Like other developing countries, Indonesia is a net importer of advanced technologies developed in the industrial countries. These technologies are crucial to generate and sustain the rapid economic growth necessary to raise the standards of living of the Indonesian people. In view of the economic important function of imported technologies, it is important to identify the major sources and channels through which these technologies are transferred to Indonesia and to assess the extent to which the transfer has indeed contributed to the development of local technological capabilities. At its present relatively low level of industrial and technological development, Indonesia should focus its technology strategy on importing those technologies most relevant to its development needs, at the most favourable terms, and to assimilate, adapt and improve these imported technologies, very much like Japan and later the East Asian NIEs — particularly Korea and Taiwan — successfully did in earlier decades. Several studies on technology transfer in Indonesia's manufacturing sector have indicated that foreign direct investment, technical licensing agreements without equity involvement by the foreign licensor, capital goods imports, and participation in world trade through exports have been the major channels of international technology transfer to Indonesia.

Introduction

Like other developing countries, Indonesia is a net importer of advanced technologies developed in industrial countries. These technologies are crucial to drive and sustain the rapid economic growth necessary to raise the standard of living of the Indonesian people. For this reason it is important that such technologies are transferred to developing countries, such as Indonesia (Chen, 1983, p. 63). In view of the economic importance of imported technologies, we need to identify the major channels through which they are transferred to Indonesia, particularly to the manufacturing sector. An important issue is whether these imported technologies have been fully assimilated and mastered by the recipients, i.e. Indonesian firms. It is therefore important to assess whether and to what extent the various channels of international technology transfer have contributed to Indonesia's industrial technology development (ITD), i.e. the development of local (indigenous) technological capabilities (TCs) required in manufacturing. The successful development of local TCs will determine whether the imported technologies can be successfully applied in Indonesia.