TECHNOLOGY
AND
EXPORT COMPETITIVENESS
Society for the Advancement of
Technology Management in the Philippines
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TECHNOLOGY
AND
EXPORT COMPETITIVENESS
Society for the Advancement
of Technology Management in the Philippines
1999
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Society for the Advancement of
Technology Management in the
Philippines
Rm. 249 School of Economics
U.P. Diliman, Quezon City, Philippines 1101
Tel. Nos. (632) 435-6316 • 927-9686 loc. 249
Telefax (632) 435-6313
Website: www.satmp.org
O
rganized in October 1996, the Society for the
Advancement of Technology Management
in the Philippines (SATMP) is a tripartite
alliance of leaders in the government, industry,
academe, who are committed to accelerating the
technological development of the nation. In pursuit of
this goal, SATMP shall:
Philippine Exporters
Confederation, Inc.
•
Act as an information resource center on
new technologies, products and processess;
International Trade Center
Roxas Boulevard, Pasay City, Metro Manila
Tel. Nos. (632) 831-2033 • 0912-3504591
Fax No. (632) 831-2101
•
Advocate policies that give priority to the
development of human resource, science
and technology;
•
Support
the
commercialization
of
indigenous
technologies
and
local
adaptation of imported technologies;
•
Initiate research cooperative ventures with
the industry, goverment and academe as
partners;
•
Sponsor national and local forum to
promote technology management; and
•
Link with various local and international
science and technology organizations.
United States Agency for
International Development
Ramon Magsaysay Center
1680 Roxas Boulevard
Metro Manila, Philippines
Tel. No. (632) 522-4411
Fax No. (632) 522-2512
Published by the Society for the Advancement of
Technology Management in the Philippines with the
support of the Philippine Exporters Confederation,
Inc. through its Trade and Investment Policy
Analysis and Advocacy Support Project with the
United States Agency for International
Development
The present membership of SATMP comprises of
more than 100 individuals and 18 institutions,
affiliated to industry, academe, and government.
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TABLE OF CONTENTS
Preface .................................................................................................................................
ii
About the Authors .............................................................................................................
v
Overview of the Policy Forum on
Managing Technology for Export Competitiveness
Magdaleno B. Albarracin, Jr.,..............................................................................................
1
Technology Management for Export Competitiveness:
How About Knowledge-Based Products?
Leandro B. Verceles, Jr. .......................................................................................................
3
Technology Management for Exporters
Meneleo J. Carlos, Jr............................................................................................................
7
Highlights of the Technology and Exports Open Forum ...................................... 20
Technology Management and Export Competitiveness:
Lessons from Korea and Taiwan
Roger Posadas ...................................................................................................................... 22
Highlights of the Technology and Governance Open Forum .............................. 44
Securing Global Competitiveness through
Accelerated Quality Improvement
Nestor O. Rañeses................................................................................................................. 46
Highlights of the Product Quality Open Forum..................................................... 65
Some Proposals Towards Improving Efficiencies
in Technology Transfer and Adaptation Process in the Philippines
Serafin D. Talisayon ............................................................................................................. 67
Highlights of the Technology Transfer and Adaptation Open Forum ............. 79
TRIPS Y2K: Managing Intellectual Property Rights
in the Third Millennium
Ma. Rowena R. Gonzales...................................................................................................... 82
Refocusing IPR Regimes in Developing Countries: An Overview
Adelardo C. Ables and Ma. Felisa Batacan ......................................................................... 93
Highlights of the IPR Open Forum ………………………………………………. 108
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Preface
A
major factor that accounts for the success of developed countries and the Asian Tiger
economies is an effective management of science and technology in tandem with sound
fiscal, monetary and competition policies. In the case of post-war Japan, a national innovation
system that undertakes technology assessment, selection and forecasts, reverse engineering and
incremental innovations, was instrumental in attaining long-term goals of improving quality in
products and processes. The government nurtured corporations to achieve competitive advantage
through incentives, financial and technical support, and worldwide marketing intelligence
services. Korea, for her part, laid a wager on large, diversified and hierarchical chaebols,
sheltered by a strong and interventionist state. Taiwan’s strategy was to develop small and
medium enterprises (SMEs) so that the major manufacturers can rely on them for parts and
intermediate inputs.
A common feature of the development strategies in these countries is the high priority given to
R&D by both private and government sectors, with the former determining the market focus and
the latter providing stimuli by means of incentives and infrastructure. Competitive intelligence
was used as a tool to develop products, processes and markets. The educational systems were
geared towards providing the scientists, engineers and technical manpower required by the
expanding industries. The investments in technology, i.e., accumulation of hardware (machinery
and equipment) and software (methods, processes, systems, etc.), resulted in significant
improvements in labor productivity and product quality. These developments helped define
niches, expanded markets and, in turn, provided feedback mechanisms for further improvements
and innovations.
Against this background, the Policy Forum on Managing Technology for Export Competitiveness
explores the development challenges and options for the Philippine government and business.
The imperatives are made more critical in the face of tightening competition in the global market
and increasing pressure from various multilateral agencies for developing countries to open their
protected markets.
This compendium contains papers presented during the Policy Forum, held on the 3rd June 1999
in Makati City, Philippines, and organized by the Society for the Advancement of Technology
Management in the Philippines (SATMP) and the Philippine Exporters’ Confederation
(PhilExport), through the support of the United States Agency for International Development
(USAID). There were five main papers presented: Technology Management for Exporters by
Meneleo J. Carlos Jr.; Technology Management and Export Competitiveness: Lessons from
Korea and Taiwan by Roger Posadas; Securing Global Competitiveness through Accelerated
Quality Improvement by Nestor O. Raneses; Some Proposals towards Improving Efficiencies in
Technology Transfer and Adaptation Process in the Philippines by Serafin D. Talisayon; and
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TRIPS Y2K: Managing Intellectual Property Rights in the Third Millennium by Ma. Rowena R.
Gonzales.
The compendium also includes the Conference Overview presented by SATMP Chairman
Magdaleno B. Albarracin Jr., and the Keynote Address delivered by Congressman Leandro B.
Verceles Jr., Vice-Chairman of the Committee on Science and Technology of the House of
Representatives.
Albarracin notes that the rigors of global competition are forcing local
industries to face new market challenges which include: increasing rate of innovation, widening
application of new technologies, shorter life cycles, diminishing role for unskilled labor, and
constant changes in the organization of production. Critical to a firm’s survival in the global
market is its ability to manage technology. Verceles suggests that the government consider
shifting its promotion from resource-based goods to knowledge-based services. He points out
that the country has the resources that can be honed to develop comparative advantage in ITbased goods and services. But domestic technological activity in this area is sparse, hence the
need for the government to stimulate it.
In his exposition, Carlos discusses the rapid changes in consumer demand and how technology
can be made to respond to these changes. He highlights the importance of managing technology
as an economic resource, of promoting a technology-oriented culture in the country, and of
adapting technology to the demands of the consumer. Carlos notes that successful companies are
those adept at selecting technology and not necessarily those that create them; and that time-tomarket factor is critical to competitiveness. He calls on the private sector to invest more in R&D,
and for the State to open government laboratories for collaborative research.
Posadas reviews the development experiences of Korea and Taiwan from where he culls some
lessons on technology management that may be relevant to the Philippines. He elucidates on the
major features of the export-led development strategies that transformed these countries into
economic tigers. He places importance on the close linkages forged between the government,
industry and academe, as he claims that such linkages facilitated the growth of industrial clusters
— instrumental to the rapid industrial development of these two economies.
Talisayon tackles the issue of technology transfer from what he calls a “market” instead of a
public policy perspective. He focuses on the motivations of technology buyers and the options
available to them so they can obtain the technology they need at the most efficient manner. He
notes the basic problem is that many local inventors produce technologies that do not address
market demand or the requirements of technology users. Hence the challenge is to bridge the gap
between what the market needs and what local technology producers generate. Towards this end,
he proposes: (a) the establishment of a technology market or clearinghouse; (b) the enactment of
legislation on business incubators; and (c) local adaptation of the Swedish Inventschool Model.
Raneses’ paper on product quality stresses the importance of developing local standards that are
aligned to global standards. He examines the strategic options for improving product quality:
superior product and package designs, world class manufacturing technologies and services,
including cycle time and delivery performances, total quality management, alignment to world
class product and quality system standards, benchmarking of best practices, and improvement and
acquisition of new technology. But there are institutional barriers to improving product quality.
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To address these concerns, he recommends: (a) obtaining international accreditation of testing
laboratories through ISO, IEC, and other foreign accreditation standards; (b) proliferating “best
practices” to exporters; (c) “incentivizing” the cost of getting new technology; (d) removing
protectionism and exposing mature industries to competition; and (e) setting up a clearinghouse
of standards for manufacturers.
On the issue of Intellectual Property Rights (IPR), Gonzales raises alarm on the lack of
preparedness of the country for the 1 January 2000 deadline when the Philippines has to abide by
the WTO agreement on the protection of IPR. She forewarns local users of foreign creations on
possible legal complaints from foreign holders of IPR and the forthcoming US Super 301 Review
early next year. At the same time, she urges the government to undertake extensive information
campaign on the possible impact of the IPR agreement to local users.
