UNIT IV

BASIC INFRASTRUCTURE LEVEL; Energy- Transport- Communication- Science and

Technology- research and development, product and process innovation, rate of technological
change and penetration levels, protection of intellectual property rights technological leadership
and followers, technology and competitive advantage, time lags in technology introduction,
adaptation, transfer of technology, internet infrastructure

SOURCES OF ENERGY IN INDIA;

OVERVIEW OF POWER SECTOR

Power Sector is at a crucial juncture of its evolution from a controlled environment to a

competitive, market driven regime which endeavors to provide affordable, reliable and quality
power at reasonable prices to all sectors of the economy. The Gross Domestic Product (GDP) of
our country has been growing at the rate of about 8% for the last several years. The liberalization
and globalization of the economy is leading to an increased tempo in industrial and commercial
activities and this, coupled with penetration of technology and I.T. in the day-to-day life of the
common man, is expected to result in a high growth in power demand. It is accordingly essential
that development of the Power Sector shall be commensurate with the overall economic growth
of the nation.

The Indian power sector is one of the most diversified in the world. Sources for power
generation range from commercial sources like coal, lignite, natural gas, oil, hydro and nuclear
power to other viable non-conventional sources like wind, solar and agriculture and domestic
waste. The demand for electricity in the country has been growing at a rapid rate and is expected
to grow further in the years to come. In order to meet the increasing requirement of electricity,
massive addition to the installed generating capacity in the country is required. While planning
the capacity addition programme, the overall objective of sustainable development has been kept
in mind.

Since its structured growth post Independence, Indian power sector has made substantial
progress both in terms of enhancing power generation and in making available power to widely
distributed geographical boundaries. The Installed generation capacity in the Utility sector has
increased to about 1,81,500 MW at the end of August 2011. The Indian power sector is largely
coal based with the total Installed Capacity comprising of 99,503 MW ( 55 %) coal based,
17,706 MW (10%) gas based, 1200 MW (1%) diesel generation, 38,206 MW (21%) hydro,
4,780 MW (2 %) nuclear and 20,162 MW ( 11%) from renewable energy sources. Development
of Renewable Energy Sources is being accorded special emphasis in view of their inherent
advantages. The Installed Capacity from Renewable Sources has grown to 20,162 MW in June
2011 comprising 3,226 MW in State Sector & 16,936 MW in Private Sector.

The total annual power generation has grown to about 811 BU, whereas the thermal
generation has grown to 665 BU in 2011. The performance of thermal power plants in the
country has steadfastly improved and the Plant Load Factor of coal based stations has increased
from 52.4% during 1985-86 to 77.68 % in 2009-2010 & 75.06% during 2010-11. The Installed
Capacity of captive power plants having more than or equal to 1MW capacity has grown to more
than 30,000 MW at present.

Over decades, a robust inter-state and inter- regional transmission system has evolved in
the country which facilitates widespread reach of power over the vast area of the country. In
1947 the maximum voltage level of transmission line was 132 kV which was subsequently
increased to 220 kV in 1960 and 400 kV in 1977. To reduce Right of Way requirement for
transmission lines and overcome constraints in availability of land for substations, 765 kV
transmission voltages is being increasingly adopted and Gas Insulated Stations are being
provided wherever availability of land is a problem. HVDC 500 kV back to back was introduced
in the year 2000.

Recognizing the need for development of National Grid, thrust was given to enhancement
of the interregional capacity in a phased manner. The total Inter-regional transmission capacity
by the end of 10th Plan was 14,050 MW which is now planned to grow to about 25,650 MW by
11th Plan end. The per capita consumption of electricity in the country has increased from 15.6
units in 1950 to about 766 units during the year 2009-10. The National Electricity Policy of the
Government of India stipulates that this is to be increased to over 1000 units per annum in 2012.
 At the time of Independence, only about 1500 villages of the country had access to
electricity. The scenario has changed significantly since then. It has been possible to extend
electricity to about 5,38,296 numbers of villages out of a total of 5.93,732 as per census of 2001
villages thereby electrifying 90.8% of villages. As per rough estimates, out of this about 18,000
villages are located in remote and difficult areas and it is not possible to extend power supply to
these villages through the existing power grid. Electrification of these villages, therefore, is
proposed to be done through various sources of distributed generation including non-
conventional sources of energy. In spite of the massive addition in generation, transmission and
distribution capacity over the last over sixty years, growth in demand for power has always
exceeded the generation capacity augmentation. Although the country has achieved capacity
addition of about 1,81,500 MW over the last Six decades, peak and energy shortages of varying
magnitude are being experienced. During the year 2010-11, the country faced an energy shortage
of 73,236 MU (8.5%) and a peak shortage of 12,031 MW (9.8%).

During the 11th Five Year Plan, a capacity addition of about 52,000 MW is expected
which is over 250% of the achievement during 10th Plan and highest ever since independence.
The high achievements of the 11th Plan have been facilitated due to the stringent monitoring of
ongoing power projects at various levels in CEA/MOP. Other Initiatives of the Government have
been the formulation of the New Hydro Policy, setting up of Ultra Mega Power Projects,
enhancing the partnership of private sector in manufacture of power equipments and Bulk
ordering of 11 units of 660 MW each with supercritical technology with mandatory phased
indigenous manufacturing programme to promote indigenous manufacturing capability.

The Working Group on Power was constituted by the Planning Commission vide its
Office Order No.1-15/1/2011-P&E dated 4th March, 2011 to formulate the power programme for
12th Plan. Secretary (Power) was the Chairman of the Working Group and Member (Planning),
CEA was the Member Secretary of the Working Group. The Composition and Terms of
Reference of the Working Group for Twelfth Plan are given in Appendix-A. The first meeting of
the Working Group was held on 20th April, 2011 under the Chairmanship of Secretary (Power).
It was decided to constitute 9 specialized Sub-Groups to go into the specific areas to cover
comprehensively all the Terms of Reference of the Working Group. Subsequently, review
meetings of the Working Group were held in MOP on a regular basis to assess the progress of
the Sub-Groups from time to time. Details of the various Sub Groups and Term of Reference are
enclosed in Appendix- B

The Sub-Groups discussed various issues regarding Demand, Generation, Transmission

& Distribution Expansion Planning, Households & Rural Electrification, Demand Side
Management & Energy Efficiency Issues, Research & Development, Manpower Planning &
Training and Fund Requirement. A separate chapter has also been included on development of
North Eastern Region. The report is based on 11th Plan likely capacity addition of 62,374 MW
corresponding to which the 12th Plan capacity addition requirement is 75,785 MW and 13th Plan
capacity addition requirement is 93,400 MW (assuming a capacity addition of 62,374 MW in
11th Plan & 75,785 MW in 12th Plan from conventional sources). However, it is felt that the
likely capacity addition during the 11th Plan would be of the order of about 52,000 MW.

Various Sub-Groups submitted their Reports to the main Working Group. Based on the
recommendations of these Sub-Groups the Report of the Working Group for 12th Plan has been
formulated for submission to the Planning Commission.

