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OCR for page 180
8-180
RESULTS OF SCIENCE AND TECHNOLOGY POLICIES
The fruits of the efforts put into education and R&D in various countries
should be visible today, assuming there is some correlation. In this section,
we will review some of the indicators of innovational prowess.
Economic Comparisons
Table 8.47 gives some data on per capita and real GNP. The per capita
figures show: the strong progress made by France and Germany to their
current position only slightly short of the U.S.; the rapid growth of Japan
from a point low compared with the major industrial countries of W. Europe in
1960 to its current position somewhat ahead of the U.K., but still some way
behind France, Germany and the U.S.; and the almost static performance of the
British economy. The data are normalized to the U.S. being 100 each year;
but the GNP of the U.S. has been rising also - taking it as 100 in 1960, in
1965 it was 127, and in 1973 it was 172. In these terms, it can be concluded
that the U.K. has roughly maintained its position relative to the U.S. while
the other countries have improved their positions considerably. On the other
hand, the data on growth rates of real GNP, with the latter normalized to 100
for each country in 1960, show that since 1960, the U.K. has achieved a
slower growth rate than the U.S.; Germany has performed about the same; France
has performed somewhat better; and Japan dramatically so. All these trends,
however, have to be interpreted carefully, taking cognizance of the caution
mentioned earlier in this chapter that at any given time different countries
are at different positions on their "sigmoidal curves" and that it is mis-
leading to interpret data always in terms of exponentials (like compound
interest rates), even if only implicitly. For example, the major shifts in
world resources triggered by the rise in price of oil and the possibility
that similar effects might take place with mineral resources could result in
major changes in the economic picture in a relatively few years.
More detailed comparisons on economic trends are given in Tables 8.48
and 8.49. The caution about signoidal curves again applies. Furthermore,
growth rates show relatively large fluctuations from year to year so that the
figures for a single year are not necessarily a good basis for comparisons.
However, the trends over ten years show the dominance (in growth terms) of
Japan followed by France and Germany, while the U.K. and U.S. have generally
trailed along on rather paralleled courses.
Because of inadequate data and analysis, it is difficult to establish
definite cause-and-effect relationships between national commitment levels
to R&D and subsequent industrial and commercial performance. (Regression
analysis of this sort for various industrial sectors in various countries
would appear a fruitful area for investigation.) Most direct comparisons
between the larger industrial countries become confused by the enormously
different levels of effort on defense and space among these countries. These
efforts and their associated spin-offs affect not only the levels of R&D but
also the whole industrial picture.
Some productivity comparisons for the iron and steel industry since 1964
are given in Table 8.50 (from "Productivity and the Economy, 1973; Bulletin
OCR for page 181
8-181
Table 8.47
Relative GNP Performance
. . .
1960 1965 1973 ~
.
Per
Capita Real
France 47 100
Germany 46 100
Japan 17 100
U.K. 48 100
U.S. 100 100
.
.
*
From "International Economic Report of
Congress, U.S. Government Printing Office
#
Estimated.
Per
Capita Real
58 133
56 128
26 161
52 118
100 127
,,
Per
Capita
Real
83 208
92 179
60 367
53 146
100 172
the President," transmitted to the
~ Stock No. 4115-00055, February 1974
:Based on the average monthly rate of exchange for 1973
.
.
OCR for page 182
8-182
Table 8.48 Economic Trends - Average Annual Rate of Growth (Percent)
1961-72 1971 1972 1973
Real GNP:
United States 4.1 3.4 5.9 5.9
United Kingdom 2.7 2.3 3.8 5.8
France 5.7 5.7 5.4 6.7
West Germany 4.5 3.1 3.7 5.3
Japan 10.5 5.9 8.9 11.0
Industrial Production
United States 4.7 0.6 6.7 9.0
United Kingdom 3.1 0.8 8.3 8.6
France 5.9 6.2 7.0 9.5
West Germany 5.2 1.7 3.4 7.6
Japan 12.3 3.3 6.6 17.4
Consumer Prices
United States 3.0 4.5 2.9 6.2
United Kindgom 4.7 9.5 7.5 9.3
France 4.5 5.3 6.3 7.1
West Germany 3.2 5.3 5.8 7.0
Japan 5.8 6.2 4.8 11.7
Estimated.
I .
