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Technology transfer from the Commonwealth of Independent States to the United States.

The Soviet Union is no more. Each of the former 15 republics is now an independent country. With the exception of the Baltic states, Moldova, and Georgia, these republics have banded together in the Commonwealth of Independent States (C.I.S.). In the years to come, there will be an immense flow of technology from the United States to the C.I.S. Few American companies, however, have paid much attention to the possibility of transferring technology in the other direction -- from the C.I.S. to the United States. This article describes a number of technological transfers that have already taken place and evaluates various types of business arrangements through which such transfers can be made.

The situation is ironic indeed. The countries of the C.I.S. have third-world economies. Most of the Commonwealth's goods and services are not internationally competitive, either in price or in quality. Science and technology, however, is one of the few fields in which the Soviet Union did world-class work. Soviet expertise in space and military technology is well known throughout the world. What is much less frequently appreciated is that there are a number of other scientific and technological areas in which the Soviets excelled, among them microgravity manufacturing, metallurgy, biotechnology, ceramics, computer software and sports medicine.

The technical establishment

The Soviet Union directed much of its money and human talent into technical and scientific endeavors. According to Soviet statistics, the country had between 1 and 1.7 million scientific workers and 5 to 7 million engineers. A large majority of both groups worked in the Russia Republic. The Communists believed that scientific and technological advances would be instrumental in building an ideal society; consequently, the Soviet regime had encouraged its brightest citizens to pursue technical careers. Scientists and engineers were paid relatively well (by Communist standards) and were accorded considerable status. Another advantage of a scientific or an engineering profession was that it generally gave people the opportunity to use their brains without fear of running afoul of the authorities. Science, mathematics and engineering by their very nature are less politically oriented than many other fields (for example, history, literature or economics).

The Soviet Union's technical establishment was geared to long-term research and development. By contrast, research in the United States has often been constricted by the need to produce marketable applications and to do so relatively quickly. The Soviet research establishment, like the society as a whole, was centrally controlled. If those in charge of allocating funds were committed to a particular type of research, it was possible to work in that area for decades without producing practical results. There was of course a down side to centralized control. If, for whatever reason, the authorities did not approve certain lines of inquiry, there was no other source to go to for research funds.

Although the Soviet Union excelled in technology development and perfection of technological processes, it had little skill in converting innovations into usable products or in marketing the technology abroad. A major hindrance to its ability to develop this skill was the presence of a stifling bureaucracy. Until the late 1980s, almost all foreign trade into and out of the Soviet Union was handled by government trade organizations. Individual enterprises neither imported nor exported on their own. This meant that producers rarely had direct contact with their foreign consumers and consequently had little opportunity to learn about the workings of a free market or the needs of the West.

Despite the numerous obstacles to Soviet-American technology transfers, an occasional deal was arranged. Many of the early transfers were arranged by John W. Kiser, the founder of Kiser Research Inc. A couple of years ago, Kiser was granted access to the Chernoglovka scientific and research community and is working with a consortium, MNTK Termosyntez, which has developed a combustion synthesis process. Kiser claims that the process is the most effective way to produce superconductors and sophisticated industrial ceramics.

Military and space technology

The Soviet Union directed a disproportionate share of its gross national product into military and space expenditures. Some Western estimates placed spending at 25 percent of gross national product. Not surprisingly then, some of the Soviet Union's military and space technology was first rate. There are a number of possibilities for technological transfer to the United States in aerospace services and products.

A prime example of existing Soviet technology that is fully developed and available for American use is microgravity manufacturing. This type of manufacturing is important in metallurgical, pharmaceutical and electronic experimentation and is thus of particular interest to American scientists. The absence of gravitational forces allows the creation and perfection of compounds not attainable under the Earth's gravitational pull. New alloys, thin-filmed coatings, and semiconductor and protein crystals can be developed and perfected much more efficiently than in Earth-bound laboratories. Other semi-conductor materials such as gallium arsenide can be grown in pure form only in space. Some pharmaceutical crystals that are difficult or impossible to grow within Earth's atmosphere can be created under microgravity conditions.

