SUM:~AR Y This article presents a model of development stages that shows when a n ' ,~;;,y local firms in a developing

country acquire foreign tec~nologies, how they assimilate and improve imported technologies to strengthen their competitiveness., and what and when external influences affect the process of technological change in these firms. Industrial tochnology in Korea's electronics industry has develop'ed through three salient stages InitiaflV established through the implementation of imported foreign technology, local r~'rmsin the industry then accumul'.,ted experience in product design and production operation which prov;ded a basis for limited indigenous efforts for the assimilation of imported technology. Finally, increased market competition in local and international markets and increasing capability of local personnel to. gether with assimilation of foreign technology, led to gradual (mprovement of foreign technology. This pattern is also evid,..=.ntin the history of manu,rac~uring industries not only in Korea but also in ocher countries The article also presev:~ts several propositions fo~" future research.

Research i"oh~'v 9 (lgJ80) 254-277

IVorth-Ifolla/zJ

stages of development of industrial technology in a deve!oping country:a me,dei

by
t.insu KIM*
Korea Development Institute, Seoui, Korea

INTRODUCTION Tills article presents a model of three development stages that shows how industrial te4,hnology develops over time and how the characteristics of international transfer of technology, the pro0uction process structure, and local~ ;irms' inr:ovation strategic:; evolve in response to the changing competitive env~ronntent in an industrializing coutry, Korea. Fechnological change is known to have bc,'n a major determinant of nationai~ deve|opment. In industri,:lized economies, many studies ~,ve shown that more than 50 percept of lorg ~etm economic grewth ~,tems from technological changes which improve productivity or lead to new pr,,-cacts, processes or industries [7]. Fo; this reason, the question otter~ raised is how can science and technology, which appear to be the key to development ir~ the more advanced countries, be effectively used tor economic and socl.al development in the less developec regions of the world. Previous studies have :3ugh+ to answer many important questions related to science and technology and their role in the development of less developed countries. These studies ma3 be roughly classified into two categories. Studies in the first categot3' are on science and technology and their role in the development of LDCs. They are mainly concerned with the development and role of the local scientific community, the role of education, and effects of science and technology policy on industrial development. Moravcsik [17] lists almosl 500 publications on v:,rious aspects of tllis issue. Studies in the second
* The author undertook this research when he was at the Center for Policy Alternadv,~s at the Massachusetts lnstitu~.e of fechnology. He is indebted to his coUeagues, J. M. Utterb,ck, S.K. Fung, T. C~zawa, and K~ N. RaP at MIT for their critical comments on an earlier draft. The research underlying this article was supported by the John H. Edwards Fellowship of lr~diana 0dn,iversity and by a grant from the Alfred P. gloan Foundation to the Center for Policy Alternatives at MIT.

Research Polio' 9 [1960) 254-_ 77

~orth-ftolland

256

L. rf,r,

category are concerned with the ir:ternational trartsfe, of technology to LDCs; that is, the rove of multination, al firms in technology tran ,~, the problems associ,)t~d with importation and at, aptation of foreign te.':hnology, and the role of lo,,:al R&D institutions. Steele [24] lists over 200 studies in this
ar,~a.

This study is a dis:,nct departure from the previous studi~, in that it ,everses the approach, looking at the level of firms to identify the pa.~,ml of when ar,~ why local !:'irms acquire ~breign technologies, how they assimilate ant! improve importec technology to strengthen their competitiveness in a changing environment, and wheh government programs and other external factors affect the pro,ces.~, of technological change in firms. This approach is useful and important, ~incz government uses a variety of programs within tile general frameworI~ c7 their industrial policies in ,order to i"quence the process of ted~,nologic~l cha1~ge at the firm level. Similarly, I: oth m~ldnatic, nal comp,. .hies that supply forei~l technologies and local R&D institutions d- ch help local firms import, adapt and improv such technologies also interact primaally at the level of fi~m~. This a~~ic]e first presents an three-stage raodel of whea and hew local firr s in a LDC import and implement, assimilate, and improve foreign '.echnologies in response to the ch~,uging competitive environment. This mc)del is ba~ed on the primary data collected from 31 consume: and industrial electronic products manufacturel:s and the secondary data on the electronics i~.dustry in Korea. The applicability ~"the model o other industri,~ ~ sectors in Korea and other countries is then discussed. Finzlb, the article o,fers a set of propositions that can be ~esearched in future ir . :her industries in other developing countries. Korea is one of the mos" rapidly indt,strializing countrL's in the world. Its GDP increased at the annual rat ~ of over 10% between 1965 and 1975, one of the highest growth rates. Its manufacturing secte; has grown during the same period with the annual rate of 22.4%, noticeably faster than the economic growth in general I26]. The electronics industry in Korea in which this study w,,s undertaken is the fastest growing industry in Korea. Since I966, the industry produc,ion volume has grown more than 50% every ye~Lr. Ey'ports have increased more than 100 times flom 1966 to 1975 and the number of firms has increased frvm 70 to 457 duri:ag the same period. Of these 457, 102 firms produced the end products in ~975 [6]. The 31 firms were ~;elected from these 102 firms on the basis of 'chunk' sampling techniques so as lo have representative ~amplings on an a .~riori I:asls through multi-stages (see [14] for the sampling techniq~ae). Fir~v~ covered in this study produce TV sets, radio, stereo sets. tape recor-

Developm cr't o f industrial tet :lnolo~T

257

ders, communication and broad~.asting equipmem, calculators, and sin-:,~" testing instruments. These produc~s accounted f ~ r ~ore than 85% of the tt~al eact product production in the electronic~ industry in 1975.

