 108,736 ' 168 189,376 1975 44 47,235 i - - 41 70,940 85 118,175 1976 53 39,487 45 102,032 ! 98 141,519 1977 52 68,723 ! 50 ! 95,186 1 102 ^ 163,909 Total 1,336 518,541 1,052 ; 1,192,134 2,388 1,710,675 Source: Republic of China, Investment Commission, Ministry of Economic Affairs, Selected Investment Statistics, December 31, 1977, p. 1. TABLE 5 Year TAIWAN: U.S.A. Cases Am't. STATISTICS ON FOREIGN BY YEAR AND BY AREA Japan Europe Cases Am't. Cases Am't, INVESTMENT (1952-1977) (U.S. $1000) Others Total . Cases Am't. Cases Am't. 1952 -1 1953 1 1,881 160 2 2,041 1954 3 2,028 1 14 i 1 50 5 2,092 1955 2 4,423 ._ . .._[ 2 4,423 1956 2 1,009 2 1,009 1957 1 11 3 37 4 48 1958 3 1.116 3 1,116 1959 1 100 1 45 2 145 1960 5 14,029 3 309 8 14,338 1961 1 4,288 3 1,301 1 375 5 5,964 1962 8 1 738 16 2,664 2 141 26 3,543 1963 9 8,734 6 1,397 1 216 16 10,347 1964 7 10,196 2 728 1 150 3 816 13 11,890 1965 17 31,104 14 2,081 5 1,955 36 35,140 1966 1 15 17,711 35 2,447 2 746 52 20,904 1967 18 15,714 76 15,947 4 1,872 9 5,133 107 38,666 1968 20 34i555 96 14,855 2 1,762 4 2,273 122 53,445 1969 30 27,862 75 17,379 4 20,642 2 16,055 111 81,938 1970 16 67,816 51 28,530 3 10,713 1 2,106 71 109,165 1971 18 43,736 18 12,400 1 _ ._ 3 66,135 5 - -2,877 44 125,148 1972 17 37,307 26 7,728 1 4 6,842 5 48,313 52 100,190 1973 29 66,876 92 1 44,599 14 33,825 15 48,388 150 193,688 1974 21 ! 38,760 50 38,901 3 14,761 9 16,314 83 108,736 1975 12 41,165 22 23,234 2 4,193 5 2,348 41 70,940 1976 -- •- • 8 21,767 26 30,760 2 32,796 9 16,709 45 102,032 1977 17 24,242 20 24,145 3 28,001 10 18,798 50 95,186 Total 278 516,052 640 J270.777 i 47 222,438 87 182,867 1,052 1,192,134 Source: Republic of China, Investment Commission, Ministry of Economic Affairs, Selected Investment Statistics, December 31, 1977, p. 195 TABLE 6 Industries Agric. & Forestry-Fishery & Animal Husb. Mining Food & Bev. Processing Textile Garment & Footwear Lumber & Bamboo Prod. Pulp Paper & Product Leather & j Fur Prod. Plastic & Rubber Prod. Chemicals Non-metallic Minerals Basic Metals Metal Prod. Mach. Equip. Instrument Electronic & Elect. Appli's Construction Trade TAIWAN: STATISTICS ON FOREIGN INVESTMENT BY INDUSTRY AND BY AREA ( 1 9 5 2 ) unit: (U.S. $ 1 0 0 0 ) U.S.A. Japan Europe Others T o t a l Cases Amount Cases AmountCasesj A mount Cases AmountCases; Amount 14 1 14 5 582 1 1 5,077 2,089 2,485 19 28 36 776: 15 100 73 5,641 25,562| 5,094 3,1831 1,895; 10 2 6 816 9 16 10,213 43 ! 103,088 7 1,719 799 51 j 11,752 67 ! 32,009 1,140 6 1 —4-475 1 6 3 1,286; 6 1. 328 M21; 2,018 4,347 317! 39 30 1,822 73 12,139 30,144 21 20 4,779; 25 ; 5,820 12,609 107 ! 25,908 1 1 9 2 1,066 1 19 7 203 1,170! 62 13,212 24 4,604 12 3,614 17 2,884 75 23,154 15,084! 14 ! 26,777, 17,301 3 133 4,608! 176,958 37 32,508 9,098! 53 | 25,243] 73 j 289,992^  166 ^ 115,689 • I ' 3 8,303 2 1,354 6 9 66,315 5 | 2,312 137 107,144 5,453 10 i 83,427; 89 I 123,221 113,050! 16 34,185! 264 552,916 2 9 Banking & Insurance Transportation ^ 1,326| 29,471 1 7,222! 1 Services Others Total 17 : 16,025 17 284 325 2,261! 1 297 6 1 6 1 565 3 8,637: 16 290 6 9,954 1,891 38,392 7,837 10,206 43 7,961! 278 j 516,052 640 270,777 47 ! 222,438; 87 80 3 9,753 26 28,119 981 4 1,400 69 21,548 1 182,8671,052.1,192,134 Source: Republic of China, Investment Commission, Ministry of Economic Affairs, Selected Investment Statistics. December 3 1 , 1 9 7 7 , p. 1 . TABLE 7 NATIONAL ORGANIZATIONS FORMALLY COOPERATING WITH STIC I. Electrical and Electronic Industries 1. National Chiao Tung University 2. Taiwan Electric Appliance Manufacturer's Association II. Mechanical and Metal Industries 1. Metal Industries Development Centre 2. Metal Industries Research Laboratories, Industrial Technology Research Institute III. Food Industries 1. Food Industry Research and Development Institute 2. Chinese Institute of Food Science and Technology IV. Industrial Management 1. The Chinese Institute of Management Science 2. Metal Industries Research Laboratories, Industrial Technology Research Institute 3 . China Productivity Centre 4- China External Trade Development Centre 5 . Centre for