Cover Page

Contents

List of Figures

List of Tables

List of Boxes

Abbreviations

Acknowledgements

Introduction

1 Technology and Globalization as Concatenated Processes: A Brief Commentary on the Causes of Globalization

1.1 Introduction

1.2 Mapping globalization

1.3 Financial liberalization

1.4 Multinational enterprises

1.5 The globalization of innovation by MNEs

1.6 Liberalization of economic systems

1.7 Regional and economic integration

1.8 The role of new technologies in globalization

1.9 The knowledge-intensive, multi-technology firm

1.10 Political economy: shifting hegemonies and discontinuities

1.11 Standardization and homogeneity across borders

1.12 The dynamics of international interdependence: countries and firms

2 Cross-border Interdependence between Locations: Learning, Growth and Systems of Innovation

2.1 Introduction

2.2 The basic concepts underlying systems of innovation

2.3 Understanding learning processes

2.4 Understanding the growing international dimension of learning

2.5 Limitations of learning

2.6 Conclusions

3 Innovation Systems and ‘Inertia’ in R&D Location: Norwegian Firms and the Role of Systemic Lock-in

3.1 Introduction

3.2 Systems of innovation and inertia in R&D

3.3 Responses to inertia from a firm perspective

3.4 The evidence: R&D activities of Norwegian firms

3.5 ‘Systemic’ lock-in: dependence on the innovation system

3.6 Summary and policy implications

4 Cross-border Interdependence between Firms: The Growth of Strategic Technology Partnering

4.1 Introduction

4.2 The characteristics of ownership advantages and technology

4.3 Explaining strategic technology partnering: some definitions

4.4 The growth of alliance activity

4.5 The special case of strategic alliances to conduct R&D

4.6 Conclusions

5 In-house R&D, Outsourcing or Alliances? Some Strategic and Economic Considerations

5.1 Introduction

5.2 The growth of the multi-technology firm and non-internal R&D

5.3 Standardization, cost and industrial organization

5.4 Distributed competences and the choice between internal and non-internal activity: a static view

5.5 The dynamic view: the evolution of technological paradigms

5.6 Dynamic aspects of choosing between in-house R&D, alliances and outsourcing

5.7 Some conclusions, caveats and avenues for future research

Appendix A

6 Technological Catch-up and Strategic Technology Partnering in Developing Countries

6.1 Introduction

6.2 Strategic alliances and catching up

6.3 Organizational modes and developing-country STP

6.4 Differences in the industrial specialization of countries

6.5 Conclusions

7 Technology, Globalization and Policy Issues: Some Observations

7.1 The challenges of globalization and fuzziness

7.2 The role of governments in innovation

7.3 Government intervention and innovative activity

7.4 R&D cooperation and governments: direct vs. indirect intervention

7.5 On innovation systems and learning: some policy issues

Notes

References

Index

Title Page

Figures

I.1 Relating R&D to technology and science

1.1 Mapping globalization

1.2a Distribution of outward FDI stock, 2000

1.2b Inward FDI stock: percentage distribution by region, 2000

1.3 Number of EPO patents applied for by European MNEs’ affiliates in the US

2.1 Institutional set-up in terms of potential knowledge sources of companies

2.2 Corporate learning processes

2.3 The inter-connectedness of domestic and foreign knowledge bases in an innovation system

3.1 Firms’ response options to sub-optimal lock-in

4.1 ‘Distance-to-market’ issues in the innovation process

4.2 Explaining the underlying differences between strategic alliances and customer-supplier networks

4.3 Organizational modes of inter-firm cooperation and extent of internalization and interdependence

4.4 Growth of strategic technology partnering, 1980–1998

4.5 Number of new STP by year for EU firms

5.1 The distribution of competences

5.2 The static view: relationship between distributed competences and internal/non-internal R&D

5.3 Distribution of competences of firm B, based on managers’ perceptions

5.4 Technological evolution with a given paradigm

5.5 Decision tree in selecting mode of R&D for pre-paradigmatic technology

5.6 Decision tree in selecting mode of R&D for paradigmatic technology

5.7 How the significance of technologies changes over time

5.8 Decision tree in selecting mode of R&D for post-paradigmatic technology

5.9 Relating distance-to-market considerations to technological evolution

6.1 Growth of strategic technology partnering, 1980–1994

6.2 Ratio of equity to non-equity strategic technology alliances in developing countries, 1980–1994

Tables

I.1 A taxonomy of the globalization of technology

1.1 Selected indicators of FDI and international production, 1982 and 2001

1.2 FDI to developing regions, two periods, as % to all developing countries

1.3 R&D expenditure of foreign affiliates in selected host economies, 1998 or latest year

1.4 Share of US patents of the world’s largest firms attributable to research in foreign locations, organized by the nationality of the parent firm, 1987–1995, per cent values

