TECHNOLOGY LICENSING AND THE SMALL MANUFACTURING FIRMS: A DIAGNOSIS AND RESPONSE Kam B. Chung

Abstract Encouraging the development and licensing of technologies in the small-manufacturing firms (SMFs) is one strategy for the continued progress of a small open advanced industrializing economy. Drawing on the experiences of some SMFs, a project management approach is used to analyze and assess the process of technology licensing. This brings to light a number of problems faced by such firms for which modes of responses are developed to move their capabilities up the technological ladder. Introduction Small manufacturing firms (SMFs) are important constituents of a progressive industrial economy. They provide critical products and components, essential services and supporting works to the majors manufacturing firms. In an innovations-based competitive environment, SMFs are increasing drawn into the web of highly technical innovative activities. New technologies derive from innovations. Generally, technology is knowledge with commercial applications (U.S. National Academy of Sciences, 1978, p 11). For Gaynor (1996), technology is the design and manufacturing know-how to produce goods. Considered broadly, the scope of technology covers the societal knowledge of the industrial sciences and arts to the blue prints and specifications of product design and manufacturing processes (Mansour, 1981). A local government authority, overseeing the upgrading of local industries and advancing the use of technology, defines the licensing of technology as the transfer of a right to a technology by the owner (licensor) to the buyer (licensee) to use that right under a set of contractual agreements. Drawing on and expanding studies of the experiences of some SMFs, (Kam, 1995) a project management approach is used to analyze and assess the process of technology licensing. This brings to light a number of problems faced by such firms. They include a naive perspective of technological transactions, myopic considerations of technological issues over others, a need to develop expertise and experience and the gaining of credibility and assumption of greater responsibility in technological undertakings. To move their capabilities up the technological ladder, the following modes of response are necessary; development of a strong knowledge and technological base, leveraging experience forward to accumulate advantage, and broadening and enhancing strategic interactions.

A Project Management Analysis The process of technology licensing is executed through many stages of interactive exchanges whose activities can essentially be characterized along two dimensions; the reduction of uncertainty and the increased exchange of information. The set of activities can broadly be delineated as the initiation of exchanges with the expression of intentions to effect a technology licensing transaction. Through preliminary negotiations, an understanding is effected and an agreement reached for some initial planning to proceed. More detailed project planning and organizing follow as the execution and implementation of the technology transfer takes place. The progress of the project is usually monitored technically so that the specified results are achieved. The successful commissioning and testing of the project marks the completion of the transaction. Upon acceptance, the performance of the technology under operating conditions is continually monitored. Such post acceptance exchanges generate goodwill and are to enable further cooperation. Preliminary Exchanges In an environment of uncertainty, the beginning of the exchanges tends to focus on the engineering and economic feasibility of the technology to be licensed. The foremost consideration for the receiving firm is the manner in which the technology supports the development of its products, processes and markets (Figure 2--omitted). For the transferring firm, the main concern is the extent to which this transaction can advance the use of the technology. At this amorphous stage, the transacting parties seek to work out mechanisms to enable the required technology to be transferred and to determine the real effects and outcome of the licensing process. Uncertainty reduction thus refers to the attempts that lessen the strain of not knowing the outcome and directions in which the technology transfer project will develop. Many SMFs are unable to meaningfully assess developments in their respective industry or possess the information to gauge the gap between themselves and the best industrial practices. Understandably, the expectations of the receiving firm is to obtain the best and the latest technology. A role of an intermediary is be to moderate such expectations to the realities of the situation. For instance, the receiving firm has to assess the characteristics of the technology in relation to the level of competency that it possesses. If the gap between the levels of the technology to be acquired and the current technology in use is too wide, then potential problems of learning and adaptation can only be bridged by costly and time-consuming programmes. As yet another instance, the transferring firm, without a guideline for the assessment of the needs of the receiving firm, has to tread sensitively in reviewing the marketing and production parameters of the recipient. These can include, among others, the production plans, the sales resources and the marketing strategy needed after the implementation of the technology. Fears of inequality of exchange often surface in the process. An intermediary needs to strike a fair deal between the seller and the buyer to ensure the smooth operation of the licensing process. Elementary or crude as the initial exchanges may be, the achievement of an understanding lays the foundation for the setting of common objectives, mutual duties and responsibilities for the transaction to proceed. In the balance are the confidence and trust an intermediary can invoke to dispel the fears of technology pricing, manner of payments as against the performance expectations of the technology. On this note, some of the expressed issues can be charted in the manner of figure 1 for a cross impact assessment of the technology transactions. A favourable overview of the issues leads to an agreement and the commencement of some initial planning.