Public and Business Administration and and Education, National Cheng Chi University V. Chemical Industries 1. Industrial Development Bureau, Ministry of Economic Affairs 2. Union Industrial Research Laboratories, Industrial Technology Research Institute 3 . Li Shing Petrochemical Corporation VI. Textile Industries 1. China Textile Testing and Research Centre 2. Graduate School of Textile Engineering, Feng Chia College of Engineering and Business Source: Republic of China, National Science Council The Science and  Technology Information Centre, (Taipei: National Science Council, 198 FOOTNOTES ^This succinct definition is given in Webster's Third New International  Dictionary (New York: Merriam-Webster, 1971). Some authorities, such as Edward P. Hawthorne, stress the special relationship of science with tech-nology in their definitions: technology is "the application of science to the solving of well defined problems" (Edward P. Hawthorne, The Transfer  of Technology /Istanbul: Organization for Economic Cooperation and Develop-ment, 1970_7,p. 19). Most others, however, have broader definitions. A ll are agreed though, on the practical, applied nature of technology. Techno-logy is "the systematic application of scientific and other organized know-ledge to practical tasks", (John Kenneth Galbraith cited in Choice and  Adaption of Technology in Developing Countries: An Overview of Ma.jor Policy  Issues ^ a r i s : Development Centre of the Organization for Economic Co-operation and Development, 1974.7, p. 17); technology is "the sum of know-ledge, experience and skills necessary for manufacturing", (United Nations Industrial Development Organization, Guidelines for the Acquisition of  Foreign Technology in Developing Countries /lD/987,p. 2); technology is "the knowledge necessary to produce industrial materials, components and end products" (Eric W. Hayden, Technology Transfer to East Europe: U.S. Cor- porate Experience /New York: Praeger, 1976/, p. 22) and technology is "the way in which resources are converted into commodities" (Raymond Vernon ed., The Technology Factor in International Trade /New York: National Bureau of Economic Research, distributed by Columbia University Press, 197Q/, p. 72. 199 ^For a brief summary of these economists' thinking on technological change see the first chapter of Nathan Rosenberg, The Economics of  Technical Change; Selected Readings (Haramondsworth, England: Penguin, 1971. Karl Marx is quoted in Christopher Freeman, The Economics of Industrial  Innovation (Hammondsworth, England: Penguin, 1974), p. 16. G. K. Manning in his The Transfer of Technology: Successes and Failures (New York: W.W. Norton, 1968), after summarizing the results of a number of econometric studies, states on P. 194 that "Every such study has shown that more than half the over a l l growth i n national or international product, measured i n constant money terms, can be attributed to technological innovation " ^This was one of the conclusions of Joseph Schmookler in his work, Invention and Economic Growth (Cambridge: Harvard University Press, 1966) quoted in G. K. Manning, ed. for The Transfer of Technology: Successes and Failures (New York: W. W. Norton, 1968), p. 148. It should be made clear, however, that growth in a nation's technical capacity does not ensure a corresponding growth in economic development. As a one study points out, "there is great scope for variation in the re-lation between technology decisions and development processes and l i t t l e scope for belief in technical determinism". (International Economists' Association, Appropriate Technology for Developing Countries: Proceedings  of the Conference. Tehran. September. 1976 /London: MacMillan, 1972/, P« 1)• 5 Jack Barranson further identifies three non-technical factors which indirectly influence the growth of this technical capacity; the quality of human resources, the stage of economic development and the government's economic policy. Examination of these factors, however, is beyond the scope of this study. See Jack Barranson, Industrial Technology for Developing  Economies (New York: Praeger, 1969), p. 112. U n i t e d Nations Conference on Trade and Development, Guidelines for  the Study of Technology to Developing Countries (TD/B/AC. 11/9) (1972), p. 5. 