URSABLOG: Technology Transfer Is A Two-Way Street

In the past few years both the previous and the current US administration have bought into the idea that China, in particular, has been stealing technology and ideas, and not only that, has been creating their own technology to spy on the US. This deeply paranoid attitude is no doubt partly the result of listening to focus groups, and the concerns of voters, after all in order to get elected they have to act on their concerns. But apart from the ridiculous notion of spying port cranes – I am sure that China has enough satellite and micro-technology, let alone hacking ingenuity, not to use a crane as a bugging device – and other fantasies, it is deeply revealing of how far behind the global conversation US policy is.

Technology transfer is not theft, gained unfairly or used against the person, country or company it was ‘stolen’ from, it is absolutely necessary for the development of the world as a whole. Is it really the intention of the most advanced economies to leave – or worse condemn – those less advanced parts of the world to poverty and ignorance so that the already powerful can stay ahead?

These thoughts passed through my head as I was preparing a paper I am due to give this week on Greeks and their interaction with the Chinese ship newbuilding industry. My research has brought out many interesting themes, but the one that has struck with me the most is that technology transfer comes for the benefit of both sides, and is never entirely a one way street.

Back in the 1990s the companies that were building ships in China were not Greek, in fact few Greek ship owners were engaging with China after the Deng reforms of the late 80s into the early 90s. The Greeks strongly preferred to build in Japan where designs and quality of build were respected, but they were sometimes frustrated because there was little chance of any change to specifications because of rigid Japanese production practices. China was still seen as a low-quality industrial backwater with an abundant yet unskilled labour force and although many Greek ships went to Chinese ship repair yards once China had opened up, their experiences were enough to persuade them that any ships built there would not be up to their standards.

It has to be said that the majority of Greek ship owners at that time – especially the myriad of small owners that were established after the Junta’s collapse in 1974, which formed and still forms the majority of the Greek fleet – did not have the access to newbuildings simply because their business was based on older ships bought in the second-hand market. Most did not have the expertise or the financial firepower to order ships at will. Those that did were the more established and larger Greek ship owners, and they went to Japan.

Attention in China grew towards the end of the 1990s. Japanese shipyards were reluctant to take orders in a depressed market at prices which brought them little profit and if they had to, they would rather do them with customers with whom they had an existing relationship, Greek or otherwise. Japanese yards wanted to take orders from owners that would perform even if those orders were not profitable to them or would deliver into a poor freight market.

But there is another type of Greek owner, more adventurous, with more risk appetite, who always have an eye on low prices, particularly in bad markets, and this is their traditional hunting ground. These owners started to look towards China.

Chinese yards had been taking orders from foreign owners since the early 1990s and it was in fact German owners who ordered the most heavily, but others, including Norwegian, Danish and Canadian buyers also featured heavily in the order books. The quantity of orders was significant, but not huge, and only made up a small percentage of total global orders. The ships that these owners were ordering were for specific trades or cargo contracts that they had to fulfil, or they wanted specialist non-standard ships that Japanese shipyards were reluctant to consider because it didn’t meet with their standardised production processes.

The experience of Blue Planet, a Greek owner who built four ships at New Century in Shanghai, is illustrative of the overall experience that Greek owners had at that time. The yards were hungry for foreign exchange currency, particularly the US dollar, and wanted to rise above a messy local market where over 200 Chinese shipyards were competing for domestic business, building mostly barges or other simple craft for use in river and coastal domestic trades. Likewise, they were open and hungry for foreign expertise and technology, and therefore very willing to accommodate suggestions and modifications that Greek owners could bring. At the same time, Greek owners, frustrated by the rigidity and costs of Japanese shipyards, viewed this flexibility as an advantage. They were attracted by the lower prices and berth availability that the Chinese shipyards offered, whilst at the same time wary of the lack of skill and expertise the yards had at this time.

