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The Role of Private Business in the International Diffusion of Technology

Published online by Cambridge University Press:  11 May 2010

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Clearly, private business is but one agent for the diffusion of technology. Yet it is an important one. In the normal pursuit of business, technological knowledge and skills pass over political boundaries and private enterprise takes part in the international diffusion of technology. In this paper I want to try to delineate the means by which private companies have shared in the international diffusion of technology in the nineteenth and twentieth centuries. I will note briefly the “imitation lag” and then what I want to call the “absorption gap.” From generalizations, I will turn to some explicit examples and analysis. Finally, in conclusion, I want to return to my concept of the absorption gap and the role of private enterprise in bridging that gap.

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Papers Presented at the Thirty-third Annual Meeting of the Economic History Association
Copyright
Copyright © The Economic History Association 1974

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References

This paper has been revised since its delivery on September 14, 1973, in light of comments made at the Economic History Association meeting by Professors Kozo Yamamura, Ralph Hidy, Stuart Bruchey, David Felix, and others.

1 Technology has been defined in narrow terms to comprise simply tools and machines. I prefer a more comprehensive definition, including in addition to tools and machines, product design, knowhow, and organizational ability, that is, concept along with technique. I am well aware that technological diffusion often takes place in “bits and pieces.” Indeed, technology itself evolves in a complex fashion. While these points are not elaborated on herein, there is nothing in my paper to imply otherwise.

2 If the exporter of the product is independent of the producer of the product, it can be argued that the export firm does not have the technology of production; yet, it is still the holder of (owner of or agent for) the product that contains within it the technology.

3 The holder of the technology may be, for example, a national or international public agency, or an individual or individuals, a periodical, or a scholarly text. Technology obviously does not have to be received by private companies from other private companies, or alternatively, transmitted by private companies to other private companies.

4 By identical I mean within the same corporate group—company and branch or foreign subsidiary of that company. I am in this case piercing the corporate arrangements to determine the actuality.

5 An employee of the technologically-advanced firm may leave it and travel abroad, taking with him technological information or proficiency. Rosenberg, Nathan, “Economic Development and the Transfer of Technology: Some Historical Perspectives,” Technology and Culture, XI (July 1970), 553ff.Google Scholar, points out that in the nineteenth century it was common for technological transfers to be made by the migration of trained personnel. See also Woodruff, William, The Impact of Western Man (New York: St. Martin's Press, 1967), chap. 5.Google Scholar A technologically-advanced company may open its plants to visiting foreign technicians, who see processes they-can imitate in their homelands. A firm may sell or exhibit its products domestically, which products may be seen by foreigners who may reproduce the innovations in their own countries. A man may conduct industrial espionage in a plant of a technologically-advanced company and then transmit the secrets across the border. In each of these cases, technological transfer occurs, but the technologically-advanced private firm is essentially passive. It does not send goods, patents, technology, capital, or men across borders; instead, the agency for the transfer is an individual, an ex-employee, or a visitor who may or may not be associated with a private business abroad.

6 Rogers, Everett, Diffusion of Innovations (New York: The Free Press, 1962), pp. 1819, 79–120Google Scholar, and his second edition of the same book, Communication of Innovations (New York: The Free Press, 1971), pp. 128132, are excellent on time lags between awareness of the innovation and adoption.Google Scholar

7 To my knowledge, the term “international imitation lag” was first used by Posner, Michael, “International Trade and Technical Change,” Oxford Economic Papers, XIII (October 1961), 323341.CrossRefGoogle Scholar See also Hufbauer, G. C., Synthetic Materials and the Theory of International Trade (Cambridge, Mass.: Harvard University Press, 1966), chaps. 1 and 5Google Scholar, and Wells, Louis T. Jr, ed., The Product Life Cycle and International Trade (Boston, Mass.: Division of Research, Graduate School of Business Administration, Harvard University, 1972), pp. 2325.Google Scholar

8 Tilton, John R., International Diffusion of Technology: The Case of Semi-Conductors (Washington, D.C.: Brookings Institution, 1971), p. 23Google Scholar, introduces four different “lags” (including the imitation lag) but none takes into account the question of national ownership and control, although Tilton's book has much of value to say on this matter.

