Technology Infrastructure and. Competitive Position

Transcription

1 Technology Infrastructure and Competitive Position

2 Technology Infrastructure and Com petitive Position Gregory Tassey Springer Science+Business Media, LLC

3 Library of Congress Cataloging-in-Publication Data Tassey, Gregory. Technology infrastructure and competitive position / Gregory Tassey. p. cm. Inc1udes bibliographical references. ISBN ISBN (ebook) DOI / Technology--United States. 2. Competition, International. 1. Title. 1'21.T '7306--dc20 CIP 1992 by Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 1992 Softcover reprint ofthe hardcover Ist edition 1992 AII rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means. mechanical, photo-copying, recording, or otherwise, without the prior written permission of the publisher, Springer Science+Business Media, LLC. Printed on acid-free paper.

4 About the Author Gregory Tassey is senior economist for the National Institute of Standards and Technology in Gaithersburg, Maryland. Prior to assuming that position, he was Chief of Economic Policy Research for the Experimental Technology Incentives Program in the Department of Commerce. Since receiving the Ph.D. from George Washington University in 1978, he has conducted strategic planning and microeconomic analyses of technology-based industries and the government policies that affect them. His research has been published in economics, business, and policy research journals; he is co-author of Strategies for Technology-Based Competition (Lexington Books) and co-editor of Cooperative Research and Development: The Industry-University-Govemment Relationship (Kluwer Academic Publishers). All opinions expressed in this book are those of the author and do not represent official positions of the Department or Commerce or the National Institute of Standards and Technology.

5 To my wife and daughter: they love me more than economics, which enabled thi~ book to be completed

6 Table Of Contents Acknowledgements List offigures xv List of Tables xvii Preface xix xiii Chapter 1 THE ECONOMIC ROLES OF TECHNOLOGY INFRASTRUCTURE 1 A Changing Framework for Growth Strategies 4 The Role of Technology in Economic Strategy 5 The Elements of Technology Infrastructure 9 A Brief History of Technology Infrastructure Policy 11 Chasing the Japanese Model 16 The Need for Expanded Technology Infrastructure 17 The Evolution of National Economic Strategies 20 Summary 26 Chapter 2 STRATEGIC ISSUES IN TECHNOLOGY BASED COMPETITION 29 Indicators of Competitive Position 31 Microeconomic Indicators of Competitive Position 36 The Information Technology Production Chain 37 Growth Policy Issues 47 Economic Impacts of Infrastructure R&D 52 Summary 54 Chapter 3 A CONCEPTUAL MODEL OF TECHNOLOGY INFRASTRUCTURE 57 Generic Technology 60 Infratechnology 60 Management Practice 64

7 x Implementing New Infrastructure Roles 65 The Dynamics of Technology-Based Competition 77 Technology-Based Competition in the 1990s 81 Application of the Model to HDTV 86 Summary 92 Appendix: Definitions of Terms 95 Chapter 4 RESEARCH CONSORTIA 107 Globalization and the Demand for Research Consortia 108 SEMATECH: Outlier or Model for the Future? 110 MCC: A Multi-Dimensional Consortium 120 The ConsortiumlMember Interface 123 Industry-Government Consortia 125 Assessing the Economic Impacts 128 Trends in the Use of Research Consortia 131 Summary 136 Chapter 5 INDUSTRY STRUCTURE AND INVESTMENT IN TECHNOLOGY INFRASTRUCTURE 139 Foreign Direct Investment 140 The Technology Impact of FDI 144 Strategy Implications 153 Scientific & Technical Information 159 Organizational Integration 161 Summary 166 Chapter 6 STRATEGY AND STANDARDS 169 The Evolving Role of Standards 170 The Economic Functions of Standards 172 Evolving Corporate Strategies 174 Standards and Competition in Information Technology 179 Economic Impacts of Information Technology Standards 187 Infrastructure vs. Proprietary Strategies 191 Standards for Automated Manufacturing 193 Summary 201

8 Xl Chapter 7 TRENDS IN TECHNOLOGY INFRASTRUCTURE 205 Alternatives Strategies: Robots vs. Robotics 209 Consortia for Cooperative Production? 212 Evolving Technology Infrastructure Strategies 215 Quality 220 Quality as an Element of Corporate Strategy 222 Trends in Quality-Related Expenditures 224 The Importance of Measurement Investments 227 Industry Structure and Quality-Related Strategies 228 Future Infrastructure Roles 235 Summary 239 Chapter 8 CORPORATE STRATEGY AND GOVERNMENT POLICY 241 Changing R&D Funding Patterns 242 New Funding Strategies 249 Adapting to Globalization 253 An Expanded Technology Infrastructure 259 Strategic Issues in Industry-Government Interaction 265 The Industry-Government Interface 271 Summary 272 Chapter 9 INFRASTRUCTURE STRATEGIES IN AN INTERNATIONAL ECONOMY 273 The Changing of the Tide 275 The Policy Process 280 What Is Required? 281 Bibliography 287 Index 303

