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OCR for page 1
Overview
HARVEY BROOKS AND BRUCE R. GUILE
In Me last decade it has become increasingly clear Cat the character of
He world economy and He role of He United States in He world econ-
omy-is changing. Two characteristics of global economic change are
particularly important. First, over He last 35 years there has been sub-
Stallh~ relative Cow (in pm simply postwar reconstruction) of nations
economies in Europe and Asia. In He years immediately following World
War ~ He United States dominated world economic affairs, but He U.S.
economy is no longer singularly important In He world economy. The
United States is now only one element, albeit still a large one, in an
increasingly global economy.
The second important change denves, in part, directly from the in-
creas~ng relative industrialization of over national economies. The grown
of over national economies has allowed production and distribution to
become increasingly translational. For a variety of products, fabrication,
assembly, distribution, and maintenance activities are organized In such
a manner Hat information, funds, matenals, components, final products,
and people cross national boundaries as part of everyday commerce. The
same is We for senice industries, though probably to a lesser degree.
Technological advances have played a central role in this economic and
technological integration. ~ particular, technological advance has de-
creased He relative puce of communication and transportation and in-
creased the capacity of ~ansnational systems carrying information, goods,
and people.
Increasing global economic and technological integration Rises issues
OCR for page 2
HARVEY BROOM ED BRUCE R. GUILE
concerning He interaction of technological change, economic activity, and
He prerogatives of sovereign governments. What are He effects of chang-
~ng technologies on He production and distribution of goods and services
in a global economy? How do technological advances contribute to shifts
in the relative competitive advantage of nations, regions, and firms? How
do governments and ente~pnses respond to He dynamic of technological
advance In a global economy, and what are the likely consequences, both
direct and indirect, of their efforts? This volume explores these and similar
questions, focusing primarily on He actions of multinational companies
and the policies of ~ndusmalized nations.
PA'l-l~S OF ECOLOGIC CAGE
AND INDUSTRIAL EVOLUTION
It has long been understood Hat technological change, through its impact
on He economics of production and on the flow of inforTnabon, is a
principal factor detesting He structure of industry on a national scale.
This has now become true on a global scale. Long-term technological
trends and recent advances are reconfiguring He location, ownership, and
management of various types of productive activity among countries and
regions. The increasing ease win which technical and market knowledge,
capital, physical artifacts, and managerial control can be extended around
He globe has made possible He Integration of economic activity in many
widely separate locations. In doing so, technological advance has facil-
itated the rapid grown of the multinational corporation with subsidiaries
in many countries but business strategies determined by headquarters in
a single nation.
Fundamental to an understanding of the relation of global industrial
structure to technology is the existence of a "technological life cycle."
Although He life cycle concept is widely recognized, Here is a chronic
problem with He unit of analysis. It is not clear whether tile appropriate
unit of analysis is a highly discrete invention and its subsequent ramifi-
canons, a particular product line, or a whole industry. The answer is
probably all of the above; Specular technological advances may be con-
sidered as nested in a larger technological system, which in turn can be
viewed as an element of a cluster of related technologies constituting an
entire industry.
He chapter by James Utterback introduces the concept of technological
life cycles in this volume, a concept that recurs throughout He subsequent
chapters. Utterback chooses as his unit of analysis a `'productive unit''
something that includes not only a product line or cluster of products
closely related by either technology or function but also He processes and
OCR for page 3
OVERVIEW
3
procedures used In their production. He examines parallel paths of evm
Judon of technologies and organizations (in several industries) and makes
a case for considering industrial structure and effective strategy as directly
related to location of both He product and process technology in a tech-
nolog~cal life cycle. The general issues raised by Utterback are extended
to He mature phases of product and process cycles in the chapter by Alvin
P. LeLnerd, who provides a dramatic account of how fundamental recon-
sideration of both product and process design for a mature product fine
can revolutionize the competitive positron of that fine in He international
marketplace.