9 Thus, for example, absorption gap (1) would indicate the lapsed time between the first introduction of British-made cotton textiles into India and the efficient production of such machine-made cotton textiles in a plant owned by Indian capital, run by Indian management, and operated in the main Dy Indian technicians. Absorption gap (2) might indicate the lapsed time between the first introduction of British machine-made cotton textiles into India and the time when say 50 percent of the output of the Indian cotton textiles came from the modern Indian cotton textile industry. I find myself very much in agreement with Bruchey's, Stuart statement that “it is not so much the first appearance of new techniques as their spread [within a nation] that matters in economic growth.” The Roots of American Economic Growth (New York: Harper & Row, 1965), p. 139.Google Scholar Nonetheless, the entry of new techniques in a nation and their initial absorption are clearly a precondition for their spread. Professor Solomon Barkin of the Department of Economics at the University of Massachusetts, Amherst, has been helpful to me in stressing that in considering “absorption” of technological ability—as I have defined it—I should consider separately managerial and technical personnel. I find this idea both stimulating and troubling. For example, in the 1890's, The Royal Dutch Company in the Dutch East Indies used American drillers in its crude oil producing operations. Royal Dutch had complete ownership and management control. Was the foreign technology absorbed? It seems to me that it was under Dutch corporate control, and one can legitimately refer to true technological diffusion as having taken place. Perhaps the test should be: If the business would fail or be seriously disrupted were foreign technicians removed, the control of technology cannot be said to be in national the foreign technicians then it may be that despite the presence of foreign technicians in the operations, the technology has been effectively assimilated.

10 In the literature on international technological transfer and diffusion, definitions vary. Sometimes the ideas of transfer, diffusion, and adoption are used interchangeably. (See for instance Tilton, International Diffusion, pp. 2, 163.) Sometimes “transfer” refers to the crossing of borders and “diffusion” to the spread within the borders. See Murray's, John Joseph article in Spencer, Daniel L. and Woronick, Alexander, eds., The Transfer of Technology to Developing Countries (New York: Praeger, 1967), p. 9.Google Scholar Rogers, Diffusion of Innovation, p. 76, differentiates diffusion from adoption in that diffusion for him involves the spread from source to user or adopter, while adoption is an “individual matter”—“the mental process through which an individual passes from first hearing about an innovation to final adoption.” In Communication of Innovations, pp. 12, 26, 99ff., Rogers defines diffusion as a special type of communication—“the process by which innovations spread to the members of a social system” and changes his definition of adoption to a “decision to make full use of a new idea.” For purposes of this paper, as my reader is now aware, I am distinguishing between mere international transfers and true international diffusion (that is absorption)—the first implying the physical, geographical transfer of an innovation (specifically new technology) over borders, and the second designating the spread of that new technology to nationals of the host country to the extent that they can and do utilize the new technology in production.

11 As Bower, Joseph points out in Managing The Resource Allocation Process (Boston: Division of Research, Graduate School of Business Administration, Harvard University, 1970), p. 39Google Scholar, “Studies of the research and development process indicate that expenditures rise exponentially as a product moves from the basic and applied research steps to development and production. It is factories, tools, and dies, trained labor, reoriented channels of distribution and promotion which are the truly expensive part of innovation.”

12 See Rosenberg, Nathan, ed., The Economics of Technological Change (London: Penguin Books, 1971), pp. 210, 274–281.Google Scholar

13 Rosenberg, Professor has put it, in describing the United States in the nineteenth century, “it required considerable technical expertise to borrow and exploit a foreign industrial technology.” Technology and American Economic Growth (New York: Harper & Row, 1972), p. 82.Google Scholar

14 See note 54 below for an example of priority barriers. Priority barriers may be erected by governments as well as faced by private companies. Thus, the Soviet government may decide not to manufacture certain consumer goods, not because of demand, capital, natural resource, labor-cost, technological, scale, infrastructure, cultural, or language barriers, or even business organization barriers, but because of priority barriers.