OCR for page 183
8-183
Table 8.48
(Continued)
1961-72 l9J1 1972 1973
Productivity
United States 3.5 7.1 5.3 5.4
United Kingdom 4.2 5.0 8.3 3.0
France 5.7 4.8 7.2 8.0
West Germany 5.8 4.7 6.7 7.6
Japan 10.1 3.6 10.1 18.8
Hourly Compensation #
United States 5.1 7.0 6.3 8.0
United Kingdom 8.3 12.4 12.3 13.6
France 9.9 12.4 12.5 13.0
West Germany 9.9 13.8 11.1 12.8
Japan 14.5 15.7 16.2 20.8
*Output per man-hour.
#Based on hourly compensation in notional currencies.
OCR for page 184
8-184
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1779, BLS). Quoting, "In 1964, productivity in the U.S. iron and steel
industry greatly exceeded the levels reached in other major steel-producing
countries. Output per man-hour was about 60 percent of the U.S. level in
Germany and around 50 percent in France, Japan and the U.K. In 1971,
however, though labor productivity in the British steel industry was still
only about half the U.S. level, the French industry was up to two-thirds the
U.S. level, the German to about three-fourths, and the Japanese may have
exceeded it."
Productivity levels may be considered not only in the light of expendi-
tures on R&D but, and perhaps even more importantly, to levels of capital
investment. From the same source as that for Table 8.50, data for several
countries are given in Table 8.51 for industry as a whole - breakdowns by
industry sectors are difficult to obtain. We quote: "During the 1960's
the U.S., Canada and the U.K. had the lowest average capital investment Cto
productivity. At the other end of the scale, Japan had the highest investment
ratio and the highest rate of productivity gain."
Implicit in these comparisons is that the productivity gain is important
in itself. However, productivity, like GNP, is not necessarily a human
happiness index. While there is probably some correlation between these
quantities and qualities, it is not inconceivable that the ground rules are
changing for the advanced countries, that they are reaching the upper levels
of their sigmoidal curves and that their societies may soon come to feel
that they have enough productivity and GNP to satisfy their own desires.
This still leaves scope for greater productivity if the increase benefits a
wider circle of nations.
International Trade
The U.S. has traditionally been a net exporter, based in its earlier
history on materials and then slowly shifting to manufactured goods. Beginning
in the mid-1960's, this position began to erode and lately has produced sub-
stantial adverse trade balances. Contributing factors have been:
(a) Reduced productivity growth and high rates of inflation, resulting
in favorable unit costs of production, compared to other industrial
countries. This has attracted imports and created obstacles to exports.
OCR for page 187
8-187
Table 8.51 Trends in Capital Investment
Average annual percent
change in output per
man-hour in manufacturing,
*
1960-72
Capital investment as
percent of output,
1960-70
All Industry
Manufacturing
United States 3.1 # 14.5 12.3
Belgium 6.6 19.9 19.6
Canada 4.4 21.0 15.1
France 5.8 21.2 N.A.
Germany 5.8 + 22.2 N.A.
Italy 6.0 17.9 N.A.
Japan 10.4 28.1 31.4
Netherlands 7.2 21.4 N.A.
Sweden 1.1 18.8 16.7
United Kingdom 4.2 16.6 13.4
Source: Bureau of Labor Statistics, Bulletin 1779, Washington, D. C.
*For many of the foreign countries, 1972 estimates are based on data for
less than the full year
#Excludes construction.
+Capital investment, excluding residential dwellings, as percent of total output.
OCR for page 188
8~188
(b) Rapid growth of direct U.S. investment abroad, largely in order to
overcome competitive disadvantages of U.S.-based exports.
(c) Final fruition of postwar recovery period in Europe and Japan,
making these areas highly efficient competitors, equipped with new plant and
technology.
(d) More rapid diffusion of new technology and corresponding shortening
of time during which U.S. innovations provide trade advantage.
(e) Outside of the agricultural sector, increasing drafts on foreign
raw materials in order to benefit from their lower costs.
These developments, coming on top of U.S. foreign commitments such as
military costs and foreign aid, plus prolonged U.S. reluctance to engage
in currency devaluation, have brought about an atmosphere of concern bordering
at times on crisis. In this context, various attempts have been made to
locate "the key" to the foreign trade problem.
While one must not fall into the trap of segmenting foreign trade and
other transactions in such a way as to judge each in terms of balance (the
very basis of exchange between countries is, indeed, that each does better
in some fields than in others; and so foreign trade is by nature "unbalanced,
on an item-by-item basis), nevertheless a number of recent studies have
drawn attention to emerging trends Wee Tables 8~52, 8.53 and 8~54~. Among
these seem to be:
(a) Excellent performance in exports of capital goods, such as computers
and aircraft.
