I have repeatedly pointed out how fast China is catching up in terms of technological innovation.
I have also emphasized that innovation endeavors each country pursues are intertwined with its political economy, along with global forces including multinational high-tech companies.
Of course, the issue of technonationalism should be understood in this context.
From the WSJ:
A titanic battle is under way between U.S. business and China, a battle reflected in President Barack Obama's State of the Union address last week and destined to dominate relations between the two countries for years.
China's bureaucrats have been rolling out an array of interlocking regulations and state spending aimed at making their country a global technology powerhouse by 2020.
The new initiatives—shaped by rising nationalism and a belief that foreign companies unfairly dominate key technologies—range from big investments in national industries to patent laws that favor Chinese companies and mandates that essentially require foreign companies to transfer technology to China if they hope to sell in that market.
To hear U.S. business executives describe it, Beijing's mammoth new industrial policy is like the Borg in "Star Trek"—an enormous organic machine assimilating everything in its path, in this case the inventions of other nations. Notably, China's road map, which is enshrined in the "National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)," talks in those terms. China will build its dominance by "enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies."
"It's a huge, long-term strategic issue," says a top executive at a U.S. technology firm operating in China. "It isn't just the crisis of the day for U.S. business. It's the crisis."
http://online.wsj.com/article/SB10001424052748703439504576116152871912040.html
Showing posts with label technonationalism. Show all posts
Showing posts with label technonationalism. Show all posts
Saturday, February 5, 2011
Sunday, April 18, 2010
The Myth of Asian Economic Development and Innovation Model
What is interesting to note is that Japan, Korea, and China show similar features of development path economy-wise and technology-wise
All three countries have valued high tech development in the course of economic growth. They have also depended on exports and purchased the U.S. treasuries.
They also demonstrate signs of asset bubbles and massive government interventions including heavy government directed investment. They all have bad loan problems.
Japan enjoyed high export growth, high personal savings and high standards of living in 1980s. Then their economy has stagnated for two decades. Their asset prices plummeted, resulting in an 85% decline in real estate and stock market prices.
Korea is facing many challenges as well including structural unemployment and increasing sovereign/household debts.
China seems to be in similar boat. While their economy appears to continuously grow and to move up the value added food chain, they have many potential problems such as the yuan/USD peg and property bubble.
Japan and Korea have become high tech powerhouse in some areas, and China is fast accumulating its technological capacity. Yet, regardless of specifics, all these countries face tremendous challenges.
Technological competence is critical in growing and sustaining economy since it is an important means for creating wealth.
And yet, it alone is not sufficient. It has to be coupled with other forces to foster the productive economy. The cases of Japan, Korea, and China have demonstrated this.
The Asian economic development and innovation model shouldn’t be analyzed in a vacuum.
Some lessons drawn from the Asian experience:
-The Asian innovation model should be understood in the overall economic/political/social contexts: for instance, why they have rigorously built their technological base; why much of their technological competence is owned by big corporations.
-The state-led economic model has been both positive and negative forces for innovation.
-Their export-dependent model which has been a driver for their technological accumulation and hard currency earnings should be also analyzed in relation to international politics and global economics as well as their domestic economic structure and political dynamics.
- The overall health of economy including public and private debt loads affects their innovation apparatus. Although they have built the robust technological/manufacturing base, dissonance between finance and manufacturing sectors could impede their innovation competence.
-The global forces can’t be excuses for policy failures and corporate mismanagement.
All three countries have valued high tech development in the course of economic growth. They have also depended on exports and purchased the U.S. treasuries.
They also demonstrate signs of asset bubbles and massive government interventions including heavy government directed investment. They all have bad loan problems.
Japan enjoyed high export growth, high personal savings and high standards of living in 1980s. Then their economy has stagnated for two decades. Their asset prices plummeted, resulting in an 85% decline in real estate and stock market prices.
Korea is facing many challenges as well including structural unemployment and increasing sovereign/household debts.
China seems to be in similar boat. While their economy appears to continuously grow and to move up the value added food chain, they have many potential problems such as the yuan/USD peg and property bubble.
Japan and Korea have become high tech powerhouse in some areas, and China is fast accumulating its technological capacity. Yet, regardless of specifics, all these countries face tremendous challenges.
Technological competence is critical in growing and sustaining economy since it is an important means for creating wealth.
