Technology appropriateness and risk factors

The transportability of technology to developing countries is affected by other factors as well, including small markets, raw materials constraints, scarcity of skills and underdeveloped infrastructure.  Thus, except for the simplest transfers, technologies by and large will either need to be modified and made appropriate for the new environment or they will have to be accepted even though inappropriate.

Transferring a particular technology to a developing country typically requires that it be modified in one or more of the following ways :

• Scaling down, so that it meets the requirements of the new marketplace, mainly reduced capacity and minimum penalties for lower levels of product quality and economic efficiency.

• Redesigning it to use scarce inputs in ratios that are economically rational in the new environment.

• Ensuring its maintainability and its ability to be absorbed at the skill levels available (or trainable in the new environment).

It may be necessary to restyle the products or to reengineer the production technology, or both.  Modifications should be carried so as not to jeopardize the technology owner’s intellectual property, trade marks, competitive standing or international image.

However, a technology owner has no means of knowing, if say, a scaled-down version of it (or a version that, uses another raw material, or that has been simplified will work effectively or efficiently in the new environment except, perhaps, by attempting process simulation, “pilot-planting” or market-testing.  Unless the costs of this testing can be passed on to the technology recipient, in whole or in part, the owner will have to absorb them.

The transfer of technology to an environment different from that in which it was developed entails risk, so a methodology is needed to identify and appraise technology for its acceptability. 

The ideal technology selection process

In an ideal approach to selecting technology appropriate to an environment. The entire acquisition and implementation process must be considered, not merely the financial and technical merits and risks.

Technology must be viewed as a product exhibiting a degree of “stickiness” to its owner.  That is, it reflects the perspective of the owner : his attitudes to economic, technical and other factors, and his desire to control the technology through legal means.  When selecting a technology, one must not only evaluate its technical excellence but must also reckon with the firm that developed it: the quality of legal protection the firm has acquired, its reputation for successfully operating technologies, and the extent of its international activities.  The tendency to turn to transnational corporations as sources of good technologies, or to corporations known for excellence in certain fields, e/g. fibres or audio equipment, demonstrate this stickiness factor.  Consequently, the technologies that emerge may be equivalent in terms of product types and outputs, but very different in their use of raw materials, energy and other inputs, in their manufacturing and product specifications; and in their patents, trade marks and other proprietary rights.  To a substantial extent, the stickiness factor indicates the degree of support one can expect from the developer in making a technology viable in its new home.

Although technology is one of the mot important factors of production, its value to a society cannot be characterized in the same manner as other factors of production, i.e., “interest rates” for capital, “rentals” for land, and “wage rates” for labour.  Units of measure, such as the running royalty rate for licensed technology, do not necessarily allow comparability: just because one technology is offered at a higher royalty rate than another equivalent technology doe not mean there is an objective, qualitative difference that makes it superior.

Risk in technology transport

The focus thus far has been on the suitability of a technology for use in a developing country environment.  That assessment is generally separate from assessing the risks related to the technical performance of a technology that may otherwise be eminently suitable.

Technology-associated risks are always present, and their consequences vary insignificance.  Some risks may be small, that is, rectifiable at a low cost or with little effort.  Other risks may be more difficult to correct (if, for instance, a plant is located near a mine for a raw material  but the quality turns out to be poor and raw material must be bought from a distance) but still allow a reasonable profitability.  Still others are large enough to cause a venture to be abandoned, e.g. risk of the emission of toxicants forced the closing of some plants in the United States after the Bhopal disaster.

Technology-associated risks arise in several areas.  Some key areas have already been referred to: the workability of scaled-down versions of technology and the adaptability of technology to raw materials or utilities with which the technology owner is unfamiliar.  These risks are present in all cases of technology transfer.

The ultimate user of a technology bears many other risks: incorrect  choice of product, insufficient market size, misjudging the market  segmentation or product positioning, poor location of production plant, underestimation of investment and so forth.

Appraising business risks, which may be greater than technology-associated risks,  is peripheral to these analyses.  Some risks cannot be covered t all, others may be covered by carefully written contractual provisions, and  some may be shared or minimized by involving the technology supplier in the market-place (joint ventures, product-sharing etc).  Some risks cannot be controlled, assessed or appraised by either  the technology supplier or the recipient.  These are accepted by both parties as being uncertainties outside the knowledge or control of the negotiating parties, an example would be an impurity in a raw material.

Risks in process industry technology

The technological risks of closed-system technologies are generally greater than those of open-architecture technologies, or widely used technologies.  In the product assembly industries, for example, there are many or few sequential steps in the manufacture of a product, only some of which may result in serious economic risk if improperly assessed.  Project-phasing, testing critical equipment prior to shipment and obtaining warranties of the replacement of defective equipment are all risk-reducing measures that may provide early assurances of workability.

In the process industries, however, output results from an intricate  networking  of the constituent elements,  all of which must be present and working simultaneously to achieve project objectives.  Thus, cement, sugar or paper plants cannot be phased in, nor can any reasonable test be made of an individual piece of equipment without feeding it material from another process unit.  An unexplored deficiency in raw material, wrongful  use  of a construction material, or incorrect configuration in a reaction area can jeopardize an entire project.  Another form of risk may lie in all ill-conceived  mating of technology supplier and plant engineering/construction firms.

