As a sustainable development policy, civil-military integration was listed in China’s national strategy by the Chinese government in 2015. Subsequently, the conversion of dual-use technology has received widespread attention from policy-makers and enterprise managers. In 2017, the Chinese government included the conversion of dual-use technology in its national development planning. Dual-use technology refers to technology developed and used for both economic and defense aims [1
]. The conversion of dual-use technology means that the technology is generated in the military (or civilian) enterprise and is applied in the civilian (or military) market, or is directly used in dual-use production.
Defense expenditure, economic development, and technological innovation have been the focuses of scholarly attention [2
]. In addition to the technological and economic environment, changes in international competition have driven the transformation of military and civilian enterprises. Military firms are state-owned enterprises (SOEs) under the control of CSTIND (the Commission for Science, Technology, and Industry for National Defence). Due to the self-sufficient system and the military’s role as a monopsonistic buyer, redundancy in personnel and low efficiency of productivity could be a barrier to military enterprises [3
]. In contrast, civilian companies need to survive in a fast-changing, competitive market but are nonetheless attracted by high and stable military demand. These issues encourage the transformation of military and civilian enterprises. Dual-use technology conversion can activate the interactions of the defense innovation and economic systems, thereby solving the problem of promoting a high-tech military technology under limited budgets, and improving economic value [4
]. Dual-use technology conversion is becoming inevitable in civil-military integration (CMI) in China [5
Dual-use technology conversion is a process of technology transfer and development [6
]. It is implemented through the introduction of external technologies, expansion to another market, and continuous innovative activities to develop dual-use technologies [7
]. Military and civilian enterprises can be both the suppliers and the recipients of the technology under different conditions. Thus, three models of convergence are provided in the technology sources [8
], namely, “spin-off,” “spin-in,” and “mix” [9
]. Scholars have studied the characteristics of these three models and the issues to be addressed.
First, dual-use in which defense technology is used in commercial applications is referred to as spin-off [10
]. Due to the state ownership of the military enterprise, a military firm needs to adjust its characteristics to an entirely competitive market environment. Institutional reform, security, and technology need to be taken into account when transferring dual-use technology. Jing [5
] studied how the military firm converted into the civilian market from the institutional regime’s perspective. Mowery [11
] argued that the natural precision and exclusiveness of military technology requires supporting facilities at a level that far exceeds the typical facilities present in a civilian production system. FitzGerald and Parziale [12
] pointed out that, although the presence of military products is expanding in the private market, defense technologies are declining.
Second, the use of civilian production facilities to produce arms or military products is referred to as spin-in [13
]. Regarding the means by which the civilian use of knowledge is embedded in the military area, numerous scholars have examined patent citations, competitive pricing, military agency, etc. [10
]. These studies found that higher technical standards and specifications act as a technology transfer barrier for the civilian industry [15
]. A military firm purchases from the civilian sector when technology and products meet or exceed defense standards [16
]. A civilian enterprise is eligible to provide ancillary production services for the defense system only if it has passed the audit and received “Three Military Certificates” [8
]. Furthermore, it is difficult for the civilian enterprise to gather defense demand information because private companies are outsiders to the defense system [17
Finally, the production of technology used in both economic and defense areas is referred to as mix. Although technology can be used for both sides [18
], the final product needs to be implemented across different product lines and serve different areas [19
]. The military production process needs advanced research, and production begins after the completion of the design [20
]. In contrast, commercial manufacturers tend to compress the time of the product development cycle to decrease costs and improve market competitiveness [21
]. If one firm specializes in military and civilian operational modes simultaneously, high efficiency and high cost will co-exist [22
]. Thus, it is argued that dual-use technologies are more likely in the early stage of development, which has more generous room for an experimental variety [1
], and the differences in objectives often tend to reduce the potential of dual-use technologies.
Scholars have studied the dual-use technology conversion from the perspective of the three conversion models, spin-off, spin-in, and mix. Based on these three models, the symmetry relationship between military and civil enterprises is shown in Figure 1
. However, most research adopts one or two transfer modes in one framework. Furthermore, both military firms and civilian firms, regardless of the model adopted, can pay an additional bill for the transfer cost, which can be considered in both sides’ willingness and behavior.
