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8-273 Joint KIST-Batelle teams surveyed 18 industrial sectors to determine what had to be done to improve Korean industry. Scores of research contracts have followed. KIST has, for example, developed a recovery process for automobile lubricating oils, and devised a means for extracting titanium and zirconium oxides important for making paints and ceramics) from heavy sand. The principal divisions of KIST are: Materials Science and Metallurgical Engineering; Chemistry and Chemical Engineering; Electronics Engineering; Mechanical Engineering; Food Technology; Economics and Construction. Fields of investigation under Materials Science and Metallurgical Engineering include: Properties of Solids; Ceramic Materials; Semiconductor Materials; High Temperature Materials; Electronic and Magnetic Materials; Corrosion and Surface Treatment; Metal Working; Nonferrous Metals; Physical Metallurgy; Chemical Metallurgy; Iron and Steel (Making, Shaping, Treating); Smelting and Refining; Foundry Technology and Materials; and Powder Metallurgy. Some of the fields in the other divisions include: Polymers, Plastics, Lubricants, Catalysis, Surface Chemistry, and Mechanical and Plastic Working of Metals. MULTINATIONAL CORPORATIONS Types of Multinational Corporations Multinational corporations (MC's) are enterprises that see the world, or a goodly portion of it, as their market and act to make the most of their opportunities on a supranational basis. Some MC's have a truly multinational flavor, others carry the stamp of their headquarters country wherever they operate. There is no generally-accepted definition of an MC, but as far as MSE is concerned it seems that such corporations can be broadly classified into two types: (a) The high-technology MC tHTMC) which confines most of its operations to the advanced countries, and (b) The vertically-integrated MC (VIMC), the operations of which usually embrace raw-material-producing countries, often in developing countries, as well as manufacturing in advanced countries. Examples of the HTMC's occur in the electronics and semiconductor industry, pharmaceuticals, and the automotive industry. Examples of the VIMC's include oil companies, mining and metallurgical companies, and food industries. A third type of MC is the conglomerate; while a particular industrial theme may provide the backbone to a particular conglomerate its overall enterprise resists simple categorization into technological fields. Over half (528) out of the lOOO companies on Fortune's first and second "500 largest" lists operate abroad. In a study of 267 of these companies, roughly 24% are in automotive, machinery, tools, and related industries; 24% are in chemicals, oil, drugs, and similar undertakings; 20% in aerospace,

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8-274 electrical, electronic, and other high-technology areas; 12% in mining, metals, building materials, and construction industries; and the remaining 20% are in consumer products such as food, apparel, tobacco, paper, glass, books, etc. Most such companies expect their overseas operations to grow much faster than their domestic activities. Of a gross world product (GWP) of $3 trillion, approximately 1/3 is produced in the U.S., 1/3 in the industrial nations of Europe, Canada, Japan, and Australia, and the remaining 1/3 in Russia, Eastern Europe, China, and the developing countries. About 15%, or $450 billion, is accounted for by multinational enterprises; $200 billion of this by U.S.-based companies; $100 billion by foreign-based companies which also operate in the U.S.; and $150 billion by interproduction in other countries. The proportion contributed by MC's is growing at the rate of 10% per year. At this rate, MC's will generate 1/2 or more of the GWP in less than 30 years. Statements For and Against MC's The recorded operating results of MC's support the statement of N. R. Danielian, President, International Economic Policy Association, "There is no other instrumentality with the same flexibility, inventiveness, initiative, and effectiveness as the multinational corporation in undertaking the extrac- tion, fabrication, transportation, and marketing (of the world's) resources. No armies, no governments, no foreign aid, no international institutions can match this achievement." Representative Hale Boggs, July 27, 1970, on the other hand said: "While business leaders have viewed (direct investment) abroad as a means of distribu- ting the fruits of technology and managerial expertise more rapidly throughout the globe, spokesmen for organized labor have viewed the MC's as institutions exporting thousands of jobs. The U.S. government has also become concerned that American firms might be able to avoid administrative regulations by permitting their branches abroad to engage in activities that would not be permitted here. On the other hand, some other