The Soviets had tried to market their manned and unmanned microgravity services since 1987. The first U.S. commercial use of Soviet space technology occurred in December 1989. Several protein crystal growth experiments were placed aboard an unmanned Soviet spacecraft that then linked up with the Soviet space station Mir. The experiments were chosen for Mir because it was the only manned facility offering extended time in microgravity. The protein crystals took 56 days to grow in the space station's Kvant scientific module. The Kvant modules are building blocks that are docked to the Mir space station. The experiment was completed in February 1990 and was soon returned to Earth on board a manned Soyuz-TM capsule. Then, in August 1991, two Soviet astronauts aboard the Mir space station conducted an experiment for the Coca-Cola company. The purpose of the experiment was to measure gas-liquid separation in space as the two astronauts drank Coke.

As the economy began to slip ever deeper into decline in the late 1980s, the Soviet Union began to intensify its efforts to find commercial applications for military and space technology. This trend has accelerated in the months following the dissolution of the Soviet Union. The space budget has been pared, and far more drastic cuts are inevitable. Russia has inherited the bulk of the Soviet space effort but cannot afford to finance it alone. Meanwhile, little help has been coming from the other states in the Commonwealth; they have neither the wherewithal nor the interest in funding a massive space program.

The perilous state of the Soviet space program was dramatically conveyed by a mid-September 1991 article in The New York Times. "Almost Broke," the headline announced, "Soviet Union's Space Efforts Go On Sale." The article explained that almost every part of the Soviet space program, perhaps even including the space station Mir, was up for sale. The new offer differed from those of the past in two respects. First, was the scope of the sale. Second, was the sense of urgency.

Several Western companies hope to exploit Soviet know-how in aircraft technology. U.S. owned Gulfstream Aerospace and Moscow-based Sukhoi Design Bureau have formed a partnership to develop and produce a 52-passenger supersonic aircraft. Britain's Rolls-Royce may also participate. The partners hope to produce a complete prototype aircraft by 1993. Sukhoi is to be responsible for the design of the airframe and landing gear, whereas Gulfstream Aerospace will provide the electronic systems and the interior of the aircraft. The Soviet (now the Russian) team was given the costlier portion of the contract (design and prototype construction) because the labor costs in the Soviet Union were far lower than in the United States. The partners had hoped that the Soviet government would underwrite all developments costs, thereby reducing some of the risks. Given the economic crisis in Russia, it seems unlikely that they will get this support.

Regarding any aerospace co-production agreement, a major concern of Western business people is Russia's ability to produce large numbers of civilian aircraft on time. Although Russia has large modern facilities, such as at Ulyanovsk, reports indicate that the complex produces only eight to 10 large transport jets annually. In a factory of similar size, Boeing is capable of producing five comparable 747s a month. Another problem is that the U.S. and the Commonwealth have different construction and safety standards.

United Technology's Pratt & Whitney signed an agreement with the Soviet Ministry of Aviation Industry that may lead to the co-production of aircraft engines. Unlike the Gulfstream Aerospace venture, the U.S. government may block the venture on the grounds that the American technology to be transferred has potential military significance. The Soviets, now the Russians, have reached or are still exploring aircraft agreements with other companies in the United States, Germany, France and Israel. How times have changed.

At the Paris Air Show in the spring of 1991, the Soviets unveiled their previously secret Yak-141. The V/Stol (vertical short take-off and landing) fighter has broken numerous world records for this type of fighter in altitude, payload to altitude and time-to-climb. Various military forces have used similar technology, but their aircraft's performance was never as impressive. The Russians will probably invite foreign companies to collaborate in the development and production of the plane.

Superconducting powders originally developed for the military may have valuable commercial applications. These powders have no electrical resistance and offer promising improvements in the production of electric motors, power transformers and electrical machinery. The reduction in resistance increases the operating efficiency and reduces overall power utilization. The Soviet processes allow the generation of purer compounds than are currently available, and the fabrication process is completed in a matter of seconds rather than in the several days required by conventional processes. A Soviet-made high-temperature superconducting powder is being marketed by HiTc Superconco Inc., a U.S. firm.