~qTAGES OF DEVELOPMENF OF INDUSTRIAL TECHNOLOGY: MOi~EL

This study does not include wh ~lly-owned foreign subsidiaries, zts they, particularly off-shore assem ~ ly q~,..,, behave differently from national and jointventure firms.* in recent decades :Icveloping countries have employed various efforts at industrialization. The N:~,S's ad l,,.c panel of the Board on Science and Technology describes tb.~ general pattern of development for these countries in the fifllowing terms: Tl~e principal industriaPzation strategy of most LDCs during the early postwar years is ~aid ~,.',have been import substitution; domestic production, under the shelter of a high tariff wall and ustally under monopoly conditions, cf goods that w ~.re formerly imported. By the end .ff the lC~60s, export promotion as a strategy for development had become a full partner of, if not a replacement for, import substitution. This change increased I_DC interest in strengthening the technological capabilities of local enterprise - exporters must sell a: competitive prices. A basic reason for fostering indigenous RD&E is to. combine engineering skills, which are becoming more plentiful in the LDCs, with first hand knowledge ,~f local productive capabilities and social customs and both local and foreign product requirements [19]. Like many other developin:g countries. Korea has e~:lployed this pattern of industrialization [25]. "i'he electronics industry was initially established in response to a market opport~Jnity created and protecte t by a government imManufacturing subsidiaries of foreign corporations have a high dependence on their parent companies for prodact design and production tec!miques. For example, offshore assembly soosidiaries perform no more than asse~nbly operation of foreign components and parts for reexport purpos,~. In this cas,, products and theft com~. ponents and proOuction processes are developed by parent companies. Even foreign subsidiaries that manufactt~re products for local markets perform no more than adaptive engineering of product design and prodvction techniques developed b., p~rent companies to local conditions as viewed ne'~essary by the latter. In contrast, local firms evolve in their technological capabilities from implementation, to assimaation, and to improvement of foreign teclmologies [ 1, 2, 10].

258

L. Kim

port sub.stitution policy. In most cases, product design and production tech. nologies had to be importec!t from overseas. Production at this stage was merely an assembly operation ,~f foreign components and parts, and the firm's technological concern was essentially for the implementation of a production operation. There were few indigenous efforts to undertake technological change in products and processes due to the lack of both technological capability and market incentive..; to bring about ci~ange. As product design and production techniques transferred from overseas were successfully implemented at several firms, technical knowhow was quickly diffused within the country, resulting in an increased number of firms competing in the same marke~:. AccumaLated exnerience in product design and production provided a basis for limi~r:edindigel:ous efforts for the assimilation of foreign technologies. Finally, assimilation of fo~ eign technology and increased market competition together with increasing c:~pability of local scientific and et~gineering personnel led 1~o the g~adual imp,ovement of foreign technology. Product improvement and cost reduction became an important b::sis for competitio~ not only in the domestic market but also in international markets which became ircreasingly important. Indii;enous ef~'orts for technological change became important to improve products and to increase productivity, leading to a relatively more efficient, integrated and la~,~. 7 production system. In shorl, there seem to be three salient stages in the development of industrial technology in the electronics ir~.iu'~tr'y in Korea: Implementation, AssimiL~t~on~ and Improvement, nameo f c the predonfinant t e c h n o l ~ c a l task ~f each stage. These three stages will b,,~ exan~i,aed in more de~ail. IMPLEI~;IEi~.iTATION Tb ~u,.;h tile AM radio set has been ass~:mbled in small scale 'garage-opcration~' in ~'orea si~ace 1958, the tdectronic~ indusiry i~ Korea can I~e said to have b g~m in the mid-1960s, with the production of l,:~ack and white TV sets, stereo~ and radio communication equipment throug[~ ~.!~' inten~ational transfer ,~f production technology [10]. WheIlt the government ha~mcd the imports of consumer electronic prod~.~cts as a means of imp3rt substitL~tioh, riffs measure plus cc,atrol of foreign investment and contraband goods in the black market provided an ~ttrzctive busfness opportunity for local entrepreneurs in the protected local market whi~:ia had previously been domineered by ~breign products. However, ~l~er,: wa; no local capability to establish production operatic..,~s, lEntrepreneurs who, had previous trade contacts ,,,ith tbreign films quickly imported 'packagt.~d ' technology from overseas whi~:h included assem-

Dcvelopment of industrial tcctznologv

259

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bly processe,,,, together with product specifications, production knowhow~ tecimical per:,onnel and component parts. The import ~f such a 'packaged' technolo D ted to the emergence of new pro-. duclive umts and the electronics industr.~ in Korea. The productive unit refers tt~ the simple firm or electronics division vithin a large fil,l,. Fig. 1 depict,; tile growth ~,f tile industry Ul terms of tlrLe number of productive units ir~ operaii,m :n selected product lines. Of !4 television manufacturers in opera. tion as of 1975, the first four were establi',hed throug;: tl~c transfer of'pack.. aged' techl~h)gy from Japan and llolland. A s~milar pattern was also evident. as shown in '~'.. ~. in commumcation equipmcm', electroni~ calculators, and other electronic products, international ransfe~ of 'packaged' technology provid,:d :m imtial base for the technologi:al developn:ent of the electronics industry m K.~ea. Production, i~ :hm stage was ,nerel~ an ;,~sszmbly o_,eration of foreig,:a components and pa;t:, w~th equipment purchased from overseas, in the case of black and white TV sets, all pa-ts except the case, resistors, capacitors, etc. were ira-

