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- Staying globally competitive
The power of global strategies is illustrated here by the histories of three companies one American, one European, and one Japanese that have what the authors think it takes to win the new competitive game. These case studies should help managers decide whether a global strategy is appropriate for their companies. Hold that obituary on American manufacturers.
Some not only refuse to die but even dominate their businesses worldwide. At the same time Ford struggles to keep up with Toyota, Caterpillar thrives in competition with another Japanese powerhouse, Komatsu. American forklift truck producers may retreat under Japanese pressure, but two U. How do these American producers hold and even increase profitability against international competitors?
By forging integrated, global strategies to exploit their potential; and by having a long-term outlook, investing aggressively, and managing factories carefully. To succeed, an international company may need to change from a multidomestic competitor, which allows individual subsidiaries to compete independently in different domestic markets, to a global organization, which pits its entire worldwide system of product and market position against the competition. The nature of international competition among multinationals has shifted in a number of industries.
Multinational generally denotes a company with significant operations and market interests outside its home country. The universe of these companies is large and varied, encompassing different kinds of organizations operating in different types of industries. From a strategic point of view, however, there are two types of industries in which multinationals compete: multidomestic and global. They differ in their economics and requirements for success. In multidomestic industries a company pursues separate strategies in each of its foreign markets while viewing the competitive challenge independently from market to market.
Each overseas subsidiary is strategically independent, with essentially autonomous operations. But strategy and operations are decentralized. Each subsidiary is a profit center and expected to contribute earnings and growth commensurate with market opportunity. In short, the company competes with other multinationals and local competitors on a market-by-market basis. A large number of successful U. Various country subsidiaries are highly interdependent in terms of operations and strategy.
A country subsidiary may specialize in manufacturing only part of its product line, exchanging products with others in the system. A company may set prices in one country to have an intended effect in another. In a global business, management competes worldwide against a small number of other multinationals in the world market. Strategy is centralized, and various aspects of operations are decentralized or centralized as economics and effectiveness dictate. The company seeks to respond to particular local market needs, while avoiding a compromise of efficiency of the overall global system.
A large number of U. Among them, along with their principal competitors, are: Caterpillar and Komatsu in large construction equipment; Timex, Seiko, and Citizen in watches; General Electric, Siemens, and Mitsubishi in heavy electrical equipment. The multidomestic and global labels apply to distinct industries and industry segments, not necessarily to whole industry groups. For example, within the electrical equipment industry, heavy apparatus such as steam turbine generators and large electric motors is typically global while low-voltage building controls and electrical fittings are multidomestic in nature.
Its main objective is to improve its own effectiveness while eroding that of its competitors. Not all companies can or should forge a global strategy. While the rewards of competing globally are great, so are the risks. Major policy and operating changes are required. Competing globally demands a number of unconventional approaches to managing a multinational business to sometimes allow:.
Not all international businesses lend themselves to global competition. Many are multidomestic in nature and are likely to remain so, competing on a domestic-market-by-domestic-market basis. Typically these businesses have products that differ greatly among country markets and have high transportation costs, or their industries lack sufficient scale economies to yield the global competitors a significant competitive edge.
A careful examination of the economies of the business will highlight its ripeness for global competition. Identifying potential economies of scale requires considerable insight. Advantages to increased volume may come not only from larger production plants or runs but also from more efficient logistics networks or higher volume distribution networks. Transport is a relatively small portion of highly traded optical goods, for example, while it is a barrier in trading steel reinforcing bars. Many businesses will not be able to take the global step precisely because their industries lack these characteristics.
Products may differ significantly across country boundaries, or the industry may emphasize distribution, installation, and other local activities. Lead times may be short, as in fashion-oriented businesses and in many service businesses, including printing. Also, transportation costs and government barriers to trade may be high, and distribution may be fragmented and hard to penetrate.
Many consumer nondurable businesses or low-technology assembly companies fall into this category, as do many heavy raw-material processing industries and wholesaling and service businesses. Our investigation into the strategies of successful global companies leads us to believe that a large group of international companies have global potential, even though they may not know it. Almost every industry that is now global—automobiles and TV sets, for example—was not at one time.
A company must see the potential for changing competitive interaction in its favor to trigger a shift from multidomestic to global competition. And because there is no guarantee that the business can become global, the company must be willing to risk the heavy investment that global competition requires. A company that recognizes its business as potentially global but not yet so must ask itself whether it can innovate effectively and must understand its impact on the competition to find the best answers to these three questions:. These organizations American, European, and Japanese exemplify the global competitor.
They all perceive competition as global and formulate strategy on an integrated, worldwide basis. Each has developed a strategic innovation to change the rules of the competitive game in its particular industry. The innovation acts as a lever to support the development of an integrated global system but demands a market position strong enough to implement it. Finally, the three companies have executed their strategies more aggressively and effectively than their competitors. All three have the financial resources and commitment needed to compete unconventionally and the organizational structure to manage an integrated system.
We will take a careful look at each of these three and how they developed the strategic innovation that led, on the one hand, to the globalization of their industries and, on the other, to their own phenomenal success. Caterpillar Tractor Company turned large-scale construction equipment into a global business and achieved world leadership in that business even when faced with an able Japanese competitor.
This accomplishment was difficult for a variety of reasons. For one thing, specifications of construction equipment varied widely across countries. Also, machines are expensive to transport, and field distribution—including user financing, spare parts inventories, and repair facilities—is demanding and best managed locally. Navy Seabees who left their Caterpillar equipment in other countries following World War II planted the seeds of globalization. The company established independent dealerships to service these fleets, and this base of units provided a highly profitable flow of revenue from spare parts, which paid for inventorying new units.
