Title page

International trade, technology transfer and firm competitiveness: A comparative study of Zimbabwe exporting and non-exporting firms.

By

Michael Kamoyo

Chinhoyi University of Technology

Lecturer: Department of Marketing

mkamoyo@cut.ac.zw ; rumbi12@yahoo.co.uk

Tel: 263 67 29442

Abstract

better positioned to adopt and assimilate international trade related technology because they possess better technological capabilities in the form of

The paper examines the preparedness of exporting and non-exporting SMEs in harnessing the technological opportunities availed by international trade. Using cross sectional data for 131 SMEs, a logistic regression analysis was done to ascertain the extent to which factors like, technical skills, networking, firm’s innovation system, especially research and development activities and international involvement influence the adaptation and assimilation of technology for productive efficiency. The result shows that labour used in exporting firms is 3.164 times more productivity than that in non-exporting firms, high import composition, good networking abilities. However, it was noted that there is no significant difference between exporting and non-exporting firms on Information Communication Technology (ICT) diffusion and R&D activities. It is recommended that for technology transfer to be relevant and useful to non-exporting firms there is need to strengthen their technological absorptive capacity by scaling up their networking activities, training and development activities and increase international exposure to foreign technologies. Conclusively, it was noted more liberal trade policies can improve the set of accessible technologies to both exporting and non-exporting firms to and strengthen the local firm capabilities to assimilate and disseminate technology for global competitiveness.

Key words: Technology transfer, foreign technologies, exporting and non-exporting firms, technology capabilities, international trade

Introduction

New international trade theories emphasize more on technology transfer as a strategic tool for SMEs in developing countries. Imported technology can enhance international competitiveness of both exporting and no-exporting in developing countries. The importation of technology by developing countries is an indispensible input in their production as they cannot operate properly, or achieve high growth without imported technology (Zhang and Zou, 1995). Countries like Japan, South Korea, Brazil, Turkey, India, and Mexico, industrialized by borrowing technology rather than by generating new products or processes (Amsden, 1989). To that effect the growth model appropriate for late industrializing countries should incorporate foreign imported technologies to augment domestic technological innovations. Although Tesfayohannes and Temtime (2002) noted that technology transfer plays a significant role in strengthening the competitiveness and profitability of SMEs in global markets the assimilation and adoption of foreign technologies at firm level may not be even because of different technological capacities. Therefore, national technology policies should take into account these differences for national economic development to succeed.

Technological needs for Zimbabwe’s manufacturing sector

The Zimbabwe Science and Technology (S&T) policy focuses on, stimulating the generation of scientific and technological capabilities in all sectors of the economy in recognition of the critical role played by technology in entrepreneurship development and industrialization. Agarwal (2006) noted that capacity building for SMEs is largely influenced by the overall national S&T climate and policies, mechanism and support structures that must satisfy the manufacturing sector’s technological needs in order to enhance international competitiveness. In developing countries high economic growth rate and increases in productivity depend not on innovation but on importing foreign plants and equipment and on borrowing foreign technology (Zhang and Zou, 1995). Technological progress is very critical in enhancing the manufacturing capacity of both the export and non-export sectors of the economy in order to achieve global competitiveness. The non-export sector as an import competing sector should be technologically positioned to compete with competitively priced imports, while the export sector which is biased towards primary commodities at the expense high-value and high technology intensity manufactures should diversify away from primary commodity dependency.

While Zimbabwe registered a 62.5% growth in exports, only 7.5% is generated from manufactures, a cumulative 91.5% of exports originated from exporting primary commodities as follows minerals 64.5%, tobacco 17.5%, agriculture 8.4%, horticulture 0.7% and hunting safari 0.4%, (RBZ, 2010). Zimbabwe’s long-term export strategy should therefore focus on transforming from a resource-driven to a technology-driven export sector.

