TRAINING PROGRAMME ON
TECHNOLOGY DIPLOMACY
JAIPUR
11 – 15 July 2011
TECHNOLOGY SOURCING
AND ASSESSMENT
BY
Dr. Vinay Kumar
Former Advisor/Scientist G,
Ministry of Science and Technology
12 July 2011
MAJOR ISSUES CONCERNING
INDUSTRY

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Shorter life cycles of technology
Intense national and international
competition
Global markets
Quality, cost, delivery, after-sales
service, international standards
Intellectual property rights
High risks in investment
MAJOR ISSUES CONCERNING
INDUSTRY (Contd.)

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

Shorter time between innovation and
commercialization
Research and development important
Energy efficient technologies
Environment friendly technologies
Information and communication networks
Socio-economic and socio-political factors
Movement of capital across national
boundaries
SCIENCE AND TECHNOLOGY
DIPLOMACY
It refers to provision of science
and technology advice to
multilateral negotiations and the
implementation of the results of
such negotiations at the national
level. It thus covers activities both
at the national and international
levels pursuant to international
commitments.
WHY SCIENCE AND TECHNOLOGY
IMPORTANT IN INTERNATIONAL
RELATIONS?



Emerging issues – infectious diseases,
environmental concerns, ICT,
Biotechnology, use of electronics in
crimes..
International trade in commodity and
technology
International standard setting in the
field of health, safety and environment
WHY SCIENCE AND TECHNOLOGY
IMPORTANT IN INTERNATIONAL
RELATIONS? – Contd.



International cooperation in
manufacturing and Research and
Development
Foreign Direct Investments
Intellectual Property Rights Issues
Receipts (R) and Payments (P) of Royalty and Licence Fee in US $ million
(Source World Bank –World Development Indicators 2008 and various
Issues)
Coun
try
2002
R
2002
P
2003
R
2003
P
2004
R
2004
P
2005
R
2005
P
2006
R
2006
P
USA
44,142
19,258
48,227
0,049
52,643
23,901
57,410
24,501
62,378
26,433
JAPA
N
10,422
11,021
12,271
1,003
15,701
13,644
17,655
14,653
20,096
15,500
7,701
5,993
10,245
7,382
12,019
8,368
13,303
9,069
13,588
9,962
China
133
3,114
107
548
236
4,497
157
4,398
205
6,634
India
12
350
29
356
25
421
25
421
112
949
UK
Licensing Receipts and payments for
Japan1950-1974 (in million US $)
Source: 1950-1970- Lyn (1985)-Contractor 1981
Year
Receipts
Payments
Balance
1950
0.0
2.6
-2.6
Receipts/
Payments
(%)
-
1955
0.2
20.0
-18.2
1
1960
2.3
94.9
-92.6
2
1965
17.0
166.0
-149.0
10
1970
59.0
433.0
-374.0
14
1975
161.0
712.0
-551.0
23
Number of technology licensing
agreements in Japan (1981-2001)
Source: Japanese Statistics Bureau 2004
Year
Out-Licensing
In-Licensing
Balance
Outlicensing/Inlicensing (%)
1981
4103
7248
-3145
57
1983
4738
6936
-2198
68
1985
5426
7316
-1890
74
1987
5469
7494
-2025
73
1989
6532
8356
-2004
76
1991
7163
8249
-1086
87
1993
8201
8126
75
101
1995
9099
7618
1481
119
1997
13194
7659
5535
172
1999
9517
6687
2830
142
2001
15067
6445
8622
234
CHANGING PARADIGM IN R&D


NOTHING IT IS SAID, IS CERTAIN EXCEPT
DEATH AND TAXES – YET ANOTHER
INESCABABLE CERTAINITY IS CHANGE
Market and buyers driven – organizations can
get more out of their research by linking it
more closely to market need and customers
requirements rather than increased spending
elsewhere
R&D on ‘business like’ footing
Changing paradigm in R&D (Contd.)


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
Time and cost of R&D is important
Expectations from R&D increased
manifold
R&D is getting increasingly more multidisciplinary in nature
Team orientation
Creativity and innovativeness of
considerable significance
Changing paradigm in R&D (Contd.)


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Managerial skills in R&D personnel
increasingly required
Borderless laboratories
Intellectual property rights issues
Changing from a strategy of ‘hope’ to a
strategy of a more ‘systematic,
disciplined and accountable’ R&D
Changing paradigm in R&D (contd.)


Impact of Information and
Communication Technologies. These are
impacting R&D management systems
and practices in numerous ways,
creating new threats and opportunities.
Increased expectations of Head of the
Institution
Changing paradigm in R&D (Contd.)