The Caterpillar dealers quickly became self-sustaining and to this day are larger, better financed, and do a more profitable parts business than their competitors. The company used its worldwide production scale to create its other barrier. Two-thirds of the total product cost of construction equipment is in heavy components—engines, axles, transmissions, and hydraulics—whose manufacturing costs are capital intensive and highly sensitive to economies of scale.
Caterpillar turned its network of sales in different countries into a cost advantage by designing product lines that use identical components and by investing heavily in a few large-scale, state-of-the-art component manufacturing facilities to fill worldwide demand. The company then augmented the centralized production with assembly plants in each of its major markets—Europe, Japan, Brazil, Australia, and so on.
At these plants Cat added local product features, avoiding the high transportation cost of end products. Most important, Cat became a direct participant in local economies. The company achieved lower costs without sacrificing local product flexibility and became a friend rather than a threat to local governments. The most recent—and greatest—challenge to Caterpillar has come from Komatsu see Exhibit I for a financial comparison.
Caterpillar has maintained its position against Komatsu and gained world share. The company has fostered the development of four characteristics essential to defending a leading world position against a determined competitor. Komatsu simply plays catch-up ball rather than pulling ahead. Facing a competitor that has consciously devised a global strategy, Komatsu is in a much weaker position than were Japanese TV and automobile manufacturers when they took off.
Caterpillar is the only Western company that matches Komatsu in capital spending per employee; in fact, its overall capital spending is more than three times that of the Japanese company. Caterpillar does not divert resources into other businesses or dissipate the financial advantage against Komatsu by paying out excessive dividends.
Operationally, the venture serves the Japanese market. Strategically, it acts as a check on the market share and cash flow of Komatsu. Japanese tax records indicate that the Cat-Mitsubishi joint venture has earned only modest profits, but it is of great strategic value to Caterpillar. Ericsson of Sweden has become a successful global competitor by developing and exploiting a technological niche. Most major international telephone-equipment producers operated first in large, protected home markets that allowed the most efficient economies of scale.
In the electromechanical era of the s, the telephone switching equipment business was hardly global. Switching systems combine hardware and software. In the late s, major international companies including Ericsson responded by moving electro-switching production to LDCs not only to take advantage of cheaper labor but also to respond to the desire of government telephone companies to source locally. Eventually, each parent company centrally sourced only the core software and critical components and competed on a domestic-market-by-domestic-market basis.
For its part, Ericsson concentrated investment in developing countries without colonial ties to Europe and in smaller European markets that lacked national suppliers and that used the same switching systems as the Swedish market. The telecommunications industry became global when, in the s, electronic switching technology emerged, radically shifting cost structures and threatening the market position Ericsson had carved for itself.
In addition, the move to electronics promised to destroy the long-standing relationships Ericsson enjoyed with smaller government telephone companies.
And it appeared that individual electronic switching systems would require a large fixed-cost software investment for each country, making the new technology too expensive for the smaller telephone systems, on which Ericsson thrived. Ericsson knew that the electronic technology would eventually be adapted to small systems.
In the meantime, it faced the possibility of losing its position in smaller markets because of its inability to meet the ante for the new global competition. The company responded with a preemptive strategic innovation—a modular technology that introduced electronics to small telephone systems. The company developed a series of modular software packages that could be used in different combinations to meet the needs of diverse telephone systems at an acceptable cost.
Moreover, each successive system required fewer new modules. As Exhibit II shows, the first system—Sodertalje in Sweden—required all new modules, but by the third year, the Abo system in Finland required none at all. Thus the company rapidly amortized development costs and enjoyed economies of scale that steepened as the number of software systems sold increased. As a result, Ericsson was able to compete globally in small systems.
The company now enjoys an advantage in software cost and variety that continually reinforces itself. Through this technology Ericsson has raised a significant entry barrier against other companies in the small-system market. Before Honda became a global company, two distinct motorcycle industries existed in the world.
In Asia and other developing countries, large numbers of people rode small, simple motorcycles to work. In Europe and America, smaller numbers of people drove big, elaborate machines for play. Since the Asian motorcycle was popular as an inexpensive means of transportation, companies competed on the basis of price.
In the West, manufacturers used styling and brand image to differentiate their products. No Western market exceeded , units; wide product lines and small volumes meant slight opportunities for economies of scale. Honda made its industry global by convincing middle-class Americans that riding motorcycles could be fun. The company then turned its attention to Europe, with a similar outcome. Honda invested for seven full years before sustaining profitability in Europe, financing this global effort with cash flows earned from a leading market position at home and in the United States.
First, Honda turned market preference around to the characteristics of its own products and away from those of American and European competitors. Honda targeted new consumers and used advertising, promotions, and trade shows to convince them that its motorbikes were inexpensive, reliable, and easy to use. A large investment in the distribution network—2, dealerships, retail missionaries, generous warranty and service support, and quick spare-parts availability—backed up the marketing message.
Second, Honda sustained growth by enticing customers with the upper levels of its product line. Nearly half of new bike owners purchased larger, more expensive models within 12 months. Governments everywhere have been sharply boosting investments in research and development, pushing universities and national laboratories to commercialize technology, building incubators and prototyping facilities for start-ups, amassing early-stage investment funds, and reforming tax codes and patent laws to encourage high-tech entrepreneurialism.
