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1 The Emerging Global Technical Enterprise The last two decades represent a watershed in the global distribution and organization of technological activities. Since the mid-1970s, there has been an acceleration of two long-standing, mutually reinforcing trends-the convergence in technical capabilities of industrialized nations and the global integration of national technology markets. The virtual elimination of the twentieth century "technology gap" between the United States and its major trading partners in Western Europe and Japan and the rapid growth in tech- nical competence of an expanding group of newly industrialized nations have greatly intensified international technical and commercial competition. Global competition and the advance of technical convergence, in turn, have been accompanied by a surge in international foreign direct investment and a proliferation of transnational corporate networks and technical alliances that have accelerated the integration of formerly relatively discrete national technology markets and industrial activities. CONVERGENCE IN TECHNICAL CAPABILITIES OF INDUSTRIALIZED NATIONS Since the 1950s, most of the industrialized and industrializing nations of Europe and Asia have made steady progress toward closing the huge tech- nology and productivity gaps that opened between them and the United States during the first half of the twentieth century. By the late-1980s, America's major industrialized competitors, led by Japan, had greatly expanded their respective national technical capabilities, all but eliminated the U.S. margin in manufacturing productivity, and achieved rough techni 14
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 15 cat and commercial parity with the United States across a range of industries and technologies. It is easy to challenge the validity or accuracy of any one indicator of change in the relative technological capabilities of nations. Indeed, there is little consensus regarding the significance of comparative patent data as there is concerning the accuracy and meaning of international comparisons of R&D spending or scientific and engineering personnel. Yet by drawing on a range of indicators that include measures of a nation's technical inputs (R&D spending, technical work force) and outputs (patents, high-tech trade and production), as well as measures of the relative efficiency with which these technical resources are employed (productivity), it is possible to pro- vide a multidimensional overview of recent trends in the global balance of commercial technical power. From the perspective of inputs, the United States continues to boast the world's largest R&D budget as well as the largest national contingent of engineers and scientists. Yet Americans competitors have made significant strides during the last two decades, greatly narrowing the differential in human and capital resources.2 A comparison of recent changes in the ratio of R&D personnel per 10,000 employees for The Group of Five (G-5) economies Federal Republic of Germany, France, Japan, United Kingdom, and the United States illustrates this point quite elegantly (Figure 1. 1~. Since the late 1960s, the Western Europeans and the Japanese have come 80 70 60 50 40 30 20) 10 L- l- l,-lil ,l o 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 Per 10,000 Labor Force Hi== _ ~~ .......................................................................................................................................................................................................................................................... United States ° Japan France v United Kingdom ° West Germany FIGURE 1.1 Scientists and engineers engaged in R&D per 10,000 labor force, by country: 1965-1986. SOURCE: National Science Foundation (1988, p. 38).
6 NATIONAL INTERESTS lN AN AGE OF GLOBAL TECHNOLOGY Percent of GNP n n 2.5 ~' ' ' ' 'I \~- ~ ~ 1 1 1 1 1 1 1 1 1 1 1971 1973 1975 1977 1979 ~. 1 ~ l 1981 1983 1985 1987 United States France ° Japan v United Kingdom ° West Germany FIGURE 1.2 Estimated nondefense R&D expenditures as a percent of GNP, by country: 1971-1987. French data are based on GDP; consequently, percentages may be slightly over- stated to GNP. Foreign currency conversions to U.S. dollars are calculated based on OECD purchasing power parity exchange rates. Constant 1982 dollars are based on U.S. Department of Commerce GNP implicit price deflators. SOURCE: National Science Foundation (1988, p.8). a long way toward closing the gap with the United States. Although most of the convergence occurred during the 1970s, Japan continued to increase its ratio during the 1980s, surpassing the U.S. ratio in 1986. Moreover, given the fact that nearly a fifth of total U.S. R&D personnel are engaged in defense-related work, that is, work of limited commercial relevance, the importance of the U.S. absolute margin in R&D personnel is clearly dimin- ished.3 A similar picture emerges from a comparison of nondefense R&D spend- ing as a percentage of GNP for these five countries (Figure 1.21. The United States has historically channeled a significantly larger share of its total R&D funds to defense purposes than its trading partners, anywhere from a quarter to a third of U.S. R&D expenditures in recent decades.4 However, from the mid-1970s to the late-1980s, a period of greatly intensi- fied global industrial competition during which the relevance of defense R&D to commercial applications has declined markedly, growth in the ratio of nondefense R&D to GNP for the United States remained relatively flat while that for Japan, the Federal Republic of Germany, and, to a lesser extent, France, experienced significant growth. America's major competitors have also vastly improved the efficiency
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 17 with which they employ their indigenous technical resources. Although European and Asian productivity growth rates have long exceeded that of the United States, by the late-1980s the most advanced of these countries had finally closed the gap with the United States in absolute manufacturing pro- ductivity (Figure 1.3~. Granted, a comparison of overall productivity rates (Figure 1.4) shows that the United States continues to enjoy an absolute advantage over its major competitors. Considering the relatively poor U.S. performance in manufacturing productivity growth over the past two decades and the fact that manufacturing accounts for less than a quarter of the combined output of the Organization for Economic Cooperation and Development (OECD) countries (only 20 percent of U.S. output), these figures attest to the high productivity of the U.S. nonmanufacturing sectors relative to their counter- parts in Western Europe or Asia.s Perhaps reflecting the singleness of pur- pose with which Japan has developed its export-oriented manufacturing industries, the dismal productivity of Japan's nonmanufacturing and non- tradable sectors has dragged the nation's overall output per person employed to the lowest level of The Group of Seven (G-7) economies Canada, Federal Republic of Germany, France, Italy, Japan, United Kingdom, and the United States. As in the case of inputs into a nation's technological enterprise, there are any number of ways that the technical output of a country can be measured, each with its own special insights and limitations. Patent data, for example, tell little about a country's or a firm's ability to commercialize its innova- tions. Yet, for many industries, patent data provide a useful window on the pure technical strength of nations or firms.6 Between 1978 and 1988, the ~ .. share of total patents granted in the United States to U.S. inventors fell from 62.4 to 52 percent. The U.S. decline was directly offset by a doubling of the Japanese share from 10.5 to 20.7 percent, while the share of European inventors remained unchanged at around 18 percent (Figure 1.5~. Over the period, relative Japanese patent performance in high-tech7 products such as computers, communications equipment, and electronic components was par- ticularly impressive (Figure 1.6~. The only high-tech product field in which the share of patents to U.S. inventors increased over the period was "drugs and medicines." Recent changes in national shares of world production, trade, and foreign direct investment in high-tech industries confirm the shift in the technical balance of power suggested by patent data. Between 1975 and 1986, world production of high tech manufactures experienced a sixfold increase and world high-tech trade underwent a ninefold expansion (Figures 1.7 and 1.81. Over the same period, Japan nearly doubled its share of both world produc- tion and exports of high-tech products, displacing the United States as the world's leading high-tech exporter in the process.8
18 40 35 30 20 15 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY Thousands of 1980 Dollars A ·- · >~ ~ _ ~,~' 10 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1971 1973 1975 1977 1979 1981 1983 1985 1987 United States ° Japan O West Germany ~ Summit 7 FIGURE 1.3 Manufacturing output per manufacturing employee, trends in absolute growth: 1971-1987, in constant 1980 dollars. Average for Summit 7 includes France, Italy, Japan, and United Kingdom. SOURCE: Council on Competitiveness (1990). 50 40 Thousands of 1989 Dollars ,~~ 30~ i ~ _ 20 ~ [ 3~ 10 1 1 1 1 , 1 1 , , , , 1 , , 1 1 , 1 , , 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 United States ° Japan O West Germany ~ Summit 7 FIGURE 1.4 Gross domestic product per employed person, 1970-1989, purchasing power parity exchange rates. Average for Summit 7 includes Canada, France, Italy, and United Kingdom. SOURCE: U.S. Department of Labor (1990).