Success now requires strong competitive
advantage in the form of innovation, quality,
agility, and or productivity – cost leadership
alone is not sufficient
Measurement of performance is being
emphasized for every organizational activity.
Individuals are required to add value at every
level.
Demographic shifts in customer and
employee base has directly or indirectly
influencing the way managers think and act.
OPTIONS FOR TECHNOLOGY




Acquisition
In-house development
To get developed
Joint development
Acquisition preferred where

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

Too expensive/ too long to develop or
get developed
New technology on attractive terms
Customers preferences
Many technology gaps
In-house development
preferred where

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In-house capability exists
Time and cost effective
Technology not available from outside
sources
High cost of technology acquisition
TECHNOLOGY SUPPLIERS AND
TECHNOLOGY RECEIVERS
-A FEW EXAMPLES
A manufacturing or
service Unit
 An R&D
Organisation
 A Technical
Institute/University
 A Consultant
TECHNOLOGY
SUPPLIER

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A manufacturing or
service Unit
An R&D
Organisation
A Technical
Institute/University
A Consultant
TECHNOLOGY
RECEIVER
TECHNOLOGY SOURCING

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Exhibitions and Conferences
International Organizations
Industry/Technical Journals
Directories
Industry Associations
Government Sources
Patent Literature
TECHNOLOGY SOURCING
(Contd.)

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International Agreements
Foreign Embassies/ High Commissions
in India
Data banks/ bases
Experts and consultants
Informal meets
Indian Embassies/High Commissions
Assessment of technology
supplier/partner

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Manufacturer/R&D organization/Technical
institute
Market share – National and international
Financial health
R&D set up
Ownership of technology
Authority to transfer
Reputation amongst other technology
acquirers
Assessment of Technology

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Suitability to locally available raw
materials
Skill levels required
Stage in Technology life cycle
Input-output ratios
Laboratory scale, pilot plant or
commercially proven
Safety considerations
Assessment of Technology
(Contd.)

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Environmental aspects
Status of IPR, Trade Marks etc.
National Policy Issues
Quantitative Approach
Capacity building for identification
of technology sources

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Awareness of new technologies
Identification of technology needs
Evaluation of technology and
technology supplier/ partner
Net working
International Agreements
Advantages of new
technologies
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High financial returns
Can stay longer in market
Name recognition
First mover advantage
Enhanced value for customers
Leveraging organization's capabilities
---
Disadvantages of new
technologies

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May not be commercially proven
Normally not market tested
Risks of failure and commercial returns
Safety risks in operation
IPR related risks
Competitors may bring better products after
watching the performance of new technology
----
TECHNOLOGY ACQUISITION
TECHNOLOGY PACKAGE

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
Specifications of the product/output
List of components/parts
Details of each component/part
Details of assemblies and subassemblies
Operation process parameters
Quality parameters
TECHNOLOGY PACKAGE –
Contd.



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
List of purchased items
Details of Plant and Machinery
Plant Layout
Plant Maintenance Guidelines
Safety Precautions
---
Technology Acquisition
Process – Complexities






Technology package has many
components
Not like buying equipment or raw
materials or components
Technology has cost and prices
Generally no price list
Long term relationship
Technology absorption
Technology acquisition Process
– Contd.
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
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Technology Assessment and Evaluation
Negotiations
Agreement
Implementation
Technology is very dynamic
Intellectual Property Rights Issues
MODES OF TECHNOLOGY
ACQUISITION
INFORMAL
 General
 Hiring of Engineers
 Reverse Engineering
FORMAL

Licensing

Outright purchase

Joint Ventures

Turnkey Projects

Acquisition of the company

Training and Experts

Consultants

Purchase of equipment with
embodied technology
Price variance – technology
life cycle
STAGE
PRICE
Development
Low
RISK IN
OPERATION
High
Ascent
High
Medium
Maturity
High
Low
Decline
Low
Low
Price variance – technology
status
STATUS
PRICE
RISK IN
OPERATION
Laboratory
scale
Low
High
Pilot plant
Medium
Medium
Commercial
scale
High
Low
FACTORS FOR SUCCESSFUL
ACQUISITION OF TECHNOLOGY


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

Good Agreement and Documentation
Mutual Trust
Competence of Technology Supplier
Competence of Technology Acquirer
Training
Mutual Interest
FACTORS FOR SUCCESSFUL
ACQUISITION OF TECHNOLOGY – Contd.




Planning
Appropriate channel
-----
WHAT IS A GOOD
AGREEMENT




Should be comprehensive in point of
substance and content
Should be written in simple language
with short sentences
Ambiguity and multiple interpretations
to be avoided
Should be in conformity with law
WHAT IS A GOOD
AGREEMENT (Contd.)