LeLnerd describes a program at die Black & Decker Company during
tile 1970s. The program substantially improved the company's productivity
~ He manufacture of power tools by designing products for production
using new materials and new manufacturing techniques, greatly reducing
the number of parts and standardizing components common to the venous
products within the product line. Dunng the 1970s when non-U.S. man-
ufacturers began to dominate in many traditional manufactured goods,
Black & Decker picked a strategy- linked to new technology-that al-
lowed them to become a high-value, low-cost producer in some lines of
small power tools. The success of Black & Decker's program raises the
possibility that production of many "mature" products could be revolu-
tion~zed by attention to design for improved manufacturability. Lehnerd's
example also suggests that a heavy investment in in-place facilities for
manufacturing a mature product becomes a barrier both to product in-
novat~on and to He Introduction of more advanced low-cost production
processes, especially when the mature product line appears to be still doing
well in He market. In the case described by Lehnerd, this was exactly He
lime when a radical redesign of an existing product line and its associated
manufacturing process proved essential to the competitive position of He
firm.
The relationships between technological advance and industrial structure
that Utterback and Lehnerd address are extended to questions of global
orgarli7anon amd technology in He chapters by David J. Teece, Yves Doz.
and Jamnes Brian Qumn.
TECHNOLOGY AND TB STRUCTURE OF GLOBAL INDUSTRY
David Te~ece's chapter deals with returns to innovation and the arrange-
ments integration, partnering, and licensing that determine whether
He potential economic returns from an innovation will be realized by the
innovator or an imitator. In his discussion, Teece draws on a different set
of examples and reinforces and elaborates He points made by Utterback
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4
HARVEYBROOKS AND BRUCE R. GUILE
concerning technological ~ajectones, efficient industry structure, and Me
importance of matching structure and strategy to the location of each
product line in We technological life cycle. Teece also cautions against
economywide generalizations about innovation or technology-driver mar-
kets. In a world of many nations of nearly equal levels of ~ndus~ialization
and technological prowess, the likely impacts of movement along a tech-
nological trajectory are not obvious. For example, the product life cycle
has signficantly different consequences for the European automobile in-
dustries than for their Japanese and American counterparts. The European
market is more of a "niche" market than the Japanese and American
markets, which are more commodity-like, and technology plays a different
role in Me two cases. In Teece's words:
[T]he product life cycle in international trade will play itself out differently in
different industries and markets, in part according to appropuability regimes (~e
degree of appropmability of the potential economic gains from technological innovation)
and the nature of the assets needed to convert a technological success into a commercial
one.. . . Alit is not so much Me structure of markets as the structure of firms, popularly
the scope of their boundaries, coupled with national policies for We development of
complementary assets, that determines the distribution of profits among innovators
and imitator-followers [Teece, Ads volume, p. 941.
Teece also suggests that lack of attention in Me United States to ag-
gressive investment in new manufacturing technology may have enabled
skillful imitator-followers, particularly in Japan? to appropriate a dispro-
poriionate share of Be gains from U. S. inventions arising out of its uniquely
broad-based R&D programs, both public and private. As reflected also in
He chapter by Doz (and in He chapter by Henry Ergas later In He volume),
He tomexclusi~re emphasis of public policy in bow Europe and the United
States on R&D and technological prowess as the principal remedies for
lagging competitiveness may be misplaced; without appropriate comple-
menta~y assets and capacities that allow a nation to capture returns from
innovation, national technological superiority is of little economic con-
sequence.
He trend dunng He last 30 years has been toward global homoge-
nizahon of markets and ~snational ~ntegranon of production. Yet Here
are signs of the emergence of countervailing pressures resulting from
technological, managenal, and political developments Hat appear to be
giving a competitive advantage to more localized production and dis-
mbution. For example, He relative importance of close interaction be-
tween producers and users seems to be growing as products become more
complex and customized. Effective product design, prompt maintenance
senice, and consultation services to customers in increasingly sophis-
ii~ated applications all require close links between sellers and customers.
OCR for page 5
OVERVIEW
AddidonalRy, He increased use of just tune inventory principles in
production and dis~budon has enhanced Be compeduve advantage of
collocation of suppliers and distributors win manufacturing operations.