And yet, it alone is not sufficient. It has to be coupled with other forces to foster the productive economy. The cases of Japan, Korea, and China have demonstrated this.
The Asian economic development and innovation model shouldn’t be analyzed in a vacuum.
Some lessons drawn from the Asian experience:
-The Asian innovation model should be understood in the overall economic/political/social contexts: for instance, why they have rigorously built their technological base; why much of their technological competence is owned by big corporations.
-The state-led economic model has been both positive and negative forces for innovation.
-Their export-dependent model which has been a driver for their technological accumulation and hard currency earnings should be also analyzed in relation to international politics and global economics as well as their domestic economic structure and political dynamics.
- The overall health of economy including public and private debt loads affects their innovation apparatus. Although they have built the robust technological/manufacturing base, dissonance between finance and manufacturing sectors could impede their innovation competence.
-The global forces can’t be excuses for policy failures and corporate mismanagement.
Wednesday, November 11, 2009
Can the U.S. Maintain the Leadership Position in the High-Tech Sectors?
There is a debate going on as to how to restore American competitiveness through technological innovation and manufacturing on Harvard Business Review site, which made me rethink a couple of issues and post up this piece. In fact, I was kind of disappointed at the quality of debate (after all, the contributors in the debate are among the most intelligent people in the States), so I commented on two articles there.
Conundrums and challenges the U.S. faces in terms of technological innovation are not limited to the States. Many of the issues the U.S. has to deal with can be applied to other countries, both advanced economies and newly industrialized ones like Korea to some degree. In this context, it is interesting to look at the U.S. experience and learn from it.
The U.S. economic growth had been fueled by innovation and entrepreneurship to a large extent until financial engineering reigned. While the U.S. has had the best technology in many areas such as software, specialty logic chips and capital goods, the best engineering schools, the world-class high-tech firms, whether the U.S. can keep the leadership position in the high tech field doesn’t appear to be that promising due to several factors.
Owing to its relatively high standard of living, stable political system, and superior social/industrial/scientific infrastructure, the U.S. has attracted the best talent around the globe. However, the U.S. is currently facing tough economic times. It is running on major deficits. Hiring freezes, rising layoffs and credit crunch have choked startup enterprises’ growth and entrepreneurial spirit.
Increasing outsourcing and offshoring trend has stirred up some concerns in the U.S. Many of the major U.S. high-tech firms have not only outsourced manufacturing jobs but set up R&D centers in emerging economies like China and India. The more the U.S. high tech firms become international corporations, the more they tend to move to wherever they can be more profitable. The notion of technonationalism gets diluted. Of course, as I’ve pointed out recently, this problem is not restricted to the U.S. Korea is facing the similar conundrum.
All politics aside, one of the reasons for offshoring and outsourcing by the U.S. corporations lied in cost savings mainly through labor arbitrage. However, some argue that the U.S. workers’ wage has been squeezed down to the benefit of the top 1%. Consequently, the issue of income disparity of corporate America should be factored in.
The demise of U.S. manufacturing is appalling, resulting in the intended and unintended consequences. Sending the manufacturing jobs to China in exchange for selling its treasuries has generated the profound impact including the weakening middle class base. Since MNCs tend to prefer to locate their production or R&D operations in a region where they sell their products to take advantage of physical proximity to the consumer market, currency exchange rates, and various incentives, the destruction of the middle class coupled with dwindling purchasing power points to further deterioration of the America’s manufacturing foundation.
R&D undertaking is closely related to the overall health of the economy not only because the state of the economy affects the availability of R&D capital but because it would further increase manufacturing and R&D outsourcing and offshoring. Sustaining and expanding America’s innovation competitiveness can’t be decoupled from the financial reality. When a country is heavily burdened by the financial reality at both the public and private levels, the production centers of the economy are eroding quickly. Perhaps both the U.S. financial crisis and the Asian financial crisis teach us that although we may all agree growing and sustaining a country’s competitiveness through technological innovation and production is critical when making advances in standards of living, we shouldn’t overlook the problem of dissonance between the manufacturing industry and the financial sector.
The U.S. has been trying to revive the economy with borrowed money without revamping the broken system. This may work for a period. And yet, the bottom line is: will government measures trump market forces?
