Michael J. Kelly
In 1995 this author contributed to a publication on electronics manufacturing in Japan (Boulton 1995) and in 1997 to a publication on electronics manufacturing in the Pacific-Rim (Boulton and Kelly 1997). Both reports document the competitive challenges to the U.S. from the intense collaborative efforts between government and industry.
After reviewing the findings in the 1997 report with executives at the U.S. Department of Commerce (DOC), the authors of those reports were asked to provide the DOC with additional information on the policy implications of the dynamics of the electronic industry in the Pacific Rim. This paper is a response to that request. A more detailed analysis is scheduled for publication by the Department of Commerce in 1998.
In addition to considerable research to extract information from available sources, the writing of this paper was preceded by additional trips to South Korea and China, led by Dr. William Boulton, in order to gain new insights beyond those documented in the two previously identified studies. This paper is designed primarily for the benefit of policymakers who must constantly deal with the complex issues that affect the global competitiveness of the U.S. Without a clear set of priorities based on information that will affect the prioritization process, policymakers cannot cope with the data overload available or the pressures from "agents of influence" who are competing for their attention.
The primary focus of this report is Asia-Pacific, which is home to over fifty percent of the global population and includes some of the most dynamic economies in the world. To concentrate on Asia-Pacific without taking into account the other major regions of influence -- Europe, the Americas and the Middle East -- would lead to a highly distorted picture. Europe and the U.S. are competing with Asia to lead the world in the twenty-first century, but the Middle East may hold the leverage that will greatly influence the respective goals of the other regions.
The relative peace in the world, which is a major contributor to the expanding global economy, could be shattered by extremists from the Middle East who are capable of extraordinary destruction almost anyplace in the world. A second factor deals with the uninterrupted availability of oil and natural gas that are essential to the continuing growth of all industrialized nations.
While the U.S. is expected to be the dominant military presence well into the next century, its military arsenal is not a major deterrent to terrorists or rogue nations intent on destruction. The U.S. has taken the high moral ground in attempting to isolate nations that engage in or support terrorist activities. In the eyes of U.S. allies, however, legislation like the Helms-Burton and D'Amato laws are simply ignored when they come into conflict with the economic interests of their respective countries. Recognizing, for example, that Iran has triple the gas reserves of the U.S. (Business Week 1995), explains, in part, the desire of France to maintain good relations with Iran.
China, in anticipation of its increased demand for a guaranteed supply of energy to feed its future industrial growth, has signed contracts with Iraq and Kazakhstan and is negotiating deals with Nigeria and Kuwait. To date, 65 foreign countries have invested $5.2 billion to drill oil in offshore China waters (L.A. Times 1997).
Global interactions among countries will accelerate as multinational companies pursue international markets; however, each country will continue to support policies that assure its independence and political autonomy. There are, nevertheless, changes taking place which are providing incentives for individual countries to participate in the establishment of interdependent trading blocks that give preferential treatment to the members within each block. This motivation is partially driven by the major regions intent on leading the global economy in the next century. There are those who have referred to the twenty-first century as the Asian century. Others, however, say that the twenty-first century will be dominated by the "House of Europe" (Thurow 1993). It should be evident that the U.S. fully intends to lead in the next century, and its present favorable indicators suggest that it is the prime candidate to continue to lead in the future. Despite the efforts to establish interdependent trading blocks by the three major candidates for leadership, none can succeed in isolation. There will continue to be increasing interactions among the three regions and a dependence for success on the Middle East as described earlier.
Before addressing the development of the regional strategies, it is important for policymakers to understand the global trends that are driving these strategies:
While different geographical areas are aggressively establishing regional trading blocks, most multinational companies continue to identify with a global rather than a local market, and to pursue the opportunity to actively participate in all regions. The percentage of world trade accounted for by each of the regional trading blocks is identified in Table 1. With the United States included, APEC represents 45 percent of world trade, the EU has almost 30 percent, which leaves only 25 percent for the rest of the world. One can expect to see some significant shifts among the different regions over the next decade. While there are some evident advantages to the organization of these trading blocks, there is also concern that the results could produce a group of hostile trading blocks that conflict with the goal of establishing open global markets. On the other hand, cooperation among the different blocks would facilitate the World Trade Organization (WTO) in making free trade a reality. WTO has already demonstrated its value to the United States: the United States has has won 5 cases it has brought to WTO, settled 7, and lost only 3 minor cases brought by other countries (Senger 1997). It would appear that the concern that the U.S. is giving up too much of its national sovereignty to WTO is basically unfounded. This is not to say that there are not some legitimate concerns about the short-term effects of WTO decisions. These concerns deal primarily with the effect on jobs. Rather than focus on job losses, however, the U.S. needs to focus on preparing the workforce for the better jobs that will become available.