Another feature  of process industries is that the risk characteristics, and the points at which the risks are  most significant, are often specific to the industry involved.  Thus, in the manufacture of cold-rolled steel, the mechanical properties of the steel  and the thickness  tolerances obtained may be more critical, and thus a greater risk factor, than the steel’s physical or chemical properties or even the output volumes.  In the pharmaceuticals industry, a technology may be chosen because it presents the least risk with respect to product purity, shelf-life  and clinical performance (e.g. low dosage, few contraindications) rather than for reasons such as yield on raw materials or output stability of the manufacturing process. In the chemical industries, risk exposure may lie in performance parameters such as product yield on raw materials or catalyst stability.  Analysis of risk thus involves the identification and analysis of what may be called hidden factors in the industry or technology involved.

Some risks have direct financial implications while other risks, such as public safety aspects of the technology, cannot be measured  in these terms.  Financial risks may be minimized or shared through mechanisms such s simulating the process at the laboratory level, building a pilot plant,  obtaining assurances through process guarantees and warranties, creating a joint venture or building a turnkey plant.

In general, risk is minimized when technologies are licensed-in at the mature phase in their life cycle and when the output volume I not too different from that in similar plants.  A technology’s maturity is indicated  by the frequency with which it is being  licensed (see also module 16, on valuation and methods of payment).  Industry journals often provide this information about major technologies; alternatively, a licensor may be asked to provide a list of licensees and the dates on which plants constructed under the licences came on stream.

Potential for environmental damage

In open-architecture technologies thee is some opportunity for the would-be acquirer to assess its potential to cause environmental damage.  In closed-system technologies, the opportunity for such assessment can be quite limited.  Disclosure  agreements may become mandatory if the technology is suspected of creating an adverse impact in any of these areas; alternatively, affidavits or warranties, at the technology selection stage, may be required.  The forms of legal protection that may be available are outside the purview of this module.  Check List for Analyzing the Appropriateness of a Closed-Architecture Technology listed some of the questions a technology acquirer must address.

At the same time, many open-architecture technologies in which developing countries are interested (e.g. cement, paper or metals) are the developed world’s smokestack industries and they can pose great  environmental and ecological risks, which must be abated by sophisticated technology.  This, however, may turn a previously open-architectured technology into a package with a closed-system  component that needs to be analysed as discussed above.* (See Environmentally Sound Technologies (ESTs))

Quantitative approaches to assessing technology appropriateness and risk

The availability of more than one technological option has many  advantages.  A plurality of options, as noted earlier,  avoids a Hobson’s choice (take it or leave it).  It provides alternative routes to manufacturing a product, one of which may be most appropriate  for the host country.  In many industries there are, at any given time, equivalent technologies competing with each other.

The most frequently used methods for selecting one technology from a set of options are those of  financial analysis (economic reward).  Many kinds of analysis are available, ranging from a simple return on investment analysis to a more complex analysis of internal rate of return.  These methods take into account inputs and outputs in terms of costs and prices, the life of the project, time related flows of funds, discount rates of money, inflation and several other factors.  They do not, however, weigh technological factors directly.

Financial analysis may weigh some quantitative impacts of appropriateness and risk, but they do not weigh many important qualitative factors bearing on the acceptability of a technology in a particular physical environment and eco-system.  Nevertheless, the economic reward is a fundamental criterion in any analysis of alternative technologies and constitutes a key test of acceptability.  Objective methodology must attempt to achieve a better balance between measuring the positive aspects of economic benefit and the negative aspects of inappropriateness and risk.

In this module, a variation of the simple return-in-investment (ROI) method, the comparative costing method, is used to determine economic reward.   The exercise is carried out not so much to demonstrate the methodology, which is well-established, but to compare  its rating of alternative technologies to the ratings of two other methods: the parameter ranking method and the points system method.  Because different aspects of a technology are evaluated using  the different  methods, it is desirable to use all three to determine the most appropriate technology of those on offer, using information from the suppliers.  The recipient must choose a technology with a  low-risk profile while trying to obtain maximum possible insurance against risks being accepted, including the risk of selecting an inappropriate technology.  Process disclosure agreements, process guarantees and warranties, joint-venture arrangements, shared production and subcontracted manufacturing modes are among the alternatives that may be available.

Comparing technologies becomes a reasonable exercise only after step G in figure 7: select alternative technologies and technology suppliers.  By that time, the potential technology recipient will have researched independently, or with the help of professional consultants, the technologies in use and through this process, eliminated some alternatives on grounds such as raw materials availability or minimum required plant size.  Reaching step G also indicates a  technology evaluator has short-listed technologies taking into account the “stickiness” factor, which associates the perspectives of the technology developer with the manner in which a technology will be used.   

The comparative costing method

Table 1 presents an analysis of cots that might apply when selecting a process-type technology.  Primary data, which might have been provided in many kinds of units, have been reduced to currency units.  While profit before tax (PBT) and PBT/fixed investment have been used as economic comparators, other comparators might also be applied.  Technologies may, however, be compared  without taking into account financial parameters such as overhead, which vary little with technology, this is known as comparative costing.

Table 1: Illustration of the comparative costing method *

(Millions of United States dollars)

·     Assumptions : Analysis of parametric data supplied by technology sellers.  Estimates are made at an operating capacity level considered commercially beneficial by competing firms.

Note :  Italicized costs are those based on data supplied by the technology proprietor or developed with his cooperation

^a  On-site plus overseas training cots

^b  payable at the beginning of the first, third and fifth years

^c  see annex for basis of calculation

^d  Total technology cost distributed over five years

^e  Including depreciation and interest

If in the comparative costing method the PBT/fixed investment ratio is the determinant of choice, technology C would be the most attractive, followed by technology A.  Technology E would be the poorest choice.  The lower operating cost factor might further favour technology C.