The U.S. seems to be moving more towards a state-led economic system in which a dubious collusion between state and big business has negative ramifications. A government’s role and the degree of its involvement in fostering high-tech R&D should be probed and determined in this context.(Since I’ve elaborated on the government’s role in innovation and technology before, I wouldn’t go into the details.)
Nurturing and attracting talent is critical since talent is everything in the high-tech business. Nowadays, it is a worldwide phenomenon that smart kids don’t want to get into engineering schools: too much hard work for less money compared to financial jobs, for example. Besides, when the social conditions deteriorate, the U.S. would lose top-notch talent in the high-tech sectors to an alarming degree.
Any country with the high-tech base should invest in the next generation of high-tech products like bio technology and alternative energy, fully utilizing and bolstering their indigenous R&D capacity. Moreover, they need to take a long term view on innovation. In reality, making this long-term commitment happen seems to require top leadership’s foresight and determination.
The U.S. still has the right combination of talent and potential for innovation. However, it should make the right moves including appropriate investments in appropriate areas and oversight of its innovation-related investments. And above all, the U.S. economy needs to reestablish itself. Otherwise, the U.S. would be likely to lose its leadership stance in the high-tech sectors.
Conundrums and challenges the U.S. faces in terms of technological innovation are not limited to the States. Many of the issues the U.S. has to deal with can be applied to other countries, both advanced economies and newly industrialized ones like Korea to some degree. In this context, it is interesting to look at the U.S. experience and learn from it.
The U.S. economic growth had been fueled by innovation and entrepreneurship to a large extent until financial engineering reigned. While the U.S. has had the best technology in many areas such as software, specialty logic chips and capital goods, the best engineering schools, the world-class high-tech firms, whether the U.S. can keep the leadership position in the high tech field doesn’t appear to be that promising due to several factors.
Owing to its relatively high standard of living, stable political system, and superior social/industrial/scientific infrastructure, the U.S. has attracted the best talent around the globe. However, the U.S. is currently facing tough economic times. It is running on major deficits. Hiring freezes, rising layoffs and credit crunch have choked startup enterprises’ growth and entrepreneurial spirit.
Increasing outsourcing and offshoring trend has stirred up some concerns in the U.S. Many of the major U.S. high-tech firms have not only outsourced manufacturing jobs but set up R&D centers in emerging economies like China and India. The more the U.S. high tech firms become international corporations, the more they tend to move to wherever they can be more profitable. The notion of technonationalism gets diluted. Of course, as I’ve pointed out recently, this problem is not restricted to the U.S. Korea is facing the similar conundrum.
All politics aside, one of the reasons for offshoring and outsourcing by the U.S. corporations lied in cost savings mainly through labor arbitrage. However, some argue that the U.S. workers’ wage has been squeezed down to the benefit of the top 1%. Consequently, the issue of income disparity of corporate America should be factored in.
The demise of U.S. manufacturing is appalling, resulting in the intended and unintended consequences. Sending the manufacturing jobs to China in exchange for selling its treasuries has generated the profound impact including the weakening middle class base. Since MNCs tend to prefer to locate their production or R&D operations in a region where they sell their products to take advantage of physical proximity to the consumer market, currency exchange rates, and various incentives, the destruction of the middle class coupled with dwindling purchasing power points to further deterioration of the America’s manufacturing foundation.
R&D undertaking is closely related to the overall health of the economy not only because the state of the economy affects the availability of R&D capital but because it would further increase manufacturing and R&D outsourcing and offshoring. Sustaining and expanding America’s innovation competitiveness can’t be decoupled from the financial reality. When a country is heavily burdened by the financial reality at both the public and private levels, the production centers of the economy are eroding quickly. Perhaps both the U.S. financial crisis and the Asian financial crisis teach us that although we may all agree growing and sustaining a country’s competitiveness through technological innovation and production is critical when making advances in standards of living, we shouldn’t overlook the problem of dissonance between the manufacturing industry and the financial sector.
The U.S. has been trying to revive the economy with borrowed money without revamping the broken system. This may work for a period. And yet, the bottom line is: will government measures trump market forces?
The U.S. seems to be moving more towards a state-led economic system in which a dubious collusion between state and big business has negative ramifications. A government’s role and the degree of its involvement in fostering high-tech R&D should be probed and determined in this context.(Since I’ve elaborated on the government’s role in innovation and technology before, I wouldn’t go into the details.)