governments have considered the attempt to impose U.S. antitrust statutes, balance of payments guidelines, and trade regulations on foreign subsidiaries of American firms as an unjusti- fied extension of U.S. sovereignty." Danielian describes the conflicting pressures on MC's: "They are con- fronted with a diversity of political motivations -- some of emotional origin, such as nationalism; others ideological, such as consumerism; and some even humanitarian, as in the case of welfarism -- which subject them to a multi- plicity of restrictions and taxation of varying levels in different countries. They have to do business in a variety of environments; the nation, state, common markets, free-trade areas, preference systems, state trading blocs, and democracies of varying degree of popular representation.... They have to cope with controls over imports and exports, tariffs, nontariff barriers, diversity of tax systems and tax rates, different welfare schemes, a variety of employment policies, exchange controls, antitrust rules, and threats to nationalization and expropriation." Thus, on one hand the MC is regarded as having an equalizing effect on the world; as a world unifier, it speeds up the spread of new products, new

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8-275 technologies and new skills; it can be a powerful agent for cultural change, tending to equalize attitudes towards work, authority, and life itself in the countries it penetrates. On the other hand, critics claim that MC's add to managerial and economic inequalities because they concentrate more and more business decision-making into vast managerial pyramids which operate according to directions issued from central control towers in home countries; they are thereby creating cleavages and inequalities both inside the U.S. and in the foreign circuit -- charges of neocolonialism from the developing countries; charges of exporting jobs from organized labor; charges of unfair foreign competition from businessmen in host countries; charges of unfair advantages to the MC's in U.S. from small businessmen; charges that the way of life in other countries will be engulfed. Even within the MC's, there are differences between "freer trade" and "buy American" groups; there are antitrust dilemmas for the Justice Department; the Treasury worries about the effect of MC's on the balance of payments; Congress is concerned about finding ways to tax domestic and foreign earnings equitably. Labor, Management and Government Attitudes: Not surprisingly, organized labor is trying to develop counterforces, such as by international associations of labor unions. Labor sees two prime "dangers": (a) the cost of MC's in terms of American jobs, and exports, and (b) the growth of the "foreign satellite plant concept" to take advantage of lower labor rates. Labor representatives urge easier public access to corporate records; tight tax rules to reduce opportunities for tax avoidance; more effective labor policy; mandatory union recognition under international conventions; tighter regulation of export of capital, tighter labeling (country of origin) requirements; uniform accounting standards; taxation of exported capital; and in the case of inventions stemming from government-subsidized research, direct royalty pay- ments to the U.S. Treasury instead of to the corporation conducting the research. Management representatives recommend simplification and harmonization of the antitrust, tax, and securities regulations, a rationalization and perhaps internationalization of Latent law, and standardizing of weights and measures. The Peterson Report (Presidentia1 Task Force on international Development) noted that developing countries are now setting their own priorities for development, mobilizing funds for investment, educating and using more well- trained professional personnel. International agencies such as the World Bank are gaining influence. The traditional exports of developing countries have limited growth potential -- they will be forced to export more manufactured goods. The debt burden of developing countries is now a serious problem. The above Task Force supported continued reduction of tariffs globally, the grant of preferential tariffs to certain countries, and regional market-economy concepts to achieve economies of scale. They recommended that U.S.-based MC's grant more responsibility to local national employees, create improved working conditions, and encourage widespread local ownership of their corpora- tions. They also supported some form of guarantee against expropriation, multinational joint ventures, tax incentives, and an international program to provide technical assistance, research, population control, personnel training, agricultural improvements, and debt rescheduling. 29 "The United States in the Changing World Economy," U.S. Govt. Printing Office, Stock No. 4000-0271, Washington, D. C., 1971.