In a rejoinder paper, Refocusing IPR Regimes in Developing Countries, Adelardo Ables and Ma.
Felisa Batacan relate the issues of reforming IPR regimes with concerns to generate investments
and trade. They stress that as the country strives to comply with international treaties and
agreements on IPR protection, it should, at the same time, ensure that adequate protection is
accorded to locally produced intellectual property. They also point out a number of institutional
problems that hamper the enforcement of IPR in the country.
Indeed there are critical institutional problems that have to be addressed so that the private sector
can better utilize technology to attain market competitiveness. However, as the contributions in
this compendium clarify, much of the work has to be done by the private sector. But given their
limited resources, there is a need for greater collaboration with the government and academe to
draw in more resources and help them overcome the technological constraints that weaken their
competitive position.
SATMP and PhilExport believe that bringing together various sectors in a forum to discuss issues
and exchange views on possible approaches to solve the problem, is a step in this direction.
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ABOUT THE AUTHORS
Magdaleno B. Albarracin, Jr., D.B.A. is the President of the Philippine Investment
Management Consultants, Inc. (PHINMA), Chairman of United Pulp and Paper Co. (UPPC). He
is also the current Chairman of the Society for the Advancement of Technology Management in
the Philippines (SATMP).
Leandro B. Verceles, Jr. is the Representative for the lone district of Catanduanes, and acts as
Vice-Chairman of the House of Representatives, Committee on Science and Technology. He is
the current Vice-Chairman of the Society for the Advancement of Technology Management in
the Philippines (SATMP).
Meneleo J. Carlos, Jr. is a leading Philippine industrialist and President of Resins Inc. He has
chaired or served as a member of several government advisory councils on power and energy
affairs, science and technology and industrial development.
Roger Posadas, Ph.D. is the current Secretary of the Society for the Advancement of
Technology Management in the Philippines (SATMP). He was formerly Chancellor of the
University of the Philippines and Dean of the UP College of Science. He is the Deputy Academic
Director of the Systems Technology Institute (STI), and President of the Technology
Management Foundation, Inc.
Nestor O. Rañeses is a professorial lecturer on Industrial Engineering and Operations research at
the UP College of Engineering and the Executive Director for Test Operations for American
Microsystems Philippines, Inc. He is an Affiliate Faculty on Total Quality Management,
Technology Management Center, U.P. Diliman.
Serafin D. Talisayon, Ph.D. is a professor in the Philippine Studies Program of the Asian
Center of the University of the Philippines. He is the President of Digital Synapse Products, Inc.,
and Executive Director, HB&A International, Inc. He was formerly Assistant Director General of
the National Security Council.
Ma. Rowena Gonzales is a Senior Researcher at the Institute of International Legal Studies,
University of the Philippines Law Center. She is one of the Philippines’ leading authorities on the
subject of intellectual property rights, and has acted as editor for the World Bulletin’s JanuaryJune 1996 and May-August 1997 issues regarding IPR matters.
Adelardo C. Ables is the Chief Economist of the Economic Intelligence and Investigation
Bureau under the Department of Finance, and a member of the recently-formed Philippine
Chapter of the Association of Certified Fraud Examiners based in Austin, Texas, USA. He is a
member of the Secretariat of the Society for the Advancement of Technology Management in the
Philippines (SATMP).
Ma. Felisa H. Batacan is a policy researcher for the Economic Intelligence and Investigation
Bureau under the Department of Finance. She was a former investigative journalist for ABSCBN’s ‘Assignment’ and won the grand prize for the English novel in the 1999 Palanca
Memorial Awards for Literature.
O
w ooff
Ovveerrvviieew
The Policy Forum on
Managing Technology for
Export Competitiveness
Magdaleno B. Albarracin, Jr.
T
he Society for the Advancement of Technology Management in the Philippines
(SATMP), the Philippine Exporters Confederation (PhilExport) and the United States
Agency for International Development (USAID) are privileged to host the Policy Forum
on Managing Technology for Export Competitiveness.
This forum is a venue for ventilating ideas on how best to harness technology as a
strategic economic resource. It has well been recognized that the key resource in attaining
competitiveness in the global marketplace is technology. The rigors of competition are
compelling firms to faithfully commit to applications of new technology, to new ways of
managing production, and to new approaches to understanding the market.
Competitiveness ceases to be a function mainly of price. Quality, delivery time, services
and capacity to adapt rapidly to user needs have increasingly become crucial in capturing
markets. Indeed the link between cheap labor and export competitiveness has weakened.
Those who have been exposed to the rigors of global competition know too well that the
real market challenges come from the increasing rate of innovation, widening application of new
technologies, shorter life cyces, diminishing role for unskilled labor, and constant changes in the
organizational paradigm of production, among others. It is how well a firm adapts and responds
to these challenges that will determine its survival in the marketplace. To these daunting
challenges, the appropriate response is effective management of technology.
As most technology advocates, SATMP believes that it is high time for the Philippines to
strive to compete in more sophisticated industry segments, where value-added is generally higher,
but where also the productivity requirements are more rigorous. To succeed, however, we need
to create an economic environment that is open, flexible and conducive to innovation.
It is of course not the intention of this forum to develop a national technology
development paradigm, that would be a tall order requiring a series of consultations. Our goal is
relatively modest: to build a working base of strategies and policy proposals that can be brought
to the attention of decision- and policymakers.
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In developing such a base, we can debate on the approaches and strategies that best suit
our present condition. Surely, there is a wide range of development models to choose from.
Some may opt for incremental change in existing structure; others may choose radical
institutional and policy change. In the end, however, we need to draw up some consensus if only
for the public and private sectors to get their acts together.
The urgency of forming some consensus, at least in the direction that we want to take as a
nation, stems from the realization that many of our neighbors have long ago bypassed us in
technological development. New forms of technological cooperation are evolving even among
competing firms. New modalities of competitive cooperation are thus evolving. Process nicheing is becoming a byword of our neighbors and competitors, and yet, we have not even
developed roots in product niche-ing.
It is our firm belief that in the final analysis, global competition will favor those who
have learned to manage technology well. The likely survivors in the global marketplace are:
! Those who correctly recognize the needs of the market and develop product or process
technologies that address such needs;
! Those who can perform a proficient technology foresight or forecast and direct resources
to such technological path;
! Those who can devote resources to R&D and use them efficiently and effectively;
! Those who can conduct technology intelligence and have the information for faster
dissemination than their neighbors-competitors;
! Those who can build on and perform incremental innovations to existing products or
processes in order to exploit unrecognized demand and deliver products to the market before
obsolescence and competitors set in; and
! Those who can muster the resources of the state, industry and academe in a symbiotic
resource cooperation.
This forum brings together leading technology advocates, industry leaders and key
government personalities. Cognizant of the imperatives of global competition, the goal is to
identify key technological concerns that bear heavily on the capacity of local producers to
compete. We will attempt to identify these issues and to draw up a list of policy options to
address them. We hope that these could serve as inputs in rethinking policy directions and in
crafting new strategies.
2
Technology Management for
Export Competitiveness:
How About Knowledge-Based Products?
Keynote Address
Leandro B. Verceles, Jr.
I
am honored to be part of this select group of some of the best minds and key movers of the
country in business, government and the academe.
This forum is a recognition of the growing impact of technology and the imperative
of exploiting it to promote the national development agenda.
The increasing influence of technology in our export markets cannot be ignored, and this
is why our efforts to formulate a technology management framework is laudable and deserves
fullest consideration .
You may have observed that presently, technology management in relation to trade does
not figure too prominently in our country’s development agenda. The Philippine Medium Term
Development Plan of the Estrada Administration, for instance, puts emphasis on agriculture as
key to promoting our country’s global competitiveness. There is merit to this. But let me go on.
Aside from this, pre-identified potential sources of incremental growth in exports, according to
the Philippine Export Development Plan from 1991 to 2001, are dominated by resource-based
products and industrial manufactures. To cite some figures, agricultural resource-based products
constitute about US$1.3 billion or 4.5% of the total US$29.5 billion Philippine Export Market.
Food-based agricultural products constitute another US$1.2 billion, or 4.3%, of our export
market.
In a country of 76 million people by the year 2000 with 40% of the national workforce in
the farms, it is but logical that our economic policies focus on agriculture- at least from the
standpoint of livelihood, employment and food security. After all, we cannot simply let our
people starve. But, whether due to inherent limitations, miscalculated policies, uncontrollable
world events, protectionist policies, or furies of nature, agriculture has not produced much
economic value-added, nor the value of our agriculture export products been stable.
Other resource-based products, while giving short and medium-term revenue to the
country, are slowly stripping the Filipino nation of its patrimony. Together with heavy industries,
we are left with the "environmental trash" in terms of soil erosion, deforestation, air and water
pollution and other wastes.