Underlying this trend is an emerging understanding of what makes a nation globally competitive. Carl J. Dahlman of Georgetown University notes that economists traditionally have viewed competitiveness as a function of factors such as capital, the costs of labor and other inputs, and the general business climate.
In a more dynamic world in which information technology and communications enable knowledge to be created and disseminated at evergreater speeds, competitiveness increasingly is based on the ability to keep pace with rapid technological and organizational advances. The innovation agendas and precise policies differ from country to country, based on national needs and aspirations.
In some cases, governments are implementing policies modeled after those of the United States. In others, they are borrowing from successful models pioneered in Europe and East Asia that leaders regard as more attuned to the competitive realities of the 21 st century global economy. This section presents a number of case studies from those symposia and our research.
While it is of course difficult to generalize, a number of common policy themes recurred through this extensive dialogue. They include:. Such national strategies require attention of top political leadership, coordination of government agencies, sustained funding, and collaboration with stakeholders at the regional and local level. This chapter will describe how different nations studied by the STEP Board are addressing these and other issues.
The chapter describes the innovation policy approaches of nations at three tiers of development. In the first tier are the emerging economic powers. We looked at China and India in some depth. Both nations have charted ambitious innovation agendas for improving living standards and moving well beyond labor-intensive manufacturing and low-skill services to high-tech and knowledge-intensive industries.
They are leveraging their large domestic markets and low-cost workforces to attract foreign investment in next-tier industries and are developing globally competitive corporations. They also are making strategic choices about technologies that address domestic needs and in which they are best positioned to compete globally in the future. In the second tier are the more mature newly industrialized economies.
We focus on Singapore and Taiwan, which have extraordinarily well-educated populations and have attained world standards in industries such as high-tech electronics, biotechnology research, and chemicals. The third tier represents mature industrialized nations. In most cases, it is too early to offer a full assessment of whether the strategies and policy tools selected by other nations will achieve their stated targets.
Yet they offer many valuable lessons for U. China has emerged as a major exporter of everything from solar cells to high-end telecommunications equipment and has accelerated the construction of high-speed trains. That commitment continues to grow. Growth rate from to The U. When it comes to creating truly innovative products, however, China still is regarded as an underachiever.
China plays a critical role in low- and select high-tech industry production and logistics chains, but it cannot yet replicate these processes domestically. But these investments in themselves do not mean that China will become a leading innovator in the near term. In particular, there is a general lack of openness and transparency in funding decisions, which negatively affects the ability of China to recruit first-rate scientists.
As a result, the quality and quantity of cutting-edge basic research is still small compared to that of the United States. China has seen a sharp increase in patents and published papers, but few have commercial relevance. Washington, DC: World Bank, , pages Programs that focus on acquiring new and established technologies can help develop the technological competitiveness of the Chinese economy and provide the opportunity for commercial success, first within China and next in export markets, thus laying the foundation for steadily higher levels of commercial application of advanced technologies.
To address these challenges to its innovation system, the World Bank recommends that China concentrate on raising the technical and cognitive skills of its university graduates, building a few world-class research universities with links to industry, increasing the availability of patient risk capital for start-ups, and fostering clusters that bring together dynamic companies and universities and allow them to interact without restriction.
PTO and scientific and technical journal articles. The strategy is embodied in The National Medium and Long-Term Program for Science and Technology Development, , a document drafted over two years and that received input from some 2, experts. Although the stated goal is to achieve an innovation-driven economy led by market forces and enterprises, the technology drive is built around large state-led projects.
Also see U. Economy, Investigation No. Although the strategy acknowledges that China needs multinational investment and greater international collaboration, it is intends to extract technology from foreign companies to create domestic champions that will eventually compete directly against them. Nevertheless, there is little question China has the raw potential—and certainly the determination—to emerge as a 21 st century innovation power.
As of , China had 27 million post-secondary students, compared to 18 million in the U. China has extraordinarily high savings and investment rates of around 40 percent of GDP, double the rate of most other nations. Data comparison based on current U. China re-entered the global economy in the late s with a scientific establishment, higher education system, and industrial base that had been crippled by nearly three decades of chaotic rule under Mao Zedong.
After its victory in , the Communist Party implemented Soviet-style central planning. Private industrialists fled to Hong Kong and Taiwan, and state took control of the factories left behind. Scientists and academics were purged in an antirightist campaign and again during the Cultural Revolution from to , when educated Chinese were banished to manual work in the countryside and universities were shut to virtually all but workers, farmers, and soldiers. That year period cost China a generation of top scientists and engineers whose absence is still felt.
As the demographic bulge ages, the numbers of those in their early 20s, who are usually the best educated and most productive members of society, will have halved. The apparently endless stream of cheap labour is starting to run dry. Despite pools of underemployed country-dwellers, China already faces shortages of manual workers.
As the workforce starts to shrink after , these problems will worsen. The Chinese Academy of Sciences assumed control of basic research. Applied research was the responsibility of thousands of research institutes controlled by central ministries and provincial governments, while state enterprises developed products.
Universities focused on human resource development. Universities once again admitted students based on. The government also shifted much of the implementation of its policies from central ministries to local and provincial authorities. The first wave of reforms in the s included restructuring and gradual funding cuts of state-run research institutes. Instead, more research funds instead were allocated to specific projects through a competitive process.
Organizational changes also encouraged different research organizations to establish horizontal linkages and encourage scientists and engineers to become entrepreneurs. The leadership launched a series of reforms to decentralize, depoliticize, and diversify the higher education system in Provincial and. Howell in Innovation Policies for the 21 st Century, op.