The Power Sector is endeavoring to meet the challenge of providing adequate power
needed to fuel the growing economy of the country. However, this growth of the Power Sector
has to be within the realms of the principles of sustainable development. A Low carbon growth
strategy has been adopted in our planning process and highest priority is accorded to
development of generation based on renewable energy sources. Thrust is also accorded to
maximizing efficiency in the entire electricity chain, which has the duel advantage of conserving
scarce resources and minimizing the effect on the environment. It is in this context that this
Report has drawn up the Plans for development of the Power Sector during the 12th Plan

Reserves and Potential for Generation

India’s energy-mix comprises both non-renewable (coal, lignite, petroleum and natural
gas) and renewable energy sources (wind, solar, small hydro, biomass, cogeneration bagasse
etc.). Information on reserves of non-renewable sources of energy like coal, lignite, petroleum,
natural gas and the potential for generation of renewable energy sources is a pre- requisite for
assessing the country’s potential for meeting its future energy needs. The changes in the reserves
over time indicate the research and development going into the discovery of new reserves and
the pace of their exploitation.

They also facilitate in devising effective conservation and management strategies for
optimal utilization of these resources.

Coal and Lignite

India has a good reserve of coal and lignite. As on 31.03.11 the estimated reserves of
coal was around 286 billion tones, an addition of 9 billion over the last year. Coal deposits are
mainly confined to eastern and south central parts of the country. The states of Jharkhand,
Orissa, Chhattisgarh, West Bengal, Andhra Pradesh, Maharashtra and Madhya Pradesh account
for more than 99% of the total coal reserves in the country. The total estimated reserve of coal
in India as on 31.03.10 was around 277 billion tonnes. There has been an increase of 3.1% in
the estimated coal reserves during the year 2010-11 with Madhya Pradesh accounting for the
maximum increase of 5 %. The estimated reserve of lignite as on 31.03.11 was 41 billion tonnes,
of which 80 % was in the southern State of Tamil Nadu. (Table 1.1(A)). The increase in the
estimated reserve of lignite during the year 2010-11 was 2.4%, Tamil Nadu accounting for the
maximum increase of 2.7%.

Petroleum and Natural gas

The estimated reserves of crude oil and natural gas in India as on 31.03.2011 stood at 757
million tonnes (MT) and 1241 billion cubic meters (BCM), respectively (Table 1.2).
Geographical distribution of Crude oil indicates that the maximum reserves are in the Western
Offshore (43%) followed by Assam (22%), whereas the maximum reserves of Natural Gas are in
the Eastern Offshore (35%) followed by Western offshore (33%). There was an increase of
estimated Crude Oil reserves by 33% in Andhra Pradesh followed by Tamil Nadu (8%).
However there was a decrease of 2% in the estimated reserve of crude oil for the country as a
whole during 2010-11. In case of Natural Gas, the increase in the estimated reserves over the
last year was 8%. The maximum contribution to this increase has been from CBM (145%),
followed by Tamil Nadu (7%).
Renewable energy sources

There is high potential for generation of renewable energy from various sources- wind,
solar, biomass, small hydro and cogeneration bagasse. The total potential for renewable power
generation in the country as on 31.03.11 is estimated at 89760 MW (Table 1.3). This includes an
estimated wind power potential of 49132 MW (55%), SHP (small-hydro power) potential of
15,385 MW (17%), Biomass power potential of 17,538 MW(20%) and 5000 MW (6%) from
bagasse-based cogeneration in sugar mills. The geographic distribution of the estimated potential
across States reveals that Gujarat has the highest share of about 14% (12,489 MW ), followed by
Karnataka with 12% share (11,071 MW) and Maharashtra with 11% share (9596 MW), mainly
on account of wind power potential.

The telecom services have been recognized the world-over as an important tool for socio-
economic development for a nation. Telecommunication is one of the prime support services
needed for rapid growth and modernization of various sectors of the economy. It has become
especially important in recent years because of enormous growth of information technology and
its significant potential for the impact on the rest of the economy. In the past decade or so the
distinction between communications & IT has been diminishing with emerging common
infrastructures blurring the differentiation between content & carrier methods. At the same time,
as has been the case in most of the developed world, the combination of enhanced computing
power and improved telecommunications- equated by some to the introduction of steam power in
the 18th century and electricity in the 19th, has spurred a major improvement in the productive
capacities of the economies.

India is perceived to have a special comparative advantage in information technology and

in IT enabled services. The extent of advantage depends critically on high quality
telecommunication infrastructure. Telecom infrastructure is treated as a crucial factor to realize
the socio-economic objectives in India.
 NON CONVENTIONAL ENERGY SOURCES;

The government has accorded a high priority to promotion and utilization of renewable
resources of energy to supplement conventional sources of energy. These new `non conventional

TRANSPORT

Railways

The growth in rail infrastructure has not matched the demand, with many projects
running behind schedule, leading to time and cost overruns of more than 100%. Only 1,750 km
of new lines was added from 2006 to 2011, as compared to 14,000 in China. The Indian
Railways launched “Vision 2020” in 2009, which outlined needs and targets to be achieved by
2020.

Some of the major issues affecting the sector include insufficient funds, misplaced
investment priorities, lack of timely reforms in organizations and inability to attract private
investments. Furthermore, the internal revenue surplus is too small to fund investments and
private investments only constitute 4% of the total investment in the sector. This is primarily
because the role of the private sector in almost all railway PPP projects is limited to creation of
infrastructure. On the other hand, the function of the railways is that of the customer and the
regulator, and in most cases, a competitor as well. This is not a conducive environment for
attracting private investment. Moreover, most of the PPP projects announced are still at the
project development phase. They have been stalled due to various bureaucratic and regulatory
issues including land acquisition, approvals from state governments, the absence of model
concession agreements, etc. In addition, many proposals for introducing reforms in the railways
have not been implemented. As a result, its ability to keep pace with users’ needs is increasingly
falling short of requirements. There is a need to reform the railways in terms of policy actions
and organizational ones and also make concerted efforts to attract meaningful private
investments. Without meeting these conditions, the railways will not able to meet the ambitious
targets laid down in Vision 2020
Ports

India’s 13 major ports and 60 operational non-major ports handle 95% of the country’s
external trade by volume and 70% by value. Port traffic has increased at CAGR of 8.1% to reach
884.6 million tones with an average utilization of ~90%, as compared to the international
average of 70%. The main issues faced by ports include the level of containerization, custom
procedures and insufficient connectivity to their hinterlands.

The Maritime Agenda proposes an investment of INR1,280 billion in 424 projects in

major ports and INR 1,680 billion in non-major ports by 2020. It is proposed that more than 80%
of the investment in major ports will be made by the private sector. This is 96% in the case of
non-major ports — a very ambitious target, given the experience of PPP projects in the ports
sector. Some of the key challenges facing PPP projects include environmental clearances, the
slow bureaucratic procedures at most major ports in pre-tendering and the post-award stage, e.g.,
delays in dredging, the lengthy tariff-fixing process and poor connectivity to the hinterland.

Tariff setting is another major issue, which limits private sector investments in the sector.
The Ports Regulatory Authority Bill 2011 has potential to overhaul the regulatory structure of
ports and the tariff-setting process but concerns of private sector need to be addressed.