260

L. Kim

ported from abroad in the first year of production. This was also true in the case of other electronic pro~lucts introduc,:d during the same period. Simple parts were quickly prod~ced localIy as the finished products created the mar.. ket for tt'e parts industry; ho~vever, ~-oore ~'.ompiicated pat's were imported fro~., overseas. The prodaction process patt~::rn was inefficient because of low labor costs and little cost pressure in the l:,rotected market. No data are available tbr the 1960s, but low labor cost is evident in a study conducted in 1970 which found that hbor costs accounted for only 5.1% of toto.i costs o f a 19" black and white TV set, which requires a relatively labo, in~ e.nsive assembly operation [9]. This implies low labor costs relative to other input faclors, possibly suggesting that low labor pro:luctivity may not be problematic to manufacturers in this stage. The ana~!sis of data collected iin this stqdy fiom 31 productive traits shows that c,perations technol,_~,y rigidity of Hickson et al. [8] * is positively correlated (r = 0.36, p <'. 0.05) with indigenous technological capabifity.** The operations technology rieidity refers to the degree o f rig~dity wiI:hin the production process whereby inputs are converted into outputs. A high degree of rigidity indicates a system-like, efficient process, while a low degree of rigidity indicates a loose!y org::nize0, ineflic~ent process. The indigenous technological capability refers to the degree of i~digenous capability of local firms ~ developing new products and is significantly related to the age of the productive umts tinder study (r = 0.50,p < 0.001), indicatiqg that those at the early stagt have !ow indig, r,ous technological capability and ti',ose at the subsequent stages have high indigenou:~ tech~,,,oiogical capability. Thus, the indige~ous technc, logica! ":apab~lity was used h~ this st'ady as a .~urrogate to measure technological d.:velopment stage~. To recapRulate, the above relatiolzship indicates ~a,: productive units ~t this stage tend to have more loosely organized, inefficient production processes thaa those in the subsequent stages. 'At the indt~stry level, a stud~,, shows that a productivity pe~

* Hicksc,n, et al. [8] developed an 8-item scaJe to indlca,e th~ degree oe ri~,idi~y.This scale measures workflow CO'rtinuity, specialization of equipment, v,~riability of operational sequence, necessit:: of buffer s ,,ck, possibility of ~-erouting work, and ~nterdependence among subprocesses. ** The indigenous technological capability is measurel by a 6-point scale. A productive unlit ~hich performs a simple ~tsembly opezation of 100% foreign pa~ts lbr fer;hgndesigned p:roducts is score 1, wi~i:e a productive unit t:lat d~velops and prod:~ces unique productg, which are not an imitation of foreign products is so,red 6. In the case of muttiproduct firms, a raajor product line ;:as used for this n~ea~re as well as operations Iechnology rigidity.

T:evelopment o f n:iu ~t, ial technology

261

..~ La

,a

5 ~ f

i is. 2. Lai;or produ(t~vit:,, of the electronics industry ~J, Koreu, 1:68-1975. Source: Tat'le 23 in I 1! I.

worker per 2ea, was USS3,600 in 1970 c,ampared ,o US$8,340 in 1975. as shown in fig. 2 [1 I.I During this initi;:~ stage, the i:nmediate ~eclmologiea! ~:~st:;v~; the implementation of the transferred |oreign techn~'ogy Ln order to produce products ~vhose technology and market h,:d been te:,ted and provel~, ei.~c'.vhere~ For t!tis purpo:~e, only lirllited ~ne,~.n. ~:1.ng (E) efforts were req,:ired. ~ o" ,, ,-" Man), productiw? units ivt,trviewed in tlcis study indicated that the technical assi':tance from lloreign e,:p-.~rts di,speme:! to recipient firms was of significant !,.:ip in debugging problems in the initia~ implementatic,:~ of productit;n operations. Of eight f~roductive units undc~ ~tudy that enq:i~ yeu 9.~eign exper:s ,.luring the early period, seven of them indicated that tctAmical assistance was useful but Their utility div:irished rapidly within one yea: as tile local technicians acquired prodl~elion and p~odt,'ct des,gn expe;~ence. What are the exl~ernal stimuli th,qt inf!ueace the pattern '~escrJbed ;~,o~,e? To ~.n,:w,~.r Ibis ~~e:'qon. lep man;,,ge~,~ents of the 31 t~roductive units under r,ludy ~,,'ere asked to indic;~te the d-'gree of influence o,t each subcomponent of task environment on technological change in product~, and processes. The task environmen~ refers to individtr~;!,. ,,ganizations. :rod other social systems external to tht: firm that ~fffect dHectly the formulation and attainment of organizational o~'.iectives This study modified Duncan's typology [3] c,f tl~.o task environme~l~ add delineated 5 components with 20 subcomponents, as shown in table 1, so as to make them more appropriate in the Korean con-

26 2 Table 1 Correlation a) between external environment and indigenous technological capability (N=31) External environmentb) Compoaents Customer Ccmponeat Subcomponents Domestic distributor Overseas distributor Domestic consumer Overseas consumer Raw material supplier Equipment supplier Technology supplier Overseas capital supplier Domestic fund supplier Overseas competitor Local competitor Competitor for supplier Government's control on industry Government's incentives for innovation Import and export policy Control over import of tbreign technology Technological requirement of the industry Development of new technology Availability of local research institutes A.vailability c,f local technical information center

L. Kim

Indigenous technological capability c) 0.70 d) 0.56 d) -0.31 e) -0.25 0 -0.53 d)

Supplier component

0.25 0 0.32 e) 0.79 d) 0.51 e) -0.50 e) -0.35 e)

Competitor component Government component

Techndogical compc, nent

a) Pearson's product moment correlatica coefficients. b) Top managements were asked throu: h intervicv~s to indicate the degree of influence eacla subcomponent had on technological change in products and processes. Responses are scored from 5 (very strong influ "nee) to 1 (no influence at all). c) Indigenous technological capability is measured by a 6.point Likert Scale. A productive unit that performs a simple assembly operation of 100% foreign parts fir forei~:n designed products is scored 1, while a ?roductive unit that develops an.~ produces unique products, which are not imitation of foreign products is scored 6. A blank indicates a statistically insignificant relationship d)" Signaficance level < 0.001. ej Signi/i~nce level < 0.05. f) Sig:p~ficancelevel < 0.1.