1.5 Patenting activity attributable to European-owned research outside the home country in the US by industrial group of the parent firm, 1978–1995 (%)

Box 1.1 Shares of US patenting due to research located abroad

3.1 Selected indicators for sample, split into two groups

3.2 Distribution of R&D expenditures of surveyed firms

3.3 Distribution of surveyed firms, number of firms and worldwide revenues

3.4 Extent of internationalization of sales, production and R&D (%) 93

3.5 ‘How important are the following factors and considerations to your decision to maintain R&D laboratories in Norway?’

6.1 Newly established strategic technology alliances in Triad and developing countries, 1980–1994

6.2 Strategic technology alliances in developing countries by region, 1980–1994 (%)

6.3 Equity and non-equity modes of strategic technology alliances in developing countries, 1980–1994

6.4 Equity to non-equity ratio by major industries and regions, 1980–1994

6.5 Distribution of STP activity by regions with developing countries, 1980–1994

6.6 Distribution of STP activity for the Asian NICs, 1980–1994

Boxes

1.1 Globalization of R&D: not as new a phenomenon?

1.2 The power of change: the end of a paradigm and the start of a new one?

4.1 Networks vs. alliances

4.2 Vertical vs. horizontal alliances

4.3 Why joint ventures are not always strategic alliances

5.1 The importance of in-house capabilities for multi-technology products

5.2 Opportunities and limitations for SMEs

Abbreviations

BERDbusiness expenditures on R&D
CADomputer-aided design
CISCommunity Innovation Survey
EETsEastern European Economies in Transition
FDIforeign direct investment
GATTGeneral Agreement on Tariffs and Trade
GPNGlobal Production Network
ICTsinformation and communications technologies
IMFInternational Monetary Fund
ISmport-substitution
LDCsleast developed countries
M&Amergers and acquisitions
MNEmultinational enterprise
NAFTANorth American Free Trade Agreement
NFRNorwegian Research Council
NICsnewly industrializing countries
OECDOrganization for Economic Cooperation
and Development
OSoerating system
PCBprinted circuit board
PDApersonal digital assistant
R&Dresearch and development
SAPStructural Adjustment Programme
SDIstrategic defence initiative
SEMSingle European Market
SIsystems of innovation
SINTEFStiftelser for Industriell og Teknisk Forskning
ved NTH
SMEsmall- and medium-sized enterprise
STPstrategic technology partnering
WIPOWorld Intellectual Property Organization
WTOWorld Trade Organization

Acknowledgements

Books, most unfortunately, do not write themselves. But this is a matter of time: I am an unbridled optimist in all matters technological, and I feel certain that Nokia’s next line of mobile phones will have just such a feature. Failing Nokia, I have my hopes pinned on the Swiss Army Knife folks.

This particular exercise in masochism has been two years in the making, most of which were spent vegetating in front of the TV (thank you, Seven of Nine, MTV and Buffy). Before inflicting the actual contents of this volume on your unsuspecting mental faculties, it is tradition to share the blame for its contents with the people behind the person behind the book.

First, I would like to thank the four people without whose direct intervention I would probably be drifting around the Amazon as an unemployed tour guide wearing a very smelly shirt and nursing a perpetual hangover (although some may consider that being a professional academic is no real improvement over being a professional barfly). These are John Dunning, John Hagedoorn, Jan Fagerberg and Keith Smith, all of whom have taken my ramblings seriously and have provided me with opportunities for which I am sure I was largely unqualified. I have made some of their intellectual biases my own, as the reader of this book will discover.

