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National and Corporate Technology Strategies in an Interdependent World Economy LEWIS M. BRANSCOMB The broad public perception that important conflicts occur between He sovereignty of nations and the business interests of transnabonal cor- porations can be illustrated by a lecture given a quarter century ago by Tony Wedgewood Benn first U.K. Minister of Technology. Speaking at the British Embassy In Washington, D.C., he Introduced the idea Hat Her Majesty's government should appoint ambassadors to He largest multinational companies - on tile grounds dial He companies' gross rev- enues exceed He gross national product of many small counties and Hat Weir policies had more impact on U.K. interests Han did Hose of small states. In introducing the metaphor of foreign relations as a means for doling win significant external forces with which one must cope, Mr. Benn was reflecting the presumption of most governments that multinational oper- ations in their countries pose a threat Hat has to be defended against, rawer Han an opportunity Hat could be exploited to the countries' ad- vantage. Either way, of course, foreign ministries are clearly not the most competent instruments of government to deal with technological issues. In his modest proposal Mr. Benn also caricatured He notion of sov- ereignty, which, of course, refers to He authority vested In a nation-state to exercise control over its own temtories. His humor anticipated a certain amount of political agitation that exists today over these conflicts. In fact, however, when analyzed more closely, the fundamental interests of nations and corporations are surprisingly similar. And learning together to balance national activities and international dependencies is the key to relieving 246

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NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES 247 cement stresses and to achieving bow pages' long-term economic and social Interests. TB DIFFERENT RESPONSIBILllIES OF GOVERNMENTS AND CORPORATIONS Dunng the nineteenth century, great mercantile firms such as Be British East India Company with eider tacit or explicit support from Weir gov- emments~id Indeed challenge sovereign authority in many parts of Be globe. During the declining phases of colomalism in that century, news stones persisted of banana compares, such as U=t~ Fruit, manipulating corruptible Central American governments. This experience of many de- veloping countries emerging from Weir colonial past she colors national attitudes today. It makes such governments hypersensitive to maintaining Den sovereignty unsullied by either military or economic challenge. Very few matters of current corporate interest in ~ndus~ialized democra- cies result in direct confrontational challenges to sovereignty by companies. When the governments of India, Nigeria, or I'ldonesia decide to adopt policies that IBM believes reduce its prospects of success below acceptable levels, the company does not hire mercenanes; it leaves He county or changes the way it does business. Though direct corporate challenges to national sovereignty are disappearing, there is, it seems, a concomitant grown in the ways in which an increasingly global economy impinges on sovereignty. At the heart of the friction between interdependent nations and cor- porations is a simple Dub: Although neither companies nor nations are absolute masters of their fate, companies have a great adaptive advan- tage In Weir ability to redefine Heir commitments In response to op- portunity or to changes in their political environment. Governments' responsibilities, on the over hand, are less flexible. Governments are responsible to and for individuals living within their national borders, are directed by a constitution or set of political norms Cat specify rel- auvely inflexible commitments, and are bow burdened and Inspired by the blood, suffering, and heroic myths invested In He defense of their physical boundaries. The issue of interest, therefore, is not companies challenging sover- eignty, but a more complex question of synergy or conflict between the interests of turo Apes of global organ~zanons. Both nations and companies have interests Hat cross physical borders, but nations are committed to a particular piece of geographic '`turf"' and companies are not. The com- plexity of interaction between these two types of organizations is rising fast for both political and technological reasons.

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248 LEWISM. BRANSCOMB Technology diffuses faster and Fisher Can ever before, and most of Be effective transfer of technology is planned and accomplishecl by cor- pora~cions. However, no nation can leave the acquisition of technological capability to chance. Governments not only engage in the direct promotion of technology but increasingly seek to influence Me strategies of enter- pr~ses. They have a keen interest in We success of technology-promodon activities, even when prospects for success are low, but businesses are unlikely to invest if success is unlikely, unless Be potential rewards are commensurate. Companies choose Weir own strategies to match expec- tations of market opportunity to investment risk, while accommodating the policies of governments in each county where Key choose to do business. The current situation in the People's Republic of China (PRC) is a good iBus~ation of these issues, because a unique high-nsk/high-reward situ- ation exists there for bow Be government and foreign business. Businesses stardng joint ventures In China may be pess~shc about Weir likely commercial success, but Be potential markets are so huge that, In Be long run, even a small chance of success warrants a considerable effort and Investment. The PRC's need to master certain key technologies also creates a high-nsk/high-reward situation, in Cat Be importance of He technology may warrant considerable political risk in ~y~g to acquire it Trough joint ventures web foreign firms, even when this might give a particular fun undesired market power in the county or lead to unwanted foreign political or cultural influences. As illustrated by He next section, trade-offs are less clear in over situations. GOVERNMENTAL POLICIES AFFECTING TECHNOLOGY Just as tolerance for risk and expectations for success are sometimes perceived differently by businesses and political bodies, motivations also may differ gready. Trade policy and national security concerns dominate U.S. government interest in corporate technology strategy. The expansion of federal R&D investment is now largely in defense. Encouraging friendly governments to participate in the Strategic Defense Initiative (SDI) coexists uneasily in the U.S. technology policy agenda with export controls on technology and access to foreign markets for U.S. "high-tech" companies. At He same time, bow in He United States and abroad, there is concern Cat the country not become dependent for strategic goods on a supplier in a foreign nation Hat might not be reliable under certain future political conditions. AR counuies naturally feel He need to preserve political control over Heir defense industrial base, because future alignments of their sum pliers of key components for military purposes are unpredictable.