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 70 60 50 40 30 20 10 o 19 Percent Share 1978 _ United States HI Japan 41 France ~ United Kingdom 1988 41 West Germany FIGURE 1.S National shares of patents granted in the United States, by country of residence of inventor and year of grant, all technologies: 1978 and 1988. SOURCE: National Science Board (1989, p. 362). Although the United States continues to produce a larger volume of high- technology products than any other nation, its share of world high-tech out- put (42 percent) remained relatively stable during the 1970s and 1980s while that of Japan grew dramatically from 18 percent in 1975 to 32 percent in 1986. Over the same period, European nations watched their share of world high-tech output drop from 36 to 24 percent. The sharp expansion of European and Asian outward foreign direct investment during the past two decades offers a striking expression of the enhanced technological competence and confidence of foreign corporations. Since 1973 there has been a fivefold increase in the volume of world foreign direct investment and a significant redistribution in shares of total outward foreign direct investment among the major industrialized countries (Figure 1.9). Between 1973 and 1987, the U.S. share of world outward foreign direct investment declined from 48 to 31.5 percent, while that of the Western European countries expanded from 39 to 51.2 percent and Japan's share rose from 0.7 to 7.5 percent. From 1975 to 1985, the stock of foreign direct investment in manufacturing accounted for by the G-5 economies doubled while the U.S. share of that total declined from 58 to 46 percent. Meanwhile, the share of the combined foreign direct investment stock in manufacturing held by European corporations jumped from 35 to 38 percent
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22 500 400 300 200 100 lo NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY Billions of Dollars 1975 France 1 1 1~ is\\\\ ~ 1980 United States 1~ Japan ~ United Kingdom 1986 West Germany Europe. FIGURE 1.7 Global production of high-technology products, by selected countries: 1975, 1980, and 1986. SOURCE: National Science Board (1989, p. 371). 80 70 60 50 40 30 20 10 lo Billions of Dollars ................ _ _ 1975 United States F - l~ France 1980 Japan United Kingdom 1986 O West Germany FIGURE 1.8 Exports of high-technology products, by selected countries: 1975, 1980, and 1986. SOURCE: National Science Board (1989, p. 377).
THE EMERGING GLOBAL TECHNICAL ENTERPRISE Billions of U.S. Dollars 1 000 800 600 400 200 23 O _ 1960 1967 _ United States , , 1973 Europe ~ Japan 1980 FIGURE 1.9 Growth and distribution of world outward stock of foreign direct investment by country of ongin: 196~1987. SOURCE: U.S. Department of Commerce ( 1989b, p. 1 1). 1987 and that of Japanese corporations from 7 to 15 percent (United Nations Centre on Transnational Corporations, 1988; U.S. Department of Com- merce, 1988c, 1989b). In summary, there has been a dramatic shift during the past two decades from a technologically unipolar world, led by the United States, to one in which technological capabilities are much more dispersed among a number of industrialized and industrializing countries. This sea change in the global technological order and the accompanying intensification of international competition have had profound implications for the organization of corpo- rate technical activities across national borders. INTEGRATION OF NATIONAL TECHNOLOGY ENTERPRISES SINCE THE MID-1970s The integration of national technology markets has been gathering momentum since the early 1950s, fueled largely by the postwar expansion of world trade and the growth of predominantly U.S. multinational business activities. Yet, until recently, the pace and scope of global technical integra- tion have been significantly circumscribed by the highly uneven distribution of technical capabilities worldwide. To be sure, international transfers of
24 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY commercial and military technology were significant during the 1950s and 1960s. However, the unchallenged technological and industrial supremacy of the United States guaranteed that technology flows were predominantly "one-way," that is, from the United States to the rest of the world. This situ- ation, in turn, tended to ensure that the advanced technical activities associ- ated with the research, design, and development of products or production processes for most industries remained organized more along national than multinational or global lines. Before the 1970s, U.S. and foreign multinational corporations in manu- facturing industries tended to develop and commercialize most new prod- ucts and technologies within their home markets first, transferring produc- tion abroad only after product and process technologies were more mature or standardized.9 In other words, the most sophisticated, most proprietary, or most highly leverageable technical activities (research, product and proc- ess development, design, systems integration) were generally concentrated in the home market while the less sophisticated, more standardized technical functions (manufacturing, assembly, component and capital equipment pro- duction) were often transferred to subsidiaries overseas.~° In short, the tech- nology base of most industries remained essentially national even as pro- duction became increasingly multinational. During the last decade and a half, however, there has been a fundamental shift in the international organization of production and advanced technical activities. Unlike the internationalization of production during the 1950s and 1960s, which was driven primarily by U.S. foreign direct investment, internationalization since the mid-1970s has been characterized by a rapid expansion of non-U.S. foreign direct investment and a proliferation of trans- national corporate alliances. In the last decade alone, world foreign direct investment has doubled, growing four times as fast as world trade since 1983 (Figure 1.10~. By 1987, however, the U.S. share of world outward for- eign direct investment had declined to 31.5 percent, down nearly 17 per- centage points from its share in 1973 of 48 percent (see Figure 1.91. Since 1980 there has also been a rapid increase in the formation of transnational corporate alliances, most of these initiated by U.S. firms (see Hagedoorn and Schakenraad, l990a,b). These two new trends in the internationalization of production combined with the intensification of international competition, the cross-penetration of national markets, and the rapid spread of advances in information and pro- duction technologies, have propelled the world's largest, and, historically, most self-sufficient national economy to unprecedented levels of economic and technical interdependence. Moreover, they have brought about the transnationalization of the technology development and acquisition strate- gies of corporations in a growing number of industries.