Table 1: Export values by technology level (US$ 000)

| Period |1995 -1999 |2000-2004 |2005 |2006 |2007 |
|Selected SADC countries |Zimbabwe |13.5 |3.1 |14 |1 |
| |Zambia |2 |3 |2 |2 |
| |South Africa |6 |6 |5 |6 |
| |Rwanda |16 |16 |7 |31 |
| |Botswana |0 |0 |1 |1 |
|Developing countries |China |30 |30 |29 |31 |
| |India |5 |5 |6 |9 |
| |Malaysia |54 |52 |40 |47 |
| |Singapore |58 |46 |51 |49 |
|Developed Countries |Japan |22 |30 |29 |31 |
| |US |30 |29 |27 |23 |
| |UK |34 |20 |19 |23 |
| |Switzerland |22 |22 |23 |25 |

Source: Comtrade Statistics, World Bank Indicators

Literature review

Technology can be defined as the way in which resources are converted into commodities (Jones, 1970). It is “a study of how humans use the environment to meet their needs … creating new tools serving humans and their environment” (Tesfayohannes and Temtime, 2002). Technology incorporates, among other things, research and development, design, process and production engineering, maintenance, management, and entrepreneurship, marketing, investment and finance, human resources, information technology and many others (Huria’s, 2002). Tesfayohannes and Temtime, (2002) maintained that technology transfer to SMEs fails to be effective because of failure to realize that technology transfer is not merely the acquisition of physical assets, like machinery, and equipment it encompasses all transferable elements that are non-mechanical and non- engineering activities like marketing, entrepreneurship, management, investment and finance among others. Huria (2000), Tesfayohannes (2002) identified four transferrable elements of technology as technoware, humanware, infoware, orgaware[1].

The process of acquiring and absorbing information about physical phenomena, equipment, machines, analytical concepts and operating techniques associated with technology is referred to as technology transfer. Hoppe (2005), Tesfayohannes and Temtime (2002) defined technology transfer as the transit of technological device or system from one place to another, where it has not been used before. The technology transfer process needs to be properly planned and managed otherwise it can be costly and counterproductive to developing countries. Technological progress is a critical element in attaining long-run international competitiveness and productive efficiency for developing countries because it results in improvement in quality of commodities and offers a competitive edge to the technologically innovative country (Hoppe, 2005 and Jones, 1970).

Channels of technology transfer

Hall and Johnson (1970) Technology as an abstraction cannot move, things and people are transferred because technological information is either embodied in product(s) or somebody, the form being important for determining the transfer process and costs. Its transfer involves movement of physical items such as drawings, tooling, machinery, process information, specifications and patents. If technology “is embodied in people’s expertise, a personal transfer may be necessary often in the form of a technical assistance programs” (Hall and Johnson, 1970). Hoekman et al (2004), distinguished four channels through which international technology is transferred, that are trade in products, trade in knowledge via technology licensing, foreign direct investment and intra-national and international movement of people. This paper is particularly concerned with trade-related technology transfer. “Historically trade was the only way by which ideas could disperse between cultures” Hoekman et al (2004).

Linking international trade and technology transfer

The link between trade and technology transfer in developing countries is a subject of interest to economists. International trade exposes local firms to international technologies through imports or exports channels. Firstly one of the most important relationships is that trade in capital goods allows technology import and improves input decisions for firms in developing countries. Secondly trade opens export markets, allowing learning-by-doing for exporting firms. Thirdly and most importantly, trade increases the set of accessible foreign goods and technologies, increasing the scope of imitation (Hoppe, 2005) and Keller, 2009). The accessibility may vary between exporting and non-exporting sector hence the need for appropriate sector-specific technology policies

The impact of imported technology on the productivity of firms was empirically found to be very strong. Archarya and Keller (2009), using data for 22 manufacturing industries from 17 industrialized countries, found that the contribution of international technology transfer often exceeds the effect of domestic research and development on productivity. Tesfayohannes and Temtime (2002) noted that developing countries lack the capacity to invent new technologies hence the need for them to adopt appropriate technology and management know-how that has been invented and tested in the developed world. Imports are a significant channel for technology diffusion to developing countries (Keller, 2009). Imported technology strengthens the comparative advantage of developing countries in the globalized world (see Tesfayohannes and Temtime, 2002; Archarya and Keller, 2009; Zhang and Zou, 1995 and Botes, 1999).The challenge for developing countries is to carry out a transfer process in its suitable and feasible manner in order to enhance international competitiveness in both the export and non-export sectors.