The chapter by Yves Doz reviews these countervailing influences in the
global economy.
~ his analysis Doz points out Cat trends In new technology pelt
enormous flexibility and diversity in Be way global entetpnses are actuaBy
managed. Finns win widely dispersed facilities tightly integrated in a
global strategy exist side by side win firms having single production sites
geared to serving dispersed markets or specialized market niches Mat are
spread globally. Because modern technologies are bow flexible and di-
verse, other factors may be more important Pan technology as a deter-
mmant of organizational structure. The costs associated win production
and dis~ibudon may be less important in dete~mg the structure of an
industry Han He organizational and political imperatives of p~ership
opportunities, investment for market access, or access to localized con-
cen~ations of specific technical skills. Therefore, despite forces Hat push
for either fragmentation or homogenization of markets, the dominant char-
actenstic of He structure of mdus~y in the global marketplace may be
diversity.
In his chapter on technology and the service industries, lames Brian
Quinn addresses many of He issues raised by Doz and Teece, but from
a somewhat different perspective. His focus is less on He international
structure of industries and more on the interaction of technological advance
wad He evolution of organizational struck In ~ vanety of service in-
dustries. ~ particular, Quinn approaches Be delivery of goods and services
to the consumer es a long chain of labor, capital, location, and organization,
each adding value to create He final product. He uses this framework to
challenge He common perception Hat service ~ndustnes have bow low
labor productivity and low productivity grown, add little value, alla pro-
v~de only low-wage, insecure jobs. Quinn offers many examples of He
Importance of technology to the development and restructuring of service
industries, to the emergence of whole new services, and to the Impressive
grown in productivity in some service sectors.
Both Doz and Teece treat major service activities finance, transpor-
tation, communication, and wholesale and retail acEvides as integrated
paw; of an organization delivering a product to a consumer. Neither dis-
t~nguishes between value added to a product Trough the act of assembly
(manufacturing) and value added through die act of delivery (service).
Technological advance is important in both activities, and in both it can
increase efficiency end provide new opportunities for organization. Indeed,
He similar~ues between technological and organizational issues in man
OCR for page 6
6
IlARVEY BROOKS AbID BRUCE R. GUILE
ufactunng and service industries make distinctions between services and
manufacturing seem arbitrary. Quinn argues persuasively that much con-
veni~onal wisdom about service industries is based on little empirical
evidence and a lack of recognition of the heterogeneity of the activities
grouped under the heading of services. A reexamination of the sector is
at present inhibited by poor statistics and especially by inadequate and
obsolete categorization.
The chapter by Qua also raises the question of whether national suc-
cess In services can replace manufacturing as He engine of national eco-
home progress and ~nternadonal comped~veness, much as manufacnning
had replaced a~cul~re and resource industries as a source of growth
and employment in an earlier penod. As illustrated in Quinn's chapter,
many service industries" medical care, transportation, con~nunications'
and banking, for example-are technologically dynamic and crucial to
national economic performance. The services sector now accounts for
almost 70 percent of U.S. gross national product, and Be United States
has persistently enjoyed a positive net balance of Made in services and
income from foreign investment. On He over hand, U.S. made in ser-
vices, though probably underestimated at present, is small in relation to
U.S. made in manufactures and agricultural products, and it seems un-
likely Hat an industrialized nation He size of tile United States can ex-
port enough services to cover He cost of Vaporing a predominance of
the manufactured goods it demands. Additionally (as discussed in Ray-
mond Vernon's chapter in this volume), He fraction of U.S. GNP ac-
counted for by manufacturing output, When proper allowance is made
for the lower rate of price increase for manufactured Can for nonman-
ufacuned output, has remained approximately constant -- between 20 and
23 percent with no clear trend up or doom- for the past 30 years (Eco-
nomic Report of the President 1987, Table B-11, p. 2571. This obser-
vaiion belies the argument that He United States is rapidly becoming
solely a service producer. Indeed, the degree to which the domestic
economy of any large industrialized nation can become a "service econ-
omy" is furler complicated by the complex technological and economic
interdependence of services and manufacturing.