Roads and highways

Road infrastructure is of prime importance for the growth of the economy, since around
60% of freight and 85% of passenger traffic moves by road in India. The National Highways
only constitute around 1.7% of the road network, but carry 40% of the total road traffic. Yet only
24% of the country’s national highways are four-lane and meet the required standards. The
National Highway Development Programme (NHDP) is the largest and foremost infrastructure
program being undertaken in country. The program envisages upgrading or strengthening of
around 54,000 km of the highways in several phases with an investment of around INR3,000
billion. The last five years have been particularly rough for development of highways in the
country and physical achievement has fallen short of its intended target, and is dropping with
time. In 2009–10, the National Highways Authority of India was able to build highways at an
average of 13.72 km per day. This dropped further to an average of 10.39 km per day in 2011–
12, against the much higher and seemingly formidable target of 20 kms a day. Over the last
quarter, the Government has taken various initiatives to boost development of infrastructure in
the country. These include setting infrastructure targets for various sectors, putting in place an
institutional mechanism to monitor the progress of PPP projects at the Central and state levels
and facilitating land transfer between government agencies for PPP projects.

Roadblocks to achieving infrastructure goals

However, the initiatives taken are not comprehensive and there are still multiple
roadblocks that adversely affect infrastructure development. These need to be addressed to
accelerate implementation of projects. The process of land acquisition needs to be streamlined,
key policies and regulation reforms fast-tracked for enhanced implementation, a robust dispute
resolution framework put in place, enhanced monitoring of projects implemented and funding
facilitated. These are some of the major action points the Government needs to take up on a
priority basis.

Land acquisition is the single largest roadblock for infrastructure development because of
multiple reasons. Inadequate compensation and poorly planned rehabilitation packages have led
to this issue. To address it, a new Bill, the Land Acquisition and Rehabilitation & Resettlement
Bill (LARR), has been proposed. This Bill, in its current form, includes improved provisions for
compensation and rehabilitation, and is expected to streamline the land acquisition process and
reduce the number of litigations in the country. However, the cost of acquiring land will increase
significantly, which could affect the viability of projects in the long term. Moreover, there is and
ambiguity over the term “public purpose,” which may hinder acquisition of land by the
Government in the case of infrastructure or PPP projects.

AIR TRANSPORT

Air transport is the modern, the quickest and latest addition to the modes of transport. Because
of the speed with which airplane can fly, travel by air is increasingly popular. As far as the world
trade is concerned it is still dominated by sea transport because air transport is very expensive
and is also unsuitable for carrying heavy bulky goods. However transportation of high value light
goods and perishable goods is increasingly being done by air transport.
 In india a beginning in air transport was made in 1920, when the government first decided to
prepare air routes between Mumbai and kolkatta and kolkatta and rangooon. The civil aviation
works were actually started in 1924-25 but progress was slow until the second world war.
Between 1947 and commencement the first plan about 6.6 crore were spent on these works. The
government appointed the Air transport inquiry committee with justice G. S. rajadhyaksha as
chairman in 1950. The committee examined the conditions of the various airline companies
operating in the country and found that there was a good ease of transport service being owned
and operated by the state on the ground that a unit incharge of all operations could use the
available resources .

During the Tenth five year plan an outlay of rs 12,928 crore was provided to the ministry of
civil aviation out of which 792 crore was spent. There was a massive expansion during this plan
to opening up of domestic skies to private carriers. Important development in the airline and
airport sector included;

 Modernization of restructuring of Delhi and Mumbai Airport launched through joint

venture
 Development of Greenfield airports at Bangalore and Hyderabad on a build own operate
transfer basis
 Approval of modernization and restructuring of 35 metro airports and 13 other airports to
world class standards
 Acquisition of modern and technologically advanced aircraft for Air India ltd
 Liberalization of bilateral air services agreement in line with the contemporary
developments in international civil aviation

TELECOM SECTOR

Growth in Telecom Sector

The Telecommunication services were introduced in India soon after the invention of
telegraph and telephone. The first Telegraph line between Kolkata and Diamond Harbour was
opened for traffic in 1851. By March 1884, telegraph messages could be sent from Agra to
Kolkata. As in the case of telegraph, telephone service was also introduced in Kolkata in 1881-
82, barely six years after the invention of telephone. By 1900, telegraph and telephone started
serving Indian Railways. The first automatic exchange was commissioned at Shimla in 1913-14
with a capacity of 700 lines.

The Telecommunication services in India have improved significantly since

independence. India operates one of the largest telecom networks in Asia and the 10th largest in
the world measured in terms of number of phones (as of end of 2004- 05). As on April 30, 2005,
the network comprises of 99.17 million telephone connections and over 2.15 million Public Call
Offices (PCOs). There are over 42.12 million cellular subscribers in India and the cellular
customer base is growing at the rate of over one million per month. The number of departmental
exchanges which was around 321 as on March 31, 1948, has increased to 37,565 by April 2005.

Tele density per hundred populations has grown from 7.08 in March 2004 to 8.95 in
March 2005 and to a level of 12.74 in March 2006. Fully automatic International Subscriber
Dialing (ISD) service is available to almost all the countries. The total number of stations
connected to National Subscriber Dialing (NSD) is over 31,686. The growth in rural demand has
outstripped urban demand with telecom penetration in villages increasing in multiples. Higher
telecom dispersal is indicative of reduced economic disparities, experts point out.

Initially, the telephone exchanges were of manual type, which were subsequently
upgraded to Automatic Electro-Mechanical type. In the last one-and-a-half decades, a significant
qualitative improvement has been brought about by inducting Digital Electronic Exchanges in
the network on a very large scale. Today all the telephone exchanges in India are of electronic
type.

The voice and non-voice telecom services, which include data transmission, facsimile,
mobile radio, radio paging and leased line service, cater to a wide variety of needs of both
residential and business customers. Integrated Services Digital Network (ISDN) facility is
available in a number of cities. A dedicated Packet Switched Public Data Network (I-NET) with
international access for computer communication services is also made available.

In the field of basic telecom service, there were 31 private Licenses and two public sector
Licenses at the end of March 2004. After the introduction of Unified Access Service License
Regime in November 2003, 27 Licenses out of these 31 Licenses were converted to Unified
Access Service Licenses. Eighteen more Licenses were issued for Unified Access Service during
2004- 05.

In the area of mobile telephone, of the total 78 Licenses, 55 were in the private sector and
23 in public sector. Of the total roll out of telephone connections (basic and cellular) as on April
30, 2005, private sector accounted for about 47 per cent and public sector accounted for 53 per
cent.

In the field of international communications, tremendous progress was made by the use
of extensive infrastructure of satellite earth stations, state-of-the-art digital gateways, optical
fibre multi media submarine cables and multimedia data switches.

Reforms in Telecom Sector

Telecommunications is one of the few sectors in India, which has witnessed the most
fundamental structural and institutional reforms since 1991. Considering the great potential for
the growth of telephone demand with the accelerated growth of economic activities, the
Government of India announced the National Telecom Policy in 1994 and the New Telecom
Policy in 1999. The National Telecom Policy provides for private sector participation to
supplement the efforts of DOT in basic telephone services. The opening up of the basic services
provided a big opportunity for private & foreign investors. More policy initiatives included
Addendum to NTP -1999, Broadband Policy 2004, and Amendment to Broadband Policy 2004
etc.

To a great extent the perceived linkage between communications, information technology

and growth has shaped the Indian telecommunications policy, market perception and
consequently industry activity. Access to information infrastructure has been seen as a
prerequisite not just to a robust IT industry but also to broad based growth and competitiveness
in all other services and industries.