If aspects of a technology such as position in the life cycle,  impacts on the ecosystem, public hazards and consumer safety are equally favourable for all the technology being compared, the above method would be quite  appropriate for industrialized countries, because accessibility to resources is not restricted and market cots (factor prices) are the determining criteria.

In developing countries, however, other factors need  to be considered.  For example, a constraint on foreign exchange might encourage selecting a technology that uses a maximum of indigenous materials (eg. Capital goods or raw materials); likewise, constraints on natural resources might orient selections to those technologies in which, for example, (hydro)electric power could be substituted for  petroleum-based fuels.  In these circumstances, the selector may be willing to trade off higher cost and less economic efficiency for minimizing the ue of scarce resources.

Again, the disadvantage of the comparative costing method is that it does not provide a mechanism to take into account qualitative factors.  The ranking and point systems methods make attempts in this direction.

Ranking methods

The following list shows how the technologies in table 3 might be compared taking into account  the constraints in a particular country.  Five criteria are established :

• Fixed investment in national currency to be optimized

• Fuel gas usage to be conserved

• Costs of imported raw materials to be conserved

• Electric power usage to be conserved

• Need for skilled labor to be minimized

 Unweighted ranking

In the first and simplest of these methods, technologies are awarded proficiency marks, that is, ranked, with the highest number  assigned to the technology most proficient in the use of each parameter, e.g. Maximizes national investment inputs, minimizes the use of natural gas.  If the relevant data from table 1 are ranked using these criteria, we have the result seen in Table 2.

Table 2 shows that technology C is most proficient in the use of fuel gas, i.e. uses the least amount, whereas it ranks poorly on the use of imported raw materials and currency.  Likewise, technology E is most proficient in the country’s most proficient in the country’s use of investment inputs and poor in the use of its raw materials and in  conserving fuel gas.

Table 2: Ranking  technology parameters (unweighted)

^a  Correct computation requires that if two or more technologies have the same ranking (that is, the same ranking in a horizontal tally of the parameters), as in the asterisked cases, that ranking be “fractioned”.  For example, if two technologies rank = 3 in the horizontal tally, then the rank number to be used for totalizing is 2.5; similarly if three technologies rank = 3, then the rank number to be used is 2.33.

While adding proficiency marks might be a useful exercise, it offers little support to realistic analysis because it assigns the same weight to all scarcity factors.  It may, however, be a useful tool for comparing investment sites within a country for a particular technology rather than for selecting one of a set of competing technologies.

Weighted ranking

A more rewarding exercise is to rank technologies  after weighting scarce inputs or constraint factors.  Table 3 shows the weight assigned by a technology selector in a developing country to each factor listed earlier.  Clearly, the selector thinks the most important criterion is conserving foreign exchange, the use of fuel gas, imported raw materials cost, electric power use, and the need for skilled labour.

Table 3.  Weighting for technology parameters

Table 6 recalculates the results of table 4 giving due attention to weighting.  The weight of any parameter in table 6 is derived as follows :

                              Rank of parameter in the

                              particular technological process

Weight  =                ----------------------------------------------     x  assigned parameter

                              Highest rank number weightage

                              of  that parameter among

                              compared technologies

For example, the weighting for fuel gas usage for technology B is as follows :

Weight = 3/5 x 0.25 = 0.15

Table 4: Weighted ranking of technology parameters

Three is the ranking for the fuel gas parameter and five is the highest rank received by any one technology when considering that parameter (table 2) 0.25 is the  weight given to the fuel gas parameter (table 3).

The technology with the highest weighted cost, that is, the technology that uses scarce resources mot efficiently, is, of course, to be preferred.  In this example, technologies D and E are particularly proficient, and when overall cost parameters and the impact on scarce resources are considered, technology D would be preferred.  However, selecting it would reduce the economic advantages obtainable by selecting technologies C and A.  This then, is the trade off the selector  must be  able to accept if the priorities (weightings) are significant and are to prevail.

Ranking methods are useful when critical parameters can be quantified on a rational basis and weights can be  assigned.  However, they are relatively inefficient when there are a large number of qualitative factors.

The points system method 

The points systems method takes into account the qualitative factors cited in check-lists 1 and 2  (e.g. operational, public safety) that cannot be quantified or weighted.  However, it, like the ranking methods, involve problems of subjectivity.  These problems will be dealt with after describing the points systems method. 

Table 5 illustrates the method and shows the kind of qualitative  factors that often need to be evaluated.  The following steps are involved :

• Key evaluation parameters  are listed and evaluation criteria are clearly defined. 

• The parameter the selector considers most significant – the reference parameter  - is assigned a weight of 100.

• The weights of the other parameters are assigned by the selector considering their importance compared to the reference  parameter (they  will, by definition,  be less than 100).  This gives rise to point system scale.

• One of the candidate technologies is taken as the reference technology.  It can be any one of the technologies being considered.

• For this reference  technology, and using the points system scale, the selector attempts to establish a point   score by assigning the maximum number of point if it is less favourable.  This establishes a vertical scoring component.

• With the reference technology thus scored, all other candidate technologies are compared to it, parameter by parameter, and scored.  Some technologies may get a higher score than the reference technology.  This is the horizontal scoring component  of the methodology.

Totaling the points obtained by each competing technology  yields a ranked list. 

