4.3 Equity Participation, including Joint Ventures

In fact, the development of conventional channels of investment financing, e.g. the growth of equity markets, investment banks, etc. remains the highest priority for developing countries. While these do not specifically favour investments in technology acquisition or innovation, they do make it possible for local firms to "learn by growing". The enormous influx of capital into several securities markets in the developing region, in recent years, tremendously enhances the capacity of firms in those countries to undertake new investments and thereby to acquire new investment capabilities. While the investment boom has also fueled a boom in capital-goods imports, the introduction of a range of new production-processes into their industries and of whole new industries into their economies has certainly given rise to important local learning-effects and generation of newer skills. Of course, the mere availability of investment-financing does not ensure its efficient utilization, but presumably, efficient equity-markets and diligent bankers exercise some degree of discipline over those firms that they finance. Reliance on indigenous research efforts offers a cost competitive advantage to new start-ups in the developing countries and it is relatively easier for the capital markets to raise financing, because of the higher risk appetite of equity funds, which are in pursuit of higher returns.

Government can play a valuable function in ensuring the availability of adequate funds for financing of technology. At the macroeconomic level, financial and fiscal policies can significantly affect incentives for domestic savings, hence the mobilization of domestic resources for investment. Price stability tends to favour savings over consumption; decontrol of interest-rates can also provide strong incentives to raise marginal savings-rates. To encourage the allocation of additional resources to technology-enhancing activities, governments can tailor-tax policies to provide fiscal incentives to investments in research and development or technology-acquisition and the training of personnel. In some countries, the government has played an even more active role in financing skill-formation. For example, the Singapore Government assesses a payroll tax on all employers, investing the revenues in a Skills Development Fund (SDF). Firms can then apply for grants from the SDF to finance the costs of training. Since the relevant governmental reviewing-body reserves the right to reject applications, it can effectively steer investments in skill formation in the direction of favoured occupations. Government research-institutes may also have venture capital arms (e.g. the Korean Advanced Technology Corporation, or K-TAC), which provide venture-capital financing for the commercialization of innovations developed within their laboratories.

Since managing venture capital funds requires specialized expertise, some countries seeking to develop their own venture capital markets have chosen to invite established foreign venture-capital firms to participate in joint ventures. Not all countries are at a level of technological development where a venture capital market would be warranted, given the financing needs of local firms. For firms using standard process-technologies in more traditional industrial sectors and still following an imitative product strategy, more conventional industrial financing channels may prove adequate. In such countries, firms are likely to benefit more from assistance in financing the hiring of engineering or management consultants to help them improve the efficiency of production and the product quality. In addition, financing of human resource development - especially technical education and training is among the high-priority areas for countries, which are still seeking to upgrade their technological capabilities.

In most of the developing countries, necessary organizational mechanisms for the purpose of covering the risk involved in the development and commercialization of indigenous technologies, of the state-owned patents and of R&D results are required. But the risk-capital for developing and commercializing indigenous technology is either scarce (India, Philippines) or non-existent (Pakistan).