Soviet researchers demonstrated considerable expertise in metallurgical coatings, and some of their work has already found its way into the American market. There are probably other innovations that have not yet been tapped by Western companies. A metal-coating process developed for the Soviet nuclear program is being marketed by Multi-Arc Vacuum System Inc. of St. Paul, Minn. The Soviets developed methods to apply a titanium-based coating at much lower temperatures than could American researchers. The super hard coatings protect drill bits and other parts from wear and corrosion, and increase their life by a factor of six. The lower temperature method alleviates deformation problems encountered in the U.S. developed process.

Other Soviet technologies with practical applications include the manufacture of spacecraft, robot tractors capable of working in radioactive contaminated environments, radar and a technique for using magnetic fields to seal nuclear fuel rods.

Medical and scientific innovations

The Soviet Union made a number of scientific breakthroughs in biotechnology and physiology, and did some notable work in biomedicine. The Soviet practice of using stainless steel surgical staples was brought to the United States in 1967. The use of these staples reduces the time required to repair incisions, thereby lowering operating room costs. The Soviets also developed a special plastic that could be surgically inserted into broken bones. The rods were easier to shape and more effectively promoted healing than the customary steel and titanium pins. Diversified Tech of Salt Lake City, Utah acquired the rights to the Soviet developed plastic in 1986. The company originally found out about the technology through a routine examination of Soviet technical journals.

There may be a number of pharmaceutical opportunities in the Soviet Union. The DuPont Co. of Wilmington, Del. is planning to market the F.D.A. approved drug Ethmozine. The Soviet-developed drug is used to treat potentially fatal arrhythmia and may well become the primary medication for the condition because of its few side effects.

Soviet and American physicists recently developed a lens for X-rays that is able to produce a concentrated, focused source of radiation. Although further experimentation is necessary, this new development may allow doctors to produce precise pictures of arteries and may also aid in cancer treatment. The new technology also has applications in the manufacture of silicon chips. Electrical circuits are etched on chips by shining a light through a "mask" onto a light-sensitive material. As the chips become smaller and denser, the light source will have to be replaced with the shorter wave length X-ray. The only method currently available for delivering the required intense X-ray is quite expensive and will prevent smaller manufacturers from competing with the giant companies in the manufacture of chips. The new technology, if perfected, may well be much cheaper.

Additional medical and scientific innovations that may be of interest to the West include techniques for eye surgery, diagnostic devices for mass testing of cholesterol levels, immune modifiers and ultra high resolution electron microscopes.

Technology transfer vehicles

Technology has been transferred via a number of different business arrangements. When the product has been fully, or close to fully, developed, the partnership has often been in the form of a licensing agreement. When the product or process required capital investment, the most common business arrangement has been a joint venture.

Licensing and joint ventures have both advantages and disadvantages. In a licensing agreement, the inventor usually sells exclusive rights to the product or process to the licensee who in turn will do the manufacturing. The licensee normally pays up front fees and royalties based upon a percentage of sales.

In most circumstances, the advantage of purchasing a license is that risk is limited. One is buying a well-tested process with a proven commercial application or the right to manufacture and sell a popular brand. Unfortunately, buying a license from a former East Bloc country is usually risky. There is no commercially developed process or well-known brand involved, and the Western company may have to develop the commercial application on its own. Furthermore, the Eastern licenser may not have the resources to translate manuals or to provide ongoing training for the Western company. However, the new technology may not have any close competitors in the West and the licensee may find itself in a monopolistic position. Another advantage of licensing from the East is that most of the licensers do not have any realistic potential to commercialize their technology on their own. Thus, the price may be unusually low. From their point of view, anything they make from a license is "found money."

During the final years of the Soviet period, several American companies developed partnerships with Soviet scientific institutes to commercialize their technology. Arthur D. Little of Cambridge, Mass. formed a joint venture with the Soviet Academy of Sciences (recently renamed the Russian Academy of Sciences) called E'West Managers SA. The goal of the partnership was to develop and market existing Soviet technology in the medical, computer science, laser and biology fields. The company expected to invest funds in excess of $50 million in return for access and licensing rights to the Soviet technology.