Table 5: The point system method

^a  A higher score in the horizontal tally means the technology comes closer to meeting evaluatory criteria set for the parameter

^b  Data not available at the time of analysis

^c   Incomplete totals due to lack of data

In table 5, the technology selector has assigned the  highest priority to product purity, probably with an objective of accessing export markets.  This is the reference parameter.  The remaining factors, in hierarchal order, are as follows : 

• Product range should be as wide as possible

• Too rigid a specification for raw material A is undesirable.

• Delivered cost of raw material B is important

• Catalyst should be obtainable from a number of sources

• Use of high-pressure process systems should be  minimized.

• Use of declared toxic materials should be minimized

• Use of declared toxic materials should be minimized

• Fluorocarbon-based refrigeration systems should be as minimal as possible

• Cost of waste treatment should not be an undue burden on the technology recipient

• National construction firms should be used as much as possible

• Factory decision-making must be within the control of the national enterprise within the shortest possible time, say, 24 months

The method should be used with caution, as it is possible for a selector to assign too many points to a relatively  unimportant parameter.  Injudicious weighting on the points systems scale may seriously  compromise the measurement of overall technology appropriateness.

Assessment in the dual-bid method

Many developing country agencies use what may be termed the dual-bid, or double-envelope, method for selecting technology.  In this method, a short-listed group of licensors makes two-part sealed bids.  The first – the technical bid – details the offering in terms of technology proficiency factors, and the second – the cash or commercial bid – identifies the fixed investment and technology costs for the technology package.  Bids are formulated using a questionnaire prepared  by the potential buyer, using consultants if necessary.

Evaluators on the buyer side then further short-list the technologies from the economic and technical proficiency perspectives, taking available resources into account.  The technologies are reviewed separately, by financial experts  and decision makers, from the commercial and business points of view.  When this type of bidding process is used, the ranking methods and the points system method are particularly relevant for analyzing the technical bid, leaving the comparative costing methods until the last.

To carry out the assessments suggested in this module, a significant  amount of data  and information about technologies is required from the owners.  Generally, this becomes possible after confidence is established that the analyst is serious and that one of a proffered set of technologies will finally be selected.  These assessment methods use information technology owners are usually willing to divulge to technology  evaluators. 

Testing subjectivity

As pointed out earlier, and as evident  from the ranking methods and the point system method, there is likely to be a substantial degree of subjectivity in an analysis, both in the selection of the parameters and in the scoring.  Fortunately, several statistical methods are available to test the degree of subjectivity in analysis.  They can be used to assess the selection of parameters, scoring or both.  Two of the easiest methods  are illustrated here.

It needs to be pointed out that, to be as objective s possible, those who evaluate the technologies and hose who select the parameters and establish weight s for them, an correspondingly for the points system scale, must be different people.   The selection of parameters and their weighting should be done by senior managers or teams experienced in the technical and economic aspects of technology.  This would remove one of the several subjective factors inherent in such exercises.

The Spearman rank correlation coefficient test

The top segment of Table 8 shows the ranking of five technologies, A-E, by two evaluators, P and Q.  The convergence of the evaluation process can be tested by the Spearman rank correlation coefficient, R:

                               6(∑ D_i²)

                        -----------------------

                        R = 1 – N³ – N

Where D_i – rank difference and N – number of technologies being ranked.  The correlation coefficient is equal to 1 when the rankings are identical and –1 when they are opposed.  The results are contained in the lower half of table 6.

Table 6. The Spearman rank correlation coefficient test: poor correlation

While the rankings are certainly not diametrically opposed to each  other, the level of convergence is relatively poor for selecting a technology.  If the rankings are as shown in Table 7,  a more acceptable pattern of convergence emerges.

Table 7.  The Spearman rank correlation coefficient test: better correlation

Assuming that the individuals who selected the parameters have capable parameter selectors, low degrees of correlation show that the evaluation parameters need to be defined more precisely, although this may not always be possible.  The Spearman coefficient is limited to testing the findings of only two parameters.  Unless the correlation is very high, technologies may not be  correctly ranked.  One may, however, use a third evaluator and then compare the paired results  (A-B, B-C, C-A etc) to see if any two evaluators rank the technologies with a high degree of correlation.  However, the following approach may be better.

The coefficient of concordance test 

Where more than two evaluators are available to select technology, the method that calculates the coefficient of concordance is more useful for testing a selection.  The coefficient of concordance, W, is expressed by the following relationship :

W = 12 x S

---------------

M² (n³ – n)

Where m – number of evaluators, n = number of technologies evaluated and S = the sum of squared differences between the observed rank total and the expected total of null hypothesis.  W varies from 0 for random evaluation to 1.0 for perfect concordance.

In Table 8 technologies A-E are ranked by six evaluators.  This evaluation shows high concordance (0.95).  Therefore,  the ranked score totals may be taken as giving a true ranking of the technologies on these parameters.

Table 8.  The coefficient of concordance test for statistical coherence

The results emerging from these two methodologies, seen separately, may merely reflect accidental agreement or disagreement among the evaluators  without sustainable foundation.  To determine if this is so, further tests of statistical significance are required.  Some simpler tools for determining significance are available.

Figure 7 :  Idealized technology selection process

 THE NATIONAL MARKET ENVIRONMENT

Candidate products for manufacture

(Step A)

Market assessments

Product identification

Market size

(Step B)

Potential modes of production investment estimates

(Step C)

Preferred modes of production

(raw materials, energy forms, skills, etc)

(Step D)

Suitable technological routes

(Step E)

Potential technology suppliers

(Step F)

Select alternate technologies and respective technology sources

(Step G)

Evaluation of technology attributes

(trade marks, patents, etc)

(Step H) 

Analysis of appropriateness of technologies

Analysis of technology risks

(Step I)

Preferred form of technology transfer

(joint venture, licence, etc)

(Step J)

Analysis of financial acceptability

(including technology costs)

(Step K)

Preferred technology and form of acquisition

(Step L)

Preferred mode of technology implementation

(turnkey, unpackaged,etc)

(Step M)

Preferred strategies of market entry and product establishment

(Step N)

Enterprise formation, * technology transfer and project implementation

(Step O)

Enterprise structure, funding etc. are not detailed here although some may have a bearing on technological selection.

