Conflict and Cooperation in National Competition for High-Technology Industry (1996) / Chapter Skim
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Sources of Friction and Cooperation in High-Technology Industries
Sources of Friction and Cooperation in High-Technology Industries
Pages 12-71
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This Report reviews some of the sources of international competition for high-technology industry, the problems and risks such competition entails for scientific and economic relations, especially trade, the forces encouraging greater international cooperation, and the challenges these cooperative efforts encounter. THE PERMANENCY OF COMPETITION FOR HIGH-TECHNOLOGY INDUSTRY Competition over strategic high-technology industry will continue to be a major source of friction in the international system.2 While a degree of healthy competition is inevitable and desirable, unless sustained and effective attention is given to the complex set of policy issues associated with the programs to develop and nurture high-technology industry within national economies, the friction generated by these competing national programs could have important 1 Allocating Federal Funds for Science and Technology, National Research Council, National Academy Press, Washington, D.C., 1995, p.
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While national and regional programs vary greatly by structure, funding, participation, and rationale, their basic objectives are similar. GROWTH IN REGIONAL AND NATIONAL TECHNOLOGY DEVELOPMENT PROGRAMS The European Community is increasingly concerned about the gap between its acknowledged scientific excellence and its ability to translate this asset into practical economic and commercial achievement.
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This orientation is based on article 130F of the Treaty on European Union, which notes, "the Community's aim shall be to strengthen the scientific and technological basis of European industry and to encourage it to become more competitive at the international level." European Commission, The European Report for Science and Technology Indicators, 1994, Directorate-General XIII, Telecommunications, Information Market and Exploitation of Research, Luxembourg, October 1994, p.
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For a comprehensive overview of European science and technology programs, see The European Report on Science and Technology Indicators 1994. For a review of programs at the national level in semiconductors, see Thomas Howell, Brent Bartlett, and Warren Davis, Creating Advantage: Semiconductors and Government Industrial Policy in the 1990s, SIA, Santa Clara, Calif., 1992.
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Brody, Effective Partnering: A Report to Congress on Federal Technology Programs, Office of Technology Policy, U.S. Department of Commerce, April 1996.
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For a discussion of the IMS partnership, see the presentations by Robert Cattoi and Uzuhiko Uwatoko at the conference Sources of International Friction and Cooperation in High-Technology Development and Trade. Robert Cattoi described the IMS as "a catalytic agent for global manufacturing cooperation involving large and small companies, user and suppliers, universities and governments." See Intelligent Manufacturing Systems, Coalition for Intelligent Manufacturing Systems and the U.S.
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Takeda, "Japanese Technology Acquisition, Diffusion, and Development Firm Strategy: Changes and Challenges" to the conference Sources of International Friction and Cooperation in High-Technology Development and Trade, 30–31 May 1995. 19 These include (1)
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Presentation by Hiroyoshi Komiya, executive vice president and chief operating officer, SELETE, at the conference "The U.S., Japan, and the Rules of the Game in High-Technology: National Policies and International Competition in Semiconductors," the Brookings Institution in cooperation with Nomura Institute, 9 May 1996. See the section on International Cooperation below and Box D on International Cooperation on the 300mm wafer.
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4, 1994, p. 727, with supplemental information from the NRC and Kenneth Flamm, Mismanaged Trade: Strategic Policy in the Semiconductor Industry, The Brookings Institution, Washington, D.C., 1996, pp.
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exports to India were $3.3 billion in 1995, up 43.6 percent from 1994. See The 1996 National Trade Estimate Report on Foreign Trade Barriers, Office of the United States Trade Representative (USTR)
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Nearly 40 percent of total Chinese exports are to the United States. Interestingly, in addition to textiles and footwear, these exports now include billions of dollars of electronic machinery, and an ever-increasing volume of higher-value-added products.31 China is, in effect, using its market power and growing technical sophistication to create a comparative advantage in targeted high-technology sectors.32 28 Statement of Ambassador Michael Kantor, 7 March 1996, before the Senate Foreign Relations Subcommittee on East Asian and Pacific Affairs and the House International Relations Subcommittee on Asia and the Pacific and International Economic Policy and Trade, p.
