Developing technologies

The most important source of new technology for developing countries is foreign firms. Since their presence can raise delicate political issues, some countries have tried to emulate the Japanese in separating foreign investment from the import of technology. With increasing competition to attract foreign investment, however, few countries can close their doors to the companies and import only their technology. Other attempts to restrict transnationals, by requiring them to purchase local inputs or work with domestic partners, for example, can discourage them completely from locating in the market.

One way to increase access to foreign technology is through exporting. This leads to access to technological and managerial information through foreign buyers, who may be the most important single source of ideas on product innovation. Buyers, suggestions also improved the organization of production and upgraded management techniques.

Governments can help spread information to small and medium-size companies by encouraging subcontracting. Large firms typically provide designs, quality control, and technical services to their contractors. In some countries, such as Sri Lanka and Bangladesh, governments have promoted special agencies to inform large firms of the capabilities of smaller companies and to assist subcontractors in meeting quality control and delivery standards. Removing cascading sales taxes, which tax transactions between firms but not within a single firm, can also encourage subcontracting.