15 Effective business organization includes attitudes of management. Ray, G. F., “The Diffusion of New Technology—A Study of Ten Processes in Nine Industries,” National Institute Economic Review (May 1969), 83Google Scholar, concludes that the attitude of management has the “greatest impact on the application of new techniques.” I am far from alone in talking about the absorptive capabilities of recipient firms. See Baranson, Jack, “Technology Transfer Through the International Firm,” American Economic Review, LX (May 1970), 435436.Google Scholar Baranson in this article is concerned with factors affecting transfer logistics of the international firm; he barely touches on the problems of transfer as distinct from diffusion but he does recognize the importance of absorptive capabilities. In my general analysis in this paper, I find myself influenced by the oody of work that deals specifically with transfers without diffusion, for example, the seminal article by Hans Singer, “Distribution of Gains between Investing and Borrowing Countries” (1950), reprinted in Singer, Hans, International Development (New York: McGraw-Hill, 1964), pp. 161172Google Scholar; the concept of “a dual economy” that now appears in most textbooks on less developed countries; and statements such as the one that appeared in a 1956 National Planning Association Study. After noting that U.S. firms had been transferring technology to Latin America for years, this study concluded, “Unfortunately, however, only a low proportion of the many small firms which are still using primitive practices throughout Latin America have as yet been reached by the methods and techniques which are being introduced by U.S. firms and their affiliates.” National Planning Association Special Committee on Technical Cooperation, Technical Cooperation in Latin America—Recommendations for the Future (Washington, D.C.: National Planning Association, 1956), p. 77.Google Scholar This will henceforth be cited as NPA Technical Cooperation Study. I have a number of reservations about the legitimacy of such views, but find it essential to take their premises into account in a consideration of the history of the international diffusion of technology. These views touch on the basic question of the abilities of recipients of technology to absorb the technology.

16 Details on such British restraints appear in Britain, Great, “First Report from Select Committee to Inquire into the Operation of the Existing Laws Affecting the Exportation of Machinery,” Parliamentary Papers, Vol. 7 (1841).Google Scholar

17 For example the Cockerill firm, using British methods and manufacturing in Belgium and Germany, sold its machines as far east as Poland; new textile enterprises developed, incorporating the new technology. Landes, David S., The Unbound Prometheus (Cambridge, Eng.: Cambridge University Press, 1969), pp. 150, 148.Google Scholar Bruchey notes that despite the ban on British machinery exports, a substantial number of British machines reached the United States to be copied and, more important, modified to meet U.S. requirements. Bruchey, Roots of American Economic Growth, p. 167.

18 Ferguson, Eugene S., “The Steam Engine Before 1830,” in Technology in Western Civilization, eds. Kranzberg, Melvin and Pursell, Carroll W. Jr (New York: Oxford University Press, 1967), I, p. 299.Google Scholar

19 Moulton was British, emigrated to the United States, and established his business there. He took the rubber samples to England, hoping to sell “the inventor's secret.” Woodruff, William, “Origins of An Early English Rubber Manufactory,” Bulletin of the Business Historical Society, XXV (March 1951), pp. 3236.Google Scholar Hancock's lawyers denied that the latter had gained technological information directly from Goodyear's samples. Woodruff suggests, “Perhaps his [Hancock's] genius lay in appreciating what Goodyear had done.… There can be no doubt that Goodyear's discovery stimulated the English inventor to still further effort.”

20 Singer Manufacturing Co. records, State Historical Society of Wisconsin, Madison, Wisconsin.

21 Thus Colt licensed companies on the European continent to make revolvers under Colt patents in the 1850's. See Wilkins, Mira, The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914 (Cambridge, Mass.: Harvard University Press, 1970), p. 30.Google Scholar The predecessor of Aluminum Company of America, The Pittsburgh Reduction Company, that acquired the Hall patents for making aluminum in 1888, granted in 1895 a license under these patents to a small French firm, rights that soon passed to d'Alais et Camargues, later Cie. Pechiney. See Stocking, George W. and Watkins, Myron W., Cartels in Action (New York: Twentieth Century Fund, 1946), pp. 220, 227.Google Scholar Annual reports and company prospectuses in the Scudder Collection, Columbia University Library, reveal numerous licensing relationships. Sometimes patents were taken out abroad under the names of individuals on Dehalf of a company, sometimes by the company itself. U.S. Bureau of Census, Historical Statistics of the United States (Washington, D.C.: G.P.O., 1960), pp. 607608Google Scholar, gives data on the number of patents issued in the United States to residents of foreign countries and foreign corporations. I know of no one who has attempted to use these data in considering problems of international technological transfer.