In addition, the conversion of dual-use technologies is also reflected in technology development. The process of technology transfer leads to changes in the dynamics of technology development. Teece (1976) pointed out that technological transfers between many companies are entirely different from the R&D process itself. When the receiver absorbs external technology, there is “learning by doing” in the transmission process. The receiver makes adjustments according to their own needs and expands the feasibility of the technology to meet its standards. Thus, technology undergoes continuous development and change. This dynamic evolution will interact with the behavior of decision-makers in uncertain conditions [23
], and should be allowed for in the study of dual-use technology conversion to address active competition and cooperation over a continuous period [24
Therefore, we aimed to analyze the dual-use technology conversion between military and civilian firms, including the three models of dual-use technology transfer and dynamic development during the CMI process. The military firms studied belong to the top ten military-industrial groups, and the related civilian enterprises are mostly large organizations. Thus, several models of CMI exist simultaneously. This paper fills the gap in the analysis regarding the comparison of dual-use technology transfer modes and considers the development of technology, realization of the transfer, and development within the same research framework.
Recently, game theory has emerged as a mainstream model to study technology conversion. As examples, Wang and Blomström studied multinational technology transfer [25
], and Koessler studied technology transfer using the Bayesian and three-stage game models [26
]. Podvezko applied this theory to the process of building technology and management [27
]. Game theory leads to accurate decisions and can clearly describe the actors’ characteristics and explain the relationship between them [28
]. However, standard game theory cannot resolve the problem of dynamic development. Thus, we chose to use the stochastic differential game theory to describe dual-use technology conversion between military and civilian firms in the CMI. Stochastic differential game theory can address the military and civilian firms’ characteristics, identify the uncertainty of their relationships, and analyze the dynamic development of dual-use technology in one mode.
Therefore, according to the three directions of dual-use technology conversion, we chose a military enterprise and a civilian enterprise as the two players and applied three types of stochastic differential game (Nash non-cooperative game, Stackelberg game, and cooperative game) to interpret spin-off, spin-in, and mix. This research aimed at building a reasonable and practical theoretical model to study the conversion of dual-use technology in the three CMI models.
The paper’s structure is organized as follows: In the next section, we provide the dual-use technology conversion’s stochastic differential game formulation for military and civilian firms. We resolve models of spin-off, spin-in, and mix with the Nash non-cooperative game, Stackelberg game, and cooperative game, respectively. Then, we compare and analyze the equilibrium results and present a simulation. Conclusions are drawn at the end of the paper.
In this work, we sought to establish a theoretical model for dual-use technology conversion in civil-military integration. Unlike previous studies, we classified three dual-use technology transfer modes, and more importantly, incorporated the dynamic development of dual-use technology into a unified research framework. We developed a stochastic differential game of dual-use technology conversion between a military firm and a civilian firm in the CMI. By considering the directions of dual-use technology transfer, we used the Nash non-cooperative game, Stackelberg game, and cooperative game to represent dual-use technology conversion in the modes of spin-off, spin-in, and mix, respectively.
By analyzing and comparing the three methods, we identified apparent differences in the transfer efforts, ultimate benefits, and technological development of dual-use technology conversion. The equilibrium and simulation results indicate the following: First, the Pareto optimal results are shown in the decreasing order of mix, spin-in, spin-off, for effort level; individual and total revenue for the military firm and the civilian firm; and dual-use technology development. Second, the military firm earns more than the civilian firm only in spin-in. Third, the greater the technological growth of one mode, the greater the potential instability faced by the firms. In addition, the other findings highlight that: (a) the optimal effort level has a positive correlation with the coefficient of technological innovation capability and a negative correlation with cost coefficients; and (b) the subsidies factor from the military firm can stimulate the civilian firm’s efforts.
From the above results, military and civilian firms should choose the mix model for maximizing overall benefits and technological development. However, choosing this model implies more effort from both firms, which means more costs are required. It is also necessary to consider the instability caused by technological development. Therefore, we propose several conclusions. First, enhancing the capability for technological innovation and lowering the associated cost is becoming essential. Second, examining and controlling the risk-added problem caused by the value-added in the CMI to ensure the stable development of dual-use technology. Moreover, because subsidies can influence the civilian firm’s choice, the military firm can adjust subsidy factors to support the civilian firm’s initiative according to their own needs.
However, some limitations in this paper are worth noting. These theoretical models only consider dual-use technology conversion between the military and civilian firms and do not examine the government’s role in guiding and promoting CMI. This issue warrants further study in the future.