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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

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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 . .

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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 .

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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.

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8-186 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.

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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.

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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.

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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.

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8-234 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

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8-235 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.

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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

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8-237 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

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8-238 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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8-239 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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8-240 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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8-241 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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8-242 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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8-243 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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8-244 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