Methodological and Technological Issues in Technology Transfer

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5.4.3 Small- and Medium-Size Enterprises

Many of the incentives to embody best practice (in both capital equipment and in the products produced) that exist in multinational corporations also exist in small- and medium-size enterprises (SMEs). Indeed, SMEs can be highly innovative and competitive. But organisational difficulties and the lack of scale economies can diminish the ability of SMEs to make the best economic and environmental decisions (Lin See-Yan, 1997). Even if an SME in a developing country understands (or receives a policy signal) that it would be a good choice to invest in environmentally sound technology, it may still fail to do so simply because of a lack of information, skilled personnel or financial resources (see Box 5.4a for the example of SMEs in China and Box 5.4b for Thailand).

SMEs may also face additional barriers to technology adoption because of language differences or a lack of scientific and technical training on the part of their personnel. Even though much of the current stock of technical knowledge is available in the open scientific and engineering literature, this literature is not easily accessible in all parts of the world.

This last possibility illustrates that SMEs may be handicapped by the lack of infrastructure. The emission-reducing benefits of cogeneration in manufacturing cannot be obtained if there is no hook-up to the electrical grid, or if the scope and stability of the grid is limited so that there is no steady demand for cogenerated power. Absence of adequate infrastructure may place an additional constraint on technology choice that leads to less energy-efficient methods being chosen, as when, for example, production techniques have to be designed to work around the likelihood of power outages or brownouts.

Box 5.4a: Small- and Medium-Size Enterprises in China

Small and medium size enterprises (SMEs) in China consist of community enterprises (mainly owned by townships and villages), multiple cooperative enterprises, joint ventures, and individual and private enterprises. SMEs produce a significant share of China's GDP in a number of industrial sectors. In 1995, there were about 22 million SMEs in China employing 129 million people. SMEs in China face a number of constraints to engaging in technology transfer, such as for producing more energy-efficient products or investing in more-energy-efficient processes, including:

Information. SMEs lack contact with technology manufacturers and customers so information about technology availability and customer demands is lacking. The evolution of industrial SMEs from non-sector-specific commune-based enterprises made SME rely on low-grade technologies and gave them little access to formal information and training channels. SMEs learn largely by visiting and copying other firms in the same sector. This constraint on information acquisition is especially true of what might be called organisational technologies such as project analysis, financial methods, or studies of market developments and factor price forecasts. SMEs have limited interchange with government ministries that might be in a position to advise them on technology choices.

Rural customer demand. Rural customers show little appreciation for product quality (such as energy-efficiency). Competition is based solely on price and regulatory initiatives to promote product quality do not exist. In cases where some product quality standards do exist (i.e., minimum heat efficiency of bricks), they are usually not enforced. Even when customers do appreciate quality, they are often not able to pay for higher up-front capital expenditures because of severe capital constraints. And there are usually few marketing activities or product labelling initiatives to better inform customers, and encourage them to distinguish between higher quality products and lower quality products.

Financing. SMEs do not possess the financial means to invest in more advanced technologies. On the other end, technology manufacturers are not in the position and other intermediaries do not exist to provide financial mechanisms encouraging technology supply push. Financial institutions are reluctant to lend for such investments to SMEs.

Market competition: SMEs face little competitive pressure in their rural markets. All local producers operate under the control of the SMEs and local markets are highly segregated. SMEs are integrated into a spatial network of enterprises supplying largely to local markets and not in a product oriented network. For this reason, inter-local distribution networks are weak or not existing, and opportunities to exploit existing economics of scale in production are limited. Product pricing is somewhat arbitrary and an SME is not driven out of the market when its profitability is too low. So far, SMEs have no experience with market/competition based regulation.

Box 5.4b: Small- and Medium-Size Enterprises in Thailand

SMEs are the real backbone of the Thai economy. A major barrier in transferring environmentally sound technologies to SMEs is insufficient financial resources. However, the difficulty in improving technology transfer capacity is not merely a financial problem. To prop up Thailand's industrial strength in the long run, Thailand has to modernise SME management and international marketing, and enhance industrial science and technology capability and labour skills.This means that:

(1) Government policies for restructuring Thai industries, including SMEs, need to be spelled out more clearly. Even though SME assistance programmes have been launched recently, resource allocation and priorities are not well managed and cannot efficiently meet the needs of SMEs.

(2) SMEs' pool of skilled personnel and ability to attract skilled R&D staff are still comparatively weak and must be strengthened. Academia-industry linkages that target SMEs would be one potential remedy.

(3) The application of voluntary environmental management in SMEs is urgently needed. Good examples are the implementation of ISO 14000 standards for medium-scale industries and the promotion of cleaner production to enhance competitiveness and environmental sustainability. It is necessary that the adoption of the environmentally sound technology transfer be on a "willingness to accept" basis.

Source: Chantanakome, 1999

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