Global Economy, Global Technology, Global Corporations

Overview of the Project

This publication is the product of a joint study undertaken by the Committee on Japan of the National Research Council (NRC) in the United States and Committee 149 (Committee on Advanced Technology and the International Environment) of the Japan Society for the Promotion of Science (JSPS) in Japan. The project is an outgrowth of discussions since the mid 1980s between the National Academies of Sciences and Engineering and JSPS, including a meeting in 1991 dealing with new challenges in U.S.-Japan scientific and technological interdependence. A joint statement issued at the conclusion of that meeting highlighted the need to make conscious efforts to structure interdependence so that it brings concrete benefits to participants. Subsequently, the two committees organized the Joint Task Force on the Rights and Responsibilities of Multinational Corporations in an Age of Technological Interdependence (MNC Joint Task Force) to undertake this study.1 NRC participation in this activity was supported by the United States-Japan Foundation. The Japanese working group of the MNC Joint Task Force and other JSPS Committee 149 activities are supported through member contributions.

The U.S. and Japanese working groups of the MNC Joint Task Force took very different approaches to the study. Despite several meetings and numerous exchanges of materials (see Table 1 ), the two groups were not able to agree fully on a common set of findings and recommendations constituting the core of a true joint report.

This overview represents a consensus statement by the entire MNC Joint Task Force from both countries designed to briefly describe the study process and highlight the substantive areas of agreement and disagreement between the U.S. and Japanese working groups. It is not designed to summarize the analysis and conclusions of the two respective reports. The overview is followed by the separate reports of the two working groups.

BACKGROUND AND REVIEW OF THE STUDY PROCESS

The joint statement from the 1991 Academies-JSPS meeting envisioned that the MNC Joint Task Force would develop “examples of best practice for constructive participation by MNCs in the host country—including relations with universities, national laboratories, and small high-technology firms...”2 The context is one in which MNCs are playing an expanding role in innovation, technology development, and other aspects of economic activity throughout the world. While the imperatives of global competition are driving MNC strategies to access, develop, and apply technology effectively on a global basis, companies take different approaches toward manufacturing, marketing, technology transfer, and R&D performed outside their home countries. Governments are also pursuing different policies in terms of national treatment— applying the same rules and standards to foreign companies operating within one's national boundaries as are applied to domestic companies—as they seek to ensure that the benefits of technology-based growth flow to their citizens. As the home countries of many of the world's largest high-technology MNCs and as host countries of significant foreign-owned manufacturing



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Global Economy, Global Technology, Global Corporations Global Economy, Global Technology, Global Corporations Overview of the Project This publication is the product of a joint study undertaken by the Committee on Japan of the National Research Council (NRC) in the United States and Committee 149 (Committee on Advanced Technology and the International Environment) of the Japan Society for the Promotion of Science (JSPS) in Japan. The project is an outgrowth of discussions since the mid 1980s between the National Academies of Sciences and Engineering and JSPS, including a meeting in 1991 dealing with new challenges in U.S.-Japan scientific and technological interdependence. A joint statement issued at the conclusion of that meeting highlighted the need to make conscious efforts to structure interdependence so that it brings concrete benefits to participants. Subsequently, the two committees organized the Joint Task Force on the Rights and Responsibilities of Multinational Corporations in an Age of Technological Interdependence (MNC Joint Task Force) to undertake this study.1 NRC participation in this activity was supported by the United States-Japan Foundation. The Japanese working group of the MNC Joint Task Force and other JSPS Committee 149 activities are supported through member contributions. The U.S. and Japanese working groups of the MNC Joint Task Force took very different approaches to the study. Despite several meetings and numerous exchanges of materials (see Table 1 ), the two groups were not able to agree fully on a common set of findings and recommendations constituting the core of a true joint report. This overview represents a consensus statement by the entire MNC Joint Task Force from both countries designed to briefly describe the study process and highlight the substantive areas of agreement and disagreement between the U.S. and Japanese working groups. It is not designed to summarize the analysis and conclusions of the two respective reports. The overview is followed by the separate reports of the two working groups. BACKGROUND AND REVIEW OF THE STUDY PROCESS The joint statement from the 1991 Academies-JSPS meeting envisioned that the MNC Joint Task Force would develop “examples of best practice for constructive participation by MNCs in the host country—including relations with universities, national laboratories, and small high-technology firms...”2 The context is one in which MNCs are playing an expanding role in innovation, technology development, and other aspects of economic activity throughout the world. While the imperatives of global competition are driving MNC strategies to access, develop, and apply technology effectively on a global basis, companies take different approaches toward manufacturing, marketing, technology transfer, and R&D performed outside their home countries. Governments are also pursuing different policies in terms of national treatment— applying the same rules and standards to foreign companies operating within one's national boundaries as are applied to domestic companies—as they seek to ensure that the benefits of technology-based growth flow to their citizens. As the home countries of many of the world's largest high-technology MNCs and as host countries of significant foreign-owned manufacturing