Development of industrial teclmolog?,

263

text.* The degree of influence on technological change was theh related to the degree of indigenous technological capability in an attempt to identify how a set of external influences change over different stages of industrial technology development. Thus, an inverse correlation, as shown in table 1, indicates environmental subco,~ponents that are perceived influential in technological change by productive anits at the early stage of technological development, while a positive correlation indicates those subcomponents that are perceived influential by productive units at the later stage of development. G,avernment and multinational ~irms were important sources of external influence on technological development in this stage. Table 1 shows that indigenous technological capability is inversely related to import and export policy, government incentives for technological change, law material suppliers. equipment suppliers, and technology suppliers. It indicates that these environmental subcomponents wer perceived as significantly affecting technological change in products and processes by productive units with a low deglee of indigenous technological capability at the implementation stage. In other words, government policy was a major influence in this stage in two ways: first, the t-ansfer of foreign technology establishing the industry occured when the government implement;.~d import substitution and market pr.r~lection policies and second, various government incentive programs were atso perceived as important stimuli for technological change by industry. And multinational firms played an important role in establishing the industry as suppliers of technology, technical personnel, capital, equipment and compcment parts.

ASSIMILATION Once product design and production tecnnologies transferred from overseas were successl{'ully implemented at several productive units, ,~;uchtechnologies were quickly diffused within the country. Fig. 1 shows tha', by 1975, 14 productive units ~,ere in the black and white TV market. 11 in the radio communication eqt~ipment market, and 10 in the electronic cMculator market. However, those productive units that entered the marke" later were not established through the international tran.~;fer of 'packaged' technology, but Duncan [3], m his study of the external environment for manufacturing and R&I) organizations in the U.S., suggests, as the task environment, five. components: cus tomers, suppliers, competitors, socio-pditical, and technological. Each component has several subcomponems with the total of 13 altogether. The rationale for 20 subcomponents in this study can be found in [12].

264

L. Kim

through the transfer of local entrepre~~eurial and technical personnel from existing productive units. 10 out of the 14 TV producers, six out of 11 radio communication equipment producers and 6 out of 10 etectroni,z calculator makers are in this category. The mobility of experienced technic,'d personnel was evidently the major mechanism for the diffusion of production technology within the country. When several productive units (established either through the i~ternational transt;er of technology or through its diffusion within the country) produced a similar product within the same market, the result was noticeable competition ~mong them. Under such conditions ea,,+h productive unit diversified its product to satisfy the needs of the different segments of the market on one hand and to obtain a bigger share of the ma:ket on the othcr hand. For instanc~'., productive units that began TV production in the mid-1960s entered the market with one or two" different 19" triodels. By 1970, five producers carried 18 different kinds of 19" sets in addition to 9", I6", ![7" and 23" modells [10]. Product diversification became the prevailing marketing strategy during this stage. This pattern of competitive strategy required indigenous efforts for the assimilatfon of foreign technologies in order to produce differentiated products. At the same time, competition, not only in the domestic marl:et but also in the i~Lternational market which was becoming increasingly important, led to more pressure to reduce costs by the manwfacturers. While the foreign experts workin:~ in the recipient productive units played an important role in the short-term implemelltation of imp(>rted technology in the first stage, local technical pe~'sonnel trained at the technology supplier firms played an important role in t':e asshnilation of foreign t:'chnology, and produJct and process development. "lechnical emphasi~ in this sl age was placed upon engineering and limited development (E&DI, rather than research. The f!inished product Lqdustry created a local market for the Farts industrie,. Local components and parts manufacturing units emerged ,,vi+hin or outside the finished product manufacturers in response to the local demand, many throu?,h the int:~.rnational transfer of production tec!mology. :~esistors, capacitors and speakers were locally manufactured soon after AM r:~dio sets were first assembled locally. TV picture tubes and tuners were first n',a~]e in Korea thlough tlae international transfer of production technology four years after black and white TV sets were first assembled. A+ shown in fig. ], the pa+t substitution rate for TV sets rose from less than 30% in 1966 tc 50% by 1909 and to over 90% by 1975. A similar pattern was also observeci, as shown in fig.3, in electronic calculators, radio communication eqtfipnv:nt and other p~oducts.

Development of industrial technology

265

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Like the finished product industry, the rapid development of the local part industry can be largely attributed to the government's import subs:~" .,tion policy. The government ,~ncouraged l ucal fi,ms to develop ;~ supplier base by providing credit at preferential interest rates. More importantly, imports were only allowed if the user provided evidence of inferior or insufficient local supply. These measures have prompted finished product producers t~ integrate backwardly or to assist local suppliers to assure themselves of a reliable source of supply at competitive prices. In short, the emergence of tile local parts industry was a ,characteristic of the Assimilation stage or the finished product. Tile growth of the electronics industry also provided a stimulus for the developn:ent of industrial machinery and mz~chine tool industries. Equipment al~d machine tools previously imported were gradually substituted by local prodv.cts. On the basis or local market experience and in response to stimuli from OEM~; (original equipment manufacturers) and other overseas buyers, and to incentives of the g vernment export promotion policy, many pr3ductive units developed export markets. The government played a majo~ role in the export expansion. Tt, e Electronics Industry Promotion L~iw of 1969 was aimed at develop:ng the indusUy as an export oriented industry. Long term loan at low ioterest rates, duty free for production maclthlery, accelerated depreciation.

