Technology Absorption & Acquisition

Meaning of Technology Acquisition

Technology acquisition is the process by which a company acquires the rights to use and exploit a technology for the purpose of improving or renewing processes, products or services. It does not include retailed or mass market off the shelf software which is generally governed by non-negotiable “shrink wrapped” licences.

Technology acquisition is a huge area and the productivity improvement fund targets a specific part of the technology acquisition process.

Companies applying for funding for technology acquisition under this fund will be required to have carried out their due diligence and identified the technology they wish to acquire.

The applicant company will also know the details of the licence agreement between the two companies and details of the costs involved as part of the application.

Methods of Technology Acquisition

Choosing the best source option for your company...

Internal technology sources...

External technology sources...

Combination of internal and external sources...

Choosing the best source option for your company…

Steps covered in Technology Acquisition

1. Assess local constraints and available technologies.

2. Evaluate costs and benefits and windows opened by each technology.

3. Acquire.4. Assimilate.5. Use.6. Adapt.7. Change.8. Create.

Factors In Technology Acquisition

Seller differences European suppliers more generous on basic

industry technology. US suppliers more generous on consumer

goods technology.Buyer participation in transfer process, even

turnkey project, is crucial.Technology not on open shelf, but protected by

secrecy and patents.Technology involves tacit knowledge, understood

only in use, not from recipe.Some technology elements may be non-tradable.

The process : technologyAcquisition

The introduction of technology in Customs processes proved to be essential to enhance the efficiency of its own work as well as to facilitate trade. Nevertheless, modern systems are not magic machines which can totally replace good, traditional techniques. They are just an additional tool, and are only as good as the way they are used.

The success of a modernization program is highly related to a proper preliminary needs assessment, careful technologyspecification, adequate capacity building policy and a proper purchasing process.

• Needs assessment: Obviously, it is essential to carefully review the actual situation and consider the needs for technology introduction:

• Technology and solutions available :Once the concept is defined and approved at Management level, the Customs Administration must look for the solutions available on the market.

• Project definitionWith a clear view of the project objectives and technology concept selected, the scope of the project has to be further studied and defined.

• Technology specification:Once the initial choice of the type of the technology is made, it is necessary to draw up a detailed technical specification which will adapt it to the identified needs and constraints.

• Project organization:From the moment Management decides to go ahead with the modernization program, a Project Management Team has to be organized and established. The Project Manager must be clearly identified and introduced to all internal and externalstakeholder

• Purchasing process:Every country has its own procurement procedure but some common guidelines can be established in order to ensure thatthe procurement process is transparent, fair and comprehensive.

Guidelines for a Contract:The following items are to be included in a contract:

1.Contract and Interpretation2.Subject Matter of the Contract3.Payment4.Intellectual property5.Execution of the Scope of the Contract6.Guarantees and liabilities7.Risk distribution8.Change in Contract elements

Lessons of Technology AcquisitionLengthy process, often 10 to 20 years.Mix of local and external inputs (purchase to

fill gaps).Lumpiness of technology in multistage

process.Challenge of adapting imported

management techniques.Importance of local learning and adaptation

Assessing local constraints Capacity stretching solutions Ability to scan world for need technology.

CASES TUDY:Tata motors acquisition of Jaguar

ABOUT Jaguar 1922 - Founded in Blackpool as Swallow Sidecar

company1960 - Jaguar name first appeared 1975 - Nationalized in due to financial difficulties1984 - Floated off as a separate co in the stock

market1990 - Taken over by FordLand Rover: an overview1948: Land Rover is designed by the Rover Car co1976: One millionth Land Rover leaves the

production line1994: Rover Group is taken over by BMW2000: Sold to Ford for $2.75 billion

TATA MOTORS: An overviewTATA GROUP is 150 year old, Previously Tata

Engineering and Locomotive Company, Telco.

India's largest passenger automobile and commercial vehicle.

Tata Motors was established in 1945Listed on the New York Stock Exchange in

2004. It is the 5th largest medium and heavy

commercial vehicle manufacturer in the world. listed in BSE, NSE & NYSE.

Why was Ford selling?The US auto major put the two marquees on the

market in 2007 after posting losses of $12.6billion in 2006 - the heaviest in its 103-year history

Jaguar was not able to provide any profit for ford because of the high manufacturing costs provided in the United Kingdom.

The strong boy Land Rover's profit, on the other hand, was driven by the record sale of 2.26 lakh vehicles, an 18% YoY growth in 2007.