Other fields, such as telecommunications and marine technology, were added in subsequent five-year plans. Universities also were encouraged to become more commercially viable, compete for faculty and research funding, and cooperate with industry and government. Hundreds of universities were merged and restructured, and the number administered by central government ministries dropped from to The CAS hired hundreds of overseas Chinese scientists and consolidated its institutes into Coordinated by the Ministry of Science and Technology—which leads development of science policy and overseas many national funding programs to implement projects—and the Chinese Academy of Sciences, the government launched a two-year project to draft a new national strategy for science and technology.
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The year plan addresses framework conditions for a national innovation system, such as the need to put enterprises at the center of innovation, policy support for venture capital, improving protection of intellectual property rights, and investments in infrastructure, human resource development, and promoting public understanding of an innovative culture. The megaprojects include extra large-scale semiconductor manufacturing, next-generation wireless broadband, advanced nuclear reactors, control of AIDS and hepatitis, and large aircraft manufacturing.
They include year tax holidays for production plants, exemption from sales tax income earned through technology transferred via foreign investment, low cost or free land, direct equity stakes by government investors, and procurement regulations that favor domestic production.
TABLE 5. A Chinese version of the decree, Guo-Fa No. The cost of capital is another advantage for Chinese manufacturers. Some government aid to industry has led to friction with trade partners. In December , for example, the U. Huawei and ZTE denied those allegations. Surging Chinese exports of solar panels also have triggered trade disputes. Seven U. Chinese manufacturers deny the charges. Wessner, ed. The year plan and other Chinese statements on rules and regulations have heightened fears by foreign companies that the strategy is to reverseengineer and forcibly extract technology from multinationals as a price for the privilege of selling their products in China.
Few foreign products were on the lists. The indigenous innovation goals also are embedded in Chinese technology standards, anti-monopoly law, patent rules, and tax regulations, according to the U. International Trade Commission. Deng of the State Council Research Office noted that in the global supply manufacturing chain, China produces mainly low- and mediumlevel goods.
The core technology and crucial equipment is not made in China. Xue said a classic example is the Apple iPhone, which is assembled in China by the Taiwanese contract manufacturer Foxconn. A study by the Asian Development Bank noted that the iPhone, although invented and designed in the U. The rest came from imported materials. By , Chinese wages will be one-quarter of those in the U. Once higher U. Renewable energy is an especially high priority.
Currently, the nation relies almost entirely on fossil fuels, especially coal, to generate electricity. Development and Reform Commission. Government also is helping build domestic markets for domestic solar and wind power, energy-efficient solid-state lighting, and electrified vehicles industries through government purchases and generous incentives for consumers.
Information and communications technologies ICT also are strategically important, not only as promising Chinese growth industries in themselves but also as a means for modernizing the economy. China is becoming a global power in ICT manufacturing and an increasingly important market. China has million cell phone and million Internet users. China views broadband as a catalyst for new growth industries such as software, logistical services, information technology outsourcing, and a wide range of digital devices.
Government targets call for 30 percent annual growth for software and information services industry and 28 percent annual growth in software exports. Compared to appliedresearch institutes of nations and regions such as Germany, Taiwan, and Finland, the majority of those in China are regarded as having relatively weak linkages with private industry. Reforms since the s, however, have turned several institutes into effective organizations for developing industrial technologies and transferring them to a wide range of enterprises.
Institutes were given several options to cope with funding cuts. They could become the technology-development arms of state enterprises, become contract research organizations for government and industry, or go into business themselves. But it had little experience with marketing, mass production, finance, and entrepreneurship. In , central level research institutes under 10 industry bureaus were transferred into enterprises.
Local governments transferred another 5, Chinese companies and have earned more than 13, patents between and CISRI is regarded as a success story. The relative role of government institutes in the national innovation system has declined, however. Their staffs also have declined. Many state institutes still tend to focus on patents and publishing papers, however, rather than on disseminating technology to industry.
Improving these linkages is a strong government priority. Since , institutes have joined more than 40 strategic alliances with industry in areas such as clean coal and solid-state lighting. Between and , the percentage of Chinese aged 18 to 22 with a college education rose from 2 percent to 23 percent. Research funding for Chinese universities has been rising around 20 percent a year, with nearly 40 percent of that now coming from industry. Universities are in charge of some 80 percent of National Science Foundation research programs and 40 percent of national hightechnology research-and-development programs.
They also operate 76 science parks. Universities produce more than one-third of Chinese patents for inventions and 60 percent of published science and engineering papers. Universities also operate 76 science parks in China. Launched in , TusPark has a building campus in Beijing with companies and 30, employees. There also are innovative local companies—more than half of them established by returnees from overseas.
Compared to universities in the U. Some scientists blame a research funding system that puts too little emphasis on independent peer review. Chinese universities also have a long way to go to reach world standards. The highest is Peking University at No.
China has launched a number of campaigns to improve this status. Project , introduced in , seeks to make universities among the best in the world. Central and local governments also are supplying funds for universities to recruit star faculty and establish endowed chairs. A distinguished young scholar program provides cash awards to promising young scientists. The Ministry of Personnel administers a program to identify promising scientists on the frontier of international research, 1, leaders of advanced research projects, and 10, leaders for academic disciplines.