Should avoid disputes
In case disputes arise, should provide
for a satisfactory settlement mechanism
Important clauses in Technology
Transfer Agreements

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Definitions
Coverage
Territory and Exclusivity
Scope of documentation
Language
Training
Terms of Payment
Currency of Payment
Important clauses in technology
transfer agreements (Contd.)

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Schedules
Delay in payments
Taxation
Confidentiality
Guarantees
Language
Third party IPR infringement
Governing Law
Dispute settlement mechanism
Important clauses in technology
transfer agreements (Contd.)

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Price escalation
Improvements
Environmental, Safety and other harmful
effects
Sub-contracting
Mergers
Expiry and renewal
Status after expiry
Force Majeure
ARBITRATION CLAUSE An example
ICA Arbitration clause :“Any disputes or
differences whatsoever arising between the
parties out of or relating to the construction,
meaning and operation or effect of this contract
or the breach thereof shall be settled by
arbitration in accordance with the Rules of
Arbitration of the Indian Council of Arbitration
and the award made therein shall be binding on
the parties.”
Arbitration Clause (Contd.)


Alternative Clause : Any dispute and
differences whatsoever arising under or in
connection with the contract will be settled by
arbitration in accordance with the Rules of
Arbitration of UNCITRAL/The Rules of
Conciliation and arbitration of the
International Chamber of Commerce (ICC) –
(to be retained whichever is agreed to and
delete the other)
UNCITRAL – United Nations Commission on
International Trade Law
Arbitration Clause (Contd.)


The venue of arbitration will be in India and
arbitration proceedings will be administered
by the Indian Council of Arbitration (ICA).
The applicable law to the contract will be laws
of India or such other as may be agreed to.”
Arbitration and Conciliation Act 1996 (Based
on UNCITRAL Model Law of Arbitration)
OFFER FOR TECHNOLOGY
AN EXAMPLE



Technology : Manufacture of Xylitol from
bagasse
Process: Bagasse hydrolysis – purification –
hydrogenation – concentration –
crystallization – drying – packaging
Areas of application
- Food industry as sweetener
- Pharmaceutical industry
-Light industry: as raw material
OFFER FOR TECHNOLOGY (Contd.)

Advantages
-Safe and flexible process line
-Simple operation
- Low investment
-Clean production
-Effluent can be easily treated
- Waste can be utilized
-Discharge as per international
standards
Offer for Technology (Contd.)






Payback period : 5-6 years
Stage of development: Commercialised
Infrastructure required : Land…,
Building…, Water…, Power…
Manpower required : …
Production Capacity ….
Byproducts ….
Offer for technology (Contd.)


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Main raw materials required ….
Economic date : Project cost…, Working
capital requirement…, ……, IRR…
Content of technology package …
Export possibilities ….
Technical document language ….
Technology supplier’ profile…
Contact ….
Technology pricing- a case




Zeolite ‘A’ – A by-product from
Aluminum industry used in detergents
industry
Technology developed by a laboratory
in 1990
Technology licensed to two small units
in 1991
Price charged Rs. 0.2 million per license
Technology pricing – a case
(Contd.)



After a year, one unit returned the
technology, the other could not make any
significant progress
During 1993-95, a consultancy firm, up scaled
design and engineering from laboratory scale
plant
In 1996, technology licensed to a large
aluminum manufacturing unit (10,000TPA
Capacity) for a license fee of Rs. 13.5 million
Causes of disputes in
Technology transfer

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Different interpretations of a clause
Any one party unable to operate any part of
the agreement for any reason
Bad drafting of the agreement
Change of ownership
Change in business interests
Force majeure reasons
Delay in project implementation/technology
getting obsolete
Causes of disputes in
Technology transfer (Contd.)
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Lack of mutual trust
Low technology capability of the receiver
Non adherence to specified time schedules
Non achievement of specified quality/outputs
Delayed payments
Unproven/untested technology
Exclusivity/non exclusivity
Incomplete documentation
SALIENT FEATURES OF POLICY FOR
FDI/TECHNIOLOGY IMPORTS
AUTOMATIC APPROVAL:
- FDI up to 100% allowed in all
activities/sectors except in the following:
(a)
Activities/items that require an Industrial
License
(b)
Proposals in which the foreign collaborator
has a previous/existing venture/tie up in
India in the same field (Press Notes 1 and 3
of 2005 Series refer)