(b) Poor performance in automotives and manufactured consumer goods.
(c) Rising adverse balance in materials.
(d) A healthy rate of increase in exports as a whole, but not sufficient
to overcome the faster increase in imports.
(e) A concentration of the trade problems in specific nations: Japan,
Canada, and West Germany. Excluding trade with these three countries, the
U.S. trade balance with the world improved between 1960 and 1970. With Japan,
Canada and West Germany, it worsened by 5 billion between 1964 and 1970.
OCR for page 189
8-189
Table 8.52 U.S. Trade Balance in Illustrative Product Categories*
(millions)
1960 1965 1970
Aircraft and Parts $1,187 $1, 226 $2,771
Electronic Computers and Parts 44 219 1,044
Organic Chemicals 228 509 715
Plastic Materials and Resins 304 384 530
Scientific Instruments and Parts 109 245 407
Air Conditioning and Refrigeration
Equipment 135 201 374
Medical and Pharmaceutical Products 191 198 333
Rubber Manufacture 108 119 -28
Textile Machinery 104 54 -37
Copper Metal -62 -132 -171
Phonographs and Sound Reproduction 15 -36 -301
Paper and Paper Products -501 -481 -464
Footwear -138 -151 -619
TV's and Radios -66 -163 -717
Iron and Steel 163 -605 -162
Petroleum Products -120 -464 -852
Textiles and Apparel -392 -151 -1, 542
Automotive Products 642 972 -2,039
*
Statement of Secretary of Commerce at Hearings before the Subcommittee
on Science, Research and Development of the Committee on Science and
Astronautics, July 27-29, 1971.
OCR for page 190
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components, since new products create new products create new markets, and
the market share of a firm is built up from practically nothing. In contrast,
the market share in a slowly changing industry largely reflects past quan-
titative commitments in production facilities rather than recent successful
innovation.
Market-share estimates for the semiconductor industry show that few
foreign firms have succeeded in penetrating the American market, and that none
holds a leading position. On the other hand, many American companies, either
through direct manufacturing investments or exports, have captured a substan-
tial share of the semiconductor markets in other countries. Since the U.S.
accounts for approximately 60% of the world's electronic markets, a leading
commercial position in the U.S. will almost necessarily mean a leading
position on the world markets.
Evolution of Electronics The transistor's major achievement was not
r
simply to replace the vacuum tube but to open up a vast number of new fields
of application which until then had remained unexplored because of the tube's
inherent limitations. The integrated circuit also contributed in the same way
to opening up the area of applications - witness the hand calculator.
In contrast to the more mature industries (where it must be stressed,
new product and process development and innovation are equally important),
technological change in electronics, and in particular in components contrib-
utes to the creation of new markets and new applications for the products of
the industry. In the solid-state electronics industry, replacing existing
products is only a subsidiary aim of innovation whereas in the more mature
industries, this substitution function is often the main aim.
The increasing need for close cooperation between the component manufac-
turer and the equipment manufacturers is best understood in the light of the
evolution of the electronics industry as a whole. The accompanying chart
(Figure 8.4) attempts to summarize the evolution of the electronics industry.
Two important factors emerge,
(a) The difference between circuits and devices is disappearing with the
advent of integrated circuits. As a result of this evolution of technology,
the distinction between components and subsystems is becoming increasingly
blurred. The component manufacturers are, in a way, invading the other
sectors of the electronics industry, and their main weapon is their capability
in materials technology (physics, chemistry, microphotography, etc.).
(b) The equipment manufacturers are tending to sell services, rather than
products. This is the case for the computer industry; what the customer often
buys is not a machine, but a service provided by the machine. The same
principle can be seen in telecommunications.
Governmental Markets and Support of Electronics: In some countries, the
government has supplied large markets for electronics in defence, in communi-
cations and broadcasting, but not for consumer electronics.
1
OCR for page 235
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FIGURE 8.4
STRUCTURE OF THE ELECTRONICS INDUSTRY
First generation
Second gcocration
T h ird genera t i on
Eta
Fourth generation
,. ,~
MECHANICAL TECHNOLOGY
~ .
Equipment :
. components ..
.~
~~W ''~''
. . . . . . . . . ~ ~ ~~
Integrated
equipment
component
1~
,. - ................
. ~
.- - - - ..........
'.~
Souroc Technological Foundations and Future Directions of Large Scolo Integrated Electronics
by Richard L. Pctritz. Texas Instrumcots, Dallas, 1966, Page 50.
