MIT
3
ALFRED
P.
2
TD6D OObOlBEb
H
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
National
in
LIBRARIES DUPl
Champion
Strategy
Development
Technology
Jong-Tsong Chiang
WP
January 1990
3128-90-BPS
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
^
'
he,:
National
in
Champion
Technology
Strategy
Development
Jong-Tsong Chiang
WP
January 1990
1.
The author
is
grateful
to
the
International
3128-90-BPS
Institute
Systems Analysis (IIASA) and several organizations
their
financial
This paper
1990).
in
Applied
Europe for
support and other assistance in doing the field
research concerning this topic in a
2,
for
is
to appear in
number of European
Technology
in
Society
countries.
(forthcoming,
1990
Champion
National
Strategy
Development
Technology
in
Abstract
To cope with
well as the
huge resources needed for technology development,
increasingly
many
the severe international competition as
countries have been trying to concert national efforts
"National champion strategy," like
many
in
recent
strategic
fields.
national
technology programs, seems to represent one promising
strategic
thrust.
technological
This paper examines cases in several critical
fields,
biotechnology,
namely, information technology, new
advanced materials, nuclear power and aerospace
countries,
industrialized
in
and reaches the following preliminary
conclusions:
The protection of national market
1.
champion(s)
is
to
size
of the potential market
is
is
rather subjective,
to
in
the
strategic
thinking
the ultimate success of a
strategy.
presumably "minimum threshold size" would find
their
competition.
national
champion(s),
any,
difficult
many
small
provide
to
to
from international
fields
and certainly large ones,
countries,
if
it
But systems technologies and applications
"internalization"
justify
decision
initial
"Small" countries with small domestic markets relative to a
2.
insulate
the
at
and should thus be adapted to new
from the beginning appears crucial
champion
however,
practice,
Therefore, most
The inclusion of foreign markets
situations.
In
very difficult to predict
early stages of the product life cycle.
making
national
This also concerns the decision
often considered.
about ihe appropriate number of champions.
the
nurture
opportunities
for
which
bolster their national
champions through a protected domestic market.
3.
"Single champion
protection
4.
is
strategy"
along with protracted market
risky due to the absence of competition
pressure.
"Multiple champion strategy" with so severe internal
competition as to result
in
fragmentation of critical technology
knowledge required
is
deleterious.
potentially
5.
systems
very large-scale, highly integrated
in
In highly
complex technologies, public regulatory bodies may
also have to play a developmental
some complementary
and even partner role and share
knowledge with the regulated
technical
organizations for the sake of technology integrity and progress.
they try to do so, they have to concurrently
seemingly conflicting roles
in
manage
the
If
two
order not to hurt their credibility in the
main missions.
6.
A
technologies tends to impede
increasingly converging
because of the difficulty
reaping synergy across formal
in
of actors with complementary capabilities
champion strategy
national
innovation,
8.
alliances
may
be
in
different
difficult
is
apply.
to
because of
relatively
its
for military
missions, the
"civilian
progress
if
is
champion(s)"
national
the diverging
and
different
military
mainly prompted
may
not
become
in
little
the
arise.
and civilian
competition
champion strategy
insurmountable foreign competitors has
"multinational
importance
champion(s)" when civilian applications
requirements
When
10.
initial
"military
The main reasons include
technology
less
marginal effect.
technologies whose
In
is
and there exist large, established firms,
incremental
successful
Instead,
more appropriate.
government national champion strategy would be of
9.
of
stages
more conventional technologies where innovation
In
basically
growth
newly emerging technologies where there are many types
In
strategic
its
boundaries.
organizational
7.
defined domain of a champion in
relatively narrowly
rules.
face of seemingly
opportunity
champion strategy" may be advisable.
of success,
This strategy,
not confined only in "pre-competitive" and public goods fields,
requires
participant
national
members
to
relinquish
substantial
managerial jurisdiction to the organization to behave like an
integrated competitor.
acquisition
alliances."
or
merger,
This strategy, except in the extreme case of
goes beyond today's prevailing
"strategic
Introduction
As the history
of the past three decades shows, the strategy of
champion(s) usually applies to the fields of nationally
national
strategic importance, or is used
Though
industries.
this
recently proliferating
strategy does not entirely coincide
technology programs,
national
and often has an important role
therefore
strategy
even
it
with the
implicitly
is
or
on the central and long-term agenda of many governments,
explicitly
This
cover the key "nodes" of the
network of interdependent upstream and downstream
the
filiire,^
to
in
warrants
technology development.
national
attention.
special
economics, competition
favored over monopoly
In
classical
in
technology development, because the former stimulates most
efficient
whereas the
of resources
allocation
is
latter
permits
under-
investment in addition to production restriction and higher prices.
However, too much competition may
dilute
and spread too thinly the
resources available and preclude the formation of "critical
limited
some thresholds of bigger
mass" necessary
to
surpass
may
in
redundant and thus wasteful efforts, though
also result
thrusts.
It
redundancy may yield a larger number of solution routes and thus
likelihood of success. ^
increase the
innovative
monopolistic
capabilities,
undertake
firms
Schumpeter advocates
may
formal
organizational
country
competition
But
it
seems
economics.
large,
"National champion strategy"
some sense follows Schumpeter's argument.
cooperation which
that
innovation, ^ the driving force and the
necessary consequence of capitalism.^
in
static
of monopolies are more than counterbalanced by their
inefficiencies
greater
Maintaining that the
It
internalizes
otherwise be difficult to achieve across
boundaries,
instead
and
emphasizes
of intra-national
international
company competition.
to be also unable to completely escape the rule in classic
Therefore the strategy of "multiple champions"
is
suggested as opposed to that of "single champion" under certain
circumstances.
For
this
strategic
issue,
the investigation of real world
experience in several important technological fields
on some of
its
critical aspects.
may shed
light
In the following discussion, only cases
with profound technological implications will be used.
Therefore
cases like the establishment of a large integrated steel mill, which
is
champion
national
certainly a
most countries but mainly for the
in
domestic supply of basic materials, will thus be excluded.
Market
Domestic
To
nurture
Strategy
national
industry in general,
many
Number
and
champion(s)
complex
relations
Champions
and indigenous
particular
in
countries also take the protection of
But between these two decisions
domestic market into consideration.
are
of
needing further clarification.
take information technology (IT) for elaboration.