The entire sector is now open to unrestricted competition in all segments except cellular
services where spectrum is a limiting factor. The reforms process in the telecom sector is still on,
aiming to remove the balance hurdles and limitations. One such hurdle is ensuring expansion of
sustainable connectivity in rural areas. To encourage rural telephony, the government has set up
a universal service fund earlier. Broadband policy has been announced with a view to providing
better quality of services. One of the aims of this policy is to make rural connectivity
remunerative and sustainable.

The opening of the sector has not only lead to rapid growth but also helped a great deal
towards maximization of consumer benefits. The tariffs have been falling continuously across
the board as result of healthy and unrestricted competition. Besides, as a result of the various
measures and initiatives taken by the Government, India is now fast emerging as one of the
leading telecom nations. Since beginning of the Ninth Plan, the telecom services have registered
a consistently high growth rate of more than 20 percent per annum. The robust private sector
participation has resulted in unprecedented growth in the cellular and WLL services. The growth
of network has been very encouraging but still a lot need to be done so that India remains a front-
runner in information revolution.

Department of Telecom

The Department of Telecom has been formulating developmental policies for the
accelerated growth of the telecommunication services. The Department is also responsible for
grant of licenses for various telecom services like Unified Access Service Internet and VSAT
service. The Department is also responsible for frequency management in the field of radio
communication in close coordination with the international bodies. It also enforces wireless
regulatory measures by monitoring wireless transmission of all users in India.

Telecom Commission

The Telecom Commission was set up by the Government of India vide Notification dated
April 11, 1989 with administrative and financial powers of the Government of India to deal with
various aspects of Telecommunications. The Commission consists of a Chairman, four full time
members, who are ex-officio Secretary to the Government of India in the Department of
Telecommunications and four part time members who are the Secretaries to the Government of
India of the concerned Departments.
 The Telecom Commission and the Department of Telecommunications are responsible
for policy formulation, licensing, wireless spectrum management, administrative monitoring of
PSUs, research and development and standardization/validation of equipment etc. The multi-
pronged strategies followed by the Telecom Commission have not only transformed the very
structure of this sector but have motivated all the partners to contribute in accelerating the
growth of the sector.

SCIENCE AND TECHNOLOGY

Introduction

India is amongst the top-ranking countries in the field of basic research. Indian Science is
one of the most powerful segments for growth and development, especially in the emerging
scenario and competitive economy. With an annual growth of over 9.7 per cent in the number of
scientific publications in Science Citation Indexed journals during 2011-12, India has registered
the second highest growth rate in the world. Scientific knowledge and expertise, innovation, high
technology, industrial infrastructure and skilled workforce are the key factors that have driven
the progress of the country to a major extent.

The Indian science and technology space has been instrumental to bring social and
economic changes. The country has not only endeavoured to upgrade traditional skills to make
them relevant and competitive, but has also been on a spur to develop advanced technologies,
which has eventually played a pivotal role in transforming the nation into a modern,
industrialized society.

The Department of Science & Technology plays a vital role in promotion of science &
technology in the country. The department has wide ranging activities ranging from promoting
high end basic research and development (R&D) of cutting edge technologies on one hand to
service the technological requirements of the common man through development of appropriate
skills and technologies on the other.
 The year 2011-12 is a land mark year for the Department of Science & Technology. It
earmarked the completion of 40 years of service by the Department to the Science & Technology
sector since its establishment.

Market Size

Thomson Reuters, one of the global agencies involved in gathering "Evidence" have been
commissioned to undertake an India specific study. The "evidence" report has presented a large
volume of data and trends in research outputs from India.

The analysis of the report indicated a growth rate of about 66 per cent between 2006-10
as compared to 2001-05. This amounts to average growth rate of about 13 per cent per year. The
study also reveals that Chemistry, Physics, Materials Science, Engineering and Clinical medicine
are the active areas of research outputs from India during the study period.

According to E&Y's recent report 'Beyond borders: Global biotechnology report - 2011',
India's domestic biotech industry has crossed US$ 4 billion mark in fiscal 2011. The report
highlighted vaccines, diagnostics & devices and personalized medicine as the major innovative
growth areas for the domestic biotech sector.

Investments

"We need a new wave of investment from the private sector so that young people will be
encouraged to seek a career in science," according to Dr Manmohan Singh, the Prime Minister of
India.

Some of the major investment in Indian science and technology sector are as follows:

• An exclusive research facility for Zebrafish has been set up at the Centre for Cellular and
Molecular Biology (CCMB). The genome of Zebrafish is similar to the genome of human
beings. This has prompted the lab to deal exclusively with this fish to investigate developmental
biology in vertebrates, according to Dr Ch Mohan Rao, Director, CCMB

• Deutsche Forschungs Gemeinschaft (DFG), the German Research Foundation, has expanded its
India presence with the formal launch of a Centre in Hyderabad. It is collaborating with the
Department of Science & Technology on about 40 bilateral research projects in science and
engineering currently, said Dr Torsten Fischer, Director, DFG India

• Crompton Greaves (CG) Ltd has acquired 100 per cent stake in Spain-based ZIV Applications
Y Technologies, SL for an enterprise value of €150 million (US$ 196.19 million). ZIV deals in
high value smart grid and automation solutions for industrial and utilities segments

• Intel Future Scientist programme developed in India, aims to sustain the innovative streak in
students, has been launched by the global chip maker. The programme empowers teachers to
transform science and math education in their classrooms and aims to reach about 50,000 girls to
help them develop scientific skills and expertise

• Bosch Group will set up an independent research centre at the Indian Institute of Science (IISc)
with an investment of Rs 140 crores (US$ 25.75 million). The proposed investment will be from
the German major's global Bosch Inter-Campus programme

Government Initiatives

The Government of India has taken some initiatives to further promote science and technology in
the country:

• R&D Services excluding basic research and setting of R&D/academic institutions which would
award degrees/diplomas/certificates would be allowed 100 per cent foreign direct investments
(FDI) under the automatic route

• The Government of India has proposed to create an electronics development fund of US$ 2
billion to promote innovation, intellectual property, R&D, nano electronics and help
commercialize made-in-India products

• British Deputy High Commission-Kolkata and Confederation of Indian Industry (CII) along
with West Bengal Industrial Development Corporation (WBIDC) are working with technical
partners, on a first-of-its-kind project in India titled "Fiscal Instruments for Climate - Friendly
Industrial Development in West Bengal and Odisha"
• The African Union Commission will continue to engage with the Department of Science &
Technology, to identify areas of common research interest which have regional and continental
relevance

• The Union Budget proposal to extend the weighted tax exemption for in-house R&D by
another five years to the year 2017 is expected to encourage pharmaceutical companies to invest
more in the field of R&D. The budget has extended the weighted tax exemption for in-house
R&D, which is a significant step in promoting R&D investments by companies

• In the Union Budget - 2012-2013, Departments of Science & Technology, Scientific and
Industrial Research and Biotechnology under the Ministry of Science & Technology have each
got a hike of about 10 per cent over the revised estimates or the actual expenditures during the
current financial year

• India and the US pledged to step up their bilateral collaboration in the field of science and
technology to boost innovation in key areas of clean energy, environment and high technology to
spur economic growth

Road Ahead

The future of scientific research in India is very promising. Advances in scientific and
technological research are having a significant impact in India's present and therefore, future,
with the country being the primary source for many outsourcing companies. In addition, India
has a large pool of professionals who are highly skilled and a valuable asset to the country.