Nurturing and attracting talent is critical since talent is everything in the high-tech business. Nowadays, it is a worldwide phenomenon that smart kids don’t want to get into engineering schools: too much hard work for less money compared to financial jobs, for example. Besides, when the social conditions deteriorate, the U.S. would lose top-notch talent in the high-tech sectors to an alarming degree.
Any country with the high-tech base should invest in the next generation of high-tech products like bio technology and alternative energy, fully utilizing and bolstering their indigenous R&D capacity. Moreover, they need to take a long term view on innovation. In reality, making this long-term commitment happen seems to require top leadership’s foresight and determination.
The U.S. still has the right combination of talent and potential for innovation. However, it should make the right moves including appropriate investments in appropriate areas and oversight of its innovation-related investments. And above all, the U.S. economy needs to reestablish itself. Otherwise, the U.S. would be likely to lose its leadership stance in the high-tech sectors.
Monday, October 5, 2009
Sustaining Competitiveness and Technonationalism: the Global Financial Crisis and Beyond
The speed of the Asian economic recovery has stirred some debate over “decoupling.” It is interesting to point out that many Asian economies have propelled its economic growth through technological development. Many Western MNCs have outsourced their manufacturing in the Asian region. With China rising, many companies including Korean chaebols have set up new plants in China to use their cheap resources and exploit the market opportunities there. Whether the ailing U.S. economy would rebound and growth in Asian economies is becoming decoupled with that of the West would depend on many factors. Among them, sustaining competitiveness through innovation and production is the greatest factor in the mix for a solid recovery.
In the midst of a severe recession, retaining or restoring competitiveness through technological innovation centers on R&D and manufacturing capabilities. In terms of R&D, economic/industry downturns or financial crisis can be a golden opportunity to make a leap in R&D capacity and advance in emerging sectors. Korean high tech firms have done so in several industries including LCD panels and TVs and mobile phones, as explained in prior posts. They were able to obtain the necessary technology during the economic downturns and foresaw the potential of the emerging technology and invested in it accordingly.
Korea has made enormous strides in the high-tech sectors starting from the low-cost OEM vendor for Western MNCs to top-tier high-tech powerhouse. It acquired the production process technology, and then used its manufacturing foundation for design and R&D. In doing so, it has employed the various modes of technology transfer from abroad: reverse brain drain, reverse engineering, buying the Western high-tech companies, strategic alliance with foreign firms, and so on. China has followed suit, rapidly accumulating technology capacity. For instance, the Chinese bought out financially-distressed Korean high tech firms such as Hynix Semiconductors’ TFT-LCD unit. As the Korean have done so, the Chinese would use its manufacturing capacity as a stepping stone to move up the economic food chain.
One of the underlying issues in high tech sectors has been whether and how much to outsource their operations worldwide. Global electronic firms including Korean firms have expanded their manufacturing and R&D offshoring around the globe. This is not limited to high-tech sectors. For example, Hyundai has built their plants in the U.S., Europe, and Asia.
Outsourcing decisions have been predicated on a confluence of many factors. For one, there are strategic considerations to save the cost in terms of raw materials and labor, to have easy access to the necessary technology, and to meet the needs of the local customers better. Of course, this strategic move is coupled with favorable local business conditions including taxes, labor union relations, and other regulations.
On the macro side, currency rates have been an important factor for outsourcing/offshoring decisions so as not to be affected by currency depreciation. This is one of the crucial factors Korean firms have considered. Further, corporations won’t set up their operations in an economy where the middle class with purchasing power is disappearing due to rising unemployment and dwindling income. In essence, outsourcing decisions have been closely intertwined with the financial reality.
We live in a borderless world where not only capitals and products but also technologies flow freely. Who will benefit more from this free flow of capital, knowhow and talent? Therein lies a contention between national interests and corporate interests, or a conflict between technonationalist goal and its firms’ overseas expansions. Reflecting these opposing forces in government policies or corporate strategies has been neither straightforward nor easy. Governments may need to deal with this issue with long time horizons. In order to retain the top-notch engineers, R&D centers and manufacturing operations within a country, appropriate government interventions are needed to grow the overall health of the economy and the necessary social/industrial/technology infrastructure such as a solid higher education system and balanced industrial structure (In Asian countries, the dominance of big businesses has served as advantages as well as disadvantages of their economies, which is another story). It may be also important to recognize the limited roles of the government by restricting its roles in building a stable platform and conditions in which firms can grow and prosper through fair competition.
