Most enterprises in the country have no Research & Development (R&D) division and there is also no enthusiasm in acquiring technology through various ways and means from multinational enterprises (MNEs).
Enterprises here have little capacity to finance research and skill development to attain desired technology. Our researchers hardly have innovation and the poor number of applications for intellectual property (IP) protection in the Intellectual Property Rights (IPR) office reflects the state of research in Bangladesh.
Production, marketing and distribution have become extremely complex and knowledge-intensive as investments in R&D, software, design, engineering, training, marketing and management come to play a greater role in this competitive and globalised market. Competitiveness does not just depend on cost of factors of production, or on a specific technological advantage. It depends on continuous innovation, high-level skills and learning, an efficient communications and transport infrastructure, and a supportive environment.
In order to get government to focus on both macro and micro policies, the case must be made for supporting small and medium enterprises (SMEs). While it is generally accepted that SMEs are important contributors to the domestic economy, not many governments have framed policies to enhance their contribution or increase their competitiveness and technological advancement.
The outcome of technology investments in various fields including research and development projects, technology start-ups, new product launching, is highly uncertain as it takes a long period to get the possible returns to investment.
The price of technology is very high. The SMEs are unable to acquire, diffuse and master technology from the market.
The SMEs in developing countries have hardly any option to acquire technology. The spillover of foreign direct investment (FDI) is transfer of technology into any country from overseas companies. The potential benefits of FDIs are viewed as important and particular emphasis is placed on technological gains in productivity and competitiveness of the domestic industry.
The presence of foreign firms can have a demonstration effect allowing local industries to become familiar with superior technologies, marketing and managerial practices used in foreign affiliates. By technological spillovers, local partners or employees can acquire information created by others without paying for that information in a market transaction. The overseas technology owners have no effective recourse, under prevailing laws, if other firms utilise information so acquired with a small modification under Reverse Technology.
Spillovers can take place in the form of imitating foreign subsidiaries' technology. The primary technologies acquired by Asian countries such as Japan, Taiwan, Korea, China and others are gained technologies through imitation and subsequently through Reverse Engineering.
Spillovers may occur through movement of labour: workers trained by or working in multinationals may decide to leave and join an existing or open up a new domestic firm, taking with them some or all of the firm's specific knowledge of the multinationals.
MNEs usually transfer limited technology to local staffs and workers and sometime to local suppliers in a bid to gain from low-cost production service and efficient services. Again MNEs have policies to prevent information leakage to their competitors, including local enterprises which reduce the possibility of horizontal spillover. The process of hide-and-seek results in spillovers some technology to local entrepreneurs. As globalisation increases, spillovers become more international and domestic companies can reap the advantages everywhere.
MNEs usually have some R&D activities in overseas locations in order to get appropriate technologies for local markets. R&D spillover refers to involuntary leakage as well as voluntary exchange of useful technological information during the exercise in any host countries.
Acquiring technology also depends on the ability to acquire, diffuse and master technologies. Innovation can be achieved in many ways. Proper policy support from the state can accelerate transfer of technologies into own market with clustering and inter-firm cooperation or business linkages.
Clusters of industries are designated geographic area for similar range of products or related and complimentary products/services. These share common markets, technologies, workers' skill needs. Clusters may be set up through market mechanism or may be organised by government policy decision. The government-sponsored Savar tannery estate, Jamdani Palli at Sonargaon and knit garments industrial area at Fatulla, Narayanganj are examples of clusters of industries.
The development of clusters has been accelerated by government policy and action. The government measures to set up technical schools, research centres, export promotion support activities, support to attain desired quality and standard of local and overseas buyers are preconditions to development of clusters.
The government may also offer incentives for export, promotion of brands and new products or location image and promote strategic alliances among public and private actors to stimulate and support clusters. The experience from both developed and developing world shows that with suitable help in the form of technological assistance, financial support and a stimulating environment, clusters can produce goods with a high technological content and become competitive on a global scale.
Bangladesh Small and Cottage Industries Corporation (BSCIC) has been given responsibility for developing infrastructure facilities for such clusters. There are efforts to set up plastic, garments and pharmaceutical clusters around Dhaka city. Bangladesh Bank (BB) also has a lending policy to promote clusters of SMEs. 'Area Approach method' shall be applied for SME sector like agricultural credit. Territorial industrial production, type of industrial products i.e. areas famous for industrial production or important due to geographical location, will be taken into consideration while disbursing SME loan.
Financial institutions (FIs) have been given instruction to report to the BB after adopting cluster development policy to flourish SME sector. Cluster development policy can be formulated in co-operation with banks, financial institutions and NGOs. The objectives of this policy are to strengthen existing cluster, develop new clusters for special sector, develop and expand sustainable and competitive technology, develop skill of entrepreneurs, develop marketing channels, reduce credit risk and enhance overall product development.
Historically, SMEs are not competitive in overseas markets. Export competitiveness in the SME sector can be increased by cluster formation, especially in traditional and mature industries. The competitive advantage of clustered enterprises is derived from two main sources--firstly from the establishment of linkages to a wider set of technology inputs and actors and secondly, spillover of technology for design, quality control and information related to markets and marketing etc.
Co-operation between industry and academia may create an excellent partnership to develop new technologies or improvement of extant technologies and reverse engineering of products from spillover of technology from MNEs. The strategically located cluster of industries and universities or research institutes, often benefit from technological advice and help of faculty members as well as from the more practical administrative support services of the incubator and, in many cases, the interchange with other scientifically or technically minded entrepreneurs.
Clusters are generally more likely to create conditions that increase efficiency and productivity on a long-term basis and therefore to become attractive to FDI.
Inter-enterprise linkages of MNEs and local enterprises can be a remarkable source of technology for local enterprises. There are many types of linkages: backward, forward, R&D and horizontal. Experience shows that it does not happen automatically. It requires a partnership among all stakeholders: government, MNEs, local SMEs and their support agencies.
MNE-local enterprise linkages build up competitive supply chains which can help local SMEs' access to new and diversified markets, and broader market information and to acquire and master new technologies and skills etc. There may be spillover of technology in each situation.
The writer is a legal economist.