The Genesis Technology Group of Cambridge, Mass. formed a partnership with the Soviet Association of Biotechnology to commercialize Soviet biological technology and further develop Soviet inventions in medicine, biotechnology and agriculture. Genesis, which specializes in Soviet and Eastern European biotechnology, has also been studying a new and supposedly more advanced fermentation process developed in Armenia.

In addition to purchasing or leasing technology, American companies can contract out research and development to institutes of high quality but relatively low labor costs. These institutes and other scientific groups have had their budgets slashed and most would be delighted to do research for Western companies. Meanwhile, a number of American companies have large holdings of rubles that they have not been able to exchange for another hard currency. One way to utilize these profits is through the purchase of technology or by funding local institutes.

A number of institutes and individual researchers have already established relationships with American companies. In March 1992, The New York Times reported that Sun Microsystems Inc. of Silicon Valley had hired Boris A. Babayan, a leading Russian computer scientist, to set up a laboratory in Moscow. The laboratory will employ about 50 software and hardware designers, each of whom will be paid only a few hundred dollars a year. Apparently, the American company was dissuaded from paying them more because that would have exacerbated inflation in Russia and would have created deep feelings of jealousy in the rest of the scientific community. Other American computer companies, among them Microsoft Corp. and Apple Computer Inc., are also considering establishing ties with Russian computer experts.


Only a small percentage of Soviet technology has made its way to the global market-place. In the past, a major problem was the mutual distrust between the United States and the Soviet Union. Both countries were afraid that a technology might have military applications, however indirect, or that it would unduly strengthen the other side's economy. Although the cold war is over, there are those in the United States and in Russia who still think in adversarial terms.

In the months following the August coup attempt, the U.S. government reacted ambiguously to technological transfer from Russia. On the one hand, the Bush administration encouraged ventures that would provide jobs for Russian scientists and engineers, especially those who have nuclear weapons related skills. The fear is if such people have no job alternatives, they may go to work for a third world country like North Korea, Iraq or Libya. On the other hand, the U.S. government has reservations about maintaining the vitality of a scientific community in a country that someday might become hostile to American interests. The administration blocked a number of aerospace technology purchases by refusing import licenses. Finally, in late March 1992, the White House indicated its intention to relax restrictions. As part of the new policy, the Pentagon will purchase a Russian Topaz 2 nuclear reactor for space power and four Hall thrusters, which are used to adjust the orbit of satellites. In addition, the Energy Department will buy plutonium-238.

Companies coming to the C.I.S. are entering a nether land where legal jurisdiction is blurry and where relevant laws, regulations and tax codes may not exist or, if they do, may be changed by whomever happens to be in power tomorrow. Nor is it always clear who owns the technology and has the right to transfer it. The lines of possible conflict are bewildering in their complexity. The central government of the C.I.S., the governments of the individual states, enterprise and institute directors, local governments and private entrepreneurs all claim ownership to certain technologies and hard assets. Indeed, this article's authors often had no idea whether to use the term Russia or the C.I.S. Legally, for example, the space program belongs to the Commonwealth. But, in fact, the Russians are in operational control.

Another problem is that Western companies must bear the entire burden of figuring out the commercial applications of any technology they may obtain. Few Russians have any idea of what is practical to sell on a commercial basis. The impracticality of some of their proposals suggest how much they have to learn. Their ideas range from making submarines with windows for tourists (presumably to look out of) to transforming their T-72 combat tank into a pavement-crushing 45-ton fire truck. The Soviets had experience manufacturing titanium-hulled submarines, and one plant manager actually proposed making children's sleds with titanium runners -- a very expensive proposition indeed.

Many Russians and Americans are concerned about the adverse impact of technology transfer upon their fellow citizens. Some Russians fear that their country's technology is going to be sold at unfairly low prices or that it will be taken without any payment at all. Meanwhile, some Americans object to hiring Russian scientists and engineers at a time of high unemployment in the United States. Similarly, there are those who complain that stiff Russian competition will discourage American companies from entering certain fields, for example, satellite launching services.

