International technology transfer human resource issues for the technology recipient

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1 International technology transfer human resource issues for the technology recipient Dr. Khaleel Malik* Manchester Institute of Innovation Research, Manchester Business School, The University of Manchester. Oxford Road, Manchester M13 9PL. United Kingdom. Dr. Thanyaporn Hattasingh National Science and Technology Development Agency, 111 Thailand Science Park (TSP), Phahonyothin Road, Khlong Nueng, Khlong Luang, Pathum Thani 12120, Thailand. * Corresponding author Abstract: Although Multinational Corporations (MNCs) have made significant investments in promoting technology transfer across their international business operations, the MNC subsidiaries often face a number of challenges, especially relating to human resource issues, which impact on their ability to fully absorb and utilise the technology that has been transferred. Our paper will present some of the main human resource barriers to technology transfer by analysing this phenomenon in 16 MNC subsidiaries based in Thailand. Our study focuses on Hard Disk Drive (HDD) and Integrated Circuits (IC) manufacturing firms. We contribute to academic literature on the need to equip staff at the Thai subsidiary units with the basic skill set and techniques to help them absorb more complex knowledge whilst participating in technology transfer projects. The paper concludes with some management implications and some policy implications for developing/ emerging economies. Keywords: technology transfer; MNCs; Thailand; human resource; absorptive capacity 1 Introduction Many Multinational Corporations (MNCs) have invested significant effort in promoting intra-firm technology transfer on an international level. This typically involves transfer of technology from the parent Headquarter to overseas subsidiaries. Over the last few decades, many management teams have faced a number of challenges (or barriers) associated with the diffusion of knowledge linked to technology transfer projects across not only organisational boundaries, but also geographical boundaries of the MNC (Sparrow et al, 2004; Bergfeld, 2009). One such challenge relates to the ability of the technology recipient being able to fully absorb the knowledge transferred from the 1

2 technology sender (Malik, 2004), especially in the context of the recipient being a subsidiary unit based in a developing/ emerging economy. Some important aspects of the role of the technology recipient in countries like Thailand, for example, have not yet been subjected to thorough empirical analysis, including: the gap in skills and experience of engineers in the MNC s subsidiary (technology recipient) and the MNC s headquarters (technology sender based in Japan, USA or Europe); the mindset of the personnel towards technical careers when working in an MNC subsidiary in Thailand, which can over time become a barrier to transfer of technology to the recipient from the headquarters; other human resource management implications linked to wider innovation capabilities of the technology recipient. In Thailand, there has been a growing concern over the low level of technology transferred by MNCs, which is mainly limited to production and operational aspects of MNC subsidiary businesses. Only a minority of MNCs conduct knowledge-intensive activities like design, engineering and R&D in Thailand. Consequently, the lack of competitiveness has been evident as compared to other Asian countries like Singapore, Japan, Taiwan and Malaysia, particularly in the electronics industry, which has received the largest share of FDI and contributed to the largest export of Thailand (Hattasingh and Malik, 2009). This paper is based on the following main objectives: (a) to describe current intra-firm technology transfer practices between MNCs parent headquarters (mostly based in Japan and USA) and their manufacturing subsidiaries based in Thailand. The main line of business of these MNCs is the manufacture and supply of Hard Disk Drive (HDD) and Integrated Circuits (IC), which form the two largest segments of Thailand s electronic industry; (b) to analyse some key challenges faced by MNC subsidiaries (technology recipients) based in Thailand, especially relating to gaps in skills and experience of engineers at the subsidiaries compared to staff based at the headquarters, which impact on the effectiveness of the technology transfer process; (c) to analyse why there is a shortage of technical personnel with the required absorptive capacity in the MNC subsidiaries, as this has created difficulties in technological learning for the subsidiary units. 2 Methodological approach Data presented in this paper has been gathered from both secondary and primary sources. The secondary source of data was collected from a review of literature that was narrowed down to focus on intra-firm level transfers of technology, typically where the technology sending unit is the MNC headquarters (e.g. R&D facility) and the technology recipient unit is an MNC s overseas subsidiary (e.g. manufacturing facility). The main research findings reported in this paper is from the primary source of case study insights. This data was principally gathered from conducting empirical research semi structured interviews with eight firms in the HDD industry (employing 1,000 to 20,000 staff) and eight firms in the IC industry (employing 1,000 to 4,000 staff). All 16 firms have manufacturing operation based in Thailand, where the empirical data was collected in the period 2005 to 2