The second group consists of people who have added texture to my thought. Tine Bruland and Olav Wicken for introducing me to economic history; Robin Cowan for a crash course on technological lock-in and tacit knowledge; Gabriel Benito for reading every word I have ever written and commenting on everything. Special thanks must go to Chris Freeman, Daniele Archibugi, David Held and Nikos Kastrinos for comments on the first version of the manuscript. Nikos’s comments on the first paragraph of the first page were particularly earth-shattering. It is a small detail that this was in fact as far as he got.

There is a third group: those who have contributed immeasurably in keeping me sane and holding my intellectual and social proclivities in check. This group is large, so I shall single out just a few (in the interests of brevity): Paola Criscuolo, John Cantwell, Lou Anne Barclay, Anne-lies Hogenbirk, Anthony Arundel, Michael Meissner, Elena Baldini, Akin Okelana, Bart Verspagen, Peter Gray, Pat Rotonda, Amir Moghaddam, Charmaine Liew, Monica Narula and Virginia Acha.

Fourth, I would like to thank Bert Sadowski for permission to use some of our jointly authored material in chapter 6, John Dunning for parts of chapter 7, and Mona Wibe for parts of chapter 2.

I must also thank the various institutions that have provided me with the perfect environment to study. The Centre for Technology Innovation and Culture (TIK) at the University of Oslo; the Department of International Economics and Management at the Copenhagen Business School; MERIT and its entire staff (past and present) for being my refuge for so many years. Last but not least, I would like to acknowledge the staff of the Department of Electrical Engineering, Ahmadu Bello University, Zaria, Nigeria, 1979–1983. Although I may not have been the most diligent of undergraduates, some of that engineering stuff did stick, as the contents of this book would suggest. No condition is permanent, it seems, even ignorance.

Special thanks go to Paola Criscuolo for her research assistance and Sudha Menon for her assistance in indexing.

Partial research funding by the Norwegian Research Council is gratefully acknowledged.

Acknowledgement is also due to the copyright holders for permission to reprint the following: chapter 3 was originally published as ‘Innovation Systems and “Inertia” in R&D Location: Norwegian Firms and the Role of Systemic Lock-in’, Research Policy, 31/5 (2002), 795–816; chapter 5 is a revised version of ‘Choosing between Internal and Non-internal R&D Activities: Some Technological and Economic Factors’, Technology Analysis & Strategic Management, 13 (2001), 365–87; chapter 6 is adapted from ‘Technological Catch-up and Strategic Technology Partnering in Developing Countries’ (with B. Sadowski), International Journal of Technology Management, 23 (2002), 599–617.

Finally, thank you, dear reader: I await my obscenely large royalty cheques so I can buy that phone.

RN
Copenhagen,
November 2002

Introduction

Globalization is a controversial subject where possibly the only feature that everyone seems to agree on is that it is an ongoing process, rather than an event. Economic globalization as used here implies the growing interdependence of locations and economic units across countries and regions. I use the word ‘interdependence’ very deliberately. Cross-border linkages between economic entities do not imply globalization, merely internationalization. Trading activities do not necessarily result in interdependence. If we concentrate on measures of international trade, levels of global activity are roughly at the same level as they were 100 years ago (Bairoch and Kozul-Wright 1998). The new element of international business is the growth of FDI (foreign direct investment) and the multinational corporation. When we discriminate between trade, long-term capital flows, portfolio investment and FDI, we come to an important differentiation. For while international business activity was broad-based in the past, it was dominated by the development of vertical linkages, with a flow of goods between locations, in response to varying elasticities of supply and demand. Raw materials were transported from one location to another, manufactured, and transported to a third location for sale. Factors of production were immobile, and although capital did in fact get relocated, these were capital flows rather than capital embodied in physical assets or personnel, and there was no significant integration of operations in disparate locations within the control and management of the same individuals. Firms were international, but not multinational. International business and economic activity was extensive in the sense that the value of goods and capital exchanged were considerable, and involved numerous countries and actors, who were all dependent upon each other’s patronage. But it was not intensive, in that activities were largely not integrated across borders, with the possible exception of the large trading companies and other state-sanctioned de facto monopolies (Held et al. 1999).