THE EMERGING GLOBAL TECHNICAL ENTERPRISE Index 1980~100 210 190 170 150 130 1 10 .~............................................. 90 1980 1981 1982 1983 1984 1985 25 1986 1987 1988 1989 ° World Output ~ World Trade Volumes ~ Foreign Direct Inv. FIGURE 1.10 Growth of world trade, output, and foreign direct investment: 1980-1989. SOURCES: International Monetary Fund (1990, p. 73 and p. 93), U.S. Department of Commerce (1989b, p.11), and U.S. Department of Commerce (1988c, p. 87). GROWTH OF U.S. ECONOMIC AND TECHNOLOGICAL INTERDEPENDENCE The increase in U.S. economic and technological interdependence since the late 1970s suggests how rapid and pervasive the integration of national technical enterprises has been during the past decade. Between 1980 and 1986 alone, U.S. imports of foreign high-tech products increased from 11.5 to 18.1 percent of total domestic consumption. In 1986 the United States experienced its first high-technology trade deficit since data collection began. Between 1973 and 1987, as the volume of world foreign direct investment experienced a fivefold increase, the U.S. share of total inward foreign direct investment grew from 9.9 to 25.2 percent. Moreover, between 1977 and 1987, the stock of foreign direct investment in U.S. man- ufacturing grew from about 5 percent to more than 12 percent of total U.S. manufacturing assets. Currently, it is estimated that foreign-owned firms operating in the United States account for nearly a quarter of U.S. exports and one-third of U.S. imports (Graham and Krugman, 1989; Julius, 1990; National Science Board, 1989; U.S. Department of Commerce, 1989b). The dependence of U.S.-owned high-technology firms on overseas mar- kets and the productive capabilities of foreign affiliates has also grown in recent years. In 1986, sales of high-technology products by the foreign
26 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY affiliates of U.S. companies were twice as large as U.S. high-technology exports, and the ratio of foreign affiliate to U.S. parent assets for high-tech- nology manufacturing industries stood at nearly 42 percent. Moreover, recent studies suggest that the reverse transfer of technology from the for- eign affiliates of U.S. companies to their U.S.-based parents has grown sub- stantially in volume and importance over the course of the past two decades (Mansfield and Romeo, 1984; National Science Board, 1989. The growing dependence of the U.S. economy on foreign technical talent during the 1970s and 1980s is equally remarkable. In 1972 foreign-born engineers represented less than 8 percent of the total U.S. engineering work force. By 1982, however, their share had risen to nearly 18 percent, a large proportion of which were engaged in industrial and academic research and development. Similarly, between 1975 and 1985, the share of all U.S. engi- neering faculty members under the age of 36 accounted for by foreigners increased from 10 percent to nearly 50 percent (National Research Council, 1988). CHANGING CORPORATE STRATEGIES TOWARD TECHNOLOGY DEVELOPMENT AND ACQUISITION The rapid growth of international trade and direct investment also sig- naled a shift in corporate strategies with profound implications for the orga- nization of technical activities across national borders. The intensity of global competition unleashed during the late 1970s forced national and transnational corporations in a number of industries to recast their strategies and restructure their operations in more global terms. The clearest expres- sion of this change in corporate strategies has been the acceleration of for- eign direct investment itself as European, Asian, and American companies have moved to penetrate each other's home markets. Another element of this corporate response, perhaps most evident in the strategies of U.S. cor- porations, has been a trend toward increased internationalization, decentral- ization, and foreign development and acquisition of a growing range of advanced technical activities, including research, design, and development. Although much of this shift in corporate strategy has been accomplished through foreign direct investment and trade, another important instrument for implementing new strategies has been transnational technical alliances among corporations. The reasons for these changes in the way more and more national and transnational companies are organizing and conducting their advanced tech- nical activities are multiple and vary considerably in relative importance from one industry to the next. Nevertheless, some of the most frequently cited explanations that seem to cut across industries include the desire of firms to access new markets, to better monitor the capabilities of competi
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 27 tars and their home markets, to exploit unique technical, managerial, and other operational capabilities of would-be potential partners, to accelerate the process of innovation and reduce product and process development time, or to share the risks and costs involved in research, development, and pro- duction. Evidence of this trend, though mostly based on company or indus- try case studies, finds at least some quantitative expression in recent surveys of U.S. corporate R&D spending and interfirm alliances (Chenais, 1988; Enderwick, 1989; Hagedoorn and Schakenraad, l990a,b; Mowery, 1988a; National Science Foundation, 1989a; Vonortas, 1989~. In aggregate terms, overseas R&D spending by U.S. corporations nearly doubled between 1979 and 1987, yet foreign R&D spending as a share of total R&D spending by U.S.-owned corporations actually declined over the period from 10.7 to 7.7 percent. Nonetheless, leading U.S. companies in the computer, telecommu- nications, microelectronics, pharmaceuticals, and automotive industries are reported to conduct anywhere from a quarter to a third of their R&D activi- ties abroad.12 Conversely, there is evidence that the surge of foreign direct investment into the United States during the past decade has brought with it significant expansion of U.S.-based R&D activities by foreign transnational corpora- tions. In 1982, in-house R&D spending by the U.S. affiliates of foreign- owned firms surpassed that of U.S. corporations abroad for the first time. Four years later, U.S. affiliates of foreign companies spent more than $5.5 billion on in-house R&D, nearly a billion dollars more than the foreign affil- iates of U.S. companies (National Science Foundation, 1989a, U.S. Depart- ment of Commerce, 198~1988b).13 Lack of data prevents useful compar- isons of the relative importance of overseas R&D activity for individual for- eign countries, industries, or firms. However, based on committee discus- sions and interviews with foreign corporate representatives it is estimated that the advanced technical activities of U.S. transnational corporations are generally more internationalized than those of their European or Asian counterparts. This makes intuitive sense, given that most Asian corporations and many European corporations are relative newcomers to the world of transnational production. By far the most obvious manifestation of recent changes in the R&D and technology sourcing strategies of corporations has been the proliferation of private transnational technical alliances and networks since the late 1970s (Figure 1.11~. The causes of this sudden upsurge of alliance activity are manifold and complex. The emergence of a more plural global technical order with multiple, large technically advanced national and regional mar- kets, the intensification of global competition, and the shortening of product cycles have all played important roles in this shift in corporate strategy. Moreover, policy-induced barriers to trade and investment appear to have been equally determinant in compelling or encouraging globally active cor
28 1 600 1 400 1 200 1 000 800 600 400 200 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY Newly Established Agreements 01 , Before 1974 1975-79 ° Biotechnology 1980-84 O New Materials 1985-89 A< information Technol. FIGURE 1.11 Growth of newly established technology cooperation agreements in biotechnol- ogy, information technologies, and new materials: 197~1989 (1989 first seven mottles only). SOURCE: Hagedoorn and Schakenraad (199Oa, p. 6, p. 7, p. 9). porations to ally themselves with other firms in important foreign markets (Mowery, 1988a). The importance of these "environmental" changes is reflected in actual surveys of corporate alliance participants. Hagedoorn and Schakenraad (199Ob), for instance, found that four motives appeared to play a particularly significant role in the establishment of interf~rm technical alliances: (1) the search for and access to new markets, (2) the technological complementarily of prospective partner, (3) the reduction of the innovation time-span, and (4) a desire to monitor technological opportunities. As in the case of overseas R&D spending, U.S. companies appear to have taken the lead in building transnational technical alliances. According to recent studies by Hagedoorn and Schakenraad (199Oa,b), U.S. firms were involved in nearly 70 percent of all newly established technical alliances in biotechnology, about 60 percent of those in information technology, and more than 50 percent of alliances in new materials between 1970 and 1989. More than half of all agreements involving U.S. firms in all three tech- nology areas were transnational in scope (U.S.-Western Europe or U.S.- Japan).14 Interfirm technical networks in all three technology areas have become increasingly dense over the course of the 1980s, that is, both the number of alliances between previously allied firms and the number firms intercon- nected through major nodes in each technical network grew dramatically