Hummels et al (1998), Coe and Helpman (1995), Keller (2001), Lemoine and Unal-Kesenci (2004) noted that vertical specialisation or trade in intermediate goods is increasingly becoming an important phenomenon in which international technology diffusion takes place. Vertical specialisation occurs when production of a product is done in more than one country. A firm imports intermediate goods from another country for use as inputs in the production of its own good for export to the next country. This is also referred to as international division of production processes or vertical specialisation based trade or slicing-up-the-value-chain (Yi et al, 1998). Using input-output analysis for ten Organization of Economic Cooperation and Development (OECD), Hummels et al (1998) found that 14.5 percent of trade in these countries is vertical specialisation based trade.

As compared to horizontal specialisation where the production process of a product is initiated and completed in one country, international division of production process created new sources of technology transfer for exporting firms as opposed to non-exporting firms. It opens up new areas of specialisation with capacity to promote export diversification into sectors with dynamic demand effects. The experience from China demonstrated that exporting firms can participate in the production of high tech products if they take part in international production process. High-tech exports have a dynamic world demand effect which implies that they have high growth potential. Studies by scholars like Lafay (1979), Bensidoun and Unal-Kesenci (1998), Bensidoun and Unal-Kensenci (2001) shows that specialisation in sectors where international demand is dynamic constitutes an asset for growth. Grossman and Helpman (1991), Lemoine and Unal-Kesenci (2004) noted a strong correlation between economic growth and export diversification into more dynamic high technology sectors.

Deciding the right diversification strategy constitutes a critical stage in achieving a desirable technological progress. Since non-exporting can not take part in the global value chain through vertical specialisation they lack the critical ingredients for technological progress. Young (1991) cited from Lemoine and Unal-Kesenci (2004) maintained that certain specialisations are more favourable to growth than others since they promote trade in products with a strong potential of learning-by-doing. Vertical diversification offers exporting firms higher learning possibilities that in turn may produce greater dynamic externalities. Therefore, exporting firms are likely to be highly dynamic as compared to non-exporting firms in responding to changing technological needs and world demand patterns. Lemoine and Unal-Kensenci (2004) and CEPII (2005) attributed China’s export of high-tech products to participation in the international division of production process. Exporting firms raised the technological level of their exported goods by using only 30% of local content.

Factors that affect technology transfer process

Acharya (2009) identified three major factors that influence the process of technology transfer as, direct effort that is taken to transfer technologies, the differences in the underlying conditions between the donor country and the receiving country and firm absorptive capacity. Absorptive capacity can be defined as the ability of a firm to recognize the value of a new external technology, assimilate it and apply it to its commercial ends (Kedia and Bhatgat, 1990).

Technology transfer can be expensive if critical factors are not properly considered during the transfer decision making process (Tesfayohannes and Temtime, 2002). Overlooking critical factors may create the opportunity for impeding the development of local entrepreneurs (Samli 1985). The speed of technological diffusion and assimilation depends on the technological capabilities of the recipient firm that includes organizational, operational, financial, entrepreneurial and technical capabilities (Tesfayohannes and Temtime, 2002). A technology that is easily communicated and understood by the recipient firm tends to diffuse faster and be viably transferred through hybrid or market mediated modes (such as licensing, franchising, and strategic alliance). Hall and Johnson (1970) argued that “in any case the ease and cost of transfer hinge on industrial skill the recipient already possesses. A firm skilled in the manufacture of voltage regulators will have little trouble in mastering the technology for a new regulator”. The capabilities depend primarily on investment in scientific and technical training and on economic policies that enforce competition among domestic firms (Mowery and Oxley, 1995). If as according to Bascavusoglu (2005), trade transfers technology across countries and sectors, there is need to investigate how trade-related technology is diffused and assimilated across exporting and non-exporting firms. This will enable policymakers to design trade-related technology transfer programmes that suits each of the sectors accordingly.