OCR for page 236
8-236
The considerable size of governmental markets for electronics can be
attributed to the particular nature of electronics, to the changing role of
governmental influence, and to prestige and political considerations. A
great number of the industry's products have potential military applications.
The military market has created a demand and provided a market for a wide
variety of new electronic products.
The industry grew up at a time when the range of. governmental activity was
being considerably extended both in the U.S. and in West European countries.
By contrast, the pharmaceutical industry grew up long before Social Security
and public welfare were invented.
With its high growth rates, its technological sophistication, and its
pervasive influence on other industries, the electronics industry has a
prestige value to which governments have not remained insensitive, the image
of the industry often being equated with the image of the country. This is
the case for computers, color TV, and telecommunications, as well as for
industries using a high quantity of electronic equipment like aircraft.
The components industry is an intermediary industry, and the governmental
support from which it benefited was in fact largely directed towards the
equipment industries. The military customer, as a rule, does not buy
components as such, but buys specific pieces of hardware or systems such as
missiles, radar networks, computers, or satellites.
In the case of the transistor, most of the inventions and major techno-
logical breakthroughs were made in companies with private money, at least at
the beginning of the industry (1946-1953 approximately). Around 1953,
governmental contracts were given to study specific problems; even if they
did not result in major inventions and breakthroughs, they did contribute to
developing the state-of-the-art and, in some cases, provided a big boost to
the small companies who were unable to channel large sums of money into R&D.
This is particularly true of the newer companies operating solely in the semi-
conductor sector and having no other divisions to provide the funds for such
a type of activity. In a newly-created industry, governmental support can be
viewed largely as a means of developing the state-of-the-art and providing
R&D risk capital to the newer firms.
In the case of the integrated circuit industry, the picture which
emerges is somewhat different from that of the transistor industry, in that
the main ideas and basic inventions were concomitant with a specific military
need for a fundamental revolution in electronics technology.
In the development phase, governmental support was largely directed
towards the generation of various pieces of equipment using integrated cir-
cuits (IC's). The primary aim of these programs was not to create equipment
directly usable by the military customer, but rather to gain a thorough
knowledge of how IC's could be put to work in electronic systems and to con-
vince companies and other governmental agencies that these new systems were
more reliable and much less cumbersome than their predecessors.
Although this program proved extremely useful to the Department of Defense
and to the companies involved (mainly Texas Instruments and Westinghouse), it
is doubtful whether IC's would have led to such a far-reaching revolution
had they remained confined to the military market, or to certain very
specialized applications in the industrial sector. From an economic point of
OCR for page 237
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view, the real impact of IC's was to come only a few years later, with mass
production, lower prices, and consequently, an increasing pervasiveness of
electronics in the whole fabric of the economy.
The major step in this breakthrough was made in 1960-61 with the inven-
tion of the planar process by Fairchild's three-year-old semiconductor
division. The planar process, developed without any federal support, and
subsequently adopted by all IC manufacturers, paved the way to mass production.
The creation of large governmental markets for entirely new products like
transistors or IC's is of considerable importance in that it provided a strong
incentive for the firms involved to develop their technologies and allowed
them to overcome within a relatively short period the cost barrier which
prices these new products out of the civilian market.
If a typical cost curve for IC's or transistors is considered, it will be
found that in the first years these new products are far too expensive to be
sold on the industrial market, let alone on the consumer market. Only when
the technology has been fully mastered can these products be widely adopted by
industry; this can take a number of years. However, if governments can create
a reasonably wide market at the stage when these products are still very ex-
pensive, the subsequent drop in prices can be more rapid and the penetration
of the new products into the economy greatly accelerated.
To conclude, the hypothesis that the semiconductor and integrated circuit
industries owed their development to federal support can be accepted with the
two following major reservations: first, most of the basic discoveries and
ideas came from the civilian sector using private funds; secondly, although
the impact of governmental support was largely concentrated on the development
stage, the real significance of these two revolutions, namely their overall
influence on the economy through the increasing pervasiveness of electronics,
was largely the result of company strategies and private management.