Agreement and Initial Planning The lack of previous experience usually makes planning difficult. In most instances, this is compounded by the fact that the firms are still uncertain as to the amount of information to be divulged. However, that does not preclude attempts at the planning and scheduling of some immediate activities because both parties would like to avoid being dragged into costly and time-consuming uneconomical activities. As such the conditional acceptance of terms is the norm in negotiations. A benefit of the planning process is that the information exchanged will lead to a better understanding of the capabilities and expertise of the transacting parties. Such understanding of the different conditions under which each party operates help alleviate problems and mistakes because each party self-adjusts to facilitate the technology transfer. Thus, extensive consideration centers on the charting of an operational basis sufficient to guide the parties through the stages of transfer. As the parties try to set out the activities, there is further exploration and understanding of issues which can range from products, production, breadth of markets to quality, innovation and even other potential partners, Project Planning and Organizing Since scarce resources are to be deployed, efforts at project organizing are aimed at obtaining efficiency in the execution of plans. Indeed as long as a domain of action is specified, certainty and confidence is bolstered. This is crucial for SMFs operating in foreign environments, as they seek the demarcation of the authority to utilize their technologies. To organize is to direct, programme and assess the operational responsibilities of the parties. There is developed a pattern of actions and expected results, a mapping of a decision set and the respective constraints, so that with learning and feed-back, the licensing process can proceed smoothly. Organizing brings about a planned system of coordinative efforts to achieve objectives in an orderly manner. Hence, as each issue is addressed, there is required a definition of objectives and the time frame over which to achieve them. This incorporates the scope, duties, tasks and the extent of interaction of project staff as well as specific end results expected if possible. There is the need for measures to appraise the progressive performance of project, for cost control and adjustments. Regularity of consultations, project schedules and scheduled fees or periodic payments could be other items on the agenda. It is envisaged that through gradual learning, the ability to utilize the technology licensed is enhanced as the implementation proceeds. The purchasing firm undoubtedly would like to explore the scope of the technology to be transacted as early as possible. With some access to the technical information and the authorization of its personnel to use them, control over the incorporation of the technology in it's product or production process gives the purchasing firm an appreciation of its technological investment. In some cases, there is concern with the pace of technological change, which implicates that the organizing effort should accord some flexibility to enable the parties to respond to changes in the environment and to interpret the needs appropriately.

Implementation, Monitoring, Commissioning and Testing Simultaneously with the planning, preparatory work for technical tasks are undertaken with personnel training and expertise development for many cases. Communication and coordination, which have been mainly at the top management level becomes more involved for the operational staff of the firms. The extent of informal people-topeople meetings during these stages of the project is of particular importance. Data and information exchange is more intensive as, at this stage, the firms would have the commitment to see the project to completion. The realization of project sub-objectives takes priority at all levels of interaction with formal procedures and documentation to smooth the implementation of the activities. Project specifications, schedules, budgets and milestones underscore the monitoring process, which would match the results with the planned programmes. Changes that are imperative would call for revision of ongoing operations. This is especially necessary in cases where the firms are faced volatile conditions. They must continuously adapt to maintain project viability or deploy resources in novel ways to mark progress. Weaknesses in the implementation stages could well hinge on the undefined activities of the project. Difficulties that were not apparent during planning could surface to mar the effectiveness of transaction and they are usually not attributable to any one particular cause. Important then is the ability of the parties to resolve them and move on with the main stream of the project. Completion and Performance When the technology is operating successfully, the project is deemed to be completed and the acceptance of the project is finalized. If the project has gone according to plan, fees and payments can be authorized for disbursement, while variations that were necessary have also to be accounted for. The parties would reflect and compare on the planning and implementation stages. It is not uncommon that certain basic problems in a technology had not been solved even before the beginning of the initial exchanges. Normally, the technology was application-specific which enables the interpretation of the requirements to be undertaken without much confusion. At other instances, improvement and redevelopment of the technology of interest may call for some R and D work which could not have been foreseen in the planning stages. Under such circumstances, the usefulness or contribution of the additional work has to be assessed against the effect on the progress of the whole project. Parties are usually adaptable to modifying agreements in the event of unexpected developments. Flexibility in responding to changes is characteristic of a good working relationship as new deals are worked out to replace untenable original terms. Post Acceptance Exchange and Goodwill A technology transfer project is never really completed. The conclusion of the commissioning and testing stage marks the beginning of a long term relationship during which goodwill, new knowledge and expertise can be fostered.