Concluding thoughts

Transfer of technological innovations from the C.I.S. to the United States offers economic and humanitarian benefits to both sides. The C.I.S. desperately needs Western technology, consumer goods, capital and management know-how but does not have the money to pay for these things. Technology can be exported to earn the hard currency needed to pay for some of these imports. For American companies, there are several advantages to be gained from acquiring C.I.S. technology. Most of all, there is the cost savings. Acquisition of this technology and methodology eliminates the need for "square one" development. In addition, such companies will often enjoy a considerable lead time over their competition because the new technology is often unknown in the West.

For further reading

Banks, Howard, "Is that a Tupolev on Boeing's Horizon?," Forbes, March 18, 1991.

Bohlen, Celestine, "A Soviet (Russian) Academy Is Adrift," The New York Times, December 14, 1991.

Brady, Rose, "Help Wanted, And Fast: Soviet Researchers Are Eager To Work With -- And For -- The West," Business Week, June 15, 1990.

Brady, Rose, et al, "Can Gorbachev Pound Missiles into Plowshares?," Business Week, July 29, 1991.

Broad, William J., "Almost Broke, Soviet Union's Space Efforts Go on Sale," The New York Times, September 3, 1991.

Broad, William J., "U.S. Moves To Bar Americans Buying Soviet Technology," The New York Times, March 1, 1992.

Broad, William J., "U.S. Plans To Hire Russian Scientists In Fusion Research," The New York Times, March 6, 1992.

Broad, William J., "White House Drops Barrier To Buying Soviet Technology," The New York Times, March 27, 1992.

DeYoung, H. Garrett, "Companies Cash in on Soviet Technology," High Technology Business, November 1987.

"East Meets West in Space," Aviation Week & Space Technology, October 22, 1990.

"Genesis is a Partner with Soviet Institutes to Develop Inventions," The Wall Street Journal, April 6, 1990.

Henderson, Breck W., "U.S. Buying Soviet Topaz 2 to Boost Space Nuclear Power Program," Aviation Week & Space Technology, January 14, 1991.

Holusha, John, "Growing Soviet Export: Military Technology," The New York Times, May 3, 1990.

Hooper, Laurence, "Soviet, U.S. Physicists Unveil X-ray Lens That May Have Computer, Medical Uses," The Wall Street Journal, April 3, 1991.

Huber, Robert F., "The U.S.S.R.: The Bear That's Becoming a Bull," Production, October 1990.

Kolcum, Edward H., "U.S.-Soviet Team Plans to Fly Supersonic Business Jet by 1993," Aviation Week & Space Technology, September 25, 1989.

Lavoie, Louis, "The Limits of Soviet Technology," Technology Review, November/December 1985.

Leary, Warren E., "F.D.A. Approves Heart Drug Made by Soviets," The New York Times, June 27, 1990.

Lenorovitz, Jeffrey, "Soviet Commercial Market Focuses on Microgravity Flight Opportunities," Aviation Week & Space Technology, July 25, 1988.

Oberg, Alcestis, "Don't Build The Space Station--Buy One From The Russians," The Wall Street Journal, September 25, 1991.

Padfield, R. R., "Soviet Albatross: Bird in Search of a Nest," Aviation International News, June 18, 1991.

Pocock, Chris. "V/Stol supersonic Yak-141 Unveiled by Soviet Union," Aviation International News, June 18, 1991.

Rice, Tim, "Bringing the Best of the East West," The New York Times, April 1, 1990.

Richards, Evelyn, "Few Markets for Soviet Technology," Washington Post, May 27, 1990.

Seib, Gerald F. and Fialka, John J., "Scientists of Former Soviet Union Find the U.S. Slow in Putting Out the Welcome Mat for Them," The Wall Street Journal, February 3, 1992.

"Soviets Reveal Mir Modules for Earth, Environmental Data," Aviation Week & Space Technology, October 8, 1990.

Michael Kublin is an associate professor in the department of marketing and international business at the University of New Haven. Jack Shepherd is a former M.B.A. student at the University of New Haven.
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Author:Kublin, Michael; Shepherd, Jack
Publication:Industrial Management
Date:Mar 1, 1993
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