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The Internationalization of
U.S. Manufacturing:
Causes and Consequences
Committee for the Study of the Causes and Consequences
of the Internationalization of U.S. Manufacturing
Manufacturing Studies Board
Commission on Engineering and Technical Systems
National Research Council
NATIONAL ACADEMY PRESS
Washington, D.C. 1990
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NOTICE: The project that is the subject of this report was approved by the Governing Board of the
National Research Council, whose members are drawn from the councils of the National Academy
of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of
the panel responsible for the report were chosen for their special competence and with regard for
appropriate balance.
This report has been reviewed by a group other than the authors according to procedures
approved by a Report Review Committee consisting of members of the National Academy of
Sciences, the National Academy of Engineering, and the Institute of Medicine.
The National Academy of Sciences is a private, nonprofit, self-perpetuating society of dis-
tinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of
science and technology and to their use for the general welfare. Upon the authority of the charter
granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the
federal government on scientific and technical matters. Dr. Frank Press is president of the National
Academy of Sciences.
The National Academy of Engineering was established in 1964, under the charter of the National
Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its
administration and in the selection of its members, sharing with the National Academy of Sciences
the responsibility for advising the federal government. The National Academy of Engineering also
sponsors engineering programs aimed at meeting national needs, encourages education and research,
and recognizes the superior achievements of engineers. Dr. Robert M. White is president of the
National Academy of Engineering.
The Institute of Medicine was established in 1970 by the National Academy of Sciences to
secure the services of eminent members of appropriate professions in the examination of policy
matters pertaining to the health of the public. The Institute acts under the responsibility given to the
National Academy of Sciences by its congressional charter to be an adviser to the federal government
and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Samuel
O. Thier is president of the Institute of Medicine.
The National Research Council was organized by the National Academy of Sciences in 1916 to
associate the broad community of science and technology with the Academy's purposes of furthering
knowledge and advising the federal government. Functioning in accordance with general policies
determined by the Academy, the Council has become the principal operating agency of both the
National Academy of Sciences and the National Academy of Engineering in providing services to the
government, the public, and the scientific and engineering communities. The Council is administered
jointly by both Academies and the Institute of Medicine. Dr. Frank Press and Dr. Robert M. White
are chairman and vice-chai~man, respectively, of the National Research Council.
This study was supported by the Federal Emergency Management Administration and the
National Science Foundation under Contract No. DMC-871-3483 between the National Science
Foundation and the National Academy of Sciences, and by the Academy-Industry Program of the
National Research Council.
Library of Congress Catalog Card Number 90~2810
International Standard Book Number 0-309-04331-X
Limited copies are available from:
Manufacturing Studies Board
National Research Council
2101 Constitution Avenue, HA 270
Washington, DC 20418
Additional copies are available for sale from:
National Academy Press
2101 Constitution Avenue, N.W.
Washington, D.C. 20418
S214
Printed in the United States of America
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COMMITTEE FOR THE STUDY OF THE CAUSES AND
CONSEQUENCES OF THE INTERNATIONALIZATION OF
U.S. MANUFACTURING
PAUL J. KEHOE (Chairman), Vice Chairman (retired), Kellogg
Company, Battle Creek, Michigan
CLAUDE E. BARFIELD, Director, Science and Technology Studies,
American Enterprise Institute, Washington, D.C.
KAN CHEN, Professor of Electrical Engineering and Computer Science,
University of Michigan, Ann Arbor
CHARLES E. EBERLE, Executive Vice President, Consumer Products
Business, James River Corporation, Richmond, Virginia
MURRAY FINLEY, President (retired), Amalgamated Clothing and
Textile Workers Union, New York, New York
HERBERT I. FUSFELD, Director, Center for Science and Technology
Policy, School of Management, Rensselaer Polytechnic Institute, Troy,
New York
HOWARD K. GRUENSPECHT, Economic Advisor to the Chairman,
International Trade Commission, Washington, D.C.
IAN HANCOCK, Managing Director, Putnam, Hayes & Bartlett, Ltd.,
London, England
WILLIAM C. HI11INGER, Executive Vice President (retired), RCA
Corporation, Summit, New Jersey
WILLIAM G. HOWARD, JR., National Academy of Engineering Senior
Fellow and Senior Vice President and Director of R&D, Motorola,
Inc. (on sabbatical), Scottsdale, Arizona
MELVIN KUPPERMAN, President, ~ Epstein & Sons International,
Inc., Chicago, Illinois
TINA M. MARQUEZ, Purchasing Manager, Apple Computer, Inc.,
Fremont, California
DAVID C. MOWERY, School of Business, University of California,
Berkeley
WILSON NOLEN, Corporate Vice President and Assistant to the
Chairman and CEO, Becton Dickinson and Company, Franklin
Lakes, New Jersey
MICHAEL OPPENHEIMER, Executive Vice President, The Futures
Group, Glastonbury, Connecticut
C. K PRA1HALAD, Professor, Corporate Strategy and International
Business, School of Business Administration, University of Michigan,
Ann Arbor
MICHAEL RADNOR, Professor, Kellogg Graduate School of
Management, and Director, Center for Interdisciplinary Study of
Science and Technology, Northwestern University, Evanston, Illinois
, . .