Note:  Procedures in italics relate to technological selection

Methodologies for evaluating technology are, therefore, empirical and subjective factors may be  considered in the evaluation exercise.

Open and closed architecture technologies

In this module, appropriateness and economic-technical risks are used as two key parameters for evaluating if a technology will be suitable in the host country environment.  This is based in large part on responses obtained from the technology owner, a situation not unlike discussions between doctor and patient.  On-site inspection of the working technology by its intended recipient, which would be available before making a decision, will generally not be possible until a degree of contractual certainty is created.

Before proceeding to a discussion of evaluation tools, it may be useful to classify the technology differently than in the introduction (where five categories were given), that is into two broad categories: those with “open” and “closed” architectures.  Doing so bears on the scope of analysis  available in selecting technology.

Technologies  that relate to assembling components to make a product such as a washing machine or lathe or that relate to making mature commodity products, such as cement, typify “open-architecture” technologies.  In the case of an assembled product, a competent professional can actually disassemble the product to see how it has been put together.  Such an examination permits determining which components are most critical to operating the appliance or machine and how effectively each performs relative to  its counterparts in an equivalent appliance or machine.  Likewise, a cement making process offered as an “engineering package”, which would disclose its salient features, can be conceptually disassembled into its component elements.  Using the wealth  of information available in technical literature, the probable sequence of physical/chemical operations by which cement  is manufactured in the engineering package can be visualized.  Technologies that have entered the public domain through the expiry  of patents also belong to this category.  Indeed, the first IBM personal computer was expressly, designed to have an open architecture so that industry would be able to manufacture peripherals (such as printers) and software, thereby expanding its usage.

Such analyses can help a technology evaluator appreciate the excellence of the technologies offered.  An evaluator can then develop inquiry procedures seeking clarifications and assurances from the technology owner in areas of importance, doubt and uncertainty, and on issues affecting the “relocating”  --  that is, the transportability of a technology (see Check List: Questions for Analyzing the Appropriateness of an Open-Architecture Technology).

In “closed-architecture” or “closed-system” technologies – such as those for manufacturing novel alloys, drugs, polymers, or integrated chips  -- examining the end product provides little information about the raw materials used, the manufacturing process, the conditions during manufacture, the processing sequences involved etc.  The product or process cannot be conceptually disassembled, except in the vaguest terms.  Practically  all crucial aspects of the process must be is closed to the technology recipient  for him to assess its appropriateness and risk.

Thus, technologies with an open architecture are generally easier to assess because there is greater opportunity  for examination prior to acquisition or licence than there is for closed-system technologies.  Of course, many technologies are partially open architecture and partially closed-systems. 

Nevertheless, testing for appropriateness of technologies depends on obtaining some level of process disclosure from the technology owner.  The amount of material available for examination and the knowledge as well as the experience of the technology owner in applying the technology, reveal themselves only as the collaborative arrangement between the owner and potential technology-recipient gains strength.  Even so, much of the technology’s nature will remain unrevealed.

It is not always possible for developing country → Entrepreneurs to go through the sequences to examine alternative technologies.  In many cases, the choice is between accepting or not accepting a single offer of technology resulting.  This can happen for several reasons including the following : (a) not knowing that other sources of technology exist, (b) lack of any other willing supplier of technology, or (c) the fact that the technology owner is assuring a market for the product.

Assessing the appropriateness of a technology

Assessing technological appropriateness involves assessing the technical and economic features of a technology package in the context of production in a given national environment.  The assessment process requires some level of information disclosure from the technology owners, from obtaining responses to queries, to visiting plants of the licensor, to obtaining confidential disclosures (drawings, designs, specifications) and so forth.’

By and large, it will be difficult for technology evaluators in most developing countries to obtain the needed information without providing the technology owner with some assurances.  In some legal environments, prior disclosures and “look-see” arrangements may be obtained by paying front-end fees  and the technology need not be selected.   Typically, developing  country Governments discourage such payments, although they are widely practiced in developed countries.

As a result, evaluation of appropriateness are carried out under less than ideal  conditions.  However, good homework by the potential acquirer of technology, striking a good relationship with the technology owner, demonstrating seriousness of purpose and sending strong signals that good technology will find a new  and rewarding habitat, can stimulate responses useful enough to make good decisions.

Where there is a choice of several  technologies, analyzing appropriateness is much easier than analyzing feasibility for a single technology.  A plurality of choices inherently shows that there are several accessible and  practiced routes to  achieve a given objective.  It also shows that some technologies have facets that enable them to  work in different habitats.  Moreover, one route may have a configuration close to that required  by the technology recipient.

However,  as an initial exercise, it may help to analyse appropriateness by assuming only a single technology offer of a stand-alone  technology not influenced by extraneous parameters such as financial credits, equity participation.

In the following hypothetical cases, two of them with relatively open architectures and one of the closed system type, the first step is to develop checklists for evaluating the technologies.