9 Xlll Acknowledgements The broad scope of this book means that varied sources had to be used. Many of the most valuable were individuals in government and industry, both in the United States and elsewhere. Too numerous to name, they all have a common bond -- the desire to find better ways of combining government and industry assets in the pursuit of economic growth. A debt is due to the staff of the National Institute of Standards and Technology, who provided numerous insights into both technological and industry trends. Without their contributions, this book would not have been possible. AI Sher provided expert consultation on graphics, including the design of the cover. A special thanks is due Elaine Bunten-Mines, whose intellectual stimulation and moral support over many years have been invaluable.

10 xv List of Figures Figure a a 2-4a Information Technology Production Chain 38 Shares of World Information Technology Market 39 Shares of World Information Technology Exports 40 Shares of World Computer and Related Equipment Market 41 Shares of World Telecommunications Equipment Market 42 Shares of World Computer and Related Equipment Exports 43 Shares of World Telecommunications Equipment Exports 44 Shares of World Optoelectronics Market 45 Shares of World Semiconductor Market 46 "Black Box" Technology Model 58 Disaggregated Technology Model 59 The "Pre-Competitive Line" 71 The TechnologylProduct Life Cycle 78 Linkages with the Semiconductor Industry 80 Evolution oftechnology-based Competition 82 Research Targets of Consortia 109 Technology-Based Economic Activity Without Standards 176 Technology-Based Economic Activity With Standards 177 Stages of Technology-Based Economic Activity 207 Evolution of Manufacturing Organization and Strategy 237 Infrastructure Impacts on Competitive Position 260 Growth Policy Objectives 261 Growth Policy Mechanisms 262

11 XVII List of Tables Table U.S. Growth since 1972 Relative to other Nations 31 Average Annual Percent Growth in Productivity 33 Value-Added Productivity Trends 34 Growth in Real GNP/GDP: Selected Periods, Social Rates of Return from Technology Investments 53 Objectives of Electronics Research Consortia 115 Functions of Electronics Research Consortia 117 Impact Indicators for Research Consortia 130 R&D Intensity of U.S. Affiliates of Foreign Firms Compared to U.S. Industry for Major Industry Groups 148 R&D Intensity of U.S. Affiliates of Foreign Firms Compared to U.S. Industry for High-Technology Industry Groups 149 R&D Expenditures by Foreign Affiliates of U.S. Owned Firms and by U.S. Affiliates of Foreign Owned Firms 151 R&D Intensity of U.S. Subsidiaries in Foreign Countries Compared to U.S. Domestic Firms 152 Objectives of Quality Assurance Strategies in the Optical Fiber Industry 225 Quality Assurance Expenditures by Major Budget Category for the Optical Fiber Industry 226 Non-Defense R&D as a % of GNP 242 Manufacturing Sector R&D and Capital Expenditure Trends in the United States and Japan 243

12 Preface A number of nations, including the United States, have demonstrated a superb ability to solve systems problems, when the problem is technical. The ultimate example is NASA's lunar landing program in the 1960s. The U.S. space program spends a significant portion of its resources on systems integration, so that a large number of hardware components work together physically and functionally to achieve the mission objective. Unfortunately, similar systems approaches have been rejected to varying degrees for economic growth policy. These rejections are throwbacks to the Adam Smith-type characterization of a "private" market, in which individual greed -- alias the "invisible hand" -- singlehandedly succeeds in forcing efficient use of available resources. Today, the concept of the private market still holds and, in fact, remains the prime mover of economic efficiency. However, as in other areas of human existence, learning has taken place. This evolutionary process has led to, among other things, an increasing division of the systems problem into specialized components. In some cases, this specialization results in a highly segmented economic structure or "non-system" that malfunctions. In other cases, the economic system survives and prospers because the interaction among components is not ignored. Another part of human learning is the development and use of technology. A major consequence is that the static economic market of Adam Smith's time is no more. For today's market participants, dynamic efficiency has become at least as important as the static efficiency requirements of The Wealth ofnations. This is not to say that Adam Smith ignored the impact of change on economic markets. Rather, change was slow enough so that it did not have a major impact on day-to-day economic activity. Today, however, technology coupled with the globalization of markets have made change an integral part of economic strategy - even the primary component. In addition to the impacts of these two factors on private economic behavior, nations around the world have attempted to help their economies adapt to dynamic markets through provision of a variety of so-called "public economic goods".