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NATIONAL AND CORPORA TO TECHNOLOGY ST~TEGI~ 249 In the case of SDI, the United States invites European participation to encourage political support for He program in return for a certain amount of technology sharing. But, on the other hand, the U.S. government does not want to increase Be chances of leakage of the militarily relevant pieces of Be technology to Be Eastern Bloc. Reducing budgetary costs Trough cost sharing is also an important motivation, but We effort is to achieve the maximum amount of cost sharing and political solidarity behind SD} without sharing more technology than is absolutely necessary. Many Europeans, for Heir part, fear that failure to participate in SDI might disadvantage their economies if the SD! technologies turn out to stimulate U.S. commercial competitiveness. They harbor the suspicion Hat U.S. reticence to share fully is based at least as much on reluctance to accept European industrial panty as it is on fear that technology will leak to the Soviets. The same considerations are apparently operating In negotiations over European and Japanese cost sharing and cooperation In the Space Station program. Here again He U.S. objective appears to be to achieve a foreign financial contribution without sharing any more critical technology Dan is necessary. Expectations at present appear unrealistic in this regard. Japanese policy, on the over hand, is focused on industrial competi- oveness in export markets as He primary strategy for dealing wig Japan's dependence on unparted food, energy, and raw materials. Industry has a strong voice ~ He government's technology strategy, and government concerts Industry action in He export arena, leaving domestic competition largely free of government direction. In Europe Here is superposed on each country's national policy a re- gional attempt to gain He benefits of European economic integration wi~- out paying the political and cultural penalty of more extensively shared sovereignty. The success of U.S. and Japanese firms in He strategic high- tech industries and concern about European competitiveness are motivating a variety of national and European government programs to encourage collaboration among firms and universities in research of strategic com- mercial importance. The extent to which national companies and He na- tional subsidiaries of translational enterprises seek-and are allowed . . . to participate in these programs provides an interesting test of He com- paubility of corporate and governmental technology policies. The People's Republic of China offers a particularly interesting example because public policy for technology promotion is In such a rapid state of change. The liberalized economic policy of die current government seeks to leverage foreign-owned technology through encouraging foreign investment under negotiated teens and Hereby attain technological self- sufficiency as quickly as possible. Corporate and national strategies for

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250 l LEWIS M. BRANSCOMB technology mastery by indigenous Chinese enterprises are explicit and often cent elements In Hat negotiation. A final example is Brazil, which follows a mixed strategy, cent ally directed, to encourage foreign investment in selected areas and reserve the large domestic market In others. This market-reservation policy is pursued win considerable tenacity, ever to Me powt of refusing permission to foreign firms Ming to export from Brazil the majority of their man- ufac~red output. The conflict between Me interests of firms and the policies of government is highly visible In this situation, since there is such deep disagreement on the effectiveness and risk-of this strategy for technical development. It seems clear Cat Brazil is hying to use the protected, elevated price structure denved from reservation of its domestic market to finance learn- ~ng-by-do~ng In technology, regarded as key to Be counters economic future. The government believes this win produce the most rapid feasible achievement of self-sufficiency ~ technology. In effect, domestic cus- tomers are being asked to subsidize the self-education of local technolm gists, without the stimulation of external competition. The underlying assllmpnon is apparently Cat this costly learning-by- do~ng will be more effective In Be long run Can assimilation of foreign technology Trough joint ventures and foreign direct investment. This strategy contrasts with Cat of the PRC, which apparently believes Mat more rapid technology transfer through carefully controlled foreign in- vestrnent more than offsets the risk that technology assimilation by this mechanism wild be superficial and ineffective. These examples illustrate He diverse motivations and approaches to technology policy around Be world. hn each country, the national enter- pnses seek the support of Heir government while seeking freedom of action within its policies. But, In most cases, conflicts of interest between translational companies and He central government do not turn on chal- lenges to He sovereign au~onty of government. Rather, Hey hinge on die struggle for domestic political consensus on economic and industrial policy and debates about sharing those policies wide other nations. There- fore, Be folBowing discussion focuses on the subsidiaries of transnanona companies and Weir relations with host governments and national enter- puses. Although Be interests of governments and transnational corporations differ, it should be noted that Key share many- indeed most~bjectives in common. Companies are often eager to invest In building high-tech capability in counties where local markets are accessible and need local support capabilities. Political leaders in such countries are often equally eager to accelerate technological development in Be search for new jobs