The rapid development of the integrated circuit industry in the U.S.
poses the question: why did an equivalent development not take place in the
U.K.? The technology available to, and the capability of, the British firms
and governmental research establishments were acknowledged by all experts to
be as good as those of the U.S. Moreover, there was a considerable national
interest in the electronic components industry, with two authorities in charge
of the development of components for military purposes: one organized by the
Admiralty for active components, and the other by the Ministry of Aviation for
passive components. In the early 1960's, the U.S. was deeply engaged in the
development of missiles, which were to be the first large-scale markets for
IC's. During the same time, the U.K. was following the opposite policy and
abandoning the development of a national deterrent Cas exemplified by the
cancellation of the Black Knight program). However, even if the British
policy at the time had been different, the market for microelectronics would
at any rate have been much smaller than in the U.S., and the impact on the
electronic industries as a whole would not have been as far-reaching as it
was to be in the U.S. Nevertheless, one can speculate about what might have
happened had the British policy been different.
The organization and structure of governmental support plays an extremely
important part. Part of the success of the U.S. lies precisely in the structure
of this support. Most of the work done on IC's was performed in private
companies' which had an incentive to expand on the commercial market. In
OCR for page 238
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the U.K., most of the work was concentrated in governmental establishments
and universities, few of which could be in close contact with the market. It
is worth noting' though' that owing to the absence of any significant
military market for IC's, most of the work in the U.K. was concentrated on
techniques rather than on the creation of devices.
One of the key factors influencing innovation in the military field
appears to be a clearly expressed need. Companies can respond rapidly to the
demand because it is easily identifiable. In a sense, this is what can be
called "tailor-made innovation."
The problem facing companies in a fast-changing industry like electronics,
where innovation is all-important, is to identify future demand, and come out
at the right moment with the right type of new product. On the military
market, the requirements of the customer are readily identifiable through the
bidding process; on the civilian market the requirements are much more
difficult to assess, particularly in the case of consumer products.
Once a market has been clearly delineated, three other factors of key
importance for the success of an organization are ~a) a clear understanding
of its goal or mission, (b) a source of ideas and knowledge, and Cc) available
resources.
Stimuli for Innovation - Organizational Purposes and Long~Term Goals:
A clear and reasonably-wide definition of a company~s purposes can have a
tremendous impact on its growth and development and in particular on its
innovative activities. A good example of a bad definition of purposes, or
rather the absence thereof, can be found in some of the U.S. ram way companies;
seldom was it considered that the aim of the industry was to provide public
transportation and not just to run railways. Had the broader aim of public
service been kept in mind rather than the narrow allegiance to one specific
means of transportation, it is probable that these firms would have been more
receptive to innovation and to an improvement of their services; and would
not have been so dramatically superseded by more service-minded aircraft
transportation companies.
In the electronic components industry, the same type of mistake was made
in some companies manufacturing vacuum tubes. The purpose having been to
produce such tubes, too little attention was paid to the emergence of the
transistor which, although completely different in structure from the tube, was
nevertheless capable of performing similar amplifying functions. Had company
purposes been defined more broadly -- for instance to provide products capable
of performing certain types of electrical functions, rather than just to
manufacture tubes -- it is probable that the necessary transition to the new
transistor technology would have taken place more rapidly.
The definition of a company's purpose can be made with reference to the
firm's present activities; however, the main benefit will come from looking at
the future activities: what are the objectives for the next 5-10 years?
What are the longer-term purposes? These questions are all-important, in
that the reply given to them will determine in what directions the R&D effort
should be pushed, and what the overall commercial strategy will be E.g. what
types of acquisitions and takeovers can be envisaged? What new markets must
be explored?. A clear answer will not prevent mistakes but can contribute
very substantially to avoid wastages and dispersion of efforts.
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Admitting that company purposes have been defined, it is possible to set
a number of more specific goals which will then fit into the company's general
purposes. This process of goal-setting is necessary for companies in the
electronic components industry -- but it is also relevant to countries.
Goal setting by governmental authorities can have a tremendous effect on
the development of industry, and can contribute to creating a positive
scientific climate. Two illustrations can be given: the first was President
Kennedy's committing the U.S. to reach the moon by 1970, and the second was
the French government's commitment to the "force de frappe."
Technological and economic disparities are largely the manifestation of
differences in innovative capability and performance. Innovation can succeed
if there is a need, more or less clearly expressed, for new products. In the
U.S., and to some extent in Japan, there has been a generally much more
receptive attitude towards innovation than in Europe: customers seem to be
more willing to try out new products, to experiment with novelty.
Structure of the Electronics Industry In the U.S. one sees four classes
of electronics firms:
(a) Bell Telephone, which has been a major source of inventions and new
technologies;
(b) The major electrical and electronics companies? such as General
Electric, Sylvania, Westinghouse;
(c) Energetic newcomers specializing in solid-state electronics, such as
Texas Instruments, Fairchild, Motorola;
(d) A host of small, entrepreneurial companies.