3 2008. The majority of the MNCs studied here have their parent headquarters in Japan and USA, with two based in Europe. In order to preserve their anonymity we cannot attribute findings presented in this paper to specific firms. However, we can mention a few of the firm names who agreed to participate in our study: HGST; Seagate; Fujitsu; and Western Digital. The interviewees were mainly senior and middle management level staff (e.g. Heads of R&D, Manufacturing and Operations) mostly based at the subsidiaries, with a few staff based at the corporate headquarters of the MNCs. The decision to use a qualitative research methodology was based on the fact that little is known about the phenomena under investigation, particularly in a developing country context, indicating that qualitative case studies would be an appropriate choice of methodology. Part of the rationale for choosing Thailand as the country where the technology recipients are based is because the country has been heavily criticised as a laggard in technological catching-up, despite an abundance of natural resources. Besides, both of the industries in target, the HDD and IC, are highly dominated by foreign owned firms and have been well established in Thailand for a long time. In spite of this, technology transfer by the MNCs in these sectors to Thailand is still limited. 3 Brief theoretical perspective Much of the literature in the area of international technology transfer has traditionally focused on inter-firm transfers (Minbaeva, 2007; Cohen, 2004) and there has been fairly limited focus on intra-firm transfers (i.e. within the boundaries of the multi-divisional firm) (Malik, 2001). Also there have been partial efforts to try and understand some of the challenges in transferring technology in MNCs from the corporate headquarters (mainly in advanced countries) to overseas subsidiaries that are based in developing and emerging countries (Borrus et al, 2000). Furthermore when analysing intra-firm technology transfer it is important to appreciate that both explicit and tacit knowledge are embedded in the technology being transferred (Phene et al, 2005), which presents some human resource management implications for the technology recipient in terms of fully understanding and absorbing the knowledge being transferred (Steensma, 1996). This in turn relates to the issue of improving wider innovation capabilities of technology recipient units (Yin, 1992), which has not been fully addressed in the innovation management literature. Takeuchi (1991) defines technology transfer as a learning process whereby technological knowledge is continually accumulated into human resources that are engaged in manufacturing operations. However, in a study on technology transfer practices in Asia, Giroud and Mirza (2006) found that Japanese MNCs often have concerns about the high mobility and low loyalty of local employees working at the MNCs subsidiaries in Asian countries. This is a situation that will have a propensity to reduce the expenditure of funds on human resource development in the subsidiaries. Hence this ultimately impacts on the ability of the technology recipient to receive the technology, especially where it involves complex long-term technology transfer projects (Lin, 2003). Though much of the technology transfer literature has been conducted from the home perspective (i.e. technology developers/ sending organisations), scholars have suggested the need of shifting more onus to implementation and utilisation of technology

4 perspectives (i.e. at the technology receiver organisations) (Grant and Gregory, 1997; Malik, 2004). 4 Research findings from Thailand s HDD and IC sectors Intra-firm technology transfer between MNC headquarter and Thai subsidiary In describing current intra-firm technology transfer practices within the HDD and IC sectors in Thailand, we need to appreciate how R&D activities are organised in these sectors as this often has an impact on the technology transfer project. We learned that although most product innovation R&D is being conducted at the MNC headquarters, some of the HDD MNCs are undertaking limited levels of R&D for process innovations at the subsidiaries. Thailand has attracted some R&D linked to HDD manufacturing areas like head fabrication, Head Gimbal Assembly, Head Stack Assembly, Head Disk Assembly as well as some final assembly and testing. However it was noted that some HDD industry interviewees expressed concerns about the minimal level of R&D undertaken in Thailand, as this might only respond to specific local customer needs or to only support part of the manufacturing activity. Whereas other subsidiaries in their corporations, based in Germany for example, have been tasked to undertake more advanced levels of R&D activity linked to product design and machinery development. A number of the IC sector MNC Thai subsidiaries mentioned that they are only involved with relatively low level R&D aimed at improving quality control, cost reduction and design support. The Thai subsidiaries only have limited autonomy to initiate the improvements themselves. For many of the IC MNCs all the Thai business operations are led and run by the MNC headquarter staff (often from Japan) like engineers and global coordinators. This restricts the Thai local engineers input to some minor production line improvements by taking part in routine inspections. One good practice noted within some technology transfer projects in the IC MNCs is that the technology being transferred from Japan to Thailand is often a technology package that includes prototype design, materials and a whole group of ancillary machinery and equipment. This involves several stages of design review and evaluation, which is jointly undertaken by both the Japanese and Thai engineering teams. In addition a team of engineers involved in the design of product and process improvements at the headquarters are usually sent to the Thai subsidiary to not only run the installation activities of a new technology transfer project, but to also help overcome any technical problems arising. Additionally, where there is some low level R&D undertaken at the Thai subsidiaries, one of the main drivers for this is cost. A few MNCs found that they can make significant cost savings by hiring some R&D staff in the Thai subsidiaries in comparison to hiring them at the MNC headquarters in Japan or USA. However it was also noted that some MNC headquarters view technological capability of Thai personnel, especially in HDD sector, as only satisfactory to conduct low level R&D tasks like process development, but not suitable for conducting advanced level R&D tasks such as product design. Key challenges for technology transfer including skills gap The lacking of creativity, analytical thinking, and problem-solving skills among Thai personnel are not only critical factors that inhibit Thai subsidiaries to engage in technology transfer activities, but they are also restricting the opportunities of the 4