Technological change and innovation are acknowledged almost universally as determinants of globalization. However, technology is another highly imprecise word, and if I am to proceed further without doing violence to any of these concepts, it is essential that the reader understand what I mean. Technology implies the application of scientific knowledge for practical aims. Technology is the application of scientific concepts that help us understand our environment, and allow us to convert this knowledge to develop and fabricate artefacts. Technology and science are cumulative, and build upon previous science and technology. The practical dividing line between science and technology is not always clear. Science and technology advance through innovation, which represents change in the stock of knowledge. Technology and science are subsets of knowledge. The difference is sometimes considered to be in the intent of the work, in that science is conducted in the altruistic thirst for information, while increases in the knowledge base of firms is with a specific intent in order to create a product or a service. But this difference has also blurred.

In a very general sense, ‘innovation’ may mean the introduction of any novelty, but in the economics and technology literature it has come to have a more precise meaning or meanings since Schumpeter made his distinction between ‘invention’ and ‘innovation’. An invention is an idea, sketch or model of any new or improved device, product, process or system. Innovations occur only when the new product, device or process is involved in a commercial transaction. Multiple inventions may be involved in achieving an innovation. In the Schumpeterian sense, scientific discoveries as well as inventions would not come within the compass of ‘innovation’ although they might fall within a second, broader, type of definition, which is concerned with the entire process of an innovation, including antecedent work not necessarily undertaken by the entrepreneur who attempts the first type.1 The broad definition of innovation as used here implies changes in the knowledge, ability and techniques required to produce goods and services of higher or better quality per unit price, while technology represents the cumulative stock of these innovations. Technology therefore – for the purposes of this volume – includes all activities that provide assets with which an economic unit can generate products or services. Science provides us with more generic knowledge, which may or may not generate products and services..2 Although it is not strictly accurate, I will use knowledge creation and innovation as synonyms here, since my interest here is with the process through which economic units evolve their knowledge bases.

Knowledge creation is often associated with formal activities within research and development (R&D) that is undertaken in a systematic manner within universities, specialized public and private R&D facilities. However, these formal means represent only a small proportion of knowledge creation. Knowledge creation is a much larger and more systemic phenomenon, although formal facilities account for a large percentage of output. One can do no better than to quote Freeman and Soete (1997: 45) on this point:

But this [formal] Research and Development system is at the heart of the whole complex, for in contemporary society it originates a large proportion of the new and improved materials, products, processes and systems, which are the ultimate source of economic advance. This is not to underestimate the importance of dissemination of knowledge through the education system, industrial training, the mass media, information services and other means. Nor is it to deny the obvious fact that in the short run rapid progress may be made simply by the application of the existing stock of knowledge. Nor yet is it to deny the importance of feedback from production and from markets to R&D and scientific activities. It is only to assert that the fundamental point that for any given technique of production, transport or distribution, there are long-run limitations on the growth of productivity, which are technologically determined. In the most fundamental sense the winning of new knowledge is the basis for human civilization.

Figure I.1 Relating R&D to technology and science

images/img_0003_0001.gif

Knowledge development is incremental and radical. This is a function of the way all learning takes place. Economic units – be they firms or individuals – acquire knowledge by exploring in the vicinity of their existing knowledge assets, by undertaking routines, which leads to incremental innovations (learning-by-doing). Knowledge is acquired by interaction with the external environment. In the case of firms it may be through interaction (inter alia) with customers, suppliers, competitors, government agencies. This is referred to as learning-by-interacting. Firms (like individuals, who make up firms) are generally averse to radical change, in that they are likely to repeat successful patterns of behaviour, learning and interaction that have been successful in the past. This is referred to as routinized learning.

Routinized learning can be further characterized as ‘exploitative learning’ which adds to the existing knowledge and competences of a firm without fundamentally changing the nature of its activities. Non-routinized learning or ‘exploratory learning’ involves changes in company routines and experimentation with new alternatives (see e.g. Dodgson 1993; March 1991).

Much of the innovative activities of firms comes under the rubric of non-formal R&D. Indeed, as Smith (2000) points out, innovation rests not on discovery but on learning, and evidence from the EU-sponsored Community Innovation Survey (CIS) confirms this view. Generally speaking, industries that are regarded as having a low R&D intensity (which tends to be based on measures of formal R&D) tend to undertake a greater amount of informal innovation. Indeed, innovation undertaken through the acquisition of new plant and equipment tends to be the largest contributor to total innovation expenditures. That is, firms acquire new equipment that is then modified or adapted, and new and improved routines to use these technologies are gradually developed (see e.g. Laestadius 2000).