Service industries are both suppliers to and buyers from manufacturing
industries. As buyers of manufactured goods, service industries are in-
creasingly dependent on the rapid deployment of technology-intensive
capital goods for improving productivity. It is not clear whether any nation
can remain competitive in services if it becomes too dependent on foreign
sources for this complementary capital embodying the most advanced
technology. There is, of course, the potential that national governments
may use venous kinds of controls on He export of services-related capital
OCR for page 7
OVERVIEW
7
goods to ensure Me competitive advantage of domestically based services
In mtemabonal trade. On the other hand, He developers of much of the
technology used In services are manufacturers who are strongly motivated
to Produce and sell weir technologies as widely and rapidly as possible
worldwide to recover heavy development costs. Prox~tr to the sources
of innovator In services-related capital goods may or may not contribute
to national competitive advantage In any service industry.
As suppliers to manufacturing industnes, many service activities may
have to be intimately linked to customers and adapted to unique local
needs if they are to be effective. If that is indeed the case, then a vital
manufacn~nng sector may be a necessary prerequisite for service Infuse
development and hence for national economic health. Manufacturing com-
petiiiveness may in its turn be critically dependent on Be efficiency and
cost of He services locally available to manufacturing plants services
essential to the smooth functioning of tightly integrated manufac~nng and
distribution systems. For example, He operation of manufacturing and
distribution systems with moan inventory costs and buffer stocks re-
qu~res a highly efficient low-cost service infras~uc~re.
It is not clear for which sectors He complicated linkages described above
are most Important and which goods or sentences, if any, a large nation
can afford to import over He long run from distant locations. Sh11 un-
answered, therefore, is whether the "postindustnal society," the `'infor-
~nabon society," or He "service economy" are catch phrases that rationalize
He relative decIme of manufacturing employment, or whether they truly
represent He "wave of He future" and a sufficient foundlabon of future
national prosperity and wealth. What is clear is that the application of
technological advance to service industries can be central to improved
economic performance In both service and manufacturing mdusmes. To
keep pace with productivity improvement in other industrialized nations,
a nation must direct its trade and economic policies toward supporting
fast and flexible deployment of technologies in service ~ndusmes regardless
of He location of He source of the technology.
Taken together, the chapters by Teece, Doz. and Quinn do not suggest
a trend toward either homogenization or segmentation of world markets
and world industries. While some product and service markets are be-
coming global, driven by ever-~ncreas~ng economies of scale, other markets
are hagrnent;mg and differentiating. New manufacturing and service de-
livery technologies, new methods of work organization, and a new im-
portance of local market responsiveness all can decrease He significance
of scale economies and favor decen-sized production. The long-term
norm may be loose global coordination and frequent temporary alliances
among particular units in different counties for different, and usual!,'
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8
HARVEY BROOKS AND BRUCE R. GUILT;
highly product-specific and market-specific, purposes. The global economy
appears to be moving toward a complex (and often highly interdependent)
coexistence of cent~zed and decentralized markets and production sys-
tems.
Co~orai~ons ~ Weir national or transnadonal ac~vines~epend on
He laws, infrastructure, and political stability provided by national gov-
ernunents. In turn, governments of m~ustnalized nations ~ e noncom-
munist world depend on private enterprise to provide employment, income
growth, and goods and services for Be nation's citizenry. Ibe growth of
translational organization in production raises new concerns about the
interdependence of nations and companies.
NATIONAL ECONOMIC DEVELOPMENT AND MARKET-DRIVEN
DEPLOYMENT OF WORLD-SCALE TECHNOLOGIES AND INDUSIRES
The growth of industrialized economies In Europe and Asia since World
War ~ has eroded We importance to the world economy of bow U.S.
domestic economic policies and unilateral U.S. foreign ~nvesunent and
trade policies. This change has consequences for virtually every aspect of
Me world economy as He importance of multilateral negodaion and agree-
ment grows apace. Though national foreign policies have a variety of
purposes, it is almost always We Cat He pan r goal of national par-
ticipanon in international economic affairs is national economic devel-
Opment. Recently, the concerns of industrialized nations over economic
development In a world economy have been expressed mostly in terms of
nations competitiveness. However, as economic inshtuiaons become more
global in scope, whedler Trough networks of alliances across nahona
boundaries or through large centrally controlled transnabonal corporations,
Be concept of a compete national economy becomes uncertain and
obscure.