Developing capacity to transfer appropriate and affordable technology is essential towards accelerating the process of economic development (Lincoln, 1987). Poor technology management is the cause of failures in technology programmes in developing countries (Botes, 1999). Management of technology transfer is a process involving planning, scheduling, programming, training and making operational environment ready for newly obtained technology (Tesfayohannes and Temtime, 2002). As a result activities like on-the job or technical training, external collaborations, quality improvement schemes, managerial and entrepreneurial development schemes are very critical to enhance technology capacity of SMEs. Empirical studies on Malaysia, Singapore and Thailand by Argarwal (2006) shows that technological capabilities are correlated to firm’s innovativeness and national or regional innovation system. Global competitiveness is closely related to technology capabilities and innovations, (Argarwal, 2006).

While it has been widely accepted that international trade is capable of promoting technology transplantation from technology exporting countries to developing countries the technological distributional impacts are said to be uneven between exporting and non-exporting firms. The widely held position is that exporting firms tend to gain more from technological transfer opportunities presented by international trade. The assumption is that exporting firms tend to have wide international exposure with better networking abilities than non-exporting firms. Therefore, exporting firms are likely to possess strong technological capabilities as compared to non-exporting firms. In this respect exporting firms are assumed to be characterised by productive efficiency, ease accessibility to foreign technologies, unparalleled international competitiveness and are technologically ahead of non-exporting firms. The major question to be addressed by this research is whether export status explains the technological differences between the exporting and non-exporting sectors in Zimbabwe.

Methodology

To determine how international trade influences the distribution of technological capabilities and progress a cross sectional analysis of 131 exporting and non-exporting SMEs was done. Three dimensions were focused on as follows firm’s international involvement, firm’s technology creation capabilities and firm’s technology penetration rate. To measure the degree of international involvement of the firm, the level of import composition on inputs used in the production function was used. Imports are a mechanism for international technology transfer (Acharya and Keller, 2009), so high import content is likely to be associated with wide exposure to foreign technologies. Similarly it is assumed that firms that export, exposes themselves more to international technologies than non-exporting firms. The study also used networking to capture international exposure because networking increases international contacts.

Firm’s technology creation was assumed to be influenced by innovation system which depends on development of human capital as reflected in firm’s technical skills level, expenditure on research and development as well as firm’s expenditure on training and development (Archibugi and Coco, 2004). Human capital fulfils a crucial task in creation and adoption of technologies and on-the-job training increases human capital (Hope, 2005). Technical skills level depends on the number of employees with degrees, the higher the number of employees with university degrees in the firm, the better the technological creation and absorptive capacity of the firm. It is also assumed that the higher the expenditure on R&D and training and development the stronger the technology creation of the firm.

To determine the technology diffusion of the firm, three main measures were used. The first measure is the output-labour ratio (labour productivity measure). Empirical literature usually analyses total factor productivity as a measure of technology (Hope, 2009). High labour productivity was assumed to be associated with better technologies because improved technology increases the output per worker. Secondly the internet and telephone penetration rates were used as measure of diffusion of newest technology as applied by the UNDP Technology Achievement Index (Archibugi and Coco, 2004). The penetration rates were obtained as the ratio of employees to the number of computers connected to the internet and number of fixed telephone lines respectively. The lower the ratio the higher the penetration rate and the better exposed the firm is to international environment. The employment size variable was also used to estimate the technology level for the firms. The assumption is that firms that employee more workers are labour intensive and have low technology intensity.