7 For an interesting discussion of the historical range and nature of MNC operations before their recent rise to notoriety see Chapter One, "Historical Background" in Christopher Tugendhat, The Multinationals (London: Eyre & Spottiswoode, 1971). °For a good introduction to this problem see UNCTAD, Guidelines for  the Study, pp. 6-9. ^For a discussion of what motivates a firm to undertake FDI see Stefan H. Robock and Kennith Simmonds, International Business and Multinational  Enterprise (Homewood, Illinois: R. D. Irwin, 1973), p. 21; also Nau, Technology Transfer and U.S. Foreign Policy, p. 42. 200 Wolfgang P. Strassman, Technological Change and Economic Development: The Manufacturing Experience of Mexico and Puerto Rico (Ithaca, New York: Cornell University Press, 1968), p. 40. 11 See UNCTAD, Guidelines for the Study, p. 23. Also Report by the UNCTAD Secretariat, Restrictive Business Practices (TD/l22/Supp. 1, 7 January, 1972) and UNCTAD, An International Code of Conduct on Transfer of Technology (TD/B/C.6/AC.1/2/Supp. 1/Rev. 7, 1975). 12 Y. S. Chang, The Transfer of Technology: Economics of Offshore  Assembly. The Case of Semiconductor Industry. UNITAR Research Reports, No. 11 (New York: united Nations Institute for Training and Research, 1971), p. 33. ^%au, Technology Transfer and U.S. Foreign Policy, p. 60. "^For a discussion of the Product Life Cycle theory see Louis T. Wells ed., The Product Life Cycle in International Trade (Cambridge, Massachusetts: Harvard University, 1972). 1^UNCTAD, An International Code of Conduct on Transfer of Technology, p. 34. ~~ — — — — — — 16 United Nations Conference on Trade and Development, Major Issues  Arising from the Transfer of Technology to Developing Countries (TD/B/ AC. 11/Rev. 2). (1975), p. 14. 1 7 Samuel N. Bar-Zakay, using a Programme Evaluation and Review Technique (PERT) approach, describes this and other important steps in •Technology Transfer Model," Industrial Research and Development News. Vol. VI, No. 3 (1972), p. 2. 18 Manning, Successes and Failures, p. 127. 19 S. Meyers, "Industrial Innovations and the Utilization of Research Output," paper presented at the National Conference on the Administration of Research. October 28, 1966, and "The Role and Impact of Government R&D Information," paper presented before the National Association of Business Economists, Southern Methodist University, December 2, 1966, cited in Edwin Mansfield, The Economics of Technological Change (New York: W. W. Norton, 1968), pp. 126-127-20 Robert H. Silin, Leadership and Values: The Organization of Large- scale Taiwanese Enterprises (Cambridge, Massachusetts: East Asian Research Centre, Harvard University, 1976), p. 116. ^Everett M. Rogers. Diffusion of Innovations (New York: Free Press of Glencoe, 1962), p. 263. 201 Thomas C. Cochran, The Puerto Pdcan Businessman: A Study in Cultural Change (Philadelphia: University of Pennsylvania Press, 1959), pp. 135-48, quoted in Strassman, Technological Change and Economic Development, p. 31. 23 ^Strassman, Manufacturing Experience, p. 34. 2^United Nations, National Approaches to the Acquisition of Technology (ID/187, 1977), p. 13. 2^Manning, Successes and Failures, p. 127. 26 J. Perrin cited in OECD, Choice and Adaption, p. 88. 2*^ P. Judet cited in OECD, Choice and Adaption, p. 89. 28 Strassman, Manufacturing Experience, p. 41. For an interesting psychological explanation of why this should be so see David McClelland*s comments on motivation and achievement in W. H. Gruber and D. G. Marquis, ed., Factors in the Transfer of Technology (Massachusetts Institute of Technology, 1969), pp. 6 0 - 6 1 . 29UNCTAD, Guidelines for the Study, p. 51. 3 0 OECD, Choice and Adaption, p. 215-31 Manning, Successes and Failures, p. 16. ^20ECD, Seminar Held at Schloss Hernstein, Austria, 5th-8th July, 1973, Transfer of Technology for Small Industries (Paris: Development Centre for the Organization for Economic Co-operation and Development, 1974), p. 172. 