# **_Learning through Exports?_**

The rapid, sustained growth of East Asian manufactured (and increasingly ‘high tech’) exports over recent decades draws attention to the potential role of exports as a channel for technology transfer. At the simplest level exports provide the resources for imports of capital equipment that embody modern technologies. Technology transfer may also be facilitated more directly by interactions between developing country exporters and their developed world customers, who have an incentive to help suppliers upgrade their technical capabilities, productivity and product quality. Exhibit 2 corroborates that East Asian exports of machinery and transport equipment (containing much of what are classified as high technology products) are generally much higher than other economies at similar income levels.

The potential for technology transfer from exporting has been emphasized especially in the case study literature.<sup>8</sup> Hobday (1995, 2000) stresses the role of Original Equipment <!-- Start of picture text --> Exhibit 2<br><!-- End of picture text --> <!-- Start of picture text --> Machinery & Transport Equipment Exports*<br>(% of GDP) and Per Capita GDP - 2003<br>80<br>* After controlling for country size.<br>70 Singapore<br>Source: World Bank World<br>60 Development Indicators. 133<br>Hong Kong<br>developing and developed<br>50<br>economies. Malaysia<br>40<br>30 Philippines<br>Korea<br>20 Thailand<br>Indonesia<br>10 China<br>Vietnam<br>Japan<br>0<br>2.5 3 3.5 4 4.5 5<br>-10<br>Cambodia<br>-20<br>Per Capita GDP (PPP, Log)<br>Machinery & Transport Eqpt. Exports<br><!-- End of picture text --> Manufacturing (OEM) subcontracting in fostering industrial exports and technology transfer in Korea and Taiwan (China). Under the OEM system the supplier undertakes production (typically for thin profit margins) according to the design specifications of the foreign buyer, which then markets the product under its own brand name through its international distribution channels. OEM production and exports in the NIEs built up rapidly during the 1970s and 1980s. Some 70-80 percent of Korea’s electronics exports were under OEM type contracts by 1990, while over 40 percent of Taiwan (China)’s computer hardware exports were of this form at around the same time. Over the past 15 years OEM type contracting has also been central to the enormous expansion of manufactured exports from China, Over the period the OEM model itself has developed into more complex patterns of global production networking in which first tier suppliers are themselves purchasers from second and third tier suppliers of their own.

The potential benefits of OEM for developing country exporters include achieving economies of scale in production with less risk and cost than attempting to break into global markets on their own, as well as possible technology transfer and training from the customer. By building up its technological capabilities in this way the firm can lay the groundwork for more sophisticated (and profitable) ventures, for example Original Design Manufacturing (ODM), in which the supplier also takes over responsibility for post-conceptual design and development of products sold under the customer’s brand, and Original Brand Manufacturing (OBM), when it

> 8 For example, Hobday (1995, 2000), Kim (1997), Matthews and Cho (2000), Kim and Lee (2002) and Nabeshima (2004)

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