‘The globalization of technology’ vs. ‘Globalization
and Technology’

The work of Archibugi and associates (e.g., Archibugi and Michie 1994, 1995, Archibugi and Iammarino 2000, Archibugi and Pietrobelli 2002) is worth mentioning in the context of this volume. The focus of Archibugi and associates is on the globalization of technology, and seeks to classify the different modalities through which technology and innovation have a growing cross-border nature. They build around a taxonomy that classifies individual innovations according to the way these are produced, exploited and diffused internationally. This taxonomy is presented in Table I.1, and identifies three main categories of technology generation:

1 The international exploitation of nationally produced technology. This concerns the use by innovators to exploit their technological competences in markets other than the domestic one. This category can be labelled ‘international’ as opposed to ‘global’ since the innovation preserves its own national identity, even when it is diffused and marketed in more than one country.
2 The global generation of innovation. This category focuses on innovations generated by single proprietors on a global scale, usually multinational enterprises (MNEs). The innovations in this category are generated based on inputs from multiple research and technical centres, which may be located in different countries.
3 Global technological collaborations.

Archibugi’s three modes of globalization of technology are clearly very different, although it is somewhat difficult to disentangle them empirically. The starting points (and assumptions) of this volume and their work are the same. First, we both acknowledge that there is a convergence between countries in the kinds of knowledge being used. Second, there is consensus that there is a rapid convergence in the way in which knowledge is created and disseminated.

My interest in this book is to focus on understanding the why of this taxonomy. I accept that the globalization of technology can be seen in terms of these three categories, but I seek to enquire as to the reasons for this. Why are some MNEs more likely than others to generate innovations globally? Why do a majority of innovatory activities – even by MNEs – continue to be nationally generated, even though large shares of their sales and production are undertaken abroad? Why do firms increasingly undertake global techno-scientific collaborations, and are these a substitute for the other two categories, or complementary to them? In asking why, I intend to explain that these three categories are not independent of each other, but overlap in their nature and extent. There is – yet again – considerable interdependence between these categories.

Table I.1 A taxonomy of the globalization of technology

Source: adapted from Archibugi and Michie (I995).

CategoriesActorsForms
International exploitation
of nationally
produced innovations
Profit-seeking firms and
individuals
• Exports of innovative goods
• Sale of licences and patents
• Foreign production of innovative goods internally generated
Global generation
of innovations
Multinational enterprises• R&D and innovative activities both in the home and in the host countries
• Acquisitions of existing R&D laboratories or greenfield R&D investment in host countries
Global techno-scientific
collaborations
• Universities and public research centres• Joint scientific projects and R&D networks
• Scientific exchanges, sabbatical years
• International flows of students
• National and
multinational firms
• Joint ventures for specific innovative projects
• Productive agreements with exchange of technical information and/or equipment

There is a small – but important – semantic point that should be noted. This volume is not about the globalization of technology, but about globalization and technology. Furthermore, it is not my intention to examine all the issues associated with technology and globalization, despite the title of the book. Within this wide field, I will be focusing my attention on the growing nature of cross-border interdependence in the creation and diffusion of technology. I take it as a given that economic growth occurs because of the ability of a nation’s industries to develop and sustain their competitive position, and that this requires growth of productivity of its capital and labour (see Fagerberg 1994 for a review). Further, I will assume that economic growth concerns not just the acquisition and development of knowledge through innovation and learning, but also the diffusion and efficient utilization of this knowledge. My own humble contribution here is to shed on the international aspect of this interdependence or cooperation by examining the growing nature of cross-border interdependence at two levels. First, between locations, by examining the role of cross-border interdependence in the innovation process. Second, between firms, by studying the dynamics of inter-firm R&D collaboration.