Ford was combining both the brands since the products and manufacturing of vehicles for Land Rover and Jaguar was so intertwined.

Reasons for acquiring JLRLong term strategic commitment to

automotive sector.Opportunity to participate in two fast

growing auto segments.Increased business diversity across markets

and products.Jaguar offered a range of

“performance/luxury” vehicles to broaden the brand portfolio.

Benefits from component sourcing, design services and low cost engineering

The Deal Process12/06/2007- Announcement from Ford that it plans to

sell Land Rover and Jaguar. August 2007 - Major bidders were identified

 Tata Motors, M&M, Ceribrus capital Management, TPG Capital, Apollo Management 

India’s Tata Motors and M&M arrived as top bidders ($ 2.05b & $ 1.9b)

03/01/2008– Ford announces Tata as the preferred bidders

26/03/2008 - Ford agreed to sell their Jaguar Land Rover operations to Tata Motors.(2.3b)

02/06/2008– The acquisition was complete

TATA & THEIR ASPIRATIONS NEED FOR GROWTH

In the past few years, the Tata group had led the growing appetite among Indian companies to acquire businesses overseas in Europe, the United States, Australia and Africa - some even several times larger - in a bid to consolidate operations and emerge as the new age multinationals.

COMPETITIVE ADVANTAGE

Tata Motors was vulnerable to greater competition at home. Foreign vehicle makers including Daimler, Nissan Motor,

Volvo and MAN AG had struck local alliances for a bigger presence.

Tata Motors, which had a joint venture with Fiat for cars, engines and transmissions in India, was also facing heat from top car maker Maruti Suzuki India Ltd, Hyundai Motor, Renault and Volkswagen.

Financing strategyTata Motors could comfortably finance the

acquisition of Jaguar and Land Rover. The Indian automaker was sitting on a cash pile of over Rs 6,000 crore and generated free cash of over Rs 1,000 crore during FY07. It could easily use these reserves to raise more funds without endangering its finances.

At the end of last financial year, Tata Motors‟ debt-to-equity ratio was a low 0.56, giving it ample head room to raise more funds.

 

Low leverage of the auto biz provided funding flexibility

At the time financed the purchase through a $3bn, 15month bridge loan

Additional amount of US $ 0.7 billion was for engine and component supply, contingencies and working capital.

 It intended to refinance the loan through long-term funds

valuable stakes in group companies Owns $400m of Tata Steel at current prices Owns stake in Tata Sons (Tata Group’s holding

company) worth at least $600m 

Technology Absorption

Technology absorption :refers to the acquisition, development, assimilation, and utilization of technological knowledge and capability by a firm from an external source. The transaction occurs between transferring and receiving organizations.

Most technology in ‘latecomers’ comes from abroad, in mixture of two forms: Embodied: in capital goods, patents, blueprints,

designs, models and so on Tacit: knowledge that can be ‘transferred’ only by

close interaction and learning by new user

Using technology efficiently thus needs conscious effort by the enterprise & also the ‘system’ in which it works (suppliers, customers, technology support, training institutions and so on)

Technology flows forms: 

Non-contractual: Public knowledge, fairs, conferences, migration, export activity and informal networks

Contractual: FDI related: (internalized) transfers within

multinationals or joint ventures with MNCs Arm’s length: equipment imports, turnkey projects,

licensing, subcontracting, franchising and other contracts

Role of internalized technology flows

Innovation is highly concentrated, by region, country and enterprise

MNCs lead in innovation: most R&D is performed by large firms and most innovative firms are globalized

MNCs dominate technology flows in all forms, but form depends on nature of technology: newest and most valuable technology is internalized, others licensed

Role of MNCs in global economy is growing steadilyFDI is growing faster than other economic

aggregates: national investment, GDP or exports MNCs control about 2/3 of world trade.

About 30-40% of this trade is within MNCs, and their role is particularly large in high-tech manufacturing

MNC export activity is taking new forms: ‘global production networks’, with very fine vertical specialization by function/component between countries

Local companies are also involved in global production networks, but only if they have very high levels of technological capabilities – and form strong ties with MNCs to access and absorb their technological know-how and management skills

What this means for:  Developing & Transition economies

FDI is the most efficient way to access foreign technology if countries want ...