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NATIONAL AND CORPORATE T~C~NOLOGYST~TEGIES 251 and productivity and to ease industrial readjustment. In many countries the subsidiaries of transnationals enjoy a special relationship with gov- e~nent close to that enjoyed by domestically based transnabonals, even to Me extent of substantial participation in joint ventures, gove~nent de~d enterprises, and sales to government agencies. The IBM Corporation's experience In Europe and in Japan has been very positive, despite occasionally publicized controversies. IBM Japan is a wholly owned subsidiary of ~M, dating back to Me 1930s, which participates effectively In Japanese and Asian markets, making a substantial positive contribution to Japanese exports to Asia and Soup Amenca. IBM Italy is officially designated a national Italian company because of its contributions to the country's employment, economy, and development of science, technology, and professional skills. SOURCES OF CONFLICT Given this synergy of Interest, why do Me inevitable divergences In technology policies of governments and translational business attract so much attention and occasionally cause so much friction? Conflict between Me interests of transnational companies and Bose of national governments arises from several chief sources. first, ~ansnational companies are some- times better positioned to take advantage of policies for enhancing regional competitiveness Ban are national companies. When the European Eco- nomic Community (EEC) sought to integrate die European economies, firms such as IBM had little difficult organizing their businesses to take advantage of the special strengths of each country, avoid needless dupli- cation, and serve the entire market with a product tine of minimum national diversity. IBM's success demonstrates the effectiveness of the EEC strat- egy, provided there are private firms willing and able to take advantage of it. Transnationals based in Europe have been much slower to find those advantages, which are equally available to all. Indeed, ~ 1970 three governments urged three of their domestically based multinationals Siemens, CII-Honeywell-Bull, and Philips to organize a joint marketing venture caned Unidlata to aggregate a Europewide market for their com- puters. It soon fell apart when the Dutch withdrew and Be French con- sortium encountered hard times. Commercial marriages made Trough political efforts are vulnerable to failure if the natural forces of business motivation are weak or absent. A second source of conflict is He inevitable political perception that any strategy that increases economic dependence on foreign enterprises and their governments necessarily reflects a d~nuiion of control over

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252 I EWIS M. BMNSCOMB He nation's destiny. There are plenty of signs of increasing U.S. sensitivity to dependence on foreign suppliers. Indeed, Be defense market in the United States has tended to remain a highly protected market Trough buy- Amencan laws and other policy interventions to ensure Mat U.S. military capability is based plumply on a domestic industrial base, even at high incremental cost. This is especially evident, for example, In shipbuilding. Overall, however, Americans are skill much less sensitive to We political burden of an ever-increasing dependence on trade for national survival. Europeans and Japanese have lived with this reality for a very long time. We will learn to live with it too as our dependence grows. It is to be hoped Cat when our dependence equals theirs, our gove~nment's chauvinism in dealing with foreign enterpnses is no worse Pan theirs. Third, aD governments must deal with We realides of employment, inflation, and grown, and also win public perceptions of the nation's ability to improve its prospects. IN most democracies Lose public per- cepi~ons, as amplified by the media, are We politically relevant measure of He effectiveness of government policies. Indeed, tile more severe He challenges of unemployment and inflation, He more conspicuous is He public concern about foreign dependence and control. Everyday policies are often pragmatic, designed to encoumage bow foreign and domestically owned enteIpnses to invest and expand the econ- omy. But structural economic change is hard to measure objectively, He perception of change may be politically much more salient Han the reality. Thus, most governments give great political weight to He significance of domestic ownership of national enterprises. When acting in He public view, government officials may favor a domestically owned company that Imports goods of foreign manufacture over a ~ansnanonal firm's local subsidiary, even Bough it employs thousands of people; Invests heavily ng, research, and development; and contributes more to national economic performance and He balance of trade than He domestic firm. Local ownership is, dlerefore, a symbol of national self-sufficiency, but it is often a poor criterion for economic development policy. Fourth, conflict can arise when governments, including that of He United States, assert He right to extend national sovereignty to domestic firms' subsidiaries on foreign soil and Hereby exacerbate nationalistic political reactions. IBM's ability to market its largest computers to French gov- ernment agencies is still adversely affected by French memories of the U.S. government's refusal to license large IBM computers to the French atomic energy authonq, as a point of pressure on Charles de Gaulle over French nuclear policy. These old memories have been revived by current processes for licensing large vector processors to Western Europe. The Caterpillar Tractor Company has only recently recovered from the dis