First
In
the
major fields of "stand-alone" IT products, such as computers (mainly
mainframe or large computers) and semiconductors, basically no
small
advanced countries have explicitly considered protection of
domestic market as a way to support their own national champions.
Openness of
economies derives directly from
their
market size
their
even smaller than a certain threshold presumably necessary for the
Scandinavian and Benelux
economies of scale and specialization. ^
countries
exposed
to
Therefore their firms are normally
obvious examples.
are
champions have emerged because of protected market.
Netherlands
is
Thomson
an example, in contrast with
where government can use protection strategy due
As
domestic market.
is
in
a natural extension,
when
if
it
will
in
the
France
in
its
much
larger
champion
national
and can, than the protection of domestic market.
The present dilemma imposed by
Norwegian government
When
typifies
the
the
the domestic market
a real option.
more than one champion.
shaky Norsk Data on the
difficult
seems
presumably necessary minimum
becomes
to
size,
of
But there may also be possibility
The key question
Without special mechanism
concentration,
a
protection
the
lies
in
it
to
support
not only the
subsequent penetration
market.
foreign
result in
situation.
be big enough relative to
degree of internal competition but also the
into
a
to
Philips
danger, government in a small country has to seek other
measures,
the
Few
from the very beginning.
international competition
to
influence
the
industrial
low entry threshold and severe competition may
great
number of small firms which cannot survive
challenge from big foreign firms.
But unreserved support
to
a single
champion
and make
relaxed
it
may
preparation
in
rid
of competition pressure
it
subsequent international
for
This gives rise to the rationale of the strategy of
competition.
champions with constant competition ingrained between
multiple
them,
protected market
a
in
collusion can be prevented.
if
In the real world,
however,
it
is
extremely difficult to estimate even the potential domestic market
Therefore the
the early stages of product life cycle.
making
fact rather subjective,
in
is
decision
initial
and should be followed by close
monitoring of the development and necessary measures to adapt
the
new
government has a long
champions
national
strategic
in
strategy of single champion:
government
French
"unfortunately"
single national
also tried
succeeded
champions
among
domestic
in
many
to
enhance
strengthened
in
In
that
the
Japanese
government
programs;
creating
fields.
is
in
resisting
national
in
strategic
multiple champions
market has
several
rationalize
to
in
government succeeded
notably in semiconductors, the outcome
competition
Japanese
by merging smaller domestic firms.
temporary participation
except
initiatives
usually relies on the
it
betting on one or the only one.
Japanese companies
"Fortunately"
support or create
to
example, automobile and computer,
competitiveness
national
tradition
But
areas.
early post-war era
the
in
for
industries,
the
to
situations.
In France,
for the
in
IT,
and
many
and most
severe internal
the
initial
protected
companies' capabilities
subsequent international competition with great success.
other hand, throughout the whole process the
On
number of
champions has been controlled by Japanese government through
some mechanisms such
programs
as
membership of a
government procurement. ^
and
series
of national
The Japanese government
has also timely used export encouragement measures to help these
champions penetrate foreign market.^
champions have shown weakness
their
home
market.
In the
in
By
contrast, French IT
competing satisfactorily outside
U.K. the support
to the
single national
computer champion ICL and semiconductor champion
not succeed.
that
the
The
British
assessment,
and
INMOS
also did
plausible reasons are many, including, for instance,
government
that
the
effort
involved
little
commercial
French government pursue both military
^
and commercial objectives which were not congruent
But
would be
it
to say that the distinction
fair
to
each other.
between "single
champion" and "multiple champions" counts.
With the benefit of hindsight, Japan's domestic IT market now
proves to be larger than either France or the U.K.
means easy
predict in
to
governments
the
it
was by no
1960s and 1970s when the three
took actions to cultivate their
all
But
own
national
champions, that Japan's domestic market would be larger over some
time horizon given Japan's then considerable lag behind France and
average income and industrial and technological levels.
the U.K. in
made based on
may be quite
Therefore, although no conclusive statement can be
brief analysis of such a small
number of
cases,
reasonable to propose that single champion
protracted market protection
it
is
by the
justified
both
along with
strategy
long run, even
the
in
if
estimate of potential domestic market.
initial
other words, competition
rather risky
is
it
pressure
either
at
home
a
In
from abroad or
or
necessary.
is
In the U.S.
where there
no
is
explicit industrial policy,
the
Department of Defense (DOD), the major government agency
sponsoring
many IT
DOD
innovations, also follows similar principle.
winners out of the vigorous internal competition,
picks potential
while the military procurement market
is
competition too. Certainly in
can be argued that U.S.
this
case
it
insulated
market, military or civilian, has been clearly
French or British counterparts
It
is
nearly
in
the
at
either
accommodate multiple champions.
up;
"paradigmatic stages."
The relevant
microcomputer.
set
larger than
worth noting that the preceding analysis cannot apply
lower-end IT products
present
to
much
from foreign
One example
industrial
standards
to
is
have been
key microprocessors and memory chips are available
open markets; and companies compete more or
less
in
accordance with the "traditional" principle of comparative advantage.
To explain
suffices
this,
the classic theory of "international product life cycle"
roughly. 9
Hence
there
is
no big surprise
that personal
computers from Taiwan and South Korea compete quite successfully
in
the world market.
purposefully
backed by
South Korea has several national champions
its
government
for
several
decades.
Taiwan,
on the contrary, mainly
nearly
far
on small and medium enterprises.
relies
They
the firms in this field are followers or "clones."
all
But
are
behind the technological forefronts where the major
industrialized countries
have been trying
argument, however,
not to underestimate,
successful
is
for example,
This
their
quite
technology and alliance strategies to upgrade their relative
"international product life cycle." ^^
position in the
Internalization
Systems
in
IT applications
In
vehemently.
rival
to
of national companies.
many
there are
fields,
In
and
Technologies
Applications
opportunities
banking automation
in
in
favor
Finland, Norkia's
microcomputers which could hardly compete against foreign
products have a special privilege to serve their country's banking
Many
systems.
this
category.
industrial
embedded IT
processes with
The "systemic
meaning
character,"
that
also belong
to
element or
subsystem technologies or products are part of a large system and
extensive efforts to adapt them to the context are required, provides
some kind of
shield for domestic firms.