At this stage, a disturbing issue is the difficulty for the SMF to police or control the use of its technology. The risks of technological obsolescence and imitations are equally problematic. As such, mitigating the fears of noncompliance with contractual terms makes the role of the intermediary in monitoring and enforcement very extensive. Significantly, with the limited resources of the licensor, the reliance on the goodwill and offices of a public agency intermediary in this respect is heavy. More positively, the post acceptance period can serve as one of review and diagnosis of the technology transfer for both parties. Cooperatively and jointly, new opportunities and capabilities can be created for better the utilization, diffusion or marketing of technology. A Diagnosis The foregoing revealed that SMFs are struggling with some problems. Whether technology licensing can be further developed as an important business activity depends on the manner in which four major problems are addressed. Naive Perspectives The importance of short-term profitability to the SMFs tends to propagate short-term business horizons. Also, for these firms, technology development is mainly confined to the technical aspects of product and process design or improvement. Consequently, to cultivate longer-term relationships as derived from the transfer of technology, there arises the strong dependency on external agencies. Very often, due to differences in entrepreneurial outlook, SMFs prefer to work on their own in acquiring and disseminating engineering know-how. There is thus, a lack of a deeper understanding of the trends and development in their industry. This reliance on public information and agencies for directions is not commendable especially if the follow-on and updating of that information is irregular. Myopic Technological Considerations Faced with the pressures of product development and market changes, it is inevitable that SMFs look for technologies that provide quick solutions to immediate problems whether in product design, production improvement or enhancing quality measures. As long as the characteristics of the technology were suited to the needs of the problem, and within reasonable cost, it is deemed feasible. Thus, it is predictable that when licensing out their own technologies, they expect the licensee to adopt the same attitude. With regards to the appropriateness of technology, it would be conducive to the project, if there is some synergy between the know-how for the new project and the existing technology in use. The extent of exchanges and assessment as well as the required strategy for the project would be much facilitated. Queries as to the newness or state-of-the-art technologies can cause concealed embarrassment, especially when they are used as benchmarks during negotiations. It is ironic that such technologies are desired when the measures required to bridge the gap to the new technologies are beyond the resource capability of the licensee. The lack of comprehensive and timely information, at times aggravated by incompatible operating standards or a need for extensive interpretation of blue prints and unfiltered data bases, make it difficult to extract meaningful information for implementation. Transacting parties, ignorant or unwilling to enquire, may find difficulty in accepting the integration of new knowledge into process and product development during the critical stages of a technology transfer.

A failure to acknowledge that some licensees do have the capability to develop the technology of interest is another misguided notion. These licensees may regard the technology as too time-intensive or outside their scope of operations to develop. Such distortions in perception could result in conflicts during the implementation stages. Although their knowledge of industry opportunities is limited there is a reluctance or constrain in investing to track technical developments or to identify need-based market segments. The identification of emerging technologies or segments of markets are regarded as best left to the insights and advice of public or foreign expertise. Expertise and Experience Implicit in a myopic consideration of technology is a deficit in the accumulation of expertise and experience. While technology can generally be licensed-in or licensed-out, the capability to develop technology is central to the basis of sustainable competency. Although essential, inadvertently, these developmental activities are taken as hindrances. Many an SMF would concentrate on the more immediately important, albeit mundane production functions to sustain the firm. Therefore, straining out the negative elements of this culture is the key to advancing the technology base of the SMFs. A portfolio of core in-company developed and acquired complementary or supporting technologies can constitute such a base of expertise. However, the more informed SMF's are duly concerned about the high cost of technology acquisitions. While it is uncertain as to whether technology costs can be reduced by varying the degree of ownership, many firms agree that incompany efforts are valuable. Consequently, as a possible first step, cultivating an environment that encourages competitive innovations could be important to reducing the resource cost of technology development. On the licensing-out of technologies, a strong commitment is reluctantly forthcoming as SMF's regard this as an additional drain on their already tight operations. Licensing is not an occasional exchange of data but an involvement of resources and joint strategies to effect a technology transfer. Further, because of the isolated nature and restricted usability of some technologies, managing a technology licensing process can be a highly risky, demanding and unrewarding undertaking, without any economies of scope. Much adjustment and refinement in the analysis and performance of the technology is necessary to make the transfer project a success. As expertise is the synthesis of experience, one way of building and enhancing technological capability is the joint undertaking of R and D activities. Also, the extent of search for innovative concepts can be expanded to learning rather than imitation from competitors. Formal activities or continuous searches for potential and latent gaps in new market niches can be maintained through joint ventures and collaborations. In all circumstances, the variability of tasks and knowledge that impact the basic functioning of a technology can be daunting. This drives forward the need to adopt a broader approach in the accumulation of expertise and experience. Such an approach should benefit the SMFs in their understanding of the characteristics of the industries they serve. Progress can be made with the fundamental issues underpinning their strategic decisions for the furtherance of technology development.

