sophisticated functions into nonelectronic products such as automobiles. The role that microelectronic devices play in high-technology weapons systems—already significant—will likely increase as well.

These issues form the context for this assessment of U.S.-Japan strategic alliances in the semiconductor industry, which focuses on alliances that transfer or develop technology. The purpose of the study is to examine the scope and nature of alliances, to identify the forces behind them, and to consider the impacts on the participating organizations and the United States as a country.

Strategic alliances have long played a limited role in the semiconductor industry. By the time the Japanese industry had established its leading position in the mid-1980s, however, it was clear that the number of U.S.-Japan alliances was increasing sharply from the low level of activity prior to 1980. This general trend has continued to the present. Further, U.S.-Japan strategic alliances appear to have become deeper and more significant in terms of their impact on companies and on the semiconductor industry's competitive landscape.

To summarize some of the major themes of this report, a number of forces have contributed to the expansion of U.S.-Japan alliances. From the U.S. perspective, small start-up firms increasingly turn to large Japanese companies to supplement or replace traditional sources of financing for growth, such as venture capital. For small U.S. firms and large American companies, linking with Japanese partners can provide access to advanced manufacturing capability and to the rapidly growing Japanese market—now the largest in the world. For the large, integrated "silicon majors" that dominate Japanese industry, linkages with small U.S. firms provide access to complementary technical capabilities that can be leveraged to gain a stronger position in new, design-intensive semiconductor markets as well as downstream systems. In the mid-and late 1980s the majors were joined in forming U.S. alliances by "lateral entrants"—large Japanese steel and equipment companies that used linkages with U.S. companies to acquire the critical mass of technology necessary to diversify into semiconductors and other information industry markets.

Extensive U.S.-Japan alliance activity in an environment of fierce bilateral competition is here to stay for the foreseeable future. When structured properly, alliances can bring substantial short-term benefits to both sides. Because of a more favorable environment for intellectual property protection, some small U.S. companies have been able to structure better alliances than they could in years past, and U.S. access to the Japanese market has been facilitated by alliances.

Yet the spread of alliances raises concerns as well. This report documents that the prevailing flow of semiconductor technology through alliances is from the United States to Japan. Growing U.S.-Japan technical interdependence in semiconductors may reinforce structural weaknesses—particularly



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