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Our local market is also small, not enough to maintain economies of scale needed for
successful world class industrial ventures. In fact, to rely on the export market may be a daunting
challenge considering the enormous costs of shipping industrial goods to the bigger markets
abroad. This simply does not make Filipino products very competitive abroad. Our problems
could be exacerbated upon the implementation of the GATT-WTO agreements. Do we have the
competitive niches to survive in the new economy?
I believe we need to undergo a reality check, reexamine our strengths and weaknesses as
a nation, and if found imperative, change gears and consider a two-pronged strategy approach to
exports development -- one that is not solely agriculture or resource-based, but rather, one that is
also anchored on technology butressed by a strong knowledge-based services sector.
This shift in emphasis will rely on our gradually increasing comparative edge in
information technology, as contrasted with our basic dependence on agriculture, from which
Filipinos are still deriving low and unstable incomes; or in natural resources that are easily
depleted; or, moreover, in big industries that are highly capital-intensive.
Dr. Craig Barrett, Chief Executive of Intel, was right when he observed that "natural
resources and labor rates are no longer the only factors needed for a country to remain
competitive. One must have the knowledge that can be put to use to create new products."
A high value-added service economy, sustained by a strong information technology
program, will open new trade opportunities. And we have all the people we need to be tapped: 60
percent of our population working outside of the farms, the non-agricultural sector. Moreover, our
people have relatively good English skills that are required for I.T. work.
The demand abroad is staggering. Electronic commerce, or e-commerce, for instance, is
estimated to become an annual trillion dollar industry worldwide by the year 2003. In the AsiaPacific region alone, there will be a US $200 billion I.T. market per year. Relate this to our 1998
total export revenue of only US$29.5 billion, equivalent to 14.8 percent of the potential regional
I.T. market.
To pump-prime e-commerce, a potential export winner for the country, I recently filed
House Bill 7104, which serves as a counterpart measure of a similar bill filed in the Senate.
Clearly, this will be as challenging as the recent Y2K measure that we also authored, and which
was recently signed into law.
Tough issues on e-commerce will have to be resolved. There is the problem of
security of transactions, digital signatures, satisfaction of the notarial legal requirement
of personal presence before the notary of the affiant and witnesses under a state of own
volution and free will. How do you comply with this if you are transacting online and you do not
get to meet face to face with the affirming authority? And then there is the issue of admissibility
and weight of electronic evidence, and the probative value of electronic documents. Most likely,
we will have to reengineer our rules on evidence, our commercial laws, our laws on sales and the
notarial law, among others.
The forthcoming convergence of telecommunications, information technology and the
media in the world arena will also bring more opportunities as countries, by sheer necessity, will
now have to be more liberal with their municipal laws if they are to promote cross border
commerce. New international agreements like the GATT-WTO are also creating new trade
paradigms. Moreover, nation states are now merging into one global village that is rooted on
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ubiquitous electronic networks and driven by a new set of economic rules - the rules of a
connected world manifested by the Internet.
Indeed, the active participation by Filipinos in the future global economy would not be
far-fetched given a sound technology policy framework that encompasses a national agenda
toward developing a knowledge-based service export industry. We will have to create a regime
where the intellectual property rights of Filipinos as well as those of other countries in relation to
I.T. are truly respected and protected. This is needed if e-commerce is to thrive.
Bringing about this change, however, would require strong advocacy support, particularly
from the private sector. A recent study has shown, in fact, that while technology policies are
important, technological progress in East Asia must be led mostly by the private sector. David
Osborn and Ted Gaebler in their thesis Reinventing Government argue that the government
should only steer and let the private sector do the rowing in bringing about economic progress.
As a tripartite group, the Society for the Advancement of Technology Management in the
Philippines could very well take up this challenge to advocate a change in focus in trade and
export development to one that recognizes the huge potential of knowledge-based enterprises.
Various publications have also emphasized the importance of indigenous sources of
technological capability, which could initially start with simple innovations and graduate to
consequent masteries in research and design.
In the Philippines, semi-conductor and electronics offer some potential. In 1998, exports
of these products constitute US$19.8 billion, or 67 percent of the total value of Philippine
exports. But at present, there is only assembly activity in these sectors, with very limited
knowledge input.
For the medium-term, offshore sourcing of knowledge projects offers considerable
promise, such as Y2K or millennium bug remediation, web page design, computer graphics,
testing of hardware and software applications, and software programming.
In the long-term, Filipino industries can engage in software design and research.
Alongside these initiatives, however, our telecommunications and information infrastructure must
be improved. Without such facilities, our economy will surely fail in the new information
century.
The directions mentioned thus far would lack the necessary teeth if not backed up by
financial resources through allocations in the national budget. The shift to an export development
strategy must be reflected in the government’s budget for technology promotion and development
vis-a-vis other appropriation items .
In 1998, P931.1 million of the government budget was allocated to technological
research and development. This represents merely 0.3% of GNP that is far below the minimum
prescribed level of R&D expenditure by UNESCO. UNESCO prescribes 1.0% of GNP. In
comparison, industrialized countries are allocating as much as 3 to 5% of their GNP to scientific
research and development. The UNESCO minimum standard is meant for developing countries
like the Philippines, which is necessary to prevent stymied economic growth. Economist Robert
Shaw claims that technology has been responsible through the ages for 80% of economic growth.
5
This representation has filed a bill in Congress requiring the government to allocate a
minimum of two percent of the total GNP for scientific and technological research and
development. This will hopefully generate for R&D some P18.6 billion per annum. Even at 1% of
GNP, the minimum requirement under UNESCO, the allocation will increase to P9.3 billion- still
a respectable amount, not just for I.T. but for all of technologies.
With sound policy environment, necessary infrastructure, and technology management
efforts firmly in place, I believe we can elevate our knowledge-based industries, and information
technology most especially, to a higher level as a primary export development strategy for the
country.
6
Technology Management
and Export Competitiveness:
Lessons from Korea and Taiwan
Roger Posadas
The key ingredient to the success of Korea and Taiwan, but is missing in the Philippines
industrialization effort, is the conscious, competent, and concerted practice of technology
management by the national government and domestic firms. Most Philippine firms have
remained mere importers and users of foreign technologies. As a result, they have been trapped
in a vicious circle of technological laggardness and dependence that has stunted the
competitiveness and productivity of Philippine industries. The most important roles of the
government are to secure a stable and conducive macroeconomic environment for long-term
investments and to provide adequate educational, technological and infrastructural support to
industrial development.
D
uring the past decade there has been a tremendous global expansion of interest in
technology management among business executives, government leaders, and business
schools as shown by the recent mushrooming of graduate programs, books, and journals in this
new interdisciplinary field. In the Philippines, the institutionalization of technology management
was pioneered by the University of the Philippines at Diliman when it established the Technology
Management Center in 1995 and started offering the Diploma and Master’s Programs in
Technology Management in 1996, becoming only the second academic institution in Asia to do
so.
This recent explosive growth of interest in technology management is but a manifestation
of the increasing awareness among corporate and government leaders that competence in
technology management - that is, adeptness and agility in selecting, acquiring or generating,
exploiting, and mastering technology - is the key strategic factor in creating and sustaining
competitive advantages for a firm or nation.
Although the formal recognition of technology management as a distinct field of
management is a recent development, the practice of technology management at the firm and
national levels has long been pursued as far back as the Industrial Revolution. In Asia, the
Japanese used technology management competently and effectively in their successful drive
towards industrialization and technological catch-up. Following this Japanese model of
technology management, the Koreans and Taiwanese succeeded in industrializing their
7
economies, becoming export tigers, and narrowing their technological lags at a much faster pace
(within 25 years) than the Japanese.
In contrast, although the Philippines started its own industrialization efforts in the 1950s
ahead of Korea and Taiwan by at least a decade, it has not attained the status of a
newly industrialized country (NIC), much less that of an export tiger. What is worse is that
whereas 50 years ago the Philippines was ahead of Korea and Taiwan in all aspects of national
development, it is now behind these two NICs by at least 25 years in technological development.
So what was the ingredient or factor that was key to the success of Korea and Taiwan but
is missing in the Philippine industrialization effort? This ingredient, of course, is the conscious,
competent, and concerted practice of technology management by the national government and the
domestic firms.
Therefore, if the Philippine government and industries are really serious in attaining NIC
status and global export competitiveness, it is imperative that we study how the Koreans and
Taiwanese used technology successfully to become NICs and export tigers and derive lessons
from their experiences. It is towards this end that this paper is written.
There are some people, however, who believe that it is worthless studying the Korean,
Taiwanese, or Japanese models of industrialization and technology management because of the
recent Asian economic crisis that has plunged these countries into recession. Yet, what these
people neglect to point out is that these economic tigers’ current temporary economic problems
have been caused not by the failures of their technology management but rather by weaknesses in
financial management at the corporate and national levels, particularly the corruption and
collusion among government and corporate officials that masked serious corporate financial
problems.