13 xx As has always been the case, some nations are doing a better job of facilitating adaptation than are others. One of the major differences in the observed approaches to economic strategy has been the degree to which economies recognize the existence of public and private elements of industrial technology, identify these elements in an operational sense, and provide them efficiently and in the correct time periods. Some nations have steadfastly refused to acknowledge the multi-dimensional systems character of technology-based economic activity, choosing instead to rely on the over-simplified "free market" approach to achieving efficiency. Much worse, others have tried to isolate their domestic markets from foreign competition. Yet, other nations have at least partially accepted the heterogeneity of industrial technology and the consequent need for both public- and privatesector roles in providing it. This last group has just begun to focus on the fact that the emerging economic "system" is one in which the elements cannot remain separate to a significant degree and that the interfaces between elements cannot be partial or rigid. A few of these nations are even rapidly pursuing the evolutionary path to a true systems strategy. In the latter case, not only are the multiplicity of technology elements identified with their public and private sources recognized, but an awareness of the dynamic character of the economic system drives the provision and integration of these elements. Thus, in the 1990s, the major factors determining competitive position are the degree to which nations will adapt to the dynamics of global competition by altering (1) the structure and behavior of the private sector, (2) the content of economic infrastructure, particularly the technology components, and (3) the efficiency with which the public and private sectors can provide this infrastructure. This last factor is the key to the efficiency of a modern economic system. Without it, the most dynamic of private sectors will eventually be thwarted by a large number of barriers that force poor investment decisions and inappropriate industry structures. In this context, the rationales for undertaking this book are (1) interest in technology-based growth policies is growing worldwide as technology becomes an increasingly important factor in economic competition; (2) in spite of the increased efforts in many nations to develop more effective industry strategies and government policies, most of these endeavors have been ad hoc exercises rather than derived from a comprehensive set of principles that would impart increased efficiency to the decision making process; and, (3) these

14 increased efforts to develop national strategies have created an awareness of the need for frameworks that assist strategy and policy formulation. Relatively little argument remains with respect to whether or not significant external technical elements exist that affect the competitiveness of the private corporation. Just as roads, bridges, railroads, and other infrastructure are essential to traditional commerce, so are these technical elements essential to the high-tech economic world. Elements such as generic technologies, infratechnologies, standards, scientific and technical information, and testing methodologies comprise a complex technology infrastructure. Thus, one of the most critical issues in technology-based competition is the type and magnitude of technology-related support that should be provided to private firms. More specifically, issues are beginning to be considered such as (1) at what stages in the technology-life cycle are different infrastructure elements most useful; (2) what mechanisms are most efficient for developing and disseminating these elements; and, (3) what are the divisions of responsibilities between industry and government for providing technology infrastructure. This book addresses these three issues by drawing upon a wide range of sources. Many of these are government and industry data that are either unpublished or not widely circulated or known. Other sources are the results of industry surveys that the author has either directly participated in or commissioned. Finally, in addition to assessments of the more widely read literature, numerous documents from a number of national governments relating to technology infrastructure policy are utilized. The scope of the book is broad, covering such elements of technology infrastructure as "pre-competitive generic technology", various types of industry standards, measurement infratechnologies, scientific and technical information, etc. Thus, it will provide an integrated view of technology infrastructure for corporate managers, academic researchers, and government policy makers. Trends which affect both the amount and type of investment in technology infrastructure are analyzed. These include the effects of direct foreign investment, the use of various types of research consortia, and industry structure changes such as shifts in the degree of horizontal and vertical integration. The various technology infrastructure elements are integrated into a conceptual framework to indicate how these elements interact with, complement, and substitute for one another. Finally, this framework and the subsequent analysis XXI

15 xxii are tied together and related to the more global economic growth issues and trends. The first two chapters provide an overview of technologybased competition and the related growth policy issues facing industrialized nations in the 1990s. Some of the points made here will not be new to the dedicated student of this general topic. However, an attempt is made to provide a fairly comprehensive characterization of technology-based competitiveness and to do so in a way that conveys the systems character of the problem -- the only way to approach economic growth policy, if long-term efficiency is to be achieved. These two chapters also provide an historical perspective, focusing on strategy and policy trends that lead up to the present and future demands for technology infrastructure. In Chapter 3, a conceptual model of the technology-based economic process is developed that emphasizes the roles and impacts of the various elements of the supporting infrastructure. Responding to the increased attention now being given to technology-based growth policy, an appendix to this chapter provides definitions of relevant terms that are frequently used and more frequently misused. The next four chapters analyze specific elements of technology infrastructure and how these elements interact with industry strategy and structure, including important trends such as foreign direct investment, horizontal and vertical integration, and new management strategies (total quality management, etc.). The last two chapters address the interaction of corporate and government roles for providing technology infrastructure, some funding issues, and mechanisms for cooperative planning and implementation.