Global high tech firms are busy planning forward-looking R&D projects and investments. For instance, as I’ve recently mentioned, Korean high tech firms have announced to set up manufacturing facilities for LCD panels and semiconductors in China. In LCD TVs, Samsung has done better in Q2 than the Japanese makers including Sony that has been the dominant player in the U.S. TV market for a long time, which is remarkable given their humble beginning as an imitator a few decades back, yet the Korean and the Japanese firms are now in race for LED TVs.
While the U.S. are much concerned about losing their technological excellence as R&D and manufacturing capabilities have migrated to Asia, the challenges are equally daunting on the Asian side. Who will come out ahead would require a systemic approach at both national and corporate levels.
In the midst of a severe recession, retaining or restoring competitiveness through technological innovation centers on R&D and manufacturing capabilities. In terms of R&D, economic/industry downturns or financial crisis can be a golden opportunity to make a leap in R&D capacity and advance in emerging sectors. Korean high tech firms have done so in several industries including LCD panels and TVs and mobile phones, as explained in prior posts. They were able to obtain the necessary technology during the economic downturns and foresaw the potential of the emerging technology and invested in it accordingly.
Korea has made enormous strides in the high-tech sectors starting from the low-cost OEM vendor for Western MNCs to top-tier high-tech powerhouse. It acquired the production process technology, and then used its manufacturing foundation for design and R&D. In doing so, it has employed the various modes of technology transfer from abroad: reverse brain drain, reverse engineering, buying the Western high-tech companies, strategic alliance with foreign firms, and so on. China has followed suit, rapidly accumulating technology capacity. For instance, the Chinese bought out financially-distressed Korean high tech firms such as Hynix Semiconductors’ TFT-LCD unit. As the Korean have done so, the Chinese would use its manufacturing capacity as a stepping stone to move up the economic food chain.
One of the underlying issues in high tech sectors has been whether and how much to outsource their operations worldwide. Global electronic firms including Korean firms have expanded their manufacturing and R&D offshoring around the globe. This is not limited to high-tech sectors. For example, Hyundai has built their plants in the U.S., Europe, and Asia.
Outsourcing decisions have been predicated on a confluence of many factors. For one, there are strategic considerations to save the cost in terms of raw materials and labor, to have easy access to the necessary technology, and to meet the needs of the local customers better. Of course, this strategic move is coupled with favorable local business conditions including taxes, labor union relations, and other regulations.
On the macro side, currency rates have been an important factor for outsourcing/offshoring decisions so as not to be affected by currency depreciation. This is one of the crucial factors Korean firms have considered. Further, corporations won’t set up their operations in an economy where the middle class with purchasing power is disappearing due to rising unemployment and dwindling income. In essence, outsourcing decisions have been closely intertwined with the financial reality.
We live in a borderless world where not only capitals and products but also technologies flow freely. Who will benefit more from this free flow of capital, knowhow and talent? Therein lies a contention between national interests and corporate interests, or a conflict between technonationalist goal and its firms’ overseas expansions. Reflecting these opposing forces in government policies or corporate strategies has been neither straightforward nor easy. Governments may need to deal with this issue with long time horizons. In order to retain the top-notch engineers, R&D centers and manufacturing operations within a country, appropriate government interventions are needed to grow the overall health of the economy and the necessary social/industrial/technology infrastructure such as a solid higher education system and balanced industrial structure (In Asian countries, the dominance of big businesses has served as advantages as well as disadvantages of their economies, which is another story). It may be also important to recognize the limited roles of the government by restricting its roles in building a stable platform and conditions in which firms can grow and prosper through fair competition.
Global high tech firms are busy planning forward-looking R&D projects and investments. For instance, as I’ve recently mentioned, Korean high tech firms have announced to set up manufacturing facilities for LCD panels and semiconductors in China. In LCD TVs, Samsung has done better in Q2 than the Japanese makers including Sony that has been the dominant player in the U.S. TV market for a long time, which is remarkable given their humble beginning as an imitator a few decades back, yet the Korean and the Japanese firms are now in race for LED TVs.
While the U.S. are much concerned about losing their technological excellence as R&D and manufacturing capabilities have migrated to Asia, the challenges are equally daunting on the Asian side. Who will come out ahead would require a systemic approach at both national and corporate levels.
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