Hence, this paper takes the position that the Korean and Taiwanese experiences in
technology management can offer us valuable lessons that can be useful in our national drive
towards industrialization and export competitiveness. In the next section, we explain what
technology management is about, then describe the main features of the export-led technological
learning and catch-up strategies that the Koreans and Taiwanese pursued to develop their
technological capabilities and export marketing skills simultaneously. The particular lessons in
technology management that can be drawn from Korea and Taiwan are then discussed. We finally
present a list of technology management recommendations that our country can adopt.
THE ELEMENTS OF TECHNOLOGY MANAGEMENT
Technology can be narrowly defined as "the engineering knowledge needed to create and
produce a new product or process." In a broader sense, technology management is "the means of
accomplishing a specific task". In Michael Porter’s value-chain model, a firm’s technology is
the way it performs its value-chain activities, as depicted in Figure 1 and Figure 2.
It is clear, therefore, that technology, broadly defined, pervades all activities of a firm.
Hence, a firm can create competitive advantages for itself - whether in terms of lower costs
through the use of better process technologies, or of distinct and better products through the use
of better product technologies - by making appropriate technological decisions for each valuechain activity as to the selection, sourcing, acquisition, generation, exploitation, assimilation,
improvement, or abandonment of technology. The integrated and consolidated set of
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technological decisions for all of the firm’s value-chain activities will constitute the firm’s
technology strategy.
We can now define technology management as the strategic formulation and operational
implementation of a technology strategy that informs, and conforms with, the firm’s competitive
strategy. In other words, technology management at the firm level involves the strategic and
operational management of the firm’s various technology-related functions and activities such as
technology audit, scanning, forecasting, selection, sourcing, acquisition or generation,
commercialization or licensing, absorption and adaptation, mastery, transfer, and abandonment.
FIRM INFRASTRUCTURE
RG
MA
HUMAN RESOURCE MANAGEMENT
SUPPORT
ACTIVITIES
IN
TECHNOLOGY DEVELOPMENT
PROCUREMENT
OPERATIONS
MARKETING
& SALES
SERVICE
IN
OUTBOUND
LOGISTICS
MA
RG
INBOUND
LOGISTICS
PRIMARY ACTIVITIES
Figure 1. Michael Porter’s Value-Chain Model of a Firm
F IR M
IN F R A S TR U C TU R E
Information System Technology
Planning and Budgeting Technology
Office Technology
H U M A N R ES O U R C ES
M A N A G EM EN T
RG
Software Development Tools
Information Systems Technology
IN
Product Technology
Computer-aided Design
Pilot Plant Technology
MA
TEC H N O LO G Y
D EV ELO P M EN T
Training Technology
Motivation Research
Information Systems Technology
Information System Technology
Communication System Technology
Transportation System Technology
P R O C U R EM EN T
Transportation
Technology
Basic Process
Technology
Material Handling
Technology
Materials Technology
Storage and Preservation
Technology
Communication System
Technology
Testing Technology
Information System
Technology
Transportation
Technology
Machine Tool
Technology
Material Handling
Technology
Media Technology
Audio & Video
Technology
Packaging Technology
Communication System
Technology
Material Handling
Technology
Communication System
Technology
Information System
Technology
Packaging Technology
Information System
Technology
Maintenance Methods
Diagnostic and
Tesing Technology
Communication
System
Technology
Information System
Technology
Testing Technology
Building Design /
Operation Technology
Information System
Technology
IN B O U N D O P E R A TIO N S O U TB O U N D M A R K ETIN G
LO G IS TIC S
LO G IS TIC S
& S A LES
9
S E R V IC E
Figure 2. Representative Technologies in a Firm’s Value Chain
Technology management can be pursued through an exogenous cycle from the
acquisition to the mastery of an externally-sourced technology, or through an endogenous cycle
from in-house research and development (R&D) to technology commercialization, or through a
judicious combination of these two approaches. A technology management framework for a firm
is shown in Figure 3.
If we define a firm’s competitiveness as its ability to get customers to choose its
product(s) or service(s) over competing alternatives on a sustainable basis, then it is obvious that
technology management is strategically important to competitiveness for it can improve the
firm’s product technology (i.e., the design of novel or better products), or its process technology
(i.e., the efficient production of products).
The first step in technology management is the technology audit of a firm or a nation,
which is essentially the assessment of the firm’s or nation’s technological status for each
technology in terms of two measures: (1) its level of technological sophistication (i.e., the
measure of its proximity to the technological frontier or state-of-the-art); and (2) its level of
technological capability (i.e., the extent of its technological mastery of that technology).
A firm’s level of technological capability is indicated by its position or rung in the
following technological ladder of capabilities.
1. Operative Capability - the ability to use or operationalize an externally acquired technology
efficiently and to carry out routine maintenance and minor repairs on the technology.
2. Adaptive Capability - the ability to adapt an externally acquired technology to local
conditions through a modification and/or localization of the technology’s scale, inputs, and
peripheral components.
3. Integrative Capability - the ability to select, procure, and integrate parts of a technology
system in order to reconstruct, without external assistance, a production or service facility on the
model of a previous externally acquired facility.
4. Replicative Capability - the ability to reproduce through reverse-engineering a local replica or
imitation of an externally acquired product, equipment, or process.
5. Innovative Capability - the ability to design and commercialize a significant but incremental
improvement or “upgrade” of an externally acquired product or process.
6. Creative Capability - the ability to create a radically new technology from endogenous
research and development (R&D) and to commercialize it into a novel product, process, or
service.
10
CORPORAT E
STRATE GY-MAKING
AND PL ANNING
T E CHNOLOGY
FORECAST ING
AND MAPPING
STRAT E GYT E CHNOLOGY
ANAL YSIS
AUDIT OF
INNOVAT ION
CAPABIL IT IES
E XT E RNAL
T E CHNOLOGY
SE ARCH
T E CHNOLOGY
PLANNING
IN-HOUSE OR
COOPE RAT IVE
RE SEARCH
E XT E RNAL
T E CHNOLOGY
SEL E CT ION
T E CHNOLOGY
ABANDONME NT
INVE NTION
AND
PAT E NT ING
EN D O G EN O U S
IN N O V A TIO N
CY CLE
EX O G EN O U S
IN N O V A TIO N
CY CLE
E XT E RNAL
T E CHNOLOGY
ACQUISIT ION
T E CHNOLOGY
MONIT ORING
AND E VAL UAT ION
E XPERIMENT AL
DE VE L OPME NT
T E CHNOLOGY
IMPL E ME NT ATION
AND ADAPT AT ION
T E CHNOLOGY
ASSIMIL AT ION
AND MASTE RY
T E CHNOLOGY
COMMERCIAL IZ AT ION
OPE RAT IONS
Figure 3.
Technology Management Framework in terms of an
Endogenous Innovation Cycle or an Exogenous Innovation Cycle
A firm at the lowest or operative rung of the technological ladder is a mere technology user,
while one at the highest or creative rung is a technology creator or producer.
The technological sophistication of a firm’s technology can be gauged in terms of its
location along the curve of the technology’s life cycle, as shown in Figure 4. Thus, a technology
can be: (a) state-of-the-art if it is at the introductory stage of the technology life cycle; (b) a
dominant design if it is at the growth stage or upward slope of the curve; (c) standardized or
mature if it is at the plateau of the curve; (d) declining or aged if it is at the downward slope of the
curve, and (e) obsolete if it is at the terminal segment of the curve.
11
NO. OF
USERS
Introductory
Growth
Mature
Declining
Obsolete
TIME
Figure 4. The Technology Life Cycle
Using these measures of a firm’s technological status, we can make a rough depiction of
the overall technological profile of Philippine domestic firms. Large firms, especially those
linked with foreign firms, use foreign technologies that range in sophistication from "standardized
or mature" to "dominant design" but their technological capabilities are generally limited to the
operative and adaptive levels. On the other hand, most domestic firms (comprised of small and
medium enterprises or SMEs) use technologies ranging in sophistication from "obsolete" to
"standardized or mature" even though their technological capabilities may have gone beyond
adaptive levels.
In general, Philippine domestic firms do not make any effort to reverse-engineer or
improve an imported technology; they simply buy another set of foreign equipment or license
another foreign process when they decide to replace their technology. Thus, most Philippine
firms have remained mere importers and users of foreign technologies. As a result, they have
been trapped in a vicious circle of technological laggardness and dependence (shown in Figure 5)
that has stunted the competitiveness and productivity of Philippine industries.
At the same time, successive Philippine governments have failed to formulate and
implement a coherent and effective system of national technology management as shown by the
fact that over the past 50 years, the country did not have a coherent national industrialization
12
strategy nor a clear national technology strategy. As I have explained in an earlier paper, our
government’s S&T policies and programs have been largely nothing more than R&D policies and
programs that tried addressing the demand side and linkage part of national S&T development.
Therefore, I maintain that the continuing failure of the Philippines to achieve NIC status
and export competitiveness is due mainly to its continuing weaknesses in technology
management at the firm level and national level, which have perpetuated the technological
laggardness and dependence of Philippine industries. A Japanese economist has aptly described
our country’s half-century of industrialization efforts as "technology-less industrialization".