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 29 over the period.~5 Furthermore, the networks formed by interfirm alliances are becoming increasingly "international" over time, that is, the pattern of national or regional blocs of interfirm alliances, most pronounced in the biotechnology and materials fields to begin with, has begun to give way to greater interbloc technical collaboration. The "internationalization" of interfirm technical networks is particularly apparent in subsets of informa- tion technology such as microelectronics. Debate continues as to whether the rapid growth of transnational techni- cal alliances in the 1980s will enhance or impede global technological advance and competition in the future. There are even considerable differ- ences of opinion as to whether the proliferation of corporate alliances con- stitutes a long-term reorientation of corporate strategies or a more ephemer- al phenomenon. One thing is clear, however. The alliance boom of the past 10 years has contributed significantly to the emergence of a truly trans- national technology base for a range of industries. INTERINDUSTRY VARIATIONS IN THE SCOPE AND CHARACTER OF GLOBALIZATION In an effort to explore interindustry variations in the degree to which technical activities have become transnational in scope and to assess the common implications of globalization for U.S. industry as a whole, the committee evaluated the changing character of global technological compe- tition in eight technology-intensive industries. Corresponding to the com- mittee's areas of expertise, the case studies included technically mature industries such as automotive, construction, electrical apparatus, and petro- chemicals, as well as technologically more dynamic industries such as air- craft engines, computer printers, semiconductors, and the emerging industry of biotechnology.~7 Examining each industry's value-added chain, from materials, components, and capital equipment through manufacturing and assembly to distribution, sales, and service, the committee attempted to identify a short list of industry-specific "critical" technologies and to evalu- ate the relative technical strengths and weaknesses of U.S.-based producers in each industry. Comparison of the recent globalization of technical activities in three industries studied by the committee automotive, aircraft engine, and con- struction illustrates the diversity of industry experience, while pointing to a number of cross-industry commonalities. Automotive Industry Despite the fact that there have been multinational auto companies since the industry's commercial takeoff in the early 1900s, the automotive indus
30 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY try has remained essentially a national industry in terms of the organization and conduct of most technical and commercial activities throughout the industry's value-added chain. For most of the postwar period, foreign direct investment has been the predominant mode of gaining access to foreign markets, trade in motor vehicles being only of secondary importance. The high-volume U.S. automakers dominated multinational activity in the indus- try as they sought to jump trade barriers, access low-cost production loca- tions, and leverage their special technical, financial, and organizational capabilities across a wide range of national markets. Primarily because of the activities of multinational companies in both the vehicle assembly and auto supply sectors, the industry's basic technology has been relatively homogeneous and widely diffused internationally for decades. Beginning in the mid-1970s, growing evidence of worldwide excess capacity combined with a powerful surge in the competitiveness of the Japanese auto industry to provoke a major transformation in the global strategies and conduct of the world's leading automakers. Led by the rapid expansion of Japanese foreign direct investment and the proliferation of transnational alliances and joint ventures by both automakers and their sup- pliers, the value-added chain of the automotive industry, including more and more advanced technical activities, has become increasingly transnational in organization. The motives behind the surge in Japanese foreign direct investment were essentially the same as those that inspired U.S. automakers to invest over- seas in the past to improve market access, that is, jump trade barriers, and leverage their special manufacturing capabilities in a large market. More novel was the expansion of transnational corporate alliances and joint ven- tures including codesign, coproduction, cosourcing, and joint distribution agreements. These interfold arrangements complemented the Japanese for- eign direct investment drive by offering Japanese carmakers the opportunity to defuse protectionist sentiment within their host market, to share costs and reduce risks of expanding their presence in the host market, and, perhaps most important, the chance to move up the learning curve regarding the peculiarities of their host market much more rapidly with the help of local partners. On the other hand, interfirm agreements offered U.S. and European automakers relatively inexpensive mechanisms for tapping the special technical and organizational know-how of their Japanese counter parts (Womack, 19881. In this new global engineering and production environment, there is a growing consensus among U.S. automakers that competing successfully at home and abroad depends increasingly on improving their ability to manage the entire design-development-manufacturing process as efficiently as their Japanese competitors. In terms of pure technological capabilities, the big three U.S. automakers remain among the industry's vanguard, and their
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 31 extensive global distribution and marketing systems are still formidable competitive assets. Nevertheless, despite (or perhaps because of) their early leadership in the development and application of mass production technolo- gies, U.S. automakers have lagged behind their Japanese competitors in the application of new automated flexible manufacturing technologies and the overall management of the product development cycle. Furthermore, the historical pattern of relations between the U.S. assembly industry and its supplier base (both captive and merchant) demonstrates a long-standing dis- regard by assemblers and suppliers for the additional organizational learning and technological advance that their European and Japanese counterparts have achieved through closer collaboration up and down the industry's value-added chain. The U.S. automotive industry is beginning to redress some of these liabilities, most notably through international technical and commercial alliances. Nonetheless, the U.S. industry's global strategy con- tinues to focus on ways to better leverage or manage its global resources and "rationalize" global production, and thereby meet competition at home and abroad more effectively (see Appendix A). Construction Industry For the most part, construction is inherently a "national" or "local" indus- try. Given the highly local character of construction labor markets, building codes, and building materials markets, most construction activity is protect- ed or precluded from international competition. The only segments of the industry that have experienced any significant degree of internationalization are nonresidential construction and design engineering services. The pre- dominant modes of international transaction in these more specialized con- struction services have traditionally been through "long-distance" trade (e.g., preparing blueprints to be used by local contractors overseas) or ser- vices rendered on-site in a foreign country through branch operations of an international construction firm. Until the late-1970s, most international trade in construction services was conducted between a relatively small number of international firms located in industrialized countries and govern- ments or private parties in developing or industrializing countries. The industry's technology base, on the other hand, has long been globalized, largely as a result of the highly internationalized nature of the construction equipment industry and international cooperation in construction research. Since the early 1980s, however, trade in nonresidential construction and design services among the industrialized nations of Japan, North America, and Western Europe has grown more rapidly than that between developing and developed countries. This shifting pattern of trade has been accompa- nied by several changes in the character of internationalization itself. First, international mergers and acquisitions have become an increasingly impor
32 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY tent vehicle for internationalization. This phenomenon is most pronounced in the relatively open construction markets of North America and Western European, while virtually nonexistent in the more closed Japanese market. Second, there has been an increase in reliance by construction and design engineering companies on international joint ventures to work domestic and foreign markets. Some industry analysts interpret this development as a harbinger of greater international specialization within the industry. The primary motives for these changes in the strategies of international construc- tion and engineering design firms were generally to improve market access, to acquire or otherwise join forces with the special technical and managerial capabilities of other firms, and to share costs and risks. Finally, there has been an increase in international cooperation in con- struction research and development. Participation by international construc- tion firms in transnational R&D is highly uneven because the locus of R&D activity in the United States and Western Europe is outside the firm, that is, in government, university, supplier, or trade association laboratories. In Japan, however, R&D is primarily the responsibility of the construction companies proper. In part because of this structural difference, Japanese firms have been much more aggressive than their U.S. or European counter- parts about establishing links with construction research abroad. A comparison of the U.S. international construction industry with its counterparts in Western Europe and Japan highlights the U.S. industry's rel- ative engineering strengths and weaknesses. Like their American competi- tors, European international construction firms have established reputations as project managers, albeit with different areas of expertise. U.S. firms excel in the design and construction management of large, complex projects, such as airports, petroleum refineries, and nuclear power plants. European firms are most competitive in the area of smaller, more specialized projects. Both European and U.S. firms procure equipment and materials worldwide, and their home markets are more or less open to foreign penetration (gov- ernment procurement requirements notwithstanding). However, European construction firms enjoy closer working relationships with their equipment providers than their U.S. competitors do. The Japanese industry, by contrast, is much more vertically integrated and, as a result, much more parochial in its sourcing of material and equip- ment. Japanese international construction firms also benefit from close links with Japanese real estate developers and with Japanese manufacturing firms (and their foreign subsidiaries) in overseas markets. As noted, the Japanese are also far more involved in research and development of advanced construction methods and equipment than their U.S. or European competitors. Their close ties with Japanese international real estate develop- ment notwithstanding, Japanese international construction firms compete primarily on the basis of their technical competence and reliability. Unlike