266

L. Kim

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and overseas marketing research service were among governn~ent programs that were designed to facilitate export expar, sion. That is, export promotion was g];adually emphasized not only as an individual productive unit's growth strategy but also as a national po~ic.v. Fig. 4 shows the increase in the percentage of exports to the total pro:lu,:tion of selected electronic products between 1965 and 1975.'For examT~le, while TV ptoduclion increased from 10,000 sets in 1966 to over 1 milh.:,n sets in 1975, tile percentage of exports to the total TV production rose t rom 2% in 1968 to over 50% in 1975 (5,1 l). But not allexports grew from production to saisfy local demands. Some ne~ products were introduced in this stage in response to tile o~erseas market demand before a sizeable local market ,,as created. For example, previous export experience and trade contacts established earlie led to tile production of electronic calculators in Korea solely in response to the growing uverseas market demand. The local market for this oroduct developed slowly as seen in fig. 4. Tape recorder and electronic digital watch production also showed a similar pattern. In summary, once the elecuonics industry was established and general production technology was widely diffused and accumulated, export markets became not only a source of stimulus for further development of the izidustry in ~terms of size and technology, but also a source of stimulus for the develc,.pmem of new product lines solely for overseas markets.

Development of fltdt,strial technology

267

What are tqe external sources that influence the pattern in this stage? As irapetted tecmologies were diffused and competition Built up in the local as well as the international market, sources of external influences for technological change in products and plocesses gradually shifted from those of government and multinational firms to those of cons',mers, distributors, and competitors. Table 1 shows that indigenous technological capab'lity is positively related to domestic distributors, domestic consumers, domestic fund suppl,~ers, local and everseas competitors, and competitors for supply. It indicates that these environmental subcomponents were perceived as significantly affecting technological change in products and processes by productive units with a high degree of indigenous technological capability. In other words, caanging needs of domestic consumers, custom orders of overseas distributors and original equipment manufacturers became important sources of stimulus for new product design and development at this and subsequent stages. New products introduced by competitors in and outside the country also became an important source of new ideas in this stage. However, none of the technological subcomponents was a significant source of external influence. This is not surprising. Since technology for products (e.g., radio, TV. low price stereo sets, calculators, watches, communication and broadcasting equipment, and simple testing instruments) produced in this inaustry and their processes was widely and generally known, new technological advances in and outside the country, higt- technological capability available at local R&D institutions, or systematically indexed information on recent technological development were not sig nificantly related to imitative changes in the industry. IMPROVEMENT The electronics industry was initially, ~tabli,.'lted "n Korea primarily tt~rough the international transfer of 'packaged' tecimoir.:~,y, t,2plernentatk, t of th~. production operation with limited engineering was the :mmedlate tc~ hn ~le:,, cal concern, in the following stage, assimilation of foreign technology and ploduct diversification through imitation of foreign products were the i:nporrant technological tasks necessary to cope with increasing market competition. Then. the, relatively successful assimilation of gereral productio~r tech. nology and inoeasing emphasis upon export pro, notion, together with the in. creased capability of local scientific and engineering personnel, led to gradua]~ i m p r J v e m e m of foreign technology through local efforts in research, develop.rn.e-t and engineelhlg (RD~:E). For Korea ~nd m~ny similar countries, whose industrialization programs are' based on foreign loans and which have few natural resour,:es to aid repayment

268

L Kirn

and to finance increased imports, export expansion of locally manufaclured products was an impo:rtant alternative avail~.ble for obtaining tile necessary foreign exchange to settle the international balance of p~tyr~euts. For this reason, export p~omotign has become a national economic development polic,: for Korea. This forced productive units to enhance their competitiveness in international markets through imitation of more sophisticated foreign produets and improvement of foreign ~l:echnology. This is what is currently taking place in some product lines in the Korean electronics industry. Although specific 'unpackaged' technologies may be imported from abroad, local RD&E (research, development and engireering) efforts have also become a necessary course of action for local industry not only to improve imported technology, but also to implement their own novd ideas. Thus, re.search as well as development and engineering gradually became im.portant in this stage. No reliable data .ire awafiable on the ~ndustry wide R&D budget, but productive units under this study showed substantial R&D efforts. 21 out of the 31 pr,~ductive units had a s,zparate k&D departmev, t. These 51 organizations reported an average of 5.28 product changes per year in the past five years. ~ r e complete coverage of ~he innovativeh~:s of the=,: organizatic,ls i~ presented in another report [ 13]. ProductivRy improvement ,~r~.2the economy o f :,tic also b,.carnc important for productive units at this stage in order to be competitive in local and international markets. As indicated previausly by the positiw. correlatior~ between operations tecJ~nology rigidi:y and indigenous t~chnological capability, production processes which were gener',dly inefficient in the earlier stages had to gradually become mort~ efficient and integrated. Many productive units attempted to introduce industrial engineering aud production management techniques to rationalize production processes. Fig. 5 shows the production scale increase of the electr,,aics industry between 1961] and 1975. The average annu~l production value per productive unit mcrea.,;ed almost four times from US$5.8 million in 1970 to IJS$22.4 milli:,n in 19';'5, Productivity per worker all~o increased, as shown in fig. 2, about 2.3 tl,ues from US$3,600 in 1970"to US$8,340 in 1'975 [11]. Furtherm~bre, successful assimilation of foreigji technology throug~a accumulated experience in prod:~ction and product design and limited efforts in local R&:D activity led to the application of imported technologies to different product lines. For instance, a productive unit which impoarte~ foreign technologies to produce radio communication equipment designed a custom-ordered electronic quality control device for the government's cigarette plants. The acquisition and assimilation of foreign technologies in communication carrier