One measure of competitiveness may be tile average level of real wages
that labor can command in a Even counoy (and the potential for filulre
grown of this level), but it can be argued Eat measures such as employment
grown, technological capability, productivity grown, or corporate profit-
ability are better proxies for what is meant by competitiveness. These
measures do not, however, reflect the same concept of competitiveness.
Though real wages are a gross indicator of standard of living, employment
grown may be a better measure of the opportunities available to the
citizenry. Technological capability and produc~v~cy growth relate to He
productive resources physically located in a given county's territory,
whereas corporate profitability reflects He performance of firms with their
headquarters and primary ownership in a given counny, regardless of He
OCR for page 9
OVERVIEW
9
location of production or distribution.* These various measures of eco-
nom~c development and the policy goals implicit In He measures are
central to national policy debates. Three chapters in this volume by
Raymond Vemon, Henry Ergas, and Lewis M. Branscomb-deal exten-
sively with national economic development policies.
Vemon's chapter reviews some basic and inevitable changes in He
position of the U.S. economy in the global marketplace and addresses
many of He concerns expressed by the U.S. public and U.S. policymakers
about international competitiveness. Vernon raises two issues that are not
discussed elsewhere in the volume. Me first is a concern wig the internal
distribution of He national costs associated wig U.S. participation in an
open global economy. Particularly important is his assessment of trade-
offs within the U.S. economy. Some industries and groups in the United
States have suffered from the exposure of U.S. markets to foreign pro-
ducers, such as those associated win He steel and auto industries; but
others have benefited, such as low-income groups- who enjoy better prices
for clothing, household appliances, food, and other basic goods-or work-
ers in successful export industries. By He same token, factory workers in
some traditional industries may have fared poorly, but management con-
sultants and computer software specialists have done well.
The second policy issue unique to Ve~non's chapter in this volume is
his assessment of the challenge to U.S. policymakers to avoid ~iggenng
a cascading sequence of beggar-thy-neighbor actions that would change
He policies of governments from the fostering of positive-sum games to
mutually destructive actions designed to protect the interests of politically
influential domestic constituencies. The U.S. political tendency is to re-
spond to localized domestic industrial distress wig political action. The
current furor over the U.S. made deficit is a good example. As the U.S.
Bade balance has worsened, there has arisen a widespread belief in He
United States Hat over nations are not playing by He rules of He open
*Because of the ambiguity of the tempt "competitiveness," the picture with regard to U.S.
competitiveness is not clear. By a number of these measures in particular productivity
growth and increases in real wages the U. S. economy has not been performing as well
as other industrial economies in the last 15 years (Scott, 1985; President's Commission
on Industrial Competitiveness, 1985). In employment grown, however, the U.S. economy
has done better than other industrial economies, having created many more new jobs over
the same period, though questions have been raised about the "quality" of these jobs
(Bluestone and Hamson, 1986). In scientific and technological capability, the United
States is still the world leader (Brooks, 1986), but there are sigruficant questions (as raised
by Teece in this volume) regarding U.S. application of technology. Finally, there are
analyses that indicate that, although the United States as a location of production may
have lost world maricet share, U.S.-based multinationals have gained market share in
world markets (Lipsey and K=vis, 1985).
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10
HARVEY BROOKS AND BRUCE R. GUILE
Fading system Hat Be United States helped to establish after World War
U. The perception that the United States respects these rules while other
nations do not has generated a chorus of demands for unilateral or coercive
U.S. actions to create a"level playing field." Are these Pennants legion ate?