Since the essence of industrialization is the relentless mastery of manufacturing technologies and
continuous accumulation of manufacturing skills, it is obvious that any industrialization effort
that neglects technology management is doomed to fail.
Absence of
R&D and
technology
management
in most
local firms
Local firms’
poor
technologies
and very weak
technological
capabilities
Local firms’
lack of drive
upgrade their
product and
process
technologies
Local firms’
satisfaction in
doing business
in the
domestic
market
Local firms
resort to
technology
transfers from
abroad
Local firms’
inability to
master the
foreign
technologies
Local firms’
continuing
dependence on
mature foreign
technologies
Local firms’
lack of global
technologycompetitiveness
Figure 5. The Vicious Circle of Technological Backwardness and
Dependence Observable in Most Philippine Firms
LINKING TECHNOLOGY MANAGEMENT AND EXPORT MARKETING IN
KOREA AND TAIWAN
This section will discuss how Korea and Taiwan were able to achieve NIC status and export
competitiveness by linking technology management with export marketing. In the 1960s, when
both the Korean and Taiwanese governments decided to pursue export-led industrialization, they
13
both adopted national technology management policies that were supportive of their exportoriented policies, although they differed in their growth strategies, with Korea concentrating on
large, diversified conglomerates called chaebols, as its engines of growth, and with Taiwan
relying on a multitude of small and medium enterprises (SMEs).
Both Korean and Taiwanese firms that wished to enter export markets in the 1960s had to
overcome two sets of competitive disadvantages: (a) serious technological disadvantages because
of their huge technological lag behind the world’s technology leaders; and (b) serious market
disadvantages in terms of their isolation from export markets and their lack of experience in
export marketing. Their basic problem then was how to overcome international market and
technology barriers to entry.
The Korean and Taiwanese firms were able to overcome the initial barriers to entry by
using international technology transfer mechanisms to acquire technology and to enter export
markets.
The international technology transfer channels used by the Korean and Taiwanese firms
were the following:
!
!
!
!
!
!
!
!
!
!
!
Foreign Direct Investments (FDIs)
Joint Ventures
Technology Licensing
Subcontracting
Original Equipment Manufacture (OEM)
Own-Design and Manufacture (ODM)
Technical Assistance by Foreign Buyers
Reverse-Engineering of Foreign Products
Informal Means (Overseas Training, Hiring of Foreign Engineers, Recruitment of Locals
Trained in TNCs
Overseas Acquisition of, or Equity Investments in, Foreign High-Tech Firms
Strategic Alliances
Most of these channels provided Korean and Taiwanese firms with access to both
technologies and export markets.
Exploiting these channels, Korean and Taiwanese exporting firms succeeded in
accumulating export marketing skills that enabled them to graduate from the supply of laborintensive assembly services to the export of sophisticated products, and simultaneously climbing
up the technology ladder from operative capabilities to innovative and creative capabilities that
enabled them to graduate from technological imitators and apprentices to technological
innovators.
The linked stages of export marketing and technological capabilities that Korean and
Taiwanese firms went through are given in Table 1.
14
Table 1. Linkage of Export Marketing Skills and Technological Capabilities
Export Marketing Stages
Technological Capabilities
1.
Passive importer-pull;
Cheap-labor assembly;
Dependence on buyers for distribution
1. Assembly skills and basic production
capabilities with respect to mature
products
2.
Active sales of capacity;
speed; and cost-based;
2. Incremental process changes for quality and
Reverse-engineering of foreign products
Dependence on foreign buyers
3.
Advanced production sales;
Establishment of marketing department;
Start of overseas marketing;
Marketing of own designs
3. Full production skills;
Process innovations;
Product design capability
4.
Product marketing push;
Direct sale to overseas distributors and retailers;
Buildup of product range;
Start of sale of own-brand
4. Initiation of R&D for products and processes;
Product innovation capabilities
5.
Push of own brand;
Direct marketing to customers;
Use of independent distribution channels
and direct advertising;
Use of in-house market research
5. Competitive R&D capabilities;
Linking of R&D to market needs;
Advanced product/process innovation
To Korean and Taiwanese exporting firms, export markets provided the demand that pulled
their technological learning up the technology ladder from imitation to innovation. At the same
time, the intense competition from other domestic firms and pressure from the government
pushed the exporting firms to continuously improve their technologies and upgrade their
technological capabilities. In turn, the technological development of Korean and Taiwanese firms
raised their productivity and product quality, enabling them to sustain their competitive
advantages and expand their exports.
However, the buildup of technological and marketing capabilities in Korean and
Taiwanese firms could have been hampered or undermined if they had not been supported by a
government which provided them with: (a) a stable and favorable macroeconomic environment of
low inflation and low interest rates that was conducive to long-term planning and investment; (b)
adequate educational and infrastructure support; (c) a competitive market that pushed competing
firms to upgrade continuously; and (d) a national technology management system which
supported technological learning and innovation.
TECHNOLOGY MANAGEMENT: LESSONS FROM KOREA
15
The phenomenal rapid industrialization and accelerated technological progress achieved by South
Korea within a few decades can offer many lessons in technology management to developing
countries like the Philippines which has been trying unsuccessfully to industrialize for the past 50
years. These lessons can be divided into those pertaining to national technology management and
those pertaining to firm-level technology management.
Lessons from Korea’s National Technology Management
Role of Government
In the 1960s and 1970s, a strong, developmental, interventionist government played a key and
effective role in driving and steering the Korean economy into its successful export-oriented
industrialization by targeting certain preferred industries, using carrots and sticks to push Korean
firms into achieving ambitious export goals, and protecting the domestic market from imports and
FDIs. In the 1980s and 1990s, however, the effectiveness of the Korean government’s
interventions was reduced because of rapid changes in the world’s economic environment and
because political corruption led to a collusion between the government and the big conglomerates
or chaebols.
State intervention in the economy can be effective for only as long as the government’s
leaders and technocrats are competent and incorruptible.
Industrial Policy
Industrial policy, specifically "targeting" or the selection of particular industries for government
support and development, was pursued by the Korean government with mixed results: it was
successful in electronics, steel, and shipbuilding but unsuccessful in chemical and machinery
industries.
Targeting can be a risky government policy. The government should instead promote
and develop industrial clusters that can integrate and link related and complementary industries
as well as large, medium, and small firms.
Export-Oriented Policy
The Korean government in the 1960s and 1970s vigorously pushed Korean firms to upgrade their
technologies and achieve ambitious export goals while supporting them with financial,
technological, and international marketing assistance. In 1962 the Korean government created
the Korea Trade Promotion Corporation (KOTRA) which by the 1980s operated about 100
international trade centers throughout the world and, with the help of 30 or so Korean trade
associations, tracked export markets and supplied information to foreign buyers and Korean
exporters.
To achieve export competitiveness, the government must vigorously push exporting firms
to continuously improve their product and process technologies to world-class standards while
providing them with financial and technological assistance and global network of marketing
support services similar to Korea’s KOTRA and Japan’s JETRO.
Technology Transfer Policy
In the 1960s, the Korean government adopted a restrictive policy against FDIs and foreign
technology licensing and allowed mainly technology transfers through imports of foreign
machinery. This policy allowed Korean firms to avoid management control by TNCs and to
16
pursue an independent approach in sourcing and acquisition of foreign technologies. In addition,
the policy forced them to undertake reverse-engineering of foreign products. In the 1970s,
however, the government relaxed its restrictions on FDIs and licensing as Korean firms gained
capabilities in assimilating more complex technologies.
To attain an independent, self-reliant technological capability, the industrialization
strategy should not depend primarily on FDIs but should instead build up domestic industries
and firms as the engines of industrial growth. Too much reliance on FDIs sustains technological
dependence and laggardness.
Industrial Structure Policy
The Korean government adopted in the 1960s an industrialization strategy that relied heavily on
large, widely diversified, vertically integrated, family-owned, rigidly hierarchical and
bureaucratic conglomerates known as chaebols for the scale-intensive mass production of
standardized products for mature export markets. This strategy, however, neglected the
development of SMEs. It was only in the 1980s when the importance of SMEs was belatedly
recognized that an institutional framework for supporting and upgrading SMEs was established.
Nevertheless, unlike the Japanese keiretsu, the chaebols failed to develop a supply chain of
specialized SMEs, leaving them dependent on foreign (mainly Japanese) competitors for key
components, parts, and materials.
SMEs should be given as much importance as large firms in a nation’s industrialization
because SMEs can serve as suppliers and support service providers to large firms. They can be
niche exporters like Taiwan’s SMEs. The continuous technological upgrading of SMEs and their
linkage with large firms through industrial clusters should be a priority program of government.
Education and Training Policy
The Korean government in the 1960s invested heavily in education to produce a well-trained,
hardworking workforce for industrialization. In 1974 the government passed a law that required
all industrial firms with 300 or more workers to provide in-plant training. A year earlier, the
government enacted a law which decreed that technicians/craftsmen had the same status as
scientists and engineers. Since the 1970s, however, investments in education declined,
particularly in higher education, resulting in shortages of high-level engineers and scientists and
the development of only a few research-oriented universities.
