Once a technology is imported from another country or firm, it needs to be absorbed and updated in accordance with the local requirements. Foreign technology may have been developed keeping in view different parameters relating to scale of production, raw materials and components, quality standards, costs, levels and types of production techniques, maintenance requirements, social aspects including environmental and pollution aspects, employment, etc. It is common in many developing countries (such as South Korea, Taiwan, Thailand, Indonesia, India, Pakistan, Sri Lanka, Bangladesh, Philippines and including our own country) to import technology as a package. Several of these countries have developed indigenous R&D capabilities of varying order to absorb and upgrade the imported technologies, and to achieve technological self-reliance. While some countries, such as South Korea, Taiwan and Singapore have absorbed technologies predominantly for exports, India has done so predominantly for local markets.

The concept of technology absorption differs from country to country, and even from firm to firm. In India, absorption is generally considered as the capability to reproduce or manufacture products according to the “know-how” supplied by the licensor of technology, without really understanding the “know-why” of the technology In a country like South Korea, know-why exercises to understand the “black-box” of technology have been emphasised at the firm level without which exports are difficult.

Here we highlight the need for technology absorption at the firm level, and the measures being taken to encourage absorption efforts. In fact, there are only a few countries which have attempted to provide incentives to industry to undertake technology absorption exercises, with a view to reducing imports and enhancing exports.

Technology absorption broadly consists of four phases : Adoption, Adaptation, Absorption and Optimisation. After technology absorption, the industry or firm may go for further Improvement and Upgradation through its R & D efforts.


Adoption of technology is a process under which the various features of the technology which is the subject of transfer are suitably modified, changed or altered keeping in view the needs of the buyer. In other words, the needs of the buyer of technology get crystallized and the supplier makes suitable modifications in the technology being supplied so that it conforms, as far as possible, to the requirements of the buyer. This in essence would mean that a foreign technology is scaled up or down or modified where necessary, by the supplier in accordance with the requirements of the buyer of technology. Such ‘adopted’ features, are finalized as a part of the technology package. 


Adaptation of technology is a phase that takes place after a technology has been adopted and put to use in production activities/facilities. During this stage, a number of alterations and modifications to suit the indigenous conditions are made and they may relate to the use. of raw materials/components manufactured, practical difficulties in down scaling etc. Thus, the particular plant in India could gear itself up to meet the desired, capacity, production, product quality and other related aspects, as planned. The adaptation exercise covers both product modifications as well as production technology changes, using indigenous skills and facilities as well as local materials.


Technology is said to be absorbed if it is fully understood, so that it is in a position to be further optimised and upgraded. ‘Technology absorption involves ‘Know-why’ exercises, basic investigations into the product and/or process and/or systems. This will require ‘unpackaging’ of a technology package. To avoid further dependence, technology absorption requires R&D projects in know-why, optimisation and improvement of product/process/systems and related equipments. Such efforts encompass design investigations, alternate raw materials/components, modifications to suit Indigenous requirements, etc. Successful projects in these areas will lead to achieving technology absorption capabilities. 


After understanding the relevant features of technology, further exercises in ‘removing rough edges’ through R&D and value engineering to effect savings in the use of material and energy consumption, etc. both in product and processes constitute ‘optimisation’ of technology.

Technology absorption1

Figure-1 : Project Implementation and Technology Absorption


Improvement and Upgradation

Capability in technology absorption and optimisation can lead to further exercises in improving the existing products and processes by R&D efforts of industry and other associated research organisations. This will enable industry to meet the changes in technology of the product or processes. Technology upgradation exercises lead to industry’s efforts in extending its know-why capability to a higher range of products or in upscaling the existing process/production technology or manufacturing equipment.

The role of technology absorption in the implementation of a project is shown in Figure-1. It will be seen that Technology Absorption activity is taken up only after a project is executed through acquired technology or when the company diversifies or faces threats from market forces to update its products or processes. Figure-2 and Figure-3 explain the process of “know-why” arising out of imported “know-how”. “Know-why” exercises lead to better understanding of the basics or principles involved in the design and production of a product/process which enables an organisation to develop or build technological capabilities for further improvements.

Absorption Know Why of what

Figure-2 : “Know-Why” of “What” and “How”

use of Know-why absorption  

Figure-3 : Use of “Know Why” 


Improved productivity and quality as well as reduced costs lead to higher efficiency in industrial operations. In labour intensive industries, these could be achieved from optimum man/machine utilisation, lower overheads, use of versatile machines and quality control measures and industrial engineering techniques. In capital intensive industries involving sophisticated operations to manufacture products which are in continuous demand or which command large markets, these can be achieved by higher automation and by organising the operations on larger scale. In hazardous industries, safety and pollution control measures necessitate higher capital investments in sophisticated equipment based on latest technologies.

The following factors are important in achieving higher productivity, quality and reduced costs:

a) Optimum utilisation of capital equipments to bring about maximum production leading to better capital-output ratio.

b) Adequate investments for quality control, material and energy conservation/recovery, elimination of hazards which would necessitate use of sophisticated equipments.

c) Minimum economic scale of production, particularly in industries where scale factor is important in optimising the operations, especially if in larger quantity of critical production equipment is employed.

d) Targeting and achieving international levels of performance and operating parameters.

These invariably require use of contemporary technologies needing larger capital investments, and/or accompanied by sizeable domestic demands and satisfactory absorption of technology. In scale sensitive industries, lower the scale of operation, lesser is the level of technology. `Level of technology is also reflected by the use of less productive and sometimes second-hand machinery from abroad. In mass consumption industries such as petrochemicals, man-made fibres, organic chemicals, electronic components, etc. lower the initial installed capacity, lesser is the technological level. In such cases modernisation/R&D costs would be heavy in order to jump to the next generation of technology.

Some of the major constraints in absorption of technology are:

  • Choice and use of imported technology by most Indian industries have not been at international levels. This is an important factor while establishing scale sensitive high technology industries.
  • The demand of products in our country whose production is influenced by scale factors of latest technologies is generally not very large, presently these are being met by a number of units of sub-optimal sizes as compared to international levels. This constraint increases the gaps to be bridged through technology absorption. Industry would not be in a position either to invest similar R&D resources in comparison with international units, or even to improve the products/processes. Expanding the existing units and establishing new units with larger capacities tend to minimize this gap.
  • In general, industry has not given adequate attention to absorption of technology, in such cases, the firms have usually approached the collaborators once again for renewal of earlier agreements or for new collaborations for improved or new products and processes. There are instances where existing items made with marginal process or product improvements have continued to be supplied even after extensions of collaborations. In the absence of a competitive domestic market, or where industrial users are dictated by equipments/products based on imported technologies, the inherent tendency to supply the same product has continued, till the users’ requirements change or substantial imports of a new product take place. The possibility of continued access to improved technology through further collaboration involving only nominal costs (in any case, not very high payments) and assured markets have desisted many Indian firms from channelling adequate resources for absorption and improvement of imported technology. In scale-sensitive technologies, technology gaps have increased because of inadequate absorption of existing technologies.
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