5 subsidiaries to learn about latest innovation developments in their field. Our findings confirm the fact that in Thailand there seems to be a country wide problem of a shortage of people with a high quality technical skill set to work in MNC manufacturing subsidiaries in sectors like HDD and IC, because of the mindset of people who usually move away from technical roles to managerial or commercial type roles in many private firms. When discussing technology transfer challenges, human resource (HR) issues were amongst the most commonly cited challenges mentioned in our interviews across both HDD and IC sectors. While acknowledging that the MNC often invested more in HR at the headquarter compared to the subsidiaries, there was still a major skills gap between the engineers based the headquarters compared to the engineers based in the Thai subsidiary. This is seen to hinder product design and R&D activities at the subsidiary, as well as resulting in a limited capacity for Thai engineers to fully learn and absorb knowledge transferred to their site. Some of the IC firms have attempted to evaluate performance of subsidiary staff, such as engineers, who have worked on previous technology transfer projects. In some of the IC firms the Thai local engineers are viewed as being capable of working with assembly, production and other low-end product design tasks, partly because of the attitude of the staff themselves. This means that the engineers lack creativity skills, lack responsibility and have little loyalty to the organisation that employs them, which all ultimately inhibits the smooth running of technology transfer projects. Many interviewees believe that upon recruiting more high quality human resource talent, who have the drive and enthusiasm to work as engineering/ technical staff, the headquarters will gain more confidence in attempting to transfer more advanced technologies for incorporation and use at the Thai subsidiary plants. This is confirmed by a HDD MNC interviewee below: There are very few human resources related to R&D. This is because here in Thailand we don t have curriculum which is linked to upgrading them (Thai engineers) to be product designers. Now we have a serious problem. This is because design personnel, who must have at least five years experience are very hard to source. People with lesser experience than this may not understand the system and strategy involved in design enough. Another barrier to technology transfer mentioned in several firms is the language barrier. This problem is more serious in Japanese MNCs where the Japanese language is mainly used for most business communication between the parent corporation and the overseas subsidiaries. Hence most of the subsidiaries of Japanese MNCs usually need to send Thai staff for on-the-job training in Japan and there is often a Japanese coordinator from the headquarters working at the Thai manufacturing site who can help to facilitate communication between the headquarters and the subsidiary unit. This type of language barrier can impact on technology transfer where there is a high content of tacit knowledge embedded in the technology that needs to be transferred, which must then be translated from Japanese to Thai (or English). A few firms find that the on-the-job training enables the Thai staff to acquire the necessary basic skill set needed to work in their organization by spending three months to one-year at the Japanese headquarter site. This also enables improvement in tacit knowledge transfer for staff working on technology transfer projects in the future.