Two cases of open-architecture technology

Product of low complexity

In this case the product is one that can be easily disassembled by an engineering professional.  It can be put together by obtaining from  its manufacturer semi-knocked-down (SKD) or completely knocked-down (CKD) product kits.  However, even though little  “technology” is apparently needed to assemble the product from its parts, many things would not be known even to a professional.  Several questions arise.  How is the assembly best sequence ?  Which subassemblies are made first and which later ?  How fast can the assembly be done ?  Where are the hold ups ?  What kind of a floor layout is bet suited to assembly ?  What quality control measurements are made and what kinds of instruments are required ?  At what stages of product assembly are the sub-assemblies tested ?   Would local technicians need to be trained ?  Thu, although we are dealing with what might be called “screwdriver technology”, many things that should be obvious  from the open architecture of the technology are, in fact, not.  None the less, the questions raised above can be answered.  They will form part of the “technology package” – the know how (or should it be called showhow ?) to be acquired from the proprietor of the technology.

Product of greater  complexity

In this case, a technology  whose features are largely available in the public domain is tested for appropriateness.  Its features are fairly well described in technical literature (including in expired patens) and can be explored through the use of consultants who have investigated or practiced similar technologies.  It is assumed that there is an ongoing national market for the product, that the entrepreneur can manage project finances and that he is capable of establishing the enterprise and organizing its operations.

The technology at hand involves  the manufacture of copper-based welding rods, used as a filler metal for joining ferrous and non-ferrous metals through braze welding with a gas torch.  A literature search and advice from consultants has disclosed that in a typical manufacturing scheme, virgin metals, eg copper, zinc and tin, plus hardeners, if needed, such as phosphor-bronze,  are melted, under flux cover, in graphite crucibles, and the molten metal is cast into rods on green sand moulds.  The rods are then hot-rolled to reduce their diameter and then cold-rolled  and annealed before being sent to wire-drawing machines from which the end product emerges after pickling.  Further, annealing  may be practiced for certain grades.  The national market that meet supports American Welding Society (AWS) – American Society of welding rods.

The professional consultant is of the opinion that (a) most of the information on the manufacturing process is in the public domain (open architecture), (b) all of the manufacturing equipment involved can be sourced locally at competitive prices and (c) the local environment can accept a product of this complexity.  These factors, by themselves, are insufficient to warrant  successful entry into the market place.  A helping hand is needed perhaps from a firm active in a similar market  in another country and having a diversified range of products and a good product mix.  In this case, showhow is not as important as knowhow pertaining to the manufacture  of a wide range of products.

 A prospective buyer needs a basic knowledge  of the operating  process and a preliminary  idea of what technical support will be necessary before he or the licensee can elicit  enough information from a technology supplier to begin an evaluation of  technology’s appropriateness.

A check-list has been developed of the kinds of questions a technology supplier might be expected to answer for a serious-minded client.  The responses help  the technology seeker to determine the basic features of the manufacturing process, assess the technical factors critical to commercial success, identify areas of technical risk and highlight matters that should be incorporated into the final transfer contract.  Checklist 1 proposes questions that will help to evaluate the appropriateness of an open-architecture technology.

Many aspects of the technology and its appropriateness should become apparent from the responses to thee questions.  “Look-see” arrangements may come next, possibly at a cost, since a visual check is often vital for technology selection.

In neither case is there much need to probe risk elements, because no risk areas are evident.  However, questions about whether local knowledge  was appropriate to the needs of the technology or the market certainly had to be asked.  Responses would point to training needs in the context of fruitful technology use and to improve management effectiveness.

Case of a closed-system (process) technology

In this case, a process technology for producing a chemical illustrates the exercises necessary for evaluating the appropriateness of a closed-architecture technology.  Because the process is based on knowhow, most of its features will not be in the public domain.  Indeed, they may be confidential and will  generally only become accessible to the entrepreneur when he enters into a technology licence contract.  Product literature or oral information from salespersons is, of course, available for promoting and marketing the technology’s product and facilitating its application.  It is assumed that the would-be entrepreneur in a developing country has been presented with a single offer of technology  and that the offer is not associated with offers of equity or other forms of participation.

The example involves the manufacture of a branded, high tech protective coating for exterior surfaces of all kinds (wood, metal etc).  According to a technical brochure enclosed with the marketed product, the coating develops on polymerization of the constituents present in the coating solution.  Te polymerizing substances are said to be acrylic esters, with no further qualification.  The brochure states that polymerization requires the addition of a mixture of catalysts and other materials packed in a separate container but sold  with the ester product.

If the process is patented it will be fairly easy to get a good understanding of it because patents generally do four things: (a) disclose “prior art”, i.e. how coatings belonging to the patented product group have in general been made; (b) present claims of novelty for the patented product/process; (c) outline the methods available of obtaining the product; and (d) state the preferred mode of making the product.  A patent makes the technology more open-architectured.

However, even though all details of the process may be disclosed in the patent, they usually relate to production  at the test-tube level or, only details of the critical segment are provided.  A capable engineering firm might be able to scale up the process to commercial dimensions, but that would not yield crucial operating knowledge.  The questions of how to make the product most economically and with the best specifications would remain open.

Operating information, often  referred to as know-how or show how , is held in confidence.  “Look-see” arrangements, feasible with open-architecture technologies, would in this case reveal very little.  Understanding process technology requires a knowledge of operating conditions in all segments of the process, not just the patented segment.  However, prior disclosure agreements can often be concluded to obtain such information, since the potential for misuse is minimized by the protection already available through the patent.

Contracts for the prior disclosure of process information for technologies that are wholly know-how based are often possible in industrialized countries for a fee.  In developing countries, the legal framework may not sufficiently  protect an information supplier in terms of ownership rights and wrongful use of process information.