33 Silin, Leadership and Values, p. 16 . -^Strassman, Technological Change, p. 47--^C. F. Carter and B. R. Williams, Science in Industry: Policy for  Progress (London: Oxford University Press, 1959), p. 31 quoted in Strassman, Technological Change and Economic Development, p. 4 6 . -^For example see B. N. Bhattasall, Transfer of Technology Among the Developing Countries (Tokyo: Asian Productivity Organization, 1972), pp. 89-90. ^OECD, Transfer of Technology for Small Industries, p. 165. 202 3 8 0 E C D , Transfer of Technology for Small Industries, p. 1 7 2 . •^ibid.. p. 1 63 . In Japan scale industry is statistically defined by capital of less than Y 50 million or employment of less than 300 (except in cases of commerce and service sectors: Y 10 million or 50 employees). 4 0 i b i d . , p. 168 . 41 ibid., p. 1 74 . 42 For example see Rogers, Diffusion of Innovations, p. 2 6 3 . Mansfield, The Economics of Technological Change, p. 746. ^Lars Nabseth and G.F. Ray, ed., The Diffusion of New Industrial  Processes: An International Study (Cambridge, England: University Press, 1 9 7 4 ) , p. 3 0 2 / ^Louis T. Wells Jr., "Economic Man and Engineering Man: Choice of Technology in a low Wage Country, Public Policy. (Summer, 1 9 7 3 ) . ^This categorization and the following discussion are based largely on Everett Rogers, Diffusion of Innovations. Chapter 5 0 . Cited in John K. Fairbank, Edwin 0 . Reischauer, and Albert M. Craig, East Asia: the Modern Transformation (Boston: Houghton Miflin, 1 9 6 5 ) , p. 7 58 . 48 Samuel P. S, Ho, Economic Development of Taiwan. 1 860 - 1970 (New Haven: Yale University Press, 1 9 7 8 ) , p. 1 0 5 . Professor Ho presents a very thorough examination of this topic and his work was frequently consulted for background material. 4 9 i b i d . , p. 106. 5°For a summary of government regulations relating to investment and technology transfer by foreigners, locals and the government itself refer to the appendix. -'"h'hese ten projects include two new harbours, two railways, a major international airport and a north south freeway. A l l were at or near completion in 1 978 . Another twelve projects are slated to begin in 1979 -Total expenditure for these twenty-two projects is estimated at over $ 1 1 billion (U.S.). See, Far Eastern Economic Review, Asia 1979 Yearbook, (Hong Kong: Far Eastern Economic Review, 1 9 7 9 ) , p. 3 0 7 . 203 52 Samuel Ho, Economic Development, p. 107. ? A thorough analysis of this assistance is given in Neil H. Jacoby, U.S. Aid to Taiwan: A Study of Foreign Aid. Self-help and Development (New York: Praeger, 1966). ^Samuel Ho, Economic Development, pp. 108-111. 5^0f this total, overseas Chinese, mostly in Hong Kong, Japan and South East Asia, contributed approximately $500 million (U.S.). 56 ? Industrial Development and Investment Center, Economic Progress and  Investment Climate in Taiwan, Republic of China (Taipei:February, 1978), p. 5. 57 Y. S. Chang, Economics of Offshore Assembly, p, 33. 58 Strassman, Manufacturing Experience, p. 40. 59 It was unclear how much, i f any, R&D was being undertaken by some of the larger firms, i.e., Chi Lu, Tung Meng and Yuan Pao. However i t was clear that none was being done in those areas where transfers of tech-nology were undertaken. 60 This suspicion of information from commercial sources was also seen to work both ways. San Hsing, for example, reported that its advertising in foreign trade publications had been generally ineffective. Also important, though, was the problem of stereotyping by foreign buyers who saw Taiwan only as a source of low cost/low quality products. Foreign buyers, however, were reportedly much more likely to come and see for them-selves, a trait which San Hsing*s managers said local buyers were generally sadly lacking in when i t came to purchasing foreign technology. 6 lSupra. n. 25, p.14. 62 See the appendix,Government Agencies Involved in the Provision of Technical Information. 63 Supra, n. 31, P. 18. Ke-hsueh chi-shu tse-liao chung-hsin chian-k»uang (Science and Technology Information Centre -Outline, /faipei: 19787), p. 10. 