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Kim, of the Samsung Electronics Company, to the conference Sources of International Friction and Cooperation in High-Technology Development and Trade. Samsung began memory production in 1983 and capitalized on the tremendous growth in demand for DRAMs to emerge as the world's leading supplier of semiconductor memory chips as well as color monitors, with $14 billion in sales in 1994 and 6,000 employees.
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as a developing country, pose major challenges to the multilateral trading system.35 As this discussion suggests, the level of activity, the number of programs, the substantial funding being made available, the emergence of aggressive new entrants, and most of all the concentration of these programs on similar, if not identical, sectors suggests that the prospect of increased international friction is real. In light of the importance of these national and regional programs and the policy issues they raise, increased and sustained attention should therefore be accorded to these questions by policymakers within national governments and relevant international organizations.
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13–18. 38 James Fallows, presentation to the conference Sources of International Friction and Cooperation in High-Technology Development and Trade, 30–31 May 1995.
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Beginning in the 1960s, these national programs focused on the creation of domestic national champions in sectors such as computers. In a number of major European countries, the strategy was based on the premise that larger national firms would have the economies of scale to compete with the large U.S.
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Though currently much emphasis is placed on European regional approaches, in many cases national efforts to develop or sustain national champions have continued. Indeed, some of the national efforts of the 1980s, though expensive, had considerable technical success, especially in large projects or where procurement could play a supportive role.43 For example, in the view of some analysts, French national development programs have generally proven most effective when the objective required large-scale mobilization of resources, when the number of technological results could be limited, and when competitive market forces could be suppressed or contained by the state.44 French technological successes under this strategy include participation in the Ariane launch program and Airbus, as well as the TGV (the high speed train)
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284–285. See also the World Bank Policy Research Report, The East Asian Economic Miracle: Economic Growth and Public Policy.
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Importantly, much of the East Asian success has involved the emulation and effective commercialization of existing technologies, rather than efforts to develop new technologies, while the latter approach has characterized a number of European regional programs.51 The record of government policies to develop new technologies and support high-technology industry is by no means one of endless success, in East Asia or elsewhere. In the United States, national security and government mission programs have had remarkable success, sometimes across entire sectors, as well as notable failures.
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A recent OECD study makes a similar point, noting that "governments' track record in picking winners is not good, but that a very few winners may be worth many losers." Martin Brown, Impacts of National Technology Programs, OECD, Paris, 1995, p.
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2. Flamm emphasizes the importance of the VLSI project, describing it as the "largest infusion of R&D subsidies ever received by the Japanese semiconductor industry in both absolute and relative terms." P
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45. See also the recent OECD review by Martin Brown, Impacts of National Technology Programs, Paris, 1995, p.
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"; paper presented at the conference Towards a New Global Framework for High-Technology Competition, 30–31 August 1995, Kiel, Germany. For an early exposition of the strategic trade argument, see James Brander and Barbara Spencer, "Export Subsidies and International Market Share Rivalry," Journal of International Economics, February 1985.
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4423, 1993, and Edwin Mansfield, "Academic Research and Industrial Innovation," Research Policy, February 1991. See also Council of Economic Advisers, Supporting Research and Development to Promote Economic Growth.
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, Sources of International Friction and Cooperation in HighTechnology Development and Trade.
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Stern, "Japan: The Philosophy of Government Support for Information Technology," in Charles Wessner (ed.) , Symposium on International Access to National Technology Programs, 19 January 1996.
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perspective, over the 10 percent lead the Japanese industry enjoyed in 1990, it is "nowhere near the 53 percent of the world market" held by the U.S. semiconductor industry in 1984.
