on the U.S. side—that lead to an imbalance in long-term benefits. A largely one-sided outflow of technology from the United States to Japan, if continued over the 1990s, could have the cumulative effect of eroding the foundations of America's capacity to innovate in this industry. This erosion would have serious consequences for U.S. computer and telecommunications companies that use semiconductors, for the overall U.S. economy as we move into the information age, and for national security.

For strategic alliances to bring balanced, long-term benefits to participants and to the United States and Japan as countries, it will be necessary to redress these structural weaknesses, which include manufacturing and process technology in the United States, and generic research and new product design-in Japan. For this to happen, significant changes will be required on both sides. There are increasing opportunities for U.S. companies that have built the necessary capabilities to access Japanese technology, as well as some encouraging signs that actions on the part of both industry and government are strengthening the manufacturing infrastructure for U.S. industry. Despite these encouraging signs, however, the larger competitive calculus of an expanding Japanese global market share persists.

New trends in the computer industry and other downstream sectors that buy semiconductors—such as global consortia built around microprocessor standards—will heighten competition in the years to come. The ascendance of companies in South Korea and elsewhere in the most capital-intensive segments of the semiconductor industry will create new challenges for U.S. and Japanese companies.

The critical question for individual U.S. companies and industry leaders is how to build and implement strategies for maximizing the benefits of alliances with Japan so that the United States remains a front-line player in all aspects of the semiconductor industry, from basic research and design to manufacturing and marketing. The main issue for the U.S. government is to adopt policies favorable to U.S. industry strategy building and long-term competitiveness.

This report was prepared by a working group of experts as part of a project initiated by the National Research Council's Committee on Japan to examine technology linkages between Japan and the United States. Co-chaired by Daniel Okimoto of Stanford and Sheridan Tatsuno of NeoConcepts, the working group was formed in the fall of 1990 and met a number of times in 1991 to deliberate and confer on analysis and data collection. A workshop on U.S.-Japan Technology Linkages in Semiconductors was convened in September 1991 to gain additional insights from other experts in the United States and Japan. The staff of the National Research Council's Office of Japan Affairs, which also serves as the staff for the Committee on Japan, assisted the working group in data collection, and in analysis and compilation of results.

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