When it comes to starting companies, one unorthodox aspect of Chinese universities is their propensity to retain ownership or management control. While Chinese universities have spun off 3, enterprises, they run or own another 3, enterprises. The majority of firms run and owned by universities are not engaged in science and technology. Zhou said the large scale, number, and management challenges at university-run enterprises remain. According to Chinese statistics, enterprises are the chief drivers of innovation in China.
These investments have enabled China to rapidly become a major global force in a range of advanced industries. Despite all of that activity, however, corporate China can boast few breakthrough products or technologies with the notable exception of internet based e-ecommerce and social network sites, such as dynamic e-commerce and social network sites such as Tencent, Alibaba, and Baidu.
Although China is a leader in some areas of cancer research and genomics, Chinese pharmaceutical companies have marketed few medicines globally except for traditional remedies. China is a leading producer of lithium-ion batteries, but they use decades-old chemistries. China is developing its own narrow-body jet to compete with Boeing and Airbus, but the core systems come from foreign aerospace firms and the body is based on a s design by McDonnell Douglas. China is one of the leading exporters of solar cells and modules, but they use mature polycrystalline silicon technologies.
They have the technology they believe they can scale globally, but if they try to compete on a level playing field they will have problems. See Cell Research published online on 16 April NB: Names and affiliations of this and other interviewees have been withheld pending permission. This does not mean Chinese companies are not making rapid progress in innovation.
One example is data communications equipment. Major research areas include cloud computing and wireless technology beyond 4G. Of the million units it expects to ship in , 18 percent are expected to be smart phones. As a result, it wants to market its. Market pressures are a much bigger pressure to innovate than government directives.
We look at the market for next year. I just encourage my designers to do fashionable designs. The multinational research centers cover a vast range of innovation themes.enter site
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One hindrance to corporate innovation, in the eyes of some analysts, is the growing domination of state-owned and —supported companies at the expense of smaller, privately held enterprises. They also generate 30 percent more output than state-owned enterprises with the same amount of capital, labor, and materials, according to Renmin University economist Dawei Cheng.
The typical small Chinese enterprise receives only around 10 percent of its working capital from banks, compared to around 40 percent in South Korea and Thailand. June Westerners tend to equate innovation with creative ideas and gamechanging goods and services. Innovation as generally practiced in China is more modest.
The Chinese government actually uses several definitions of innovation. However, increasingly China has simply stressed the need to develop and to favor in procurement Chinese-owned IP, incorporated in products made by Chinese-owned companies. President Hu Jintao has committed to treat foreign invested enterprises in China as being Chinese for purposes of future procurement. This has not yet translated into complete national treatment at every level of the Chinese government. As a result, they are under little pressure to generate profits and can amass cash.
The average tax burden of state-owned enterprises was just 10 percent, compared to as much as 24 percent for private enterprise, according to the Unirule Institute of Economics, a non-government Chinese think tank. State-owned companies also pay real interest rates of just 0. Yet when low taxes, finance costs, and other special advantages are accounted for, the average real return on equity of state-owned enterprises over that period was negative 6.
Such operations continue to grow. The center files around patents a year. Another researchers are in centers in Beijing and Wuxi. Another in Chengdu is devoted to rural health care and oil and gas, while one in Shenyang works on manufacturing technology and energy. Innovations originally for the China market, however, increasingly make their way into products sold around the world. GE Healthcare is one success story. Two-thirds of the equipment now is sold in other emerging markets and even in the U.
Some Chinese research operations are starting to serve the global needs of U. At the IBM Research facility, opened in , has grown to researchers. Virtually all work on global projects. The experienced ones are really shining, doing extremely well in patents and. It also has joint laboratories and technology centers with Chinese universities and offers curricula that have helped trained , Chinese students and 6, teachers. Since it was established, the lab has published more than 3, papers in top international journals and conferences and contributed innovations used in products such as Windows 7, Office , Xbox, and Windows Mobile.
In China, he said, Microsoft can recruit from among , computer science graduates a year, about 20 percent of whom are on par with the best in the U. One challenge is that multinationals no longer are the preferred employers of new Chinese graduates, foreign executives said. Several multinationals also said they are losing considerable numbers of seasoned talent to Chinese state-owned enterprises or private Chinese companies willing to double and even triple their salaries, offer senior positions, and provide housing.
American companies interviewed in China cited mounting pressures to transfer core technology and discrimination against foreign companies for contracts as their most serious concerns. The government, which has not signed. World Trade Organization protocols on government procurement, essentially compels foreign makers of a wide range of advanced products to manufacture in China and transfer technology to domestic companies. Companies said that such concerns have intensified in recent years. Although China is a major exporter of solar modules to Europe and the U.
Forcier of A Systems in Building the U. Battery Industry for Electric-Drive Vehicles. Noellert, Gregory Hume, Alan Wm. In response to high-level complaints by foreign governments, Chinese leaders in sought to allay major concerns. Chinese officials have sought to assure multinationals in private meetings as well. An executive of one U. The executive said his company felt no more discrimination selling products in China than in other nations, such as India, and that it has a fair opportunity to provide input on formation of standards.
The MOST official also for the first time discussed ways in which foreign companies could participate in national government-funded research projects, an opportunity many multinationals have long sought. Other American business people based in China, however, said they remain under pressure to transfer core technology to Chinese companies, either to joint ventures or through licenses.
MOST is regarded as the most dogmatic about enforcing indigenous innovation rules because it spearheads the drive to advance domestic industries. State-owned industrial companies, meanwhile, tend to be strong advocates of indigenous innovation policies in order to protect their domestic franchises. Private Chinese companies mainly care about being able to buy the best products. The type of foreign business also makes a difference, these executives said.