The preceding information has hopefully prepared the reader to better understand the information that follows summarizing the results of our research into the economic strategies of countries in Asia-Pacific, acquired through repeated trips to China, Singapore, South Korea, Taiwan, Hong Kong, Malaysia and Japan. The teams visiting these countries included representatives from U.S. companies who are frequent visitors to the Asia-Pacific region. The detailed findings of this study will be included in a forthcoming report to be issued by the Department of Commerce. What follows is this author's summary of the findings.
There is a significant amount of information in this paper that confirms many of the observations documented in the predecessor reports discussed above. It is very evident that the dynamic economic strategies in Asia-Pacific require continuous attention to the changing environment which may affect the decisions of policymakers in the U.S. In summary the significant findings include:
The recent economic difficulties in Asia have brought a clearer understanding of many of the obstacles that need to be overcome if Asia is to continue its dynamic growth in the next decade. The following are a sample of some of the challenges facing the region:
Each country in Asia-Pacific has its own set of strengths and weaknesses, but all of the Asian-Pacific counties have been affected to some degree by the recent financial crisis and subsequent economic slowdown, which has exposed some serious structural flaws in the infrastructure. The reforms and restructuring that are taking place in the region as a result of the financial crisis will require some time to take effect, but in the end the nations of the Pacific Rim will re-emerge from this process stronger than ever.
Understanding the changing interactions in the Asia-Pacific is vital to the industrial strategy of the U.S. While the efforts of ASEAN, and the changes in China, Hong Kong and Taiwan, may lead to a better collaboration in the future, there is practically no integrating factor among the countries in Asia. Non-interference in each others internal affairs is the guiding principle. All of the countries think of themselves as strategic rivals. Evidence of this is apparent from the separate pursuit of each country for Western business, which has generated overcapacity in manufacturing of some products. While the rivalries within Asia may not be in the best interest of the competing countries, there is some evidence that U.S. companies are taking advantage of the situation to get the lowest cost for electronic components as described in the section that follows. A U.S. goal should be to sustain good relations with each country in Asia-Pacific because, as Henry Kissenger has said, "We are, or could be, closer to each of the contenders in Asia than they are to one another" (Kissinger 1997).
The move to a global economy has spurred the development of information technologies: computers, software, peripherals and networks. Today, the U.S. dominates the information industry with a commanding lead in microprocessors, software, telecommunications and network technologies. Asian countries, however, recognize the importance of information technology to their future success, and they are establishing the infrastructure necessary to exploit it. Singapore, for example, has made significant progress on its plan to establish a network that integrates government agencies, businesses and schools.
Malaysia has established a "multimedia corridor", called Cyberjaya, where it plans to move its government operations and use multipurpose integrated-chip cards for passports, identity cards, credit cards, driver's licenses, and electronic money. Over 900 companies have applied to participate in Cyberjaya, including some of the most technology-rich companies in the United States, Europe and Japan. Participating companies are being offered a 10-year tax holiday and the attraction of the resources associated with a new multimedia university.
China has established "Golden Projects" to upgrade its telecommunications and electronics industries. It is building a network to provide voice, document and graphic communications between 500 cities and 12,000 large corporations. A "Golden Smart Card" has already been issued to 30 million Chinese to be used to replace cash transactions. Similar cards will be used in the future to include the owner's medical records.
Asia's growing emphasis on information technology will support a major effort in software development that will gain prominence as that labor-intensive industry increasingly moves into low-labor-cost countries like India, China and the Philippines.
The world is entering a new age where information will dominate every aspect of society, and global communication among people will become commonplace. A pervasive information technology infrastructure will be essential for industrial nations to compete in the global economy.
The attention being given to the global economy by policymakers is one of the major peace dividends. Concern about economic security now has a higher priority than military security. It is also evident that countries that in the past were preoccupied with military aggression, or defending against it, are now moving into markets as competitors to those who historically dominated global markets. Today, given the right set of circumstances, a competitor can come from any region of the world.
In the 1940s Japan threatened U.S. military security. Throughout the 1970s and 1980s the concern switched to the effect of Japan on U.S. economic security. In the 1990s the economic strength of the U.S. has become the envy of the world. What happened? Among other things, the U.S. reacted, as it always has, to a challenge. Industry took the lead in restructuring and reinventing itself. Waste was eliminated through attention to new organizational structures. The protectionist attitudes of the past were replaced with international partnering in pursuit of global markets. Product quality and service to the customer were given the highest priorities. Research and development were increasingly driven by a product pull in contrast to a technology push.