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8-276 Host Country Attitudes Nationalism presents the most critical constraint on overseas invest- ment and MC operations, most dramatically in the developing countries where MC's are sometimes regarded as neocolonialism. But even advanced countries, such as Europe, particularly France, and Canada have shown concern over the extent of the American business penetration. Japan until now has resisted such penetration. Societies, however, will continue to demand services and goods from abroad but they are going to insist that the inflows be achieved in ways more compatible with their national interests. Host countries are increasingly likely to insist on two preconditions to new foreign business activity: (a) The needed skills and products must be acquired without the host society having to surrender ownership and control to foreigners. (b) The needed skills and products must be acquired without the host society having to commit itself to the continued pay-out of foreign exchange after the unique skill or resource that was originally required from overseas becomes available locally. MC's may well find it difficult to accommodate these attitudes. Even though MC's can take many steps to alleviate the more obvious irritations, e.g. by use of local nationals in management, use of local capital, etc., the external ties remain so significant that the conflict with nationalism remained unabated. Truly multinational corporations, not identified with any major advanced countries in particular, are likely to be more appealing to most developing countries but such MC's will still be regarded as outsiders from the viewpoint of narrow nationalism. New contractual arrangements within the MCts may be an answer -- e.g. where the Western firm will supply management skills and technical knowledge without the equity participation and direct control of overseas operations that have been the essence of traditional foreign investment. This compares with the familiar Licensing arrangements. The selling of technical and managerial services abroad may become the main profit-earning activity for the advanced country, with local groups making the major capital commitments and assuming actual ownership. Such methods may enable advanced countries to maintain some operations in the developing countries in the face of nationalism; they may provide more desirable com- binations of return maximization and risk minimization. Developing countries are wont to attack MC's when searching for explana- tions of their countries' compound miseries, and so MC's have learned the importance of being good corporate citizens in the countries where they operate. The trend of new investments towards manufacturing and away from extractive industries and public utilities may help to lessen tensions. Probably the more self-confident developing countries will provide the best overall investment climate in the future as, for example, in the past did Israel, Mexico, and Japan. Among the advanced countries, there is also fear of becoming branch- plant countries in relation to the U.S. (Canada and France have particularly

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8-277 expressed this concern). Such countries are aware that the MC has a national address and a national (often American) character as well. U.S. investments in Europe, though relatively smaller than in Canada, tend to be in the science-based industries and Europeans worry that they may have lost control over such industries as computers upon which they believe their future development depends. On the other hand, U.S. firms perform well in Europe; they thereby help to speed modernization and to improve productivity. Prospects for Multinational Corporations The MC seems here to stay; the prospects for its continued growth seem favorable though complex; the "interdisciplinary" nature of the MC leads to flexibility and adaptability enabling it to surmount the tangle of obstacles that may be placed in its path. The MC is rich and, within its sphere, powerful. Its management is able to circumvent many governmental barriers because business has gone international while governments have not. The MC surrounds itself with an aura of the future; it attracts excellent personnel, including managerial talent, R&D brains, tax specialists, and public- relations experts. MC's can operate across national boundaries, counting on national - governments to maintain reasonably stable price levels, trade barriers, and exchange rates. However rich and powerful the MC's are, they are private profit-making enterprises that cannot be expected to pacify the world, let alone unify it. They are instruments of material progress, not tools of foreign policy. And since the U.S. is the home-base of most MC's, the spotlight is on the U.S. as weld as on the MC. The U.S. has devised a number of specific policies to deal with particular MC problems as they arise, but usually on an ad hoc basis. What is needed is an internationally-coordinated approach to the MC and its problems. It has been suggested that some of the problems requiring attention are the establishment of more uniform tax laws; come-on guidelines for setting intracorporate transfer prices; the coordination of national policies for preserving competition; a tribunal for resolving problems of conflicting jurisdictions; clarifications of the conditions on how far a home country government can enforce its laws against subsidiary companies in foreign countries; and the role of private foreign direct investment in the extractive industries. The developed countries could coordinate policies through the O e E.C.D. more than at present, but no start seems to have been made yet on the more pressing problems concerning the developing countries. More could be done in this sector through U.S. organizations. Research, Development, and Flow of Technical Information in a High- Technology Multinational Corporation An MC faces a dual requirement for assuring that technical information

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8-278 will flow as needed between those units which can make use of it and for avoiding duplication of effort in various locations. This requirement poses a large and urgent problem of communications. Each company which operates in this environment will have its own policies and procedures for handling this problem, which will differ in detail but which must be capable of satisfying the dual requirement. In a typical MC, there are subsidiary units in several countries engaged in the same basic business field, but with specific constraints dictated by local conditions. These units may or may not report organizationally to a common group management. If they do the communications problem is simplified, but if they do not they are still tied together closely through commonality of market and product requirements. These units generally will have strengths and capabilities which vary and which will duplicate in some areas and be complementary in others e Each of these units will have its own technical staff reporting to a local technical management and engaged in the development of products to meet the local-market specifications, and in the development and control of production processes. Although each separate unit will have its own technical staff, in most instances these staffs will not carry out the function of research or explora- tory development which will normally be undertaken by central laboratories, staffed at the appropriate level. This is a necessary step to optimize efficiency since the diversified staff required for effective research and exploratory development cannot be supported by individual units. The central laboratories will be charged with the responsibility for carrying out the advanced programs which can underlie product development in various locations, and then with supplying the necessary information to those locations. The overall technical coordination and control rests upon a general technical director and his corporate technical staff. This technical director is held responsible for all of the funds spent for RD&E and for the quality of each of the technical programs which are undertaken, either in the centr al laboratories or by the engineering staffs of the various company units. The corporate technical staff undertakes, on a continuous basis, to monitor the programs which are being carried out at the various locations. Such monitoring is done by means of reports generated at the locations, by review meetings between corporate and local staffs and by periodic visits to review individual programs in depth. Through this continuous contact, the corporate staff is cognizant of all the work which is being done within the corporation and with the progress and status of each individual program. The requirements for information which may arise in any individual location can thus be reviewed by the staff, which should know in detail where the required information can be found and can take the necessary steps to see that the information flows. As an example, when an individual company unit is seeking new products to supplement or expand its present product line, discussion with the corporate technical staff will often reveal work being done in other units which will serve as the basis for new products and of which the seeking unit may be totally unaware. Characteristically, discussions with technical staff will suggest new directions in which the existing technology in one or another of the units can be exploited. It is in this way that the major requirement for fostering flow of technical information is discharged.

