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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"Overview." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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OVERVIEW 1 Overview HARVEY BROOKS AND BRUCE R. GUILE In the last decade it has become increasingly clear that the character of the world economy—and the role of the United States in the world economy—is changing. Two characteristics of global economic change are particularly important. First, over the last 35 years there has been substantial relative growth (in pan simply postwar reconstruction) of national economies in Europe and Asia. In the years immediately following World War II the United States dominated world economic affairs, but the U.S. economy is no longer singularly important in the world economy. The United States is now only one element, albeit still a large one, in an increasingly global economy. The second important change derives, in pan, directly from the increasing relative industrialization of other national economies. The growth of other national economies has allowed production and distribution to become increasingly transnational. For a variety of products, fabrication, assembly, distribution, and maintenance activities are organized in such a manner that information, funds, materials, components, final products, and people cross national boundaries as pan of everyday commerce. The same is true for service industries, though probably to a lesser degree. Technological advances have played a central role in this economic and technological integration. In particular, technological advance has decreased the relative price of communication and transportation and increased the capacity of transnational systems carrying information, goods, and people. Increasing global economic and technological integration raises issues

OVERVIEW 2 concerning the interaction of technological change, economic activity, and the prerogatives of sovereign governments. What are the effects of changing technologies on the 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 enterprises respond to the 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 the actions of multinational companies and the policies of industrialized nations. PATTERNS OF TECHNOLOGICAL CHANGE AND INDUSTRIAL EVOLUTION It has long been understood that technological change, through its impact on the economics of production and on the flow of information, is a principal factor determining the 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 the location, ownership, and management of various types of productive activity among countries and regions. The increasing ease with which technical and market knowledge, capital, physical artifacts, and managerial control can be extended around the globe has made possible the integration of economic activity in many widely separated locations. In doing so, technological advance has facilitated the rapid growth 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 the life cycle concept is widely recognized, there is a chronic problem with the unit of analysis. It is not clear whether the appropriate unit of analysis is a highly discrete invention and its subsequent ramifications, a particular product line, or a whole industry. The answer is probably all of the above; particular technological advances may be considered 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. The chapter by James Utterback introduces the concept of technological life cycles in this volume, a concept that recurs throughout the 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 the processes and

OVERVIEW 3 procedures used in their production. He examines parallel paths of evolution 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 the product and process technology in a technological life cycle. The general issues raised by Utterback are extended to the mature phases of product and process cycles in the chapter by Alvin P. Lehnerd, who provides a dramatic account of how fundamental reconsideration of both product and process design for a mature product line can revolutionize the competitive position of that line in the international marketplace. Lehnerd describes a program at the Black & Decker Company during the 1970s. The program substantially improved the company's productivity in the 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 various products within the product line. During the 1970s when non-U.S. manufacturers began to dominate in many traditional manufactured goods, Black & Decker picked a strategy— linked to new technology—that allowed 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 revolutionized 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 innovation and to the introduction of more advanced low-cost production processes, especially when the mature product line appears to be still doing well in the market. In the case described by Lehnerd, this was exactly the time when a radical redesign of an existing product line and its associated manufacturing process proved essential to the competitive position of the firm. The relationships between technological advance and industrial structure that Utterback and Lehnerd address are extended to questions of global organization and technology in the chapters by David J. Teece, Yves Doz, and James Brian Quinn. TECHNOLOGY AND THE STRUCTURE OF GLOBAL INDUSTRY David Teece's chapter deals with returns to innovation and the arrangements—integration, partnering, and licensing—that determine whether the 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 the points made by Utterback

