The sale pricing and management of the transfer of company know-how in international business
ThiD .study Is about determining the circumstances which make the
international sale of corporate know-how a viable alternative to
foreign direct investment and foreign trade for the manufacturing fir~.
A conceptual model of intern~tional business incorporating know-how
transfer (Chapter 4 ) is derived from a study of the relevant literature
(Chapter 2) and an examination of the nature and embodiment of corporate
know-how (Chapter 3).
Preliminary research indicated that data required for statistically
testing this model would be difficult or impossible to obt.ain. The
research methodology was, therefore, developed around the case study
approach combined with the construction and use of e computer
simulation mod6J., the criteria for which are derived in Chapter 5.
The computer simUlation model (Chapter 6) can handl~ up to four
firms in four separate economic environments. Relationship between
the firms can vary from total independence through any combination
of foreign trade, know-how sale or equity investment to full ownership
by one firm of the other three. The international transfers
involved can be subject to the normal restrictions such as tariffs,
with-holding tax and currency premia • .
The trial simulotiun run (Ch~pt8r 8) was based en a hypcthetic~l
product manufactured in four cQuntries. The countries chosen were based
on ail analysis of patterns of UK inte.rnational business at 1974
(Chepte= 7). This trial run provided confirmation th~t the simulation model
oatisfied the criteria established in Chaptar 5.
The three ca3e studies conducted are described in Chapters 9, 10 and 11.
One deals with a majority joint venture in Ireland in the ,mechanical
engine~ring sector; the second deals with an acquisition in the us in
spociali~t textilesf the third deals with a minority joi~t venture
in el~ctrical engineering in Malaysia. Each case study is analysed
in terms of the conceptual framework developed in Ch~ptei 4~ u~ing the
corpor.ate know-how classification devised in Chapt~r 3. Thesimulation
model is used to test the viability of case study ,co-inpany' s decision~.
The analyses of the three cases were summarised (~hapter 12) ,and the
following principal conclusions reach!3d: th'e more explicit the
embodiment of corporate know-how, the ~asisr it is to transfer
internationally; where manufacturing know-how is exp~icitly embodied
in equipment, it can be ,successfully transferr~d without the aid of a ~
local ' p'~rtner inthEl same. product market; where it is 'implicitly
embodied in people 'a: local pl!ir:tner in the same product market area J . .
ia necessary or at the least veiy ·desirable; the ,smaller the market .and the
lower the level of· competlU.oll; the 'less' likely, 'i:a it. that corporate .... .
know-how will be explicit
Know-how sales are a viable' aiternative , to foreign . trade and foreign '
direct investment, in two principal 'situations. The first is during
the early part of the product life cycle where it is necessary to .
Justify thti fundi':l9 o.f ' ~r.ocess , developmen~ ' bY ' ensuring a large current
or future market share. Where funding is not available cut of current
revenue or where current revenue cannot be expanded by exports . and
overseas direct invastmeni to provide such funding, then know-how
sales are a necessary expedient.
The second situation is whan Industry-Explicit know-how is about to
be superseded by newly developed Company know-how. In thesE
circumstances the firm will not wish to invest further itself in
equipment embodying mature know-how, but can make SUbstantial profit
by selling such know-how in squipment-embodied form to couhtries which are
about to sat up production for their own domestic needs