This
effect
in
of the argument for internalization at the firm level '^
is
to
an extension
the country
Therefore in national IT policies and programs, even in small
level.
candidate champions usually can have better chance in the
countries,
applications
In
areas.
telecommunications, a large scale IT systems technology,
most PTTs (Post, Telephone and Telegraph Authorities) follow
principle through
high
counterparts,
weak
prices,
services
contract and procurement policy to nurture
suppliers or national firms in the joint ventures
big national
foreign
R&D
despite
systems
telecommunications world
Deregulation,
the
international
or hardware
liberalization
is
in
frequent
competitiveness,
many
and
and outdated
countries. ^^
undergoing
new
previously
fragmented
international
uncertainty
scenarios,
alliances
with
outcome of unreasonably
"structural
multinational
Recently the
change."
collaborative
have been introduced in the U.S., Japan and West Europe.
resultant
this
programs
The
such as more competition, integration of
standards
and markets,
among major
and challenge
to
the
firms,
national
will
and
more
certainly
champion
add new
strategy. '^
Domain
Business
Champions
of
Another important issue
As
coverage of business.
champion
in
the
is
a historical lesson, CII, the French national
computers, resisted buying products from another
semiconductor champion Sescosem.
that
champion strategy
national
in
It
bought rather from U.S. firms
The French
were producing more advanced products.
telecommunications industry did purchase from the U.S. for similar
reasons.
In
striking
contrast,
Japanese major IT competitors are
all
highly vertically integrated.
Hitachi, Fujitsu,
NEC,
Toshiba, Mitsubishi
and Matsushita, the six of the world's ten largest semiconductor
companies account
for
80%
of Japan's semiconductor production,
80%
of semiconductor consumption,
consumer electronics
in
80%
of computer production,
telecommunications equipment production, and
which Japan holds two
of
about half of
thirds of
FRG
market share, ahead of the second country
60%
OECD
by a factor of
export
six.i'^
Besides, they have also close linkages, including equity cross-
ownership, with suppliers and affiliated industrial
insurance companies, and general trading companies.
NEC, one of
concurrently among the
example
is
two companies
the
world's
top ten
are
designed into
design systems use
its
integrated companies
its
electronic
They
in
the
exist
in
difficult
to
IBM)
products;
its
integrated
semiconductor
These
open markets only those microchips
to
threaten
enjoy far more intensive cooperation between
users and suppliers, which
much more
Its
mainframes and supercomputers.
sell
also
good
producers of semiconductors,
which could not be used by other competitors
themselves.
A
(the other one is
computers and telecommunications equipments.
circuits
banks and
groups,
is
essential to innovation
achieve
if
and would be
formal organizational boundaries
between.
This special feature of Japanese IT industry
as a big threat to the U.S.
same category and
where only
AT&T
are able to achieve
and
is
IBM
also pointed out
belong to the
dynamic economies of
Other U.S. "merchant semiconductor companies"
may
easily fall
victims to Japanese conglomerates because they have to
8
scale.
sell
their
most advanced products
to
the
in
open market and are facing
keep pace with Japanese firms
in
difficulty
continuous and increasingly
investments. ^5
huge
As
a matter of fact, the converging IT, exemplified by the
of computers
integration
more and more systems
incorporation of
the converging
necessitates
microelectronics,
competition.
This
etc.
will
microchips, naturally
into
Firms which can master
business.
processing,
data
manufacturing,
integrated
and telecommunications and the
telecommunications,
computer-
have upper hand
the
paradigm. i<*
economic
global
exactly the advantage of the unique firm
is
of Japan's national innovation system in
structure
in
In this regard,
new IT
the
Siemens and
techno-
Philips, both
covering a wide array of IT technologies, seem to have better chance
than most other European champions,
compensate for
their
relative
probably through the joint
by
FRG
if
they can successfully
deficiencies
Mega
in
semiconductors
Project which
is
also
underwritten
and Dutch governments.
Complementarity of Actors in Various Innovation Stages
In new biotechnology, another also strategically important
field,
national
champion
has been rarely used.
strategy
phenomenon may give clues
to
the
strategic
This
thinking in other also
newly emerging technologies with similar character.
Broadly defined, biotechnology includes any technique which
uses living organisms (or parts of organisms) to
make
or modify
products, to improve plants or animals, or to develop micro-
organisms for specific uses.
in
But following the seminal breakthroughs
genetic engineering in the mid
1970s, "new biotechnology"
emerged centering around recombinant
novel bioprocessing,
certainly
still
etc.,
DNA
(rDNA),
cell
fusion,
as opposed to "old biotechnology"
which
provides a base for and complements "new
biotechnology."
Due
variety
as
to its
of fields,
tremendous potential of applications
many
countries
in
a very wide
have identified new biotechnology
a priority area for national attention and effort.
However, some
features
specific
strategies
rather
new biotechnology
from
different
quite
First,
in
to
that
in
present a picture of national
IT.
and moral issues resulted
serious concern over safety
the
restrictive
regulations
many
in
consensus formation and investment
Second, like
biotechnology.
in
and deterred the
the development
in
many
countries,
new
of
other newly emerging fields,
most countries, except the pioneers, have been more or
slow
less
to
new technology. Nevertheless,
Japan MITI's declaration in 1981 of new biotechnology to be one of
the next generation basic technologies triggered much attention and
recognize the pivotal importance of
Many governments
reactions.
a plethora of reports
for
thus tried to "do something,"
and national plans.
some countries even
it
would
still
take time
human resources necessary
prepare
to
But
including
to
carry out missions of considerable challenge, as the cases of France
and Sweden show.'^
Furthermore, to date success
depends largely on the progress
situated
in
universities
new biotechnology
in
still
fundamental research mainly
in
and non-profit research
institutes.
Partly
because of the rather obvious and immediate commercial
many
applications of
relatively
research advances and partly because of the
low financial entry threshold, many small new
biotechnology firms have been formed through
"academic entrepreneurs"
equity markets allow.
uniquely American.
biotechnology
is
"climate"
if
Up
to
In Japan
"spin-offs"
of
and venture capital or other
now, however,
this
phenomenon
is
still
and Western Europe, new
being commercialized almost exclusively by
established firms, with only a few exceptions like Celltech in the U.K.
But the profit of new biotechnology firms so
principally from
insulin
leads
human health care
and human growth hormone are among the still very
few genetically-engineered products
many
come
stock market trading and the sale of research
and contracts rather than from products.
arena,
far has
in
In
the
market.
