Japan's Growing Technological Capability Implications for the U.S. Economy (1992) / Chapter Skim
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Japanese Control of R&D Activities in the United States: Is this a Cause for Concern?
Japanese Control of R&D Activities in the United States: Is this a Cause for Concern?
Pages 189-206
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From page 189... ...
During the early years of this surge, most of this investment was of the "green fields" variety (i.e., the creation of entirely new business activities in the United States) , but beginning in 1987, Japanese direct investors moved increasingly towards acquisition of existing U.S.
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From page 190... ...
business leaders and economists that U.S.-owned business firms operating in advanced technology industries were becoming significantly less competitive relative to their Japanese rivals and that this loss of competitiveness was not a phenomenon that could be corrected via macroeconomic adjustments such as revaluation of the yen. Rather, it was widely perceived that the loss was due to some combination of factors such as declining rates of R&D expenditure in the United States relative to Japan, "short termism" and other managerial failures by U.S.
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From page 191... ...
SOURCE: Prepared at InsOtute for Internabonal Economics Mom U.S. NaboDa1 Science Foundation base data.
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From page 192... ...
The cumulative stock of these flows (the "foreign direct investment position of the United States") is thus the total current value of the foreign share of this net worth measured at historic value.
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From page 193... ...
affiliates of Japanese firms in 1987 is much lower than the percent of U.S. nonfinancial corporate net worth held by Japanese direct investors; the latter is shown on Figure 3 to be about 1 percent in that year.
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From page 194... ...
U.S. economy, and most Japanese FDI is in the nonfinancial corporate sector.
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From page 195... ...
As previously noted, prior to 1987 most Japanese foreign direct investment in the United States entered in the form of green fields investment rather than acquisition (see Table 2) , but acquisitions have been predominant from 1987 onwards.
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From page 196... ...
. SOURCE: Prepared at Institute for International Economics from U.S.
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From page 197... ...
The percentage of net worth of nonfinancial corporations accounted for by Japanese FDI increased by 1.9 times between 1987 and 1989 (i.e., was about 90 percent higher in 1989 than in 1987; see Figure 3) , whereas R&D done by U.S.
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From page 198... ...
Also, the amount of this R&D is remarkably commensurate with the overall level of Japanese-controlled activity in the economy. About 1.8 percent of nonfinancial corporate net worth is held by Japanese foreign direct investors, and about 1.1 percent of company funded R&D is done by U.S.
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From page 199... ...
This is that the ultimate intent of many large Japanese firms operating in the United States is to create major R&D centers here, with an emphasis on basic and precommercial research. The rationale for this is that whereas Japan excels in product design and manufacturing innovation, it still significantly lags the United States in fundamental scientific disciplines.
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From page 200... ...
The key idea is that in order to avail itself of such knowledge, an organization must both be plugged into the network of entities that generate basic knowledge and possess a minimum set of internal capabilities necessary to recognize potentially valuable information and to internalize this information in a way that can lead to commercial opportunity. By this account, basic R&D activity by any firm (and not just Japanesecontrolled ones!
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From page 201... ...
These suppliers include the firm's employees, whose marginal productivities (and hence wages) might be positively affected by product and process innovations resulting from R&D.
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From page 202... ...
That having been said, it must also be said that "all else being equal" does not hold. In the extreme, domestic ownership of an R&D activity might not be an option.4 In such cases, a discussion of the pros alla cons of 4Thus, for example, in her study Foreign Investment in the United States: Unincumbered Access (Washington, DC: Economic Strategy Institute, 1991)
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From page 203... ...
Even if the activity is not additive, it is not invariably to the detriment of the United States for it to be under foreign ownership. An issue here is SThese considerations are quite close to those developed in much greater depth by John Cantwell; see in particular "The Technological Competence Theory of International Production and Its Implications," University of Reading Department of Economics Discussion Papers in International Investment and Business Studies, series B
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From page 204... ...
What are known in the recent literature on clustering of economic activities as thick market externalities will almost surely be enhanced by R&D activities under foreign ownership but located on U.S. soil, and benefits will result that are captured by Americans.
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From page 205... ...
Two-way transfer of technology is almost surely a positive-sum game. There almost surely would be net costs both to the United States and to Japan of closing off this transfer, and reciprocal access to each other's thick market externalities is almost surely jointly beneficial even if the case could be made that one party would benefit at the expense of the other if one nation were to be unilaterally open to listening posts of the other while the second were to be closed in this regard.
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From page 206... ...
Some of these will fall under the rubric of national security.8 But while legitimate national security exceptions exist, it is easy to envisage "national security" becoming a rationalization for xenophobic policies that serve no national interest, security or otherwise. Therefore, national security exceptions to an otherwise open policy towards foreign ownership of economic activity (including R&D activity)
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