Technology Import - Contd.
(c) Proposals relating to acquisition of shares in
an existing Indian company in the financial
services sector and where SEBI regulations
are attracted
(d) Proposals falling outside notified sectoral
policy/caps or under sectors in which FDI is
not permitted
(e)Lump sum payments not exceeding US $ 2
million
Technology Import - Contd.
Royalty not exceeding 5% for domestic
sales and 8% for exports, there is no
restriction on the duration of royalty
payment
Proposal does not attract compulsory
licensing
Item of manufacture is not reserved for
the small sector
Technology Import - Contd,


NON AUTOMATIC ROUTE- All cases
which do not fall under Automatic Route
For details refer ‘INVESTINGIN INDIA’
http://www.dipp.nic.in
SECTORAL FDI LIMITS
(As on 12.2.09)

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74% in Private Sector Banks
20% in FM Radio
49% in DTH television
26% in TV News channels
26% in newspapers and current affairs
periodicals
SECTORAL FDI LIMITS
(As on 12.2.2009)



74% in Telecom
74% in ISPs with gateways
26% in Defence production
CASE STUDY
Discussions in the Sessions
VISION
Vision statements should be designed
to be vivid, memorable, inspiring,
meaningful, and brief….It is the part
that gives direction, helps focus effort
and stays etched in one’s mind.
A FEW VISION STATEMENTS



ITC : A commitment beyond the market
Dr. Reddy’s Lab : To transform themselves
from change followers to change leaders
DRDO : DRDO will get transformed into a
technological leader of world class with
corporate structure and with a mission of
making the nation independent of foreign
technology in critical spheres
A FEW VISION STATEMENTS –
Contd.

CSIR - To provide scientific and
industrial R&D that maximizes the
economic, environmental and societal
benefits for the people of India (Mission
statement)
A FEW VISION STATEMENTS
(Contd.)


NTPC VISION: A world class integrated
power major, powering India’s growth, with
increasing global presence
MISSION: Develop and provide reliable
power, related products and services,
integrating multiple energy sources with
innovative and eco-friendly technologies and
contribute to society
A FEW VISION STATEMENTS
(Contd.)







NTPC CORE VALUES
Business Ethics
Customer Focus
Organizational & Professional Pride
Mutual respect and Trust
Innovation and speed
Total quality for excellence
A FEW VISION STATEMENTS(Contd.)

IIT Delhi : To contribute to India and
the world through excellence in
scientific and technical education and
research;to serve as a valuable resource
for industrial and social; and to remain
a source of pride for all Indians
A FEW VISION STATEMENTS(Contd.)




Merck : To preserve and improve
human life
Walt Disney : To make people happy
Walmart : To give ordinary folk the
chance to buy same things as rich
people
Stanford (1940s) : Become the Harvard
of the West
SIMULATION EXERCISE ON
TECHNOLOGY ACQUISITION
TECHNOLOGY ASSESSMENT
-A FEW PARAMETERS


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


SAFETY
STAGE IN TLC
CLEANING CAPACITY
WATER REQUIREMENT
POWER REQUIREMENT
TIME REQUIRED FOR CLEANING
DETERGENT BIODEGRADEABLE, SCALE
DEPOSIT,PHYSICAL ABRASION …
TECHNOLOGY ASSESSMENT
-Contd.



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
ENVIRONMENTAL IMPACT
ITEMS UNSUITABLE FOR DISHWASHER
IPR ISSUES
…
….
ESTIMATION OF PRICE

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


SALES REVENUE OF TECHNOLOGY
ACQUIRER IN 5 YEARS= Rs. 400 crores
EXPENDITURE OF TECHNOLOGY ACQUIRER
IN 5 YEARS = Rs. 300 crores.
IF ROYLTY RATE IS 8% ON SALES, COST OF
TECHNOLOGY = Rs. 32 crores.
AMOUNT AVAILABLE TO TECHNOLOGY
ACQUIRER = 400-(300+32)=Rs. 68 crores
IN % TERMS = 68/400 x100=17%
ESTIMATION OF PRICE –
CONTD.




AMOUNT RECEIVED BY TECHNOLOGY
SUPPLIER = Rs. 32 crores
EXPENDITURE AND LOSS ON ACCOUNT OF
NON SALE = Rs. 5 crores
NET AMOUNT GAINED BY TECHNOLOGY
SUPPLIER = 32-5=Rs. 27 crores
AMOUNT GAINED AS A % OF SALES=27/400
x100 = 6.75%
ESTIMATION OF PRICE –
CONTD.
Royalty rate
%
Gain of tech.
acquirer
(Rs. Crores)
Gain of tech.
Acquirer
(%)
Gain of tech.
Supplier
(Rs. Crores)
Gain of tech.
Supplier
(%)
8
68
17
27
6.75
5
80
20
15
3.75
3
88
22
7
1.75
THANK YOU