Acquiring technology from abroad has been advocated as a means by which many developing countries may increase their technological capacity
Acquiring technology from abroad has been advocated as a means by which many developing countries may increase their technological capacity. Foreign direct investment (FDI) and collaboration between enterprises are the major channels for technology transfer (Hoffman and Oldham, 1991). But it has always been difficult to transfer technology and know-how from FDI home countries to host countries, especially from developed to developing countries (Archibugi and Milana, 1998; Archibugi and Michie, 1998). East Asian newly industrialised economies (NIEs) including Japan, South Korea did exceptionally well in developing the ability to absorb and use acquired technology and know-how from developed countries (Wade, 1990). Learning from its neighbours, China’s open door policy started from the late 1970s was also based on the assumption that FDI is essential for the transfer of technology regarding best practice into the Chinese economy (Hayter and Han 1998). After 20 years of opening up, China has been very successful in attracting FDI, which has sped up rates of economic growth. For example, in 2002, China surpassed USA, becoming the world’s largest FDI destination. FDI has increased China’s export, making “Made in China” the most common label for affordable goods in almost every corner of the world. However, technology transfer through FDI into advanced technology sectors is still limited and FDI has played a limited role in China’s technology development. Much of the foreign investment in China is still in relatively low technology and labour-intensive manufacturing, taking advantage of low labour costs and the accommodating policy regime in coast region, especially the Special Economic Zones (SEZs) (Bennett et al, 2001; Thoburn and Howell, 1995). In addition, with much foreign investment involving assembly work of components supplied from outside, opportunities for local suppliers to upgrade their capabilities and grow their businesses were also limited.