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NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES 253 ruption of its European business by the U.S. government's intervention in contract compliance on the Europe-USSR pipeline. In the meantime, Japanese competitors have greatly increased Weir market share in this business sector. FmaBy, political leaders of countries experiencing economic difficulties, or nurturing nascent industries, may also discnm~nate against foreign ~nvesunent even when it builds local infrastructure, reduces unemploy- ment, and helps solve serious balance-of-trade problems. Nabonal sub- sidianes, in response, attempt to demonstrate in every way Hey can that Hey are, in fact, national companies and make positive contributions to national well-be~ng. The more enlightened companies recruit and train nationals to manage and staff their local subsidiaries. They work hard to integrate He subsidiary into He social, economic, and technical life of He community. Yet, Hey too must balance this emphasis on national identity with the extranadonal interests of the enterprise of which they are a part. They are often torn between He ~mperadves of a global strategy and the perceived pnonties of local national econorn~c development. NEW TECHNOLOGICAL STRATEGIES Companies as well as governments share an increasingly complex task. The world is evolving from a loosely coupled set of independent nation- states to a highly complex world economy whose institutions of extra- and international sovereignty are still undeveloped, and in which national boundaries are often a poor fit to more natural economic regions. Reflecting them awareness of these political realities, managements of bow transnational companies and governments pursue technological strat- egies that are designed in part to reinforce perceptions that are important to ~em. Companies, for example, by to locate their manufacturing fa- cilities to minimize negative balance-of-trade impacts and to demonstrate a significant contribution to national technological capability. Nations, alone or in regional concert, embark on highly visible technology projects in He hope of stimulating industrial collaboration, building consensus around long-term, technology-intensive industrial strategies. The long series of 10-year projects sponsored by the Ministry of In- temational Trade and Industry (M1TI) in Japan, perhaps the best-known recent example of such a long-term industrial strategy, stimulated much of He enthusiasm for Europe's response in similar vein. Conditions in culturally homogeneous Japan, however, are much more propitious for cooperative technology ventures on a national scale than the conditions for regional cooperation in Europe. In addition, many people exaggerate

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254 f FWIS M. B~SCOMB the importance of technical projects supported by Mm, which are more a symptom of a nationally concerted strategy for capturing a larger share of world markets In selected industries dean the source of Mat trade success. Nevertheless, Were is no doubt that, even though some of Me MINI programs (such as Pattern Information Processing Systems, or PIPS) are not regarded as successful by many, the Japanese government does direct a substantial amount of funding into carefully selected, commercial tech- nolog~es of perceived future importance. ~ most programs, although sur- prissily not in its current artificial Intelligence program at Me Institute for New Generation Computer Technology (ICOT), the government gives strong emphasis to field teals and applications research to test market acceptance. In Europe, the EEC sponsors He European Strategic Program for Re- search and Development in Formation Technology (ESPRIT), which ~n- cludes a large number of relatively small research-oriented projects at the precompetitive level. The most commercially important of these projects is probably Be collaboration between Siemens and Philips in sub~nicron inte- grated circuit technology. IBM does participate in ESPRIT. After careful and protracted negotiations, the IBM Europe/Middle East/Africa Corpora- Ion was allowed to submit proposals, two of which have been accepted and are under way. One, for example, deals with the application of artificial intelligence techniques to computer-integrated manufacturing. The bread of participation in ESPRIT is probably due pumanly to die availability of EEC funds, representing "new money" that is less subject to parochial national interests than He funds of national governments would have been and also the precompent~ve name of He projects. A second EEC pronoun, caned RACE (Research in Advanced Com- mun~cations in Europe), funds cooperative projects in digital telecom- mun~cations, an~acipanag He broad-band, integrated voice and data networks of the future. ~ this case, transnational companies share wig He EEC the hope that He RACE project will put pressure on the national post, telephone, and telecommunications authorities to adopt more ambitious and compatible technical goals. The balkanizanon of the telecommuni- cations infrastructure of Europe is a significant handicap, to both tech- nological and economic modernization. Whether a set of cooperative technology projects such as RACE can achieve this result is, of course, an open question, but in this case national, EEC, and company interests both European and foreign based strongly coincide. Another example is the Community in Education and Training for Tech- nology (COMETS) program, in which advanced sa~cellite-based industrial education experience will be shared. IBM is willing to make an important contribution to COMETS, and it is highly likely that this will be welcomed.