OVERVIEW 4 concerning technological trajectories, efficient industry structure, and the importance of matching structure and strategy to the location of each product line in the technological life cycle. Teece also cautions against economywide generalizations about innovation or technology—driven markets. In a world of many nations of nearly equal levels of industrialization and technological prowess, the likely impacts of movement along a technological trajectory are not obvious. For example, the product life cycle has significantly different consequences for the European automobile industries 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 the 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 appropriability regimes (the degree of appropriability of the potential economic gains from technological innovation) and the nature of the assets needed to convert a technological success into a commercial one .... [I]t is not so much the structure of markets as the structure of firms, particularly the scope of their boundaries, coupled with national policies for the development of complementary assets, that determines the distribution of profits among innovators and imitator-followers [Teece, this volume, p. 94]. Teece also suggests that lack of attention in the United States to aggressive investment in new manufacturing technology may have enabled skillful imitator- followers, particularly in Japan, to appropriate a disproportionate share of the gains from U.S. inventions arising out of its uniquely broad-based R&D programs, both public and private. As reflected also in the chapter by Doz (and in the chapter by Henry Ergas later in the volume), the too-exclusive emphasis of public policy in both Europe and the United States on R&D and technological prowess as the principal remedies for lagging competitiveness may be misplaced; without appropriate complementary assets and capacities that allow a nation to capture returns from innovation, national technological superiority is of little economic consequence. The trend during the last 30 years has been toward global homogenization of markets and transnational integration of production. Yet there are signs of the emergence of countervailing pressures resulting from technological, managerial, and political developments that appear to be giving a competitive advantage to more localized production and distribution. For example, the relative importance of close interaction between producers and users seems to be growing as products become more complex and customized. Effective product design, prompt maintenance service, and consultation services to customers in increasingly sophisticated applications all require close links between sellers and customers.

OVERVIEW 5 Additionally, the increased use of just-in-time inventory principles in production and distribution has enhanced the competitive advantage of collocation of suppliers and distributors with manufacturing operations. The chapter by Yves Doz reviews these countervailing influences in the global economy. In his analysis Doz points out that trends in new technology permit enormous flexibility and diversity in the way global enterprises are actually managed. Firms with widely dispersed facilities tightly integrated in a global strategy exist side by side with firms having single production sites geared to serving dispersed markets or specialized market niches that are spread globally. Because modem technologies are both flexible and diverse, other factors may be more important than technology as a determinant of organizational structure. The costs associated with production and distribution may be less important in determining the structure of an industry than the organizational and political imperatives of partnership opportunities, investment for market access, or access to localized concentrations of specific technical skills. Therefore, despite forces that push for either fragmentation or homogenization of markets, the dominant characteristic of the structure of industry in the global marketplace may be diversity. In his chapter on technology and the service industries, James Brian Quinn addresses many of the issues raised by Doz and Teece, but from a somewhat different perspective. His focus is less on the international structure of industries and more on the interaction of technological advance with the evolution of organizational structure in a variety of service industries. In particular, Quinn approaches the delivery of goods and services to the consumer as a long chain of labor, capital, location, and organization, each adding value to create the final product. He uses this framework to challenge the common perception that service industries have both low labor productivity and low productivity growth, add little value, and provide only low-wage, insecure jobs. Quinn offers many examples of the importance of technology to the development and restructuring of service industries, to the emergence of whole new services, and to the impressive growth in productivity in some service sectors. Both Doz and Teece treat major service activities—finance, transportation, communication, and wholesale and retail activities—as integrated parts of an organization delivering a product to a consumer. Neither distinguishes between value added to a product through the act of assembly (manufacturing) and value added through the act of delivery (service). Technological advance is important in both activities, and in both it can increase efficiency and provide new opportunities for organization. Indeed, the similarities between technological and organizational issues in man

OVERVIEW 6 ufacturing and service industries make distinctions between services and manufacturing seem arbitrary. Quinn argues persuasively that much conventional 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 Quinn also raises the question of whether national success in services can replace manufacturing as the engine of national economic progress and international competitiveness, much as manufacturing had replaced agriculture and resource industries as a source of growth and employment in an earlier period. As illustrated in Quinn's chapter, many service industries—medical care, transportation, communications, 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 the United States has persistently enjoyed a positive net balance of trade in services and income from foreign investment. On the other hand, U.S. trade in services, though probably underestimated at present, is small in relation to U.S. trade in manufactures and agricultural products, and it seems unlikely that an industrialized nation the size of the United States can export enough services to cover the cost of importing a predominance of the manufactured goods it demands. Additionally (as discussed in Raymond Vernon's chapter in this volume), the fraction of U.S. GNP accounted for by manufacturing output, when proper allowance is made for the lower rate of price increase for manufactured than for nonmanufactured output, has remained approximately constant—between 20 and 23 percent with no clear trend up or down—for the past 30 years (Economic Report of the President 1987, Table B-11, p. 257). This observation belies the argument that the 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 economy" is further 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 increasingly 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 various kinds of controls on the export of services-related capital