Most scholarly studies of nontariff trade barriers indicate that the fraction
of We total value of U.S. imports affected by such barriers is as large as
or greater than the fraction of imports affected in notable rivals such as
Getmany and Japan (Salconhouse, 1983; Cline, 1984~. If the United States
is different from its industrialized competitors In this regard, it is only In
He fact Cat the biers appear to follow a less coherent or consistent
pattern than those of some over industrialized reasons.
The concern In the United States is not an unusual or surprising response
to Bade problems. There is a tendency for every nanon to see itself as
unfairly disadvantaged by world competition in sectors In which it is dowg
poorly while taking for granted its success in sectors where it is doing
wed. Thus, each nation attempts to ~nteNene politically In these disad-
vantaged areas and is troubled by the inadequacy of its political influence
over the policies and actions of over nations.
Among the policies Hat nations use for economic development are Hose
to promote technological advance. The chapter by Henry Ergas presents
a cross-naiional comparison of technology policies. Tile Crust of Ergas's
argument is that venous strategies are open to countnes, or to businesses
within countries, based on where Hey choose to seek competitive advan-
tage In He product or technology cycle. ~ Ergas's assessment, the United
States, France, and He United Kingdom have chosen (if such an active
word can be applied to a set of policies that have evolved in a fairly
decentralized manner) to seek competitive advantage In the stage at which
a new technology is just emerging, whereas Germany, Switzerland, and
Sweden have chosen to configure their public policies and their m~ustnal
structure to take maximum advantage of the more mature phases of de-
velopment in products and processes. Japan, Ergas argues, has chosen to
fry to profit from tile "consolidation" or "takeoffs' phase, and ~ large
measure its strategy is something of a hybrid between He emerging tech-
nology strategy of the United States and He diffusion strategy of Germany.
Ergas wntes:
This discussion suggests Mat Were are different paths to happiness, as countnes'
institutional structures and social arrangements facilitate specialization in differing
stages of technological evolution. Each of these stages has advantages and disadvan-
tages in providing for the grown of real income, but countries also differ in the extent
to which they succeed in securing the greatest benefits from any given pattern of
. . .
spectra Notion.
[L]ocation on a technological trajectory may be less unportant than the efficiency
OCR for page 11
OVERVIEW
11
win which me advantages of that location are pursued. This, in In, depends on
mstitudonal features (broadly defined) fit may be more or less appropriate for a given
pattern of speci~li7~don [Ergas, this volume, pp. 23~2311.
This categorization is important from the U.S. perspective, especially
when combined wig Ergas's argument Mat the emerg~g-technology phase
does not usually produce large gains in per capita income or value-added
per worker. The implication is that Here may be, from an economic
development perspective, a comparative overemphasis in Be United States
on creativity, originality, novelty, and sophistication at the leading edge
of technological advance. This overemphasis comes at the expense of what
could be called the "creative Octagon" or rapid Incremental Improvements
Cat the Japanese are especially good at.
It is worth noting Eat Vernon and Ergas, wnt~ng from macroeconomic
and public policy perspectives, bow reinforce points made by Teece Tom
a m~croecor~om~c perspective. In a world In which technological innovators
cannot hope to capture more Ban a small fraction of the gains from their
innovations, and in which the successful exploitation of a technological
advance depends on tapping global markets, a national economy that
invests In the creation of new technologies must constantly ask itself where
Be economic returns to such advances are likely to be captured. The ability
of a nation to generate technological advances is insufficient by itself, and
may not even be essential, for improving national competitive position.
Branscomb, in the final chapter in the volume, compares the technology
development and deployment strategies of companies and governments.
Branscomb discusses the existence of both synergy and conflict in the
interests of nations and corporations. Goverruments and transnational cow
pies share an important common interest In economic grown and de-
velopment, but each has ancillary goals not necessarily consistent with
Pose of the other. Governments care-for a vanes of legitimate reasons-
about national self-sufficiency, whereas corporations care primarily about
profitability and autonomy of action. Though these interests do not always
conflict, Were are inevitably situations where Be goals and methods of
Be two types of organizations diverge. In other words, the imperatives
of global economic and technological interdependence-often manifest in
ansnational production and dis~bunon ac~vii~es sometimes run against
legion ate nationalistic concerns.