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Indeed, one of the explanations for the recurrence of market access frictions in technology-intensive industries lies in the fact that, for many governments, trade and investment in these industries take on a strategic meaning.82 Consequently, the competitive process in such industries is affected by a host of formal and informal national policies. Despite a clear worldwide trend toward liberalization of trade and investment regimes over the last decade, national governments have throughout this period revealed a clear preference for maintaining the ability to support, attract, or retain high-technology producers in their territories.83 International friction may well increase in frequency and intensity as a growing number of nations compete for what they perceive to be the technologies and industries of the future.
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; export subsidies; the lack of intellectual property protection as a result of inadequate patent, copyright, and trademark regimes; services barriers; investment barriers involving limitations on foreign equity participation and on access to government-funded R&D programs and other restrictions; and anticompetitive practices with trade effects which are tolerated or encouraged by governments.85 Other common policies, which are either designed, or provide the opportunity, to improve the competitiveness of national firms, include deregulation, privatization, re laxation of product and environmental standards, encouragement of mergers and strategic alliances, and targeted tax measures designed to encourage innovation and investment. Governments also support high-technology industry under an exceedingly broad range of policy objectives and implementing financial instruments.
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Currently, more than 1500 programs and measures of support are available to manufacturing in OECD countries.87 Instruments Financial instruments include direct grants to companies; preferential loans; govern ment guarantees for loans; equity capital infusions by government entities or govern ment-controlled banks (often to cover recurrent losses) ; preferential government procurement policies, and targeted tax concessions for specific sectors, for "underde veloped" regions (where high-technology industries may be located)
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487–521. While noting the lack of clear evidence, Ostry agrees that "the internationalization of technology and heightened competition in high-technology industries together seem to be eroding the support of basic and long-run research programs, both private and public." See Sylvia Ostry, "Technology Issues in the International Trading System," OECD, Paris, 26–27 October 1995, p.
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The pressure of global competition is also profoundly transforming industrial research. In the United States, research managers are redirecting resources away from fundamental science and pioneering technology and toward "activities that are more relevant to current product and process development, more likely to produce results that can readily be kept proprietary, and more certain to produce a commercial payoff in the near future."95 These changes in emphasis, combined with a restructuring of re 93 Allocating Federal Funds for Science and Technology, National Research Council, p.
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, provide strong incentives for cooperation among national programs.97 In other cases, close public-private cooperation is essential to fully realize the benefits of innovative technologies and systems. This is especially true when critical public service functions, such as civil aviation, are involved, as is the case with the Global Positioning System (GPS)
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This trend toward greater internationalization of Japanese technology programs may be reversing. A number of recently announced programs, in semiconductors for example, are confined to Japanese producers, although this development may be mitigated by the numerous strategic alliances in this sector.
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[See the section on eligibility for participation in national programs below.] The third category, involving "purely" private sector alliances, is, however, both the most rapidly growing and probably the least understood.
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, there is greater international cooperation in the development of standards on semiconductor materials, test methods, microchip interfaces, and other areas where standards can promote industry growth. While international participation in standards development is without doubt beneficial to the semiconductor industry as a whole, how to carry out such cooperation is a major issue which the semiconductor industry and the nations which are leaders in this area must address.107 Education and Research While there is little controversy over international participation in support of basic science and education, there is some concern that the United States is carrying the major cost of research in universities, especially because the technology and graduates flowing from this research investment are often used effectively in other countries which do not maintain comparable research establishments.
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108 For a review of the issues associated with participation in Japanese technology programs, see Gregory Rutchik, Japanese Research Projects and Intellectual Property Laws. 109 See Coalition for Intelligent Manufacturing Systems and the U.S.
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Technology Policy: Implications of Competitiveness and International Trade Policy." California Management Review, vol.