Credibility and Responsibility The licensing of technology, as a commitment to extend a distinct competence of the firm, calls for the cultivation of credible and responsible relationships to fulfil the functioning of that competency. Credibility is the state of a relationship in which accurate or correct information is exchanged and responsibility is one that encourages the expediency of reliable information. Founded on this basis a technological transaction is sustainable over time. Licensors and licensees mutually respect each other's rights and responsibilities to a transaction. This is a highly participative process which involves a continued manifestation of leadership and trust. Such a relationship is fundamental to the imparting of proprietary information, communication of project results and auditing of technology transaction programmes. Although many SMFs may not be able to guarantee the effectiveness of their technologies under alternative conditions, they do have a moral obligation to experiment or adapt the technical metrics for improvements and workability. It is noteworthy that engineering rectifications for improvements are readily accepted. In instances of projects beset by inadequate knowledge of cost control or other contingencies, a careful monitoring of the progress of the project is in order. As SMFs know that their owner esteem is at stake, they should not leave issues of accountability in balance. Progress in a project is thus achieved when the parties accentuate the synergy between their resources and compromise on the difficulties of the transaction. For no matter how well the aims of a project were delineated, it is the farsightedness of the personnel in the resolution of differences that ensure the success of the project. Dissonance in relationships follows when firms become complacent with the demands of integrity, while ambiguity in patterns of relationships breeds grounds for mistrust. Modes of Response A common perception among SMFs is that, given time, the difficulties of engaging in and expanding technology licensing can be overcome. It is then useful to conceive responses around that perception. A primary step is the building of the knowledge base from which technology is developed. Critically, if this base is to be useful, a strategy would be to consolidate on the achievements of one time period so as to raise the pivots on which to lever gains onto the next time period. Further, developmental work advances more rapidly if they can capitalize on the results of others in such a way as to further their own achievements. Knowledge Development Knowledge development is a multidimensional and complex function that requires an SMF to define the notion of technology more comprehensively. Technology should be viewed as the set of assets from which to generate advanced capability and resources. In the deployment of resources for future product and process development for example, SMFs should be able to control the definition and assessment of its own strategic decisions. Consequently, knowledge development is the formation of expertise amidst the interrelated settings that shape the environment of the firm. It is that interaction of know-how and responsiveness to opportunities in the firm's markets.

