When Bill Wright asked me about one and a half years ago to participate in the Philosophical Society of Texas Annual Meeting for 1998, I thought I had a relatively easy task in covering the topic "Economic Warfare" or better yet economic global competition. The IC² Institute of The University of Texas at Austin had commissioned Dr. Piyu Yue and I to research global competition which resulted in a book published in 1997 entitled Global Economic Competition: Today's Warfare in Global Electronics Industries and Companies.
Our book covered a twenty-two-year period between 1970 and 1992.We reviewed economic efforts in twenty-two nations. We also examined fourteen industries based on electronic technologies and discussed methodology issues relative to the electronic technology chain and their clusters and comparative analysis based on data envelopment analysis. We extended our comparative analysis to 315 corporations within the clustering electronics industries which included electronic components, computer manufacturing, software, telecommunications equipment, industrial instruments, consumer electronics and four emerging industries. The company studies included the largest multinational corporations of Canada, Japan, South Korea, the United States, Germany, Great Britain, and other Western European countries. The time period covered 1982 through 1992. We compared company performance as well as the underlying factors for employment and labor productivity, asset utilization, cost efficiencies and R&D expenditure ratios. We also performed a core competitive analysis between the world's top twenty-six giant electronics companies with more than $10 billion of sales revenues in 1994.
The time period selected was 1985 to 1994. These time periods covered the formation of the European Community, ASEAN, and NAFTA. Also this time period covered the cold war as well as the transition to cold peace. It covered changes in the World Bank and IMF. Several economic cycles were included as well as changes in national political parties and leadership. Needless to say, Dr. Yue and I spent over four years on these studies.
Today's presentation will concentrate on economic warfare based on Fourth Industrial Revolution technologies. Thereby, I wish to present first, a summary of the lessons learned from Piyu's and my study on Global Economic Competition; second, a quick review of the growing importance of the high technology industry to the United States and Texas, and conclude with a call for Texas-based actions for leadership for the twenty-first century economic global competition.
Part I. Global Economic Competition: Today's Warfare in Global Electronics Industries and Companies.
Dr. Piyu Yue and I reached an early conclusion that there was no economic theory or models to analyze global economic competition for science and technology based industries. We found that global economic competition is a complex dynamic process that could not characterize economic competition among nations, particularly when economic theory and logic rely on restrictive assumptions that have drifted away from the reality of changing times. We settled on a deeper and more disaggregated approach to analyzing the competitive advantages of a nation's economy, its industries and its major companies. In the global technology-based marketplace we see fierce competition between clustering industries as well as among their firms. The final outcome of this competition profoundly determines a nation's economic status and the extent of its power within the international system. We emphasized comparative analysis at three levels; namely, relative performance between nations, between industries, and between firms.
Relative Performance of Nations from 1970-1992.
We compared the macroeconomic performance of twenty-two nations from 1970 to 1992 that were major exporters and/or importers of electronic products. The center of international economic gravity in the time period 1970-1992 was shared by the United States, Japan, and Germany. The average growth rates of real GDP is shown in Table 1 for selected nations. In the time period 1978 to 1991 Japan's average growth rate was almost twice that of the United States. However, the 1994 growth rate of the United States was eight times that of Japan. The Asian region nations' growth rates were higher than Japan's. In the 1985-95 period, Germany's and England's growth rates were higher than the United States. By 1994 the U.S. average growth rate of real GDP was higher than that of Germany and England. Please note that China's and Singapore's average growth rate for 1994 continued to grow while the other Asian countries' growth rates dropped.
GDP per capita is shown in Table 2. Please note that by 1991 Japan's and Germany's GDP per capita was higher than that for the United States. The average net export values are shown in Table 3. You will note that the U.S. international trade deficit increased throughout the period 1978-1994. In contrast, the Japanese international trade surplus increased over the same period.Germany's net international trade was a surplus over the same period.
Relative Performance by Industries.
Our study also analyzed the national competitive advantages and disadvantages within the global electronic industries. We used Michael Porter's competitive cluster techniques for fourteen electronics-based industries to represent a nation's competitive advantage. Our contribution was to develop a way to provide linkages among the electronics-based industries in terms of exports and imports. We called these linkages a "technology chain." (See Charts 1 and 2.) The period covered was from 1978 to 1990. Our study showed that Japan has developed the strongest electronic technology chain in the world for materials, components, industrial products and consumer goods. It was very evident that Hong Kong, Singapore, South Korea, Malaysia, and Taiwan had devoted much effort to establishing their own electronic technology chains industry and had become aggressive competitors in the global marketplace. The study, as expected, showed that the United States initially developed the electronic technology chain but it lost share of markets to the Asian countries. However, the United States was still dominant in developing extensions to the electronic technology chain. In fact, the United States was dominant in three out of four of the newer industries-multimedia, information systems, flexible manufacturing systems, and management systems. Japan was dominant in one; namely, industrial robots.