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It also requires skilled management and a strong long-term commitment on the part of participants to make available adequate resources in terms of both high-quality personnel and financial support. Senior management of participants must be regularly involved in the strategy of the consortium, with meetings and transparent communication with all levels of member companies.115 Given the rapidly rising costs of developing new technologies, the geographic dispersal of expertise, and the need to agree on common standards as a means of assuring market access for final products, international collaboration -- including consortia -- is likely to become more prevalent (see Box D below)
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8–12. The authors observe that "some of the most successful trading partners -- such as Japan, Korea, the European Community, and Germany -- are characterized by a fragmented trade policy structure and weak horizontal mechanisms for resolving conflicts, yet have generally been able to implement trade and industrial policies that have advanced the national commercial interest.
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Government plays a major role in the development of new programs and projects, but the final selection process, the management of the projects, and the exploitation of the results are left to industry;121 • Efforts are long-term. This is critical to the success of national technology programs.
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societal consensus on the need for a wide range of government support for national efforts to acquire, develop, and disseminate new, enabling technologies.123 Criticism of national technology policies may also mask a philosophical rift between participants in the international economy. As noted above, some countries have consciously adopted policies designed to favor growth over consumption, and producers over consumers; they see the acquisition of high-technology industry as a major national goal to be aggressively pursued.
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It corresponds better with Friedrich List's more zero-sum conception of national economic interactions. In this view, trade is not just a game requiring "a level playing field" for "fair" competition, but is rather a contest in which some nations lose their independence and control of their destiny as a result of their relative economic performance in the community of nations.127 The tensions that are often associated with trade disputes in high-technology industries are often exacerbated by the belief, widely held in AngloAmerican circles, that countries whose trade practices do not reflect certain (Anglo-American)
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INTERNATIONAL ELIGIBILITY FOR PARTICIPATION IN NATIONAL TECHNOLOGY PROGRAMS132 In this competitive environment, international participation in national technology programs will be subject to conflicting pressures. As noted above, there are often powerful public and private incentives for increased international cooperation.
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production is seen as a fair return for public support to innovation, the realities of global production networks make the applications of such restraints impractical. See also the remarks by Patrick Windham to the Symposium on International Access to National Technology Programs, 19 January 1995.
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national programs. See the presentations by Pat Windham and Daniel Price to the Symposium on International Access to National Technology Programs, 19 January 1995.
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These include • asymmetries in the structure and funding of national programs; • the different technological competencies and assets nations or firms bring to a cooperative enterprise; • the related perception that some countries are not contributing their "fair share" to basic research; and • inadequate and ineffective intellectual property protection, and investment regimes which discriminate against foreign acquisition, and fail to provide -- formally or informally -- national treatment. The problem of asymmetries in national technology programs may become more acute as advanced high-technology companies in countries with significantly less-developed research infrastructures seek to participate in national programs of the leading industrial countries.
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As a first step, an appropriate multilateral organization, such as the OECD, should gather improved data concerning formal rules for participation in national or regional technology programs, supplemented by objective assessments of current administrative practices -- i.e., actual foreign participation and its rationale -- rather than theoretical "openness." A better understanding of the rules, current practice, and in some cases the absence of rules would be helpful.143 Ultimately, the basis for sustainable international cooperation is likely to be derived from the combination of support by private sector participants within the host country, the technical or financial needs of the program or agency mission, and a sense 141 This policy option and its rationale are outlined in greater detail in Multinationals and the U.S. Technology Base, Office of Technology Assessment, Congress of the United States, September 1994, pp.
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A sustained multilateral effort could also seek to improve understanding of differences among national technology development programs. For example, it could gather improved data concerning formal rules for participation in national or regional technology programs, supplemented by objective assessments of current administrative practices, i.e., actual foreign participation and its rationale, rather than theoretical "openness." A CASE-BY-CASE APPROACH Despite these caveats, there are substantial benefits to be gained from increased international cooperation.
