Tariffs, technology licensing and adoption

Technology licensing, entry mode, and trade liberalization

“…These interesting results cannot be found in Sinha (2010) and Chen et al (2016). This paper focuses on the gradual adjustment of import tariffs during trade liberalization and on the choice of entry mode with technology licensing of foreign firms, while Sinha (2010) focuses on the effects of the licensing contract on the entry mode of the foreign firm, and the associated welfare of the host country.…”

“…They find that when the host country commits the optimal tariff rate and fixed cost of FDI is high, the foreign firm will export and license to the host firm, which leads to a higher welfare and consumer surplus than that of free trade. 6 Following most of the licensing literature, we assume that the foreign firm offers a take-it-or-leave-it licensing package (Chen et al, 2016;Horiuchi & Ishikawa, 2009;Poddar & Sinha, 2010). Chen et al (2016) also apply the scenario of a dormant technology.…”

“…6 Following most of the licensing literature, we assume that the foreign firm offers a take-it-or-leave-it licensing package (Chen et al, 2016;Horiuchi & Ishikawa, 2009;Poddar & Sinha, 2010). Chen et al (2016) also apply the scenario of a dormant technology. 7 When the foreign firm does not license its superior technology, then using the superior technology in production dominates over not using it because the marginal cost is lower.…”

“…1 In other words, Toyota licensed its superior hybrid car battery technology to a competitor but did not use the same new technology in its own product. Chen et al (2016) cite the case of Samsung and Sony, in which the latter licensed its state-of-the-art camera sensor, model IMX240, for the former's production of the Galaxy S6 smartphone, but Sony did not manufacture any product using this technology. An analysis of the motivation behind such a licensing strategy presents an interesting research question.…”

“…Chen et al (2016), likewise, consider that a foreign firm may adopt a generic technology for its production and license a superior technology to the domestic firm. However, Chen et al (2016) explore the implication of technology licensing affected by trade liberalization only under the mode of exporting. This study explores some interesting implications of the foreign firm's choice of entry mode and the associated welfare effects, which are not considered by Sinha (2010) or Chen et al (2016).…”