204 This figure was given by head of the Small Business Service Centre of the Industrial Development Bureau, Ministry of Economic Affairs. 6 6Supra. n. 33, p. 19. 6 7Supra. n. 34, P. 19. 6 8Supra, n. 35, P. 20. 69 For criticisms of one particular association's newsletter see infra, p. 74. 'The Taiwan Association of Machine Industry,for example, has fifteen such committees; Casting and Foundry, Machine Tools, Agricultural Machines, Water Meters, Paper Making Machines, Printing Presses, Food Processing Machines, Textile Machines, Plastic Molding Machines, Rubber Processing Machines, Boilers, Sewing Machines, Hand and Measuring Tools, Refrigera-tion and Freezing Machines and, lastly, Water Pumps. See, The Taiwan  Association of Machine Industry, mimeographed outline of the association's activities, Taipei, 1974, p. 3 0 . 71 Supra. n. 32 , P. 18. 72 An article in the November 10, 1978 issue of the Far Eastern Economic Review taking as its starting point the recent case of a local imitator flagrantly violating registered trademarks of the huge MacDonald hamburger chain gives a good picture of government regulation and enforcement in this area. The article concluded that there currently exists l i t t l e disincentive in these areas. The maximum fine for trademark violations is 9000 NT ($250 U.S.) and two years in j a i l . However, the average sentence is usually less than six months and can be commuted to a straight fine usually calcu-lated at the nominal sum of 27 NT per day. The prospect of long and expen-sive litigation, i t was also pointed out, often discourages companies from seeking maximum redress through the courts and leads to many out of court settlements. B i l l Kazer, "Letter from Taipei", Far Eastern Economic Review. (Hong Kong). November 10, 1978, p. 80. 73 This and much of the other factual material on STIC was found in Tseng-chee Shen, The Science and Technology Information Centre, (Taipei: STIC), and Ke-hsueh chi-shu tse-liao chung-hsin Science and Technology Information Centre -Outline. (Taipei: STIC, 1978). Other information was gained from inter-views with the director and staff, and a tour of the facilities. he information contained herein was gathered from an interview with the director. 205 7*5 '^ Much of the organizational and descriptive data on the UIRL was taken from two booklets published by ITRI; Lien-ho Kung-yeh yien-chiu-suo Union Industrial Research Laboratories, (Taipei); and Fen-hsi chien-ting chi chia-kung kung-yeh fu-wu shou-tsfe Handbook of Analysis. Testing and Processing Services. (Taipei July, 1978). Additional information was gathered in interviews with the deputy director and his staff. 76 The FRP Special Group, for example, has at its disposal around a dozen foreign language journals on plastics in general as well as three special English language journals on FRP. The library also receives the quarterly journal of the recently established Taiwan FRP Manufacturer's Association. 77 Refer to the case of Firm X, Supra, P. 135-78 Republic of China, Statute for Investment by Foreign Nationals (Promulgated on July 14, 1954; last amended June 22, 1968 /Industrial Development and Investment Centre, December, 19727), article 5. 7 9 i b i d . 80 Republic of China, Criteria for Encouragement of Establishment or Expansion of Industrial and Mining Enterprises(Industrial Development and Investment Centre, July, 1978). ^^Republic of China, Customs Law (Promulgated on August 8, 1967; last amended July 16, 1976 /Industrial Development and Investment Centre/), article 19. 82 Government statistics also make no distinction between FDI in wholly owned branch or subsidiary operations and that in joint ventures with local partners. Numerous examples of the former kind of operation, as well as straight technology licensing agreements, were seen. However, very few joint ventures were noted. Apparently, the disinclination of the govern-ment to pressure foreign companies into taking on local partners is the main reason. 83 Republic of China, Statute for Investment by Foreign Nationals, article 12. 