Bell Telephone, and more recently to a similar extent, LAM, belong in
class on their own -- fully integrated companies whose activities range all
the way from original R&D through component and equipment manufacturers to
the provision of services directly to the customer. They are superbly equipped
to perform the whole innovative process efficiently and effectively. It is
important to note, however, that at least in the case of Bell Telephone, the
component and equipment manufacturers do not enjoy a captive market -- the
service organizations i.e. the telephone companies, are free to purchase their
equipment from any manufacturer, in-house or outside Including foreign
sources)' who can meet the specifications, thus ensuring competitiveness.
The second group of companies all started in solid-state electronics at
the same time, 1952, when Bell Labs made its transistor know-how freely
available, but for the most part they have faded out of the components picture
(though not out of equipment manufacture); probably the prime cause was lack
of vertical integration and their heavy investment in earlier product lines.
The third group of companies had much less in heavy prior commitments.
They were free to seize on whatever new ideas and techniques looked most
promising and exploit them through vigorous management often aided by effec-
tive governmental contract support.
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The fourth group, the entrepreneurs, have tended to be very small
companies clustered in and thriving on the major electronics industrial areas,
such as Route 128 around Boston and the San Francisco peninsula.
There are some interesting national parallels with this industrial
structure. In Europe most of the established electronics companies, Siemens,
Phillips, AEI, would compare with those in the second group and, likewise,
they have not seemed able to adapt as readily to the new solid-state tech-
nology, particularly because of the reluctance of banks to put up risk
capital and because of traditionally restrictive attitudes towards patents
and cross-licensing. Similarly, these factors served to thwart the entry of
newcomers that would compare with the third and fourth categories. Conse-
quently, much of the market in Europe has been captured by U.S. branches and
subsidiaries, such as Texas Instruments in components and IBM in computers.
The European companies in the electronics field at first thought mainly of
solid-state components and lacer, IC's, as of marginal value to electronics
as a whole, perhaps confined mostly to the military sphere. When they
realized otherwise, other firms (U.S. subsidiaries) and other countries
(Japan) had moved ahead.
Mobility of scientific manpower can greatly enhance the diffusion of
technology and the rate of creation of new companies. Such mobility has been
a significant factor in the development of the U.S. semiconductor industry.
On the other hand, Japan has traditionally very low mobility. There are some
advantages, too, to low mobility; it enables companies to have a pool of
readily-accessible and hard-won relevant experience on tap -- experience which
often can not be documented but resides in the "know-how" of Individuals
familiar with the broad needs and interests of the company.
Other Factors Affecting Pace of Innovation Differences An ~nnovat~Ye
. . .
capability stem from both internal and external factors. ~ key internal
factor is the quality of the firm's management, which manifests itself for
instance by a clear identification of the market needs, an efficient organi-
zation of the company's scientific and technological resources, and a strict
control of the financial aspects of production. Among the external factors
accounting for differences in innovative capability, one can mention the
sophistication of the customers Private or publics, the overall quality of
the environment in which the firm is operating, and the scale of governmental
support.
In the semiconductor industry, the innovation aspect has been of con-
siderable importance, precisely because this industrial sector is new and
because the technology has been evolving very rapidly. Firms which for some
reason (internal or external) have not been very innovative have suffered
both in terms of profitability and market position. The same is true of some
countries, with the difference that the lower performance in innovation has
resulted in a considerable inflow of foreign investment, coming from the more
innovative firms and countries.
Innovation has been a central factor in the semiconductor industry. This
is not to say, however, that it will remain so in the future: the development
of large semiconductor industries in many countries besides the U.S., all
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based on the same technology, and a stabilization of the pace of technological
change will become more dependent on other factors such as production tech-
nology, marketing, and lower labor costs.
European Reaction to U.S. Dominance in Electronics21 American technology
is now vital for the future success of the European electronics industry.
Texas Instruments is the world's largest manufacturer of integrated circuits;
U.S. companies now hold well over 40% of the European semiconductor market;
IBM has a grip on 70% of the world computer market. in IC's, the key com-
ponent technology for the future which will leave no industry untouched and
no area of life unaffected, Europe is realizing it is much too totally reliant
on U.S. know-how. As in the aircraft, nuclear power, and heavy electrical
industries, mergers have been occurring in the electronics and computer sectors,
e.g., Sescosem in France and ICL in Britain, though so far no viable computer
industry seems to have emerged in France or Germany.