At a practical level, the technology needed was not necessarily that of a technical or scientific nature that could be learned in foreign universities or gathered by research from Chinese academics in whatever field. In any case the Shanghai Merchant Ship Design And Research Institute was already in existence and producing designs of varying quality by qualified naval architects. What was needed was practical experience of process management, of technical skills, of an appreciation of standards that could only be found by actually building ships. And this was a two-way street. The yards needed to build a reputation for good quality ships that only ships successfully delivered by them could confirm. If you had a good track record of building satisfactory ships for foreign owners, then other foreign owners would come and place orders too. In any case, they recognised that the efficiencies and skills learnt and developed would make them more efficient, profitable and powerful companies.

Ship owners, naturally, wanted the best possible ships that they could order. And they were willing to educate, develop and work closely with Chinese shipyard management and workers to make sure that they got the best ship they could get. They were not willing, and wisely so, in my view, to simply let the Chinese shipyards just get on with it without any supervision or intervention. This contrasts completely differently with the Japanese experience at the time: Japanese yards wanted to be left alone to build and deliver ships on time as per specification to very high-quality standards, and they viewed interference by foreign supervision teams as a hindrance to this.

For Chinese shipyards and foreign owners then, technology transfer was not only beneficial, it was absolutely necessary so that for both parties could fulfil their obligations under the newbuilding contracts if the ships were to be built to specification, or even to be delivered at all. This is not to suggest that the Chinese shipyards with Greek orders, with Greek supervisors were a paradise of collaborative happiness. Far from it. Old habits die hard, both from the Chinese and the Greeks, and the obvious cultural differences caused clashes and delays, as well as mistakes, deficiencies and disputes. But because of this perhaps, and certainly in spite of it, the ships were eventually delivered.

This early period, between 1999 and 2003, was one of exploration and opportunity. The exploration was one of Greek owners willing to take the risk and make orders in Chinese shipyards, aware (although not perhaps to the full extent) of the risks and the problems that they may face in return for the opportunity of getting lower prices, building a ship to their specifications as well developing a relationship with the shipyard so that they could go back and secure future contracts in the future if necessary. They certainly gained experience and knowledge of their own, one that their fellow Greeks took advantage of, as their experience and knowledge was shared through the Greek market, as people talked, moved jobs, or created new businesses.

For the shipyards, they were able to understand more what owners from different countries and cultures wanted, as well as developing and optimising their own industrial processes. They could produce a better product, on time, and create a track record that they could point to for reference. Eventually.

But context is everything: this period was a period of a mediocre freight rates, for ships of all types and sizes, and there wasn’t a huge demand for newbuildings from anywhere. That the Greek orders came from owners that were family based companies with origins in either Chios or Oinousses – the prevailing attitude from most Greek buyers at the time was that they would never buy Chinese built ships, let alone build them – and that those particular owners were open to new opportunities that may not have entirely made sense at the moment of placing the orders, in terms of the quality of the ship, let alone uncertainty about whether the ship would deliver on time, if at all. But those deals made sense in other ways, and they invested in the hope that their risk – admittedly great – would eventually pay off. In terms of their timing, wittingly or otherwise, they were correct.

Fast forward to now: Chinese shipyards are building quality ships, on time, to specification and now have over 50% of the global shipbuilding market. Japanese owners are placing increasing amounts of orders there. The US – at least 30 years too late – are now waking up to this, but surrounded by paranoia and a nostalgia for an era that never existed – not 30, 50 or even 70 years ago – are passing legislation that they hope will make American shipbuilding great again. They are in need of a huge transfer of technology that will only be able to be satisfied by existing foreign shipyards – evidently not Chinese shipyards – investing there. I am sure that investments will be made but only with the guarantee that orders – and expensive and profitable orders at that – will be placed there by American companies. It’s an accident waiting to happen. Certainly there’s no Greek owner I know that would take the risk of placing orders there today, unless there was another commercially viable reason – say a way-above market long term charter to an American attached – to sweeten the deal.

Which is the final lesson of technology transfer: it is used to develop newer technologies and innovations. If you have chosen to stay out of the loop, no amount of investment can bring these back to you. And even if you try, and however much money you throw at the problem, if you’re not in the game you can’t score a goal.

Simon Ward