In
contrast
with
small firms in IT which were formed to market definite
products, most small
new biotechnology
houses with the objective of determining
10
firms were started as
how
to
make
R&D
products. ^^
On
much
stronger capabilities at the later stages of commercialization,
marketing and, when necessary, getting regulatory
production,
i.e.,
hand, large established firms have apparently
the other
approval for
new
establishing
"strategic
Many
products.
as research
R&D
grant,
with
alliances"
and small innovative firms.
strategy,
internal
venture
as
In
new innovations with high
exposure and
its
risk,
own
may
1970s respectively,
offer
new
scientific
Therefore alliance strategy,
pitfalls.'^
hierarchy
integrdted
technological
to
some
areas,
As
arise. 21
entirely
to
"extreme"
makes
it
risky
to
the
is
albeit
addition to
in
large firms.
The high
hence inappropriateness of integration. 20
rely
the potential
also
governance structures--
But
it
on market transaction should needs
a matter of fact, large firms' internal
that
related
spirit,
many
in
and technical
commit too much resources
suddenly increased dramatically since 1984
reason
or
more
and complexity of technology also makes
the uncertainty
vulnerable
an explicit policy
and pure market transaction.
volatility
focal
is
avoids two
strategy
this
fact,
R&D
reduce financial
flexibility,
acquire "windows" to
increasing internal effort,
In
uncertainty,
internal
advances, and keep pioneering and entrepreneurial
with
venture
which were rather commonly adopted by large
and resource allocation
organizational
take such forms
of emerging
face
the
compared with progressive
1960s and
firms during
may
strategy
universities
institutes,
contract, licensing, joint venture,
or radically
alliance
research
new
This
nurturing and equity investment.
technologies
of them nowadays have been
in
R&D
The main
the U.S.
of protein engineering
investment
became
technology seemed to enter "trajectory phase"
clear and
around
then. 22
Moreover, because of the seemingly
less
environment and the more advanced research
many European
institutes,
strict
regulatory
activities
in
the U.S.,
large firms seek alliances with U.S. firms or
sometimes
at
the
expense of
their
domestic counterparts.
Examples include famous FRG's Hoechst, Bayer and BASF, and Swiss
Ciba-Geigy, Hoffmann-La Roche and Sandoz.
Given the situations as discussed above, most industrialized
countries are relying
more on
approach of whole innovation
the
1
1
including
process,
strengthening
two-way linkages between
the
academic community and industry, than on programs with narrower
The U.S. emphasizes particularly funding research, encouraging
and cultivating human resources, and regards targeting
foci.
firms,
policies
as
policies
and
but with
countries have similar
emulate U.S. unique experience by supporting
to
try
through
small firms
Many European
important. 23
least
and secondary stock markets,
venture capital
obvious success except in the U.K.24
little
Japan, recently often referred to by western world as the
due
"biggest threat"
to
seems not very smooth
collaboration,
industrial
government guidance and
effective
its
national effort in this field.
There are
new biotechnology concerns
the jurisdiction
ministries
Agriculture, Fisheries and Forestry,
Health and Welfare).
It
of
two reasons.
at
least
its
First,
four
Trade and Industry,
of International
Ministries
(i.e..
least
at
organizing
in
Education and Culture, and
proves very difficult to orchestrate a
national
response because each
territory
despite MITI's active promotion.
guards jealously
ministry
Second,
in
the
its
own
research
consortium sponsored by MITI for pre-competitive collaboration,
there
It
over forty members
are
become
has
topics for
the biggest
common
reluctant to join.
way
the
program
And
there
problem
projects. ^^
Hence
that
dilemma
The evidence
if
in
if
background and
interest.
reach agreement on specific
some major companies
are
property also stands in
new biotechnology
of the well-known VLSI Project.
many countries are facing more
the picture
reason to believe that
or less similar
very difficult,
to
Besides,
quite different from
is
diverse
Sensitivity to intellectual
to collaboration.
is
with
of
they try to follow Japan's strategy.
new biotechnology
therefore
suggests that
it
is
not impossible, to adopt national champion strategy
new field with diverging promising directions to pursue
Fundamental
and with many actors of complementary capabilities.
research community needs a considerable amount of resources and
The
rather high degree of freedom to generate novel results.
in
such a
strategy of "center of excellence"
science"
relying
approach.
may apply
here, but not
"big
Large established firms are existing "champions"
mainly on themselves and autonomously organized alliances
12
to
move
There
ahead.
is
by government champion
materialize
former two groups.
now
is
It
environment rather than
U.S.
strength, 26
unique
rapidly
the
them
to provide
it
seems
is
a favorable
rationale,
it
may enjoy
small industrialized countries
to apply very
of
policies
the
than
major countries
in
special
strategic
advantage over
Because the
the expense
of small and
medium
is
also concern
enterprises.
In
when
at
meantime,
the
niche strategy rooted in the country's unique strength
agriculture)
about
guiding government policies
in
it
coordinate both government
to
and business strategies, though there
dominant role of large firms
than
the
small and there are only a small number of major actors,
is
easier
On
could be inferred that some
major countries, as the case of the Netherlands shows.
is
number of
claimed to
internationalization
prevailing
Based on the preceding
country
the
disputable in semiconductors.
is
to
complicates national effort with exclusive character.
further
alliances
crucial
some sense bridge
in
consolidate them into a small
to
appropriately here, though
hand,
and
The law of "microcosm," which
larger players.
other
Small innovative firms seek
strategy.
entrepreneurship
their
characterize
marginal effect which can be induced
little
(e.g.,
can also be more easily agreed upon by different parties
the coverage of national effort
is,
and usually should be,
too wide, too general and thus too divergent to handle as in major
Therefore even
countries.
appropriate,
more
if
national
program launched
experience of
is
not
more focused and concerted national endeavor may be
a
feasible in a small country.
national
champion strategy
many
the first one. 27
in
the
In fact, biotechnology is the first
Netherlands, contrary to the
other countries
where IT program
This potential advantage, nonetheless,
is
is
normally
still
of
little
relevance to those countries which, albeit small, have deep-rooted
decentralization
Military
and
In Japan,
tradition,
like
Switzerland.
Commercial Champions
MITI has stated its belief that "mew
materials"
is
one
of the three basic technologies essential to the establishment of the
new
industries in
the
1990s.