OVERVIEW 7 goods to ensure the competitive advantage of domestically based services in international trade. On the other hand, the developers of much of the technology used in services are manufacturers who are strongly motivated to introduce and sell their technologies as widely and rapidly as possible worldwide to recover heavy development costs. Proximity to the sources of innovation in services- related capital goods may or may not contribute to national competitive advantage in any service industry. As suppliers to manufacturing industries, 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 manufacturing sector may be a necessary prerequisite for service industry development and hence for national economic health. Manufacturing competitiveness may in its turn be critically dependent on the efficiency and cost of the services locally available to manufacturing plants—services essential to the smooth functioning of tightly integrated manufacturing and distribution systems. For example, the operation of manufacturing and distribution systems with minimal inventory costs and buffer stocks requires a highly efficient low-cost service infrastructure. It is not clear for which sectors the complicated linkages described above are most important and which goods or services, if any, a large nation can afford to import over the long run from distant locations. Still unanswered, therefore, is whether the "postindustrial society," the "information society," or the "service economy" are catch phrases that rationalize the relative decline of manufacturing employment, or whether they truly represent the ''wave of the future" and a sufficient foundation 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 industries. 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 industries regardless of the location of the 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 becoming global, driven by ever-increasing economies of scale, other markets are fragmenting and differentiating. New manufacturing and service delivery technologies, new methods of work organization, and a new importance of local market responsiveness all can decrease the significance of scale economies and favor decentralized production. The long-term norm may be loose global coordination and frequent temporary alliances among particular units in different countries for different, and usually

OVERVIEW 8 highly product-specific and market-specific, purposes. The global economy appears to be moving toward a complex (and often highly interdependent) coexistence of centralized and decentralized markets and production systems. Corporations—in their national or transnational activities—depend on the laws, infrastructure, and political stability provided by national governments. In turn, governments of industrialized nations in the noncommunist world depend on private enterprise to provide employment, income growth, and goods and services for the nation's citizenry. The growth of transnational 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 INDUSTRIES The growth of industrialized economies in Europe and Asia since World War II has eroded the importance to the world economy of both U.S. domestic economic policies and unilateral U.S. foreign investment and wade policies. This change has consequences for virtually every aspect of the world economy as the importance of multilateral negotiation and agreement grows apace. Though national foreign policies have a variety of purposes, it is almost always true that the primary goal of national participation in international economic affairs is national economic development. Recently, the concerns of industrialized nations over economic development in a world economy have been expressed mostly in terms of national competitiveness. However, as economic institutions become more global in scope, whether through networks of alliances across national boundaries or through large centrally controlled transnational corporations, the concept of a competitive national economy becomes uncertain and obscure. One measure of competitiveness may be the average level of real wages that labor can command in a given country (and the potential for future growth of this level), but it can be argued that measures such as employment growth, technological capability, productivity growth, or corporate profitability 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 growth may be a better measure of the opportunities available to the citizenry. Technological capability and productivity growth relate to the productive resources physically located in a given country's territory, whereas corporate profitability reflects the performance of firms with their headquarters and primary ownership in a given country, regardless of the