22 See, for example, Landes, Unbound Prometheus, p. 150, on Cockerill exports.

23 Data from company records of exporters of these products.

24 Hufbauer, Synthetic Materials, p. 93.

25 All through the twentieth century, American firms have sent technicians to install machinery in plants in Latin America and over time have trained local employees to operate and maintain the machinery.’ NPA Technical Cooperation Study, pp. 76–77.

26 Wilkins, Emergence of Multinational Enterprise, p. 38.

27 See Mira Wilkins, The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (Studies in Business History, Cambridge, Mass.: Harvard University Press, forthcoming).

29 Data obtained in Japan from U.S. and Japanese companies and the Ministry of International Trade and Industry.

30 Hoover, Herbert, Memoirs (New York: Macmillan, 1952), I, pp. 28ff.Google Scholar

31 Lokanathan, P. S., Industrial Organization in India (London: George Allen & Unwin, 1970), pp. 1516.Google Scholar

32 See Gabriel, Peter, The International Transfer of Corporate Skills (Boston: Division of Research, Graduate School of Business Administration, Harvard University, 1967).Google Scholar

33 These comments are especially true of the twentieth century as technology became more complex. But even in the nineteenth century, as others have noted, imitation of products and processes and development of patents often required foreign personnel familiar with the techniques. Such men in the nineteenth century were sometimes (and sometimes not) associated with private companies. In recent times, when a company has moved away from specific to “overall technology,” it may fail completely. This was the case with Litton Industries’ much discussed contract with Greece for the economic development of Crete and the Peloponnesus peninsula.

34 There are numerous instances in the nineteenth century wherein private companies carried technology over borders through direct investments. For the activities of American companies in this respect see Wilkins, Emergence of Multinational Enterprise. How many cases of technological transfer through direct investment one can find in the eighteenth century is unknown to the present author, but clearly European companies before 1800 through direct, investment appear to have played a role in technological transfer. Thus, in 1770, a French company operated a coal mine at Hagenbach in Baden and appears to have transferred the more advanced French methods to Germany. See Cameron, Rondo E., France and the Economic Development of Europe 1800–1914 (Princeton, N.J.: Princeton University Press, 1961), p. 372.Google ScholarGerschenkron, Alexander, Economic Backwardness in Historical Perspective (New York: Praeger, 1965), pp. 3839, suggests such activities by the Fuggers in the fifteenth and sixteenth centuries.Google Scholar

35 See for example Vernon, Raymond, Sovereignty at Bay (New York: Basic Books, 1971)Google Scholar; Wilkins, Emergence of Multinational Enterprise; and Wilkins, Maturing of Multinational Enterprise.

36 On imitation abroad see Stobaugh, Robert B., “The Product Life Cycle, U.S. Exports, and International Investment,” DBA dissertation, Graduate School of Business Administration, Harvard University, 1968Google Scholar, and Tilton, International Diffusion, p. 164.

37 These two types of diffusion are seldom discussed, yet they are of some significance.

38 Today multinational corporations boast of their contributions in this sphere. It wasn't always so: William Woodruff tells of how in the 1850's American investors in a rubber plant in Scotland imported skilled labor from the United States; part of the reason was the company's fear that skilled British rubber workers “might only stay long enough to make off with the firm's secrets.” Woodruff, William, “The American Origins of a Scottish Industry,” Scottish Journal of Political Economy, II (February 1955), 28.Google Scholar

39 A number of governments in recent years have forced multinational enterprises to have local partners in part in order to diffuse technology.

40 There is marvelous, detailed material to illustrate this point that I have uncovered in the files of Ford-Werke, Cologne. When in the early 1930's, Ford began to manufacture in Germany, it needed local suppliers. It made arrangements for German suppliers to learn about U.S. technology so that its German subsidiary could buy quality German-made parts. See Frederick C. Young to E. C. Heine, Dec. 19, 1934; Young, Frederick C., “Report on Cologne,” Dec. 22, 1934Google Scholar; and T. F. Gehle to A. M. Wibel, Jan. 31, 1935 and Mar. 14, 1935, Ford-Werke Archives, Cologne. Moving to a totally different area, multinational corporations that are buyers of rubber, cotton, and bananas have given technical assistance to small growers. See NPA Technical Cooperation Study, p. 76.