New, fast-changing proprietary technologies not available at arm’s length

Rapid access to new technology and subsequent upgrading, without local effort

Non-core components of operation (i.e. management, marketing, finance etc)

Access to MNC foreign markets, particularly to global production networks

For local firmsLicensing or joint ventures are desirable if:

Local firms are strong in base technologies but need particular new components of technology

They specialize in activities with stable technologies, where state-of-art technologies are available at arm’s length

They can export through foreign buyers (low technology products), sell undifferentiated products directly or have established brands

They subcontract to MNCs (OEM) or supply local components

 

Creating a technology culture in industry (difficult but necessary

Raise awareness of need for in-house technological activity and R&D

‘Technology foresight’ exercisesBenchmarking and technology audits R&D incentives: most countries make R&D

tax-deductible expense, many offer extra incentives. Effects mixed, but tax credits linked to incremental R&D seem best

 

Strengthening the technology infrastructure

Metrology, standards, testing, quality Quality standards vital (e.g. ISO 9000) Good standards institutions can help to diffuse

technology and quality awareness Advanced standards institutions are withdrawing

from testing into basic standard setting and research. They are helping create private service providers.

Metrology (measurement/calibration) is central to quality certification; international accreditation is vital to competitiveness

Local metrology capability reduces cost and raises response speed

Secondary metrology can be carried out by private laboratories, primary metrology has to be done in public institutions

Role for government in providing the public goods and creating private markets

The process : technology absorption

PROJECT FORMULATION: Prefeasibility report/project report Technology negotiations Approvals/clearances with Government Foreign collaboration agencies Funds from financial institutions Land Acquisition Clearances from State Govt. and other bodies for power etcPROJECT EXECUTION: Technology Transfer. Design/know-how, experts, training Use of Indian consultants Procurement of equipments, components and materials. Payments for technology, RM, and equipments. lProject implementation.

TECHNOLOGY ADAPTION: Trial runs Debottlenecking /rectifications Production based on selective imports of components/RM Indigenization of RM/ components, equipments. Adjust product/process technology to suit local conditions.TECHNOLOGY ABSORPTION: Analyze and unpackaged technology Investigate product/process designs and technology. Optimize technology for higher quality and performance. Design; develop components/raw materials/equipments. Use research linkages.

TECHNOLOGY IMPROVEMENT AND UPGRADATION: Improve product/process designs and technology for better

performance/utilization. Use Research linkages. Upgrade product/process to reach larger

scales/capabilities.

Absorption of datawarehousing technology(TERA DATA) by Continental

airlines

Continental’s comeback from “Worst to First” is an airline industry legend. Now the company is engaged in a new initiative to move from “First to Favorite.” To support this ambitious initiative,Continental tapped into its Enterprise Data Warehouse and expanded it to enable a real-time business intelligence capability.

In the first five years of operations, the EDW achieved an ROI of more than 1000% on a $25

million investment.

Todothis,Continental has changed the way it does business, transforming its decision-making process to include multidimensional views of the business.

Overcoming the Barriers

A company that once knew little about its important customers, set fares and schedules using only the limited conventional industry assumptions, conducted contract negotiations blind, and fought fraud only after the damage was done,

Continental today is one of the best managed airlines in the world. Its strategic and tactical decision-making analytics are on the cutting edge of the airline industry.

Factors contributing success

Customer Relationship Marketing providescustomer service finely tuned by segmentation.At any time, Continental can see a single, real-timeprofile of any of its customers and act accordingly. Employees are empowered with access to theinformation they need, when they need it, to getanswers and implement solutions. The result isemployees who do a great job and a spot on theFortune 100 Best Companies to Work For list forfive consecutive years.

Revenue Management maximizes revenue foreach flight by projecting demand by true originand destination, allocating seat inventory by fareclass, reducing overbooking and dynamicallymatching aircraft capacity. Operations acts on real-time information tomanage issues as they arise in the flight network,including delays, cancellations, equipmentchanges and last-minute staffing changes.

Crew Systems optimizes crew schedules to reduceunnecessary pay costs and provides critical

informationto reduce contention during contractnegotiations. Security takes proactive steps to prevent creditcard, frequent flyer, and internal and externalfraud. They analyze bookings and create profilesto identify and target suspicious behavior beforesignificant damage is done

References

Wikipedia.orghttp://wcoomdpublications.org/

downloadable/download/sample/sample_id/110/

http://technology.berkeley.edu/cio/fptis/sta/

http://gbr.sagepub.com/content/1/1/101.abstract\

http://rameshree.blogspot.in/2008/01/technology-absorption.html

Thank You