OVERVIEW 9 location of production or distribution.* These various measures of economic development—and the policy goals implicit in the measures—are central to national policy debates. Three chapters in this volume—by Raymond Vernon, Henry Ergas, and Lewis M. Branscomb—deal extensively with national economic development policies. Vernon's chapter reviews some basic and inevitable changes in the position of the U.S. economy in the global marketplace and addresses many of the 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. The first is a concern with the internal distribution of the national costs associated with U.S. participation in an open global economy. Particularly important is his assessment of tradeoffs within the U.S. economy. Some industries and groups in the United States have suffered from the exposure of U.S. markets to foreign producers, such as those associated with the 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 workers in successful export industries. By the same token, factory workers in some traditional industries may have fared poorly, but management consultants and computer software specialists have done well. The second policy issue unique to Vernon's chapter in this volume is his assessment of the challenge to U.S. policymakers to avoid triggering a cascading sequence of beggar-thy-neighbor actions that would change the 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 respond to localized domestic industrial distress with political action. The current furor over the U.S. wade deficit is a good example. As the U.S. trade balance has worsened, there has arisen a widespread belief in the United States that other nations are not playing by the rules of the open * Because of the ambiguity of the term "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 growth, 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 Harrison, 1986). In scientific and technological capability, the United States is still the world leader (Brooks, 1956), but there are significant 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 market share, U.S.-based multinationals have gained market share in world markets (Lipsey and Kravis, 1985).

OVERVIEW 10 trading system that the United States helped to establish after World War II. The perception that the United States respects these rules while other nations do not has generated a chores of demands for unilateral or coercive U.S. actions to create a "level playing field." Are these demands legitimate? Most scholarly studies of nontariff trade barriers indicate that the fraction of the 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 Germany and Japan (Saxonhouse, 1983; Cline, 1984). If the United States is different from its industrialized competitors in this regard, it is only in the fact that the barriers appear to follow a less coherent or consistent pattern than those of some other industrialized nations. The concern in the United States is not an unusual or surprising response to trade problems. There is a tendency for every nation to see itself as unfairly disadvantaged by world competition in sectors in which it is doing poorly while taking for granted its success in sectors where it is doing well. Thus, each nation attempts to intervene politically in these disadvantaged areas and is troubled by the inadequacy of its political influence over the policies and actions of other nations. Among the policies that nations use for economic development are those to promote technological advance. The chapter by Henry Ergas presents a cross- national comparison of technology policies. The thrust of Ergas's argument is that various strategies are open to countries, or to businesses within countries, based on where they choose to seek competitive advantage in the product or technology cycle. In Ergas's assessment, the United States, France, and the 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 industrial structure to take maximum advantage of the more mature phases of development in products and processes. Japan, Ergas argues, has chosen to try to profit from the "consolidation" or "take-off" phase, and in large measure its strategy is something of a hybrid between the emerging technology strategy of the United States and the diffusion strategy of Germany. Ergas writes: This discussion suggests that there are different paths to happiness, as countries' institutional structures and social arrangements facilitate specialization in differing stages of technological evolution. Each of these stages has advantages and disadvantages in providing for the growth of real income, but countries also differ in the extent to which they succeed in securing the greatest benefits from any given pattern of specialization. [L]ocation on a technological trajectory may be less important than the efficiency

OVERVIEW 11 with which the advantages of that location are pursued. This, in turn, depends on institutional features (broadly defined) that may be more or less appropriate for a given pattern of specialization [Ergas, this volume, pp. 230-231]. This categorization is important from the U.S. perspective, especially when combined with Ergas's argument that the emerging-technology phase does not usually produce large gains in per capita income or value-added per worker. The implication is that there may be, from an economic development perspective, a comparative overemphasis in the 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 imitation" or rapid incremental improvements that the Japanese are especially good at. It is worth noting that Vernon and Ergas, writing from macroeconomic and public policy perspectives, both reinforce points made by Teece from a microeconomic perspective. In a world in which technological innovators cannot hope to capture more than 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 the 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. Governments and transnational companies share an important common interest in economic growth and development, but each has ancillary goals not necessarily consistent with those of the other. Governments care—for a variety of legitimate reasons— about national self-sufficiency, whereas corporations care primarily about profitability and autonomy of action. Though these interests do not always conflict, there are inevitably situations where the goals and methods of the two types of organizations diverge. In other words, the imperatives of global economic and technological interdependence— often manifest in transnational production and distribution activities— sometimes run against legitimate nationalistic concerns. In a global economy, the autonomy and importance of multinational corporations can restrict the ability of national governments to carry out independent economic and social policies within their boundaries. Therefore, an ongoing important international policy question is: What mechanisms will allow a group of nominally independent sovereign nation-states—working with a parallel group of nominally autonomous trans