Interdependence between economic units as per the definition of globalization used here implies cross-border cooperation, whether by design or otherwise, and this is what has led to the ‘fuzziness’ aspect associated with globalization. There are specific outcomes that have become blurred through the changes wrought by globalization and technological change, and have led to what seem like paradoxical outcomes. Concepts that have traditionally been clear and precise are now less clear and imprecise. Specifically, the nature and boundaries of several hitherto clearly defined economic entities are no longer as easy to define. I use the term ‘economic entity’ deliberately, because I wish to include firms and countries (and the in-between entities) within the same frame of reference. This is not a matter of convenience: the fuzzy issue rears its (indeterminate) head because it is no longer clear what is the appropriate unit. Academics and policy makers bemoan the loss of sovereignty that globalization has wrought, and it has become increasingly obvious that countries are unable to make and implement economic decisions unilaterally, because porous borders, MNEs and international markets determine prices, exchange rates, the use of resources and technological trajectories (see e.g., Boyer and Drache 1996). That is, countries are obliged to consider external conditions in maintaining the welfare of their citizens, and are thus more or less obliged to consider external (non-domestic) dimensions. They are obliged to move towards cooperation or an interdependence with other nation-states, supra-national institutions and even firms in an attempt to seek Pareto-optimal outcomes. The MNE figures large in such matters: FDI-based industrial development policies are now commonplace in most countries. Although there has been a growth in the global FDI flows, there is also increased competition for certain kinds of foreign capital, particularly those that provide opportunities for indigenous spillovers of technology and organizational capability. Firms too (whether uninational or multinational) are increasingly integrated with firms, customers, suppliers, governments and organizations in other locations creating a multi-level and multi-dimensional arena of cooperation and interdependence.

It is obvious that these issues go well beyond those of economics and business; and must necessarily include socio-political considerations as well. This is particularly the case with globalization, which has increased the vulnerability of hitherto relatively closed economies to the external shocks and influences from the world economy at large. As Stopford and Strange (1991) well illustrate, firm–government interaction is also influenced by the dynamics of government–government and firm–firm relationships. These are the issues that raise the spectre of fuzzy borders.

Despite the growing role of cross-border interdependence, however, societies and systems change only very slowly: there remains a fundamental distinctness of national identities and cultures, nations and firms. There is little evidence that economic units are becoming generic and identical any more than during the heyday of the Roman, Persian or British empires. In other words, the environment within which economic activity is undertaken still remains largely the same and changes only very slowly. Unilever may supply similar products to almost every household under the sun, it may have alliances with a variety of firms, depend on a large number of partners for inputs, but its control structure and its ‘core’ activities remain largely embedded in its home countries. The very fact that debates lamenting the loss of national sovereignty exist is because people and the ecology within which economic activity is undertaken are integrated within systems that are bound together by routines, procedures and traditions (‘institutions’), which cause embeddedness. Institutions complement economic actors: institutions cannot be changed without radically affecting the whole system. New concepts, technologies and practices are more easity introduced across borders in an interdependent world, but their introduction is not costless: they tend to disequilibriate systems (Kogut 2000).

While a large literature has mushroomed describing the increasingly interwoven nature and cross-border dependence of locations and firms, there is considerable variation by location, firm, and industrial sector. Indeed, it has resulted in a widening in the created assets3 and income gap between the industrialized countries and a handful of wealthier developing countries on the one hand, and the poorer developing countries at the other. The literature on economic catch-up and convergence,4 for instance, tends to categorize countries into three broad groups. The first consists of the wealthy industrialized countries which, over the last two decades, have experienced a convergence in income levels, consumption patterns and technological capabilities. The second comprises the more advanced developing countries (primarily the Asian newly industrializing countries – NICs), which are catching up and converging with the first group. The third category is made up of a large number of poorer developing countries, which far from converging with the first and second group are diverging from them, either because they have ‘fallen behind’ relative to the first group, or because they have ‘stumbled back’ in both a relative and absolute sense (Hikino and Amsden 1994). Put another way, the homogeneity among markets that is usually associated with globalization has occurred only partially, and in a very selective way. Similar behaviour has been noted for FDI (see e.g. Narula 1996a). Indeed, as argued by Gray (1996), globalization, while benefiting the middle income developing countries, has so far brought relatively few economic gains to the least developed countries, for example, most of sub-Saharan Africa. The simultaneous divergence of the growth and income levels between richer and poorer economies, and the convergence amongst industrial (and rich) economies, harks back to the vicious cycle of poverty. The inability of the least developed countries to escape from the vicious cycle, and therefore to converge, can be explained by the absence of the same conditions that underlie convergence within the developed countries, namely, that while technological spillovers assist productivity growth in industrialized economies, non-industrialized, poorer economies are unable to utilize such spillovers either because they are not available to them or because the countries do not have the appropriate social-institutional systems and the necessary technological and organizational capability.5 Thus, when one speaks of globalization, one speaks of the globalization of selected groups of countries or industrial sectors. Naturally, any discussion invoking globalization therefore has significant policy implications for both developing and developed countries. However, in this book I do not intend to dwell on the dichotomy per se.

