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Series on PROSPERING IN A GLOBAL ECONOMY National Interests in an Age of GIobal Technology Thomas H. Lee and Proctor P. Reid, Editors Committee on Engineering as an International Enterprise 11119 NATIONAL ACADEMY OF ENGINEERING NATIONAL ACADEMY PRESS WASHINGTON, D.C. 1991

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Committee on Engineering as an International Enterprise THOMAS H. LEE, Chairman, Professor of Electrical Engineering, Massachusetts Institute of Technology THOMAS D. BARROW, Retired Vice Chairman, Standard Oil Company of Ohio W. DALE COMPION, Lillian M. Gilbreth Distinguished Professor of Industrial Engineering, Purdue University ELMER L. GADEN, a., Wills Johnson Professor of Chemical Engineering, University of Virginia DONALD L. HAMMOND, Retired Director, Hewlett-Parkard Laboratories, Hewlett-Packard Company WILLIAM G. HOWARD, Jr., Senior Fellow, National Academy of Engineering TREVOR O. JONES, Chairman of the Board, Libby-Owens-Ford Company MILTON LEVENSON, Executive Engineer, Bechtel Power Corporation PETER W. LIKINS, President, Lehigh University EDWARD A. MASON, Retired, Vice President Research, Amoco Corporation BRIAN H. ROWE, Senior Vice President, GE Aircraft Engines, General Electric Company WILLIAM J. SPENCER, President and Chief Executive Officer, Sematech WILLIS S. WHITE, JR., Chairman and Chief Executive Officer, American Electric Power Company . . . Zi!

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NAE STAFF PROCTOR P. REID, Study Director, Senior Program Officer BARBARA L. BECKER, Administrative Assistant BRUCE R. GUILE, Director, Program Office H. DALE LANGFORD, Editor JAMES R. PORTER, NAE Intern ANNMARIE M. TERRACIANO, Program Assistant IV

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Preface Since World War II, major transformations of the world's economic, social, and political structures have been taking place on a scale and at a pace unparalleled in history, and this pace has been quickening over the past two decades. The major driving force powering these transformations is technological progress. The unprecedented advances in our understanding of nature are being rapidly and broadly applied and enhanced through tech- nology in industry, agriculture, medicine, and services to meet human needs, wants, and preferences around the world. The most striking new aspect of these transformations, as compared with past experience, is the speed with which they propagate across national boundaries to reach global dimensions. Scientific, technological, and man- agerial knowledge diffuse rapidly across these boundaries, enlarging the numbers of nations in which technical competence for engineering and pro- duction of a wide range of products may be found. At the same time, the speed and capacity of air transportation bring people, materials, work in progress, and finished goods anywhere in the world in hours. The speed and capacity of satellite and fiber-optic communication and computer net- works make possible the closely integrated management of far-flung indus- trial, financial, and other enterprises and also contribute to tightly linking financial, commodity, and equity markets worldwide. As a result, the full range of productive activities including research, engineering, production, and marketing in many industrial sectors have increasingly become global in scope, implemented through multinational corporations, foreign direct investments, and international joint ventures. The global span of technology and the global economic activities that result v

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Vl PREFACE raise new questions about how we think of national interests and national government roles in overseeing and supporting international industrial activ- ity and trade whose domains increasingly overlap with domestic industry and trade. Correspondingly, definitions of domestic and foreign corporations and their relationships to home and host governments in geographic, eco- nomic, and political terms have become complex and often difficult to deal with in existing public policy frameworks. To examine the implications of the rapidly expanding global economy for the engineering enterprise worldwide and especially in the United States, the National Academy of Engineering convened a Committee on Engineering as an International Enterprise. The committee examined in some detail the international aspects of eight specific industrial sectors (included in the appendixes to this report) in addition to reviewing more generally the international factors affecting a wide range of industries. A symposium entitled "National Interests in an Age of Global Technology" held on =5 December 1989 at the Arnold and Mabel Beckman Center of the National Academies of Sciences and Engineering provided additional viewpoints and discussions on these subjects. There was also an exchange of information with a contemporaneous study, The internationalization of U.S. Manufacturing: Causes and Consequences (National Academy Press, 1990), conducted under the auspices of the Manufacturing Studies Board of the National Research Council. Harvey Brooks, Gerald Dinneen, and Alexander Flax provided valuable insights, guidance, and assistance to the committee over the course of the study's development. Bruce Guile, director of the NAE Program Office, contributed valued intellectual stimulus and overall continuity and manage- ment support for the project. I wish to thank the study director, Proctor Reid, and the members of the committee for their persistence and hard work in bringing this project to completion, and members of the NAE staff, including Barbara Becker, Dale Langford, James Porter, and Annmarie Terraciano, for their able support. This report presents some of the more significant information considered by the committee and summarizes the assessments and judgments arrived at in the committee deliberations. The committee has considered the trends and issues that were perceived from the standpoint of engineering and technology in the broad context of public policy-domestic and foreign-and has indi- cated some ways to help ensure a continuing major role for the United States in a growing and prospering technology-driven world economy. ROBERT M. WHITE President National Academy of Engineering