Del,elopment of industrial technology

269

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equipment led to the production of microwave terminal equipment. Technologies lbr SSB (single side band) transreceiver and fish finde~s were applied to the production of broadcasting transmitters ot various frequency bands and powers and to radar [15l. Electronic calculator technology a,~d the technical assistance of local applieu research institutes are currently leading to the establishment of minicomputer and microprocessor production in Korea. That is, not all the product line~ went tic,rough the Impleme-,*ation stage no:ed earlier. Assimilation of various foreigr, technolagies, increasing capability of local scientific and teclmica! personnel and loca: P.&D efforts provided a basis for general technological deveiopment of the industry and for introduction of more st~ptdstit,ated product lines without transfer of foreign technology. Exlernal influx,aces that we~'e increasingly importanz in the Assimilation stage became, as indicated in table 1, the most ~mportant sources of stimuli for technological change in this s~age. Changing needs of consumers or users and i,~forrnation from distributors provided crucial market information that led to the creation t~f new prodJct ideas. The competitor's inn;Jvative behavior caused many other firms to follow and adopt sh'nilar technologies. Table 2 summarizes the three stages of develop;,nent of industrial technology and critical conditions that stand out at differenz s~ages. It is conceivable that successful evolution through the Improvement stage will

270

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Development of industrial technology

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lead Korea to a position where its te :hnological capabili:y will b,e a challenge. to other industrialized countries in the world. What were initial cor~dFions that made this pattern of development possible in Korea? Several factors seem to have played a signiticant role in the initial stage. Major factors include, among other things, the government's development policy, availability of local ertrepreneurs and skdled technicians and engineers. An aggressive and balanced government development strategy that started with import substitution poicy created a protected local market by restricting imports and provided various incentive programs to induc~: import substitution productions. There wele lecal entrepreneurs who knew how to put foreign capilal and technology and local human resources together to exploit a new bu?iness opportunitie:, in the protected market. There was also an abundant supply of highly skilkd labor force, that quickl?/ learned and assimilated prodl~ct design and production techniques. That is, aggressive investmenls in education during the postwar period provided an important base for the subs~quent industrialization process. The evidence also indicates that there is a high correlation in the 19th century between educational indices and the .,;peed w!lh which ildividual Western c~untries were able to adopt and modiiy Britain's new indushial technology [22]. It was also the local technical and entrepreneurial c:~pability that facilitated Japan's industrial development. APPLiCABI LITV OF THE MODEL The three-stage raodel developed above is on the basis of consumer and irJdustrial electronics equipment manufac:uring industry in Korea. However, eviderce indicates that tae model also describes the development pattern of technology at least in such industries as electrical appliances, agricultural machiner)~ and automobile ndustries in Korea. For instance, tilt' :tutomobile indust :y was first started in 1962 as an assembly operation of se~r,~-a:,sembled Japanese cars. The automobile assembly industry created a market ft~r the autoparts industry,* and import substitution of component part, has reached 38% in 1969, 62% in ~972 and 95% in 1975 [11,21]. With t roduction md design experience accumulated during this period and The d :velopment of the ;ocal autoparts indust~y, together will: the government's au omobile irldustry promotion programs, the automobile inThe autoparts industry existed, in .~maller scale, even before 1960 to r,leet the increashag replacement demand for Lmported milita:y vehicles and t.,vilian motor vehicles rebuilt from military equipment [28].

272

t~. K h n

dustry introduced in 1974 the first car designed and manufactured in Korea. Furthermor,,', both the autoparts and automobile industries have recently expanded their markets to overseas. Taking all the evidence together, it can be tentatively concluded that the model may apply to many industries whose production requires a large number of components and parts. The appli:ability of the model to process, parts or raw material industries remains to be seen. However, evidence indicates that chemical, pharmaceutical, steel, and ,,;ynthetic fiber" industries were anso established through the international tr~nsfer of production processes, product specifications, production knowhow, technical personnel and raw material. The growth of these industries led to the emergence of raw material and machinery industries. Subsequent facil:ity expansion and improvement were carried out by local engineers and technicians with local equipment. Furthermore, successful assimilation of imported technology later led to the production of more sophisticated products without foreign assistance. Is the model also applicable to industries in other countries? Several studies conducted in other countries for different purposes provide u,,eful evidence. lndt~strialization in Japan evolved through a similar pattern. ~,t the national level, Shishido [23] divided the 100 year history of industrialization in Jalzan into four steps: (1) the primitive stage which fully relied on impo~:ed technology and foreign engineers, (2) the transfer of industr,~al activity from the government to private sectors, (3) the assimilation of imported technology,, and (4) the catching-up process to a,Jvanced countries. The industriai technology in the 1860s and onwards w~s wholly dependent on technology imported from Europe and North America. Technologies imported included not only 'plant, machinery and raw 1~aterial, but also foreign engineers and craf~:smen. In the case of tex'tiles, ~he Japanese government est~b~.shed the first textile mill in 1872 with French technology and enginecrs. Such technology was dif fused quitdy within the country. By 1880, Japal,ese technicians experienced in the government plant were able to play :l pivotal role in establishing private spinnir~:g mills [23]. The expansion of the textile iudustry resulted in the emergence of the spinning machine industry in Japan The autoraobile industry in Japan also grew through a similar ! rt~cess. AItho~agh aitempts were made to develop military trt~cks after British and French models, the automobile industry in Japan can I:,e said to have started with an assembly operation of American Ford and GM passenger c:~rs in the 1920s. As:~,imilation of foreign automobile technology througJ~ product design ~nd prodttction experience led Japan to introduce its own ,uodel 11 years later [2711. Through the process of assimilation and improvement Japan ber

