Chapter 7:

Technology Acquisition, Technology Acquisition, Adoption, Diffusion & Adoption, Diffusion &

AbsorptionAbsorption

"A country (or an individual firm) that draws on technologies developed elsewhere is spared the expense of ‘reinventing the wheel.’ But making effective use of imported technologies— even if only direct copying is required— often requires a stock of indigenous skill that cannot always be easily found."

Strengthening Technological Base

Technology acquisition, adaptation and diffusion

Assumptions: - Abilities to acquire and adapt technologies - Absorption capacity: Existing knowledge

base and intensity of effort In-house R&D and technology

development Abilities to Understand and Taking

advantage of Intellectual Properties Rights

(1) Technology acquisition Countries acquire technology in ways

that includeExternal Sources- imports of capital goods and components - foreign direct investment- foreign technology licensing - joint ventures - strategic alliances - mergers and acquisitions of firms- design specifications

Acquisition of technology

Screening through technology auditing Valuation according to the value network

in the perspective of whole product/service Prioritizing the relevance, transfer

flexibility, competitive dynamics of technology

Determining the timing criteria and scheduling sequence

Selecting the modes of acquisition

Methods of acquiring technology

Internal R&D process Joint venture process Outsourcing R&D Technology licensing & transfer Technology purchasing

Technology acquisition matrix

factors Mode

Technology position

Urgency Scale of investment

Stage in the TLC

Importance of technology

Internal R&D

Lowest Highest The emerging stage

Core or critical

Joint venture

Lower The earlier stage

Core or base

Outsourcing R&D

Low The earlier stage

Core or base

Licensing High Lowest

The latter stage

Core or base

Purchasing High No All the stages

External commonality

High

Low

Factors influencing the acquisition mode

The relative technology power/position

The urgency of technology The scale of investment/resource

commitment The stage of technology life cycle The importance degree of technology

Exploitation of technology Open the technology

repository/patent shelf for market value

Leverage the complement assets of industry partners

Speed the technology diffusion for the dominant design (de facto)

Define and establish the industry standard (de jure)

Exploitation modes Internally integrated into the

product development Outsource manufacturing or

marketing New joint venture for applications Technology licensing

Factors influenced the exploitation mode

Relative market/industry position Urgency of application (competition

pressure) Complementary requirements The scale of investment The stage in the TLC The importance degree of technology The unexploitated potential of

technology

Technology exploitation matrix

factors

Mode

Industry position

Urgency

Stage in the TLC

Importance of technology

Potential

Internal development

Lowest Lowest Lowest

Highest

The emerging stage

Core or critical

Narrowest

Outsourcing Mft. & Mkt.

Lower High High The earlier stage

Narrow

Joint venture

High Low High The earlier stage

Broad

Licensing High High Low Lowest

The latter stage

Common or minor

Broadest

complem

ents Scale of investm

ent

(2) Technology adoption Perceived Attributes

1. Relative advantage2. Compatibility3. Complexity4. Trialability5. Ability to communicate product

benefits6. Observability/visibility

What is Technology Adoption? Adoption of technology refers to

the actual acquisition and eventual utilization of a technological product.

What isn'tTechnology adoption

Technology is not simply adopted by acquisition of a technological product and no actual usage is put into it.

E.g. purchasing a mobile phone and not utilising all its available technological capabilities such as PIM, Internet, E-mail etc.

Factors influencing Technology Adoption

The adoption of technology is greatly influenced by a number of factors dependent on the technology to be adopted. A new medical product would be adopted in a different manner to a telecommunication product for instance.

The following factors influence the adoption of technology

Use and user: the decision of the individual to make use of a certain functionality or ICT service for a certain action at a certain moment.

The process of adoption: The decision of the individual to adopt and make use of a new technology or service, from the moment he or she perceives a need through the decision to acquire the technology or service to the actual use whenever the occasion to use it is there.

The process of diffusion: The process by which a technological innovation moves within society from the first adopters to the last adopter groups.