But in IC's, national mergers may not be enough -- the need for the
widest possible market base stems from the peculiar properties of the
integrated circuit. The "value-added" to the material costs are enormous,
the latter representing perhaps only 2% of the finished cost. CLt is worth
noting that most of this value added is due to materials processing even if
it is very often performed by physicists and electronic engineers). These
value-added costs can be minimized by the economies of scale. An the U.S.,
Motorola, Texas Instruments, and Fairchild together hold almost 60% of the U.S.
market which, in turn, is about half the world market. The U.K. market, on
the other hand, is only about 5% of the world market and no totally British-
owned company has more than 10% of that. Thus, the signs point to inter-
national collaboration and mergers within Europe, the principal example so
far being the Phillips group. Other mergers can be expected. For example,
in Britain there is a fairly full range of expertise in IC's, but it is
fragmented among such companies as GEC Semiconductors, Gerranti, and Plessey.
In the crucial area of computer-aided design, for example, all three companies
are now pooling their software design programs and a very real software
capability has resulted. This pooled CAD program resulted from a five million
pound grant from the Ministry of Technology, one condition of which was that
there should be collaborative research where possible. Other areas selected
for collaboration were piece parts (e.g. ceramic bases, lead frames, hermetic
packages) and production machinery.
In almost every case, materials work is intertwined with device or equip-
ment development and is not subject to any policy in its own right. In this
field, material R&D tends to be inexpensive compared with the work on its
applications and is rarely recognized as a separate field. Rather, it is
generally handled within each company that carries out device development.
(a) A Success Story - A M~ni-Consortium: A fairly systematic effort was
. .
Basedon "Making Sense of Electronic Components," K. Smith, Science Journal,
Vol. 6, 80' 1970.
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made in the U.K. to coordinate R&D in the field of semiconductor III-V
compounds -- notably GaAs, GaP and GaAsP. This effort was based on the
following considerations:
Advanced components for defense depend on the exploitation of new
phenomena observed in these compounds. Examples are microwave generators,
detectors, mixers, etc., emitters of infrared and of visible light, domain-
scattering devices, and so on.
Several companies and governmental establishments in the U.K. might be
expected to become involved in developing these devices and would, therefore,
need supplies of compounds in a form not available commercially. En particu-
lar, requirements on purity, uniformity of carrier concentration, mobility,
thickness control in layered structures, etc. are so severe in sophisticated
devices that outside suppliers are not capable of meeting the demands. (The
situation is further complicated when the supplier is in another country and
is itself involved in device development. The material buyer always has the
suspicion that the vendor keeps the best material for himself, gives the
next-best to his major domestic customer, and exports what remains")
Because of the delays and other difficulties in buying material from
commercial sources - and often it is just not available - the device develop-
ment teams find it increasingly necessary to prepare their own material. (In
fact, it is general experience that each device team must have, under its own
control, an appropriate material preparation and evaluation group, working
towards the common (device) objective. The feedback from material-user to
material-maker should be continuous, rapid, and unambiguous, and unified
control seems the best way of ensuring this. The practical difficulties of
having several material preparation groups working at once, each as a part of
a different device team, are solved by physically co-locating the groups so
that common use is made of clean rooms, fume cupboards, measurement gear, etc.
A comprehensive military R&D program in advanced electronic devices thus
inevitably leads to the appearance of numerous groups in diverse companies
and governmental establishments, all trying to prepare compounds. Clearly
some form of close collaboration is necessary to avoid duplication of efforts,
repetition of errors, and loss of useful information.
One way to handle this is to forest a consortium of those engaged in this
work. The consortium meets regularly and members exchange information, ~nter-
change samples, visit each others' facilities, compare results on reagents,
containers, measurement sets, etc.
Conditions for successful operation of the consortium appear to be -
(i) Clearly shown need for cooperation.
(ii) Demonstratable benefits to all taking part.
(fit) Existence of strong, knowledgeable chairman.
(iv) Use of contract funding to exert effective pressure where
necessary.
In addition, the question of timing is important. A consortium can be
effective in the early days of the R&D before commercial exploitation is a
reality. As soon as commercial sales become significant, then normal compel
Live considerations make cooperation more difficult.
1..
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It seems evident that the U.K. consortium activities on compound semi-
conductors have been successful. The status of device performance is at
least as advanced as that anywhere in the world and is ahead in some areas.
