The Acquisition of External Technology

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Information about The Acquisition of External Technology
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Published on December 12, 2017

Author: gcmohanta29

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The Acquisition of External Technology: The Acquisition of External Technology Dr. G C Mohanta, BE(Mech), MSc(Engg), MBA, PhD(Mgt) Professor Al-Qurmoshi Institute of Business Management, Hyderabad - 500005 What is Technology Acquisition ?: What is Technology Acquisition ? Technology Acquisition is the process of acquiring a new technology, new product, process or service , by efforts of an individual or an enterprise . This process can be conducted either internally or externally to the enterprise. Types of Technology Acquisition: Types of Technology Acquisition Scientific Knowledge Acquisition , Direct Technology Acquisition , Spin-off Technology Acquisition Informal Technology Acquisition & Formal Technology Acquisition Internal Technology Acquisition & External Technology Acquisition External Technology Acquisition: External Technology Acquisition External technology acquisition involves bringing in new technologies from external sources rather than using the firm’s own internal R&D activities. In external technology acquisition, control on the ownership & usage of technology usually does not remain with transferor and it passes on to the acquirer, like joint venture with local control, licensing agreement, etc. Advantages of External Technology Acquisition: Advantages of External Technology Acquisition Bringing in new technologies can provide the company with the opportunity both to develop new products and to enter new markets. It helps firm to overcome limitations of their internal resources and capabilities . By sourcing technology externally, firms can overcome internal knowledge deficiencies and resolve problems of insufficient internal resources and capabilities. It allows firms to acquire industry standard technologies and complements for existing products, and thus helps firms catch up with competitive moves. Advantages of External Technology Acquisition (Contd.): Advantages of External Technology Acquisition (Contd.) External technology acquisition allows firms to focus their resources and capabilities on developing their core technological competencies . It provides flexibility in strategic decision-making for technology development. If external technology acquisition is effectively pursued, firms can benefit from a larger range of technological solutions and hence take advantage of new business opportunities . Disadvantages of External Technology Acquisition: Disadvantages of External Technology Acquisition Firms develop key competencies or assets from previous R&D investments and ‘learning by doing’. These core competencies can be viewed as resources, capabilities and knowledge sets, accumulated by the firms over time to gain competitive advantage. The more resources firms invest in external technological acquisition, the less they are able to invest in internal R&D. Heavy reliance on external technology acquisition may therefore decrease the internal R&D capabilities of firms, ultimately weakening their core technological competencies. Factors Affecting External Technology Acquisition (Contd.): Factors Affecting External Technology Acquisition (Contd.) Successful external technology acquisition depends upon following factors: Type of the technology being acquired Complexity of the technology being acquired Acquisition mechanism selected Relationships between the parties – building of mutual trust Core competencies of the parties & compatibilty thereof Organizational culture of the parties & mutual understanding thereof Methods of External Technology Acquisition: Methods of External Technology Acquisition Co-operative & collaborative ventures/strategic alliances - It is an attempt by a firm to realize its objectives through cooperation with other firms, in strategic alliances and partnerships  Licensing agreement – It is an agreement where the l icensor grants the licensee the right to produce & sell goods Contracting agreement - A voluntary arrangement between two or more firms which is enforceable by law as a binding legal agreement. Enterprise acquisition – It is the process of acquiring an enterprise to build on its strengths Why External Technology Acquisition: Why External Technology Acquisition Technology already developed saves time & efforts Sometimes Growth objectives or competitive goals cannot be reached through internal development Lack of risk taking ability for innovations Lack of internal resources (physical & human) for innovation Firm does not have core competencies to deal with complex technological developments Need to keep up with competitors Need to cope up with acceleration of technological change L et other firms take big risks & the firm will purchase technology developed by them Barriers to External Technology Acquisition: Barriers to External Technology Acquisition Associated costs – usually high prices are required to be paid in the form of royalities, technical & knowhow fees , etc . over medium to long term period Appropriatesness of technology , i.e. its suitability to core competencies and market needs , is always a point of discussion and investigation Heavy reliances on foreign technology - may make transferee /recipient technologically dependent on external technology providers /transferors even for small issues Lack of mutual trust between two parties may hinder full & timely acquisition Barriers to External Technology Acquisition (Contd.): Barriers to External Technology Acquisition (Contd.) There is risk of loss of control over technology and the transferee / recipient may use technology in an arbitrary manner Transfer may render existing technology & its related products / services / processes obsolete Transferee may turn a potential competitor in future Mismatch in core competencies of the transferor & transferee may create difficulties in transfer Different organisation cultures may create difficulties in transfer Lack of effective communication between the parties may also create difficulties in transfer Overcoming Barriers to External Technology Acquisition: Overcoming Barriers to External Technology Acquisition Proper & well defined technology acquisition agreement should be signed Proper assessment/ evaluation be made of appropriateness of technology Proper assessment/ evaluation be made of compatability of core competencies of the parties Building pre-agreement relationships , so as to develop mutual trust , so as to understand culture of opposite parties Seeking cross cultural training Ensuring effective communication Anticipating problems and adopting measures for facilitating acquisition Steps in External Technology Acquisition : Steps in External Technology Acquisition Identification of Need Developing list of suitable technology providers Short listing / selecting suitable technology providers on the basis of cultural compatibility, compatibility of core competences, appropriateness of technology, technical feasibility, etc. Negotiation Agreement Payments as per agreement Transfer of specifications, blueprints, designs, documents, CDs to acquirer Training of technical personnel of acquirer Modes of Payment for Technology Acquisition: Modes of Payment for Technology Acquisition Lumpsum payment or periodical instalments Royalities as a %age of sales over next few years Cross-licensing agreements Contracted supply of output Issue of equity shares in lieu of technology acquired Steps in External Technology Acquisition : Steps in External Technology Acquisition I dentification of attractive technologies and potential partners Assessment of opportunities, selection of best match and consideration of terms Negotiation of terms of acquisition Transfer of the technology to the acquirer Acquisition context –Understanding & defining the issues that need to be considered Acquisition evaluation – Assessing whether a potential evaluation a good match Acquisition options – Considering the details terms of acquisition

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