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OCR for page 14
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
OCR for page 15
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).
OCR for page 16
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
OCR for page 17
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
OCR for page 18
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).
OCR for page 19
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
OCR for page 20
20
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OCR for page 21
21
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en
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OCR for page 22
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).
OCR for page 23
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
OCR for page 24
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.
OCR for page 34
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
OCR for page 35
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.
OCR for page 36
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.
OCR for page 37
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.
OCR for page 38
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
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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
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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.
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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
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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).
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Representative terms from entire chapter:
foreign direct
