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Background DEFINING "CONSORTIA" The R&D consortium is a subset of a class of activities involving col- laborative research, itself a subset of the external technology networks used by firms and other organizations to access technology. Consortia come in many types and represent mechanisms for R&D collaboration among pri- vate companies, universities, and public sector institutions. When organiza- tions seek to access or develop technology, they can utilize a variety of alternatives to R&D consortia; options include licensing agreements, re- searcher exchanges, contract research at universities, and collaboration in weapons development as part of the government procurement process. Consortia are nothing new, but they are becoming more important as alliances of many types are being built among corporations around the world. As mentioned earlier, even the biggest firms cannot hope to maintain inde- pendent technological strength across a wide array of technologies. In some cases the risks of not collaborating may be perceived as greater than the risks of collaborating. In order to focus discussion at the workshop, the following general char- acteristics of R&D consortia were identified: 1. An R&D consortium is an independent entity created to carry out research and development. Mechanisms for R&D collaboration vary, rang 4

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5 ing from those where research is conducted at a central laboratory to those that are essentially funding pools. The member organizations define the scope of cooperation and often carry on their own parallel efforts, usually in more applications-oriented areas. 2. The focus of consortia R&D is the development of technology and applications, in processes and products. There are examples of R&D consor- tia that also manufacture and market a product, but they have been rare out- side of weapons development and other types of government procurement. 3. To bound the discussion, the focus here is on R&D consortia that include at least three independent organizations, one a profit-making fib. Governments, public research institutions, and universities may participate as members or in other capacities. (Sponsored university research by a single company would not qualify.) 4. The government may be completely uninvolved, may provide finan- cial support, or may play the leading role in organizing and managing the R&D consortium. In commercially oriented R&D consortia, the Japanese government has generally been more active than the American government. MAJOR QUESTIONS FOR DISCUSSION One set of questions focuses on the domestic environment for R&D con- sortia. The environments for R&D collaboration in the United States and Japan are different, yet there are common themes related to the motivations, organizational structures, government roles, and effectiveness within each national setting. What motivates firms to participate in consortia? How is the technical agenda set? How are consortia structured? Should govern- ments participate, and how? What are the actual results in terms of effec- tiveness in promoting technological innovation and/or diffusion? The second set of questions relates to possibilities for international par- ticipation in R&D consortia. These questions parallel those above but with added complexity. We have entered a period of what some call "market access regimes," where national markets are open to extensive competition but where affirmative measures taken by governments to promote national industries are also growing.3 In this context, what do multinational firms hope to get out of R&D collaboration, and are the expectations of U.S. and Japanese companies similar? (See Figure 1.) The strategies of multinational companies today increasingly feature joint product lines and technological linkages with other companies, in contrast to years past. How are interna 3 Remarks by Peter Cowhey, Panel on Cross-Border Issues. See Peter Cowhey and Jonathan Aronson, Managing the World's Economy: The Implications of International Corporate Alliances (New York: Council on Foreign Relations, 1991).

