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NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 246 INTERDEPENDENT WORLD ECONOMY National and Corporate Technology Strategies in an Interdependent World Economy LEWIS M. BRANSCOMB The broad public perception that important conflicts occur between the sovereignty of nations and the business interests of transnational corporations can be illustrated by a lecture given a quarter century ago by Tony Wedgewood Bennâfirst U.K. Minister of Technology. Speaking at the British Embassy in Washington, D.C., he introduced the idea that Her Majesty's government should appoint ambassadors to the largest multinational companiesâon the grounds that the companies' gross revenues exceed the gross national product of many small countries and that their policies had more impact on U.K. interests than did those of small states. In introducing the metaphor of foreign relations as a means for dealing with significant external forces with which one must cope, Mr. Benn was reflecting the presumption of most governments that multinational operations in their countries pose a threat that has to be defended against, rather than an opportunity that coúld be exploited to the countries' advantage. Either. way, of course, foreign ministries are clearly not the most competent instruments of government to deal with technological issues. In his modest proposal Mr. Benn also caricatured the notion of sovereignty, which, of course, refers to the authority vested in a nation-state to exercise control over its own territories. His humor anticipated a certain mount of political agitation that exists today over these conflicts. In fact, however, when analyzed more closely, the fundamental interests of nations and corporations are surprisingly similar. And learning together to balance national activities and international dependencies is the key to relieving
NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 247 INTERDEPENDENT WORLD ECONOMY current stresses and to achieving both parties' long-term economic and social interests. THE DIFFERENT RESPONSIBILITIES OF GOVERNMENTS AND CORPORATIONS During the nineteenth century, great mercantile firms such as the British East India Companyâwith either tacit or explicit support from their governmentsâdid indeed challenge sovereign authority in many parts of the globe. During the declining phases of colonialism in that century, news stories persisted of banana companies, such as United Fruit, manipulating corruptible Central American governments. This experience of many developing countries emerging from their colonial past still colors national attitudes today. It makes such governments hypersensitive to maintaining their sovereignty unsullied by either military or economic challenge. Very few matters of current corporate interest in industrialized democracies result in direct confrontational challenges to sovereignty by companies. When the governments of India, Nigeria, or Indonesia decide to adopt policies that IBM believes reduce its prospects of success below acceptable levels, the company does not hire mercenaries; it leaves the country or changes the way it does business. Though direct corporate challenges to national sovereignty are disappearing, there is, it seems, a concomitant growth in the ways in which an increasingly global economy impinges on sovereignty. At the heart of the friction between interdependent nations and corporations is a simple truth: Although neither companies nor nations are absolute masters of their fate, companies have a great adaptive advantage in their ability to redefine their commitments in response to opportunity or to changes in their political environment. Governments' responsibilities, on the other hand, are less flexible. Governments are responsible to and for individuals living within their national borders, are directed by a constitution or set of political norms that specify relatively inflexible commitments, and are both burdened and inspired by the blood, suffering, and heroic myths invested in the defense of their physical boundaries. The issue of interest, therefore, is not companies challenging sovereignty, but a more complex question of synergy or conflict between the interests of two types of global organizations. Both nations and companies have interests that cross physical borders, but nations are committed to a particular piece of geographic "turf" and companies are not. The complexity of interaction between these two types of organizations is rising fast for both political and technological reasons.
NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 248 INTERDEPENDENT WORLD ECONOMY Technology diffuses faster and further than ever before, and most of the effective transfer of technology is planned and accomplished by corporations. However, no nation can leave the acquisition of technological capability to chance. Governments not only engage in the direct promotion of technology but increasingly seek to influence the strategies of enterprises. They have a keen interest in the success of technology-promotion activities, even when prospects for success are low, but businesses are unlikely to invest if success is unlikely, unless the potential rewards are commensurate. Companies choose their own strategies to match expectations of market opportunity to investment risk, while accommodating the policies of governments in each country where they choose to do business. The current situation in the People's Republic of China (PRC) is a good illustration of these issues, because a unique high-risk/high-reward situation exists there for both the government and foreign business. Businesses starting joint ventures in China may be pessimistic about their likely commercial success, but the potential markets are so huge that, in the long run, even a small chance of success warrants a considerable effort and investment. The PRC's need to master certain key technologies also creates a high-risk/high-reward situation, in that the importance of the technology may warrant considerable political risk in trying to acquire it through joint ventures with foreign firms, even when this might give a particular firm undesired market power in the country or lead to unwanted foreign political or cultural influences. As illustrated by the next section, trade-offs are less clear in other situations. GOVERNMENTAL POLICIES, AFFECTING TECHNOLOGY Just as tolerance for risk and expectations for success are sometimes perceived differently by businesses and political bodies, motivations also may differ greatly. Trade policy and national security concerns dominate U.S. government interest in corporate technology strategy. The expansion of federal R&D investment is now largely in defense. Encouraging friendly governments to participate in the Strategic Defense Initiative (SDI) coexists uneasily in the U.S. technology policy agenda with export controls on technology and access to foreign markets for U.S. "high-tech" companies. At the same time, both in the United States and abroad, there is concern that the country not become dependent for strategic goods on a supplier in a foreign nation that might not be reliable under certain future political conditions. All countries naturally feel the need to preserve political control over their defense industrial base, because future alignments of their suppliers of key components for military purposes are unpredictable.
NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 249 INTERDEPENDENT WORLD ECONOMY In the case of SDI, the United States invites European participation to encourage political support for the program in return for a certain amount of technology sharing. But, on the other hand, the U.S. government does not want to increase the chances of leakage of the militarily relevant pieces of the technology to the Eastern Bloc. Reducing budgetary costs through cost sharing is also an important motivation, but the effort is to achieve the maximum amount of cost sharing and political solidarity behind SDI without sharing more technology than is absolutely necessary. Many Europeans, for their part, fear that failure to participate in SDI might disadvantage their economies if the SDI technologies turn out to stimulate U.S. commercial competitiveness. They harbor the suspicion that U.S. reticence to share fully is based at least as much on reluctance to accept European industrial parity as it is on fear that technology will leak to the Soviets. The same considerations are apparently operating in negotiations over European and Japanese cost sharing and cooperation in the Space Station program. Here again the U.S. objective appears to be to achieve a foreign financial contribution without sharing any more critical technology than is necessary. Expectations at present appear unrealistic in this regard. Japanese policy, on the other hand, is focused on industrial competitiveness in export markets as the primary strategy for dealing with Japan's dependence on imported food, energy, and raw materials. Industry has a strong voice in the government's technology strategy, and government concerts industry action in the export arena, leaving domestic competition largely free of government direction. In Europe there is superposed on each country's national policy a regional attempt to gain the benefits of European economic integration without paying the political and cultural penalty of more extensively shared sovereignty. The success of U.S. and Japanese firms in the strategic high-tech industries and concern about European competitiveness are motivating a variety of national and European government programs to encourage collaboration among firms and universities in research of strategic commercial importance. The extent to which national companies and the national subsidiaries of transnational enterprises seekâand are allowedâto participate in these programs provides an interesting test of the compatibility of corporate and governmental technology policies. The People's Republic of China offers a particularly interesting example because public policy for technology promotion is in such a rapid state of change. The liberalized economic policy of the current government seeks to leverage foreign-owned technology through encouraging foreign investment under negotiated terms and thereby attain technological self-sufficiency as quickly as possible. Corporate and national strategies for
NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 250 INTERDEPENDENT WORLD ECONOMY technology mastery by indigenous Chinese enterprises are explicit and often central elements in that negotiation. A final example is Brazil, which follows a mixed strategy, centrally directed, to encourage foreign investment in selected areas and reserve the large domestic market in others. This market-reservation policy is pursued with considerable tenacity, even to the point of refusing permission to foreign firms willing to export from Brazil the majority of their manufactured output. The conflict between the interests of firms and the policies of government is highly visible in this situation, since there is such deep disagreement on the effectivenessâand riskâof this strategy for technical development. It seems clear that Brazil is trying to use the protected, elevated price structure derived from reservation of its domestic market to finance learning-by- doing in technology, regarded as key to the country's economic future. The government believes this will produce the most rapid feasible achievement of self-sufficiency in technology. In effect, domestic customers are being asked to subsidize the self-education of local technologists, without the stimulation of external competition. The underlying assumption is apparently that this costly learning-by-doing will be more effective in the long run than assimilation of foreign technology through joint ventures and foreign direct investment. This strategy contrasts with that of the PRC, which apparently believes that more rapid technology transfer through carefully controlled foreign investment more than offsets the risk that technology assimilation by this mechanism will be superficial and ineffective. These examples illustrate the diverse motivations and approaches to technology policy around the world. In each country, the national enterprises seek the support of their government while seeking freedom of action within its policies. But, in most cases, conflicts of interest between transnational companies and the central government do not turn on challenges to the sovereign authority of government. Rather, they hinge on the straggle for domestic political consensus on economic and industrial policy and debates about sharing those policies with other nations. Therefore, the following discussion focuses on the subsidiaries of transnational companies and their relations with host governments and national enterprises. Although the interests of governments and transnational corporations differ, it should be noted that they share manyâindeed mostâobjectives in common. Companies are often eager to invest in building high-tech capability in countries where local markets are accessible and need local support capabilities. Political leaders in such countries are often equally cage: to accelerate technological development in the search for new jobs
NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 251 INTERDEPENDENT WORLD ECONOMY and productivity and to ease industrial readjustment. In many countries the subsidiaries of transnationals enjoy a special relationship with government close to that enjoyed by domestically based transnationals, even to the extent of substantial participation in joint ventures, government-funded enterprises, and sales to government agencies. The IBM Corporation's experience in Europe and in Japan has been very positive, despite occasionally publicized controversies. IBM Japan is a wholly owned subsidiary of IBM, dating back to the 1930s, which participates effectively in Japanese and Asian markets, making a substantial positive contribution to Japanese exports to Asia and South America. IBM Italy is officially designated a national Italian company because of its contributions to the country's employment, economy, and development of science, technology, and professional skills. SOURCES OF CONFLICT Given this synergy of interest, why do the inevitable divergences in technology policies of governments and transnational business attract so much attention and occasionally cause so much friction? Conflict between the interests of transnational companies and those of national governments arises from several chief sources. First, transnational companies are sometimes better positioned to take advantage of policies for enhancing regional competitiveness than are national companies. When the European Economic Community (EEC) sought to integrate the European economies, firms such as IBM had little difficulty organizing their businesses to take advantage of the special strengths of each country, avoid needless duplication, and serve the entire market with a product line of minimum national diversity. IBM's success demonstrates the effectiveness of the EEC strategy, provided there are private firms willing and able to take advantage of it. Transnationals based in Europe have been much slower to find those advantages, which are equally available to all. Indeed, in 1970 three governments urged three of their domestically based multinationalsâ Siemens, CII-Honeywell-Bull, and Philipâto organize a joint marketing venture called Unidata to aggregate a Europewide market for their computers. It soon fell apart when the Dutch withdrew and the French consortium encountered hard times. Commercial marriages made through political efforts are vulnerable to failure if the natural forces of business motivation are weak or absent. A second source of conflict is the inevitable political perception that any strategy that increases economic dependence on foreign enterprises and their governments necessarily reflects a diminution of control over
NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 252 INTERDEPENDENT WORLD ECONOMY the nation's destiny. There are plenty of signs of increasing U.S. sensitivity to dependence on foreign suppliers. Indeed, the defense market in the United States has tended to remain a highly protected market through buy-American laws and other policy interventions to ensure that U.S. military capability is based primarily on a domestic industrial base, even at high incremental cost. This is especially evident, for example, in shipbuilding. Overall, however, Americans are still much less sensitive to the political burden of an ever-increasing dependence on wade for national survival. Europeans and Japanese have lived with this reality for a very long time. We will learn to live with it too as our dependence grows. It is to be hoped that when our dependence equals theirs, our government's chauvinism in dealing with foreign enterprises is no worse than theirs. Third, all governments must deal with the realities of employment, inflation, and growth, and also with public perceptions of the nation's ability to improve its prospects. In most democracies those public perceptions, as amplified by the media, are the politically relevant measure of the effectiveness of government policies. Indeed, the more severe the challenges of unemployment and inflation, the more conspicuous is the public concern about foreign dependence and control. Everyday policies are often pragmatic, designed to encourage both foreign and domestically owned enterprises to invest and expand the economy. But structural economic change is hard to measure objectively; the perception of change may be politically much more salient than the reality. Thus, most governments give great political weight to the significance of domestic ownership of national enterprises. When acting in the public view, government officials may favor a domestically owned company that imports goods of foreign manufacture over a transnational firm's local subsidiary, even though it employs thousands of people; invests heavily in training, research, and development; and contributes more to national economic performance and the balance of wade than the domestic firm. Local ownership is, therefore, a symbol of national self-sufficiency, but it is often a poor criterion for economic development policy. Fourth, conflict can arise when governments, including that of the United States, assert the right to extend national sovereignty to domestic firms' subsidiaries on foreign sod and thereby exacerbate nationalistic political reactions. IBM's ability to market its largest computers to French government agencies is still adversely affected by French memories of the U.S. government's refusal to license large IBM computers to the French atomic energy authority as a point of pressure on Charles de Gaulle over French nuclear policy. These old memories have been revived by current processes for licensing large vector processors to Western Europe. The Caterpillar Tractor Company has only recently recovered from the dis
NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 253 INTERDEPENDENT WORLD ECONOMY ruption of its European business by the U.S. government's intervention in contract compliance on the Europe-USSR pipeline. In the meantime, Japanese competitors have greatly increased their market share in this business sector. Finally, political leaders of countries experiencing economic difficulties, or nurturing nascent industries, may also discriminate against foreign investment even when it builds local infrastructure, reduces unemployment, and helps solve serious balance-of-trade problems. National subsidiaries, in response, attempt to demonstrate in every way they can that they are, in fact, national companies and make positive contributions to national well-being. The more enlightened companies recruit and train nationals to manage and staff their local subsidiaries. They work hard to integrate the subsidiary into the social, economic, and technical life of the community. Yet, they too must balance this emphasis on national identity with the extranational interests of the enterprise of which they are a part. They are often tom between the imperatives of a global strategy and the perceived priorities of local national economic development. NEW TECHNOLOGICAL STRATEGIES Companies as wen as governments share an increasingly complex task. The world is evolving from a loosely coupled set of independent nation-states to a highly complex world economy whose institutions of extra-and international sovereignty are still undeveloped, and in which national boundaries are often a poor fit to more natural economic regions. Reflecting their awareness of these political realities, managements of both transnational companies and governments pursue technological strategies that are designed in part to reinforce perceptions that are important to them. Companies, for example, try to locate their manufacturing facilities to minimize negative balance-of-trade impacts and to demonstrate a significant contribution to national technological capability. Nations, alone or in regional concert, embark on highly visible technology projects in the hope of stimulating industrial collaboration, building consensus around long-term, technology- intensive industrial strategies. The long series of 10-year projects sponsored by the Ministry of International Trade and Industry (M) in Japan, perhaps the best-known recent example of such a long-term industrial strategy, stimulated much of the enthusiasm for Europe's response in similar vein. Conditions in culturally homogeneous Japan, however, are much more propitious for cooperative technology ventures on a national scale than the conditions for regional cooperation in Europe. In addition, many people exaggerate
NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 254 INTERDEPENDENT WORLD ECONOMY the importance of technical projects supported by MITI, which are more a symptom of a nationally concerted strategy for capturing a larger share of world markets in selected industries than the source of that trade success. Nevertheless, there is no doubt that, even though some of the MITI programs (such as Pattern Information Processing Systems, or PIPS) are not regarded as successful by many, the Japanese government does direct a substantial mount of funding into carefully selected, commercial technologies of perceived future importance. In most programs, although surprisingly not in its current artificial intelligence program at the Institute for New Generation Computer Technology (ICOT), the government gives strong emphasis to field trials and applications research to test market acceptance. In Europe, the EEC sponsors the European Strategic Program for Research and Development in Information Technology (ESPRIT), which includes a large number of relatively small research-oriented projects at the precompetitive level. The most commercially important of these projects is probably the collaboration between Siemens and Philips in submicron integrated circuit technology. IBM does participate in ESPRIT. After careful and protracted negotiations, the IBM Europe/Middle East/Africa Corporation was allowed to submit proposals, two of which have been accepted and are under way. One, for example, deals with the application of artificial intelligence techniques to computer-integrated manufacturing. The breadth of participation in ESPRIT is probably due primarily to the availability of EEC funds, representing ''new money'' that is less subject to parochial national interests than the funds of national governments would have been and also the precompetitive nature of the projects. A second EEC program, called RACE (Research in Advanced Communications in Europe), funds cooperative projects in digital telecommunications, anticipating the broad-band, integrated voice and data networks of the future. In this case, transnational companies share with the EEC the hope that the RACE project will put pressure on the national post, telephone, and telecommunications authorities to adopt more ambitious and compatible technical goals. The balkanization of the telecommunications infrastructure of Europe is a significant handicap, to both technological and economic modernization. Whether a set of cooperative technology projects such as RACE can achieve this result is, of course, an open question, but in this case national, EEC, and company interestsâboth European and foreign basedâ strongly coincide. Another example is the Community in Education and Training for Technology (COMETT) program, in which advanced satellite-based industrial education experience will be shared. IBM is willing to make an important contribution to COMETT, and it is highly likely that this will be welcomed.
NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 255 INTERDEPENDENT WORLD ECONOMY In the United States, government-initiated projects to promote commercial strategies may have their origin in response to military R&D initiatives. As noted earlier, in 1985 the United States put considerable political pressure on European governments to participate in the vastly expensive and ambitious research and technology development for the SDI. The European reaction, especially in France, was to accept the proposition that spin-off technology from SDI might give them commercial advantage in the future (or at least prevent them from experiencing a further commercial disadvantage relative to the United States), yet to fear that U.S. export controls would be used later to limit European freedom to use the technology commercially if they did participate. President Mitterand's response was to launch the European technology cooperation program called EUREKA, whose projects are chosen for their commercial, not military, value and unlike ESPRIT are not limited to precompetitive research. European governments have embraced EUREKA in principle and officially regard it as "complementary" to the EEC's "Technology Community" proposal. Like EUREKA and ESPRIT, the Technology Community proposal focuses on the set of technologies that all countries generally regard as strategic: informatics, biotechnology, advanced materials, automation, telecommunications, lasers, and educational technologies. A mechanism is in place for selecting EUREKA projects, and 26 have been selected. But there is no reserved funding at the EEC or intergovernmental level for EUREKA projects. They are referred back to national governments for possible support. Thus, it is not surprising that private enthusiasm for EUREKA does not match the political support it enjoys in public, indicating that private assessment of the commercial benefits is considerably less optimistic than the public assessment. Nevertheless, there is a broad movement, in Europe and Japan especially, to put high on the political as well as the business agenda the quest for what Hubert Curien, French Minister of Research and Technology, called the "technical renaissance of Europe." The leaders of companies and governments alike must surely welcome this new priority, even as they debate what forms of public action will produce the desired results. Since such highly visible national or multilateral projects require the participation of commercial firms across national lines, difficulties do arise at this juncture. Firms, like governments, appreciate the symbolic importance of technological success, for they too have a vital interest in public perceptions. But firms measure the results of their investments by more conservative criteria than do governments: high expectation of a contribution to competitive success. Thus, the prevailing pattern is that firms publicly support the goals of
NATIONAL AND CORPORATE TECHNOLOGY STRATEGIES IN AN 256 INTERDEPENDENT WORLD ECONOMY the government projects and will generally seek to participate, especially if their competitors do. The projects are generally not only "preproprietary" but are smaller than mainstream corporate projects. The occasionally much larger projects are sometimes joint ventures already under negotiation among private firms. Both transnational companies and governments must manage the balance between national activities and 'international interdependences. A company's subsidiaries in different countries are 1, not competing, with each other. The company has an incentive to build its technical strategy on the totality of its worldwide capability. A government more typically regards the national economy in competition with all others, and its leaders seek to optimize the economic advantages of their electorates, independent of the others. A problem here is that "economic advantage" tends to be defined as benefits to producers rather than to consumers, who are much less well organized to protect and register their interests. It is not at all clear that, even in the narrowest terms, the quality of life of electorates overall is improved by nationalistic strategies. Of course, since national subsidiaries work hard at earning acceptance as national entities, they too share national economic aspirations, and their political views may well be in full accord with their governments'. In most regions of the world, both political and economic realities are forcing nations to make common cause at least regionally, and the European Common Market is the most conspicuous example. Thus, the tensions between self-sufficiency and interdependence, between nationalism and global development, between technology for profit and technology for investment in public perception, between strategies seeking market access and political acceptance and strategies optimizing near-term total business performance, will continue. Eventually, the international diffusion of culture and ethnicity, and the imperatives of global interdependence, will begin to relieve these stresses and soften the more strident nationalistic trends. But it will take a long time. Meanwhile, we must work toward trade policies, international technological exchange, and international cooperation that is based more on economic realities that nations and companies face than on time- honored symbols of sovereignty that may not accord with anyone's long-term national interest.