A firm's realized innovation is difficult and costly to protect. Many a SMF would candidly profess that systematic reverse engineering or inventing around an innovation is not difficult and not uncommon. The Schumpeterian assertion that successful innovations tempt imitations is very much feared. In order to obtain advantages, even if temporary, SMFs have to seek that durable capability to protect their efforts. The formalizing of knowledge to develop the analytical, practical and problem-solving skills serves to refine the quality of engineering specifications and the related performance of technical tasks. To minimize the negation of any advantage that may accrue to their efforts, the development of procedures and mechanisms for stabilizing technological development activities is critically needed. Opportunities for licensing their technology is a field worthy of further exploration and SMFs should realign or clarify the relationship between the firms' capability and the markets they serve. An increasing number of SMF's will realize and learn the use technology as a means of business expansion. Public policies geared towards facilitating knowledge generation can be much encouraging. SMFs on their part will have to expeditiously cope with the increased pressures of technology utilization with focused priorities. Leverage Forward A relevant concern expressed by SMFs is that the rapid progress of technology easily renders obsolete their innovations. Daunting as the case may be, progress has to be accepted and SMFs have to learn from their experiences and improve their ability to put new technology to use. SMFs are compelled to make the choices for new developments. Technological progress comes from the increased utilization of innovations in addition to their development. Cross situations and mixed contexts provide the challenge to feed-forward or expand on expertise. For many firms these are opportunities to incrementally advance their own technical base. Gradual advances lead to sophistication of methods and techniques, especially in R and D. An essential mode for improving the quality of activities is to articulate the design skills and problem solving capabilities from one time period to the next through continuously working and experimenting. By identifying the capabilities that will provide the firm with a sustainable and superior return on its efforts, a greater impact on knowledge development can be achieved. Since the nature of future technological advances are highly uncertain, the objectives for which a transformation strategy is needed cannot be pre-cast. It is then important to periodically review and chart a firm's lists of projects, their nature and objectives, in meeting the goals of the firm. An outward exploitation of technology is of importance and a forward approach is needed because it will facilitate the relatively major changes in the firm's outlook and prepare it for expanded environments with greater competitive flexibility. Strategic Interactions The trend towards the globalization of industry has increased the physical and virtual presence of technologically advanced foreign firms. Joint-ventures, industrial collaborations and strategic alliances are acknowledged as important business arrangements. That SMFs are short on resources need not be a constrain on their further development of technologies nor a limit on their capacity for learning. Strategic interactions with other firms, especially the foreign organizations provide the impetus for a SMF to enhance its expertise and know-how. From materials engineering and management, R and D, technical infrastructures to human resource development and procurement, the partaking in experiences and expansion of contacts brings new opportunities and aspirations. New horizons arise from the acquisition of a variety of skills and the adaptation to the demands of new technical tasks, just as improved communications relate cost, time and effectiveness with new performance criteria.

Recognizing a growing emphasis on the internationally coordinated or integrated manufacturing chains, a SMF must move beyond the confines of the role of a traditional local supplier to being a member such internationalized networks. SMFs will have to redefine their business directions to the making of complete components, final products and systems. This not only provides an understanding of the competitive position of the firm with respect to other SMFs but also of how that position can be strengthened through technology development, as unbounded problems often expose a severe shortfall in technical competency. Technological changes characterize the operations of international manufacturing chains. To keep in position with the demands of the chain, SMFs need to step up the rate of innovations. By themselves, SMFs may find a lack of applications for their technology but opportunities open up through interactive exchanges as they provide the requisites for innovations. With greater forces of change impinging on the SMFs, the cost pressures of innovations increases. Reducing cost through cooperative programmes and the sharing of information with minimum distortion is one way to mobilize resources to solve problems. This is achievable through alliances and joint ventures from which SMFs stand to benefit. Without the opportunities for interaction, new technologies of some SMFs might not reach the stage of commercial relevance. Managing relationships to integrate skills, acquire information and new innovative ideas help the course of the collaborative projects. Besides, other apparent advantages are that strategic interactions also provide for the extensive identification of markets and new partners and for the facilitation of a network relationship with more customers and suppliers. Through interactive exchanges, SMFs can gain important insights into the business of international operations and the international licensing practices in particular. Considered in total, strong inter-firm relationships are important to successful technology development, usage and licensing to third parties. The Overview When the issues of (1) overcoming entrepreneurial naivete, (2) broadening technology scope and perspective, (3) building expertise and credibility and (4) enhancing experience and responsibility are considered together with the modes of responses of knowledge development, forward leverage and strategic interaction, a time-framed set of activities representing a continuous process of change can be suggested. These are charted as in fig. 2--omitted. Conclusion Going by the flow of the above discussion, SMFs have to define a technology policy in line with its other business goals, as technology development cannot merely be pursued on its own merits. While SMFs have different expectations of outcomes with respect to the use resources, the view of creating future markets, products and capabilities can be used to offset the myopic need for immediate gains. With the pressure to master technology and its development, there is no slack for waywardness. The avoidance of the issues can result in the SMF being exposed to more risk in the future.

References Gaynor, G.H., (1996), Handbook of Technology Management. McGraw Hill. Kam B.C., (1995), Technology Licensing for the Small Manufacturing Firm. IEEE Annual International Engineering Management Conference. pp. 309-314. Mansour, M.B., (1981), Definitional Issues in Technology Transfer: Channels, Mechanisms and Sources. In Hawkins, R.G. and Prasad, A.J. ed. Technology Transfer and Economic Development. Greenwich, Conn., JAI Press. National Academy of Sciences., (1978), Technology, Trade and the US Economy. pp 11. Washington D.C. About the Author Kam B. Chung Centre for Engineering and Technology Management School of Mechanical and Production Engineering Nanyang Technological University Singapore 639798