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The standard izing of wafer size is therefore driven in part by the need to avoid imposing customization costs on the tool-making industry. This dramatic cost escalation has given birth to cooperative efforts in both Japan and the United States.
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Evans of Georgetown University and Charles White of Motorola to the National Research Council conference Sources of International Friction and Cooperation in High-Technology Development and Trade, 30–31 May, 1995.
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For a discussion of the objectives and assets of entrepreneurial companies and large multinational partners, see U.S.-Japan Strategic Alliances in the Semiconductor Industry: Technology Transfer, Competition, and Public Policy, National Research Council, National Academy Press, Washington, D.C., 1995
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16. Joint venture: two or more firms jointly form a company to develop, manufac ture, or market new products.150 150 Prepared by the NRC working group for the report U.S.-Japan Strategic Alliances in the Semiconductor Industry, p.
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The growth in strategic alliances is changing the traditional terms of international competition. Instead of national champions, international coalitions of diverse national origin may compete for global market share.
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Historically, firms move R&D abroad to • acquire foreign technology, • customize products for local markets, • monitor foreign technological developments, and • gain access to foreign R&D resources, such as universities, public and private research facilities, and highly trained scientists and engineers.156 The establishment of foreign R&D facilities can also facilitate the adaptation of products to local product standards and regulations and can result in substantial cost efficiencies. These establishments involve significant benefits to the economy in which they are located through employment, funding of academic research, equipment purchases, and contributions to the national technology base.
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161 TECHNOLOGY COOPERATION AND AN OPEN MULTILATERAL TRADING SYSTEM Greater international cooperation in technology development is facilitated by an open, market-driven trading system. Long-term cooperative efforts, and the cooperative spirit they presuppose, coexist with difficulty in an environment marked by trade disputes or inadequate respect for the explicit and implicit rules of the game.
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Reciprocal access to national technology development programs fundamentally requires equal access to end-use markets. Efforts to further technological cooperation, particularly public/private cooperation, therefore imply parallel efforts to further trade liberalization in areas "within the borders," such as government procurement, national treatment for foreign investment, and effective competition policy.
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competitiveness, a tendency compounded by a fragmented system of policy development.165 Effective policymaking and its execution require appropriate institutions, which take time to build but can have important long-term effects.166 As competition for high-technology industries becomes more acute, new institutions are needed to better link technology and related economic policies with trade policy formulation and negotiations and with export promotion and control. It is especially important that they have the capacity to assess, coordinate, and implement the various policies impacting the development of national high-technology industries.167 An integrated approach requires institutions designed to support national capabilities and national firms, while at the same time preserving market-based competition and strengthening international disciplines.
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Consumers, not the government, underwrite the costs.170 Improving the coordination of technology and trade policy through institutions with the necessary resources and analytical capacity offers a means to avoid unnecessary friction, while maintaining a clear understanding of the stakes for both the national economy and the international system.171 More effective national policymaking must be complemented by effective international institutions. Because many of the policy questions associated with the promotion and protection of national high-technology industry will have to be addressed on a multilateral basis, international institutions are likely to play an expanded role.
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The semiconductor industry "wherever it has devel oped, has been an explicit target of industrial policy -- whether a result of military policy of the United States, or the objective of commercial policy elsewhere in the world."173An outstanding example of successful government intervention for commercial objectives in semiconductors is the Very Large Scale Integrated (VLSI) Project, initiated in the mid 1970s by MITI and a number of major Japanese companies.
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translate into increased volume and experience, which in turn translates into increased advantage.176 Short-term sacrifice to build market share can lead to reversals in market position; firms can come from behind to capture a leadership position in enabling technologies and high-revenue industries. Market posi tion and cost advantages at any given time thus reflect strategies and the skill with which they are implemented, not just a pre-ordained natural order of comparative advantages.177 however, that poorly conceived government-industry programs can drain critical manpower into nonproductive programs, citing the U.S.
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