Globalization is also by no means an irreversible or a linear process. Globalization can be said to be largely an evolutionary process, and an incredibly complex one at that. Increasing interdependence is co-determined by so many processes that are themselves evolutionary in nature. Primary (but not solely) amongst these co-evolutionary processes is that of technological change. The outcome of evolutionary processes is generally always non-obvious except with hindsight. Evolutionary processes have two fundamental features. First, they occur in historical time and are non-reversible. Second, they are about the creation of novelty, and this creative process involves selection mechanisms in which the environment determines which novelties survive. Thus, by extension, it is about both creation and destruction of novelties, and the cumulative processes that these entail.

How this book is organized

The rest of this book will proceed as follows. Chapter 1 expands on this introduction, delving somewhat deeper into some of the nature and causes of cross-border interdependence. It introduces the reader to the main forces underlying globalization of technology, highlighting the complex and intertwining nature of some of these forces that simultaneously underlie fuzzy borders and precise boundaries. These are not – as should be obvious by now – limited solely to economic issues, or to the forces of technological change, or the spread of the MNE. Each contributes – by its very nature – to the fundamental inequities, paradoxes, concentrations and imbalances that mark any evolutionary phenomenon.

The first main theme of this book is the tendency for locations to be interdependent in the creation of knowledge. Chapters 2 and 3 focus on discussing the questions related to the location and dynamics of innovation and its relationship to globalization. I discuss the process of knowledge creation within economies, and the important role of international actors in an innovation system, and why firms and countries are largely reluctant globalizers, at least as far as R&D is concerned. This is an area of some paradox. On the one hand, locations are increasingly interdependent. On the other, locations remain distinct and idiosyncratic. At the same time, the line of reasoning I develop here suggests that – over the long term – it is reasonable to expect that boundaries will become increasingly fuzzy and indistinct as globalization progresses. My central argument builds around the concept of ‘inertia’, the process of evolutionary change, and a ‘systems of innovation’ understanding of learning.

Chapter 3 seeks to enquire why firms – ceteris paribus – tend to concentrate their R&D activities at home, using a systems of innovation approach. I argue that R&D inertia is associated with structural inertia and resultant systemic lock-in. Interaction within an innovation system is a self-reinforcing mechanism that may or may not lead to ex post efficiency. Lock-in can be efficient when technologies and institutions maintain the competitiveness of firms. On the other hand, radical innovations or technological discontinuities may require new institutions and resources, but systemic lock-in may prevent rapid reaction. Firms can use a ‘voice’ strategy by intervening to modify the appropriate institutions in the existing innovation system, or an ‘exit’ strategy by seeking alternative innovation system which more closely fit their needs.

The second theme of the book is the growing interdependence of firms in the innovation process. Chapter 4 starts the ball rolling by examining the reasons for the growth in R&D collaboration by firms. I develop a framework to understand the welfare and social rationale for government involvement in promoting and partaking in R&D activities in general and alliances in particular, paying special attention to the evolution of international strategic technology partnering.

Chapter 5 expands further on the growth of alliances, making a clearer distinction between various types of R&D collaboration, and evaluating how firms make the choice between in-house R&D and non-internal R&D. I recount the reasons for the growth in non-internal activities, and explain why these are not as prevalent for R&D as other value-adding activities, and highlight that outsourcing is most often undertaken where multiple, substitutable sources are available. I then develop two frameworks. First, a static framework is developed, which evaluates the choice of mode based on a firm’s distribution of competences, and their strategic importance. Second, a dynamic framework is developed that demonstrates how the static framework differs depending on whether the firm is engaged in pre-paradigmatic, paradigmatic or post-paradigmatic sectors.