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Companies selling expensive high-tech hardware and core components in high-priority Chinese industries are under the most pressure to transfer technology, they said. Companies that offer critical services as well as hardware are under the less pressure as long as most of their products are made in China. Despite these disputes and the indigenous innovation policy, there are substantial opportunities for scientific and technological collaboration between China and the U. At a government-to-government level, the U. In energy research and.
Cooperation through universities is also growing. The University of Maryland, for example, has an extensive relationship with China. In , the Chinese government and Maryland set up a joint research park near campus that now houses facilities of companies from Beijing, Shanghai, and Guangzhou. As Caroline Wagner has pointed out, the growth of such networks creates unprecedented opportunities for cooperation in science to address shared challenges in areas such as energy and health.
A wide-ranging Sino-U. The Sino-U. New cancer cases in the U. China has immensely valuable data on cancer cases and the largest talent pool of microbiologists, many of them U. China also is a leader in genomics research; its researchers were among the first to identify the SARS genome. The National Cancer Institute is working with Chinese institutes on an ambitious project to sequence genomes of all cancers. While China needs international cooperation, however, Mr. Deng of the State Council Research Office stressed that it still must develop its internal capabilities.
There are a lot of problems that can be solved only with international cooperation. The nation has all of the potential to become a leading force in innovation as well. Whether China is on track to achieving its desire to become a giant engine of innovation is less clear. China has yet to show that it can meaningfully use the tools of the state to drive the commercialization of discoveries in research labs in a competitive manner.
In an index of national innovation effectiveness, however, China ranks No. With few exceptions, however, they have yet to prove capable of competing at the leading edge. While there has been an explosion of patents, doubts have arisen over the quality of those patents. The local government practice of paying patent fees for the first several years also is believed to inflate patent applications.
See Zhou and Stembridge, op. That compares to 14, triadic filings from Europe, 14, from the U. A major question is whether a business culture that has focused on scale and market share is ready to shift to a model driven by adding value and creating breakthrough products. Another question is whether state-led policies and programs that try to put national boundaries around intellectual property and curtail foreign competition can succeed in an era when most of the world is moving toward models of open innovation and global cooperation.
To the contrary, some analysts warn, such an approach could ultimately make Chinese industry less competitive. Some Chinese officials agree that fulfilling the high aspirations for innovation will require reform of government institutions and corporate culture. At a time when the U. The question now is whether it can devise the right policy framework for China live up to its potential. For the Indian government, however, the most urgent priorities in science and technology policy have been basic economic development. India is not just focused on improving its capacity to create new products, therefore.
To satisfy the demands of both industry and society, India must dramatically improve its national innovation system. India also has a highly innovative private sector and a number of elite higher-education institutes. Wessner and Sujai J. India invests only around 1 percent of GDP in science and technology. Venture capital is scarce. The talent pool is constrained by the facts that only around 12 percent of college-age Indians are enrolled in higher education, and only 16 percent of Indian manufacturers offer worker training, compared to 42 percent in South Korea and 92 percent in China.
India produces only 6, Ph. Linkages between government research institutions and industry are weak. Goel, Carl Dahlman, and Mark A. India now is undertaking a number of initiatives to transform its innovation system. Years refer to fiscal years. Dutz, and Vinod K. The Five-Year plan calls for a number of new universities and greater collaboration between academia, research institutes, and industry. Prime Minister Manmohan Singh, who has pledged that India will embark on a Decade of Innovation, has launched an ambitious effort to formulate a new national innovation strategy.
The council also calls for programs to promote regional innovation clusters, innovation centers at. India also has several large initiatives to boost its global standing in strategic science and technologies areas. It also has announced plans to establish 50 centers of excellence in science and technology over six years. Centers will include biotechnology, bio-informatics, nano-materials, and high performance computing, and engineering and industrial design. They will offer doctorate programs and be based at existing institutions. India has big ambitions in nanotechnology.
Some 50 to 60 science and technology institutes also are to be involved in building nanotech clusters across the country. In renewable energy, the government announced it aims to quadruple power generation from a range of non-carbon sources to India has sent 55 satellites into orbit since In , the National Remote Sensing Center of the Department of Space launched a Web based, three-dimensional satellite imagery tool called Bhuvban in August to offer images of Indian locations superior to that provided by other Virtual Globe software like Google Earth and Wiki Mapia.
India also has 10 first-rate graduate business schools, and several Indian Institutes of Management. Seats in these schools are extremely scarce, however. The rest greatly need improvement. Indian higher education also suffers from a shortage of qualified senior professors, in large part due to poor salaries.
Partly as a result, India already suffers from acute skill shortages. A study of 25 industrial sectors by the Federation of Indian Chambers of Commerce and Industry in found there is a 25 percent shortage of skilled personnel in engineering. Universities also play a small role in the innovation system compared to those in other countries.
However, the institutes have had few research ties to business, generated few startups, and produce few patents. The constraints on the IITs have included heavy bureaucratic control by the Ministry of Human Resource Development, which some commentators say makes it difficult to respond flexibly to industry needs, expand, and improve their financial base.
IITs depend on the government budgets. Only recently have they been allowed to accept donations directly from alumni abroad. The government is mapping strategies to address all of these shortcomings. It seeks to raise the gross enrollment ratio in higher education, or the number of qualified students who attend, from 11 percent in to 21 percent in That would require 8. To accomplish this, the government increased the education budget increased fivefold in the 11 th Five year Plan for to over the previous five-year plan.
