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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

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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

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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.

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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

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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

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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

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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

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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

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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

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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

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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.

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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.