Dev ,lopment of industrial technoit,gy

273

came one of the leading auto~ob,3e exporters in the world. Japan's post-war technologicz! recovery was also due to imported technology. Ozawa [20] noted that Japan 'icensed a great number of foreign technologies. Then, its export competitiveness during the 1950s stemmed from a successt'ul assimilation of foreign technology. And in the 1960s, further expansion of exports through enhanced competitiveness sprang from the improvement of acq:fired technologies tl-rough original research. To a certain extent, the United States aiso went through a similar pattern a century ago. The U.S. reverser the sequence of research, development and er,gineering (RD&E); that is, iI started with practical technologies imo.rted from European countries, ant then slowly evolved into the present position of being able to afford subst~mtial research [19]. For example, the U.S. imported steam engine technology from the Great Britain in the late 18tl~ century. But through assimilatioa of British technology, American mechanical skills were well developed by the 1830s ~nd did not need to rely upon o~ imitate British models and techniques [22]. Baranson [!] also observed :hat Brazilian firms (excluding foreign subsidiaries) began manufacturing with assembly and packing operations and eventually extended into more intricate operations. Engineering was the initiating portion of the RD&E (researci~, development and engineering) spectrum reading gradually to more advance t development and research efforts.

DISCUSSION This article provides a skeletal description of the development pattern of industri',d tecimology as it appe~ rs to have taken place in productive uaits in the electronics industry tn K )rea. It also provides similar evidence in other industries in Korea and other co,11tries. Many variables both at the industry' and national levels may, however, account for variations in the developmewl pattern o:" industrial! technology in different countries. The characteristics of production technology and market structure may be sources of variation aL: the industry level Policy on expt)rt promotion and foreign inve,~tment, the availabi,ity of local entrepreneurs, the capability of the local scientific and engineering personnel, and the availability of natural resources may be important sources of variation at the national level. Nevertheless, the g,eneral pattern of development of industrial technology that proceeds from implementation of imported technology to assi,,~zilation and eventually to improvement the~:eof in order to strengthen competitiveness is evident in the history of manufac-

27'4

L. Kirn

turing industries in different countries. More definite conclusions as to what parameters determine what variations, however, require empirical investigations in cLifferent industries and in different LDCs. As mentioned earlier, this study is a distinct departure from previous studies. It provides a new framework and a base for formulating several tentative propositions, that can be researched in future, on the development process of industria]~ technology in different LDCs. These propositions include: -New productive units are established through the transfer of foreign technology in the early period (called Implementation stage) and through the mobility of local technical and entrepreneurial personnel in the intermec7 ate period (called Assimilation stage). -Implementation of imported foreign tech'aology is most frequently perceived as an important technical task in the Implementation stage, assimilation in the Assimilation stage, and improvement in the Improvement stage. -International transfer of technology occurs predominantly in the 'packaged' mode in the Implementation stage and in the 'unpackaged' mode in the Assimilatie,n and Improvement stages. --International transfer of technology is a more frequent source of the generation of new technology than contractual research with local R&D institutions or internal R&D efforts in the lrrple~entation stage, wlfile internal R&D effort is a more frequent source them others in the Improvement stage. --Government measlJres to epsure local market protection (e.g., import substitution, control on foreign investment, etc.) are perceived as a most important source of stimulus for the generation t~,fa new technology in the Implementation s~age, while government measares to ensure markcl co.npetition (e.g., export pron,otion, and anti-mon,~poly) are perceived as a most important source of stimulus in the Assimilat,,m and Improvement stages. -Hurr~an resources in greatest demand for the gene~tion of a new technology are foreign technical experts dispatched to the recipient productive units in ~the Implementation stage, local technical personnel trained at the supplier firm in the Assimilation stage, an,t local scientific and engineering persom el in the Improvement stage. -Larvae firms that have pre~rious trade com~ections 're more likely to generate a new technology through the international transfer of techn~ I,~gy in the Implementation stage, while small firms ~ith technical entrepreneurs are more likel~ to generate a new technology th:t-ough itlternal efforts ill the Improvement stage. -The degree of export orientation is positively related to the generation of new ~technology. - A n important role of local ,~&D institutions is consultation in the Imp!e-

Del,elopment o] imh, strial tec 1r,eol')~,)'

2 75

mentation stage, adaptive Jevelopment in the Assimilation stage, and R&D in ~.he Improvement stage. - Diffusion of technology s predominantly through the international transfer of technology in the Implementation stage and through the mobility of local technical personnel between firms in the Assimilation and Improvement stages. -Production process technology is inefficient in the Implementation stage and becomes relatively m ~re efficient in the Assimilation and Improvement stages in response to increasing labor cost pressure. -Multinational companies that supply capital, raw materials, and technology and Government ire the t',redominant sources of external h~fluence on technological change in the Implementation stage, while customers and competitors are in the Assimilatior and Improvement stages. -Emphasis of local efforts is on engineering (E) in the Implementation ~;tage, development ,and engineering (D&E) in the Assimilation stage, and research, development and engineering (RD&E) in the Improvement stage. -Comt~onents and parts are mostly foreign in the Implementation stage and mostly local in the Improvement stage. Most of variables in the above propositions can be measured through e~.:amination of records of government agencies, trade association, banks, and other secondary data sources and through interviews with managers. Three stages of technology development can be measured by either one of two surrogate nlcasures: part substitutien rate and indigenous technological capability. The study of Nabseth and R:,y [18] may be useful to developing a measure for diffusion of technology. In conclusion, the model '!~resented in this study explains the process of f!irm's behavior in a LDC in imlrorting, adapting, assimilating, a~d improving foreign technologies in response to the changing competitive environment and how internal and external factors affect this process. If the model becomes ger~eralizable tluough subsequent research in differew, industries in different ,::oar~tries at a similar development stage, it will provide usefu]l implication:~; not only for policy makers and managers of comparable countries, but also for those of other developing countries which attempt to follow the same path and for those of advanced countries in formulating interr~ational scienct:~ ax: :~ tethnology policy. REFERENCES
[11 J. Baranson, The Di'ive Toward Technological S e l f xuJ~ciency in Developit;!g Countries, paper presented at the Conference on Latin America-United 'i,tates