The other two, predictably, are new
biotechnology and new electronic devices.
13
In
the U.S., Office of
9
Technology Assessment of Congress has maintained
advanced
that
materials technology will be a determining factor in the global
competitiveness of U.S. manufacturing industries in the
1990s and
beyond. 28
Advanced materials can be
classified
ceramics,
into metals,
polymers and composites which generally consist of fibers of one
material held together by a matrix of another material.
technologies in advanced
understanding
scientific
and
micro-structure
of
relationships
and
in
between materials
customer specifications--a radical change
in
renewal of activities
is
They have
almost every manufacturing sector.
This
alloys).
generally
is
which
to
hence the rising consumption and great potential
adapt,
to
which
by
techniques
from the past when materials usually created a constraint
users had
in
Advanced materials have opened up new
supplying
of
the
from the advances
result
macro-properties,
they are processed.
perspectives
materials
Relevant
why
in
also
more conventional materials
prompted a
(e.g.,
super
term "advanced" rather than "new" materials
the
preferred. ^
advanced materials technology, the U.S. has achieved
In
a
strong position largely as a result of military and, to a lesser degree,
space programs demanding high performance materials.
advanced structural materials,
60%
of Federal
operating
R&D
example,
DOD
accounts for about
budget, aiming especially at such goals as higher
temperatures,
and reduced weight.
for
In
If
higher
toughness,
lower radar observability,
development, testing and evaluation
military
funds, as well as funds for classified programs were included, this
fraction
in
would be higher.
This
major reason for U.S. leadership
a
is
advanced composite technology of
all
types. ^^
At present, though, advanced materials developed
applications
suited for
are
expensive, and fabrication processes
mass production.
According
to potential
are
for
military
poorly
U.S. commercial
end users, major use of these advanced materials will not be
profitable
within the next five years— the typical
most U.S. firms.
to
In
solve remaining
manufacturing
many
cases, ten to twenty years will be required
technical
methods. 3'
planning horizon of
problems and
Hence
there
14
is
to
develop rapid, low-cost
little
commercial "market
on advanced materials technology
pull"
in
the U.S.
other words,
In
U.S. military technology leadership would not easily be translated
As
strong domestic commercial industry.
into a
major military contractors
the
advanced materials have not played
in
commercial
significant role in
a consequence,
a
Given the U.S. Administration's
area.
reluctance to accept a Congress suggestion to have a nationally-
R&D,
coordinated approach to advanced materials
and
on leaving commercial decisions to the private sector,
how preeminent "commercial champions"
predict
As
U.S.
its
is
it
will
insistence
difficult
emerge
at
most
indirect,
albeit
maybe very
reaching, influence on the commercial sector, and the early
champions" do not always become the
In Japan,
where there
procurement relative
As
alloys.
the
in
is
little
is
materials too.
later
far-
"military
"commercial champions."
R&D
indigenous military
and
nor viable aircraft industry, most
U.S.
explicitly commercial.
It
focuses on
carbon fibers, engineering plastics and amorphous
IT industry, Japanese highly horizontally and vertically
companies enjoy some
integrated
use
to
advanced materials
ceramics,
fine
the
the early development of IT industry implies, U.S. military
programs normally have
effort in
in
to
They
create
"technology push"
production experience.
in
long-term investment in
advanced
gaining
advanced ceramics, Japanese end users
commitment than
exhibit far higher
advantage
"market pull" inside their companies, and
through
In
relative
their U.S.
counterparts
to
the
use
R&D
of these materials.
Both governments spend roughly equal
funds
but Japanese industry spends about three times
in
this
more than
slightly
its
field,
government, whereas U.S. industry invests only
higher than
its
government. 32
proved Japan's superiority.
Electronic ceramics have
The manufacturing technology of
superconductive materials into thin and thick films, and wires and
tapes in Japan
largest
typifies
is
also expected to lead the world. ^^
and most highly integrated ceramics firm
the firm
structure unique to Japan.
In
in
Kyocera, the
the
world,
contrast with aircraft
customers like Airbus Industrie, the single largest consumer of
polymer matrix composites
in
Europe, Toyota introduced metal
matrix composite diesel engine piston consisting of aluminum locally
15
reinforced with ceramic fibers.
This
an important harbinger of the
is
use of composites in low-cost, high-volume commercial applications.
In
Furthermore, the budget
to that in the U.S.
new advances
incorporate
no exception.
commercial
In the
budget
is
incomparable
normally used
is
to
systems to catch up with the
into military
U.S., not to create real innovations. ^^
is
R&D
European countries, military
all
The
field
of advanced materials
most countries also lack the
area,
Therefore most
highly integrated firm structure as in Japan.
European countries have neither "American type strength" nor
"Japanese type strength," though
with
own
its
As
to
FRG
is
regarded as
full
of potential
type in between.
public
universities,
research
institutes
and industry
research consortia, U.S. experience points to their main success in
education and
"window" function rather than research
commercial outcomes.
needed
departments and
is
it
whole.
In
It
normally scattered widely across
are
not easy to integrate them into a fully
the
also be closely connected.
relatively
advanced materials, relevant disciplines
many, 35 but they
are
functional
In
or
results
meantime, design and manufacturing should
This character
may
also explain the
small role of small companies in advanced materials.
is
certainly
about the strategies
still
in
too early to
make any
strong argument
However,
advanced materials technology.
it
may
be reasonable to hypothesize that highly integrated firms can
best
meet the requirements of "commercial champions," because they
can best integrate demand, design and production functions.
This
is
not to imply that they can afford overlooking the cooperation with
other
actors.
For more conventional materials where innovation
incremental, usually large, established
role,
The
and there
is
not
much room
for
firms
will
play
is
the
central
government champion
strategy.
rationale is similar to that in "old biotechnology" as noted
previously.
Competition
and
Cooperation
Nuclear power technology
complexity and integration.
in
is
Highly
Integrated
Systems
characterized by extremely high
This nature
16
is
in
striking
contrast with
In IT, information transmission
that of IT.
the
is
main
whole system required can usually be disintegrated
ways under
the condition
some prescribed manner.
different
Therefore there are
many
in
is
technological
terms of products, processes and discrete subsystems.
options in
In
in
information input and output
the
that
The
goal.
nuclear power, the transmission of huge amount of energy
and materials
necessitates
a
The requirement
the focus.
is
in
flow balance
huge package of highly interdependent subsystems.
