The Hindu Business Line : India and the global knowledge market

Indian firms must do business with countries whose ranking in terms of the global innovation index and R&D spending as a percentage of GDP is high. These are two important indicators of a country’s capabilities.

Sumit K. Majumdar

As Indian companies join the global bandwagon, it is essential that they acquire the technological capabilities required to succeed internationally. Innovations and productivity growth have been the drivers of economic growth, and Indian companies should strive to be at the innovation and productivity frontiers.

There may not always be the plinth of knowledge on which to readily build the superstructure of a sustainable global firm. Nor are there large internally generated resources to be re-invested towards the creation of capabilities. The sources of knowledge that Indian companies need to tap into are those available elsewhere; and the sooner they do it, the better. Else, Indian companies will be the also-rans in the global race.

Hence, the engendering of strategic alliances, outright purchase agreements, the licensing of technologies for specific periods and the creation of collaborative networks are activities that managements have to support. This positioning of the Indian corporate sector in the global marketplace for technology acquisitions raises several issues.

Market for Technology

The market for technological knowledge is unique. There is the “Arrow” effect, whereby the sustainable competitive advantage, based on knowledge that a firm might possess, is immediately lost if it transmits that knowledge to another firm without adequate protection restricting its imitability. Since the levels of such protection are limited in India, overseas firms are loath to transmit knowledge to Indian firms.

Nevertheless, let us assume that rigorous intellectual property protection regimes operate in India. There is the “Groucho Marx” paradox. Groucho Marx had famously remarked that he would not join a club that would have him as a member.

Thus, an entity with saleable knowledge would not sell it, because then such a sale would signal the intrinsic low worth of knowledge. Hence, an entity with claimed valuable knowledge to sell would really be selling knowledge worth less than its espoused value because the fact of its availability had reduced its rarity and intrinsic appeal.

There is a second concern. Countries with clearly valuable knowledge, within their corporate sectors, would encourage global technology sales to companies in other countries only when it would be consistent with national self-interest.

Thus, the nuclear technology deal between India and the US has been encouraged more because it is consistent with political strategy of the US.

In the present context, a number of global companies are beating path to India’s door. But that is primarily to exploit the domestic market. Expressed intentions to use India’s manpower capabilities for research and development have not yielded the requisite outcomes in terms of patents or new product launches.

Choices for Indian Firms

So what should Indian companies do? It is important to target certain specific countries that yield useful partnerships.

India ought to do business with countries according to their ranks on a global innovation index and on their R&D spending as a percentage of the gross domestic product. These are two important indicators of country capabilities.

Of the top 20 countries, in terms of their ranking on an innovation index devised by The Economist, the world’s most innovative country is the US, followed by Taiwan and Japan.

The two Scandinavian countries, Finland and Sweden, are ranked 4th and 5th while South Korea comes 6th. Europe fares rather badly, with Germany at 11th and the UK and France at 18th and 19th respectively.

For India, the message is clear. Companies seeking knowledge alliances are best advised to look at companies in the US, Finland, Sweden — which have given the world brands such as Electrolux, Nokia and Volvo — and at the Asian Tigers — Taiwan, Japan and South Korea.

The success of companies such as Toyota, Hyundai, Taiwan Semiconductors and Samsung are well-known. Hence, what Indian companies can learn from their possible associations with world-class players from these Asian Tigers are not likely to be learnt elsewhere. It is unlikely that much knowledge can be gleaned from associations with British companies.

When it comes to R&D spending as a percentage of GDP, Finland, Sweden and Japan rank 2nd, 3rd and 4th in the world; the US and South Korea are at 6th and 7th.

Again, Britain and France rank much lower, at 14th and 16th respectively, highlighting the decline of “old Europe” and the arrival of “new Europe,” with countries such as Finland and Sweden leading the knowledge revolution and Asia becoming a dominant power in the knowledge game. Nevertheless, in the last few years, there have been extensive efforts by some of the countries ranking very low on these scales to extensively market their research and knowledge capabilities to India.

Britain, for instance, is trying hard to attract Indian investments It is selling its knowledge capital through joint venture programmes between its universities and companies in India. Nevertheless, as statistics show, genuine research-based knowledge generation has been low in Britain in the last two decades.

Worthless knowledge

A country sells its knowledge aggressively probably because it is worthless. Such peddling of knowledge should raise a warning flag.

Countries and firms that possess intellectual property rights do not exploit the commercial value of such assets by licensing if they can instead exploit such knowledge by putting together the relevant organisational framework to generate products.

Thus, the willingness to sell technology can be an implicit expression of an inability to develop the soft skills for sustainable value extraction.

Thus, with “old Europe” countries, the approach to adopt would be caveat emptor. The US remains the country of first choice. Several Scandinavian countries have developed impressive knowledge-based economies in the last generation. Such countries do not need to promote technology sales; others come to them.

Indian firms, therefore, have to develop plausible rationales as to why it is a win-win situation for these firms to engage in knowledge alliances with these countries.

(The author is Professor of Technology Strategy; University of Texas at Dallas. blfeedback@thehindu.co.in)

More Stories on : Technology | Research & Development | Human Resources

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Girding for change

India’s hi-tech lag

The fusion at Vienna and after

India and the global knowledge market

Approach to safety

Singur issue