Factors Affecting Rate of Adoption Relative Advantage

Benefits of adopting the new technology compared to the costs, i.e., P/P ratio

Implication: Marketers must understand customer perceptions of benefits vs. costs

Compatibility Similarity/familiarity to existing ways of doing

things Compatibility with cultural norms Implication: Marketers must educate customers

if compatibility is low

Complexity Difficulty of use of new product Implication: Try to simplify use; easier to

learn; offer training and education Trialability

The extent to which a new product can be tried on a limited basis.

Reduces perceived risk. Implication: Design products as

independent modules or offer on trial basis.

Ability to communicate product benefits Ease and clarity of communicating benefits to

prospective customers Implication: Talk in terms customers understand

and that meaningfully convey the compelling reason to own the new technology

Observability Customer’s ability to assess benefits Ability of others to observe customer’s benefits

obtained from using new product Implication: If benefits are elusive to both the

users and their friends, adoption will be slow.

Final Thoughts on Adoption

These six factors are crucial hurdles to overcome in effective marketing.

Marketers must provide compelling reasons for adoption, and overcome customers’ fears, uncertainties, and doubts.

Traditional marketing methods (which assumes customers understand the usefulness of the products and know how to evaluate them) are often insufficient. Often, must focus more on educating potential

users about benefits and how to use new product

Involve customers in evaluating new product ideas

Don’t base assessment on inventor’s familiarity with, and enthusiasm for, technology.

Understand who is likely to be an early adopter and how they differ from the mainstream market.

The Technology Adoption Life Cycle

Geoff Moore, in his books Crossing the Chasm (1991) and Inside the Tornado (1995), draws on marketing theory and high-tech experience to describe the elements of the product life cycle for technology innovations. His work examines how communities respond to discontinuous innovations - or any new products or services that require the end user in the marketplace to dramatically change their past behavior

1. Innovators - technology enthusiasts who are fundamentally committed to new technology on the grounds that sooner or later it will improve their lives.

2. Early Adopters - visionaries and entrepreneurs in business and government who want to use the innovation to make a break with the past and start an entirely new future

3. Early Majority - pragmatists who make up the bulk of all technology infrastructure purchases; their purchasing behavior is based on evolution rather than revolution, and they buy only when there is a proven track record of useful productivity improvement.

4. Later Majority - conservatives who are very price sensitive and pessimistic about the added value of the product; they buy only when technology has been simplified and commoditized.

5. Laggards - skeptics who are not really potential customers; goal is not to sell to them, but sell around their constant criticism.

Categories of Adopters

Innovators

Technology Enthusiasts

Early Adopters

Visionaries

Late Majority

Conservatives

Early Majority

Pragmatists

Laggards

Skeptics

{ { { { { TheChasm

-σ +σ-2σ

The C

hasm! 34% 34% 16%2.5% 13.5%

Early Market TheChasm

TheTornado

Main Street

End of Life

12

3 4

5

Innovators: Technology Enthusiasts

Appreciate technology for its own sake Motivated by idea of being a change agent Will tolerate initial glitches Will develop make-shift solutions Willing to alpha/beta test and work with

technical personnel in compensation with lower pricing Provide early revenue for marketers—but not

a large group Importance: They are the gatekeeper to

the next group of adopters.

Early Adopters: “Visionaries”

Want to revolutionize competitive rules in their industry Attracted by high-risk/high-reward projects (in returns of

psychological and substantive benefits) Not necessarily very price sensitive Demand customized solutions and intensive tech

support Will supply missing elements of total solution

Product Form Competition: Between categories of solutions (determinates of standard/dominant design)

Early adopters communicate horizontally (across industry boundaries)

Opinion leaders, change agents

Early Majority: “Pragmatists”

Comfortable with only evolutionary changes in business practices, in order to gain productivity enhancements

Risk aversion to disruptions in their operations Want proven applications, reliable service Seek the convenient “whole product” design

A total solution provided at once Buy only with a reference from trusted

colleague in same industry

Pragmatists (Cont.) This group is the bulwark of the

mainstream market: They want to move together (herd

mentality). They want to pick the same technology

solution (avoid risk). Once they make a decision, they want to

implement it quickly (high visibility of performance). Requires industry standards

Late Majority: “Conservatives”