To a great extent, in closed-system technologies, a technology analyst has to approach evaluation obliquely and indirectly.  The check-list  of queries for analyzing closed-system technologies will be broader in scope but poorer in detail  than the check-list for open-architecture technology because there is little information in the public domain to use in framing questions.  In this case there is no patent in the host country.

Checklist 2 is a typical check-list for enquiry into a closed-system technology such as our example.  It contains queries that a technology proprietor should be able to answer with little fear of  violating proprietary information. A search of technical literature in the coatings field may also reveal answers to some of the questions.  Some queries raised in the context of the second case, that are of a product of higher complexity may also be applicable here.  A few kinds of information may not be available during the early stages of technology exploration; these have been marked with an asterisk.

Technological complexity and technology transfer

Concept

It has been assumed in the course of the above discussion that if a selected technology meets certain techno-economic criteria  it is appropriate and can be transported from the country of its development (and use).  Many of these criteria have been outlined: a technology’s adaptability to smaller markets, its accommodation scarce resources, its adherence to certain qualitative criteria, its maintainability  given the skill levels of the new habitat etc.  Thee are important, but sometimes insufficient, conditions for successful transfer.

A key criterion that must  also be assessed is the workability of transported technology in the context of the technological complexity ** in both the sourcing and host countries.  Technological complexity relates to the manner in which and the extent to which technology is used to yield output and diversity of modern, goods and services, and to carry out the tasks of industrial management and organization, as well as on the means adopted for its development, propagation, permeation and protection.  In is beneficial aspects technological complexity ultimately manifests itself in the form of products and services that reduce drudgery in carrying out everyday work, provide greater comfort and convenience, afford more time for the pursuit of leisure activities, and so forth.  Hence, a high degree of technological complexity typically reflects a high quality of life.

Experience shows that unless certain externalities are similar in the two environments, many of the micro-economic benefits exhibited by an individual  technology in the sourcing country or environment will not be realized in the host country environment.  In other words, unlike water, technology does not flow well from a high level to a low level environment.

The technological infrastructure

The technological complexity of an economy evolves gradually.  At its high end, the substantive components of technological complexity are manifest in external facets such as replacing or supplementing natural products with synthetic substitutes, high manufacturing and processing speeds consistent with high levels of product quality, progressive integration and assembly of parts, miniaturization and the increasing substitution of machines and systems for human skills.  With respect to the last item, one may cite the substitution of machines for muscle-embodied labour, of automation and robotization for skilled labour, of computers for clerical and many categories of supervisory personnel, and of artificial  intelligence and neural  systems for middle-level managers.

Technological complexity is further demonstrated by the use of technology to network goods and services.  Goods are ordered, paid ofr, inventoried, and employed in efficient systems through the use of information technology, with a few people controlling the movement of large volumes of goods through a complex transport system.  There are also many systems to deliver  services: human hierarchies within an enterprise perform certain functions  and specialized professional  agencies outside the enterprise to perform others.  The systems by which technology is produced, employed and licensed contribute to technological complexity.  Legal instruments such as patents, trade marks and trade secrets legislation enable relatively easy access  to technology.  Technological complexity both reflects and is enhanced by the  presence of a well-developed technological infrastructure. 

A high-quality industrial infrastructure supports a large number  of business transactions per unit of time over distances by a variety of means, such as computer, fax, telephone, video-conferencing, person-to-person interactions.  Indeed, the relative levels of two industrial  infrastructures can be measured  by the number of transactions they can support per capita : [(number of two-party transactions per unit of time) x (the sum of the distances separating the transacting  parties)]/[population].

The  transportability of technology

The transportability of a technology, that is, the ability to relocate it to another environment, depends on the technological complexity of the national (industrial-economic) environment  and of the particular industry in which it will be imbedded.  Of these, the complexity at the national level is perhaps  secondary.  Thus it is possible  for particular groups of advanced  technologies to work  adequately and efficiently within an industry having a high technological complexity internally even though, the country lags well behind those countries from which the technologies have been sourced.  The effective performance of computer-based technologies in Taiwan Province of China and the Republic of Korea is an example.  Since computer technology is one focus development in these countries industries employing these particular technologies have thrived and been efficient despite their need for extreme levels of miniaturization and  processing speeds (which are characteristic of many industries in the technologically advanced countries).  The same is true  for the incorporation of advanced textile industry technologies in India, which call for high levels of vertical and horizontal integration of industry systems, a multifibre processing capability, and large volumes of production.  That having  been said, it remains true that,  technology flows most effectively from one point to another when the levels of  technological complexity are nearly the same.

The degrees to which human skills can be replaced by  machines and systems, the extent  to which goods and services are networked and the transaction capability of the technological infrastructure are three external features that determine the transportability of technology from one environment to another.

It might be asked.  Does the reverse situation hold ?  Does a  technology efficient  in a place of lower technological complexity perform satisfactorily when  transported to a place at a higher level ?  Specific  examples to illustrate the point are difficult  to find. One, however, is the superior performance (i.e. higher output per main-hour of the work) of software people (a non-material form of technology transfer) when they move from a developing country to a developed one.

Corporative significance

If we look at technological complexity in the United States and set it at an arbitrary level of 100, then transfer of technology, at any point on the technology life cycle, to western Europe and Japan may be expected to be as effective and rewarding as transfers within the United States.  If, on the other hand, the same technologies wee to be transferred to a newly industrializing country with a level of technological complexity of 50-60,  then the effectiveness of transfer might prove poorer.  Even so, it might be more effective than transfers to, for example, a developing  country in Africa with a level of complexity in the 15-20 range, where the technical and economic conditions will be unacceptable and the technologies will fail to perform.