In a global economy, the autonomy and importance of muldnaiional
corporations can restrict die ability of national governments to catty out
independent economic and social policies within Weir boundaries. There-
fore, an ongoing important international policy question is: What mech-
a~iisms will allow a group of nominally independent sovereign nabon-
states working with a parallel group of nominally autonomous trans
OCR for page 12
12
HARVEY BROOKS AND BRUCE R. GUILE
national companies- to deal wig a global-scale economy in a way that
is just and equitable for all He different publics involved? There are no
simple or even obvious solutions. National limitations on Be autonomy
of muli~nai~onals may come at the expense of national and global economic
growth. On Me other hand, corporate autonomy may come at the expense
of painful domestic adjusonents and localized welfare losses as well as
losses of national self-esteem and cultural autonomy. The challenge is to
develop an international political regime that provides for negotiation over
He needs of different national constituencies without choking off the open
exchange of goods and services. This has important implications for the
policies of nations and companies in relation to political constituencies; a
stable system of governance for He international economy cannot long
accommodate to severe adverse economic effects on individual nations or
influential constituencies within nations. hn particular, effective social
policy-temporary assistance to disadvantaged groups, for example may
help to mitigate constituency resistance to change and afford national
negotiators a freer hand in representing truly national rather than vocal
parochial interests.
CONCLUSION
Taken together, the chapters in this volume raise many issues about
patterns of technological change and evolution in He structure of organ-
izai~ons-and styles of management in the global economy. These chap
ters contribute to a growing literature-built on ideas expressed by N. D.
Kondradev and Joseph Schumpeter in the first half of this century Hat
explicitly -links technological ~ajectones or life cycles to Industrial de-
velopment. Because of the complexity created by nested and overlapping
technological advances, the interpretation of what constitutes a technic
logical trajectory is rather vague and, though Here have been subst;~ndal
contributions to our understanding (Abernathy and Utterback, 197S, and
Dosi, 1982, for example), no composite theory has ever been worked out
in detail. Despite this, there appears to be some common understanding
of a ~ree-stage pattern of technological development. The first stage
~e "emergent" or "fluid" phase is viewed as a period of great ferment
during which the venous actors, particularly inventors and users, carry
out a trial-and-error search for the application of an initial concept that
works both technically and in terms of customer acceptance. In this
phase there are often many competing firms and technical ideas and no
clearly- superior design.
The second stage is characterized by the emergence of a dominant
design (or application Hat appears to meet He requirements of the mar
OCR for page 13
OVERVIEW
13
ketplace). At this point the pace of diffusion of He new technology
quickens, and at first many new competitors `'swarm" into Be market.
As diffusion continues, price competition becomes more important a'nd
Were is less product differentiation on the basis of product character-
istics. The pure economics of production and delivery come to donate
competition. Simultaneously product innovation becomes more incre-
mental, based on the now dominant design concept, and Mere is more
stress on innovation to bnag down costs and increase quality and uni-
formity of He product. The search for improvements narrows, but the
rate of reduction of costs accelerates and, with it, the rate of market
penetration because of price elasi~ci~cy of demand. At He same time the
race for cost-reducing improvements Hives many competitors out of the
market, and a much more stable division of market shares among the
remaining competitors results.
The third stage is reached when He market begins to saturate, new
applications and new markets give way to replacement of previous gen-
erabons of He same technology, and further cost-reducing improvements
become harder and more expensive to find. What happens, or should
happen, in this mature phase of a life cycle is He subject of much less
agreement. It is a period in which the leading competitors are much more
vulnerable to the appearance of a radical innovation, which may constitute
He initiation of a new technological paradigm. In this phase the organi-
zation tends to be optimized for mass producing and marketing a com-
modity-~ike product. This form of organization is likely to be unsuitable
for introducing and rapidly improving a product or a new manufacturing
process that is in its dynamic growth phase. Lehnerd's example from the
Black & Decker Company seems to be the exception rather Han the rule.