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Global Economy, Global Technology, Global Corporations TABLE 1 Timeline of MNC Joint Task Force Activities August 1991 Committee on Japan and Committee 149 agree to establish MNC Joint Task Force April 1993 Japanese working group launches activity June 1993 U.S. and Japanese co-chairmen meet November 1993 U.S. working group meets December 1993 U.S. and Japanese co-chairman meet May 1994 Joint Task Force meets November 1994 Co-chairmen report at Academies-JSPS meeting October 1995 Working groups complete reports May 1998 Publication of final project report and technology development activities, the United States and Japan have a particular interest in examining the rights and responsibilities and success factors of MNCs in an age of growing technological interdependence. The Japanese working group focused on a series of meetings with representatives of U.S.-based companies in Japan and Japan-based companies with overseas operations in the United States. Because successful MNCs are more willing to discuss their experiences and provide insights on the causes of success and failure, the Japanese case study activities focused exclusively on successful companies. The discussions with company representatives covered the obstacles that these MNCs encountered in doing business abroad and the management factors that contributed to their eventual success. From the experiences reflected in these case studies, the Japanese working group extracted the basic necessary conditions for MNC success in terms of strategy and management. These are discussed further below and explained in detail in the Japanese working group's report. The U.S. working group took a different approach. The broad issue of the rights and responsibilities of MNCs had already been set by the 1991 Academies-JSPS meeting. The U.S. working group considered the wide experience of participants on both sides and reasoned that the most useful product of such a joint study would be a fairly brief report defining the key issues, examining various approaches and examples of MNC best practices, stating broad principles regarding government treatment, and suggesting policy-related actions by MNCs and governments that would enhance reciprocal benefits. Although the project has not resulted in a full-scale joint report, the activity has produced useful results. The individual working group reports represent the perspectives of U.S. and Japanese experts on crucial issues concerning MNCs and the globalization of technology development activities. In the view of the U.S. participants, the interaction with the Japanese working group that did occur through the project made an important contribution to the perspectives reflected in the U.S. working group report. In particular, the reactions of the Japanese participants prompted the U.S. members to more clearly define the concept of equal

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Global Economy, Global Technology, Global Corporations access. The U.S. members also gained a renewed understanding of Japan and various cultural and bureaucratic barriers to change. AREAS OF AGREEMENT AND DISAGREEMENT The two working group reports that are included in this volume are quite different. Although there is no need to provide a detailed examination of the two sets of findings here, a review of selected areas of agreement and disagreement highlights the challenges that U.S. and Japanese leaders will face in the years ahead as they work to structure relationships of mutually beneficial interdependence in business and innovation. The key issues and respective views are summarized in Table 2 . TABLE 2 Areas of Agreement and Disagreement Areas of Agreement Japanese Working Group U.S. Working Group Importance of effective MNC management Japanese report defines elements of effective management U.S. group agrees that effective management is a necessary condition of success Correlation between business success and contributions to host countries Contributions to host countries generally necessary for long-term success Trend toward interdependent firms and economics MNCs are driving this trend; U.S.-Japan relationships increasingly will be affected by developments in Asia Areas of Disagreement Japanese Working Group U.S. Working Group Role of the policy environment Well-managed firms are generally able to overcome barriers Host government treatment can affect success and failure; helps in determining whether firms invest at all Necessity for convergence in business systems and economic regulation Countries must change as they develop, but cultural differences should be respected; forcing convergence is misguided Developed countries must move toward convergence now to ensure world economic stability; convergence should be a long-term goal, even for developing countries