Risk averse, technology shy Very price sensitive Require completely pre-assembled,

bullet-proof (reliable performance) solutions

Motivated only by need to keep up with competitors in their industry

Rely on single, trusted advisor

Laggards: “Skeptics” Want to maintain status quo Technology is a hindrance to

operations Luddites (the guys resist to the technological

progress) Buy only if all other alternatives

worse

Chasm In addition, there is a sixth zone that Moore

calls the "chasm," separating adoption by the early market customers (1,2) from adoption by the early majority (3). Moore describes the chasm as follows:

  Whenever truly innovative high-tech products are

first brought to market, they will initially enjoy a warm welcome in an early market made up of technology enthusiasts and visionaries but then will fall into a chasm, during which sales will falter and often plummet.

Moore (1995, p.25) characterizes the zones as follows: The Early Market

A time of great excitement when customers are technology enthusiasts and visionaries looking to be first to get on board with the new paradigm. Visionaries are willing to work through bugs and put in effort themselves to make the solution work. The product sells itself.

The ChasmA time of great despair, when the early market's interest wanes but the mainstream market is still not comfortable with the immaturity of the solutions available. The only safe way to cross the chasm is to put all your eggs in one basket - target a single beachhead of pragmatist customers in a mainstream market segment and accelerate the formation of 100 percent of their whole product.

The Bowling AlleyA period of niche-based adoption in advance of the general marketplace, driven by compelling customer needs and the willingness of vendors to craft niche-specific whole products. A whole product is the minimum set of products and services necessary to ensure that the target customer will achieve his or her compelling reason to buy. Pragmatists want a whole product, with the necessary user infrastructure and customer support. At this stage, companies should resist the temptation to try to provide a general purpose whole product and simplify the whole product challenge. To get customers on board, service content is high, ROI to end user must be high, and partnerships with other companies may be called for. Success in the niche can then be leveraged elsewhere. The two keys to targeting the right niche customers here are (1) the segment has a compelling reason to buy, and (2) the segment is not currently well served by any competitor.

The TornadoAn ugly and frenzied period of mass-market adoption, when the general marketplace (early majority customers) switches over to the new infrastructure paradigm. It's a herd mentality. Keys to success in this period are to ignore customer needs and product modifications and just ship, riding the wave. Market share is critical at this stage to lock out competitors, and partners should be eliminated. Companies entering the tornado should expand distribution channels, attack the competition, and price to maximize market share.

Main StreetA period of aftermarket development, when the base infrastructure has been deployed and the goal is now to flesh out the potential. Another reversal of strategy is needed back to niche-based marketing. Before the product becomes obsolete, there is an opportunity to settle into a profitable period of differentiating the commoditized whole product with extensions focusing on the end user.

End of LifeWhich comes too soon in high-tech. Companies should find caretakers that can take over a fully commoditized product with low profit margin.

The macro perspective

To be able to compare societies as a whole as regards to the adoption of technology it is necessary to take into account a number of macro variables that form the general context in which the use of technology is stimulated or discouraged. These include:

1. National and regional economical factors that influence net income and income differences, the market structure and the distribution of goods and also the available infrastructure.

2. The educational system that influences the availability of the necessary knowledge within the population and the occupational structure.

3. The political climate that is responsible for laws and regulations and policy towards ICT.

4. The cultural climate which shapes the norms and values regulating individual and collective behaviour and the importance of certain social networks.

5. Geography and, physical climate that influence the nearness of others and mobility patterns, enabling or hampering both face-to-face contacts between network members and certain types of activities.

6. The general demographic structure (density of population, age structure, ethnic diversity).

Macro factors play a dual role in the adoption and diffusion of technology. Firstly the macro de velopment is the integrated sum of developments and decisions that take place on the three ot her levels. Macro factors explain general statistics such as diffusion rates and are important when one wants to compare countries, regions, etc.