At the close of the 1980s and the beginning of the 1990s U.S. government and industry formed partnerships to address many of the competitive issues. In the Department of Defense, this was demonstrated by increased attention to dual-use technology. Industrial sectors formed partnerships with government to strengthen the domestic infrastructure, as evidenced by the establishment of the semiconductor consortium, Sematech. Government played an active role in pursuing a level playing field with our trading partners, and industry provided the organization and management skills needed to meet the global challenges.
This study suggests the need for continuing vigilance and cooperation if the U.S. is to sustain its economic growth. The actions of the past that have proven to be successful need to be continued; however, the expectations for the future will require new strategies to meet the inevitable challenges.
The new paradigm will require an increased commitment by industry and government to work together to meet the challenges of the twenty-first century. Among the greatest of these challenges will be the effort to foster a global free-trade environment. The policies of the U.S. should be one of accommodation towards our trading partners consistent with firm policies that protect the interests of the United States. The active participation of the U.S. in the regional trading blocks that have been identified in this paper, and the fostering of fair trade among the different regions, are in the best interests of the United States and will ultimately be a benefit to everyone.
A second challenge, which is among the most important, is a restructuring of the U.S. K-16 educational system. The present K-12 emphasis on preparing students to go to college must shift to a multi-track system which produces graduates with the knowledge and skills necessary to fill the jobs available in the workplace.
Many jobs will be eliminated in the twenty-first century. It has already been predicted that government and manufacturing jobs can be reduced significantly through the application of information technology. New jobs, many of them the product of technological innovation and computer applications, will be created. There is already evidence that industry can not find the knowledge workers to meet the present demands. Leaving the responsibility for education to the approximately 1600 independently elected school boards will not produce the desired results. It is these same school boards that have concentrated on preparing everyone for college despite the fact that about 29 percent of the students drop out of high school and less than 30 percent finish college. The federal, state and local governments, working with industry, must collaborate to provide an educational system that graduates the skilled workforce that is required for the United States to lead in the twenty-first century. The right people need to be drawn to the teaching profession, which requires improvements in the reward system. Learning technology needs to be a part of the total educational experience. Industry must be active in providing the opportunities for skill development through active participation in the learning process and opportunities for apprenticeship training. Beginning with high school, educational opportunities must increasingly have a career orientation, which implies an alignment with future employers whenever possible. School officials need to recognize that their function is not simply to serve children and young adults. Schools need to be looked upon as a national resource available to anyone of any age interested in learning. This implies a 360-day-a-year availability of resources, not 180 days.
The task of providing an environment for continuous learning leads to the third great challenge for both the public and private sector. The information technology infrastructure of the U.S. must be capable of simultaneously meeting the commercial and educational needs of the country. The nodes on the networks will have a variety of different hardware. The application specific software will be tailored to the user requirements, but the network, and the infrastructure needed to support learning and commerce, require a continuing and joint effort of government and the telecommunications industry.
Solutions to the problems of trade, education, and the information technology infrastructure will resolve the issues of the fourth challenge to be addressed -- the fair distribution of wealth. The changing demographics can be looked upon as assets in a global economy, but only if the total population can benefit from an educational system that prepares the workforce to exploit information technology to develop products that are competitive in a global market.
Policymakers spend an inordinate amount of time on issues that have little or nothing to do with the challenges identified in this paper. The American public would be best served if our elected officials gave the highest priority to the issues related to:
The goal of the above is to sustain a high quality of life for all of our citizens while pursuing global leadership in the twenty-first century. The United States, however, cannot lead unless it is strong. In the information age of the twenty-first century, the United States will not be strong unless it continues to develop and exploit technology, maintains a highly qualified workforce, protects its competitive advantages in world trade, recognizes the advantages of its diversity, and provides the opportunity for all its citizens to share the wealth that will be generated.
The next century can be the American century, but it will require strong leadership from government, industry and business. It will require a set of policies and strategies that are consistent with the legitimate aspirations of our trading partners and the realization that we play in a "competitive-cooperative game, not just a competitive game." The goal must be to win, but, in a global economy, no one needs to lose.
Boulton, William R., ed., 1995. JTEC Panel Report on Electronic Manufacturing and Packaging in Japan, Baltimore, MD, Loyola College, NTIS Report #PB95-188116.
Boulton, William R. and Michael J. Kelly, 1997. WTEC Panel Report on Electronics Manufacturing in the Pacific Rim, Baltimore, MD: Loyola College, NTIS Report #PB97-167076.
Business Week, 1995 "Total Loves To Go Where Others Fear To Tread", October 13, Page 52.
Kissenger, Henry, "The Folly of Bullying Beijing", LA Times, July 6, 1997, Page M2.
LA Times, 1997. "The New Bigfoot in the Global Market", October 5, Page M2.
Senger, David E., "Bashing America for Fun and Profit", The NY Times, October 5, 1997, Section 4, Page 1.
Thurow, Lester, 1993. Head to Head, Warner Books. Page 258.