India is also witnessing R&D growth in areas such as genetic modification, bio-energy
sources, biochemistry, atomic energy, organ donation and biomedical science.

India is leading in many areas and evolving in others. Industrial R&D competitiveness
must be encouraged more, as most of the effort goes into the field of space, defense,
oceanography, and atomic energy. However, India is strong in software technology and
computer science.
INNOVATION

The concept of innovation is quite diverse, depending mainly on its application. Briefly, Inventta
believes that innovation is the successful exploitation of new ideas. And companies’ success, for
example, means increased revenues, access to new markets, increased profit margins, among
other benefits.

Product innovation:

It consists of changes in product attributes with a change in how the product is noticed by
consumers.

Example: car with automatic transmission compared to “conventional“one.

Process innovation:

It consists of changes regarding the product or the service production process. It does not
necessarily have an impact on the final product but produces benefits in the production process,
generally increasing the productivity and reducing costs.

Example: automobile produced by robots compared to that produced by human workers.

PRODUCT INNOVATION

A product innovation is the introduction of a good or service that is new or has significantly
improved characteristics or intended uses; a process innovation refers to the implementation of
a new or significantly improved production or delivery method.

Step 1: Generating
Utilizing basic internal and external SWOT analyses, as well as current marketing trends, one
can distance themselves from the competition by generating ideologies which take affordability,
ROI, and widespread distribution costs into account.
Lean, mean and scalable are the key points to keep in mind. During the NPD process, keep the
system nimble and use flexible discretion over which activities are executed. You may want to
develop multiple versions of your road map scaled to suit different types and risk levels of
projects.
Step 2: Screening The Idea
Wichita, possessing more aviation industry than most other states, is seeing many new
innovations stop with Step 2 – screening. Do you go/no go? Set specific criteria for ideas that
should be continued or dropped. Stick to the agreed upon criteria so poor projects can be sent
back to the idea-hopper early on.
Because product development costs are being cut in areas like Wichita, “prescreening product
ideas,”means taking your Top 3 competitors’ new innovations into account, how much market
share they’re chomping up, what benefits end consumers could expect etc. An interesting
industry fact: Aviation industrialists will often compare growth with metals markets; therefore,
when Boeing is idle, never assume that all airplanes are grounded, per se.
Step 3: Testing The Concept
As Gaurav Akrani has said, “Concept testing is done after idea screening.” And it is important to
note, it is different from test marketing.
Aside from patent research, design due diligence, and other legalities involved with new product
development; knowing where the marketing messages will work best is often the biggest part of
testing the concept. Does the consumer understand, need, or want the product or service?
Step 4: Business Analytics
During the New Product Development process, build a system of metrics to monitor progress.
Include input metrics, such as average time in each stage, as well as output metrics that measure
the value of launched products, percentage of new product sales and other figures that provide
valuable feedback. It is important for an organization to be in agreement for these criteria and
metrics.
Even if an idea doesn’t turn into product, keep it in the hopper because it can prove to be a
valuable asset for future products and a basis for learning and growth.
Step 5: Beta / Marketability Tests
Arranging private tests groups, launching beta versions, and then forming test panels after the
product or products have been tested will provide you with valuable information allowing last
minute improvements and tweaks. Not to mention helping to generate a small amount of buzz.
WordPress is becoming synonymous with beta testing, and it’s effective; Thousands of
programmers contribute code, millions test it, and finally even more download the completed
end-product.
Step 6: Technicalities + Product Development
Provided the technical aspects can be perfected without alterations to post-beta products, heading
towards a smooth step 7 is imminent. According to Akrani, in this step, “The production
department will make plans to produce the product. The marketing department will make plans
to distribute the product. The finance department will provide the finance for introducing the
new product”.
As an example; In manufacturing, the process before sending technical specs to machinery
involves printing MSDS sheets, a requirement for retaining an ISO 9001 certification (the
organizational structure, procedures, processes and resources needed to implement quality
management.)
In internet jargon, honing the technicalities after beta testing involves final database preparations,
estimation of server resources, and planning automated logistics. Be sure to have your
technicalities in line when moving forward.
Step 7: Commercialize
At this stage, your new product developments have gone mainstream, consumers are purchasing
your good or service, and technical support is consistently monitoring progress. Keeping your
distribution pipelines loaded with products is an integral part of this process too, as one prefers
not to give physical (or perpetual) shelf space to competition. Refreshing advertisements during
this stage will keep your product’s name firmly supplanted into the minds of those in the
contemplation stages of purchase.
Step 8: Post Launch Review and Perfect Pricing
Review the NPD process efficiency and look for continues improvements. Most new products
are introduced with introductory pricing, in which final prices are nailed down after consumers
have ‘gotten in’. In this final stage, you’ll gauge overall value relevant to COGS (cost of goods
sold), making sure internal costs aren’t overshadowing new product profits. You continuously
differentiate consumer needs as your products age, forecast profits and improve delivery process
whether physical, or digital, products are being perpetuated.
TECHNOLOGY;
Technology is defined as ‘the sum of knowledge of the means and methods of producing
Goods and services’

Technological change leads to the introduction of new products, changes in the methods and
organization of production, changes in the quality of resources and products, new ways of
distributing the product and new ways of storing and disseminating information. Technology has
a very big impact upon the world of business in all of these areas and has an important effect on
the level and type of investment that takes place in an economy and therefore the rate of
economic growth.

Information technology
Developments in information technology have had the effect of transforming existing business
activities as well as creating entirely new ones, involving the collection, handling, analysis and
transmission of information. There has been a massive increase in the demand for information,
and, on the supply side, continued advances in the miniaturization of components. These will
continue even when the capabilities of the silicon chip have been exhausted, with the
development of superconductors and optronics. There are also the advances in the computing
area such as the development of new languages and artificial intelligence. Advances in
information technology have many impacts upon business. They are creating new products and
making old products more profitable to produce through things like computer-aided design
(CAD). The effects they are having on
the different functions carried out by businesses can easily be seen:
 Administration; The administration of businesses has been revolutionized by the
introduction of information technology. Most businesses have computer systems, records
have been computerized and filing has become unnecessary.
 Communication. This has been eased by the introduction of fax machines and email.
 Video conferencing has contributed to the change in working practices by making it
possible for people to work anywhere. Telecommunications companies, such as BT, are
working on desktop video conferencing systems, where the video camera is attached to
the desktop PC.
  Production. The use of CAD will shorten the design and planning phase of the product
and shorten the life cycle of the product. Japan applied this very early on in the field of
consumer electronics and many of the products are withdrawn from sale and redesigned
within a very short period of time.
 Storage and distribution. The computerization of stock control has had implications for
the storage requirements of firms. It has made implementation of the just-in-time method
of stock control possible. This is easily seen in the case of supermarkets where the use of
bar-codes on products makes it possible to carry out a stock check of a whole
supermarket in a matter of hours. The shelves can then be loaded up as the stock check
continues. Similarly, the use of bar-codes with Electronic Point of Sale (EPOS) makes
stock control simpler.
 Electronic Funds Transfer at Point of Sale (EFTPOS). This system has also had a
revolutionary effect in the area of retailing. Most shops now accept credit cards or
Switch cards where funds are immediately transferred from bank accounts to the
supermarkets.
 The Internet. The potential for the Internet is enormous, although it is still, relatively
speaking, in its infancy. In October 2005 there were an estimated 958 million people
wired to the Internet, 224 million in the USA. Japan had 78 million users, Germany 47
million, the UK 36 million and China 103 million.