8*R epublic of China, Ministry of Economic Affairs, Fourteen Categories  of Machinery Temporarily to be Purchased Within the Country (July 3, 1975)• 206 Republic of China, Statute for Technical Cooperation (Promulgated on August 9, 1962; amended on May 29, 1964/Industrial Development and Investment Centre, March, 1978/), article 4. According to article 3, "Technical cooperation used in this statute refers to technical coopera-tion between foreign nationals and the government, nationals or juristic persons of the Republic of China where under the former agrees to furnish the latter with technical s k i l l or patent rights not as capital stock but for a fixed royalty." *^See Appendix 2C. 'Republic of China, Criteria for the Encouragement of Investment (Promulgated on September 10, I960, last amended July 26, 1977 /Industrial Development and Investment Centre, December 1977.7), article 76. 2 0 7 BIBLIOGRAPHY General Bar-Zakay, Samuel N. "Technology Transfer Model." Industrial Research  and Development News. Vol. VI, No. 3 (1972). Barranson, Jack. Industrial Technology for Developing Economies. New York: Praeger, 1969-Basche, J. R. Jr., and Duerr, M. G. ed. International Transfer of  Technology: A Worldwide Survey of Chief Executives. New York: Conference Board, 1975. Bhattasali, B. N. Transfer of Technology Among the Developing Countries. Tokyo: Asian Productivity Organization, 1972. Carter, C. F., and Williams, B. R. Science in Industry: Policy for Progress. London: Oxford University Press, 1959. Chang, Y. S. The Transfer of Technology: Economics of Offshore Assembly. The Case of Semiconductor Industry. UNITAR Research Reports, No. 11. New York: United Nations Institute for Training and Research, 1971. Chudson, Walter. The International Transfer of Commercial Technology to Developing Countries. UNITAR Research Report No. 13. United Nations Institute for Training and Research. Cochran, Thomas C. The Puerto Rican Businessman: A Study in Cultural Change. Philadelphia, Pennsylvania: University of Pennsylvania Press, 1959. Fairbank, John K., Reischauer, E. 0., and Craig, A.M. East Asia: the  Modern Transformation. Boston: Houghton Miflin, 1965. Far Eastern Economic Review. Asia 1979 Yearbook. Hong Kong: Far Eastern Economic Review, 1979. Freeman, Christopher. The Economics of Industrial Innovation. Harmondsworth, England: Penguin, 1974. Hawthorne, Edward P. The Transfer of Technology. Istanbul: Organization for Economic Co-operation and Development, 1970. Hayden, Eric W. Technology Transfer to East Europe: U. S. Corporate  Experience. New York: Praeger Publishers, 1976. Ho, Samuel P. S. Economic Development of Taiwan. 1860-1970. New Haven: Yale University Press, 1978. 208 Industrial Development and Investment Center. Economic Progress and  Investment Climate in Taiwan. Republic of China. Taipei, February, 1978. International Economic Association. Conference on Appropriate Technology, Tehran, September, 1976. Appropriate Technology for Developing  Countries. London: MacMillan, 1977. Jacoby, Neil H. U.S. Aid to Taiwan: A Study of Foreign Aid. Self Help  and Development. New York: Praeger, 1966. Manning, G. K., ed. The Transfer of Technology: Successes and Failures. New York: W. W. Norton, 1968. Mansfield, Edwin. The Economics of Technological Change. New York: W. W. Norton, 1968. Nabseth, Lars, and Ray, G. F. The Diffusion of New Industrial Processes: An International Study. Cambridge, England: University Press, 1974. Nau, Henry ed. Technology Transfer and U. S. Foreign Policy. New York: Praeger, 1976. Robock, Stefan H., and K. Simmonds. International Business and Multi- national Enterprise. Homewood, Illinois: R. D. Irwin, 1973. Rogers, Everett M. Diffusion of Innovations. New York: Free Press of Glencoe, 1962. Rosenberg, Nathan. The Economics of Technological Change: Selected Readings. Harmondsworth, England: Penguin, 1971. Shen, Tseng-chee. The Science and Technology Information. Centre National  Science Council. Republic of China. Taipei, 1977. Silin, Robert H. Leadership and Values: The Organization of Large