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Contents SUMMARY AND RECOMMENDATIONS 1. THE EMERGING GLOBAL TECHNICAL ENTERPRISE. . . Convergence in technical capabilities of industrialized nations, 14 Integration of national technology enterprises since the mid-1970s, 23 Growth of U.S. economic and technological interdependence, 25 Changing corporate strategies toward technology development and acquisition, 26 Interindustry variations in the scope and character of globalization, 29 Globalization of U.S. university-based technical capabilities, 35 ,.1 ..... 14 2. OPPORTUNITIES AND CHALLENGES OF GLOBALIZATION 45 The promise of globalization, 45 Challenges facing the United States and its trading partners, 47 Globalization: On balance a positive trend, 52 3. STRENGTHS AND WEAKNESSES OF THE U.S. TECHNICAL ENTERPRISE U.S. comparative strengths, 54 U.S. comparative weaknesses, 61 . . Vl! 54

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. . . V111 CONTENTS 4. CAPTURING BENEFITS OF GLOBAL TECHNICAL ADVANCE: POLICY IMPLICATIONS 71 Globalization of advanced technical activities, 72 The changing character of competition among nations, 73 Implications for the United States, 75 Policy directions, 76 Appendixes A. Industry Technology Profiles, 91 B. Contributors, 138 C. Biographical Information on Committee Members, 146 INDEX 151

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Figures and Tables Figures 1.1 1.3 Scientists and engineers engaged in R&D per 10,000 labor force, by country: 1965-1986 ~ Estimated nondefense R&D expenditures as a percent of GNP, by country: 1971-1987 16 Manufacturing output per manufacturing employee, trends in absolute growth: 1971-1987 18 1.4 Gross domestic product per employed person: 197~1989 1.5 National shares of patents granted in the Unite Ad States, by country of residence of inventor and year of grant, all technologies: 1978 and 1988............................................. 1.6 National shares of patents granted in the United States, by country, product field, and year of grant: 1978 and 1988. 1.7 Global production of high-technology products, by selected countries: 1975, 1980, and 1986 ..................................... 1.8 Exports of high-technology products, by selected countries: 1975, 1980, and 1986 ~22 1.9 Growth and distribution of world outward stock of foreign directinvestmentby country of origin: 196~1987 23 1.10 Growth of world trade, output, and foreign direct investment: 198(}1989 25 1.11 Growth of newly established technology cooperation agreements in biotechnology, information technologies, and new materials: 197~1989 15 ........ 18 ..19 ...... 20 ..... 22

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x Tables FIGURES AND TABLES 1.12 Engineering Ph.D. awards in the United States, by citizenship: 1968-1988 2.1 Ratio of inward to outward stocks of foreign direct investment, by selected countries: 1987 3.1 National R&D expenditures, by selected countries: 1961-1987 Scientists and engineers engaged in research and development, by country: 1986 3.3 National shares of patents granted in the United States, by country of residence of inventor and year of grant, all technologies: 1988 56 3.4 Shares of world scientific literature, by country: 1986 57 3.5 Home markets for high-technology products, by selected countries: 1 Composition of the U.S. science and engineering work force, by citizenship: 1972 and 1982 63 Educational attainment of U.S. scientists and engineers, by origin of citizenship status: 1982 3.8 Gross fixed investment as a percentage of GNP, by selected countries: Average 1975-1987 65 3.9 Fixed investment in machinery and equipment as a percentage of GNP/GDP, by selected countries: 1976-1988 .................................................................... ..50 ..55 ..56 ..58 .64 2-1 Average Intraindustry Trade, Five Countries, Selected Years: 1959-1985................................................................................. ..66 .50 A-1 Aircraft Gas Turbine Engine Industry Participants 94 A-2 Aircraft Engine Technology Profile 97 A-3 Electrical Equipment and Power Systems Industry 126 A-4 Semiconductor Industry Technology Profile 137

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