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NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES 255 In the United States, government-~nitiated projects to promote com- mercial strategies may have Weir ong~n In response to military R&D initiatives. As noted earlier, In 1985 the United States put considerable political pressure on European governments to participate in Me vastly expensive and ambitious research and technology development for the SDI. The European reaction, especially in France, was to accept He proposition that sponsor technology from SDI might give them commercial advantage in the future (or at least prevent them from experiencing a further commercial disadvantage relative to Me United States), yet to fear that U.S. export controls would be used later tO limit European freedom tO use the technology commercially if they did participate. President Mitterand's response was to Isutnch the European technology cooperation program called EUREKA, whose projects are chosen for Dew commercial, not military, value and unlike ESPRIT are not limited to precompetitive research. European governments have embraced EUREKA in principle and of- ficially regard it as "complementary" to Be EEC's "Technology Com- muriity" proposal. like EUREKA and ESPRIT, Be Technology Community proposal focuses on the set of technologies that all countries generally regard as strategic: informadcs, biotechnology, advanced materials, au- tomation, telecommunications, lasers, and educational technologies. A mechanism is ~ place for selecting EUREKA projects, and 26 have been selected. But there is no reserved funding at Be EEC or intergov- ernmental level for EUREKA projects. They are referred back to national governments for possible support. Thus, it is not surpus~g that private enthusiasm for EUREKA does not match the political support it enjoys In public, Indicating that private assessment of the commercial benefits is considerably less optimistic than the public assessment. Nevertheless, Mere is a broad movement, In Europe and Japan espe- cially, to put high on He political as well as the business agenda the quest for what Hubert Cunen, French Minister of Research and Technology, called the "technical renaissance of Europe." The leaders of compannes and governments alike must surely welcome this new pnonty, even as Hey debate what forms of public action will produce the desired results. Since such highly visible national or multilateral projects require He panicipabon of commercial films across national lines, difficulties do arise at this juncture. F=ns, like governments, appreciate He symbolic im- portance of technological success, for Hey too have a vita] interest in public perceptions. But firms measure the results of their investments by more conservative criteria Can do governments: high expectation of a contribution to competitive success. Thus, the prevailing pattern is Hat firms publicly support He goals of

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256 LEWIS At. BRANSCOAlB the government projects and will generally seek to participate, especially if Weir competitors do. The projects are generally not only "prepropnetary" but are smaller than mainstream corporate projects. The occasionally much larger projects are sometimes joint ventures already under negotiation among private firms. Bow ~ansnabonal companies and governments must manage the balance between national activities and intemabonal mterdependences. A com- pany's subsidiaries in different counties are collaborating, not competing, with each other. The company has an incentive to build its technical strategy on the totality of its worldwide capability. A government more typically regards the national economy In competition win all others, and its leaders seek to optimize He economic advantages of their electorates, independent of Be others. A problem here is Cat "economic advantage" tends to be defined as benefits to producers rather Man to consumers, who are much less well organized to protect and register their interests. It is not at all clear ~at, even in Be narrowest terms, Be quality of life of electorates overall is }mproved by nationalistic strategies. Of course, since national subsidiaries work hard at canting acceptance as national entices, Hey too share national economic asp~rabons, and their political views may well be In full accord Ural their governments'. In most regions of He world, both political and economic realides are forcing nations to make common cause at least regionally, and the European Common Market is He most conspicuous example. Thus, He tensions between self-sufficiency and interdependence, be- tween nationalism and global development, between technology for profit and technology for investment In public perception, between strategies seeking market access and political acceptance and strategies optimizing near-term total business performance, wall continue. Eventually, the ~n- ternadonal diffusion of culture and ethnic~ty, and Be imperatives of global interdependence, win begin to relieve these stresses and soften He more strident nationalistic ~ends. But it will take a long time. Meanwhile, we must work toward trade policies, ~ntemabonal technological exchange, and intemadonal cooperation that is based more on economic realides that nations and companies face Man on eime-honored symbols of sovereignty Hat may not accord with anyone's long-term national interest.