Technology Sharing. The extent of interest to which home countries should have when MNEs share technology. Shahzad Mahmood

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1 Shahzad Mahmood International Management and Leadership MGT658 Technology Sharing The extent of interest to which home countries should have when MNEs share technology Shahzad Mahmood Multinational enterprises (MNE) are companies that operate on a large scale, globally. They are able to make use of other countries resources such as natural resources, cheaper labour and multiple distribution channels. In this paper, I will discuss the extent to which home countries of the MNEs should be interested in when it comes to sharing technology with other countries. The main industries that will be looked at will be the pharmaceutical, weapons and consumer electronics. The different types of strategic alliances will also be looked in relation to these industries.

2 Technology developed by a private multinational company should not pose any interest to its home countries, to an extent. The extent to which home countries should control what multinationals should depend on the nature of the technology, for example if a multinational is private manufacture of military weapons, then it would be in the interest of the home country to control what they license to other countries. However technology may help economies in other countries and could possibly improve technology as a whole if multinationals work together. There are several factors that will be analysed to see which types of technological industries should be influenced by home countries. The industries are as follows: Medical/pharmaceutical Weapons manufacturers Consumer electronics and Information Technology (IT) For each of the above mentioned industries, reasons for and against licensing and having strategic alliances will be given, as well as looking at them in terms of ethical issues, the management point of view and what threat it poses on home countries. The Medical and Pharmaceutical Industry The pharmaceutical industry made over 643 billion US Dollars globally in 2006 (Shaw, 2008) and that number is rising steadily. The industry is responsible for researching and developing medical products for the world. However they are able to charge a higher price justified by the money it cost to produce, The time during which R&D costs could be recouped was drastically curtailed, putting upwards pressure on prices (Holland and Bátiz-Lazo, 2004). In terms of medical technology, companies are able to produce products such as prosthetics or surgical robotics. If a company has the capabilities of producing medicine and medical apparatus, it should benefit the world and not only the multinationals and its home countries. From an ethical point of view, These companies should share the medicine since...drugs typically accounted for less than a tenth of that expenditure [health care expenditure] (Holland and Bátiz-Lazo, 2004). There is the issue of the cost of research and production, but after selling enough of the product at a reasonable price, they will be able to keep up a higher demand. Countries which cannot afford to pay these companies to sell in their country result to their citizens suffering. However this has opened up competition by other companies selling generic brands at a much cheaper price. With the money spent on R and D for these products, it would be more efficient for companies to license the technology to other countries and take a share of the profits. This way, there will be more brand recognition for the company, as well as more distributing channels. The threat this poses on a home country would be the taxes they would lose if the profit margins are decreased by the multinationals. It would be then the interest of the home country to limit what innovations pharmaceuticals and medical companies license to other countries. Weapons manufacturers There are many private military product manufacturers such as BAE Systems in the UK and Heckler & Koch in Germany. These types of industries tend to work closely with governments in the countries in which there are based. However, with countries that have a good relationship with each other may share the technology they have to keep good terms with them, such as BAE Systems providing governments in Middle Eastern countries for an exchange of resources such as oil.

3 These companies would be closely monitored by the government, as they might be prone to supplying arms to an enemy. An example of this would be during the Cold War, where the US gave arms to Afghanistan to fight a Russian invasion (Berrigan et al, 2005). This soon backfired during the invasion of Afghanistan, where the now enemies were the Taliban, who were using the weapons given to them by the US. In the view of the company, they are able to increase their customer base by selling to anyone. Most private arms manufacturers do not think of ethical issues when they deal their products, and so do not care about the consequences. If they do share their technology with other countries, they may lose a competitive edge, since governments look to these private manufacturers to give them advantage over other countries. However manufacturers may want to go into joint ventures with companies in countries that are not allied with their country. Doing this will help the manufacturers sell to a closed market and turn over a profit. In this case a home country should have an interest in these types of companies, they should limit what these companies sell and take measures to ensure that any extremely threatening weapons can be disabled. If it is in the interest of the home country to gain something out of another country in exchange for their technology, such as resources, then they will need to consider the consequences. Consumer electronics Information Technology (IT) In terms of information technology, countries that have an upper hand in innovation are most likely the more economically developed countries, as they have the advantage of more funds for research and development. For example, Apple Inc has become very successful in the past decade due to the popularity of the ipod range, computers and other entertainment devices. This has opened up competition from other firms such as Sony and quite recently Samsung. As the hardware for these products are relatively easy to figure out, the unique selling points (USP) for them would be the software that they run. Apple uses software called itunes to sync products to where users can add music and configure the phone or device to their needs. For Apple, this ensures that customers use their software to purchase music, therefore increasing revenues. If Apple licenses this software to other companies, they would have lost their competitive edge, and in doing so, letting competitors use their software for other devices. Apple also faces competition in the mobile market, with competitors such Google s Android and the Blackberry OS. For a home country, they may be reluctant to have an interest as to who MNEs provide licenses for, but since most of these large US companies are looking for corporate tax loopholes, they may be inclined to pose an interest to level the playing field. A lot of these companies are looking to set up its headquarters in other countries U.S. corporations are taxed on their worldwide income, but a Bermuda company would owe U.S. tax only on the income of its U.S. subsidiaries, not on that of its overseas operations (McLeod, 2002). McLeod explains that companies in the US tend to move to states which have a lower corporate tax bracket, and so it is in the right of multinationals to do the same. This should pose as an ethical dilemma for multinationals because they are not paying their share of success, although they have legally found a way to decrease their taxes, it still produces a moral hazard. For the home country, they would lose millions of dollars, and so may want these companies to share their software and research to other countries to increase competition.