Other technological developments

 New materials. There are two main developments in this area: the development of
materials in the high-tech industries like technical ceramics and the upgrading of
materials used in lower-range products like coated sheet metal.
 Biotechnology. This is expected to have wide-ranging effects on many fields. The
development of new products like computers that can imitate the activity of the brain can
shorten the development process for certain products by speeding up existing processes.
 Energy. The kind of developments that can take place in this field are the use of
Superconductors to transport electricity and research which might make solar
Energy a viable source of energy.
Research and development
Most, but not all, technological changes have occurred through the process of research and
development (R&D). ‘Research’ can be theoretical or applied, and ‘development’ refers to the
using of the research in the production process. Most research and development carried out by
private companies is directed towards applied research and development. It is designed to
develop new products and production processes which will render production more profitable. It
is also aimed at improving existing products and processes.

Limits to technological change

Technological change has many effects on the economy and the environment and if uncontrolled
can lead to problems, like high levels of unemployment or the exhaustion of natural resources.
One area of concern is energy. The world’s stock of energy is finite and we are still heavily
dependent upon fuel which was formed millions of years ago. The development of nuclear power
again represents a finite source of energy, and also carries with it other problems like the
disposal of nuclear waste and the possibility of accidents.

BUSINESS APPLICATIONS 1: BUSINESS-TO-BUSINESS

(B2B) COMMERCE

Business-to-business (B2B) transactions account for, in terms of value, about 80 per cent of all
Internet transactions. Both the buyer and seller are business organizations. The technological and
legal aspects of B2B commerce tend to be more complex than business-to-consumer (B2C)
commerce, and it often requires sophisticated software. It can be arranged through either inter-
organizational systems (IOS) or electronic markets.
B2B commerce is characterized by a number of key features, many of which differentiate
it from B2C commerce. Turban and colleagues2 suggest that the following
are some of its salient aspects:
 an automated trading process;
 high volumes of goods traded;
 high net value of goods traded;
  multiple forms of electronic payment and funds transfer are permitted, unlike
B2C commerce, which tends to be restricted to credit cards and smart cards;
 high level of information exchange, including shared databases, between the different
trading partners. This often involves the use of extranets;
 prior agreements or contracts between the business partners requiring a higher
level of documentation;
 different types of legal and taxation regimes depending on where the two parties
are based, and what type of goods or services are the subject of the transaction;
multiple levels of authorization of purchases, each level having its own limits on
expenditure or types of goods.
Benefits of B2B
On examination there appear to be a number of potential benefits and drivers of B2B commerce.
The first of these is that it encourages the adoption of an Internet electronic data interchange
(EDI) system to improve the efficiency of business processes. The DTI describes EDI as ‘the
computer-to-computer exchange of structured data, sent in a form that allows for automatic
processing with no manual intervention. This is usually carried out over specialist EDI
networks’.3 Using EDI to streamline business processes has a number of discernible benefits.
These would include the following:
 A safe, secure and verifiable electronic environment that allows manufacturers or
retailers to link their stock databases directly to suppliers. This reduces lead times
by reducing the time taken in placing and receiving orders.
 Lower costs in creating, processing, distributing, storing, retrieving and destroying
paper-based information; fewer errors in data entry; improved inventory
control, and reduced staff time involved in the process.
 Improved warehouse logistics, and improved co-ordination for moving goods to
the appropriate place, at the defined time and in the correct quantities.
 Better and more efficient integration of support functions such as human resources,
inventory control, order processing, accounting and payment processing.
 More efficient strategic alliances and partnering with suppliers, customers and
competitors. For instance, in the motor industry, leading firms such as General
Motors, Ford and Chrysler have set up a joint extranet with suppliers.
Other benefits and drivers of B2B commerce include the following:
 That it provides an opportunity to market, sell and distribute goods and services to
other businesses for 24 hours a day, 365 days a year, the so-called ‘martini effect’.
 That it can sometimes significantly reduce fixed costs, perhaps through savings on
premises, where a website has effectively become the organization’s showroom.
 That it also has the potential to improve pull-type supply chain management, such
as JIT manufacture and delivery, based on integrated and fully-automatic supply
chain management (SCM) and demand chain management (DCM) systems.
 That it can encourage organizations to adopt a more customer-centric approach,
in which the business tracks consumers’ preferences and re-engineers itself
quickly to meet consumer needs

Potential problems and limitations of B2B

As we have illustrated, there are a number of significant advantages to the widespread adoption
of B2B commerce. However, it should be noted that there are also some potential limitations or
barriers that may serve to delay or hamper the growth in B2B commerce. These include:
 Internet technology is continually developing, encouraging some organisations
to postpone investment in the short term;
 technical limitations such as lack of system security, reliability and protocols –
there are also currently some problems with telecommunications bandwidth and
speed;
 the cost and difficulty of integrating existing (legacy) IT applications and databases
with Internet and related software;
 the slow progress made in achieving universal international standards for the
electronic transfer of information documentation;
 many legal, taxation and regulatory issues remain unresolved.
Business applications 2: business-to-consumer
(B2C) commerce

The business-to-consumer (B2C) model was the first to mature on the Internet, and has
generated the most publicity. It involves a simple, singular retailing transaction between a
business and a consumer. About one-fifth of e-business is between businesses and consumers.
One example of the successful development and use of a B2C business model is by the e-retailer
Amazon.com,
B2C commerce can be characterized by a number of key features, including:
 Goods or services are offered for sale and purchased over the Internet; these may
include both digitised products, such as music, airline tickets or computer software
that can be delivered virtually direct on the Internet, or physical products
such as books, flowers and groceries that are delivered by post or courier.
 .Transactions are typically quick and interactive.
 There are no pre-established business agreements.
 Security is primarily an issue for the buyer, rather than the seller.
 Low volume between each individual purchaser and supplier, often for relatively
inexpensive items and/or frequently purchased items such as groceries.
 Well known packaged items, which have standard specifications.
 Items backed by a security guarantee and/or high brand recognition. The remoteness
from the customer means that a strong reputation may be required to
establish consumer confidence.
 Items whose operating procedures can be most effectively demonstrated by
animation or video.
 Well designed websites, which are attractive and easy to use, are essential.
Emerging B2C and e-retailing business models
There are a number of ways of classifying the various B2C business models that are
emerging:
 Direct marketing product websites – where manufacturers advertise and distribute
their own products to customers via Internet-based stores, bypassing the use of
 intermediaries. Examples include Dell Computers, Nike, Cisco, The Gap and Sony.
 Pure electronic retailers (e-retailers) that have no physical stores, being purely
cyber-based, such as Amazon.com.
 Traditional retailers with websites – sometimes called brick-and-click organisations
 where the Internet provides an additional distribution channel for an
existing business. Examples include Wal-Mart, Tesco and Barnes & Noble.
 Best price searching agents – intermediaries, such as BestBuyBooks.com and
Buy.com, that use software to search for the lowest prices available on the Net.
 Buyer sets the price – the customer nominates a price which they are willing to
pay for certain goods or services, and the intermediary then tries to find a seller
willing to sell at that price or lower. An example is Priceline.com.
 Electronic (on-line) auctions – host sites, such as eBay, act like brokers, offering
website services where sellers post their goods for sale, thereby allowing buyers
to bid on those items.