The government has established a National Skill Development Mission that hopes to use public-private partnerships to open 1, new information technology institutes and polytechnics, 10, vocational schools,. The goal is to train 10 million new skilled workers a year. In terms of elite institutions, the government plans to increase the number of Indian Institutes of Technology from nine to sixteen, add five Indian Institutes of Science Education and Research, six Institutes of Management, and 20 Indian Institutes of Informational technology.
The government is starting to overhaul the entire system of science and engineering education, explained former Council of Scientific Industrial Research Director General Ramesh Mashelkar. Yet another initiative involves building interconnections among colleges and universities and to expand their geographic reach. The Indian National Knowledge Network is a government project to build an ultra highspeed broadband network of 10 gigabits and up to connect schools and government agencies across the country.
The first phase is operation with a 2. In a survey of top executives of Indian manufacturers, 71 percent said that the lack of collaboration between industry and research institutes was the main hurdle to innovation in India. The Council of Scientific Industrial Research, which controls 38 national laboratories and many research institutes, began reforms a decade ago to improve their performance and economic. Instead of focusing on many small projects and acting like independent entities, CSIR labs now take on larger, networked projects and collaborate more with each other, according to Dr.
Perfunctory monitoring has given way to stringent monitoring. Rather than being inward-looking, the labs now look outside to harness synergies. Each laboratory now has marketing teams, and senior staff can serve on boards of private firms. CSIR also introduced financial incentives to motivate scientists, and labs have been allowed to put earnings into reserve funds for carrying out additional research.
Patents earned CSIR labs rose from low single digits to more than between and NOTE: Data refer to fiscal years. The company has licensed drug candidates to Eli Lilly and other Western pharmaceutical companies and has new biological entities in clinical testing that are potential treatments for asthma, diabetes, and rheumatoid arthritis.
A leading producer of generic drugs, Piramal has expanded manufacturing in the United Kingdom, Canada, China, and the U. But it also has a large and growing early-stage drug-development arm that partners with multinationals. Engineers based in different nations collaborated around the clock. TACO also established four advanced engineering centers, including one in the U. TACO executive M. The business model, Mr. The Nano car illustrates another distinct feature of Indian-style innovation: The talent for developing business models that can deliver quality goods and services at extremely low prices.
The ministry pays the investment in medical hardware, while hospitals make doctors available. Sibal said. The government is increasing its incentives for research and development by the private sector. The government also trying to bring Indian companies into public-private partnerships aimed at developing new products and tackling national technology needs.
The program provides small grants to high-risk, low-investment technology projects of research institutions in which India has potential to be a global leader. Projects run by companies can get soft loans at 3 percent interest if Indians or non-resident Indians control them. Projects majority-owned by foreigners get loans at 5 percent interest if they manufacture in India. New Millennium projects so far have secured international patents and published articles in journals.
Products include a system for viewing 3D images of complex bio-processes, a low-cost embedded computing platform that can replace conventional personal computers for day-to-day office work, an herbal oral psoriasis treatment that is in clinical testing, and an Internet Protocol service that allows users to get television, Internet, and telephone service over telephone lines.
The program also now includes projects in which industry shares half of costs, that are co-financed with venture capital funds, or that establish innovation centers. Loans can be converted in equity, and foreign companies have greater ability to participate. In most emerging markets, multinationals set up research and product-development operations mainly to serve the needs of the local market.
In India, however, foreign companies have tended to hire top engineering and design talent to help develop products sold around the world. According to one survey, the biggest reason multinationals invest in China is to access new consumer markets and to tap low-cost labor. In India, foreign companies cited new outsourcing opportunities and access to highly skilled labor as the biggest reason they invest there.
General Electric is one multinational that has made Indian talent integral to its global innovation activities. Welch Technology Center employs 2, scientists and engineers. More than 60 percent have advanced degrees and 20 percent with global experience. The 50 acre campus includes state-of-the-art labs for mechanical engineering, electronics, chemical, metallurgy, polymer sciences, new materials, and computer simulation working for GE divisions in everything from health care and energy to aviation and consumer appliances.
In its first five years, the center earned 44 patents. They include breakthroughs in computer-tomography, magnetic resonance products, high-performance plastics for automobiles, and next-generation sensors. Google Finance, which was launched globally, was developed by two researchers in Bangalore. Some studies suggest, however, that the spillovers will have a positive long-term impact as seasoned engineers leave foreign companies and join domestic ones. They have joined international mega-science initiatives such as the Large Hadron Collider at the European Organization for.
Annexure 4. India has also entered collaborations in agricultural research with the U. India has become a closer partner with the United States in recent years. A bilateral agreement called for greater cooperation in civilian uses of nuclear, space, and dual-use technology. What remains to be seen is whether the government mobilize and coordinate central and state agencies, universities, and the private sector to execute its ambitious agenda. An appraisal by the European Commission expressed some skepticism. The report also questioned whether the many discrete programs in areas like telecommunications, information, and pharmaceuticals fit into an overarching framework.
Another critical issue is political sustainability. If such efforts succeed, India appeared destined to be a 21 st century innovation powerhouse. Since the s, the government has executed a systematic strategy to absorb advanced technologies from the West and Japan, develop globally competitive products and manufacturing processes, and then transfer the know-how to private companies to create world-class industries. The portion of GDP devoted to research and development has risen more than fivefold since the late s, and reached 2. The island is beginning to excel in innovation as well.
