Indonesia's Economy since Independence

11. The Major Channels of International Technology Transfer to Indonesia: An Assessment

11 THE mAJOR CHANNELS OF INTERNATIONAL TECHNOLOgY TRANSFER TO INDONESIA: AN ASSESSmENT1 Like other developing countries, Indonesia is a net importer of advanced technologies developed in the industrial countries. These technologies are crucial to generate and sustain the rapid economic growth necessary to raise the standards of living of the Indonesian people. In view of the economic important function of imported technologies, it is important to identify the major sources and channels through which these technologies are transferred to Indonesia and to assess the extent to which the transfer has indeed contributed to the development of local technological capabilities. At its present relatively low level of industrial and technological development, Indonesia should focus its technology strategy on importing those technologies most relevant to its development needs, at the most favourable terms, and to assimilate, adapt and improve these imported technologies, very much like Japan and later the East Asian NIEs — particularly Korea and Taiwan — successfully did in earlier decades. Several studies on technology transfer in Indonesia’s manufacturing sector have indicated that foreign direct investment, technical licensing agreements without equity involvement by the foreign licensor, capital goods imports, and participation in world trade through exports have been the major channels of international technology transfer to Indonesia. INTRODUCTION Like other developing countries, Indonesia is a net importer of advanced technologies developed in industrial countries. These technologies are crucial 204 Indonesia’s Economy since Independence to drive and sustain the rapid economic growth necessary to raise the standard of living of the Indonesian people. For this reason it is important that such technologies are transferred to developing countries, such as Indonesia (Chen, 1983, p. 63). In view of the economic importance of imported technologies, we need to identify the major channels through which they are transferred to Indonesia, particularly to the manufacturing sector. An important issue is whether these imported technologies have been fully assimilated and mastered by the recipients, i.e. Indonesian firms. It is therefore important to assess whether and to what extent the various channels of international technology transfer have contributed to Indonesia’s industrial technology development (ITD), i.e. the development of local (indigenous) technological capabilities (TCs) required in manufacturing. The successful development of local TCs will determine whether the imported technologies can be successfully applied in Indonesia. bASIC CONCEPTS It is useful to start out with a definition of technology, technology transfer, technological capability and technological effort. If technology is defined as the knowledge and machinery needed to run an enterprise, it would include both software (blueprints and operating manuals) and hardware (machinery and other capital equipment). Technology transfer can then be defined as the transfer of skills and technical know-how as well as the transfer of machinery and other capital equipment (embodied technology) (Chee, 1981, p. 2). As such a transfer usually involves the transfer of modern technologies from advanced to developing countries, this concept implies the international or cross-border transfer of technology. While international technology transfer is crucial to developing countries for gaining access to modern technologies, the great challenge facing developing countries, including Indonesia, is how its nationals can eventually master the transferred or imported technologies. ‘Mastering’ means acquiring and developing the capabilities of using the new technologies effectively and efficiently. Technological capabilities (TCs) in manufacturing can be defined as the skills — technical, managerial and institutional — that enable manufacturing enterprises to utilize capital equipment and technical information efficiently (Lall, 1996, p. 28). As virtually all advanced technologies are imported from industrial countries, technological capability can also be defined as the ability to make effective use of imported technologies (Bell et al., 1984, pp. 107–08). At a more advanced stage of industrial and technological development, technological capability should enable a firm to create new technology and The Major Channels of International Technology Transfer 205 to develop new products and processes in response to a changing economic environment (Kim, 1997, p. 4). To acquire this technological capability, a technological effort is required. This effort usually takes the form of purposeful investments by a firm in training its employees (managers, engineers, technicians and plant workers), searching for new technical and other relevant knowledge, and developing the organizational knowledge to create, communicate, and diffuse knowledge internally within the firm itself. At a more advanced level of industrial development, absorption and mastery of new technologies also requires investment in R&D (research and development) (Lall, 1993, p. 100).The acquiredTCs are firm-specific, i.e. they...