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Global Economy, Global Technology, Global Corporations Agreement on the Importance of Effective MNC Management A key theme of the Japanese working group's report is that MNCs inevitably face challenges in doing business outside their home countries, and that effective management is necessary to overcome these and achieve business success. Effective management is defined as comprising a number of factors that includes maintaining a long-term management vision, establishing a relationship of trust and an appropriate division of labor and control between headquarters and subsidiary, appropriate blending of home and host country management styles, and achieving synergistic R&D and other business relationships with joint venture partners and other local companies. The two working groups agree that effective management on the part of MNCs, including the factors identified by the Japanese working group, is certainly a necessary condition for long-term MNC success. Agreement on the Correlation Between Business Success and Contributions to Host Countries A related point on which the two groups agree is that effective management and long-term success of MNCs operating in foreign environments are highly correlated with contributions to the host country technology base and overall economy. In order for MNCs to succeed as “insiders ” in the host country over the long term, it will likely be necessary for them to behave as good corporate citizens. As research, technology development, and other innovation-related activities of MNCs are increasing, particularly in the United States and Japan, contributions to host countries in these areas can be expected to be more closely evaluated and recognized. Agreement on the Trend Toward Interdependent Firms and Economies The two working groups agree that the growth of relationships of interdependence between firms and among countries is one of the key trends in the world economy today. This trend is perhaps proceeding most rapidly in high-technology and manufacturing industries, but also characterizes other sectors. Increasing interdependence is being driven in part by the activities of MNCs, and is perhaps most clearly seen in the growth in international technology cooperation and other forms of strategic alliances. The two working groups also agree that U.S.-Japan technological and business interactions increasingly will be affected by and intertwined with relations with rapidly growing Asian economies. Disagreement on the Role of the Policy Environment One major point of disagreement between the two working groups concerns the role of the policy environment in which MNCs operate. From the perspective of the Japanese working group, the host country policy environment represents one of a number of factors that MNCs must effectively cope with in order to achieve success. U.S. MNCs in Japan, Japanese MNCs in the United States, and all other MNCs operating overseas must operate in unfamiliar policy and business environments. The Japanese working group believes that successful MNCs are those that have understood and applied the basic principles of effective management. Many U.S. companies have achieved success in Japan based on these principles, a fact which is not widely appreciated in the United States. Based on these findings, the Japanese working group believes that not only MNCs but also governments should respect and better understand these basic principles of business

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Global Economy, Global Technology, Global Corporations management. The Japanese members also believe that no special guidelines are necessary at this time to establish the rights and responsibilities of MNCs. The U.S. working group has a different perspective. Although effective management is a necessary condition of success for MNCs, it is not always a sufficient condition. The policy environment of a given host country has an impact on success or failure and also plays a role in determining whether MNCs invest the effort and resources necessary to do business there in the first place. The U.S. group believes that the overall historical experience of U.S.-Japan MNC interactions illustrates this point and related issues. The U.S. working group also notes that greater openness toward direct investment is one of the major positive trends in the current global political economy. Because of increasing interdependence at the firm and macroeconomic levels, governments will have more difficulty in manipulating MNC behavior through policy measures. Still, different countries will continue to take different approaches, and frictions at the political level will continue to arise due to these differences. The U.S. working group believes the most promising way to manage these different approaches is through redoubled progress toward liberalization in international trade and investment regimes and appropriate government policies, ensuring that growing economic and technological interdependence continue to produce concrete benefits. Disagreement Over Whether Convergence in Business Systems and Economic Regulation is Desirable or Necessary Closely related to the different perspectives of the U.S. and Japanese groups toward the policy environment for international business are differences over what actions are necessary for the United States, Japan, and other countries to ensure mutually beneficial MNC interactions in the future. As mentioned earlier, the Japanese working group does not believe that any particular guidelines to establish the rights and responsibilities of MNCs are necessary at this time. Although the Japanese working group recognizes that, as they develop, countries need to change their business systems and economic regulations, it strongly asserts that these issues of domestic economic management are matters for individual countries to decide for themselves and should not be subject to international negotiations or disciplines. Even after countries have achieved advanced levels of development, they are likely to take various approaches toward domestic economic management. Global economic interdependence will advance more smoothly by accepting this diversity of approaches, rather than by forcing countries to adopt approaches dictated by other countries. Although it is important for the countries of the world to come together to solve environmental problems and other global challenges, this can best be accomplished through expanded international cooperation in developing new technologies. In contrast, the U.S. working group believes that progress toward a vision of equal access to markets and economies is necessary to ensure long-term stability and growth for the world economy. Equal access will prevail when MNCs of equal competitive strength have equal opportunity to participate in markets and innovation systems globally, wherever they are based. Although equal access is a long-term goal and should not be demanded of developing countries, the U.S. working group believes that it is in the interests of developed countries to pursue equal access through harmonization of various domestic systems affecting the microeconomy, including regulation, intellectual property, competition policy, R&D subsidies, and corporate finance. This harmonization should be accomplished through collegial multilateral, regional, and bilateral negotiations.

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Global Economy, Global Technology, Global Corporations The U.S. working group believes that greater openness in economic and business systems benefits host countries as well as MNCs. In the view of the U.S. group, some of the roots of the economic and financial difficulties that Japan has experienced during its long recession lie in the continuing reluctance to aggressively pursue economic liberalization on a number of domestic fronts. NOTES AND REFERENCES 1 In addition, two other task forces were organized to explore the issue of technological interdependence in the areas of corporate innovation strategies and engineering education. The results of these task force activities will appear in separate reports. 2 “Academy-JSPS Meeting on Scientific and Technological Interdependence: New Challenges for U.S.-Japan Relations,” unpublished joint statement, August 1, 1991, p. 5.