Technology Transfer is the delivery of the knowledge required to manufacture a product, to apply a procedure or to provide a service. It is a common way to expand a business all over the world using the commercial network of other companies where your company has not got physical presence without a huge investment in your own commercial network. For the recipient company, it is a way to enter a market without the risk of investing in R & D.
This kind of agreement can be done due to the following fact. Industrial property rights are a monopoly of the inventor. They cannot be copied without his authorization and, usually, an economic compensation.
The concept of technology transfer does not include only industrial property rights. It is wider. The knowledge involved in production of goods and services is not always protected under patents. The complexity of many activities is many times a protection way enough, because the time required to make reverse engineering of a product can be long, and the first manufacturer can acquire competitive advantages and establish entry barriers in the market. This kind of knowledge that is not protected by a legal patent can be transferred under a legal agreement.
In a startup company, the knowledge of a product can be in the mind of a person or a few people, usually the entrepreneurs. Large companies with large R & D departments usually define strict procedures of documentation for any R & D activity. Large companies can provide the information required for a technology transfer easily, however, small companies that are not based in a product under a legal patent are not prepared to make the technology transfer. That is a reason why many startups are bought when they reach success and they need to grow. In other words, to buy the knowledge of a small company with a single product is, in fact, to buy the whole company, entrepreneurs included. The new company will translate the knowledge into the production procedures that will be properly documented and standardized, and the knowledge will not be more in a few people.
The value of a startup is related to the complexity of the knowledge involved in the production process that makes a process of reverse engineering unfeasible from an economic viewpoint. The payment of a high price for a small company avoids that it can get the financial resources required to grow alone and puts the market again under the control of the large one.
The technology transfer through agreements between different companies without mergers or acquisitions are more common between companies of similar size, because the merger of two companies with different procedures and culture it is a complex process itself, and complexity implies high cost as we can see before. Sharing knowledge about a certain process avoids the costs linked to a merger and it provides an exchange of information about the companies that could be useful for a future merger.