2"76

L. Kim Eco1~tomJc Interactior~s: Conflict, Accommodation, and Policies for the Future, at th:e University of Texas at Austin (March 19, 1973). W.A. Davig, The Transfer of Production Technology to Brazil: A Study of Two Industrial Sectors, Ph.D. dissertation at Northwestern Lniversi%', Evanston, IL (1974). R. B. Duncan, Characteristics of Organizational Environment and Perceived Environmental Uncertainty, Administrative Science Qua~'terly (September, 1972) 313-327. Elecl:ronies Industry, a Monthly Magazine published by Korean Electronics Manufacturers Association (August, 1q75). FIC (Fine Instrument Center), Korea Electronics Industry Almanac, 1974 (Fine Instrument Center, Seoul, Korea, 1974). F IC (Fine Instrument Center), 19 75-19 76 Directory of Korea F,lectronics Manufacturers (Fine Instrumer:t Center, Seoul, Korea, 1975). M. Goldsmith (ed.), Technologica! lnno~:ation end the Economy~ (Wiley Interscience, London, 1970) 3. D.J. Hickson, D. S. Pugh and D. C. Phe)sey, Operationt~Technology and Organization Structure: An Empirical Reappraisal, Adminislrative Scicnce Quarterly 14 (~969) 378-397. KDB (Korea Development Bank), Jeon]a Kongup Siltae Josa (Survey of the Elec. tromcs Industry}, (Research Division, Korea Development Bank, Seoul, Korea, 197(~). KDB (Korea Development Bank), Hankuk eui Sanup I, 1973 (Industry of Korea. Volume I, (1973/ (Research Division, Korea Development Bank, Seoul, Korea, 1973). KDB (Korea Development Bank), Hankuk ~'ui Sanup I, 1976 (lndt'stry of Korea, Volume I, 197.6) (Research Division, Korea Development Bank, Seoul, Korea, 1976). L. Kiim, Technological Innovation, Envirm~ment. Structu,e, and Policy Implications: Contblgency Approaches, U:-~published doctoral dissertation, Indiana University (1976). L. Kim, Organizatic, 'al Innovation Jnd Structure: An Empirical lnvestigaticn in a Devei'oping Country, Center for Pc,,icy Alternatives, Massachusetts lnstiture of Technology, Cambridge, MA., CP,',/WP-77-1 (1977), Journal of Business Research (to appear). L. KJish,Surve) Sampling (Wiley, New York, 1965). KIST (Korea Institute of Science and Technology), Survey of Technology Imported by Foreign Loan Financed Firms (Minist: y of Science and Technology, Seoul!, Korea, 1969). MCI (Ministry of Commerce and IndustryL Jun/a Kong~4rp Yuksong Chek kwa Hyur.tha.,g (Promotion PoliLy a~d O~rrent Sin~ation of fhe Electronics Industry] (Ministry of Commerce and Industry, Seoul, Korea, 19" "0. M.J. Moravcsik, Science Development: Toward the Building of Scie,we in Less Developed Countries, International Development Research Institute~ lndi~ana University (undated). L. Nabseth and G. F. Ray, The Diffusion of New Industrial Processes: An International Study (Cambridge University Press, London, 1974). NAS (National Academy of Sciences), U.S. b~ternational Firms and R,D,&E in Developing Countries (National Academy of Sciences, Washington, D.C., 1973). T. O~'awa, Japan's Technological Challenge i~o the West. 1950-/974: Motivation and A ccomplishment (M.I.T. Press, Cambridge, MA, 1974).

[2] [3]

I4] [5] [6 ] [7] [8] [9] [10] [11] [12] [13]

[14] [15] [16]

[ 17 ]

[18] [1'9] [20]

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[21] Z.H. Park, The Technical Inducement in the Process o f ~he Industrialization in Korea, Master's thesis, Sungkyungkwan University, Scoul. Korea (1975). 122] N. Rosenberg, Perspectives on Teci~nology (Cambridge University Press, London, 1976). [23l T. Shishido, Japanese Poli.-ies for Science and Technology. Unpublished mimeograph, Nikko Research Center, Tokyo, Japan (1972). [24] R. D. Steele,Mult#~ational Corporations, Technology Transfer, and the Developing Countries: An Introductory ,giblio~raphy, Monticello, II, Council of Planning Librarians (1975). W. S. Tae, Development o f Korean ~conomy: Past, Present, and Future (Samwha [25] Publishing Company, Seoul, Korea, 1972). [261 World Bank, World Tables, 1976 (Johns Hopkins University Press, Baltimore, MD~ 1976). T. Yakushiji, Dynamics o f Policy Interventions: Government and Automobile [27] bzdustry b~ Japan. 1900-1960, Ph.D. dissertation M.I.T. Cambridge, MA (1977). [28l J. M. Yoon, Jadongcha Kongup 70 Nyunsa (70 Year History of Korean Automobile bzdustry) (Korea Automobile Industry Association, Seoul, Korea, 1975).