U.S.-Japan Strategic Alliances in the Semiconductor Industry Technology Transfer, Competition, and Public Policy (1992) / Chapter Skim
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4 Forces Driving the Formation of Strategic Alliances
4 Forces Driving the Formation of Strategic Alliances
Pages 15-30
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From page 15... ...
l AA ~ —O LAVA—AA ~= ^^ ~ r r ~ 10Venture Economics reports that in 1990 the Japanese invested $23 million in the U.S. semiconductor industry, while in 1991 the level of investment dropped to $11.25 million (communication with Venture Economics, March 1992)
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From page 16... ...
Those companies failing to compete worldwide will lose the advantages of rapid movement down steep learning curves. If the world market cannot be partitioned into national units and if semiconductor producers aspire to survive in the crucible of world competition, it is essential that they find ways of getting close to foreign customers.
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From page 17... ...
IBM Japan, for example, has put in place an extended network of alliances with nearly a thousand local Japanese companies, which has helped it achieve a strong "insider" position in the Japanese market.~3 HIGH-TECHNOLOGY FACTORS The heavy concentration of U.S.-Japan alliances in the high-technology sectors, especially computers, biotechnology, and semiconductors, can be linked to the special characteristics of technology-intensive industries. The rapid development of technology, wide scope for ongoing innovation, and continual coming on stream of new generations of products lead to short product life cycles and very high risks, which give rise, in turn, to cost- and risk-reducing alliances.
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From page 18... ...
Such costs would be tolerable if the time intervals within which companies could earn satisfactory profits were long enough; however, the contraction in product life cycles means that the window of opportunity for rent retrieval is exceedingly short usually only the first year or so of a new product's introduction. Although there were widespread reports in early 1992 of plans by Japanese semiconductor companies to cut capital spending and perhaps R&D spending, the top five Japanese merchant semiconductor companies have consistently outspent the top five U.S.
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From page 19... ...
Hence, the imperatives of commercial competition have forced semiconductor producers to be receptive to the idea of linking up with foreign partners, because alliances offer compan~es the opportunity to pool technological and manpower resources. To cite a recent example: the world's largest computer manufacturer, IBM, has decided to enter into a joint venture with Siemens to manufacture 16-megabit DRAMs in France.
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From page 20... ...
Japanese companies control 46 percent and North American companies 39 percent of total semiconductor sales (see Figure 7~. The extraordinary level of economic integration and high degree of trade interdependence are background factors leading to alliances between U.S.
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From page 21... ...
Since the largest returns on alliance investments such as the development of new technologies or company positioning for long-term diversification into whole new fields are often reaped only after a long period of gestation, it is not surprising that Japanese companies (with their long time honzons) are among the most active in alliance partnerships.l8 In the best of circumstances, opposite firms attract and combine in ways that overcome the respective limitations of different industrial systems.
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From page 22... ...
The nature of America's stock market forces U.S. firms to march more closely in step to the drumbeat of quarterly profits.~9 The dense network of intercorporate shareholdings protects Japanese management from the tyranny of short-term profit maximization.
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From page 23... ...
Some analysts believe that Japanese companies may be forced to concede large portions of the DRAM business to South Korea and Taiwan. Japanese companies have weathered extended industry downturns in the past.
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, which involved that company's sale of militarily sensitive technology to the Soviet Union. In the aftermath of the Toshiba incident, MITI officials quietly discouraged Japanese companies from entenng strategic alliances or getting involved in overseas activities that would expose them to possible foreign criticism.
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From page 25... ...
Mention must be made of yet another major driving force, originating from the fierce competition in the computer industry but pulling semiconductor producers into its vortex: the struggle to define and establish broadly based standards in operating and applications software and the choice of chips (discussed in Chapter 8~. This effort to establish operating software standards has driven the recent IBM-Apple alliance aimed against Microsoft.
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From page 26... ...
and Japanese companies under the agreement have built confidence over time that companies from the two countries can work 22Semiconductor Industry Association, The Elect of Government Targeting on World Semiconductor Competition (Cupertino, Calif.: Semiconductor Industry Association, 1983)
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From page 27... ...
Beyond the welcomed infusion of capital, government funding also had the unintended but salutary effect of creating a new, centralized channel of funding for semiconductor R&D, one designed to funnel money centrally from corporate headquarters rather than individual semiconductor divisions. Participation in national research projects also meant that Japanese companies were fitfully committed to the completion of these ambitious projects (which could not be terminated because of a public commitment made to the government)
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From page 28... ...
Vertically integrated, diversified Japanese companies, in short, utilized the built-in advantages of cross-subsidization, a natural stabilizing factor during demand downturns in specific product markets. The biggest and most severe recession to hit the semiconductor industry struck in 1985.
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From page 29... ...
Around the mid-1980s when the number of strategic alliances soared, the impetus grew to pool resources to fuse one company's strengths with those of a partner so as to consolidate and expand competitive advantages while offsetting company weaknesses. The Toshiba-Motorola alliance is a typical example explored in more detail in the case study that appears in Appendix A
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From page 30... ...
To survive in the competitive marketplace, especially during recessions, semiconductor companies had to scramble to find strategic allies. The rush to find allies, in turn, further intensified the level of commercial competition.
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