The upgrading of educational institutions and programs at all levels should be an
essential priority of government. Private firms should also be urged to institutionalize a regular
training program for their employees. Technical and vocational education and training should
be made as attractive and prestigious as college education.
Government R&D Institutes
In the 1960s the Korean government established the Ministry of Science and Technology to
manage the country’s S&T development programs. It started the organization of a network of
government-owned R&D institutes (GORDIs), beginning with the Korea Institute of Science and
Technology (KIST) in 1965. The GORDIs played important roles in assisting in the 1960s and in
1970s in sourcing, acquiring, reverse-engineering foreign technologies and by serving as the key
implementers of the country’s national mission-oriented R&D programs during the 1980s and
1990s. Their effectiveness, however, has been weakened in recent years because of their stifling
bureaucracies and the loss of researchers to universities and corporate R&D centers.
17
The role of GORDIs in a country’s R&D system should be reviewed as university and
corporate R&D centers develop. GORDIs could still find a niche in the development of nonmarket-oriented technologies and in the diffusion of technologies to SMEs.
R&D Promotion and Financing
The Korean government promoted domestic R&D activities by means of direct and indirect
R&D incentive packages. Direct R & D incentives are for developing R&D infrastructure and
financing R&D in universities and GORDIs; Indirect R & D incentives, which included
preferential R&D loans and R&D tax concessions, are for at stimulating private sector R&D. By
the 1980s the government’s preferential R&D loans became the most important means of
financing private sector R&D-- accounting for about 64% of total R&D expenditures in
manufacturing in 1987. National expenditures on R&D, as a percentage of GNP, rose rapidly
from 0.32% in 1971 to 2.61% in 1994. The bulk of R&D expenditures also shifted to the private
sector which accounted for only 2% in 1963, but accounted for as much as 84% by 1994.
Various R&D incentive packages coupled with intense domestic competition and high
export goals can be effective in promoting R&D in private firms.
National Mission-Oriented R&D Programs
In the 1980s and 1990s the Korean government formulated and sponsored several advanced,
mission-oriented R&D projects that were undertaken jointly by the GORDIs, university
laboratories, and the private sector and designed to solve Korea’s current and future technological
problems. These projects were: (a) Industrial Generic Technology Development Project
(IGTDP), (b) National R&D Project (NRP), and (c) Highly Advanced National R&D Project
(HAN).
Huge national mission-oriented R&D projects involving government-academia-industry
are hard to manage and are not too fruitful. Cooperative R&D projects undertaken through
independent institutes affiliated with industrial clusters may be more effective than national
mission-oriented cooperative R&D projects.
Technology Entrepreneurship and Commercialization
In the 1980s the Korean government enacted laws establishing more than 30 venture capital firms
- all jointly funded by the government and the private sector - as a means of promoting new
technology venture firms. In 1992, the government introduced the Spin-off Support Program
which sought to encourage GORDI researchers to spin off their research outputs and establish
new technology-based small firms by offering them financial, managerial, and technical
assistance. Then in 1993 the government initiated the New Technology Commercialization
Program in which preferential financing could be obtained from the government for activities
related to R&D and technology commercialization.
The establishment of a venture-capital industry and a spin-off support program should be
implemented in the Philippines.
Science and Technology Parks
The Korean government created two S&T Parks: the Seoul Science Park in 1966, and the Taedok
Science Town in 1978. The latter had 14 GORDIs, 3 tertiary-level educational institutions, and
more than a dozen corporate R&D laboratories by 1998. However, after 20 years of existence,
18
Taedok Science Town had not yet become a dynamic breeding ground for technology-based startups like the USA’s Silicon Valley or Taiwan’s Hsinchu Science-Based Industrial Park.
Science Parks, Technology Parks, Research Parks, Science Towns, or Technopolises
have been created not only in Korea but also in many other countries, but only a few have been
able to approximate the bustling dynamism and technology-business synergy of Silicon Valley.
Industrial clusters, linked to academia and government agencies, have greater promise of
promoting technology entrepreneurship.
Technology Diffusion and Extension
As a belated realization of the importance of SMEs, the Korean government in the 1980s
established an extensive network of government, public, and private (non-profit) technical
support systems to provide technology diffusion and extension services to SMEs. This network is
coordinated by a government agency, the Industrial Advancement Administration, and composed
of a national network of technical extension services, a separate network for technology diffusion,
and an online network of S&T information dissemination.
Korea’s extensive networks of technology diffusion, extension services, and online S&T
information dissemination should be adapted to Philippine conditions in order to support the
development and upgrading of SMEs.
Lessons from Korea’s Corporate Technology Management
Most Korean firms, especially the chaebols, were fiercely committed to a technology strategy of
moving up the technology ladder rapidly through a technological learning process that consisted
of four phases: (1) preparation, (2) acquisition, (3) assimilation, and (4) improvement. They also
had certain remarkable characteristics such as: (a) heavy investment in in-house R&D, (b) strong
commitment to training of personnel, (c) orientation towards low-cost, high-volume production,
(d) early efforts to develop their own products and to market these abroad under their own brand
names, (e) drive for growth and willingness to take risks, (f) strong discipline and fierce
competitive can-do spirit. The following are the major lessons that can be learned from Korea’s
corporate technology management.
Preparations for Technology Acquisition
Korean firms diligently monitored technological developments in advanced countries through
technical assistance agreements with foreign firms, the setting up of technological outposts in
Silicon Valley, establishing R&D and marketing subsidiaries in California, short-term
observation of foreign plants and exhibitions, short- and long-term training and education abroad,
direct ties with local S&T information centers, direct links with foreign research institutes, and
subscriptions to foreign journals. In preparation for the acquisition of a particular technology,
they would conduct extensive reviews of the technical literature, pirate experts in the technology,
conduct an observation of the technology in actual operation abroad, or undertake a joint research
with a local R&D institute in that technology. These preparatory activities enabled the Korean
firms to select appropriate technologies, identify suppliers of the technology, and strengthen their
bargaining positions in the acquisition of the technology.
These preparatory activities are worthy of emulation by Philippine firms because these
would help them in selecting and acquiring appropriate foreign technologies.
19
Technology Acquisition Strategies
The strategy used by Korean firms in acquiring technology depends on the supplier’s willingness
to transfer technology, extent of patent protection, and nature and maturity of the technology. If
the technology is simple and mature, Korean firms would reverse-engineer the foreign product to
create clones or knock-offs. If the technology is complex but mature (as in the case of cars) and
reverse-engineering is not feasible, but suppliers of technology are willing to transfer, then
Korean firms enter into licensing agreements. When the technology is in the growth stage of its
life-cycle and has unexpired patents and if the foreign firms were unwilling to transfer it, then
Korean firms would collaborate with a local R&D institute smaller foreign firms in cracking
technology through advanced reverse-engineering, as in the case of optical fibers, industrial
robots, microwave ovens, electronic switching systems, and personal computers. When the
technology is new and its foreign owners are unwilling to transfer it, some Korean firms would
establish R&D laboratories and listening posts in foreign country, buy the technology from
distressed small high-tech companies, or take over foreign high-tech companies. Finally, when
the technology is still embryonic or emerging, Korean firms invest heavily in their own in-house
R&D and enter into strategic alliances with TNC high-tech leaders like IBM, ATT, Toshiba,
Microsoft, etc.
Korean firms’ aggressiveness and adeptness in acquiring foreign technologies should be
emulated by Philippine firms.
Technology Assimilation and Improvement
Upon the acquisition of a foreign technology, Korean firms immediately exerted efforts to
assimilate and improve the technology by moving the technology ladder from the operative rung,
to the adaptive, integrative, replicative, and innovative rungs. To help in their assimilation
efforts, Korean firms hired retired or moonlighting foreign (usually Japanese) engineers as tutors
or consultants.
The Korean practice of assimilating and improving an imported technology should be
emulated by Philippine firms so they can avoid costly dependence on foreign technology
suppliers while being able to improve their competitiveness through incremental innovations in
product and process technologies.
Corporate R&D
Korean firms invested heavily in in-house R&D as they moved towards the technology frontier in
their product and process technologies. The leading chaebols also established in the 1980s
several R&D centers in the USA, particularly in California, to tap the R&D expertise of
experienced Korean-American and other American scientists and engineers. From 1981-1991
Korea recorded the highest growth rate of private sector R&D per GDP at 31.6% as compared to
Singapore’s 23.8%, Taiwan’s 16.5%, and Japan’s 8.8%.
Philippine manufacturing firms should start investing in in-house R&D not only as a
means of improving their product and process technologies but also as a leverage for acquiring
foreign technologies.
Technological Training
The chaebols were strongly committed to the training and development of their personnel in order
to facilitate technology learning and assimilation. They established their own training institutes,
20
formulated their own training programs, and sent their engineers and top technicians abroad for
advanced training.
Corporate education and training has become imperative for the development of a
world-class workforce that can cope with the demands of globalization and rapid technological
change.
