In this study, the roles played by direct foreign investment and technological cooperation in transferring technology to Taiwan are analyzed. Data for the present analysis are taken from several surveys conducted by the Investment Commission of the Ministry of Economic Affairs and from previous studies done by the author. Some of the major findings are presented below.
On Direct Foreign Investment:
(1) Foreign firms operating in Taiwan have created a significant amounts of exports and jobs over the past decade.
(2) Foreign investment has brought to the Taiwan economy new technology, which has been used to develop new products, and modern management skills, especially in conjunction with export marketing.
(3) Foreign firms have consistently increased their domestic purchases, implying that direct foreign investment exerts a significant indirect effect on the economy.
On Technical Cooperation:
(1) Of the total 1,870 technical cooperation projects, 74.1 percent has been concentrated in the following industries: Electronics and electrical appliances, chemicals, machinery, and basic metals. Japan has been the major source of technology (65.6 percent) followed by the U.S. (21.4 percent) and Europe (11.0 percent). Technology emanating from the U.S. and Europe has been increasing, however.
(2) The three motivations propelling firms to acquire foreign technology are: (a) to develop a new product quickly; (b) to improve product quality; and (c) to lower production costs. After signing a technical cooperation agreement, domestic companies usually receive technology information and labor training from the technology transferrer. Transferrers additionally are likely to supply materials and machinery for the domestic firm, especially in the electronics and machinery industries. Domestic suppliers, however, have displayed a tendency to seek out machinery suppliers independently during the past decade.
(3) The average duration for a technical cooperation agreement is five years, and the average royalty fee is 3 percent of net sales.
(4) In general, domestic firms appear satisfied with the technical agreements they have entered into in the past. The complaints that were raised were related to the conservative attitude of the transferrers in releasing advanced technology; this occurred more frequently in agreements with Japanese companies.
(5) Technology brought in via technical cooperation agreements has a demonstration effect, whereby other firms learn or adopt similar technology.
(6) Several unfavorable restrictions have at times been placed on the domestic transferee, including prohibition of exporting the product covered by the contract and non-continuity of the use of the technology after the contract is terminated.
(7) Some domestic transferees have relied completely on foreign technology and have not done any of their own research and development.
The paper concludes by offering several policy suggestions:
Opening the domestic market further is crucial to attracting more future direct foreign investment.
Relaxing outward investment restrictions is as important as direct foreign investment in introducing new technology.
A more liberal approval process for technical cooperation agreements is called for, especially given the large amount of foreign reserves accumulated over the past few years.
Domestic companies should be encouraged to do more of their own research and development work. This would also place them in a better bargaining position vis-a-vis foreign technology suppliers in negotiating technical cooperation agreements.