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 33 European and American firms, Japanese construction companies have rela- tively little reputation internationally in project management (see Appendix A). Aircraft Engine Industry The production and technology base of the aircraft engine industry has been organized along national lines for most of the industry's history, even though trade in aircraft engines has long been significant. The reasons for the historically "national" orientation of the industry's production and tech- nical activities have much to do with the nature of its product, production processes, and markets. First, the sheer technical complexity of this indus- try's product fostered concentration within the aircraft industry, raised mon- umental barriers to market entry for any latecomers, and has tended to dis- courage foreign direct investment. Moreover, this complexity was coupled with a corresponding demand for expensive, highly sophisticated human and physical capital, and heavy R&D requirements that span the entire prod- uct life cycle (approximately 30 years). Second, the rapid growth of U.S. domestic demand for aircraft engines and extensive federal support for R&D, testing and work force development offered few incentives for the leading U.S. firms to internationalize their advanced technical activities. Finally, the importance of the industry to national defense caused govern- ments to circumscribe the internationalization of aircraft engine production and technology development. Beginning in the late 1960s, a number of changes in domestic and international markets led the technically dominant U.S. firms, General Electric and Pratt & Whitney, to enter into a wide range of technical alliances, joint ventures, and component sourcing agreements with the only other full-range engine manufacturer, Rolls Boyce, and a dozen or so sec- ond-tier engine manufacturers in North America, Europe, and Japan. First, the cost of developing and launching new models of engines for commercial use began an inflationary spiral that would continue into the l990s. Second, during the 1970s and 1980s, there was a general decline in the level of fed- eral support for civilian research funding and manpower through the National Aeronautics and Space Administration (NASA). These two devel- opments have effectively shifted a greater share of the cost and risk of tech- nological advance from the federal government to the engine manufacturers themselves. Finally, the 1970s witnessed a decline in the relative size of the U.S. market for commercial aircraft and growth in the relative size of for- eign markets (Mowery, 1988b). This combination of spiraling development costs and the growth of for- eign markets provided the impetus for a wave of transnational alliances between the first- and the second-tier companies, and among second-tier
34 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY companies themselves, to increase market access, share technology, and reduce fixed costs (sharing risk). In the process, this shift in corporate strategies has greatly increasing the scope of international technological and commercial interdependence in the industry. The pattern of comparative national specialization is less pronounced in the aircraft engine industry, largely because U.S. firms have held such a commanding lead in the industry's technology for so many decades. After all, the fact remains that no new primary national manufacturer of commer- cial engines for mainline jet transports has emerged for 25 years~eneral Electric, Pratt & Whitney, and Rolls Royce have it all. Nonetheless, devel- opments of the past two decades have forced the two leading U.S. engine manufacturers to increase their dependence on out- or foreign-sourced com- ponents, materials, and manufacturing capabilities. This, in turn, has led them to increase their focus on research, design, and system's integration. Despite the continuing lead of U.S. companies in most of the industry's crit- ical technologies, such as aerothermodynamics and structural design, European and Japanese competitors have demonstrated competitive advan- tages in the application of advanced manufacturing processes, and various aspects of materials and controls. Moreover, as a result of the sustained European effort in the commercial aircraft industry, European engine manu- facturers are also closing the gap with the United States in structural design and systems integration (see Appendix A). Cross-Industry Commonalities A comparison of the globalization experiences of the automotive, con- struction, and aircraft engine industries, as well as those of the other indus- tries surveyed by the committee (see Appendix A), underlines a number of commonalities. First, in all of the industries studied the technical capabili- ties of the three major industrialized regions, North America, Western Europe, and Japan, appear to have undergone significant convergence since the early 1970s. Second, this redistribution of technical strength has been accompanied by a growing cross-penetration and integration of the national technology base for each industry by way of transnational alliances, foreign direct investment, or the expansion of international trade. Third, in almost all of the industries studied, U.S.-owned transnational corporations appear to have taken the lead in globalizing the industry's technology base, either by developing or acquiring a greater share and range of their advanced tech- nical activities abroad, or by trading technology and know-how for market access more aggressively than their foreign competitors. On the other hand, comparisons of the relative performance of U.S. pro- ducers with respect to particular "critical" technical and managerial func- tions across industries suggest a common pattern of U.S. technical strengths
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 35 and vulnerabilities. In virtually every industry studied by the committee, U.S. producers appear to have lost the most ground to foreign competition in the development, application, adaptation, and management of advanced process technology related most closely to manufacturing proper, whether of final goods, subassemblies, components, or capital equipment. This handicap has been particularly pronounced in U.S.-based industries in which relationships between firms within an industry's value-added chain (suppliers, assemblers/systems integrators, and customers/users) have been intensively "arms length," such as in the construction, automotive, or semi- conductor industries. However, it is also acknowledged as a persistent com- petitive vulnerability in more vertically integrated or"networked" U.S. businesses, such as the aircraft engine and computer printer industries. Alternatively, U.S.-based companies appear to have retained leadership in the more prestigious technical areas of product design and development and the integration of complex systems. This is particularly apparent in industries where (a) U.S.-based companies have effectively managed and controlled integration of the system of production and distribution either through vertical integration or effective use of interfirm relationships (for example, with their supplier base, technology partners, or licensees), or (b) the product or process of production depends on highly sophisticated appli- cations software or rapidly changing science and can be executed by small or growing companies (advanced materials, biotechnology, etc.~. GLOBALIZATION OF U.S. UNIVERSITY BASED TECHNICAL CAPABILITIES Along with U.S. multinational corporations, U.S. universities have long been a primary driver of the globalization of technology. Through education of foreign students, the employment of foreign faculty and research associ- ates, and a firm commitment to the free flow of knowledge without regard to national borders, U.S. university science and engineering departments have played a central role in international technology transfer. Between 1955 and 1985, the number of foreign students studying engineering and science at U.S. universities increased by a factor of 10, and more than half of these obtained graduate degrees from their host institution. Over the same period, the flow of foreign postdoctoral researchers and visiting facul- ty through U.S. research universities has experienced similar growth. For most of the period since World War II, the relationship between the U.S. university-based technical enterprise and its foreign clients and coun- terparts has been characterized by lopsided dependence of the latter on the U.S. academic "mecca." However, as with the U.S. industry-based techni- cal enterprise, U.S. universities have watched one-sided international depen- dence give way to complex interdependence over the past decade and a half.