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6 GLOBALIZATION OF THE FIRM INTEGRATED TRANSNATIONAL CORPORATION STRATEGY M ULTINATIONAL DOMESTIC STRATEGIES .. ITT s Traditional Telecommunications Equipment Strategy CLOSED SEM OPEN ECONOM IES INDUSTRIAL POLICIES RACE Research and Development in Advanced Commun~at ons in Europe AT&T Alliance win Italtel (Italian teleoommuracabons company) Siem ens Alliance wit Rdm-lDM Will RACE', Nippon Telegraph & Telephone, Bedsore, and others provide ~is? OPEN OPEN INDUSTRIAL ECONOM IC STRATEGIES POLICIES OPENNESS OF MARKETS FIGURE 1 Market access regimes: Telecommunications Equipment. Source: Peter Cowhey tional R&D consortia structured to enhance common technological infra- structures, to develop new products or standards, and what can we learn from experience? How do firms and governments ensure mutual benefit from international participation when competing firms are players? How can funding; distribution of intellectual property rights (IPR); and technical, capital, and human resource contributions be made equitable? Are there technical fields or industries in which U.S.-Japan collaboration through con- sortia is more or less feasible? How should a "domestic" firm be defined for policy purposes, and what are the long-term competitive implications of U.S.-Japan collaboration in R&D? These questions cannot be resolved here. This report highlights some of the major contrasts between R&D consortia in the United States and Japan, with the purpose of sharpening thinking about the policy choices that lie ahead. HISTORICAL CONTEXT Collaborative research through consortia first appeared in Great Britain after World War I. France and Germany copied the form during the interwar period. Even the United States had a consortium of oil and construction companies that developed a fuel bed catalytic process in the 1930s. This was the largest R&D undertaking before the Manhattan Project.4 Japan 4 The United States also established, under the NACA, windrunnel programs in which U.S. corporations participated. Although these programs would not qualify as consortia as defined here, they do illustrate a tradition of cooperative R&D in the U.S. aerospace industry.

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adopted U.K. practice, but modified its approaches to R&D consortia in the postwar period. The R&D consortium is one of many examples since the late nineteenth century of organizational forms that Japan has taken from abroad and modified.5 Japanese adaptation and development of "organiza- tional technologies" has been an important factor in its economic develop- ment, a factor some judge to be as important as the generation of new products in Japan's technological success. Japan's consortia, while distinctive in some ways, have evolved over time with changes in markets and technological strengths. The Japanese approach to R&D consortia has ~adii~onally focused on technology for commercial civilian use. The aim has been to strengthen companies capitalized in Japan. ("Technonai~onalism" has always been seen as a legitimate goal in the Japa- nese context.) Another important characteristic of Japanese approaches was to see collaboration as a means and not an end in itself. In the early 1960s, when legislation was passed to provide for the establishment of research associations, one of MITI's stated aims was to transfer technology to small and medium-sized companies. This aspect of Japanese consortia has become much less important over time as emphasis shifted to "catching up" in the 1970s and now toward more generic, fundamental technology development and the creation of knowledge.6 Table 1 presents a summary of the 94 re- search associations formed in Japan over the past 30 years. The policy context in the United States contrasts with the Japanese ex- penence. A sponger emphasis on antitrust created disincentives for compa- nies to join together in R&D. But U.S. policymakers and companies began to take another look at consortia in the mid-1980s after U.S. companies in the automobile, machine tool, consumer electronics, and semiconductor indus- tries suffered reverses in their competitive struggles with Japanese industry. As market share losses accumulated, it became increasingly clear that the Japanese challenge was based in large part on high-quality manufacturing and the rapid inco~porai~on of new technologies into products and pro- cesses. Many U.S. observers pointed to the MITI-sponsored R&D consor- tia, particularly the VLSI Program of the late 1970s, as playing a large part in the subsequent success of the Japanese semiconductor industry.7 It is s See D. Eleanor Westney, Imitation and Innovation: The Transfer of Western Organizational Patterns to Meiji Japan (Cambridge: Harvard University Press, 1987). 6 Remarks by Richard J. Samuels, Workshop on R&D Consortia and U.S.-Japan Collaboration. 7 See Martin Fransman, The Market and Beyond: Cooperation and Competition in Information Technologies in the Japanese System (Cambridge: Cambridge University Press, 1990), for a thorough study of some of Japan's R&D consortia and evidence that Japanese firms are just as cautious about cooperative R&D as their U.S. counterparts.

