6
Issues for U.S. Policy: Japanese Investments and U.S. Competitiveness

Dataquest statistics indicate that investments in 1990 accounted for only 12 percent of the U.S.-Japan strategic alliances. The American Electronics Association (AEA), however, has identified a much larger number of such alliances over a five-year period—500 cases of Japanese investments in America's electronics industry between 1986 and early 1992.29 The AEA listing provides support for those who say that such investments constitute the largest source of technology transfer to Japan among all types of U.S.-Japan strategic alliances. Equity investments presumably give Japanese investors direct, first-hand access to state-of-the-art technology. The openness of the U.S. semiconductor industry to foreign investment and the appropriability of American know-how have caused the private and public sectors to be concerned about how to monitor and, where necessary, to restrict foreign investments.

A troublesome disconnect between microlevel incentives for individual U.S. firms (which want and need to attract capital) and the collective, potentially adverse, long-term impact of Japanese investments on the U.S. semiconductor industry as a whole, may result in a continuing net transfer of vital technologies from the United States.30 What serves the interests of

29  

AEA Japan Office, "Japanese Electronics Acquisitions in America Since 1986" (unpublished, mimeographed listing).

30  

For an overview of the relationship between Japanese investment and technology transfer to the United States, see Committee on Japan, Japanese Investment and Technology Transfer: An Exploration of Impacts (Washington, D.C.: National Research Council, 1992).



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U.S.-Japan Strategic Alliances in the Semiconductor Industry: Technology Transfer, Competition, and Public Policy 6 Issues for U.S. Policy: Japanese Investments and U.S. Competitiveness Dataquest statistics indicate that investments in 1990 accounted for only 12 percent of the U.S.-Japan strategic alliances. The American Electronics Association (AEA), however, has identified a much larger number of such alliances over a five-year period—500 cases of Japanese investments in America's electronics industry between 1986 and early 1992.29 The AEA listing provides support for those who say that such investments constitute the largest source of technology transfer to Japan among all types of U.S.-Japan strategic alliances. Equity investments presumably give Japanese investors direct, first-hand access to state-of-the-art technology. The openness of the U.S. semiconductor industry to foreign investment and the appropriability of American know-how have caused the private and public sectors to be concerned about how to monitor and, where necessary, to restrict foreign investments. A troublesome disconnect between microlevel incentives for individual U.S. firms (which want and need to attract capital) and the collective, potentially adverse, long-term impact of Japanese investments on the U.S. semiconductor industry as a whole, may result in a continuing net transfer of vital technologies from the United States.30 What serves the interests of 29   AEA Japan Office, "Japanese Electronics Acquisitions in America Since 1986" (unpublished, mimeographed listing). 30   For an overview of the relationship between Japanese investment and technology transfer to the United States, see Committee on Japan, Japanese Investment and Technology Transfer: An Exploration of Impacts (Washington, D.C.: National Research Council, 1992).

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U.S.-Japan Strategic Alliances in the Semiconductor Industry: Technology Transfer, Competition, and Public Policy individual firms may not necessarily contribute to the well being of the industry—Adam Smith's notion of the market's invisible hand notwithstanding. What is not clear and needs clarification, however, is when and under what conditions the disconnection takes place. What makes the task difficult is the absence of an effective mechanism for monitoring, investigating, and approving foreign investments in areas deemed to be of vital importance to national security. There is no agreed-upon definition of key terms such as "strategic technologies," "national security," ''economic security," or even "foreign investment." This definitional confusion and an absence of effective regulatory institutions mean that the U.S. government has no clear-cut policy to anticipate or deal with the effects on U.S. competitiveness. Concern about the national security implications of Japanese investments prompted the U.S. government to intervene in, and halt, the proposed sale of Fairchild and other U.S. companies. It also led the U.S. Congress, in August 1988, to pass the Exon-Florio amendment to the Defense Production Act, authorizing the president to block foreign investments in strategic industries that might jeopardize U.S. national security. To establish some federal oversight of foreign investments, the president organized the Committee on Foreign Investment in the United States (CFIUS), but many observers question just how effective an agency for oversight CFIUS is. Of over 700 cases of investment reported as of June 1992, CFIUS had chosen to undertake an extensive investigation of only 14, and of the 14, it had forwarded a recommendation to block only one, the proposed acquisition of a U.S. aerospace company by mainland Chinese interests (immediately following the Tiananmen Square incident). Although the impacts of foreign investment have great potential significance, they are multidimensional and sometimes difficult to predict. One issue is how to demarcate the concept of economic security so as to preclude stretching it beyond recognition. Another set of analytical problems relates to the absence of an accepted methodology for assessing the commercial impacts of technology transfer. These issues lead an observer to ask whether there is a real problem or whether the advantages of foreign investment balance or outweigh the drawbacks. In looking over the AEA' s list of Japanese investments in the semiconductor industry, it is difficult to tell how many are problematic in terms of serious technology loss. At first glance, one can identify a number of cases of Japanese investments that involved little or no technology transfer: ASCII-Informix, Canon-NeXT, Hitachi-National Advanced Systems, Kyocera-PictureTel, Mitsui Comtek-Raster Graphics, NKK-Silicon Graphics, and Sony-CXC. One can also cite many other cases in which important transfers did take place. The point is that neither the aggregate number of cases nor the aggregate dollar value of Japanese investments can be used as a reliable

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U.S.-Japan Strategic Alliances in the Semiconductor Industry: Technology Transfer, Competition, and Public Policy indicator of technology loss and gain. It is misleading to give the Hitachi-National Advanced Systems case the same weight as the Kubota-MIPS or Matsushita-Solbourne Computer alliances in terms of the technology transferred. It is also inaccurate to assume that all such alliances lead to a damaging outflow of critical technology. Ideally, the data would be sorted into two simple, dichotomous categories: (1) cases in which technology is not transferred; and (2) cases in which transfer occurs. For purposes of this study, we are interested only in the second category of Japanese investment. If we could specify which types of technology qualify as "strategic" and what forms of alliances are most apt to transfer such technology, we could begin to formulate some hypotheses about the impacts of strategic alliances on the U.S. economy and technology base. In the absence of a data base that would allow us to categorize alliances along these dimensions, it is difficult for policymakers and practitioners alike to assess the extent of the problem, much less to develop effective responses.