36 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY The most dramatic expression of this growing interdependence is provid- ed by changes in the ratio of foreign to domestic graduate students and fac- ulty in U.S. engineering schools since the mid-1970s. Undergraduate engi- neering education has remained a "national" enterprise in which foreign stu- dents have represented less than 10 percent of total enrollment since data collection began in the 1950s. However, in 1975, the share of foreign-born graduate students and faculty in U.S. engineering schools, which had been relatively stable since the mid-1950s, began a decade of unprecedented expansion. By 1985, foreign-born students accounted for 50 percent of engineering doctoral candidates and nearly two-thirds of all engineering postdoctoral researchers at U.S. universities. In 1975, only 10 percent of U.S. engineering faculty members under the age of 36 were foreign-born. Ten years later the foreign share stood at 50 percent (National Research Council, 19881. The sudden rise in the foreign-born shares of total graduate enrollment, postdoctorates, and faculty employment is a function of three interrelated developments: (1) the rapid growth of university research activities during the past decade, and with it, a rapid increase in demand for research person- nel; (2) an equally rapid increase in the demand from U.S. industry for engi- neering graduates (mostly B.S. recipients); and (3) a prolonged slump in the number of U.S.-born engineers and engineering students deciding to pursue doctoral degrees in engineering or an academic career during the 1970s and early 1980s. Between 1978 and 1988, the U.S. academic research budget for engineer- ing disciplines doubled in real terms from roughly $1 billion to $2 billion. Over the same period, total graduate enrollment in U.S. engineering pro- grams grew at an average annual rate of nearly 6 percent. Paralleling the rapid expansion of the university research enterprise, a prolonged upswing in demand by U.S. industry for engineering graduates, mostly B.S. engi- neers, indirectly fueled university demand for engineering faculty. From 1972 to 1986, total engineering employment growth in the United States averaged 7 percent per year. More than 80 percent of that growth was accounted for by B.S. engineers. Yet, for most of the past 20 years, while demand for engineering graduate students and faculty was increasing, the absolute number of U.S.-born engineers and engineering students deciding to take Ph.D. degrees in engineering or to enter the teaching profession declined (see Figure 1.121. Unable to attract an adequate supply of U.S.-born engineering bachelor degree holders, U.S. university engineering doctoral programs have been forced to look abroad for students to keep their research programs fully engaged.20 Because faculty are drawn from the population of academically oriented new Ph.D.'s, the trends in graduate student enrollment produce similar trends in faculty composition.
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 4000 1 3000 2000 1 000 37 0 1 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 _ U.S. Citizens O Permanent Visas ~ Temporary Visas FIGURE l.t2 Engineering Ph.D. awards in the United States, by citizenship: 1968-1988. SOURCE: National Research Council, Office of Scientific and Engineering Personnel data. As the faculties and graduate student bodies of U.S. universities have become increasingly multinational, new relationships have developed between U.S. research universities and foreign corporations and govern- ments. Ten years ago three-fourths of all research at U.S. universities was financed by federal, state, and local government, with U.S. industry and pri- vate foundations providing the balance. Federal funds also contributed very significantly to student financial aid and university faculty improvement. Virtually no American university research or faculty development program was funded by foreign sources, either through research contracts or good will contributions. In the past 10 years, however, the sources of support for U.S. university research and faculty development have been changing rapidly. The spiral- ing cost of basic research and rapid expansion of academic research pro- grams have significantly outpaced the growth of federal funding. This, in turn, has forced universities and university-based researchers to cultivate alternative sources of funding. Between 1978 and 1988, the federal govern- ment's share of total university research funding shrank from 66 to 60 per- cent, while the share accounted for by state and local government remained virtually unchanged (down slightly from 8.9 to 8.6 percent). Over the same period, U.S. industry nearly doubled its share from 3.7 to 6.5 percent, while the share of internally generated funding by universities increased from 12 to 18 percent.