The deep concern over safety and environment further urges very
stringent specifications.
In
order to be commercially viable and
minimum economic
competitive with conventional power, the
Besides, the investment
very large.
The very
rather rigid.
sophisticated
is
scale
is
highly capital intensive and
core technology, nuclear steam
supply system (NSSS, including reactor), has few options, and there
are only a very
number of vendors
small
each nuclear power plant
is
more or
in
site-specific.
less
Moreover,
the world.
Architect-
engineers, which are responsible for designing the rest of a nuclear
power
have
plant, thus
system engineering.
in
the
to
In
be capable of large scale and complex
the
meantime,
utilities
have
to
be involved
procurement and construction project management
too.
Because of the push toward many extreme technical conditions
real
scale and the very long life cycle of a nuclear
more than
usually
exist
small
many
thirty
technical
from design
years
to
power plant-
retirement,
may
there
problems which cannot be foreseen through
experience accumulated from prior plants.
This constitutes a big
challenge in of)eration and maintenance phase.
actors in nuclear
power
are
major players.
As
a result,
all
key
Each plant construction
equivalent to a "national project" in most countries given
Due
the
demonstrative versions or through rather complete
scale
financial
in
its
is
huge
investment and technological and managerial challenge.
to
distribution,
different traditions
utilities
may be
in
electricity
centralized
production and
or decentralized.
In
reactor
development, France and the U.K. are more centralized than the U.S.,
FRG
and Japan,
Nonetheless,
all
governments finance generic
research and experimental development.
and the U.K. also have military
interest.
17
Some like the U.S., France
To meet the high standard
of capability
NSSS
and enhance international competitiveness,
vendors in most major countries have been consolidated
example, the single nationalized one
may
they
NSSS
take the responsibility.
with several
to
architect-engineers,
utilities
In Japan
France and the U.S.,
In
Sweden,
In
the only
NSSS
many
and FRG,
utilities
vendor cooperates
for the task.
For safety sake,
are
As
be independent professional companies.
vendors also do the job.
They
countries have regulatory agencies.
all
supposed to be independent of
and suppliers, and
utilities
execute their duty in approving, monitoring and even closing,
nuclear
necessary,
for
France, three consortia in
in
FRG.
Japan, and privately merged one in
into,
power
strictly
if
plants.
In reactor technology,
FRG
and Japan mainly guided by
utilities'
opinion adopted U.S. versions from the beginning, whereas France
and the U.K. guided by government agencies pursued gas-cooled type
But the much greater number of U.S. version
using natural uranium.
plant
constructions drove
the
learning
curve
down much
faster,
therefore France and the U.K. finally gave up gas-cooled type and
turned to U.S. versions.
They
of their technology
inferiority
lost
if
not really because of the "ultimate"
experience of same number of plant
constructions could be compared, but because of the economic
the
the operation of nuclear
earlier,
tremendous technical support.
by percentage of availability.
full
power
availability is about
maintenance of
six
Its
power
Under normal condition,
88% due
weeks per annum.
1%
loss in a
lOOOMW
hence the main goal of
all
to refueling
the
designed
and
Because capacity loss will
plant, to maintain
plants.
plant also calls
performance can be evaluated
incur very high replacement cost,37 for example, about
cost for
at
time. 3 6
same
As noted
for
by comparing alternative reactor options
determined
inviability
US$10
million
high availability
is
In this line, the senior leader, the
U.S., performs badly on the national average relative to most other
industrialized countries.
150
light
water reactors
According to a study investigating about
(LWRs)
in the U.S.,
Sweden and Switzerland, ^^ U.S. 77
1975-84
is
plants'
France, Japan,
FRG,
average availability during
only around 60%, with highest standard deviation and
18
Some
showing no sign of significant improvement.
other countries
Japan and
FRG
also
but both have
made
big progress, and their availability level in the
like
mid-1980s
To
far
is
met serious technical problems
explain this situation, the different patterns of relations
whereas
the U.S.,
about technical issues
experience
440MW PWRs
In this respect, Finland's
Finland also has
in
1970s Finland imported
In
adapt
USSR
two
But these
710MW BWRs
involvement was much
the
so
the
This
regulator's
less.
between
relations
U.S. the normal practice
Later Finland
(boiled water reactors).
time the delivery was nearly turn-key type,
As regards
it
technology to western code, solve
and make own specifications.
imported two Swedish
is
and suppliers,
utilities
to solicit competitive
in
the
bids to keep cost
Therefore the suppliers are highly competitive against one
another.
other countries,
In
and suppliers
exchange
Institute
is
Among
sharing.
is
valued,
long term relationship between
there
utilities,
evidence that the experience
is
also far less in the U.S.
The U.S.
(EPRI) has had done something
So
However, INPO only serves
utilities
Its
to
Electric
Power Research
compensate for
the Institute of Nuclear
Operations (INPO) was established in
and regulatory agencies.
utilities
hence more intensive technical information
weakness, but not enough.
at
USSR.
first
Therefore the regulatory body worked hard
job.
technical problems
down.
its
western electronic control and simulators, and
was not an easy
to
rule and
strict
(pressurized water reactors) from
required
utilities
relation
exemplary.
is
maintains high standard.
with
antagonistic
utilities,
common.
is
sound the most
other countries open communication
in
The regulatory body
reactors
different countries
in
Between regulator and
plausible.
typifies
1970s,
the
ahead of U.S. counterparts.
between key actors
existing
in
1980
to
this
Power
take the responsibility.
and lacks support from suppliers
technical data base
is
thus only partial
most. 39
To summarize,
pivotal role
market
in
the history
of government
R&D
of reactor technology shows the
investment and protected domestic
backing national champions.
19
In
operation of nuclear
o
power
some lessons
plant,
could be put in the following way.
and complex technology
A
are obvious.
like
generalized implication
In a large-scale, highly integrated
nuclear power,
"champions"
multiple
with too severe competition which results in fragmentation of critical
may do serious damage to the whole industry
On the other hand, the public agencies
and technology progress.
shouldering regulatory responsibilities may also have to play a
technology knowledge
developmental role
case their expertise
in
those being regulated.
is
crucial
the success of
to
For these agencies, however, the management
of the two seemingly conflicting roles in order not to hurt their
credibility in
the
Multinational
When
Champion
national
Commercial
an option.
good example.
is
certainly
not easy.