(3) Technology diffusion Myth - Technology is largely result of one’s own people -->

Technological Nativism No Technologically dynamic nation is autonomous from

Technologies of other nations 1500's - China produced most Technology 1500 -1700's - Europe leads world in Technological advances Yet many of these Technologies were the continuation of

earlier advances in technology from China and elsewhere United States - heavily dependent on Technologies of other

countries since its inception Even advances that originated in U.S. are often owed to

immigrants Bakelight- (Leo Baekeland- Belgium) Television Camera- (Vladimir Zworykin- Russia)

There are two types of diffusion effects:

Innovation: trial of product caused by advertising and promotions

Imitation: trial of product caused by word-of-mouth recommendations and reputation

Sharing of Technology isn’t as simple as merely transplanting Technology from place to place

Technology is a system - many components required to make it work, resources vary from country to country

Technology needs support of human beings who understand its workings

This may vary from country to country

"A country (or an individual firm) that draws on technologies developed elsewhere is spared the expense of ‘reinventing the wheel.’ But making effective use of imported technologies - even if only direct copying is Required - often requires a stock of indigenous skill that cannot always be easily found."

Sharing of Technology

Technologies shared between countries can be used for very different purposes

China - Gun Powder - used medicinally for centuries - passed on to Europe

Europe - within short time using it for cannons and firearms

When Technology is transferred from one country to another, modifications are most likely required for Technology to work.... Thus it isn’t the exact same Technology

Japan and Steel Production - Japanese tried to apply Dutch steel production but Had to make many modifications. In particular, the special characteristics Of Japanese coal and iron ore required special modifications

Not all countries have equal resources (human and material)

Even if Technologies can be transferred the results are not always desirable

Pakistan - introduction of tractor - replaces worker - 40% unemployment rate

Workers migrate to cities - dire poverty results - per acre crop yields hardly increased at all.

Equal use of Technologies can have devastating impact U.S. (pop. 250 million) - one car/ 2

people China (pop. 1 billion+) - one car/

500 people

Could we afford to equalize resources w/out resource and environmental breakdown???

Technology of one country may not makes good economic sense for another country

Poorer countries need Technologies that create human jobs, not replace human jobs

Technologies are often chosen by small power groups that represent their interests rather than the interests of the country

Technology cannot be developed strictly for economic motives: values and morality of culture play key role.

Selection of Technology reflects larger issues - social and political, as well as economic.

Business Firms and Technological Diffusion

Diffusion similar to that which occurs from country to country

Factors that influence diffusion: Relative advantages over existing Technology Compatibility w/ existing values of firm Ease/difficulty of understanding and applying new Technology Ease of experimentation with new Technology Extent to which positive results appear

People with knowledge of Technology are KEY to diffusion of Technology

As with countries, Technology that works in one environment may fail in another

Economics Motives and Technological Transfer

Expectation of cost and benefits strongly influences speed at which Technology is diffused

Mechanical Reaper - pre reaper - grain harvested manually - LABOR INTENSIVE

Mechanical Reaper introduced (1830's) but diffused very slowly until 1850's

1850's - Crimean War - increase of grain prices - motivation to produce > grain

More grain - bigger farms - Mechanical reaper makes sense to buy

Qualifications for Mechanical Reaper - may not have been widely used because it required refinement in order to be of practical use to farmer

Economic motive is important BUT it is still only a presumption of the likely

success of a Technology

It often takes a long time for Technology to move from lab. Feasibility to commercial value: Freon refrigerants - 1 year Zipper - 27 years Mechanical cotton picker - 53 years Fluorescent lamp - 79 years

The "Not Invented Here" (NIH) Syndrome

Risky nature of Technological innovation blocks the diffusion of new Technologies

"The status quo is a hell of a lot easier than making changes." Henry Ford

Efforts to Restrict the Diffusion of Technology

"The exclusive possession of a particular Technology can confer great advantages on those that have it."