Although, as mentioned above, Here is little agreement on He specific
characteristics of He technological life cycle and the level of aggregation
of economic activity to which it is relevant, the loosely defined notions
of a technological trajectory or product life cycle have proved useful in
dividing technological advance into stages that can be linked to made
patterns, economic structure, and national technological strategies in the
global economy. The product life cycle theory developed by Raymond
Vernon in He late 1960s (Vernon, 1966), and subsequently elaborated by
many authors, is a prime example. The chapters in this volume are con-
sistent win Hat tradition. They strongly suggest that the technological
character of product lines, production processes, and delivery systems in
an industry evolves in a consistent, Bough subtle, manner in a way Hat
dramatically influences both He range of viable business strategies and
the likely market outcomes in He global economy.
In addition to addressing industrial and technological change, the chap
OCR for page 14
14
IlARVEY BROOM ED BRUCE R. GUILE
ters in this volume delineate a chronic tension in global economic and
technological affairs. The principles of relatively unrestricted world ~
camed out most often Trough multinational firms and benefiting con-
sumers and in many cases the firms' managers and shareholders-conflict
with the legitimate interests of important producer and other interest groups
u ithin nations. Wide increasing giobalizabon of economic activity, bilat-
em1 and multilateral negotiations over trade and foreign investment prac-
tices already an important aspect of national foreign policy-will be
increasingly important components of national domestic economic and
social policy. How can a national government accommodate Be interests
of important groups Mat are seriously affected by developments in the
~ntemational economy? Are policies targeted toward particular key ~n-
dustries and technologies more significant for national economic heady
Can government support for education and basic research, die development
of generic technologies, or He upgrading of basic in*as~ucture? Is a
multinationally coordinated approach to more general policies such as
macroeconomic policies, national tax structures, regulatory philosophies,
policies toward human resource development, and labor market adjustment
a desirable goal? These questions will never be settled in the large; future
policy will exist primarily In He resolution, or lack of resolution, on
specific negotiations. The questions, however, are lilcely to be important
national policy issues for decades.
REFERENCES
Abernathy, W. J., and J. M. Utterback. 1978. Patterns of industrial innovation. Technology
Review 80:7(June-July):407.
Bluestone, B., and B. Harrison. 1986. The Great American Job Machine: lye Proliferation
of Low Wage Employment in He U.S. Economy. A study prepared for the Joint Economic
Committee, December.
Brooks, H. 1986. National science policy and technological innovation. Pp. 119-167 in
The Positive Sum Strategy, R. Landau and N. Rosenberg, eds. Washington, D.C.:
National Academy Press.
Cline, W. R. 1984. Exports of Manufactures from Developing Counties. Washington,
D.C.: Brookings Institution.
Dosi, G. 1982. Technological paradigms and technological trajectones. Research Policy
11(3):147-162.
Economic Report of He President, 1987. Washington, D.C.: U.S. Government Printing
Office.
Lipsey, R. E., and I. B. Kravis. 1985. The Competitive Position of U.S. Manufacturing
Finns. National Bureau of Economic Research Worlcing Paper 1557. Cambridge, Mass.:
National Bureau of Economic Research.
President's Commission on Industrial Competitiveness. 1985. Global Competition: The
New Reality. Volumes 1 and 2. Washington, D.C.
OCR for page 15
OVERVIEW
15
Sa~conhouse, G. 1983. The micro- and macroeconomics of foreign sales to Japan. Pp. 259
263 in Trade Policy in the 1980s, W. R. Cline, ed. Cambndge, Mass.: MIT Press.
Scott, B. R. 1985. U.S. competitiveness: Concepts, performance, and implications. Pp.
13~9 in U.S. Competitiveness ~ the World Economy, B. R. Scott and G. C. Lodge,
eds. Boston, Mass.: Harvard Business School Press.
Vernon, R. 1966. International investment and international trade in the product cycle.
Quarterly Journal of Economics 80(2):19~207.
Representative terms from entire chapter:
global economy