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8-279 The other aspect of the dual requirement is that of minimizing the duplication of technical effort in various parts of the MC. This requirement is satisfied by the control program which is exercised by the corporate technical staff. It is the objective of this staff to establish and monitor an optimum number of parallel development programs. Because of the diverse demands of the various national governments, designs produced in a single central laboratory could never meet the local constraints. One of these demands is typically that the companies supplying the requirements in a particular country have a technical capability in its own staff which can respond to specifications drawn up for it. This is why each company must have its own technical staff, but it also imposes the need to control the number of parallel developments in order to avoid undue duplication The process by which this control is exercised is based upon the procedure for funding the programs. Each manufacturing unit is required to contribute to a central development fund on the basis of a percentage of its sales. This fund is used to support the central laboratories and to provide for the refunding of a portion of the payment to each of the units. This allocation is carried out on the basis of review and approval of proposals for development programs, initiated usually on an annual basis but also, when appropriate, at other times. The amount of funding will depend on a number of aspects of any particular program. Funding may be larger for a development in a new field and, of course, for programs where the commercial prospect appears particularly attractive. Proposals for developments are generated and are supported by market forecasts, which will indicate the payback that can be expected from the expenditure requested. The various programs proposed in any period of time are reviewed by appropriate groups to insure that the direction proposed for the program meets the requirements of the largest number of potential benefi- ciaries and that parallel programs are combined or redirected so as to achieve the maximum return with the minimun of duplication. After several reviews of this nature, an overall program will have been refined and the component parts of it can be approved for funding for a specified period of time. The final approval of such funds rests with the corporate technical staff which thus has a mechanism for control of the program. By a procedure such as this, coordination and cross-fertilization among all of the various company units is assured. Information flow between the units in various countries is facilitated by this process, and the information and technology available to the engineering staff at any given location is optimized. Technology Diffusion via High-Technology 30 Multinational Corporations in the Electronics Field In Europe, foreign subsidiaries have assured the swift diffusion of new From John E. Tilton, The International Diffusion of Technology, Brookings Institute, 1971.