What was clear for the study was that global national competition was driving the technology chain from a high technology business to a commodity business. (See Chart 3.) In other words the life cycle of technology products is short. As new and advanced products are launched on the market, the earlier generations become technologically and economically obsolete. What we have observed is that while the technology-based product/service cycle is short-under two years-it takes a nation some twenty to forty years to develop their technology-chain-based industries. For example, it took at least thirty years for the United States to develop Silicon Valley. The Japanese government funded over a decade of research and development to enter the computer manufacturing market.
Those corporations that successfully market and sell the most advanced products at any given point in time will experience spectacular growth rates-so-called hyper-growth. Economists have been late in recognizing this phenomenon, so characteristic of the technology economy. Conversely, corporations clinging to product laggards can see their markets collapse overnight, with disastrous results. The technology-based economy can become polarized into two camps: swarms of small start-up companies growing at phenomenal rates, and stumbling giants.
The high tech corporation is typically embarked on a dynamic path that is located far from equilibrium all the time. The orbit is nonlinear. It harbors the possibility of chaos.
In the resulting setting of industrial turmoil, there will occur rapid technological evolution. A kind of balance will be established between creativity and oblivion, between the commercialization of new products, the launching of new start-up companies, mergers and acquisitions, and bankruptcies.
Our comparative analysis at the firm level clearly indicated that the giant companies have been the gravity center of global economic competition. Their successes and failures impact the global marketplace, affecting international trade balances, employment, personal and national wealth and status, and, finally, the standard of living of present and future generations. In previous sections we observed that many excellent mid-sized electronics companies in the U.S. are out-performing Japanese and U.S. giant firms. Although mid-sized and small electronics companies have relatively limited human, financial, and technological resources, they compete aggressively with giant electronics companies in all the clusters, and expand rapidly. Their successes can change the future landscape of the global competition in the electronics industries. U.S. examples are Microsoft, Intel, and Dell.
I'd like to selectively review with you the comparative performance of the global giant electronics companies. There are twenty-six companies in all, each with consolidated sales revenues of more than $10 billion in 1992 except for a Korean company, Samsung Electronics, whose sales revenues were only $4.848 billion in 1992, but soared to $14.282 billion in 1994. This group includes ten companies based in the U.S., ten in Japan, two in Germany, and one each in France, the Netherlands, Sweden, and South Korea. The twenty-six giant companies are about 8.25 percent of the 315-company sample size studied. The sales revenues of the twenty-six-company group were $755.454 billion in 1992, accounting for 60.5 percent of total sales revenues of all the 315 sample companies, which spread over the entire electronic technology chain.
Comparative performance of these twenty-six giant firms by nation is shown in Table 4. The Japanese giant companies increased their relative share at the expense of the United States and Western European nations. A closer examination of ten U.S. giant companies would show eight of them lost relative share and only two increased their relative share. Behind the giant electronic companies relative share are many factors such as recessions, corporate strategy and other political, social and economic factors. However we examined their three input factors-labor, capital, and technology-used in different versions of economic growth theory. In the 1993-94 time period, the following conclusions can be made; namely,
Employment nine of the ten Japanese companies continued to increase their employment. eight of ten U.S. companies decreased their employment.
Total Assets All ten Japanese companies increased their total assets. five out of ten U.S. firms increased total assets.
R&D Expenditures seven out of ten Japanese companies increased their R&D expenditures. five out of ten U.S. firms increased R&D expenditures.
Japanese companies kept increasing their input factors throughout the period 1985-1994. It is particularly striking in the total employment increase of 690,000 people. In the same period the United States was downsizing by 532,000 peopleTotal assets of the Japanese companies increased by 4.0 times in the 1985-94 period while U.S. firms increased their assets by 2.87 times. R&D expenditures for U.S. firms also lagged Japanese R&D expenditures-1.3 times for U.S. firms to 3.8 times for Japanese firms. The comparison of the company level data clearly shows that rapid global expansion of the global Japanese electronics companies into a commodity market. In contrast, the U.S. electronics industry was concentrating on emerging market changes and profitability.
One major conclusion from our analysis of the twenty-six global giant companies was that new technologies are revolutionary because:
A. They reflect fundamental advances in science.
B. They are widely diffused. Consequently, many nations as well as regions and individuals will have increasing opportunities to develop and utilize these technologies for their own purposes.