38 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY In the context of this larger shift in sources of university support, the small but growing contribution of foreign companies and governments to U.S. research universities has attracted considerable attention from U.S. pol- icymakers and the press over the past few years. Although it is widely acknowledged that data on foreign funding of U.S. university research are spotty at best, recent estimates by the U.S. General Accounting Office indi- cate that, in purely financial terms, foreign support of U.S. university research is trivial a mere 1 percent of U.S. universities' aggregate research budget, and little more than 4 percent of the research budgets of the top five recipients of foreign funding in 1986.21 Nonetheless, the results of an infor- mal survey of eight leading U.S. engineering schools, prepared for the com- mittee, indicate that foreign support for university research is already much more of an international enterprise than aggregate financial data alone would suggest.22 A more useful measure of the scope and significance of the international- ization of U.S. university research is provided if the definition of "foreign support" is expanded to include nonfinancial as well as financial contribu- tions of foreign entities to U.S. research universities. Viewed from this per- spective, foreign support encompasses (1) the participation in university research activities of foreign students, postgraduates, visiting scholars, and research personnel from foreign firms, (2) sponsored and open-ended under- writing of research of foreign corporations and their subsidiaries, (3) the cooperative activities of foreign laboratories set up near U.S. research uni- versities, (4) capital grants of buildings, equipment, and other in-kind con- tributions by foreigners, and (5) the engagement of U.S. faculty as consul- tants or advisers by foreign corporations and government agencies. Of the many different types of foreign support, the contribution of human capital, for the most part independent of foreign corporations and govern- ments, is clearly the most important. Foreign corporations support U.S. uni- versity-based research financially and otherwise through a variety of mecha- nisms: underwriting and supplementing university research personnel by providing scholarships, stipends, and expenses for students and visiting company researchers to work at university laboratories; participating in uni- versity industrial liaison programs and university-based interdisciplinary research programs (e.g., Engineering Research Centers and Manufacturing Research Centers); and funding contracts, individually or jointly with other companies or public agencies, for donor-specified research. In addition to the influx of foreign students and faculty and direct interac- tion of foreign firms or governments with U.S. universities, there are many other avenues through which U.S. academic research and technical educa- tion are becoming increasingly global in orientation and activity. Individual faculty members from U.S. university science and engineering departments frequently consult for foreign firms and governments, and are active partici
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 39 pants in international conferences. A number of prominent U.S. research universities are involved in collaborative research efforts with their foreign counterparts. Finally, the growing interest of American undergraduates in study abroad is stimulating another kind of globalization of American col- leges and universities, as they establish foreign operations through branch campuses, sister university affiliations, and exchange programs for students and faculty. NOTES 1. U.S. leadership in total factor productivity has been attributed largely to its leadership in mass production and advanced product technologies. See Nelson (1990). 2. Which data sets provide the most appropriate basis for assessing relative changes in technical capabilities of nations, those which compare absolute values or those com- paring ratios such as R&D/GNP, R&D personnel/10,000 workers, output per manufac- turing employee? Surely, it is absurd to expect countries with less than half the U.S. population and significantly smaller national material and natural resource endow- ments than the United States to achieve absolute levels of investment in technical resources (human or financial) on a par with those of the United States. On the other hand, national comparisons of ratios, such as productivity data, and their changes over time offer considerable insight concerning the relative efficiency and effectiveness with which a country employs its basic human, financial, and natural resource endow- ments, and leverages these endowments through investment in technological innova- tion. 3. These numbers must be considered only as approximations of R&D employment. First, the categorization of scientists and engineers as R&D personnel varies from country to country; in Japan, only those working full time in R&D are classified as such, whereas the United States calculates "full-time equivalents" of R&D employees. Second, Slaughter and Utterback (1990) calculate the shares of "defense" and "nondefense" R&D personnel by applying the ratios of "defense" to "nondefense" R&D spending to total R&D personnel admittedly a rough estimate. 4. Defense contracts currently account for nearly one-third of all U.S. industrial R&D. See.U.S. Library of Congress (1990, p. 102). 5. The U.S. manufacturing sector employs a quarter of the nation's scientists and engi- neers, yet it accounts for over 95 percent of what is currently recorded as industrial R&D spending. See National Science Board (1989, pp. 235, 236, 252). 6. Clearly, the yardstick with which one measures the relative technical prowess of a country in one industry need not be the same as that used in another industry, whose products, processes, markets, and technologies differ considerably from the first. For example, in the pharmaceuticals industry, where patenting is pervasive and seen as an effective competitive weapon, the relative distribution of frequently cited patents among national industries may be a useful gauge of overall technical strength. However, in another industry such as petrochemicals where know-how and trade secrets are valued much more as sources of competitive advantage than patents, patent- ing may prove a poor measure of relative strength. 7. High-tech products are defined by the OECD and U.S. Department of Commerce as products having higher ratios of R&D expenditures to shipments than other product groups. The OECD defines six industries as high-tech following International Standard Industrial Classification (ISIC) codes drugs and medicines (ISIC 3522); office
40 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY machinery, computers (ISIC 3825); electrical machinery (ISIC 383 less 3832); elec- tronic components (ISIC 3832); aerospace (ISIC 3845); and scientific instruments (ISIC 385). The U.S. Department of Commerce, using a more sophisticated R&D tracking technique (DOC-3), defines 10 industries as high-tech following Standard Industrial Classification (SIC) codes: guided missiles and spacecraft (SIC 376); com- munications equipment and electronic components (SIC 365-367); aircraft and parts (SIC 372); office, computing, and accounting machines (SIC 357); ordnance and accessories (SIC 348); drugs and medicines (SIC 283); industrial inorganic chemicals (SIC 281); professional and scientific instruments (SIC 38 less 3825); engines, tur- bines, and parts (SIC 351); and plastic materials and synthetic resins, rubber, and fibers (SIC 282). As of 1986, data covered by the OECD high-tech definition equaled that covered by the DOC-3 definition. See National Science Board (1989, pp. 149-150). 8. Note the U.S. high-tech exports as a share of U.S. high-tech production has not changed significantly over the past 20 years, up only 1 percentage point from 10 per- cent in 1970 to 11 percent in 1986. The sheer size of the U.S. domestic market for high technology and non-high technology products has contributed to a relative neglect of overseas markets by U.S. producers in the past. The urgency of capturing a larger share of non-U.S. markets became apparent only after the relatively insignificant U.S. trade deficits of the 1960s and early 1970s mushroomed with the onset of the oil crises and subsequent import penetration of the U.S. market by the more export dependent producers of Asia and Western Europe. See National Science Board (1989, p. 152). 9. For the classic elaboration of the "product cycle" model, see Vernon (1966). 10. By the late-1960s, U.S. companies, which accounted for 50-60 percent of world out ward direct foreign investment in manufacturing at the time, were investing 8-10 per cent of their total R&D budgets overseas. Moreover, in a few industries, such as phar maceuticals and machinery, the flow of technology generated by U.S. overseas sum sidiaries back to their U.S. parents was significant. However, in many more industries reverse technology transfer was relatively insignificant, that is, U.S. parent R&D funds were used by most subsidiaries to develop technology for the host market or host region exclusively. The population of European and Asian multinationals remained relatively small into the early 1970s, hence one would expect the transnational R&D activities of European and Asian industry to be even more limited than their U.S. coun terpart at the time. For a useful survey of recent trends in reverse technology transfer by U.S. multinationals, see Mansfield and Romeo (1984). 11. Trade, investment, and employment data alone offer only limited insight into the extent of current U.S. economic and technological interdependence. After all, as these data suggest, the vast majority of economic activities in the United States do not involve direct trade of goods or services internationally or direct investment abroad. Only a small fraction of the U.S. services sector (excluding banking) is engaged direct- ly in international trade and investment, although this sector accounted for over 70 per- cent of U.S. GNP and 75 percent of total U.S. employment in 1986. Similarly, a sig- nificant share of U.S. manufacturing is done not by large transnational corporations, but by small- and medium-sized establishments that sell the majority of their output to other U.S.-based firms. On the other hand, the extensive interdependence of "domestic" service providers and internationally engaged U.S. manufacturers and service providers is essentially ignored by standard trade and investment data. Moreover, the share of U.S. manufac- turing involved in supplying components, materials, capital goods, and other interme- diate products to transnational companies or their first and second tier suppliers is sure- ly considerably greater than trade figures alone would suggest. 12. It is estimated, for example, that IBM and Hewlett-Packard do nearly 30 percent of their R&D work outside of the United States. It is also interesting to note that U.S.