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8-280 technology when the established industry leaders have faltered. More specifically, in the 1960ts, then the European receiving-tube firms, which like their American counterparts, are large, diversified companies, delayed too long in providing devices made with the planar silicon technology, American semiconductor firms set up subsidiaries in Europe and concentrated on the new devices neglected by the domestic leaders. As a result, the U.S. MC's captured a substantial share of the European market which, in turn, stimulated the European receiving-tube firms to adopt the new technology. It appears that the newer American subsidiaries have been much more effective at diffusing semiconductor technology in Europe than the older established American subsidiaries, the latter tending to perform more like their European counterparts. This suggests that the new subsidiaries may receive more help from their parent companies in the form of R&D results, know-how from production experience, specialists, and from other professional personnel, and, if necessary, venture capital. In Japan, the established receiving-tube firms were better able to re-establish themselves in semiconductors, perhaps because foreign sub- sidiaries were barred as a matter of governmental policy. Thus, new foreign subsidiaries of MC's provide an alternative to large established firms for quickly transferring new technology from the innovating to the immitating countries. The MC subsidiaries are not hampered by learning economies as are new domestic firms because they have special access to the technology of the innovating country. Moreover, as a result of their special ties, they can often acquire new technology from abroad as fast or faster than the large independent firms, even though the latter may have licenses and technical assistance agreements with major foreign producers. despite such advantages, there is considerable reluctance on the part of many countries to allow subsidiaries controlled by foreign interests to dominate the strategic and prestigious research-intensive industries. This, they feel, undermines national sovereignty. Moreover, it is stated in a modern version of the infant-industry argument, domestic firms will never become competitive unless they have the opportunity to acquire production experience and, in turn, the benefits of learning economies. For such reasons, some imitating countries have limited the activities of foreign subsidiaries. The experience of Japan suggests that it is possible to ban foreign- controlled firms and still acquire new technology quickly from abroad. However, restricting foreign subsidiaries entails certain risks. Such firms, as European experience demonstrates, provide insurance that new technology will quickly disseminate in the imitating country when indigenous firms fail to respond as rapidly as desirable. The risks involved in barring foreign subsidiaries are reduced when the established firms are exposed to other forms of discipline. This may come from new domestic firms if entry barriers are low, from other established firms if competition for the domestic market is vigorous, or from foreign firms if overseas markets are important. While the risks may be reduced, they cannot be completely eliminated, for in barring new foreign subsidiaries an imitating country cuts off a potential diffusion channel that just may be needed. Of course, this disadvantage may be offset by other considerations. This is a political decision that involves weighing competing national goals. .

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8-281 Technology Transfer via Vertically-Integrated, Multinational Corporations to Developing Countries Those companies whose operations span both advanced CAC) and developing (LDC) countries often find themselves transferring technology from the AC to the LDC. This is only likely to continue, though selectively, and perhaps even accelerate in the future as LDC's raise their standards of living. But the ability of an LDC to absorb successfully foreign technology depends not only on the transfer of technical knowledge and methods, but also on the ability to introduce new and foreign developments in those administrative, financial, and social fields which constitute the infrastructure of industrial activities. Another factor of concern to a V~MC is that those LDC's seeking to emulate Japan's meteoric economic rise may note that Japan successfully absorbed foreign technology while essentially barring foreign subsidiaries. However, compared with most LDC's, Japan was already quite advanced technologi- cally and educationally. It seems more likely that an LDC in its early stages of development will profit more from the operation of an MC, especially in those situations where centralized control is the only means by which a tech- nology, particularly an advanced technology, can be effectively transferred. As the scale, complexity, and pervasiveness of the technology increase, governments in LDC's become more and more involved. This involvement is obviously greatest in the defense industry and in the basic and service industries such as iron and steel, electricity supply, and telecommunications. An important point is that the level of technology which is transferable depends very strongly on the level of technological sophistication of the receiving country. The two levels should be matched. But the trend is everywhere upwards; as the level of educational, technological, and social sophistication rises in a country, so will the level of technology it can absorb. This is simply another corollary of the fact that today's high technology in an AC becomes its low technology as LDC's acquire the capability of absorbing it. For example, the manufacture of automobiles, once confined to only a few technologically-advanced countries, is being carried on in a number of LDC's which have acquired the necessary industrial and management skills. On the other hand, these LDC's are mostly not at the stage in their development where they can carry out much independent R&D concerning automotive transportation. It is the AC's who can investigate new forms of motive power, sophisticated safety devices, and traffic-control systems at the present time. Yet in due course, these technologies will join the procession to the LDC's. The old picture of an LDC being regarded as simply a source of raw materials for which they are paid in cash or manufactured goods from the AC is no longer valid - it represents only the first stage in the development of a country. The payment nowadays has often to be in the form of exports of technological and managerial capabilities, a function which the ZINC is in an excellent position to perform. But the message is clear. For that part of the MC operating in the AC to remain viable, it has to keep generating new technology. Otherwise, the LDC part of the MC becomes increasingly self- sufficient, the operation in the AC sees a shrinking market, jobs are lost, R&D declines, and the downward spiral leads to a relative lowering of the standard of living. It is a difficult but exhilarating endeavour for a

