Fair Ways To Make American Industry More Competitive

Fair Ways To Make American Industry More Competitive

Part I

Can America compete? Can U.S. manufacturing come back? Is America deindustrializing? These are the headlines which are frequently seen in major newspapers and business journals. American companies in fact continue to lose ground in some global industries. To take an example, Fortune (August, 1995) listed only three U.S. companies among ten world's largest companies in terms of global revenues, while it lists six Japanese companies and one European company. Many American observers attribute the decline of U.S. industries in global markets to the unfair trade practices of foreign countries and to the inappropriate or inadequate response of the U.S. government.

The stimulus to innovation is typically provided by some threat or promise in the market. Historically, U.S. firms have been pioneers in innovations to respond to the labor-scarce and high-income conditions of the U.S. market. The U.S. rose to world dominance in many areas through the application of a series of innovations. Large U.S. companies, such as General Motors, IBM, and Xerox developed research laboratories with groups of innovative scientists who provided a continual flow of new ideas.

Now, many of these same U.S. firms must compete in global markets where foreign competition is much tougher and they have no "inside track." In addition, U.S. military programs reduced the availability of engineers and technicians for commercial enterprise; industrial innovation has become more costly. Furthermore, the average size of R&D expenditure has grown as commercial technologies became more sophisticated. This must be amortized over an ever shorter product life cycle, and with the clear possibility for the firm that introduced the new technology that it will soon be copied by foreign competitors. In such an environment, while the importance of gaining a technological lead becomes paramount, the risks become ever greater. (Moon 2005)

Vernon (2006), the author of the product cycle hypothesis, argues that if the fruits of U.S. technology are to be shared, the U.S. has to get beyond its national security hangups and encourage joint national programs in the stimulation of technology rather than unilateral national efforts. However, Vernon fails to consider implications for possible short-term monopolistic profits for the innovator. As Vernon (2007) himself points out, the real competitive advantage of U.S. firms is in the introduction stage of the product life cycle, where an innovative product can enjoy a monopolistic position until a foreign competitor catches up. If the U.S. shares innovation with foreign countries, the U.S. firms participating in such joint efforts will stand to lose some of their competitive base. Nevertheless, both industry and government-backed consortia such as SEMATECH are likely to expand due to the increasing costs of R&D and the importance of industry-specific technology to competitiveness.

Since the U.S. has disadvantages in other business factors such as labor costs, the best competitiveness strategy for U.S. business seems to lie in climbing to ever higher levels of technology productivity, and staying ahead. This would be the ultimate refuge and enduring ...