Data for the variables above was collected using questionnaires form exporting and non-exporting firms. Descriptive statistics and a logistic regression model were used to analyse data.. A logistic regression model was found to be more appropriate since export status is a discrete variable that assumes a value of 1 if the firm is exporting and 0 otherwise. A logistic model specified below was formulated to establish whether there is any significant technological differences between exporting and non exporting firms [pic][pic] is export status dependent variable that assumes the value of 1 if the firm exports and 0 if the firm is a non-exporter. The betas ([pic] are parameters to be estimated. RD represent expenditure on research and development, TD is the expenditure on training and development, Dn is the dummy for networking it takes the value of 1 if the firm has networking linkages and 0 otherwise, IM represents import composition, Dw is the dummy variable for website (assumes 1 if the firm has a website and zero otherwise), ICT represent ICT technology penetration, ES is employment size, Tel is the telephone penetration rate, DE number of employees with degree and finally Ds is the sector dummy.[pic]

Results

The result for cross tabulating export status and other explanatory variables are shown on the appendix. A total of 131 firms from leather and footwear, chemicals, food and beverages, steel and metals and other sectors was surveyed, 76 of the firms are exporters and 55 are non- exporters. Table A1 to A3 shows the relationship between export status and firm’s international involvement, technology creation capabilities and technology penetration rate. The Chi-square results confirm that export status varies across sectors,

The regression result shows that labour productivity is positive positively related to export status and is significant at 5% level. The Exp(B) value confirms that exporting firms are 3.164 times productive as compared to non-exporting firms. The coefficient for employment size was negative and significant at 5% level implying that exporting firms tend to employ fewer workers than non-exporting firms. The Exp(B) value of 0.244 means that on average the employment size in the exporting firms is 0.244 times less than that of non-exporting firms, confirming that non – exporting firms are relatively labour intensive as compared to exporting firms. The coefficient for telephone penetration rate was positive and significant at 5% level with the Exp(B) value of 2.458 implying that telephone penetration rate for exporting firms is 2.458 times higher than that of non-exporting firms. The coefficient for ICT penetration was positive and not significant indicating that there is no significant difference between the exporting and non-exporting firms in ICT penetration and adoption rate. The coefficient for website was negative and not significant implying that there is no significant difference on website ownership between exporting and non-exporting firms.

Results obtained for technology creation capabilities indicates that training and development, and the ratio of employees with degree to the total number of employees are significantly different between the exporting and non-exporting sector while research and development activities are not significantly different. The coefficient for training and development expenditure is positive and significant at 1% level. The Exp(B) value is 28.652 implying that exporting firms invest in training and development activities 28.652 times more than the non-exporting firms. This gives exporting firms a competitive edge over non-exporting firms in technological capabilities. The fact that the research and development expenditure variable is not significant implies that there is no any noticeable variation between exporting and non-exporting firms in investment in research and development activities.
|Table III: Regression results for the export status variable |
| |

All the two indicators for international involvement, import composition and a dummy for networking were found to be significant and with positive coefficients. The Exp(B) value for import composition is 46.665 implying that on average the import content of inputs used in the export sector is 46.665 times higher than that used in non-exporting firms.

The test for the model fit gives the Cox and Snell R2 value of 0.61 and Nagelkerke R2 value of 0.82 indicating that the model fits the data correctly. The Chi-square value of 122.9 with 11 degrees of freedom was found to be significant at less than 1% level. The model was able to predict 91% of the exporters’ and 93% of non-exporters’ correctly with the overall model prediction accuracy of 93% as according to the classification results.

