Jan 29, 1993




Geneva 25 Jan (Chakravarthi Raghavan) -- With the globalisation of markets and production industrial competition is now much more related to capacity of firms for invention of technology and clusters of technology and the issue before policy-makers in governments would be development of resources in terms of technological capacity and how to encourage such capacity.

These views were presented Monday to the Ad Hoc Working Group on the Inter-relationship between Investment and Technology Transfer by two leading experts on technology and management -- Prof Charles Cooper, Director of the Institute of New Technologies at the UN University at Maastricht and Mr. Juan F Rada Vice- President responsible for Strategic Alliances at Digital Equipment Corporation.

While Cooper focused on the role of technology inventiveness and its accumulation in enterprises to enable industrial competition, as well as the issues facing policy-makers in developing countries, Rada spoke of the importance of development of technology clusters leading to technology alliances. Rada also said that much of the incentive for technology inventiveness in the coming decades would be provided by environment and need to overcome its constraints.

Both Cooper and Rada dwelt on the national policy issues facing the developing countries, but did not touch on the international policy issues. Though Rada specifically referred to and looked beyond the end of Uruguay Round in terms of trade competition and issues, and spoke of the 'new protection' in terms of technology inventiveness and state subsidy or support to firms to encourage this inventiveness, he did not deal with the problems and limitations, particularly for developing countries, in providing such support or subsidy or the effects of the new intellectual property and investment rules on their capacity to encourage and direct FDI to these areas.

Rada also focused on the need for long-term horizon for managers and decision-makers in industry and the difficulties of this in the Anglo-Saxon type of capital markets, as different from the Japanese and German models, and was critical of the World Bank for pushing the former model on the developing countries and the former east European Socialists.

Cooper said the old technology theories of trade -- of competition between firms based on minimising production costs within the techniques of production available to them -- had given place to the new one of competition process in which firms seek advantage over one another by continually changing their techniques of production and the products and processes they used.

The central point of competition now was the increasing number of sectors where new methods of production and new products had been discovered. The sectors of price competition now prevailed in relatively non-inventive sectors. In the former the focus was on processes of technology learning within firms -- accumulation of technology knowledge within a firm to obtain a dominant position in the market over products and processes and sometimes repeat it in the second round, a long-term process of learning.

The future of inventive industry and competition, Cooper said, would be characterised by two main types of firms -- the innovative firms which initiated technology and production firms which came afterwards to use that technology by various ways like licensing agreements, joint ventures and the like.

With the opening of the economies, and policies of export orientation, the roles of industrial policy in the developing countries had critically changed. Industrialization was no longer a process of producing for domestic markets and protecting national industry. It was increasingly a process of achieving entry into world industries by exporting, a very different objective from the old import substitution.

As far as governments were concerned they would look to see how successfully their firms could enter into competition in international markets, how they could gain entry into inventive industry and what it would mean for industries which would be 'imitators' in a world of industry characterised by relatively few inventive firms in the industrialized countries.

The more technologically inventive an industry is, the more imitating firms in the Third world are likely to have to rely on internalised technology transfers like foreign direct investment and joint ventures. In less inventive sectors, they could have less internalised methods of transfer like licensing agreements etc.

The central issue of industrial policy would increasingly be on the terms on which imitation could be accomplished in the Third World -- either through joint ventures or FDI or licensing agreements or simply through supply of capital goods.

The terms of imitation for competition would be much more important than in the past. The state would be more concerned with influencing mechanisms of technology transfer and competition. Third World countries would be looking at methods of technology transfer which would be more consistent with building local capabilities than with less and with developing technology capabilities within firms.

In many countries, Prof Cooper added, the state would see need for selective forms of intervention to support those of their firms that would be entering inventive world industries with high market imperfections, "the modern version of infant industry argument", to encourage some firms in some sectors to sustain competition and develop.

Rada noted that unlike ten years ago when the talk was of manufacturing industry moving to Asia and the South, now it was becoming profitable even in high wage countries. In the area of technology "we need clusters of technology and not one industrial technology". As a result, as in the case of high density television, a number of companies were working together in creating strategic alliances, creating problems to competition policies within countries and internationally.

The clusters of technology were also becoming more complicated. "We now have to combine short technology cycle with long product cycles". Historically short technology cycles had short product cycles, but this would no longer be acceptable for environmental reasons and "increasingly industry would have to take back its products and 'de-industrialize' them".

Underlining the role of capital markets in providing a long-term horizon to enterprises and their managers, Rada noted the capital markets in Japan, Germany, France and Italy, were oriented to investment rather than consumption, to privileging capital gains as against dividends, while in the Anglo-Saxon model it was the opposite. This meant that companies followed different logic in decision-making. In the former model, banks and industry had similar interests while in the Anglo-Saxon model they had a conflict of interest.

It was a great pity, Rada added, that the World Bank was pushing the Anglo-Saxon model of capital markets on developing countries and the same model was also being pushed on the central and east European and former Soviet Republics.

The core of the debate over Maastricht treaty in the European Community, the European Exchange Rate Mechanism, and on whether London or Frankfurt should be the location of the European Central bank was really whether there would be the 'Rhine-valley' type of capitalism or the Anglo-Saxon variety and over the next decade or two the tendency in Europe would be for far more Rhine- type capitalism, Rada added.

In the post-Uruguay Round world of trade and industry, and an era of competition based on technological capacity and inventiveness, the question would be the type of mechanism that would be available for protection and how policy makers could encourage technological capacity and development of resources for technological capacity.