Absorptive Capacity, Dynamic Capability, Improve Design Capability
A firm is said to have absorptive capacity if it can identify, assimilate and apply external knowledge as well as exploit them. In other words, it has the ability to both acquire and integrate knowledge from external sources into its existing capabilities. It is said to have dynamic capability if it is able to acquire technology in an active manner. That is, if it is able to understand, reproduce and modify the design of an external technology (e.g. through reverse engineering) on its own. It is said to have improve design capability, if it can not only reproduce and modify but also enhance / improve the design in terms of performance, architecture or aesthetics.
Technological Catch-up
Technological catch-up is the process of acquiring and accumulating technological capabilities rapidly to levels that enable a firm or country to become a technology leader or major competitor. This implies that a firm or country doing technological catch-up starts from position inferior to the current leaders and desires to reach the technological level of the leader(s) i.e. to be at par with the leader. To do so, a firm or country must posses reproductive capability at the minimum. That is, it must at least have the capability to build a product including the core components on its own. However, to sustain parity with the leader and avoid always being a step-behind (i.e. always on catch-up mode), a firm or country must have innovative capability.
National Power Corporation: Operative Capability or Integrative Capability
Since NPC has to procure an electric power plant from foreign firms every time it needs one and is only able to do minor repairs, it can be said that NPC only has operative capability. In other words, NPC has the ability to assess, select, acquire, implement, operationalize and repair externally acquired technology but it cannot adapt the technology to local conditions nor can it assemble power plants on its own. To be considered as having investment or integrative capability, NPC must be capable of doing the previously mentioned activities. That is, on its own, NPC must be able to build (from externally sourced components i.e. assemble) power plants and be able to adjust / adapt / modify its scale, capacity and peripheral components. To be considered as having reproductive capability, NPC must be able to build or reproduce core components of power plants. This implies the capability to reverse engineer power plant technologies and the capability to improve performance and architecture of power plant technologies.
Technological Learning in Filipino-owned Firms and in the Philippines as a Whole
Technological learning of most Filipino-owned firms can be characterized as "passive" because they mostly rely on so-called "learning-by-doing" and lacks mechanisms or systems that enable or promote active learning (e.g. learning-by-searching). That is, in most Filipino firms, learning arises passively (no active/systematic effort from the firm) as a matter of course of doing the job (or doing certain activities relating to the production of a particular product). They do not invest on active learning nor spend effort to understand or reverse engineer technologies underlying the products or processes they are working on. That is, their understanding / knowledge is limited to what is directly given to them (such as operating equipments and explicitly licensed technologies).
The national technological learning of the Philippines can be considered "FDI-dependent" due to its over-reliance on FDIs in building its technological capability. That is, the government does not have a clear plan or strategy for active technological capability building. Rather, it relies on technological diffusion from MNCs setting-up facilities in the country. Developing nations cannot rely on FDIs to achieve technological catch-up since technology diffusion that arises from FDI is mostly limited to "operational technologies" or knowledge if the host country does not have the absorptive capacity to acquire technology beyond that. Furthermore, the decision on what types of technologies will be involved in FDIs is dependent on the MNCs perception of the country's technology capacity. That is, an MNC will not establish a research and development facility in a country where it does not see as possessing sufficient levels of the appropriate manpower (i.e. scientists / engineers).
Change Management: Technocentric Perspective vs System Design Perspective
Change management is the task of managing change. It is a systematic approach to ensuring an orderly transition from an initial state where a problem or possible improvement exists to a final state where the problem has been solved or the improvement has been implemented. That is, the purpose of change management is to ensure that the process from getting from the initial to the final state proceeds in a planned and orderly fashion.
The perspective that lacks change management is the technocentric perspective to technology implementation as it focuses solely on the technical or technological aspects (ignoring social considerations). The perspective that best reflects the essence of change management is the system design perspective because it considers and integrates both technical and social concerns into a total system view. That is, it seeks to understand the innovation, in the context of the firms social and technical systems and plan the implementation taking into account technical, organizational and social issues.
Technological Catch-up & Learning: South Korea vs Taiwan
A. In terms of vehicles of development, South Korea relied on large family-owned conglomerates called chaebols for catch-up and technological learning by (the state) directing these firms to go into strategic industries (mostly, heavy industries) while Taiwan relied on SMEs, local business groups and public enterprises.
B. South Korea tried to minimize FDI and utilized other forms of technology transfer (like licensing, joint ventures, reverse engineering) to develop technological capabilities of firms. On the other hand, Taiwan (though initially tried to restrict FDI as well) encourage FDI and attracted MNCs to compensate for lack of big firms.