Taiwan is among the world leaders in U. One was for FlexUPD, billed as the first technology to enable the commercialization of paper-thin, low-cost, flexible flat-display panels for electronic products. Taiwan also won awards for a display technology that allows both 2D and 3D information to be viewed simultaneously with the naked eye and for the first non-toxic, fire-resistant composite technology. Its giant neighbor has lower costs, vastly more engineers and scientists, and aggressive policies targeting all of the same industries as Taiwan. Despite a massive shift of factory work to the mainland, the value of Taiwanese exports continues to rise.
Taiwan is reaping the benefits of heavy investments in education and decades of comprehensive science and technology policies aimed at building globally competitive industries. The island of 23 million also has expertly leveraged its strategic geographic location off the coast of China.
Staying globally competitive
Taiwan was the 5 th in with respect to both total patents and utility patents. Patent and Trademark Office data, Taiwan is No. Government planners believe Taiwan needs new economic engines, however, to continue to prosper in a global knowledge economy and amid growing competition from large emerging markets. Taiwan also is stressing greater collaboration among its research organizations and industrial and academic partners around the world. The express purpose of Taiwanese government science and technology policies has always been to establish and sustain domestic industries.
The island started in electronics manufacturing with duty-free export zones in the s, when Taiwanese wages were extremely low. In the s, it began investing heavily in industrial technology institutes to stimulate more sophisticated indigenous industries. Of that, 69 percent was devoted to high-tech manufacturing. The key elements of the Taiwan method have been to carefully identify industries where the island can make its mark.
Rather than attempt to invent new technologies from scratch, Dr. Working closely with domestic companies, well-staffed industrial research institutes then turn those technologies into prototypes and production processes that are disseminated widely through industry. To help manufacturing industries take root, government agencies also offer generous assistance, including research grants, early-stage capital, incubators, tax breaks, low-cost access to laboratories and production facilities at world-class science parks, and efforts to build local supply bases of key materials and components.
Among other industries, this method has succeeded. The Taiwan government is applying this strategy to a range of new industries, including logistical services. It funds university research and overseas a network of 11 national laboratories established since The chip is said to be capable of holding 15 billion transistors that can process 10 times more data than current 45 nm technology and radically reducing the size of circuit boards. The National Science Council operates a precision instrument development center and a synchrotron radiation center similar to the Max Planck Center in Europe.
The park serves as a source of technology development and training for industries like semiconductors, displays, and renewable-energy technologies. ITRI is by far the biggest. Established in , ITRI has grown to a network of 13 research centers that focus on information and communications, advanced manufacturing, biomedical, nanotechnology and new materials, and energy and environmental technologies.
ITRI consults with more than 30, domestic companies each year. It has helped create start-ups and spinoffs, and generated more than 10, patents. ITRI has many more tentacles because it has many more jobs to do that are related to industrial diversification and firm formation. From through , ERSO began sending teams of engineers to Wang Computer for ten-month training courses in hardware and software design. Private companies also used ERSO labs to test machines before exporting them, as well as to develop Ethernet, workstations, monitors, and file-management software.
The Hsinchu Science Park was another important catalyst for Taiwan because it gave new companies access to first-rate facilities at a low cost. To get into Hsinchu, companies had to meet tough criteria. They had to have the ability to design products for manufacturing according to a business plan, devote a. Typically, the government pays for 25 percent of research, explained Mr. The private company invests half, and the rest comes from government or bank loan. Intellectual property was shared equally with the Ministry of Economic Affairs.
Companies had first right of refusal if the ministry wanted to divest. If a company failed to produce a developed product after three years, it not only lost its intellectual property but also had to repay government investments in installments. ITRI priorities include thin-film photovoltaic cells, lighting devices using light-emitting diodes LEDs , hydrogen fuel cells, offshore wind-power generation, and energy-efficient vehicles. ITRI also is developing flexible electronics products, a service platform for smart living technologies, and cloud computing.
The institute also has developed paper-thin speakers. The companies are developing LED products and materials for street lighting. Launched in and based in Hsinchu, the program is a collaboration with the MIT Media lab and has hired staff with psychology degrees and from the arts and media. The initiative seeks to raise industry competitiveness, improve government efficiency, improve quality of life, and increase the number of broadband users to 6 million. The National Science Council challenges were enunciated in the plan. Smallbusiness incubators and entrepreneurial training are relatively new in Taiwanese universities.
As a result, universities launch few start-ups. The Council also faults the Taiwanese teaching system. Because students must focus on either liberal arts or science and technology at an early age, many do not get broad interdisciplinary education. Engineering courses, meanwhile, are criticized for not training students to think creatively. These are green energy, biotechnology, tourism, medical care, cultural creativity and quality agriculture.
The plan calls for making universities more business-friendly and more open to outside collaboration. The document also calls for universities to establish stronger links with science parks and national laboratories. The goal is that at least one will be rank among the top in the world and among the top 10 in the Asia-Pacific. International collaboration is likely to become a more important aspect of Taiwanese innovation strategy.
ITRI already has extensive overseas ties. The National Science Council calls for expanding Taiwanese collaborations with international research institutes and industry consortia. It also recommends attracting more multinationals to use the island as a global innovation base.
Singapore then thrived as an Asian hub for trade, services, manufacturing, and corporate product development. Now the island of 5. Singapore is making impressive progress. Singapore ranks No. The share of university graduates in the population leapt from 4.
In terms of international patents, start-ups, and the dynamism of domestic companies, Singapore is still far from an innovation powerhouse. The government unveiled a new strategy in