Among the most important factors during and after technology transfer to help POSCO create international competitiveness were, on the one hand, the quick and efficient establishment of imported technology from the initial stage and, on the other, how to embody the imported technology in its engineers and ultimately to lift productivity and product mix and quality to internationally competitive levels. Even if the long period of construction of projects involves various routes to technology assimilation and adoption, the general acquisition by a technology recipient of the necessary technological capability, particularly in the form of human skills, can be characterised as a process of learning through the accumulation of experience and information. For a technology importer, improvement in productivity and in product mix and quality is generated most importantly by learning rather than technology innovation.
As discussed in the analytical framework, learning can take many forms, but technology transfer and its accompanying in-house investment in learning is not a one- shot transaction. Moreover, under conditions of capital deepening throughout the expansion projects, POSCO was continuously confronted with process changes. At the same time, it broadened its product line including further changes to the processes it employed. Under these circumstances, the need to leam from the large-scale integrated steel-making it undertook was the most important challenge faced by POSCO in entering the international steel business.
Learning through participation and training
At the initial stage of technology transfer, the most important tasks for POSCO were seen to be the prompt construction of mills and normal operation of facilities. However, even though many experienced steel workers from other existing small firms were recruited by POSCO, no one in POSCO at the time had any experience in constructing and operating an integrated steel works. Before the construction of the first stage, for example, only 3 out of 39 POSCO's founding members had even seen a blast furnace (POSCO, 1988). Therefore, the training of workers was one of the highest priorities throughout the transfer process.
Active participation in the transfer process and intensive programs to train engineers and other personnel afforded a tremendous accumulation of experience and know-how. In fact, a distinguishing characteristic of the initial transfer process was that POSCO's workers actively participated in that process and were very enthusiastic in learning what was being taught to them and also in assimilating what was not being taught direcdy (Amsden, 1989). While the training of workers on the construction site
was undertaken with great seriousness, POSCO sent a large number of workers to other countries that were leaders in steel technology, and this set a precedent for overseas training that continues today. About 600 engineers and front-line supervisors were sent at the time of the first stage of construction to learn about iron and steel-making technologies in particular. For example, many were sent to Japan for field training, where they participated actively in the construction and operation of local mills with their Japanese counterparts (Enos and Park, 1988). This provided them with tremendous experience and know-how in the techniques used in operation and production management. During the second stage of construction, more technical know-how was acquired by dispatching more than 1,000 employees overseas (World Steel Dynamics, 1985). Between 1968 and 1987, a total of about 16 per cent of POSCO's employees were sent overseas for training.^^
POSCO's overall in-house labour training program was also very intensive. During the period 1968-79, 78 per cent of its employees (including both regular and contracted workers) received training or education in one form or another (World Steel Dynamics, 1985). In 1984 alone, more than 40 per cent of its workers participated in various training and education programs. These programs included not only specific training in steel-making, computer operation, and sales, for example, but also two or three weeks of introductory education for new recruits, language training, quality control, occasional programs for new facilities and systems, consigned education out of the company, job training and so on. This enabled POSCO to realise considerable improvements within a short period of operation and, in the longer term, to enter the international arena quickly and efficiendy.
Acquisition of investment capability
One form of learning was associated with the acquisition of investment capability, which was closely related to what POSCO demonstrated in plant erection with respect to capital costs and construction period. On the basis of enthusiastic learning in successive construction and plant operations and extensive labour training, POSCO eventually acquired the capability to undertake the various engineering construction tasks, for which it had relied almost wholly on foreign engineers in the initial stage of technology transfer.^^ Table 7.4 shows POSCO's declining dependence on foreign
22. Most of these were sent to Japan (67 per cent). Others were sent to other 14 countries including Austria (9 per cent), West Germany (9 per centX the United States (6 per cent), the United Kingdom (4 per cent) and France (2.3 per cent). The training fields included plant operation (38 per cent), computers (25 per cent), maintenance (24 per cent) and others (14 per cent) (POSCO, 1988).