On the other hand, a technology transfer from one developing country to another, with a level of technological  complexity, will have less possibility of distortion through reconfiguration than a transfer from a country with a markedly higher level of technological  complexity.  That is, if a technology is transferred from an environment with a technology complexity factor of 40 (relative to the United States) to one that has a technology complexity factor of 30 (relative to the United States) then it will travel well, particularly  if adapted to national endowments.

However,  technologies that have  existed for a long time and are in the declining phase of their technology life cycle  may be transportable to locations with a substantially lower level of technological complexity without significant potential of distortion through reconfiguration.  This is true because, first, the technology in the declining phase was developed when the environment was at a  lower level of technological complexity without significant potential of distortion through reconfiguration.  This is true because, first, the technology in the declining phase was developed when the environment was at a lower   level of complexity than at the time of its transfer, and secondly the technology has by now become a technique (that is, a specialized skill) and thus carries little risk of inadequate performance.  Much of the technology flowing between advanced and developing countries may be characterized as technique which is why it works well in new habitats.  These transactions can be said to involve technical  services rather than true technology.

One of the paradoxes of modern-day economic reality is that developing country with a low level of technological complexity require certain high-level technologies, such as power and telecommunications systems, or systems to exploit natural resources for exports.  Because such technologies need not be scaled-down or modified to suit the factor endowments of the recipient country, they transfer well, particularly when the transfers are made on a turnkey basis.  At the same time, they are not readily absorbed by hot country technicians and managers and will continue to require external maintenance support for optimum performance.

Thus, consciously acknowledging the importance of the  relative technological complexities of both sourcing and receiving countries permits one to assess the transportability of a technology.  In most cases, a qualitative determination suffices; the difference in technological  complexities is too great to successfully transfer technology, or  the complexities are of a comparable level, or the penalties of the difference can (or cannot) be absorbed at a moderate cost.

An assessment tool

Sometimes, however, an objective method of assessing the relative levels of technological complexity between the technology-source and the technology-recipient countries is called for.  One way of doing this  is to take a poll o experts and analyse its findings using the Delphi Principle.

The method suggested here is analogous to, and derived from the points system method.  It is a simple way of looking  at technological complexity to support decision making for technology transfer.

Such as analysis is easier, and the results are clearer, when evaluating a technology entering a particular industry.  Here, however, it is the economic industrial technological complexity of the two countries that are being compared.

The basic methodology comprises the following steps :

• List the external features needed to support the successful operation of the technology in the source country (country A).

• For the country that will receive the technology (country (B), give a rating of 100 to each feature.  If the feature is absent, give a score of zero.

• Rate  each feature in country A.  The score will generally, but not always, be higher than 100.  For instance,  if the quality of telecommunications was the feature being assessed and its score was 100 for country B, it could well be that the score for that feature in country A would be 400.  Likewise,  for transportation flexibility, the scores could be 100 (for country B) and 250 (for country A).  On the other hand, in terms of accessibility to unskilled labour, the score for country A might be 20 compared to 100 for country B and perhaps zero for access to certain raw materials.  When the country B score is zero,   prorate the country A score looking at the scores you have given to other features of country A.

• Total the points for each transacting country

• Set the technology complexity  factor 100 for the country acting as the technology source (country A).

• Obtain the proportional comparative factor of technology complexity for the country receiving the technology (it will generally be below 100).

• Assess the impact  of this factor on the transportability of the technology between the two countries.

The important external features that can affect the performance of a technology may be listed as follows :

Industrial system

• Degree of industrialization, i.e. number of industries, by type, in the country

• Degree of horizontal and vertical integration

• Geographic dispersion/concentration of industries

• Interdependence of products and services and the degree of networking of products and services

Technology system

• Intensity of replacement of labour of various skill levels by machines, automation and computerization

• Complexity and depth of the technology information system

Status of intellectual property rights

• Knowhow

• Patents

• Trade marks and designs

• Copyright protection (for software, etc)

Marketing system

• Size of markets

• Complexity of product mix

• Degree of competitiveness within industries

• Competition from imported products and services

• Technology of the distribution system

• Technical servicing capabilities

• Manpower system

• Availability of unskilled and skilled labour

• Availability and cadres of supervisory and managerial personnel

Institutional structures

• Technical schools

• University and corporate R&D centers

• Design and engineering firms

• Construction and erection forms

• Product and technology consultancy organizations

• Role of national government in institutional structures

Infrastructure

• Accessibility of raw materials and utilities

• Transport systems

• Telecommunications

Annex

BASIS OF CALCULATING EQUIVALENT TECHNOLOGY COST

Using the concept of present value, it is possible to reduce various expressions of time-related technology fees to a common, comparative basis.  Each future payment is reduced to its present value by discounting it at a discounting rate, which may vary between countries.  That is, at a 10 per cent discount rate, $1.00 received a year from now is equal to $0.9091 today (its present value)

Where a comparison being made between technologies relative to their respective ascendancy, the application of a 10 per cent will not  unduly distort results.

The UNIDO publication  “Guidelines for the Evaluation of Transfer of Technology Agreements,” DTT series, No. 12 (1979), provides more background to this methodology, which may be used to reduce to comparative figures.  The technology costs in table 1 (A, 0.90; B.1.69; C,2.52; D,1.00; and E,3.63).

Technology cost