C. They spur new industries and regenerate traditional industries.
D. They are creating new types of institutional alliances among academia, business, and government.
E. They require greater intellectual property protection.
F. They create new approaches and pose newer requirements that make existing skills and competencies obsolete. Furthermore, they significantly alter or create new consumption/behavior patterns."
Part II. Power Shift.
General Butler, Dr. Mark, and Mr. O'Neill have touched on the changing external threats, military actions, and terrorism. They clearly established the changing nature of our national security. Part I of this paper has recognized that economic security is also important for national security. In the past, I have referred to this concept as comprehensive security. But what many of us see is a power shift. The challenges are more than changes in worldwide markets and economic growth. It is more than the challenge of utilizing revolutionary dual technology for comprehensive security. The challenge is more how to create wealth and prosperity at home and abroad in times of cold peace. If I could pick the most significant lesson that I have learned from our comparative nations study regarding warfare in global electronic industries and companies, I would say that entrepreneurial leadership makes it possible to get on and stay on the leading economic edge. Entrepreneurial leadership is not entrepreneurship at a firm level be it a start-up or a progressive 200-year-old multinational firm. It is the need for creative and innovative leaders of all sectors-academic, private, government, and the foundation sectors. How they all work for the common good of all people in a caring and sharing way is the key. I firmly do not believe entrepreneurial leadership can be attained through government promotion and protection, or government targeted industries and incentives.
In the past year, I have had numerous occasions to observe and discuss at home, in China, in Japan, and in Eastern Europe how to build a civil society. At the core of these discussions I've observed what Jessica T. Mathews has called a "power shift." (See Charts 4 and 5.)
In the past, comprehensive security was focused at the Federal level. However, power shifts place the emphasis on communities, global or local. My good friends, Dr. and Mrs. Rostow, have taught me that if you can't handle the problem at a local community level you can develop a global community.
In the United States, high technology is the single largest industry by sales. In 1996 total high tech sales were $866 billion in five industry clusters. (See Charts 6 and 7.) U.S. high tech sales have increased 37 percent from 1990 to 1996. U.S. high tech sales surpass U.S. auto manufacturing and construction revenues. (See Chart 8.) U.S. high technology service revenues have surpassed electronics manufacturing since 1991, software and computer-related services are the most dynamic segments. All high technology manufacturing segments except defense electronics continue to grow. High technology is the nation's leader in R&D expenditures-$40 billion in 1995 or thirty percent of all R&D expenditures. The high tech R&D growth since 1990 is 42 percent.
Texas is more high tech than most of its citizens realize. In 1996
* Texas was the second ranked high tech state in both exports and employment. (See Charts 9 and 10.)
* Texas added over 69,000 high tech jobs between 1990 and 1996 to make it the leading state.
* Fifty-one of every 1,000 private sector workers in Texas are employed by high technology firms.
* Texas's high tech industry employs more than oil and gas drilling, agriculture and petroleum refining. (See Chart 11.)
* Texas's average high technology industry wages are 57 percent above Texas's other average private sector wages.
* Texas's high technology industry employment is primarily in communication services, semiconductors, software services, data processing and computers, and office equipment manufacturing. (See Chart 12.)
* A major challenge for Texas's high technology is to develop the border region. (See Chart 13.)
Part III. Texas's Call to Action
For Texas to continue to be economically and globally competitive we need to address three key issues. (See Chart 14.)
First. Provide entrepreneurial leadership at the community level for the power shift. This leadership must be caring and sharing. (See Chart 15.) Therefore, this leadership must come from within the community. The community must provide the necessary civic entrepreneurship infrastructure that commercializes revolutionary technologies.
Second. The community leadership must provide for proactive state research bases. (See Chart 16.) The community leadership must make sure that Texas gets its fair share of the Federal research budget. The entrepreneurial leaders must make sure that each community region in our state has its share of research and development-academic and private. We must stay on the cutting edge of commercializing technology for the emerging global markets including building global alliances.
Third. Improve the workforce development programs from entry skills, through technicians as well as the science, engineering, and management professions. (See Chart 17.) This will require more than traditional education and private-sector training. In short, we need to evolve certificates of competencies that are timely and provide sufficient numbers of individuals when needed and where needed.
Entrepreneurial leadership requirements are shown in Chart 18. All individuals need to have opportunities, e.g., jobs, skills and competencies as well as appropriate recognition of their contributions. The community leadership needs to integrate its economic, cultural, political, and technology sectors. Entrepreneurial community leadership must come from partnerships between the academic, business, government, and foundations sectors.
In conclusion, I'd like to quote my good friend Dr. Skip Porter: (See Chart 19.)