Venice - 16 cent. Glass makers - assassins sent out to kill expatriate glass makers

England - 1719 - illegal for skilled artisans to emigrate Present Day - strict rules against exporting

technologies

Despite regulations, diffusion of technology difficult to regulate

Patents and the Diffusion of Technology

Patents confer exclusive use of an invention and are, obviously, highly desired

Patents can stifle Technological development Patents can help diffuse Technological knowledge

- patent makes public the knowledge Ideally, patents make invention known and

available to public rather that just inventor Patent isn’t an iron-clad protection, merely a

"license to sue" Patents often quickly out-moded by Technological

advance Advantages/disadvantages of patent difficult

weigh over the other

(4) Technology absorption Most technology in ‘latecomers’ comes

from abroad, in mixture of two forms: Embodied: in capital goods, patents,

blueprints, designs, models and so on Tacit: knowledge that can be ‘transferred’ only

by close interaction and learning by new user Using technology efficiently thus needs

conscious effort by the enterprise & also the ‘system’ in which it works (suppliers, customers, technology support, training institutions and so on)

Technology flows take many forms

Non-contractual: Public knowledge, fairs, conferences, migration, export activity and informal networks

Contractual: FDI related: (internalized) transfers within

multinationals or joint ventures with MNCs Arm’s length: equipment imports, turnkey

projects, licensing, subcontracting, franchising and other contracts

Role of internalized technology flows is growing…

Innovation is highly concentrated, by region, country and enterprise

MNCs lead in innovation: most R&D is performed by large firms and most innovative firms are globalized

MNCs dominate technology flows in all forms, but form depends on nature of technology: newest and most valuable technology is internalized, others licensed

What this means for developing & transition economies…

FDI is the most efficient way to access foreign technology if countries want ... New, fast-changing proprietary technologies

not available at arm’s length Rapid access to new technology and

subsequent upgrading, without local effort Non-core components of operation (i.e.

management, marketing, finance etc) Access to MNC foreign markets, particularly to

global production networks

For local firms… Licensing or joint ventures are desirable if:

Local firms are strong in base technologies but need particular new components of technology

They specialize in activities with stable technologies, where state-of-art technologies are available at arm’s length

They can export through foreign buyers (low technology products), sell undifferentiated products directly or have established brands

They subcontract to MNCs (OEM) or supply local components

Attracting FDI, particularly export-oriented production networks…

FDI location: ‘Traditional’ factors...

Some remain relevant Stable, transparent and welcoming policies Good macroeconomic management Large and/or fast growing markets Primary resources Cheap and trainable labour

But others are becoming less important Cheap unskilled labour Protected markets

‘New’ factors in FDI location...

Human capital: new skills, flexible practices, training provisions, ease of expatriate entry

Technology systems: MSTQ & R&D strongly linked to and supportive of enterprises

Strong supplier and service network Modern ICT infrastructure and logistics Low ‘transaction costs’ (entry, exit, expansion,

taxation, customs, employment) Strong legal systems and property rights Openness to cross-border mergers & acquisitions Effective FDI promotion, targeting and coordination

with supply side policies

Role of MNCs in global economy is growing steadily

FDI is growing faster than other economic aggregates: national investment, GDP or exports

MNCs control about 2/3 of world trade. About 30-40% of this trade is within MNCs, and their

role is particularly large in high-tech manufacturing MNC export activity is taking new forms: ‘global

production networks’, with very fine vertical specialization by function/component between countries

Local companies are also involved in global production networks, but only if they have very high levels of technological capabilities – and form strong ties with MNCs to access and absorb their technological know-how and management skills

MNCs are globalizing innovation: Share of foreign affiliates in national R&D, 2001

Figure HHH: Shares of manufacturing R&D by foreign affiliates, 2001

0

10

20

30

40

50

60

70

80

Hung

ary

Irela

nd

Portu

gal

Spai

n

Swed

en

Can

ada

Neth

erla

nds UK

Ger

man

y

Fran

ce

Pola

nd

USA

Finl

and

Czec

h Re

p

Turk

ey

Japa

n

Source: OECD Science, Technology and Industry Scoreboard 2003.

Rooting MNCs locally… Attracting FDI is not enough: globalized

production is (by definition) mobile Retaining MNCs, esp. in export-oriented

activities, needs Constantly rising skill levels Tighter links to more efficient suppliers Greater depth of technological activity, in-

house and with local knowledge institutions

How to promote supplier linkages with MNCs?

