Country risk and the international flows of technology: evidence from the chemical industry

We empirically investigate the relationship between country risk and the international flows of technology. Using a comprehensive database on investments in chemical plants during the period 1981- 1991, we show that higher levels of country risk are associated with fewer technology transfers to recipient economies. This holds true both for wholly owned operations and for more market-based transactions. The analysis also suggests that technology transfers with smaller resource commitment tend to be preferred in country with higher levels of risk. Hence, higher country risk not only does it reduce the amount of wholly owned investment, it also contributes to shift from this type of technology transfer to more market-mediated means, such as licensing. After controlling for several country characteristics, we do not find intellectual property rights protection playing a significant role in fostering technology transfers or conditioning the transfer mode

The licensing dilemma: understanding the determinants of the rate of technology licensing.

The licensing of technology entails a trade-off: licensing payments net of transaction costs (revenue effect) must be balanced against the lower price-cost margin and/or reduced market share implied by increased competition (profit dissipation effect) from the licensee. We argue that the presence of multiple technology holders, which compete in the market for technology, changes such a trade-off and triggers more aggressive licensing behavior. To test our theory, we analyze technology licensing by large chemical firms during the period 1986-96 for 107 chemical products. We find that the rate of technology licensing displays an inverted U-shaped relationship with the number of potential technology suppliers and is negatively related to the licensor's market share and to the degree of technology-specific product differentiation.Licensing; Revenue effect; Profit dissipation effect; Chemical industry;

THE LICENSING DILEMMA: UNDERSTANDING THE DETERMINANTS OF THE RATE OF LICENSING

Licensing entails a tradeoff: licensing payments net of transaction costs (revenue effect) have to be balanced against the lower price-cost margin and/or reduced market share that the increased competition (profit dissipation effect) from the licensee implies. We argue that the presence of multiple technology holders, who compete in the market for technology, changes such tradeoff and triggers a more aggressive licensing behavior. To test our theory we analyze technology licensing by large chemical firms during the period 1986-96. We find that the rate of licensing is initially increasing and then decreasing in the number of potential technology suppliers, negatively related to the licensor’s market share and to the degree of product differentiation.

Patent protection, imitation and the mode of technology transfer.

This paper analyzes a model in which a fir endowed with a new technology can choose between exports, licensing and direct investment as entry modes in a foreign market. I endogenize the vintage of the transferred technology and allow for imitation by the licensee. Subsidiary production and exports circumvent imitation but involve higher costs for the innovating firm The fir can strategically use the vintage of the technology to deter imitation by the licensee. As a result, transfers to affiliate might be of later vintage than technologies sold to outsiders. Through modificatio of the imitation costs, the host country’s system of patent protection influence the mode of technology transfers which in turn affects the welfare of the recipient economy.International technology transfers; Imitation; Patent protection;

COUNTRY RISK AND THE INTERNATIONAL FLOWS OF TECHNOLOGY: EVIDENCE FROM THE CHEMICAL INDUSTRY

We empirically investigate the relationship between country risk and the international flows of technology. Using a comprehensive database on investments in chemical plants during the period 1981- 1991, we show that higher levels of country risk are associated with fewer technology transfers to recipient economies. This holds true both for wholly owned operations and for more market-based transactions. The analysis also suggests that technology transfers with smaller resource commitment tend to be preferred in country with higher levels of risk. Hence, higher country risk not only does it reduce the amount of wholly owned investment, it also contributes to shift from this type of technology transfer to more market-mediated means, such as licensing. After controlling for several country characteristics, we do not find intellectual property rights protection playing a significant role in fostering technology transfers or conditioning the transfer mode.

Determinants of international activity: evidence from the chemical processing industry.

This paper empirically investigates two important determinants of international activity through wholly owned operations, joint-ventures and technology licensing, namely country risk and intellectual property rights (IPRs) protection. Using a comprehensive database on investments in chemical plants during the period 1981–1996, we show that higher levels of country risk are associated with less activity into recipient economies. The analysis also suggests that international activity with smaller resource commitment tends to be preferred in countries with higher levels of risk, and that multinational investment is more responsive to changes in risk conditions than indigenous investment. After controlling for several country characteristics, we do not fin IPRs protection playing a significan role in fostering international activity or conditioning its mode.Foreign direct investment; Technology licensing country risk; IPRS protection; Chemical processing industry;

Wholly owned subsidiary versus technology licensing in the worldwide chemical industry.

This paper empirically analyzes the determinants of the choice between wholly owned subsidiary and technology licensing as a strategy for expansion abroad. We use a new and comprehensive database on worldwide plant level investments in the chemical industry during the 1981-1991 period. We find that both cultural distance and the presence of other potential licensors favor the use of licensing as a strategy for expanding abroad, whereas, prior experience favors the choice of wholly owned subsidiary. An implication of this study is that competition in the market for technology can foster the international diffusion of technology through the use of arm's length agreements.Strategic planning; Licensing; Globalization; Foreign investment; Chemical industry;

Pricing Diagnostic Information.

Diagnostic information allows an agent to predict the state of nature about the success of an investment project better than the prior. We analyze the optimal pricing scheme for selling diagnostic information to buyers with different, privately known, ex ante success probability. Investment costs and returns of successful projects are assumed to be the same for all buyers. The value of diagnostic information is the difference in expected payoffs with and without it, and we show that the willingness to pay for diagnostic information is nonmonotonic in the ex ante success probability. When the information seller can offer only one quality level, and negative payments are not allowed, we find that the optimal menu of (linear) contracts is remarkably simple. A pure royalty is offered to buyers with low ex ante success probability, and a pure fixed fee is offered to buyers with high ex ante success probability.Pricing; Diagnostic information; Marketing research;

PRODUCT STRATEGIES AND STARTUPS’ SURVIVAL IN TURBULENT INDUSTRIES: EVIDENCE FROM THE SECURITY SOFTWARE INDUSTRY

This paper seeks to explore the drivers of startups’ survival in turbulent industries, characterized by high rates of entry and exit, fragmented market shares, and a rapid pace of product innovation. Specifically, the paper aims to underscore the role played by post-entry product strategies, along with their interaction, beyond that of pre-entry conditions. Based on a sample of 270 startups that entered the Security Software Industry from 1989 till 1998, we find evidence that surviving entities are those that more aggressively adopt versioning and product portfolio strategies. Interesting enough, strategic learning seems to play a major role: Focusing on one of the two product strategies commands a higher survival probability than adopting a mixed strategy.

Markets for technology (why do we see them, why don't we see more of them and why we should care)

This essay explores the nature, the functioning, and the economic and policy implications of markets for technology. Today, the outsourcing of research and development activities is more common than in the past, and specialized technology suppliers have emerged in many industries. In a sense, the Schumpeterian vision of integrating R&D with manufacturing and distribution is being confronted by the older Smithian vision of division of labor. The existence and efficacy of markets for technology can profoundly influence the creation and diffusion of new knowledge, and hence, economic growth of countries and the competitive position of companies. The economic and managerial literatures have touched upon some aspects of the nature of these markets. However, a thorough understanding of how markets for technology work is still lacking. In this essay we address two main questions. First, what are the factors that enable a market for technology to exist and function effectively? Specifically we look at the role of industry structure, the nature of knowledge, and intellectual property rights and related institutions. Second, we ask what the implications of such markets are for the boundaries of the firm, the specialization and division of labor in the economy, industry structure, and economic growth. We build on this discussion to develop the implications of our work for public policy and corporate strategy