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Suggested Citation:"1. Introduction." National Research Council. 1990. The Internationalization of U.S. Manufacturing: Causes and Consequences. Washington, DC: The National Academies Press. doi: 10.17226/1573.
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Suggested Citation:"1. Introduction." National Research Council. 1990. The Internationalization of U.S. Manufacturing: Causes and Consequences. Washington, DC: The National Academies Press. doi: 10.17226/1573.
Page 6
Suggested Citation:"1. Introduction." National Research Council. 1990. The Internationalization of U.S. Manufacturing: Causes and Consequences. Washington, DC: The National Academies Press. doi: 10.17226/1573.
Page 7
Suggested Citation:"1. Introduction." National Research Council. 1990. The Internationalization of U.S. Manufacturing: Causes and Consequences. Washington, DC: The National Academies Press. doi: 10.17226/1573.
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Introduction The 1980s witnessed dramatic changes in the world's manufacturing environment, creating new bases for competitive advantage and opportuni- ties for new participants to compete internationally. Some of these changes are driven by technical advances, such as the application of new materials and electronic devices to products and processes and the use of information systems to integrate manufacturing functions. Others are due to advances in organizational and management practices in manufacturing systems de- signed to achieve total quality control and production flexibility. Still other changes are driven by economic factors, such as the relative parity in income, consumer demand, and educational levels among developed coun- tries; the growing wealth of newly industrialized countries (NICs); and the unprecedented level of macroeconomic imbalances among major trading nations. Manufacturers are adapting to these changes by building networks; of production, engineering, and research and development (R&D) capa- bilities, frequently in partnership with other firms, to establish market presence, generate profits, gain access to technology, leverage resources, and enhance flexibility on a global basis. The responses of individual companies seeking to maintain compet- itive advantage in this new environment are internationalizing the U.S. manufacturing base more pervasively than historical investment flows)i A1- though U.S. manufacturers became multinational earlier than most foreign iThe bibliography lists a number of sources of information on the historical development of multinational corporations and internationalization. 5

6 20 15 10 O 5 1980 $Billion ..../ ~lnvestrnent In US - US Investment Abroad 1 1 1 1 1 1 1982 1984 1g86 FIGURE 1 New international investment in manufacturing, 1980-198?. Source: Bureau of Economic Analysis. firms- Singer, for example, began producing sewing machines in Europe in the 1860s the flow of new manufacturing investment abroad peaked by the early 1970s and was negligible in the l980s (see Figure 1~.2 At the same time, the flow of foreign investment into the United States has risen dramatically, led by the United Kingdom with 31 percent, Japan with 16 percent, and the Netherlands with 15 percent.3 This change in the direction of capital flows, the installed global manufacturing base of U.S. multina- tional8, the rapid increase in international trade, and the growing parity in global technological capabilities have fostered a degree of international interdependence unknown in the past. (fiche Appendix presents a number of economic indicators demonstrating the extent of internationalization in the U.S. manufacturing sector.) In the modern context, internationalization can be defined as a dynamic process of developu~g, leveraging, and managing manufacturing, mar- keting, and R&D activities to achieve business objectives in a globally competitive environment. The implications of this dynamic process for U.S. manufacturers are 2 Stephen Cooney, Manufacturing Creates Americas Strength, Washington, D.C., National Asso- ciation of Manufacturers, December 1988, p. 26. 3 these percentages indicate the distribution of the stock of foreign direct investment in the United States in 1988. See Edward M. Graham and Paul R. Krugman, Foreign Direct Invesanent in the United States, Washington, D.C., Institute for International Economics, 1989, p. 34.

7 profound. Because of the strength and pervasiveness of foreign compe- tition, few manufacturers can afford to focus only on the U.S. market. Small supplier firms with a domestic orientation may need to rely on their customers to provide the knowledge of foreign capabilities and secure the markets necessary to remain competitive against foreign competition. Small and medium-sized firms will need to expand their global presence, initially through exports, to build production volume, tap changing consumer tastes and technological developments, and engage their competitors to preempt the advantages they gain by dominating large overseas markets. Large multi- national firms face the challenge of integrating their international activities to maximize cross fertilization of ideas and to minimize transaction costs. Finally, high-technology firms in industries such as electronics, materials, and aerospace face an additional challenge. As the costs of R&D and capital equipment rise, relatively few firms will have the capital resources and technological capabilities in-house to act independently; managers must consider an array of options, including joint ventures, technology development partnerships, selected relationships with original equipment manufacturers, and other forms of alliances. Regardless of company size or industry, the ability to participate in global networks of suppliers, dis- tributors, and researchers while retaining unique competitive capabilities has become an essential determinant of corporate success. This impera- tive distinguishes the current international environment from its historic predecessors. The emerging internationalization process, by creating global manu- facturing systems and interlocking networks of firms in both formal and informal relationships, generates a degree of interdependence that, while mutually advantageous for the participating companies and countries, cre- ates invisible risks and introduces new management challenges that are often poorly understood. Policymakers in both industry and government need to recognize the extent and inevitability of the internationalization process, the mechanisms used to create competitive advantage in response to it, and the repercussions for both corporate and national policy. The purpose of this report is to foster the necessary understanding among decision makers. The findings reflect the corporate and academic experiences of the members of the committee, augmented by a review of the relevant literature and interviews with senior managers from diverse manufacturing industries, including food processing, microelectronics, au- tomobiles and parts, consumer products, biotechnology, and precision in- struments. The diversity of experiences in grappling with these issues made consensus difficult to achieve but revealed a number of general themes regarding the causes and consequences of internationalization. The report first identifies the primary forces now driving manufacturers' international business behavior the causes of internationalization. Next it

8 describes the consequences of private decisions for the national economic and policymaking environment. Because of the unique set of skills and resources each manufacturer brings to its international activities, no attempt is made to generalize the consequences for private business. Finally, the report outlines fundamental steps necessary for both private and national success. These "keys to success" are based on the committee's central conclusion that manufacturers must act in their own best interests and, therefore, must be able both to define their interests accurately and to act accordingly. Policymakers in turn must strive to provide a national economic environment in which corporations, acting in their own best interests, will benefit the nation's well-being.

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On the basis of discussions and analysis of the current environment for international competition, this book was written to dispel misconceptions regarding the motivating forces behind internationalization and, therefore, to improve understanding of both the challenges and the opportunities of a global market and production base. Important consequences of internationalization for both manufacturers and national policy are described. The volume provides an assessment of what it takes to be successful as manufacturers and as a nation in the international competitive environment.

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