41 Thus, for example, the Kuwait Oil Company pays taxes to the Kuwaiti government. That government used part of its revenue to buy technology to build a water desalination plant for Kuwait City. Using tax revenues, the host government becomes the vehicle for technological transfers. Or, as a second example, employees of Kuwait Oil Company have demands. Technologically-advanced goods are imported into Kuwait to meet the new demands.

42 The literature on the multinational corporation and its technological contributions is substantial. The National Planning Association published in the 1950's and early 1960's a series of Case Studies on United States Business Performance Abroad, many of which studies sought to reveal the technological contributions of multinational corporations. Quinn, James Brian, “Technology Transfer by Multinational Companies,” Harvard Business Review, XLVII (Nov.-Dec. 1969), 147161, provides numerous examples of transfers of technology.Google Scholar

43 Quotation is from Hufbauer, Synthetic Materials, p. 68, and applies to his work on the chemical industry; it is also applicable to other industries, although in some industries there is clear evidence that multinational corporations have adapted to foreign conditions—if not too frequently to differences of factor availability at least to diverse foreign demand. Recent research at the Harvard Business School by Professor Robert B. Stobaugh indicates that often adjustments of technology by multinational corporations occur in material handling and packaging rather than in the actual production activity.

44 Furtado, Celso, Obstacles to Economic Development (Garden City, N.Y.: Doubleday & Co., 1970).Google Scholar On the many advocates of some technological adjustment, see Wells, Louis T. Jr, “Economic Man and Engineering Man: Choice of Technology in a Low-Wage Country,” Public Policy, XXI (Summer 1973), 319, n. 1.Google Scholar This article has fascinating data on the selection of technology in plants in contemporary Indonesia.

45 Such is certainly the thrust of the N.P.A. studies, cited in note 42 above. It is the policy implicitly accepted by Brazilian government economists. Gerschenkron, Economic Backwardness in Historical Perspective, pp. 9, 26, argues that largely by the application of “modern and efficient techniques” can a backward country achieve success and.that the advanced technology is the right one. From a different point of view, others agree that techniques to be appropriate should be modified and feel that some international firms are “more willing and able than others to adjust industrial transfers to the specialized needs of developing countries.” Baranson, “Technology Transfer through the International Firm,” p. 440. For an intelligent, although limited, consideration of the impact of the foreign investor's communication of technology on the Canadian economy, see Report of the Task Force on the Structure of Canadian Industry, Foreign Ownership and the Structure of Canadian Industry (Ottawa: Privy Council Office, 1968), pp. 5660, 66–70.Google Scholar

46 Landes, Unbound Prometheus, p. 214.

47 ibid., p. 221.

48 Rosenberg, Technology and American Economic Growth, p. 45n. The British started to import American shoe-making machinery to obtain the appropriate technological processes. See Dunning, John H., American Investment in British Manufacturing Industry (London: George Allen & Unwin, 1958), pp. 3132Google Scholar, and International Management Association, Case Studies in Foreign Operations (New York: International Management Association, 1957), pp. 7778Google Scholar, on United Shoe Machinery's activities in Britain providing American machinery for the “modernized industry.”

49 Product cycle theory argues that products are exported, imitated abroad, and that this becomes a basis for direct investment in foreign countries by the exporter. See Vernon, Raymond, “International Investment and International Trade in the Product Cycle,” Quarterly Journal of Economics, LXXX (May 1966), 190207.CrossRefGoogle Scholar

50 The automobile industry is a fine example of this proposition. The mass produced American automobile made with interchangeable parts was exported to Europe. William Richard Morris (later Lord Nuffield) set out to compete with the Model T, producing his first car, the Morris-Oxford in April 1913. Morris borrowed American technology. Wilkins, Mira and Hill, Frank Ernest, American Business Abroad: Ford on Six Continents (Detroit: Wayne State University Press, 1964), p. 51.Google Scholar On the other hand, when in the late 1950's and 1960's Brazil and Argentina determined to substitute domestic car and truck production for imports, it was in the main foreign rather than domestic capital that undertook to manufacture. ibid., pp. 416–419.