Strategy
champion strategy
competition,
international
a
main missions
champion strategy becomes
multinational
aircraft
To compete
not sufficient to cope with
is
(excluding light aircraft)
in
Europe
with Boeing and McDouglas, the
investment scale and technology complexity needed are beyond
of any one European country.
capabilities
the
is
the
Similar rationale applies to
space sector, where purely national options are obviously not
But both are a
viable in Europe.
In
addition
to
different
little
and safeguards
regulation
power reactor research was pursued
centers
nuclear
joint
activities,
several
in
from nuclear power.
since
1958
under the framework of the European Atomic Energy Community
encourage the creation and growth of
(Euratom)
to
industry.
This multinational collaboration was paralleled by national
programs
many
in
When commercial
countries.
appeared feasible, firms with potential
in
Some
strong competition against one another.
with U.S. firms.
procurement,
to
And most
standards
firms were
still
On
the
technology
preferred to be linked
tied closely to national
is
in
little
incentive
to
be
nuclear power
predominantly
even when pursued within a European framework.**
20
in
other hand, for governments in
Therefore,
development, the interest
nuclear
became
industry
major countries nuclear power was also too important
dependent on foreign suppliers.
civilian
applications
hence having
and regulation,
pursue collective projects.
this
a
nationalistic
the case
In
of fast breeder reactor, collaboration under
Euratom's umbrella was duplicated by research programs
and FRG.
SNR,
Until recently two main projects, Superphenix and
number of countries
including a
has been slowed
down due
are
technology complexity and economic
to
The commercialization so
constraints.
But the progress
underway.
still
France
in
not in prospect partly
far is
because the predicted scarcity of uranium supplies has failed to
This has led to diminishing enthusiasm of some
materialize.
The withdrawal of
members.
space
In
R&D,
the Netherlands
is
an example.'*
early European activities were to provide public
This fact more or less simplified multinational collaboration
goods.
Development Organization (ELDO) and
the European Launcher
European Space Research Organization (ESRO), and
Space Agency (ESA).
than
ELDO
due
to
However,
less
ESRO
of policies
ESRO
and
among member
ELDO,
European
to establish
it
a foothold in
^5
etc.'*^
to
ESA, by
helped produce a coherence
its
became
members.
the
It
also enabled
launchers and to develop a
But once the
range of sophisticated payloads.
congruence,
goal
better
countries and even
cornerstone of the national programs of
Europeans
activities
moved
more commercial phase, Arianespace was created separately
handle commercial launches.
the
collective interests
against U.S.
is
that
makes
ESA
of the European
suppliers for international contracts.
attempt not very appealing.
of public goods nature.'*
fields
In contrast with
greatly
has
little
One
possible reason
space technology and industry
Therefore the European
"pre-competitive"
phase
^
space sector where U.S. and
governments are direct participants, commercial
the U.S.
to
space industry in competition
space collaboration basically remains in the
and the
to
also lacks the influence to promote
the far superior position of U.S.
this
the
intervention from different national
shared vision and relationships with industry,
learning lessons from
the
later
in
evaluated as more successful
is
more unified leadership,
bureaucracies,
the
^
many European
aircraft
government direct support, though
it
industry
in
has benefited
from the spill-over effects of government huge space and
military technology programs.
match the U.S.
in
military and
In
Europe, not any single country can
space programs, available resources
21
and domestic market
The high development
size.
cost,
which usually
requires the sales of up to 70 planes to recoup, and the break-even
point between 300 to 600 planes, depending on whether
make
type or an offspring of another program,
extremely difficult.
and culminates
needs which
Financial
than any single firm can stand.**^
from development
starts
if
want
they
is
also larger
Besides, the market of airlines
needs a family of products, not only a single type.
European governments,
new
a
is
protection policy
the
the sales equivalent of 100 planes
at
it
to
This forces
enter commercial
aircraft
market, to directly underwrite aircraft industry, and to look to
collaboration to pool
international
market access
As
alternative.
nature
(e.g.,
national flag airlines) as the only viable
a matter of fact,
with commercial aircraft, and
competition
In
pressure
even military aircraft which by
is
subject
severe international
to
too.
Western Europe, the collaborative projects, regardless of
commercial or military
Atlantic,
hopefully, also
based on economic criteria shares some similarities
less
is
resources and,
aircraft,
the first case in the
include Franco-German
Transall
and
1950s, Anglo-French Concorde, Anglo-
French helicopter and Jaguar, Tornado, and the recent Airbus.
Tornado was
the
Germany and
Italy.
issues
first
inherent in
In
the
view of
trilateral
projects of bilateral cooperation.
step further in
commercial
relevant
undertaken by the U.K.,
three-partner project,
its
potentially
than
relations
in
the
previous
Tornado could be regarded as
management of multinational
aircraft,
much more complex
aircraft joint
a big
efforts.
In
however, Concorde and Airbus provide the most
lessons.
According to many reports, Concorde
aspects except technological
is
achievement.
a big failure in all
Instead
of being
operated
by an integrated management as originally designed, Concorde was
in
fact
supervised rather directly by a
French and
fluctuating
criteria. "^^
government bureaucracies with
British
structure
different,
and conflicting decisions, and even non-economic
But
it
did induce a sharpened awareness of the
management of multinational
subsequent
cumbersome dual
collaboration,
projects.
22
hence
benefiting
of
In
Airbus program, a big difference
Airbus Industrie.
But
transparent.
It
has no capital, makes no profit and
it
coordinates
More
and service to customers.
responsible for marketing
is
common
parent companies and works for
become
It
Therefore
institution
by member country governments.
successful yet, Airbus has
financially
interest.
arm's length.
at
a rather integrated consortium with
is
but endorsed
right
Airbus Industrie
importantly.
has also managed to keep governments
Airbus
fiscally
is
and institutionalizes cooperation
without merging firms involved, and
"transcends"
the establishment of
is
in
its
Though
own
not
only real foreign
the
challenger to U.S. commercial aircraft industry.'*^
Recently,
many
programs have been promoted
to
technology
international
multinational champion strategy.
strategic
been
set
Even Mega-project
alliance between Philips and
up
to
multinational champion
For a multinational champion
reluctant to
relinquish
their
the enforcement of "juste
question.