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JOHN C. READ, Vice President & General Manager, Engine Group,
Donaldson and Company, Minneapolis, Minnesota
J. RONALD STEIGER, JR., Vice President for Computer-Integrated
Manufacturing, IBM Corporation, Purchase, New York
W. EDWARD STEINMUELLER, Deputy Director, Center for Economic
Policy Research, Stanford University, Stanford, California
SIDNEY TOP OL, Chairman of the Board, Scientific-Atlanta, Inc.,
Atlanta, Georgia
Staff
THOMAS C. MAHONEY, Project Director, and Acting Director of the
Manufacturing Studies Board
KERSTIN B. POLLACK, Deputy Director of the Manufacturing Studies
Board, and Director of New Program Development
ERIC ~ THACKER, Research Associate
LUCY V. FUSCO, Staff Assistant
1V
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MANUFACTURING STUDIES BOARD
JAMES F. LARDNER (Chairman), Vice President (retired), Component
Group, Deere & Company
MATTHEW O. DIGGS, JR., Vice Chairman, Copeland Corporation
GEORGE C. EADS, Vice President, Product Planning and Economics,
General Motors Corporation
HEINZ K FEtIDRICH, Vice President, Manufacturing, IBM Corporation
LEONARD A. HARVEY, Executive Vice President (retired),
Borg-Warner Chemical Company
EDWARD E. LAWLER III, Director, Center for Effective Organization,
University of Southern California
JOEL MOSES, Head, Department of Electrical and Computer
Engineering, Massachusetts Institute of Technology
LAURENCE C. SEIFERT, Vice President, Communications and
Computer Products, Sourcing and Manufacturing, AT&T
JOHN M. STEWART, Director, McKinsey and Company, Inc.
WILLIAM J. USERY, JR., President, Bill Used Associates, Inc.
HERBERT B. VOELCKER, Charles Lake Professor of Engineering,
Sibley School of Mechanical Engineering, Cornell University
v
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Preface and Acknowledgments
Confronted with ever-increasing volume of foreign products competing
for domestic and global market share, a rapidly rising number of foreign
companies establishing manufacturing operations in the United States,
and world-wide dispersion of skills and technology, U.S. manufacturing
finds itself in a new, largely unfamiliar, competitive environment. Global
competition has become a powerful driving force behind manufacturing
investment, operations, and strategic decisions.
Of course, U.S. multinationals have led the way in foreign investment,
building global manufacturing presence and gaining global market share by
internationalizing their operations. However, the pace of change in global
markets has accelerated in the last 15 years, with unprecedented levels
of penetration of the U.S. market through imports and direct investment,
growing competitive challenges to American products in foreign markets,
and a rise in the size, number, and capabilities of foreign multinationals that
has eliminated the dominance of U.S. firms. Internationalization has forced
rapid change on companies historically immune to foreign competition and,
in a short time, totally redefined the meaning of competitive manufacturing.
The pace of change has arguably left many companies unprepared.
Accustomed to solving domestic customers and fighting well-known com-
petitors, many firms have had difficulty adapting to new competition. The
need to help U.S. manufacturers and policymakers respond to greater for-
eign competition and continued international interdependence led directly
to this project. With funding from the Federal Emergency Management
. .
V11
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Agency, the National Science Foundation, and the Academy-Industry Pro-
gram, the Manufacturing Studies Board of the National Research Council
formed the Committee on the Causes and Consequences of the Interna-
tionalization of U.S. Manufacturing. The committee was asked to examine
the responses of U.S. manufacturers to trends in international competi-
tion and to relate these competitive responses to current and prospective
government policies.
The findings and analysis contained in this report are based on the
committee members' experience either managing, studying, or advising
major multinational manufacturers. Information was gathered through in-
terviews with senior managers from manufacturing companies in industries
as diverse as biotechnology, paper products, and auto parts. In addition,
professors from the Center for the Study of U.S.-Japan Relations at North-
western University, led by Dr. Atul Wad, conducted interviews for the
committee with senior manufacturing managers in Japan. The report has
also benefitted from a parallel effort by a National Academy of Engineering
study committee that has explored the globalization of technology and its
policy implications for the United States (National Interests in an Age of
Global Technology, 19~30~.
Based on its discussions and analysis of the current environment for
international competition, the committee has written this report to dispel
misconceptions regarding the drivers of internationalization and, therefore,
to improve understanding of both the challenges and the opportunities of
a global market and production base. Important consequences of inter-
nationalization for both manufacturers and national policy are described.
Finally, the committee provides its assessment of what it takes to be suc-
cessful as manufacturers and as a nation in the international competitive
environment.
The Committee on the Causes and Consequences of the International-
ization of U.S. Manufacturing is responsible for organizing and conducting
the research and writing the findings of this study. Our work would not
have been possible without the contributions of the Manufacturing Studies
Board staff: former executive director George Kuper, deputy director Ker-
stin Pollack, senior staff officer Tom Mahoney, and administrative assistant
Lucy Fusco. We also wish to thank Proctor Reid for his assistance during
the early stages of the project and Kenneth Reese for his help in editing
the final report.
. . .
vail
Paul J. Kehoe
Chairman
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Contents
EXECUTIVE SUMMARY.
1. INTRODUCTION
CAUSES OF INTERNATIONALIZATION ..
Changes in Global Markets, 10
Global Dissemination of Technology, 16
Changes in Cost Priorities, 22
Political and Economic Factors, 26
Conclusion, 30
NATIONAL ECONOMIC AND POLITICAL IMPLICATIONS
Inward Investment and Foreign Ownership, 34
Technology Flows, 37
Domestic Versus International Policy, 38
Inadequate Information, 39
Conclusion, 40
4. KEYS TO SUCCESS ..
Sources of Corporate Success, 41
Sources of National Success, 50
IX
. . 34
..... 41
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5. CONCLUSION.
APPENDIX: INDICATORS OF INTERNATIONALIZATION..
BIBLIOGRAPHY
....57
.59
x
.... 63
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The Internationalization of
U.S. Manufacturing:
Causes and Consequences
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