4 Why move towards a strategic alliance A strategic alliance is defined as an agreement between two or more individuals or entities stating that the involved parties will act in a certain way in order to achieve a common goal strategic alliances usually make sense when the parties involved have complementary strengths ( There are several types of alliances, such as licensing, franchising, and joint ventures. If MNEs were to share their technology, they would most like attempt to implement one of the above strategies, depending on what type of industry they are in. Licensing is an agreement that allows one party to use an industrial property right in exchange for payment to the other party (Hodgetts et al, 2006). With licensing, companies can allow other companies to use brand logos and name. This givers independent producers the right to use another companies branding while producing their own products. This is beneficial to the producer because it allows them to already gain brand recognition and also gives the originator of the brand a new distribution channel. In licensing the primary company would gain loyalty fees, and therefore a new form of income. With the industries mentioned above (pharmaceuticals, weapons and consumer electronics) the one most likely to use licensing would be the consumer electronics industry. An example of this would be Google s Android operating system. Google have created an Open Handset Alliance (OHA), which allows other mobile phone manufacturers use their software. This has enabled completion in the mobile phone software market between the biggest players: Apple, Blackberry and Google. The licensing allows other phone users to use the Android software as a backbone and can be changed depending on their needs. Franchising is a business arrangement under which one party allows another to operate an enterprise using its trademark, logo, product line and methods in operation in return for a fee (Hodgetts et al, 2006). Franchising allows one party (the franchisee) to use the franchisors operation capabilities to start their own business. This is similar to licensing, but with franchising, the franchisee gets the full back of the franchisor, in terms or management structure, advertising and advice on how to run the business. This would most likely be used by the pharmaceutical industry when they want to produce new drugs overseas. If a drug company is able to set up franchises in other countries around the world, they will be able to gain more resources in research and development, as well as increase brand name recognition. Joint Ventures is...the commercial arrangement between two or more economically independent entities (McConville, unknown). Joint ventures are similar to partnerships, in the sense that they involve different companies working together, however on main difference is that joint ventures run for a finite time. Joint can operate in two ways: shared control and split control. Shared control involves both companies sharing all responsibilities such as R and D, operations, finance and marketing, whereas split control involves each company dividing responsibilities depending on their strengths. This may work for almost any industries. In terms of consumer electronics, on company may work on hardware and the other on software, for example, older generations of ipod consisted of components made by other hardware where manufacturers, such as Toshiba, who produced the hard drives, and the software, of course was created in Apples labs. This unison attributed to the success of the ipod. Weapons manufacturers may also want to get into joint ventures with others such as defence manufacturers. This will give them the ability to find out the strengths and weaknesses of each other s products and may be able to research new ones to give them more of a

5 competitive advantage. Joint ventures in this industry may also break down restrictions one country may have with regards to weapons manufacturing and overcome them in a different country. Home countries may want to have an interest when it comes to technology, depending on what the industry is. If the technology in question is one that can offer more leverage to the home country, then governments should impose certain restrictions. However if the technology is able to provide the rest of the world help, then governments should step in and share this technology. The industries however can do what they like, as they have the right to private property and can do what they want with it, unless it breaches legal requirement. As a recommendation, if home countries and MNEs work together, they should opt in for a joint venture with other countries, since it has a limited life span and both parties will have invested the same amount, so as the losses would be shared, as well as any profits. References Berrigan, F., Hartung, W.D., Heffel, L. (2005), Promoting freedom or fuelling conflict? U.S. Weapons at War 2005 winter Hodgetts, R. M., Luthans, F. (2006) International management, p , Mcgraw-Hill Holland, S., Bátiz-Lazo, B. (2004). The global pharmaceutical industry, Source unknown McConville, K. (Unknown). Joint ventures-business information services, McLeod, D. (2002). Mom, apple pie and tax avoidance. Business Insurance, 36(14), 6.