Scale  Taiwanese Enterprises. Cambridge, Massachusetts: East Asian Research Centre, Harvard University, 1976. Skinner, Wm. Chinese Society in Thailand: An Analytical History. Ithaca, New York: 1965-Spencer, Daniel L. Technology Gap in Perspective: Strategy of Inter-national Technology Transfer. New York: Spartan Books, 1970. Strassman, Wolfgang P. Technological Change and Economic Development: The Manufacturing Experience of Mexico and Puerto Rico. Ithaca, New York:Cornell University Press, 1968. Vernon, Raymond, ed. The Technology Factor in International Trade. New York: National Bureau of Economic Research, distributed by Columbia University Press, 1970. 209 Wells, Louis T., Jr. "Economic man and engineering man: choice of technology in a low wage country." Public Policy. (Summer, 1973). International Agencies Organization for Economic Co-operation and Development Seminar held at Schloss Hernstein, Austria, 5th-8th July, 1973. Transfer of  Technology for Small Industries. Paris: Development Centre of the Organization for Economic Co-operation and Development, 1974. Organization for Economic Co-operation and Development. Choice and  Adaption of Technology in Developing Countries: An Overview of  Major Policy Issues. Paris: Development Centre of the Organization for Economic Co-operation and Development, 1974. United Nations. Conference on Trade and Development. Transfer of Technology. Report by the UNCTAD Secretariat (TD/106), November 10, 1971. United Nations. Conference on Trade and Development. Report of the  Committee on Transfer of Technology on its first session. 24 November-5 December 1975 (TD/B/593). 1976. United Nations. Conference on Trade and Development. Restrictive Business Practices. Report by the UNCTAD Secretariat (TD/l22/Supp. l ) , January 7, 1972. United Nations. Conference on Trade and Development. The Acquisition of  Technology from Multinational Corporations by Developing Countries. (ST/ESA/12), 1974. United Nations. Guidelines for the Acquisition of Foreign Technology  in Developing Countries, With Special Reference to Technology  Licence Agreements~. (ID/98 ), 1973. United Nations. UNCTAD Secretariat. Guidelines for the Study of the  Study of the Transfer of Technology to Developing Countries. (TC/B/SC 11/9), 1972. United Nations. Conference on Trade and Development. An International  Code of Conduct on Transfer of Technology. (TD/B/C. 6/AC. 1/2/ Supp. 7/Rev. 1), 1975-United Nations. Conference on Trade and Development. Major Issues Arising  from the Transfer of Technology to Developing Countries (TD/B/AC. 11/10/Rev. 2), 1975-United Nations. Conference on Trade and Development. Policies Relating  to Technology of the Countries of the Andean Pact; Their Foundations: A Study by the Junta del Acuerdo de Cartabanea (TD/07), December 29, 1971. 210 Taiwan Government Republic of China. Statute for Investment by Foreign Nationals. Promulgated July 14, 1954, last amended June 22, 1968. Taipei, Dec. 1977. Republic of China. Criteria for Encouragement of Establishment or Expansion of Industrial and Mining Enterprises. Taipei, July 1978. Republic of China. Customs Law. Promulgated August 8, 1967, last amended July 16, 1976. Taipei, Republic of China. Ministry of Economic Affairs. Fourteen Categories  of Machinery Temporarily to be Purchased Within Country. Taipei, July 3, 1975. Republic of China. Statute for Technical Cooperation. Promulgated August 9, 1962. Last amended May 29, 1964. Taipei. Republic of China. Ministry of Economic Affairs, Investment Commission. Selected Investment Statistics. Taipei, December 31, 1977. Republic of China. Board of Foreign Trade. Foreign Trade Development  of the Republic of China. 1978. Taipei, 1978. Chinese Language Ke-hsueh chi-shu tse-liao chung-hsin chian-kuang (Science and Technology Information Centre - Outline). Taipei: 1978. Lien-ho K'ung-yeh yien-chiu-suo Industrial Research Laboratories. Taipei Fen-hsi chien-ting chi chia-Kung Kung-yeh Fu-wu shou-tse Handbook of Analysis. Testing and Processing Services. Taipei, July, 1978. 

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