Benefits of B2C commerce

There are a number of potential benefits and drivers of B2C commerce. Some of the
more important are as follows:
1 For existing business organizations, many of the benefits are similar to B2B commerce,
in that B2C commerce can expand the marketplace, lower costs, and
improve management support systems, internal communications and knowledge
sharing. It can also allow firms to focus more effectively on customer relationships.
However, it might also promote more competition.
2 For new businesses, the Internet can reduce barriers to entry, and thus make it
easier to enter new markets. One example would be Amazon.com, which did not
need to incur the expense of opening up high street shops in order to successfully
enter the retail book industry.
3 For customers, B2C on average provides faster and more complete information, a
wider choice, and cheaper products and services. It also allows greater interaction
with other customers.
4 For the wider community, an increase in B2C commerce may well have an
 impact in employment patterns, perhaps with an increase in home-working.

Possible limitations
While B2C commerce has some obvious benefits for the parties involved in transactions
of this kind, as one might anticipate there are a number of potential
limitations to its future growth and development. These include:
 lack of trust and consumer resistance;
 unresolved security, legal and privacy issues;
 insufficient buyers and sellers on-line;
 technical issues such as poor reliability, insufficient bandwidth, and speed;
 hardware and software tools are rapidly evolving and changing;
 the very expensive off-line marketing costs involved in building brand recognition
for new on-line companies;
 lower barriers to entry will increase competition, and potentially increase rather
than decrease consumer search and selection costs, as well as possible reduced
industry profits overall;
 there are still significant distribution and storage costs involved for the sale of
physical goods;
 existing bricks-and-mortar companies will not go away, and will continue to
 compete hard to maintain existing market share.
INTERNET INFRASTRUCTURE;

The physical hardware, transmission media and software used to interconnect computers and
users on the Internet. Internet includes internet servers, web servers, internet storage, internet
network equipment and infrastructure software.
Technology and international business

MEANING OF TECHNOLOGY

Technology is a sort of knowledge or skill used for employing and controlling factors of
production that, inturn, could lead to the output of products and services.baranson (1978)
mention three types of technology. They are:

1. Product technology
2. Process technology
3. Management technology

Product technology is the information that specifies a product ‘s feature and uses.Process
technology is the knowledge used in the processing or manufacturing of a product . management
technology is the managerial skills required for running a business .It helps the firm in optimal
utilisation of its resources. A firm possessing superiority in any , or all, of these three types of
technology maintaine an edge over other firms.

In the literature available on the subject, some other terms are also used to denote
different types of technology.The term hard technology is used to denote blue-prints,
specification, capital goods, and so on which are used for the purpose of production. Soft
technology is concerned with management and administrative techniques. Similarly , proprietary
technology is controlled as a trade secret. Bundled technology is also a controlled technology
and is transferred by the owner as a part of the package.

Here proprietary technology needs some more explanation.It is that innovated technology
which is unavailable to other firms in the market place. It is analogous to Magee’s(1977)
appropriability approach where the innovator of the technology does not pass it on to other firms
with a view to enjoying a monopolistic position in the market .It does not mean that proprietary
technology is not diffused or transferred. It is diffused, but among different units of the same
firm.The intra-firm diffusion of technology is often known as internalisation of technology.

Technology as a strategic Asset

Technology is a strategic asset. It enhances the firm’s product portfolio. It helps produce
items with new features. New features attract consumers who are ready to pay a higher price for
the novel product. When the technology matures, the consumers do not like to pay a high price.
But since the process of innovation is often a continuous phenomenon a new technology is
innovated and takes the place of the mature one. A products performance picks up fast; and
consequently, the firms is able to charge a high price for the product.It is because of this fact that
Abernathy and Utterback(1978) analogies the product performance(in the wake of technological
innovation) with a “S” shaped curve.The curve shows that product performance rises fast with
the use of new technology. It shows down with the ageing of the technology, but picks up pace
again with the introduction of the new technology.

It is not only the product innovation that helps a firm to earn large profits. The process
innovation also acts in the same way. The reason is that such an innovation leads to lowering of
the cost of production. The product cost is normally reduced on account of shortening of lead
time and a shorter manufacturing cycle. The use of computers in designing a component is a
major factor in cutting of the manufacturing cycle.

On the basis of above discussion, one can say that technology has much to do with
international business. There are studies to confirm that the major factor behind the growth of
US exports has been the higher technological intensity in its products.Similarly,technology has
been a major factor behind large growth of multinationlism among US firms.

TECHNOLOGICAL STRATEGY

The proceding section mentions the benefits of innovated technology in the form of new
features of products and the reduced production cost. The present section discusses how proper
management of technology could enhance the firm’s competitive advantage.

The technological strategy or the proper management of the technology has various aspects that
need adequate consideration. Some more important of these are

1. Technology audit

2. Development of technology

3. Acquisition/transfer of technology

4. Modification of technology

5. Protection of technology

Technology Audit

At the very first step, prior to the development or acquisition of technology, it is essential
to identify the specific technological competence and its relevance to the business opportunities
lying ahead .It is also essential to identify the existing technological gap that needs to be filled
up. Goodman and lawless (1994) Term this process as technology audit.

The process of technology audit has three aspects. Firstly, to identifying the risk involved in the
use of technology: whether the new product will be liked by the consumers or the life span of the
technology is too short to get ample returns.Secondly,identifying the firms capabilities to
develop the required technology. The capabilities include the level of expertise among the R&D
staff, the cost that is borne by the firm, and their ability to commercialise the developed
technology. The third aspect concerns identifying the amount of investment issue.If the
technological foundation of business is not the exclusive asset of the firm, large investment is not
suggested. But if the new technology is significant for the building of competitive advantage,
liberal investment may be made. Again ,if the technology has the potential to alter the very basis
of competition, even in the long run, selective investment is suggested with continuous
monitoring.

Development if technology

The aspect of the technology development is an extension of technology audit. Product or

process technology can be developed through research and development (R&D) activities. Most
of the large MNCs,especially the technology intensive ones, rely on internally generated
technology that is derived through R&D .But as far as R&D is concerned, it is sometimes very
expensive and may not be justified on the grounds of cost efficiency.Thus,a firm, as mentioned
above,must evaluate the cost aspect before setting up its R&D activities.How-AT&T,and MIT
formed a research consortium to explore new possibility in the area of high temperature super-
conductivity. Nevertheless, in such cases, the possibilities of competition among the partners
themselves for access to the market cannot be ruled out completely.

It is not only the cost involved in R&D ,but also it is how far the cost of the product diminishes
and how far the quality of the product improves that should be considered. If a new product is
designed not keeping in mind the capabilities of the production department,the attempt will be a
failure.It will require redesigning,which will involve additional cost .All this ,means that there
should be close integration between the R&D and production departments.
Again R&D activities involve great uncertainties,It may be that the product innovated on the
basis of R&D is not successful in the market and is not accepted by the consumers.If it is so,there
would be huge wastage.But if the new product succeeds,the firm would be able to reap unusually
large profits.We can quote the experiences of Hoffman la Rosch,a Swiss pharmaceutical
company that earned huge profits by development of a new technology confers on the firm
technological superiority and market leadership that is not found in case of the technology
bought that is unless and until the purchased technology undergoes substantial modification in
the hands of the purchaser. However ,it cannot be easily predicted whether the new technology
would really succeed in the market.So there should be effective integration between the R&D
department and the marketing department. In order to reduce uncertainty,many firms have
started bringing refinements on the already proven technology through the process of continuous
R&D instead of initiating fundamental research.