From OEM to ODM to OBM
Starting from OEM (i.e., original equipment manufacture where a domestic firm produces a
finished product to the precise specification of a foreign TNC, which then markets the product
under its own brand name through its own distribution channels), Korean firms quickly graduated
to ODM (i.e., own-design and manufacture, where the local firm undertakes some or all of the
product design and production processes needed to make the product according to a general
design layout supplied by a foreign TNC) and then to OBM (own-brand manufacture). From the
outset, the chaebols were committed to developing their own products and marketing them abroad
under their own brand names such as Samsung, Hyundai, and Daewoo.
Moving from OEM to OBM is a path that could also be followed by Philippine
manufacturing firms, but it entails full commitment to technological learning and continuous
technological innovation.
TECHNOLOGY MANAGEMENT LESSONS FROM TAIWAN
Taiwan presents a stark contrast to Korea because while the latter relied mainly on large,
diversified, hierarchical, vertically integrated chaebols as its engines of industrial progress,
Taiwan depended on a multitude of SMEs. However, Taiwan also has similarities with Korea
because its firms were also successful in climbing up the technology ladder and transforming
themselves from technological imitators to technological innovators. Hence, the Taiwanese
model of technology management and export competitiveness based on SMEs offers an
alternative to the Korean chaebol- based models. Again the lessons from Taiwan will be divided
into those pertaining to national technology management and those pertaining to corporate
technology management.
Lessons from Taiwan’s National Technology Management
Role of Government
The Taiwanese government played a less interventionist role in the economy than the Korean
government but it was also protectionist until recently. Although the government promoted the
development of heavy and intermediate-goods industries (such as steel, petrochemicals, and
shipbuilding) through direct intervention and financial support, it encouraged private enterprise in
light industries such as electronics, textiles, and plastics. At the same time, the government
provided a stable macroeconomic environment of low inflation and low interest rates and until
recently, protected the local market through import restrictions.
The government has played a very active role in the technological upgrading of the
economy. The long-term development of science and technology was placed under the
responsibility of the National Science Council, while the planning and coordination of industrial
development was the responsibility of the Ministry of Economic Affairs.
21
In industrializing countries, the most important roles of the government are to secure a
stable and conducive macroeconomic environment for long-term investments and to provide
adequate educational, technological, and infrastructural support to industrial development.
Export-Oriented Policy
Like Korea, Taiwan shifted from import-substitution to export-oriented policy regime in the
1960s, which led to the proliferation of SMEs concentrating on labor-intensive industries.
Publicly-owned enterprises were set up as reliable upstream suppliers of low-cost raw materials
to the downstream private SMEs, thereby playing an important supportive role in industrial
development.
The export-led SME-based industrial development model of Taiwan offers a viable
alternative to the Korean export-led chaebol-based industrialization model of Korea. The
Taiwanese model is also more conducive to industrial clustering.
Technology Transfer Policy
In the 1960s, government policy towards FDIs was described as "encouragement with caution."
Initially, the government drew up a "positive list" which identifies the areas where FDIs would
be allowed. In 1988 the "positive list" was changed to a "negative list" which stipulated that FDIs
would be automatically approved provided these were not in prohibited sectors. Unlike in Korea,
FDIs played a central part in electronics, metal products, chemical products, and machineries up
to the 1990s. The government encouraged FDIs, joint ventures, and OEM agreements although it
often negotiated the terms of entry of TNCs. TNCs attracted the formation of local SMEs which
swarmed and clustered around the TNCs, offering their goods and services and entering into
OEM arrangements with the TNCs.
FDIs should be attracted to seed or develop industrial clusters because they can serve as
sophisticated buyers and spur the formation of local SMEs as suppliers or supporting industries.
Education and Training Policy
The Taiwanese government invested heavily in the expansion and development of the educational
system. Public expenditure on education as a percentage of GNP was raised from less than 2% in
the 1950s to more than 4% in the 1980s. Technical colleges were also established in the 1970s to
enable vocational students to earn a bachelor’s degree and to raise the status and prestige of
technicians.
The development of education at all levels is essential to industrialization and
technological development because the lack of engineers, scientists, and technicians could
hamper technological learning and development.
R&D Promotion and Financing
Taiwan’s gross R&D expenditure as a percentage of GNP was 0.84% in 1979 and 1.04% in 1986.
Of this total R & D spending, government’s share in 1986 was 60% allocated to basic research
(11%), research and technology development (50%). To encourage the private sector to shoulder
a bigger share of the country’s R&D expenditures, the government offered incentives like tax
credits and preferential financing, akin to the incentives offered by the Korean government.
However, a survey of 1,406 firms in 1987 showed that these incentives were not
effective. What the firms considered to be the most effective government measures for
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promoting technological development were: (a) educating more R&D personnel; (b) government
coordination of joint research among firms; (c) government assistance in introducing new
technologies from abroad; and (d) commercializing and diffusing technologies from GORDIs.
Tax credits and preferential loans may not be effective to induce the technological
upgrading of firms.
Government R&D Institutes
Since the SMEs had limited amount of resources for R&D, they had to rely heavily on the
government to develop technologies and transfer these to them. In the electronics and
information industries, the Taiwanese government established two government owned R&D
institutes or GORDIs: the Industrial Technology Research Institute (ITRI) in 1973 and the
Institute for the Information Industry (III) in 1979. ITRI was tasked with developing hardwarerelated technologies, while III was tasked to develop software technologies and provide
computer-related services.
What was remarkable about these two GORDIs was that they were vested with corporate
powers to establish a new spin-off venture company jointly with the private sector or form joint
ventures with TNCs. Since 1982, six IC fabrication companies have been spun off from ITRI,
while successful joint ventures were formed between III and IBM.
To encourage Philippine GORDIs to be market-oriented and to venture into technology
commercialization, it is imperative that they be vested with corporate powers similar to those
enjoyed by ITRI and III.
Science and Technology Parks
In 1980, the government established the Hsinchu Science-Based Industrial Park under the
administration of the National Science Council as a means of attracting overseas Chinese and
returning Taiwanese students to invest in high-tech industries. What makes the park attractive is
that it offers world-class facilities, utilities, housing, schools, and other amenities that allows an
investor to immediately move in and start business. In December 1988, there were 96 high-tech
firms in employing 16,500 workers.
The Hsinchu Science-Based Industrial Park could serve as a model for prospective S&T
parks in the Philippines.
Lessons from Taiwan’s Corporate Technology Management
Technology Strategies
In contrast to Korea’s chaebols, which relied on the scale-intensive mass production of mature
products, Taiwan’s SMEs focused on niche production, relying on speed, adeptness, and agility
for their survival and success.
Taiwan’s manufacturing firms usually began with OEM arrangements with TNCs,
gradually accumulating product design skills to move up to the ODM, (own-design and
manufacture) stage, and finally acquiring product innovation capabilities and establishing
marketing channels to graduate to the OBM (own-brand manufacture) stage.
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Most Philippine firms do not try to graduate from the OEM stage to the ODM stage.
They must emulate the technological development trajectories of Taiwanese firms if they want to
be globally competitive.
SME Clustering around TNCs
Taiwanese SMEs exploited the business opportunities offered by TNCs and foreign buyers by
supplying them with parts, components, or assembly services. The availability of low-cost and
reliable Taiwanese suppliers attracted more foreign investors, which in turn stimulated more local
SMEs, leading to the improvement of the supply infrastructure. The repetition of the process
formed a large industrial clusters in keyboards, printed circuit boards, computer mice, PCs, fax
machines, calculators, bicycles, sewing machines, and athletic shoes.
One of the major deficiencies in the industrial infrastructure of the Philippines is the
availability of local manufacturers and suppliers of parts and components. This is a major
problem that should be addressed immediately.
Takeovers of Foreign Firms
A strategy adopted by Taiwanese SMEs to acquire a marketing network, known brand names, and
state-of-the-art technologies was to takeover financially distressed foreign firms. An example of
this was the Acer Group’s takeover of US-based Counterpoint Computers (which helped Acer
acquire minicomputer technology) and of DYNA, the third largest computer dealer in the US
(which provided Acer with a marketing network).
Takeover strategies can be a very feasible and quick way by which SMEs can become
vertically integrated and acquire the marketing channels, brand names, and technologies needed
to cope with globalization.
RECOMMENDATIONS FOR THE PHILIPPINES
Drawing lessons from the experiences of Korea and Taiwan, we recommend tbe following to
improve technology management and to attain export competitiveness.
On the Role of Government
Apart from insuring a stable and conducive macroeconomic environment for long-term planning
and investment, the government should push and encourage local firms to attain world-class
standards of productivity and product quality.
Adequate educational, technological,
informational, and infrastructure support are necessary component of this drive.
Industry Infrastructure and Industrial Clustering
The government should promote the development of a balanced and integrated industry structure
by encouraging the establishment of industrial clusters that are linked through vertical
(buyer/supplier) or horizontal (common customers, technology, channels, etc.) relationships.