THE EMERGING GLOBAL TECHNICAL ENTERPRISE 41 firms' sales of technology to foreigners through licensing agreements increased notice- ably during the 1980s. According to the U.S. Department of Commerce, U.S. receipts from such technology sales increased from $1.4 billion in 1980 to $2.1 billion in 1987 (1982 prices). Japan was the largest consumer of U.S. technology sold through these agreements, accounting for 41 percent of all U.S. royalty and licensing fee receipts in 1987 (National Science Board, 1989). U.S. Department of Commerce, (1984, 1985a, 1985b, 1986, 1987, 1988, 1988a), Table H-3 Research and Development Expenditures by Affiliates, by Industry of Affiliate; National Science Foundation (1989, Table B-11, p. 27). Admittedly, data regarding R&D expenditures say very little about the nature of advanced technical activities of a firm. Foreign firms are accused of setting up research tracking or technology transfer operations in the United States and labelling them as research and development. Conversely, U.S. firms operating overseas may label activities only vaguely related to R&D as such in an effort to comply with domestic content laws. 14. According to Hagedoorn and Schakenraad (199Oa), biotechnology includes "relevant basic research and all applications of that particular field of technology in agriculture, pharmaceuticals, ecology, nutrition, chemicals and basic research. Information tech- nologies are confined to computers, industrial automation, microelectronics, software and telecommunications. New materials are defined as new and improved electronics materials, technical ceramics, fibre-strengthened composites, technical plastics, pow- der metallurgy and special metals and alloys." The authors identify six major modes of technology cooperation for the technolo- gies surveyed: joint R&D, joint ventures, technology exchange agreements, cross-equi- ty holdings, customer-supplier relations, and one-directional technology flows. While joint R&D represents the leading mode of collaboration in all three technology fields (25-30 percent of total), the relative importance of other modes of cooperation varies significantly among the three fields. Direct investment figures prominently in biotech- nology, whereas one-directional flows and joint ventures are more prevalent in infor- mation technology and new materials. See Hagedoorn and Schakenraad (1990a, p. 3). 15. Applying several analytical techniques, the authors demonstrate the structure of inter- corporate technical networks, the clustering of interfirm alliances within the networks, and the changing density of these networks over time. Their model only accommo- dates a limited number of companies, i.e., the 45 companies involved in the most alliances. See Hagedoorn and Schakenraad (199Oa, pp. 22a-b). 16. Following the classification scheme for "high-technology industries" developed by Riche, Hecker, and Burgan (1983, pp. 52-53), we define "engineering-intensive indus- tries" to include (a) those in which the ratio of R&D to net sales is equal to or greater than two times the average for all industries; or (b) those in which the ratio of tech- nology-oriented workers (engineers, life and physical scientists, mathematical special- ists, engineering and science technicians, and computer specialists) to total work force is at least one and a half times the average for all industries; or (c) those in which the ratio of technology-oriented workers to total work force is equal to or greater than the average for all manufacturing industries and the it&D/sales ratio is close to or above the average for all industries. 17. "Biotechnology is not an industry per se, but rather an array of technologies that can be applied to a number of industries. These technologies include: molecular and cellu- lar manipulation, enzymology, X-ray crystallography, computer modeling, biomolecu- lar instrumentation, industrial microbiology, fermentation, cell culturing, and separa- tion and purification technologies." U.S. Department of Commerce (1989a, p. 19-1). 18. The committee's working definition of technology includes both the generation of new products or services and the associated organizational and managerial know-how, such as "just-in-time" production systems, quality circles, and "total quality control." To be
42 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY sure, the criteria for selecting the most critical technologies or technology areas for an entire industry or industry subset are multiple, complex, and ultimately highly subjec- tive, i.e., based on the best judgment of the committee, which has been informed, in turn, by the comments and advice of numerous industry experts in the United States and abroad (see Appendix A for individual industry profiles). 19. The causes of this decline in U.S.-born enrollments in engineering doctoral programs remain the subject of debate. Nonetheless, it is worth noting that the falloff in U.S. nationals' graduate enrollments appears to track the decline in federal fellowship (not research assistantship) support for graduate study in the early 1970s. 20. So far, U.S. engineering schools have had few problems recruiting foreign talent, most of it from newly industrializing or developing countries such as Taiwan, Korea, the People's Republic of China, and India. Foreign students and faculty from these coun- tries are clearly attracted to U.S. universities by the quality of their research facilities, the reputation of their faculty and graduates, and their access to the lucrative U.S. job market. Also, one should not underestimate the drawing power of U.S. political, reli- gious, and social freedoms for students from countries with less tolerant political and social regimes. U.S. graduate schools are further assisted in their search for foreign talent by foreign governments, which, in an effort to build their own technological infrastructures, encourage their nationals to study or pursue postdoctoral research at U.S. universities before returning home to work. 21. Although some public institutions are required by state law to report foreign funds, most of them have not successfully differentiated between domestic and foreign finan- cial support. Admittedly, it is not at all obvious how one would categorize contribu- tions of foreign alumni, or those of a U.S. subsidiary of a foreign company or a U.S. company's foreign subsidiary. However, even without attempting the foreign versus domestic distinction, the lack of uniform university accounting procedures, the multi- plicity of funding sources and channels, and the decentralized nature of exchanges between donors and a broad spectrum of university offices, departments, and individu- al researchers, all contribute to make the tracking of foreign support extremely haphaz- ard. See National Science Foundation (1989b) and General Accounting Office (1988). 22. In December 1989, the National Academy of Engineering, as part of this study, helped sponsor the research of Helena Stalson on foreign support of U.S. university-based research. Stalson's draft report, "Foreign Participation in Engineering Research at U.S. Universities," is based on interviews conducted at eight universities during the spring of 1989: Carnegie Mellon, Columbia, Cornell, Massachusetts Institute of Technology, Princeton, Rensselaer Polytechnic Institute, University of Illinois (Urbana), and University of Wisconsin (Madison). REFERENCES Council on Competitiveness. 1990. Competitiveness Index 1990. Washington, D.C.: Council On Competitiveness. Chenais, Francois. 1988. Multinational enterprises and the international diffusion of tech- nology. Pp. 49~527 in Technical Change and Economic Theory, G. Dosi, C. Freeman, R. Nelson, G. Silverberg, and L. Soete, eds. London: Pinter Publishers Ltd. Economic Report of the President. 1990. Transmitted to the Congress, February 1990. Washington, D.C.: U.S. Government Printing Office. Enderwick, Peter. 1989. Multinational corporate restructuring and international competitive- ness. California Management Review (Fall):44 58. Graham, Edward M., and Paul R. Krugman. 1989. Foreign Investment in the United States. Washington D.C.: Institute for International Economics.
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