Local content rules often inefficient – and now forbidden by WTO rules

Fiscal incentives are costly but can only play an initial stimulating role

What works best: Improving supplier capabilities, directly and

with MNC assistance ‘Matchmaking’, information dissemination Cluster development strategies

For example, in Malaysia…

The Small and Medium Industries Corporation has a Global Supplier Programme to strengthen SMEs not only to become suppliers to MNCs, but also to become global suppliers. This programme provides training in critical skills and incentives to MNCs to ‘adopt’ local suppliers and to help them upgrade skills and technology.

Eng Teknologi Holdings Berhad (ENGTEK) has benefited from both programmes. Starting as a supplier of components to the local hard disk drive and semiconductor MNCs, it is now a multinational, with nine companies in four other East Asian countries. ENGTEK has entered into partnerships with several electronics MNCs operating in Penang, which provide it with technical and financial assistance, helping it develop design as well as manufacturing expertise and providing it entry into their global value chains.

MNCs also actively create linkages. Intel Malaysia uses its ‘SMART’ programme for local supplier development. SMART has five steps: select promising suppliers on the basis of systematic analysis; provide initial training; allocate business according to capabilities; raise capabilities by technical assistance and training; and help suppliers diversify and develop into global suppliers.

Government tax incentives and financial support (worth about $50m a year) have helped this initiative.

Ireland is best practice in ‘using’ FDI to develop hi-tech

industry Targeted inward investment strategy: The Industrial Development Authority

(IDA) launched industry and company targeting strategy. Sector/industry specialists were used to develop industry-based strategy and meet potential investors. US electronics and pharmaceutical industries targeted in the 1970s, software and international services in the 1980s/1990s; IT, multi-media and e-business in the 2000s. Objective shifted from job creation to promotion of linkages with local firms and attraction of headquarters and R&D

National Linkage Programme fosters links between investors and local firms. It covers market research, matchmaking, monitoring and troubleshooting, business development by arm of IDA set up specifically to promote indigenous firms.

Aftercare and plant upgrading, concentrated on about 50 key companies in five target industries. IDA targets companies that have a high potential for new investment, or that can leverage investment from other companies. Links are forged with the management to improve plant competitiveness by making sure that the local management is fully informed of Ireland’s advantages.

Skills development, which involved the expansion of education so that over 40%of school leavers go on to third-level education (set to rise to 50%). IT and science subjects have been prioritized as part of a proactive strategy anticipating future needs. Computer provision and training in schools have increased dramatically; IDA officers visited every school and written to every parent.

Technology policy, including 2000 Technology Foresight Fund with a $1bn plan to boost R&D in information technology and biotechnology.

Telecommunications deregulation and a $65bn National Development Plan, with a focus on e-business and infrastructure, also support technology activities.

Low corporate tax has been a central to Ireland’s attractiveness for FDI . Corporate tax is currently set at 10% and many exemptions are available.

Creating a technology culture in industry (difficult but necessary)

Raise awareness of need for in-house technological activity and R&D

‘Technology foresight’ exercises Benchmarking and technology audits R&D incentives: most countries make

R&D tax-deductible expense, many offer extra incentives. Effects mixed, but tax credits linked to incremental R&D seem best

Strengthening the technology infrastructure

Metrology, standards, testing, quality Quality standards vital (e.g. ISO 9000) Good standards institutions can help to

diffuse technology and quality awareness Advanced standards institutions are

withdrawing from testing into basic standard setting and research. They are helping create private service providers.

Metrology (measurement/calibration) is central to quality certification; international accreditation is vital to competitiveness

Local metrology capability reduces cost and raises response speed

Secondary metrology can be carried out by private laboratories, primary metrology has to be done in public institutions

Role for government in providing the public goods and creating private markets

Research & development institutions

Most public R&D/universities are delinked from enterprises: different ‘culture’, no incentives and wrong skills

But they are an important resource for accessing, adapting, diffusing, creating technology – and for ‘rooting’ MNCs

Valuable for hi-tech start-ups and SMEs Vital source of creating R&D skills for

industry and breaking ground in generic new technologies

How can knowledge institutions be made more relevant?

Privatization of public laboratories Hard budgets, management change Intensive training of staff and incentives

to reach out to industry Funded schemes for joint R&D with

industry, exchange of R&D personnel Matchmakers to create links with firms,

raise their awareness of capabilities and potential