No common body
common interest.
that
has
an
very difficult to achieve.
is
which participant countries are
in
assets
retour"
and control and even request
how
principle,'*^
simple:
quite
to
compete against
management
integrated
fully
The answer seems
only
rather understandable
is
it
strategy
own
other formidable rivals with
is
Siemens.
push forward some thrust of
Based on the above analysis,
effective
But very few cases belong
Europe.
in
collaborative
a
is
a
big
multinational champion
should also be an integrated competitor while receiving support from
multiple
countries.
Concluding
Remarks
National champion strategy emerged in
many governments thought
that
size
was
the
1960s
it
was the origin of American
with the likes of
IBM
por Europe to compete
challenge.'^*
the only
way was
to
grow firms of
1970s many national champions were
However, the two
previous belief.
GM,
"Big was beautiful"
Through government rationalization and
equivalent size.
endorsement, in
and
Europe when
main reason explaining
Europe's lagging behind the U.S. in productivity.
and
in
oil
crises
in
being.
and new technologies shaked the
Many champions had
23
fiasco,
exemplified by
semiconductor industry.
seems
by a
to be replaced
beautiful;"
champions by fragmenting markets
national
others,
in
some fields, mass production paradigm
new one and "small may be more
In
precludes more appropriate larger scale operations,
like
telecommunications.
under scrutiny
and
many new
Therefore the old strategy
schemes
strategic
champion strategy mainly from
market
business
size,
technology characteristics
all
performance of champions.
not so simple as
and sometimes
it
still
it
national level.
foreseeable
may
it
inappropriateness
arena, '*9
comparative technology
Experience from many countries shows that
perspective.
competition,
This paper examines
arise.
a
is
in
is
is
and
have profound impact on the
In
the
appear.
It
not viable.
of national
domain, governance structure,
meantime, champion strategy
has to adapt to
many
is
conditions
Despite some argument for the
champion strategy
global
today's
in
a useful concept to guide strategic thinking at the
And
national rivalry does not
seem
to diminish
in
the
future.
Notes
For a brief discussion of the concept of the filiire, see,
'
and
^
arguments
in
the
of
theory
Schumpeter (1942).
4
Schumpeter (1911).
5
Arnold (1987).
6
Levy and Samuels (1989),
technological
^
one of the main
change.
See
Nelson
pp. 60-73.
For further details about Japan's strategy
example,
Anchordoguy
in
computer industry,
see,
for
(1989).
For a brief discussion, see Nelson (1984), pp. 45-47.
^
For a revised theory of international product
^0
'
evolutionary
is
Winter (1982).
3
^
Nguyen
example,
Arnold (1985).
That a beUer selection comes from a wider variety
and
for
^
This
is
called "second
For the conditions
in
follower strategy."
12
Turner (1988).
24
cycle,
see
Vernon (1979).
See Chiang (1989).
favor of internalization
(1986).
life
at
the
firm
level,
see
Teece
^^
For
brief discussion
a
telecommunications,
'"*
about
in
For recent development of consumer electronics, see Vickery (1989).
^5
This
one of the main arguments explaining the rapid decline of U.S.
is
semiconductor industry
^^
For more
17
OTA
U.S.
relative
Freeman (1987),
see
details,
'^
For
ventures,
See
Similar argument
face
of industrial
21
The uncertainty and complexity,
in
22
U.S.
23
U.S.
OTA
OTA
favor
R&D
and interna!
Macdonald (1988).
and
Olleros
20
balance
(1988).
pp. 79-90.
comparison of strategic alliances with progressive
see
Ferguson
(1984), pp. 518-522.
Borrus and Millstein (1983).
a
companies.
Japanese
to
18
24
change
structural
Nguyen (1985).
example,
for
see,
recent
made
is
the
in
Harrigan
See
volatility.
of integration
study of vertical
all
integration
strategy
(1983).
being equal,
others
will
draw
the
one main point made by Williamson
is
in
(1975).
(1988c).
(1984).
For European biotechnology
strategies,
for
see,
example, Gyllenberg (1985),
Creasey (1986) and Sharp (1987).
25
For more
26
For the principle of microcosm, see Gilder (1988).
27
interviews
Hague
29
in
U.S.
Lewis (1984).
in
organizing
concerned
with
biotechnology
government
program
officials
in
is
based
Amsterdam
U.S.
31
U.S.
U.S.
34
OTA
(1988a).
OTA
OTA
(1988a).
(1988a).
U.S.
Inc.
(1987).
OTA (1988b).
OTA (1989).
35
For a typical case
3°
For a brief review of the development of nuclear power technology,
3'
and
December 1989.
For more details about ten countries, see Strategic Analysis,
33
for
on
Dubarle (1989).
30
32
see
The Dutch experience
several
28
details,
in
design, see Mecholsky (1985).
see,
example, Thomas (1988).
Replacement cost means the additional
power
to
"replace"
the
loss
of availability
25
in
cost
incurred
using
nuclear power.
conventional
38
Hansen
39
et
(1989).
al.
The discussion of experience
director of the
analysis
national
Finland
laboratory
reactor
among key
of relations
in
actors
in
based on an
is
Helsinki
in
nuclear power
in
interview
May
is
1989.
with
the
The
from Hansen
et
al.
(1989).
^0
The experience of Euratom has been
see,
for example.
'*'
For further
documented.
well
For a brief summary
Sharp and Shearman (1987), pp. 28-30.
European
Shearman
details
about
the
For a comparison of
ELDO
and ESLO, see Koenig and Thietart (1988).
fast
breeder
reactor,
see
(1986).
^2
'*3
For
a
summary of European space
brief
Shearman (1987),
^'^
For
'^^
Experience
a
pp.
general
in
collaboration,
For further
description
of aircraft
industry,
^^
"Juste
spent
'^8
49
retour"
within
that
see
Hayward
principle
means
Newhouse
see
Concorde has been well discussed.
details
Sharp and
36-38.
and Gibson (1976), Knight (1976) and Feldman
'^^
see
See,
for
(1982).
example, Clarke
(1985).
(1986).
that
each
country's
contribution
must
be
country.
For the concept of "American challenge"
Sharp (1989).
26
in
1960s see
Schreiber (1965).
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FEB 15
t-r-
-^^
•**'*'
Lib-26-67