The conclusions that can be drawn from this study are that exporting firms are characterised by high labour productivity, good networking system, wide international exposure, better training and development activities which give them an edge over non-exporting firms in harnessing technological opportunities brought by international trade. While non-exporting firms have imports as the only way to access foreign technology, exporting firms are able to extend their accessibility to foreign technology through exposure to foreign competition and learning-by-doing opportunities. Non-exporting firms need to improve their technological absorptive capacity by intensifying training and development and networking activities. However, both exporting and non-exporting firms needs to scale up the research and development activities as a step towards technological capacity enhancement.
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Appendix
|Table IV: Exports status, import composition and sectors |

Sector |clothing and textile |Leather and footwear |Chemicals |Food and beverages |Steel and metals |others |Value |df |Sig | |Exporter |8 |10 |23 |3 |10 |22 |34.903a |5 |0.010 | |Non-exporter |22 |0 |17 |8 |6 |2 |41.051b |5 |0.007 | |Total |30 |10 |40 |11 |16 |24 |13.674c |1 |0.000 | |import composition |No imports |0.01- 24.9% |25 – 49.9% |50 – 74.9% |Above 75% | |Value |df |Sig | |Exporter |5 |5 |6 |22 |38 | |64.594a |4 |0.000 | |Non-exporter |15 |14 |20 |5 |1 | |79.350b |4 |0.000 | |Total |20 |19 |26 |27 |39 | |51.127c |1 |0.000 | |Where a. is the Chi-squares value b. Likelihood ratio and c. shows the linear by-linear association value

Table V: Export status and technology creation capabilities

degree |No degree |1-5 |6-10 |11-15 |Above 15 |Value |df |Sig | |Exporter |4 |18 |27 |5 |17 |34.910a |4 |0.000 | |Non-exporter |22 |6 |6 |5 |16 |36.758b |4 |0.000 | |Total |26 |24 |33 |10 |33 |3.431c |1 |0.064 | |Exp on T&D |No expenditure |0.01- 5% |5.1 – 10% |Above 10% | |Value |df |Sig | |Exporter |22 |20 |25 |0 | |17.884a |2 |0.001 | |Non-exporter |32 |29 |3 |0 | |19.892b |2 |0.000 | |Total |54 |49 |28 |0 | |17.340c |1 |0.000 | |Exp on R&D |No expenditure |0.01-5% |5.1 – 10% |Above 10% | |Value |df |Sig | |Exporters |43 |28 |5 |0 | |20.188a |2 |0.000 | |Non- exporters |49 |2 |4 |0 | |24.015b |2 |0.000 | |Total |82 |30 |9 |0 | |8.674c |1 |0.000 | |Where a. is the Chi-squares value b. Likelihood ratio and c. shows the linear by-linear association value

Table VI: Export status and technology adoption and penetration rate

telephone |No fixed telephone |1-5 |6-10 |11-15 |Above 15 |Value |df |Sig | |Exporter |0 |6 |17 |4 |49 |20.007a |4 |0.001 | |Non-exporter |7 |11 |7 |7 |23 |22.562b |4 |0,000 | |Total | | | | | |9.672c |1 |0.002 | |Internet penetration |No internet |1 - 5 |6 - 10 |11 - 15 |Above 15 |Value |df |Sig | |Exporters |0 |36 |10 |6 |24 |29.655a |4 |0.000 | |Non- exporters |13 |13 |16 |3 |10 |34.601b |4 |0.000 | |Productivity |80-330 |331-1830 |1830-3330 |Above 3330 | |Value |df |Sig | |Exporter |3 |24 |12 |37 | |13.772a |3 |0.010 | |Non-exporter |2 |30 |6 |17 | |14.082b |3 |0.007 | |Total | | | | | |7.886c |1 |0.005 | |Where a. is the Chi-squares value b. Likelihood ratio and c. shows the linear by-linear association value

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[1]Huria (2000), Tesfayohannes (2002) defined technoware as hardware embodied technology such as tools, machines, equipment, physical facilities. Humanware as persons embodied technology such as skills, experience, insight, and learning. Orgaware as institutional embodied or support net technology, like organization structure, policies, external and internal linkages for operation of technologies as an on-going system. Infoware, as to documents or specification embodied technology like design, process specification, procedures, theories, and knowledge based systems.