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8-282 country, or a company, to become the leader, technologically, but it is even more difficult for it to remain on top. To do so must also become a continuing exhilarating enterprise. The stages and methods by which technology transfer to LDC's take place within an MC are varied. The transfer may occur by direct investment, i.e. by the setting up of local manufacturing subsidiaries; or by licensing and patent agreements; by the transfer of managerial personnel; or by the setting up of local R&D facilities, usually at a later stage of sophistication. But the actual transfer of information and experience can be improved by direct action to raise the level of education, training, and competence of individuals in both technical and managerial knowledge. It is necessary to regard the transfer of technology as part of an inter- acting system and to take a systems approach to it. Lack of such systems planning, for example, can lead to the introduction of large raw materials plants before the secondary processing industry is ready to absorb the output. Again, the wrong choice of a research project may cause difficulties in the absorption of the technology for countries which have not appreciated how the results of these research projects will affect their own developing technologies. To an increasing extent, industry in the AC's is being forced to plan on a world scale in order to secure the success of their particular technology in the widest possible market. Otherwise, societies may find themselves compelled to accpet a given technology even widen it is not in their best interests to do so. Urban pollution and congestion could be changed by alternative approaches to the technology of transportation and building con- struction, but it is extremely unlikely that any developing society can at this time resist the growth of the conventional motor vehicle and its associated highways. Also, new technologies may result in an LDC having its economy based on the wrong raw materials - for example, the rise of the synthetic fiber industry has by-passed LDC's which were basing their economic growth on natural fibers. Thus LDC's have to recognize the importance of new technologies and the timing of their introduction. The problem for an MC is not so much one of choosing between basic, intermediate, or advanced technologies but of selecting and encouraging compatible technologies with built-in opportunities for development to match world economic and productive trends. For example, instead of launching into large-scale basic production, it may be more effective to encourage programs of industrial development through the establishment of a final products industry using imported raw materials, and gradually build up the basic and integrated industries after a proper market size has been reached. Role of Research and Development There is evidence in some LDC's that a correlation exists between in- vestment in indigenous R&D and importation of technology. The investment in R&D is not merely complementary to the importation of technology, but is a prerequisite for the absorption of the transferred technology into society. The Japanese regarded their own early R&D investment as the fertilizer which encouraged the "seeds" of new technologies to grow. The R&D activity should,

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8-283 therefore, be firmly based on fields where applied research is necessary to foster adaptation of the imported technology. But while LDC's may see the need for more indigenous R&D, the MC's and - the AC's may not. It is often felt that the creation of virtual monopoly conditions by foreign-companies precludes the growth of R&D in the LDC. Besides these arguments it is often true that there is not sufficient qualified manpower in the LDC to carry out effective R&D. R&D in the LDC is often regarded as a technical service backing up the adaptation and use of the imported technology and ensuring quality control. Arguments for investment in more fundamental research in the LDC have to be based on general premises, such as that improved understanding of structure- property relationships in materials is of importance in all forms of tech- nology, or that science is a potential industrial strength because the quality of tomorrow's technology depends on the influence of the scientific effort today. Nevertheless, the mere accumulation of scientific research will not contribute very much to success in industrial development unless the results are actively exploited. Generally, it will be more effective if scientists and engineers in LDC's are employed in fairly well defined applied research and development coupled to -industrial needs. However, applied research provides substantial scientific knowledge, and work in advanced technologies can create both the capability and desire to advance further in the relevant fields of basic science. Where MC activity in an LDC involves only the manufacture of some com- ponents for inclusion in an assembly, most of which is imported from the parent company, there is no investment in RED in the LDC. Likewise when the MC is forced into producing in the LDC because of tariffs or similar economic policies, the technology may be transferred simply from the parent country with minimum possible expenditure on adaptation or development. Only if really interested in the investment as a long-term proposition aimed at a market expected to expand, and in the potentiality of an export market, does the MC consider it worthwhile to set up an R&D unit in the LDC. Sometimes, though, MC's do have to establish local R&D units to adapt technology to meet local standards and regulations. These activities can be regarded as final development extensions of the R&D conducted by the MC in the home country. The latter R&D embraces longer-term research and is often carried out as a corporate activity in central research laboratories. Such laboratories can provide excellent training grounds for personnel who will subsequently return to the local R&D in the LDC. However, unless these subsidiary R&D units can offer reasonable facilities and career prospects, they may accentuate the brain drain from the LDC. In dividing R&D effort between the parent country and the receiving country, the MC has to ensure that both activities are above critical size for effectiveness, otherwise the local R&D units are likely to confine their efforts to quality assurance and trouble-shooting. Another consequence of the critical-size requirement is that the final development work may be organized, instead, into geographically convenient units, with one unit serving several countries. The justification for the transfer of foreign technology lies essentially in the reduction of lead time, coupled with enhanced commercial viability over the long term. The stages in the R&D transfer occur in parallel with l