6 Why is there a shortage of technical personnel with the required absorptive capacity in the MNC subsidiaries? Given the importance of competently acquiring and utilizing knowledge acquired via technology transfer, most firms interviewed confirmed that the corporate parent offices are reviewing this particular capability at their Thailand subsidiaries. These reviews have highlighted a shortage of high quality technical personnel who possess the type of absorptive capacity that is required to effectively internalize and utilize new knowledge arising from technology transfer projects. Several interviewees commented that this problem is a problem of Thailand, as a nation lacking high quality human resource with the right set of technical skills to work in such subsidiaries. Thailand has a shortage of technically qualified experts because of the mindset of Thai employees who believe that the private sector provides better opportunities if you follow a career in a management or non-technical role, rather than working in a technical or scientific capacity. It has become common for most Thai graduates with an engineering or technical degree qualification to follow this up with a Masters degree in business/ management or MBA instead of a research degree in a scientific or technical field of study. When gaining more work experience, a large number of engineers advance their careers in management roles rather than technical roles. For example, in the Engineering Department of a Japanese IC firm subsidiary, all staffs with ten years or more working experience, who possess a higher degree qualification like a Masters degree, are no longer employed in a technical or research role, but are already working as managers in business and commercial areas of the firm. Another factor contributing to this problem is that Thailand has suffered from the problem of brain drain, losing technical/ scientific skilled people because of the failures to offer them adequate incentives to continue working in these fields in the country. Hence some of these people decide to leave the country and find more attractive incentives to pursue technical based careers in other countries. Most interviewees in both the HDD and IC Thai subsidiaries stated that the shortage of good quality technical human resource stems from the Thai higher education system. Here interviewees complained about engineering degree programs in major Thai universities, which place too much emphasis on theory and basic sciences, rather than building expertise and skills by focusing on application of theory to practical problems faced by industry. We learned that many firms and university lecturers have concerns about the lack of creativity and analytical thinking skills for problem solving amongst new engineering graduates. An industry expert referred to this as a problem of absence of critical thinking and entrepreneurship among Thai engineers, making them less eager to learn about new technological advances, which the interviewee elaborated on in the following statement: To give an example of failure in technology transfer, our company used to send an engineer to Singapore to learn about a new technology development for our new business. However, the engineer being sent does not even know what to see and ask. I had to write every question down for him. There was a lot to ask and learn there. Success in technology transfer must involve many of your business operations from engineering processes, production processes, quality assurance processes and business processes. Thai people also have a mindset that they are the employee of the company, they don t have to be enthusiastic about 6

7 improvements to the organization because they are not the owner of the business. A number of interviewees stated that the root of the problem associated with lack of technical personnel with required skill set in the subsidiaries can be traced back to Thai national policies, where some policymakers are lacking sufficient understanding of the structure and current industry situation. For decades both the HDD and IC sectors have suffered from a lack of sector specific policies and investment promotion for added value activities like IC design houses. Many firms in the IC sector mentioned that their industrial association is not in a strong enough position to demand more sector specific support. The HDD does have a stronger industry association and they have encouraged the Government to follow more industry specific policies that promote increased investment in R&D, HR skills and more collaboration between public sector R&D bodies and private industry firms. One specific example of policy intervention that could help the electronics industry is better support for the industry infrastructure. For example, a semiconductor fabrication facility requires uninterrupted supply of electricity and water, but this cannot be guaranteed in Thailand as there are disruptions to power supply, which ultimately impact on the competitiveness of the local firms and MNC subsidiaries. 5 Key issues arising The lacking of creativity, analytical thinking, and problem-solving skills among Thai personnel are not only critical factors that inhibit Thai subsidiaries to engage in R&D activities, but they are also restricting the opportunities of the subsidiaries in learning about latest technological developments via technology transfer programmes. Within firms, the gap in human resources in terms of both number and skills/ experience in Thai subsidiaries as compared to the MNC headquarters has restricted the level of technological activities conducted at the subsidiaries and hence has hindered the capability of the Thai employees in absorption of technological knowledge transferred. With no effective mechanism in Thailand to improve the human resource situation, firms have to rely on their own internal training to increase their staffs skill and knowledge. It is also found that on-the-job training and expert exchange are the most preferred methods for MNCs, even if this can be quite costly. This has three implications. First, it shows the importance of tacit knowledge transfer (Phene et al, 2005). Secondly, there are a lot of difficulties associated with technology transfer to Thai subsidiaries, including different working culture and the issue of language and communication (Welch and Welch, 2008). Part of the language and communication barrier can be overcome by more people movement in technology transfer projects (Malik, 2001). Our study confirmed that MNCs from both the HDD and IC sector have attempted to address this issue by sending experts from the headquarters to the Thai subsidiaries, either temporarily or permanently to help deal with the language and communication barrier to transfer. This has been particularly prevalent with some of the Japanese MNCs. The MNCs believe that this enables the subsidiary level engineers the opportunity to learn from and consult with the experts from the corporate headquarters. One spin off benefit of this staff movement is that it helps to alley fears of the corporate headquarters with regard to sensitive knowledge leaking out to competitors (Breschi and Lissoni, 2001). For some Japanese MNCs this has been a concern with a number of their subsidiary operations in other parts of Asia, especially in