OVERVIEW 12 national companies—to deal with a global-scale economy in a way that is just and equitable for all the different publics involved? There are no simple or even obvious solutions. National limitations on the autonomy of multinationals may come at the expense of national and global economic growth. On the other hand, corporate autonomy may come at the expense of painful domestic adjustments 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 the 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 the international economy cannot long accommodate to severe adverse economic effects on individual nations or influential constituencies within nations. In 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 the structure of organizations —and styles of management—in the global economy. These chapters contribute to a growing literature—built on ideas expressed by N. D. Kondratiev and Joseph Schurnpeter in the first half of this century—that explicitly links technological trajectories or life cycles to industrial development. Because of the complexity created by nested and overlapping technological advances, the interpretation of what constitutes a technological trajectory is rather vague and, though there have been substantial contributions to our understanding (Abernathy and Utterback, 1978, 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 three-stage pattern of technological development. The first stage— the "emergent" or "fluid" phase—is viewed as a period of great ferment during which the various 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 that appears to meet the requirements of the mar

OVERVIEW 13 ketplace). At this point the pace of diffusion of the new technology quickens, and at first many new competitors "swarm" into the market. As diffusion continues, price competition becomes more important and there is less product differentiation on the basis of product characteristics. The pure economics of production and delivery come to dominate competition. Simultaneously product innovation becomes more incremental, based on the now dominant design concept, and there is more stress on innovation to bring down costs and increase quality and uniformity of the 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 elasticity of demand. At the same time the race for cost-reducing improvements drives 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 the market begins to saturate, new applications and new markets give way to replacement of previous generations of the 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 the 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 the initiation of a new technological paradigm. In this phase the organization tends to be optimized for mass producing and marketing a commodity-like 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 than the rule. Although, as mentioned above, there is little agreement on the specific characteristics of the 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 trade patterns, economic structure, and national technological strategies in the global economy. The product life cycle theory developed by Raymond Vernon in the late 1960s (Vernon, 1966), and subsequently elaborated by many authors, is a prime example. The chapters in this volume are consistent with that tradition. They strongly suggest that the technological character of product lines, production processes, and delivery systems in an industry evolves in a consistent, though subtle, manner in a way that dramatically influences both the range of viable business strategies and the likely market outcomes in the global economy. In addition to addressing industrial and technological change, the chap

OVERVIEW 14 ters in this volume delineate a chronic tension in global. economic and technological affairs. The principles of relatively unrestricted world trade— carried out most often through multinational firms and benefiting consumers and in many cases the firms' managers and shareholders—conflict with the legitimate interests of important producer and other interest groups within nations. With increasing globalization of economic activity, bilateral and multilateral negotiations over trade and foreign investment practices—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 the interests of important groups that are seriously affected by developments in the international economy? Are policies targeted toward particular key industries and technologies more significant for national economic health than government support for education and basic research, the development of generic technologies, or the upgrading of basic infrastructure? 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 the resolution, or lack of resolution, on specific negotiations. The questions, however, are likely 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):40-47. Bluestone, B., and B. Harrison. 1986. The Great American Job Machine: The Proliferation of Low Wage Employment in the 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 Countries. Washington, D.C.: Brookings Institution. Dosi, G. 1982. Technological paradigms and technological trajectories. Research Policy 11(3): 147-162. Economic Report of the 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 Firms. National Bureau of Economic Research Working Paper 1557. Cambridge, Mass.: National Bureau of Economic Research. President's Commission on Industrial Competitiveness. 1985. Global Competition: The New Reality. Volumes I and 2. Washington, D.C.

OVERVIEW 15 Saxonhouse, G. 1983. The micro-and macroeconomics of foreign sales to Japan . Pp. 259-263 in Trade Policy in the 1980s, W. R. Cline, ed. Cambridge, Mass.: MIT Press Scott, B. R. 1985. U.S. competitiveness: Concepts, performance, and implications. Pp. 13-69 in U.S. Competitiveness in 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):190-207.

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