C. For financing, South Korea depended heavily on foreign debts and nationalized commercial banks. Taiwan, on the other hand, did not need as much external funding due to its alliances with MNCs and the dominance of SMEs.
D. South Korea pursued a nationalistic substituting strategy and orchestrated the growth of the chaebols with its industrial policy of targeting strategic industries for import substitution and export promotion. The government also utilized a "carrot-and-stick" policy to influence the direction of the chaebols. In other words, the government took the role a strong developmental state. Taiwan adopted a complementing strategy to attract MNCs by providing them with complementary assets such as SME supplier clusters, infrastructure, fiscal incentives and human capital. Taiwan also employed an "orderly spin-off strategy" where in public research institutes created spin-offs to commercialize and diffuse developed technologies.
(Additional note: ROK: reverse product cycle, Taiwan: OEM-ODM-OBM)
Technological Capability Building: Washington Consensus Vs Beijing-Seoul-Tokyo Consensus
The Washington Consensus does not have policy prescriptions that directly address technological capability-building because it does not see economic development as a capability-building process. On the other hand, majority of the BeST policy prescriptions are directed toward capability building, technological capability-building in particular, because it recognizes the importance of capability building to economic development.
In terms of industrial policy, the Washington Consensus recommends deregularization, trade-liberalization, privatization and elimination of barriers to FDI. The fundamental philosophy behind these is that economic development proceeds from a free and open market and that the state should not intervene on the market. On the other hand, the BeST Consensus recommends targeting import-substituting technologies and export-based engagement with global economy. It also emphasizes the role of the state, through a pilot development policy agency, in directing and coordinating efforts towards capability building.
The Washington Consensus works for developed economies which already posses the necessary technological capabilities but not for countries like the Philippines which are trying to catch-up since it lacks a framework for technological-capability building and does not recognize that technology isn't free and that technological learning and capability building are difficult and complex processes that require conscious, coordinated and directed effort (this is because the WTC does not even recognize the role of technological capability building in economic development).
Developmental State vs Regulatory State
A developmental state is a "plan-rational" state because the government gives greatest precedence to economic planning and industrial policy; that is, the government takes an active role in driving development. In contrast, a regulatory state is a "market-rational" state because the government avoids industrial policy or any state intervention in the market. In other words, the government takes on a passive role and acts merely as a referee to keep a free and open market.
Industrial Policy: Old vs New
The old industrial policy seeks to develop selected strategic sectors through a combination of tariff protection, direct subsidies and prohibition on certain kinds of technology transfer. The new industrial policy focuses on promoting entrepreneurship and innovation through mixed, market-based model with the government and private sector working closely together. In short, in the old industrial policy, the state directly & strongly intervenes to influence market forces (i.e. it is a primary agent), while in the new, the state takes the role of a facilitator.
The reasons for supporting the adoption of the old industrial policy for the Philippines are:
- Many countries that have successfully catched-up like Korea and Japan adopted this policy. This is because catch-up requires the government to take an active role in identifying strategic sectors and stimulating growth in these sectors.
- With a weak, uncompetitive private sector, the government cannot rely on it to be the primary agent of change. It, first, needs to be nurtured and developed before it can take on that role. For the meantime, there should be a central agency orchestrating its direction.
The reason against it are:
- Protectionism leads to the protected sector to be even more uncompetitive.
- Globalization and the increasing interconnectedness of international production networks make it difficult for a protected sector to become a player
- The rate of technological change requires countries to have an open market to attract foreign firms or MNCs that aid in diffusing and transferring technologies.
Technological Catch-up: A Model for the Philippines
The Chinese model, which itself is a combination of the Korean and Taiwanese models, is a suitable model for the Philippines. Like China, the Philippines needs to identify strategic industrial sectors and encourage both large firms and SMEs to go into those sectors through fiscal incentives and by creating technology parks that will support the development of these sectors. There is also a need to institutionalize the creation of spin-offs from academic and research institutions. By encouraging a dynamic relationship between private firms and research institutions, the Philippines will be able to build up its absorptive capacity. With technology and ecoparks, it can build supplier networks and attract MNCs and in the process facilitate technology diffusion and acquisition.
Considering the emergence of the digital revolution and the strengths and weaknesses of the Philippines in the I.T. sector, I believe informationalization is a viable approach for the Philippines. We are already a recognized global player in BPO and I believe we should build on this as we move up in the I.T. value-chain. Having said this, there are particular elements in the cluster-based industrialization approach that the Philippines can implement. In particular, the creation of geographically concentrated information technology related firms and the creation of supplier-networks (i.e. knowledge-suppliers.)
(Comment: But IT alone cannot address the food needs, energy needs, etc. of the country)