23. The investment c^abilities acquired in the initial stage of technology transfer included preliminary engineering planning, preparation of procurement specifications for auxiliary facilities such as power transmission and distribution systems, preparation of common specifications for general technology, review and evaluation of manufacturer's specifications, preparation of civil engineering and building
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Table 7.4 POSCO's technological capability in planning, construction and engineering tasks, by stages of the Pohang works"
Stage 1 Stage 2 Stage 3 Stage 4
Planning and negotiation • • •
Master engineering plan * * *
Process design *
*
•Equipment design * * •
Material balance of facilities * *
Specification of facilities * *
Inspection of specifications • •
Inspection of drawings * •
Construction • • •
Start-up and operation • • • •
Payments for engineering services
(USS million per tonne capacity) 6.13 3.81 2.42 0.11 Foreign engineering hours involved 119,070 64,200 491 _
Facility localisation ratio (per cent)'' 12.5 15.5 22.6 35.0
Notes a -• •
"not available".
Foreign engineers only. Foreign and Korean engineers.
Sources
"Ci Korean engineers only.
b ^-riUf^' „tio - domesUcally-produced equipment
Total expenditure on facilities Information provided by POSCO.
Enos and Park (1988); and Amsden (1989).
engineering and the increasing extent to which it participated in project engineering and execution in the consecutive expansion stages of the Pohang works. Even though the master engineering plan and review of all engineering work still continued to be the responsibility of the Japan Group, POSCO undertook all the remaining engineering tasks in the third stage project.^ From the fourth stage, POSCO was able to assume all the engineering tasks including the most difficult responsibility of formulating the general and master engineering plan. The Japan Group's only function was to evaluate POSCO's own master engineering plan (Amsden, 1989). Nevertheless, the foreign technical assistance required was still massive, as it was in the case of the Kwangyang projects also. In the Kwangyang projects, however, while most technology was provided by the European plant exporters as Japanese steel-makers became increasingly reluctant to transfer know-how to POSCO, POSCO executed all the construction and engineering tasks previously undertaken by the Japan Group.
Along with decreasing dependence on foreign engineering, there was a substantial
construction design, and preparation of testing and start-up plans (Amsden, 1989).
24. Additional technology transfer took place in the third stage, with new contracts with foreign consultants for special steel and for more advanced labour training.
Table IS Comparison of some iron-making technologies in POSCO and the average in Japanese firms, 1986-88
1986 1987 1988
POSCO Japan POSCO Japan POSCO Japan Tapping ratio (tonnes / m V day) 2.03 176 2.06 1.76 2.09 1.89 Energy consumption (kg per tonne of iron) 490 507 485 509 489 508 Coke ratio (kg per tonne of iron) 490 482 479 477 470 476
Sources Information provided by POSCO.
Hong etal. (1990).
improvement in equipment and facility localisation. This can be expressed as a ratio of the amount spent on domestically-produced equipment to total expendimre on facilities. Table 7.4 shows that domestic industries were only able to supply unsophisticated equipment at a 12.5 per cent localisation ratio in the initial stage of the Pohang works. The ratio went up to 35.0 per cent in the fourth stage, increasing again to 55.4 per cent for the second stage of the Kwangyang works and to 63.1 per cent in the fourth stage. This improvement in localisation ratios was only partly attributable to acquisition of investment capability in POSCO itself, with the large part due to overall development of the Korean economy and rapid growth of its heavy industries during the 1970s. POSCO consistently made efforts to involve local machinery suppliers in the projects as much as possible (POSCO, 1988). As POSCO increased the facility localisation ratio in this way, domestic heavy industrial companies were also able to accumulate engineering design and management techniques and equipment manufacturing technology necessary for plant manufacmring, which was directly related to POSCO's efforts to generate indigenous technological capability. From the construction of the first stage of the Kwangyang works, even though it continued to rely substantially on foreign facility suppliers for sophisticated equipment, POSCO assigned domestic suppliers as the leading companies with which foreign companies had to form consortiums (POSCO, 1988).
Learning in blast furnaces, BOFs and steel-working plants^
If POSCO can be said to have been successful in carrying out the construction of its plant, it can also be said to have been successful in bringing its plant to, and maintaining it at, its full potential through learning the imported technology. Figure 7.1 shows POSCO's learning curves in relation to operation of large-scale blast furnaces after the first buming-in, while Table 7.5 compares technology levels in iron-making
25. The term 'steel-working' is used in Enos and Park (1988) to cover a range of processes from making steel primary forms using crude steel to rolling various forms of finished steel.
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