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TABLE 1 Thirty Years of Japanese Research Associations and Research Themes No. Launched Themes 4 s 3 1 1 2 3 8 3 4 3 2 2 3 s 7 9 11 1984 1985 1986 12 s 1987 6 1988 2 1989 8 Total for 30 years: 114 Chemicals 2 (projects), textiles, steel Cameras, non-ferrous, steel, computers, textiles Materials, non-ferrous, agriculture* Energy Automobiles Automobiles, non-ferrous Computers 3 Steel 2, medical equipment, software 5 Machinery, automobiles, construction Semiconductors, chemicals 2, aerospace Medical equipment, construction, computers Automobiles, energy Flexible manufacturing, electric power Energy, computers, vegetable packaging* Energy, chemicals, textiles, optics, sewage treatment Chemicals 3, biotechnology, computers, machinery, mining Machinery 3, chemicals 2, textiles, paper, chemicals, food processing* Non-ferrous 2, robotics, chemicals 4, textiles, biotechnology, non- ferrous, shipbuilding+ Machinery, chemicals, biotechnology 2, food processing* Machinery 2, construction 2, regional development Electric power, machinery 2, chemicals, textiles, regional development, wood* 2, food processing*, agriculture* 2, biotechnology* Electric power 4, materials, food processing* Chemicals, food processing* Construction, computers, aerospace, shipbuilding+, wood* 3, food processing* Note: Table does not include consortia launched under the Japan Key Technology Center, the Exploratory Research for Advanced Technology (ERATO) program, the Bio-Oriented Re- search Advancement Institution, or the Adverse Drug Reaction and Drug Research Promotion Fund. Boldface indicates that the research association was still operational as of March 1990. An asterisk (*) indicates that the research consortium is under the management of the Ministry of Agriculture, Forestry, and Fisheries. A plus sign (+) indicates that the association is managed by the Ministry of Transportation. Unmarked consortia are managed by the Minis- try of International Trade and Industry. Source: Compiled from Kokagyo Gijutsu Kenkyu Kumiai Sanjunen no Ayami (Thirty-Year History of the Research System for the Development of Mining and Manufacturing) (Tokyo: Kokogyo Gijutsu Kenkyu Kumiai Kondankai, 1991); and Iwao Shirai and Fumio Kodama, Quantitative Analysis on Structure of Collective R&D Programs by Private Corporations in Japan (Tokyo: National Institute of Science and Technology Policy, 1989).

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9 important to remember, at the same time, that Japanese industry rather than the government is the driving force in R&D and its funding.8 Signs of change in the U.S. policy context became clear with the passage of the National Cooperative Research Act (NCRA) of 1984, which exempted most cooperative research from antitrust provisions. The Microelectronics and Computer Technology Corporation (MCC) was founded by a number of large systems and components companies as a response to Japan's Fifth Generation Program, and other consortia were launched at about the same time, most of them established at universities. The federal government provided funding for new R&D consortia the National Science Foundation launched its university-based Engineering Research Centers and Congress passed the Cooperative Research Act for the steel industry in the mid- 1980s. The Bush administration endorsed a federal role in supporting the devel- opment of "precompei~i~ve" or "generic" technologies that have industrial applications. A new round of policy activity related to consortia began with the launching of SEMATECH in 1989. Half of SEMATECH's $200 mil- lion annual budget is provided by ache Pentagon's Defense Advanced Re- search Projects Agency (DARPA). Other recently established measures to support R&D consortia include the Advanced Technology Program (ATP) and the Cooperative R&D Agreement Authority (CRDAA). ATP is a fund- ing pool for consortia and is administered by the National Institute of Stan- dards and Technology (NIST). It is budgeted at about $10 million for inaugural fiscal year 1991 and about $37 million for its second year.9 CRDAA aims to promote consortia in which national laboratories and other groups participate through measures that do not require new government funding. The concept of R&D consortia is simulating new experiments of many types in the United States today. ~ Disagreement continues as to the importance of government subsidies and financial support to the development of high-technology industries. One scholar finds ample evidence to support the case that government funding played a critical role in the development of the computer industry in Japan. See Marie Anchordoguy, Computers Inc.~apan's Challenge to IBM (Cambridge: Harvard University Press, 1990). 9 Eleven grants worth $9 million were announced in early 1991. The projects involve matching funds from industry and range from basic research to technology development. See "U.S. Awards Grants to Aid Technology," New York Times, March 7, 1991, p. D12.