(b) A Not-So-Successful Story - Silicon Technology In the case of
silicon, things have not turned out so well. At present, the U.K. relies
largely on imports, except for two local manufacturers who are both sub-
sidiaries of foreign firms (Monsanto and Texas Instruments). Although there
was some very good early progress in pure silicon research in the U.K. Cindeed
one company licensed DuPont to make pure silicon from silane), rather little
work has been done more recently. Problems here are numerous. First, without
a local manufacturing base, it is not easy to see how any R&D results would be
applied. Secondly, the development of advanced devices in silicon is fairly
limited (microwave generators and detectors, electro-optic devices2. Finally,
the commercial conditions in IC's (the biggest user of silicon) make it very
difficult to formulate a coherent policy. (An example is the irrational
price structure of IC's where selling price often falls below manufacturing
cost, overcapacity is rife, charges of dumping abound, etc.)
(c) An Example of Government-Industry Cooperation: The British Post
Office has long been concerned with the development of high-reliabtlity com-
ponents for deep-water cable systems. Originally, repeaters involved tube
amplifiers with long life and stable performance. Recent cable installations
are based upon semiconductor amplifiers. The development pattern has bean the
same. Original development, including materials engineering, has been carried
out in the BPO laboratories until the desired performance has appeared
cer tainly at tainable . The material development has involved long-lif e oxide
cathodes, purification of electrode materials and process development for the
electron tubes, and semiconductor-materials refinement for the transistors.
When the required performance appeared within range, industrial firms
were sponsored to complete product development and ultimately to undertake
production. Information interchange was carried out between the companies
under the direction of the Post Office laboratory management to assure complete
availability of all technology developed by any of the groups involved.
Through this pattern, the Post Office has concentrated upon the key com-
ponent necessary for the system success and has assured its availability and
quality. The results have been highly successful cable systems, on schedule.
The most recent example is the first 1860 channel cable, at a cost below
competing systems in other countries.
(d) National Strategies for Electronics; A small country in a large world
. . . .
has the same problems, essentially, as a small company in a large industry -
in order to make a significant contribution to knowledge, to progress, or to
prosperity, it must be selective. The U.K. has selected III-Y compounds as an
area where it planned to do something worthwhile. For the future it has to
choose other areas where it has a good chance of contributing in a similar
I .
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way. The first step is to survey scientific fields and draw conclusions on
which areas should be tackled and at what level of effort. A country, just
like a firm, cannot be first at everything' But it has to be first at some-
thing (to attract and keep its creative peop e). It will consciously decide
to be a 'good second' at a selected list of things and, again consciously,
accept it can do nothing at all in others. Thus, it appears that the U.K.
decided it would be first in civil use of nuclear energy and supersonic
civilian aircraft (jointly here because of cost), a good second in tele-
communications and computers, and not complete in space technology.
The means of selection are many but one source of valuable input infor-
mation is represented by the studies carried out by the Science Research
Council (SRC) into various fields of physics "to establish whether the subject,
scientifically and technologically, merits the special encouragement."
Reports issued so far cover:
The Physics of Surfaces
The Physics of Amorphous Materials
Ion Implantation
Parenthetically, France appears to have no clear policy regarding
development of electronic fields or materials science and engineering. Some
years ago, the government undertook to concentrate on computer technology, and
a consortium of companies was organized and funded. The output was not very
successful.
A similar attempt was made in the components field. One move in support
of this action was the establishment of a regulation against the use of
foreign semiconductor components in French equipment.
Electronic Materials in the U.S.S.R.: It has long been apparent from
. . . . . .
the U.S.S.R. scientific literature, and it is confirmed by visits to Russian
laboratories, that by Western standards there are very large numbers of
scientists who concentrate on preparing samples or growing crystals of
electronic materials of various compositions and catalog their properties.
This approach was championed by Ioffe. However, the specimens are not care-
fully characterized; vast numbers of dielectric, magnetic, and semiconducting
compositions have been explored without any really important discoveries.
Two achievements in electronic materials should be mentioned, however;
electroluminescent pen junctions in sit icon carbide crystals, and the worlds
first double-heterojunction containment injection laser operating continuously
at room temperature. Both achievements represent real skill with materials,
but it is important to observe that these achievements were stimulated and
paced by applied physicists and engineers who had definite device objectives.
Both advances occurred in the Ioffe Physical-Technical Institute at Leningrad
where there is relatively good coupling between science and engineering.
On the other hand, there are many research institutes exclusively devoted
to various materials: to semiconductors, to thermoelectrics, to the growth
of single cyrstals, to superhigh pressures, to superhard materials, and so on,
which have no counterparts, at least with regard to size, in the U.S. Some
Representative terms from entire chapter:
electronics industry