51 Wilkins, Emergence of Multinational Enterprise, p. 30.

52 Such data are highly miscellaneous, ranging from annual reports, company records, government hearings and reports, antitrust case materials, to business histories.

53 Wilkins, Emergence of Multinational Enterprise, p. 54.

54 Why were Americans so slow to imitate in this case? The reason seems to lie not in business organization, not in capital, natural resource, labor-cost, technological, scale, infrastructure, cultural, or language barriers, or even completely in demand factors but rather in priorities. The demand was small; the profit potentials did not seem great; and more important up until World War I the Germans adequately filled the existing demand. With the war, the demand structure changed and the former sources of supply were gone. Working chemical patents became of high priority. Diffusion occurred.

55 Bridge, James Howard, The Inside History of the Carnegie Steel Company (New York: The Aldine Book Co., 1903), p. 35.Google Scholar

56 ibid., pp. 75, 86. It is important that Carnegie grasped the potentialities of the new technology. See Solo, Robert A., “Technology Transfer,” in Solo, Robert A. and Rogers, Everett M., eds., Inducing Technological Change for Economic Growth and Development (East Lansing: Michigan State University Press, 1972), p. 18.Google Scholar

57 Dutton, William S., Du Pont (New York: Scribners, 1942), p. 31 and passim.Google Scholar

58 Interviews in South Africa.

59 Hufbauer, Synthetic Materials, pp. 88–89, 131.

60 Fforde, J. S., An International Trade in Managerial Skills (Oxford: Basil Blackwell, 1957).Google Scholar

61 Larson, Henrietta M., Knowlton, Evelyn H., and Popple, Charles S., New Horizons, 1927–1950 (New York: Harper & Row, 1971), pp. 153159.Google Scholar

62 J. K. Jenney, Foreign Relations Department to J. E. Crane, Dec. 9, 1936, Eleutherian Mills Historical Library, Greenville, Wilmington, Dela., Accession 1231, Box 2.

63 See Ozawa, Terutomo, “Should the United States Restrict the Technology Trade,” MSU Business Topics, XX (Autumn 1972), 35.Google Scholar An excellent piece on technology transfers to Japan is Hall, George and Johnson, Robert, “Transfer of U.S. Aerospace Technology to Japan” in Technology Factor in International Trade, edited by Vernon, Raymond (Special Conference Series No. 22; New York: National Bureau of Economic Research, 1970).Google Scholar

64 The formulation often made is that direct foreign investment takes place after the market for exports is “threatened”—meaning by the existence of imitators or the potential for competition.

65 Here the government, which is beyond the subject limits of this paper, may take over the technology.

66 Wilkins, Maturing of Multinational Enterprise.

67 ibid. From 1934 to 1958 there had been a steady decline in U.S. influence in the Cuban sugar industry.

68 Servan-Schreiber, J.-J., The American Challenge (New York: Atheneum, 1968), p. 4.Google Scholar

69 For example, in 1904 Gordon M. McGregor, a Canadian wagon builder, visited Henry Ford and convinced him operations in Canada were desirable. Ford agreed that he and the American company would furnish the Canadian enterprise with patents, plans, drawings and specifications needed to build Ford cars, and Ford personally would give “such reasonable and sufficient oversight” as was required. In return for the technology, the stockholders in Ford Motor Company obtained a 51 percent interest in the Canadian firm and Ford was paid a fee for his services. (Wilkins and Hill, American Business Abroad, pp. 14–18). In the late 1920's and early 1930's, the Japanese wanted to build their own refining industry. One way was through a joint-venture with an American oil company. In this case the Japanese held control, while obtaining U.S. technology. Data from the Archives, Mitsubishi Oil Company, Tokyo, Japan.

70 Based on my own visits to such enterprises in Latin America and the Middle East.

71 Fritsch, William R., Progress and Profits: The Sears, Roebuck Story in Peru (Washington, D.C.: Action Committee for International Development, 1962), pp. 22, 50–51.Google Scholar

72 Often in Canada, it was other multinational corporations that met the new demands. Yet, there were cases wherein Canadian private companies took on that role.