Improving the ability of Europe andCentral Asia (ECA) countries to tap into the globaltechnology pool is an important mechanism for acceleratingtheir industrial development, worker productivity andeconomic growth. Trade flows, foreign direct investment(FDI), research and development (R&D), and labormobility and training, are widely accepted as key mechanismsfor knowledge absorption. Absorption requires toughdecisions and large investments, as firms need to spendresources on modifying imported equipment and technologies,and reorganizing production lines and organizationalstructures. Case studies of privatized enterprises in Serbiahighlight the important role of foreign investors inknowledge absorption, whether acquired through capital goodsimports, exporting, hiring consultants and other knowledgebrokers, or from licensing technology. The Serbian casestudies targeted FDI based on acquisition of existing assetsfrom the government (privatization), or from private owners,rather than 'greenfield' FDI. The analysessuggested, in general, that companies sold to domesticinvestors were not able to increase exports in a significantway, while comparable firms receiving FDI did much better.In addition, more significant changes in product mix andmanufacturing occurred in companies bought by foreigninvestors. New directors were brought in from themultinational enterprises (MNE), the domesticinvestors' holdings, from rival companies, or promotedfrom within. In companies acquired by foreign investors, thecomparative advantage for R&D was in the adaptation ofproducts and machinery to local conditions, rather than in innovation.
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