Another issue that concerns R&D is the place where such activities are located..Normally R&D
activities are vcentralied at the firm’s headquarters.But it can easily be decentralised if situation
warrents.Stonehouse at el.(2000) feel that ifR&D activities are decentralised at some
subsideries,the transctional’s competitive position will be enhanced greatly as the developed
technology is greatly in consonance with the sonsumption pattern of that region.hewlett-packard
(HP) ia an apposite example here.HP maintains four basic research centers.They located at Palo
Alto in California,Bristol in England,Haifa in Ireal,and Tokyo in japan.These centers work on
different aspects of technology and they are complementary in nature.It was on palo alto centre
that pioneered the thermal ink-jet technology.The Headquarters at San Diego designs, develops
and manufactures various products based on this technology for the world market. The
subsidiaries customise the product to suit the consumers in their own geographic area.For
example, the Singapore subsidiary of HP designs and manufactures thermal ink jet or inters for
japan and Asian countries.

Many international firm’s have created cross-functional teams composed of the

representives of the three departments-R&D, production,and marketing.Because these functions
are located in different countries, the team normally has international representation.The team
facilitates the communication of the information about the market and the production possibilites
to The R&D department, making R&D more effective.
 Thus, in the view of the problems involved in the R&D activities, the firm has to take
vital decisions with regard to the cost involved in R&D ,focus of the R&D effort, its location,
and nature of R&D at the subsidiary level.

Acquisition of the technology through purchase

Purchase of already developed technology is found to be a good substitute for the R&D
activities. In the developing countries, where funds are too limited to undertaker&D,import of
the technology is more frequent, although firms located in industrialised countries too purchase
technology. There are two ways to transfer technology. While one is point to point transfer, other
is diffusion. In the case of point to point transfer, technology passes on form one firm to other
along with a strict guard on its secrecy. On the countrary,in case of diffusion, the recipients are
many and all have access to tha same technology son in case of diffusion, secrecy is not assured.

Policy of the Host-Country Government:

The policy of host country government towards the acquisition of technology varies from one
case to other.If the strategy is to allow continuous flow of technology ,the policy involves
minimum of restriction.It rather provides a numbe of incentives to this end.On this comtrary,If
the strategy is to reduce gradually reliance on the imported technology,the policy puts conditions
on its import and encourages R&D within the country.yet again,if the strategy is to have a full
grip over the import technology,the host-country government targets specific MNC’s and
provides them incentives for ungrading technology.However,in majority of the cases,it is a mix
of all the three strategies stated above.

Inter-firm and intra-firm Transfer:

Transfer of technology may be either inter-firm or intra-firm transfer normally takes place when:

1.The price of technology is within the reach of the buying firm.

2.It is difficult to protect the innovated technology with the

help of patents,trademarks,and so on,and there is every possibility of its being copied by others

3.Technolgy does not lie at the very root of the competitive advantage of the innovating
firm.
 4.the technologu supplying firm lags with respect to marketing the final product.

5. The cost of the technology is exorbitant and technology innovating firm likes that
substancial part of the cost is recovered through sale of the technology to some other firm.

In case of intra-firm transfer ,the price of the technology is not a crucial factor as it can be
manoeuvred in tandem with the firm’s objective.However ,there are factors that encourage the
intra-firm transfer of technology.They are when:

1.The firm is sure that the technology cannot be copied easily.

2.Technology forms the very backborn of the firm’s competitiveness.The firm fears
that if technology is available to rival firms,it will lose its competitive strength.

3.The firms relies more on the sale of the product using the innovated technology.

4.The firm considers the technology more valuble than the potential buyers of the
technology.

5..The technology is too costly to be purchased by other firms in normal circumstances.

Problems in Technology Transfer:

Transfer of technology whether it is between developed country and a developing

country,between two developed countries or between two developing country is fraught with
problems.

1.The developer of the technology does not generally like to transfer the latest technology
to some other firm because it does not want its market leadership to be shared by
others.Baranson(1970)has observed that international firms are not willing to part with
technology under joint-venture agreements because it comes in the way of maintaining
secrecy.The sale to an independent firms is even more of a remote possibility. However,inter-
firm transfer of technology is often found: and in large number of cases, the traded technology is
obsolete.

2.The developer of the technology charges an exorbitant price for the technology
.Infact,it likes that a substancial part of the expenses on R&D is recovered.Sometimes the selling
firm ties unnecessary technology to a contract for one desired item so that it covers payment for
all instead of just one product .the high price of technology entails upon the cost of production
and thereby, the very competitive edge of the technology buying firm.sttistics reveal that
technology payments by developing countries have grown steadily since the 1980’s.In 1981-
1985 they grew by 4 percent a year,despite a fall in FDI inflows of 12 percent a year and in
1991-1995 by 13percent ,growth that continued in the second half of the 1990s.FDI grew by
15percent in developing countries in the latter half of the 1990s.

3.It is often necessary to ascertain whether the purchased technology is appropriate .In
case of transfer of technology between two developed countries or between two developing
countries,the problem is not great on the count because the consumption pattern,the size of
market,capital –labour ratio ,and other factors are almost similar .But when the tecvhnology
country ,it is often inappropriate.R&D department in developed countries design technology
from the view point of a large market,which is more capital intensive.But the size of the market
in the developing countries is small .Moreover, the capital-labour ratio is low.Therefore,the
technology is often inappropriate .However this problem is more often redressed through
modification of technology,which is explained in the subsequent section.

Intra_firm transfer of technology is more common than inter_firm transfer .as stated
above,it dose not infringe upon the secrecy of the technology,rather ,it works behind the
internationalisation of the firms.but in this case,the price of the technology is arbitrarily
fixed.when the demand for the final product is expected to be price-elastic,the parent company
charge a very low price from its subsidiary for the use of the technology . it is because the cost of
production will remain confined within the lower limits, leading to greater demand for the
product.on the other hand ,if the demand for the final product is price-inelastics, the parent unit
will try to recover the cost of R&Das far as possible and inflate the price of technology,without
impairing the revenue of the subsidiary

Again, the appropriateness of the technology even in case of intra-firm transfer cannot be
guaranteed. The problem in this respect is the same as in the case of inter-firm transfer.however,
the subsidiaries can modify the technology if it is not suitable. Thus, modification of technology
is crucial to the process of technology diffusion .

4) There are a lot of governmental restrictions on the transfer of technology from one country to
another . in industrialised countries , the restrictions are not as many as in the developing
countries . yet they exist. They are mainly regarding the size of royalty to be paid . immigration
laws are sometimes restrictive as they do not permit the technical personnel to accompany the
technology.

Developing countries place greater restrictions on the transfer of technology and demand
greater participation in the process of technology creation and diffusion. However, they offer
lower patent protection. This is so despite the fact that these countries need a greater amount of
new technology.