Industrial clusters could provide the means for (1) linking large firms with SMEs, TNCs with
domestic firms, manufacturing firms with agribusiness and service firms; (2) dispersing industries
to the regions and provinces of the country; and (3) focusing the industrial support services of
government and academia through cluster-dedicated R&D centers, S&T services, educational and
training institutions, financial services, etc.
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Export Promotion
The Philippine export promotion programs should be intensified and provided with a global
market assistance network similar to Korea’s KOTRA and Japan’s JETRO.
Foreign Direct Investments
The Philippine industrial development program should not depend mainly on FDIs that view the
country as a mere temporary investment base within their global strategy. Nevertheless, as the
Taiwanese experience has shown, FDIs could serve as seeds for industrial clusters. The lowcost, high-quality local suppliers could then make themselves indispensable to the TNC
subsidiaries.
Education and Training
The government, academe, and the private sector should work together to upgrade all levels of
the country’s educational system, particularly its programs and institutions for educating
engineers, scientists, technicians, managers, and entrepreneurs. Private firms should also institute
training programs, on their own or collaboratively with other firms through cluster-based
institutes or jointly with educational institutions, for the purpose of developing a world-class
workforce that can easily absorb, adapt, assimilate, and improve foreign technologies or generate
technological innovations.
The government should also assist in the development of the country’s leading
universities into research universities. It should adopt a massive crash program to increase the
country’s pool of R&D scientists and engineers to international levels. It should also encourage
the establishment of more graduate programs in technology management and the inclusion of
technology management courses in degree programs in business, engineering, science,
economics, and public administration.
The status of technicians should also be elevated and professionalized by instituting a
post-secondary 4-year degree program leading to a Bachelor of Technology (in Software
Technology, Air-conditioning Technology, etc.) to be offered by Technical Colleges or
Polytechnic Universities and by reinventing technicians as "Technologists". Entrepreneurial
courses should also be incorporated into the curriculum from elementary to tertiary levels.
R&D Programs and Funding
The government, academe, and the private sector should work together to formulate a national
portfolio of R&D projects based on a third-generation system of R&D management which would
select R&D projects in accordance with (a) short-term, cluster-oriented problems,
(b) medium-term, cross-disciplinary, mission-oriented government programs, and (c)
long-term, knowledge-oriented, university-based fundamental research.
These three sectors should increase their R&D investments to attain the United Nations’
minimum target of 1% of GDP. The government should study and offer various incentive
packages that could induce private firms to spend more funds on in-house R&D.
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R&D Organizations
The R&D institutes of the Department of Science and Technology (DOST) should be assessed for
possible reorganization into corporate R&D organizations that can establish spin-off venture
companies or enter into joint ventures with private companies similar to Taiwan’s ITRI.
The government should also create a government-endowed, market-oriented contract
R&D organization similar to the Korea Institute of Science and Technology or the Fraunhofer
Society in Germany.
The government and academia should also assist industrial clusters in creating clusterbased and cluster-dedicated R&D centers jointly funded by the government, academia, and the
cluster firms.
Technology Entrepreneurship and Commercialization
The government should promote the creation of venture capital firms, study the establishment of
a technology park similar to Taiwan’s Hsinchu Park, initiate a Spin-Off Support Program,
patterned after Korea’s program, to encourage and assist government or university R&D
personnel to become technology-based entrepreneurs. It should also promote the establishment of
technology business incubators.
Technology Diffusion and Extension
The government, academia, and the private sector, should also cooperate in establishing a
national network of organizations dedicated to (a) the diffusion of modern technologies among
domestic firms; (b) the provision of testing, calibration, and other S&T extension services; and (c)
the provision of online S&T information services.
National S&T Management
The DOST, DTI, DOE, DOTC, DA, NEDA, and other government agencies should formulate a
national technology management framework and institutionalize the practice of technology
management in their planning, policy-making, and programming.
In particular, the government should conduct regular technology forecasting exercise,
technology audit of each industry’s technological status, and international benchmarking of each
industry’s technologies, in order to determine each industry’s technological lags relative to its
foreign competitors.
Corporate Technology Management
Philippine firms should also institutionalize the practice of corporate technology management and
appoint a Chief Technology Officer or Vice-President for Technology Management who would
be responsible for corporate technology management.
Philippine firms should emulate the technology management practices of Korean and
Taiwanese firms, striving to climb up the technology ladder as quickly as possible in order to
achieve global export competitiveness.
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CONCLUSION
The principal lesson one learns from the experiences of Korea and Taiwan is that a country or a
firm can become an export tiger only if it is also a technology tiger, that is, if it is aggressive,
agile, and adept in acquiring, learning, and mastering technologies. Export competitiveness
entails competence in technology management because the latter can provide an exporting firm
with the competitive advantage of lower costs (through better process technologies) or better
product quality or features (through better product technologies). Philippine firms have not yet
developed into export tigers because they have remained technological pussycats. Therefore, if
Philippine firms want to become globally competitive, they should start emulating the technology
management practices of Korean and Taiwanese firms.
At the same time, the government should insure a stable and conducive macroeconomic
environment, push for world-class norms and standards in products and processes, provide
adequate educational, technological, informational, and infrastructural support, and adopt an
integrated national technology management system.
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Ford, D., and Saren Mike., (1996), Technology Strategy for Business, London: International Thomson
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Hobday, M. (1995), Innovation in East Asia: The Challenge to Japan Cheltenham, UK: Edward Elgar.
Hou, C. and S. Gee, (1993), "National Systems Supporting Technical Advance in Industry: The Case of
Taiwan", in R. Nelson (ed.), National Innovation Systems: A Comparative Analysis. New York: Oxford
University Press, pp. 384-413.
Kim, L. (1993), "National System of Industrial Innovation: Dynamics of Capability Building in Korea", in
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Kim, L. (1997), Imitation to Innovation: The Dynamics of Korea’s Technological Learning. Boston:
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Roussel, P.A., K.N.Saad, and T.J. Erickson, (1991), Third Generation R&D: Managing the Link to
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Highlights of the Technology
and Governance Open Forum
On foreign direct investment. FDI was seen as a good medium for technology transfer.
It was pointed out that the Philippine economy can absorb much more foreign direct investments.
In ASEAN, the level of foreign direct investment has been used to gauge the speed of
development of member countries. With the advent of globalization and WTO, technology
transfer may have to be pursued differently from the path taken by Asian tiger economies in the
60s to 80s. The Philippine Investment Priority Plans were not very successful in attracting
investments. FDIs should help upgrade local technology but should be managed more efficiently.
Proper target setting can help reap more benefits from FDIs.
Solutions of greater relevance to specific industries. There is a need to go beyond broad
recommendations and instead move toward finding technology and R&D solutions for specific
industries and sectors. This would mean in-depth assessments of the problems and needs of
specific sectors and adequate assessments of the requisite funding to complete projects.
Creation of a coordinating agency. It was proposed that a KOTRA-type organization be
established and a study be made of the massive investment requirements of foreign postings for
technology specialists, economic attaches or technology attaches that will serve as listening and
monitoring posts. This effort must be complemented with permanent stands in world trade
centers to showcase Philippine products and to provide information on the country’s level of
technology. In addition, a more aggressive approach to image-building, and in promoting the
country’s technological outputs abroad should be pursued. This proposal was particularly
supported by the SME sector, since it was pointed out that most small and medium-scale
enterprises do not really have the luxury of investing heavily on promotion nor in R&D. Another
proposal was for the government to establish a coordinating agency that will manage funds,
identify areas where research should be focused, set up technology information exchange, and
coordinate with international bodies for cooperative undertaking. The objective is to identify
priority sectors whose state of technology need to be improved to a level that is globally
competitive. The next step would be to conduct business encounters that will provide
opportunities for Philippine firms to enter into strategic alliances with foreign companies.
Clustering. There was consensus that clustering is a more efficient method of focusing
R&D efforts and providing funds to related industries and sectors.
A viable Philippine system of managing technology. The Philippines has to evolve a
better system of managing technology and a responsive, efficient, interrelated institutions that
will provide a holistic approach to technology governance. This should commence with the
legislative and executive branches of government. It was noted that the main problem is not in
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innovating technologies but innovations in terms of organizational and institutional
interrelationships and synergies. Japan is not really creative in producing new products but they
are good at incremental innovations. More than that, they are innovative in managing
organizations.
R&D budgeting. With regards to the question of efficient allocation of funds, R&D
institutions involved in rapidly developing industries would require more flexible budgeting
system since annual budgeting may not be responsive to the demands of keeping up with
technological developments. Therefore, timeline for budget approval, allocation and allotment
releases should be different in the case of R&D organizations.
Lack of government support for local inventors. Inventors present in the forum lamented
the lack of support from government. Complaints include inadequate information support from
government agencies regarding proper procedures for applying for loans or patents, promotions,
certifications, testing, etc.
Legislation designating the UP-TMC as a Center for Excellence. The body was
informed that a bill has been filed in Congress designating UP-TMC as a national Center for
Excellence on technology management and forecasting. Efforts are also being undertaken to
ensure that the bill is passed in the Senate. The Center may then work for the inclusion of
technology management courses in degree programs in business, engineering, science, economics
and public administration.
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