8 Thailand and China where there is also a high rate of staff turnover, which raises concern about knowledge leaking out to competitors. There are a few signs of good practise in the HDD sector where some companies have began to transform themselves from being mainly focused on assembling operations to product adaptation and product design type operations. Here there is evidence of technology transfer impacting on the development of tacit skills (Malik, 2004), especially relating to management and problem solving activities undertaken at the subsidiaries. An important part of technology transfer is the human resource element highlighted in this paper, whereby subsidiaries need to demonstrate their potential and competency before they can actively engage in more knowledge intensive technology transfer activities that can help raise subsidiary level absorptive capacity. But part of this onus lies with the MNC corporate headquarter as it has an important parenting role (Campbell et al, 1995) to play by proactively monitoring and evaluating the knowledge stock held at the subsidiaries, which can then enable the subsidiaries to upgrade their competency set to conduct more complex and knowledge intensive activities such as R&D and become better engaged in technology transfer projects. This human resource element from the corporate parent and subsidiary perspectives needs to be complemented with some policy intervention in the subsidiary country that can help facilitate better international technology transfer through improved technical skills training of staff, higher education technical degree programmes being better aligned to industry needs, and improved infrastructure to attract R&D in the HDD and IC sectors. We attempt to capture this message in Figure 1. MNC Corporate HQ (Technology Sender) Parenting role includes sending staff from corporate HG to subsidiaries Technology Package Policy Intervention to support MNC Subsidiaries in Thailand: - Continue FDI measures. - Engineering education needs to be aligned to industry application. - Promote HDD & IC sector specific policy for innovation. - Infrastructure improvement to help promote R&D in local firms. Package includes Artefact, Knowledge & Skills MNC Thai Subsidiary (Technology Receiver) Must effectively assimilate and apply knowledge received (Absorptive Capacity) Figure 1 Improving human resource absorptive capacity at MNC overseas subsidiaries with implications for the firm and national policy 8

9 6 Conclusion One of the main contributions of this paper is that it provides empirical research evidence, which helps us to test a number of theoretical assumptions from the literature in a developing country context (case of Thailand). The contribution is well positioned in terms of existing theoretical frameworks like for example, intra-firm technology transfer, R&D investment and the link between innovation management and human resource management. Our study has revealed that the weakness of the outlined factors is one of the main reasons why MNC technology transfer to Thailand is still limited to the developmental and adaptation works relating to manufacturing and production support. It shows that MNC technology transfer in both HDD and IC sectors is still far from decentralised and indicates a high division of labour among HQ and subsidiaries, with upstream R&D activities still highly concentrated and controlled by the corporate R&D centre. One important implication for the Thai subsidiaries is that they need to more proactively interact with the MNC headquarters and ensure local staff can improve language skills, since language can act as a barrier to technology transfer. The language issue needs to be also addressed at the corporate headquarters, especially in Japanese MNCs where communication can often be a problem between different parts of the MNC. For policy makers in Thailand, they need to direct policy toward the development of technological system, infrastructure and technical training in the long run, rather than mainly focusing on boosting FDI and exports. For decades the HDD and IC sectors have suffered from a lack of sector-specific policy, which can help local subsidiaries become better recipients of technology transfer. References Bergfeld, M. H. (2009). Global Innovation Leadership, Books on Demand, Nordersterdt. Borrus, M., Ernst, D. and Haggard, S. (2000). International Production Networks in Asia, Routledge, London. Breschi, S. and Lissoni, F. (2001). Knowledge spillovers and local innovation systems: A critical survey, Industrial and Corporate Change, Vol. 10 (4), pp Campbell, A., Goold, M., and Alexander, M. (1995). Corporate strategy: The quest for parenting advantage, Harvard Business Review, Vol. 95 (2), pp Cohen, G. (2004). Technology Transfer: Strategic Management in Developing Countries, Sage Publications, London. Giroud, A. and Mirza, H. (2006). Multinational enterprise policies towards international intra-firm technology transfer: The case of Japanese manufacturing firms in Asia, East Asia, Vol, 23 (4), pp Grant, E.B. and Gregory, M.J. (1997). Adapting manufacturing processes for international transfer, International Journal of Operations & Production Management, Vol. 17 (10), pp

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