Technological development strategy for functional upgrading of local industries : a case of Sri Lanka

Firms with resource constraints need to be strategic and understand what works best for them in developing their local technological capabilities. External technology acquisition through partnership arrangements and learning by doing has become the most important learning mechanism for firms that do not possess in-house resources to create technology. Lessons on maximising technological benefits and local competence development can be learnt from those who have been successful in benefiting from partnerships and have achieved sustainable technological development. The broad interaction between external knowledge, its internalisation and modification by local firms and diffusion to local industries is conditional to the presence of complementary assets from public and firm level assets such as dynamic local knowledge base, backward links to local research and development (R&D) through public research, foreign technology transfer and appropriate engineering capability among local partner firms for functional upgrading at industry level. Policymakers need to consider the strength of innovation systems and the knowledge infrastructure influencing the focus industries and subsequent effects on technological development approaches including the heterogeneous requirements of innovative firms.