Chapter 6 tries to connect the issue of R&D collaboration with the question of national capabilities and innovation systems. I examine the kinds and types of organizational modes of strategic technology alliances utilized by developing country firms. I examine the reasons for the growth of strategic alliance activity by developing country firms, and, in particular, propose explanations for the considerable variation between countries and regions, both in terms of propensity and organizational modes. I propose that while the issue of economic divergence and ‘falling behind’ remains valid, there are convincing arguments that the failure of developing countries to participate is also a result of fundamental structural differences in the economies of these countries.

I present some conclusions and observations in Chapter 7. I demonstrate the possible sub-optimal outcome of nation-states attempting to ‘target’ innovatory activity by particular companies. I discuss the role of governments in promoting and engaging in the generation and diffusion of intellectual capital in general, and in facilitating inter-firm technological alliances and in being able to implement effective industrial policy. I also evaluate the efficacy of techno-nationalism, in light of the welfare and social responsibilities of governments, particularly in an age of globalization.

1

Technology and Globalization as Concatenated Processes:
A Brief Commentary on the Causes of Globalization

1.1 Introduction

To reiterate what has been stated in the introduction, evolutionary processes have two fundamental features. First, they occur in historical time and are non-reversible. Second, they are about the creation of novelty, and this creative process involves selection mechanisms in which the environment determines which novelties survive. Thus, by extension, it is about both creation and destruction of novelties, and the cumulative processes that these entail. Technology and globalization are both evolutionary, but it is essential to emphasize that they are by no means synchronized. They are instead co-evolutionary. That is, they represent different systems that are evolutionary, but are to some extent independent. By extension, this implies that they are also to some extent interdependent. The word ‘concatenation’ describes this well. It implies that technology and globalization are inextricably linked together, yet are not the same object. There are other co-determinants of globalization, some of which are also linked to technological change, and also bound to evolutionary principles. It is essential that we understand their principal components before we get to the heart of the matter, which is to understand the changing interdependence of firms and countries on a cross-border basis. To this end we also need to have an understanding of globalization’s tangible properties and causes; it is a sum of its parts, no more and no less.

There are two secondary issues that I want to illustrate by example in this chapter, but not seek to prove in any rigorous fashion. First, that globalization is a summation and accumulation of various other evolutionary processes. There are myriad other processes and events which through an unlikely and complex intertwining define the essence of globalization. It is a slippery beast, precisely because it does not really exist. But as with all myths it has real foundations, and this is what much of this chapter will attempt to do. Second, that globalization is not new (Drucker 1997). Its equivalent Latin word was probably in daily use during the heyday of the Roman Empire. It is simply fashionable once again. Yet it grips our imagination, fascinating and horrifying us simultaneously. Globalization – and its constituent processes – has occurred largely incrementally, punctuated by numerous discontinuities. Various aspects of globalization are more intense than they were in the past, but globalization in the sense of interdependence has historical, past dependence.

This chapter seeks to put the rest of this volume in context: although much of the rest of this book purports to focus explicitly on technology and globalization, globalization is a much larger and more involved phenomenon. Chapter 1 sets the stage by going through some of various elements that intermediate between globalization and technology.

1.2 Mapping globalization

It is no simple task to map out the causes of globalization: a whole literature has evolved in pursuit of this elusive goal, most recently reviewed by Ietto-Gillies (2002), and probably most thoroughly by Dicken (1998) and Held et al. (1999). The problem, as I see it, is that any analysis of the causes of globalization requires an anti-monde test. That is, what might be the case ‘in another world’? This is different from simply comparing an ex ante situation with the ex post environment, which is the most prevalent means of economic analysis. This is not simply because economists are lacking in imagination, but that economics (despite the best efforts of some) is not a science but a social science. The beauty of science is in its clear-cut boundaries. An experiment in physics or engineering is regarded as successful only if it can be repeated ad infinitum with exactly the same results, regardless by whom or where or when. Furthermore, it is possible to exclude certain processes in the repetition, to create a ‘control’. In the social sciences, we are obliged to throw in a ‘ceteris paribus’ clause even into our theorizing. In order to test these arguments we sometimes introduce numerous restrictive and often implausible assumptions. Unfortunately all else rarely is equal. Time moves on, and with it there are numerous other factors that have changed. We cannot, for instance, study how Bismarck might have helped create a coherent nation-state in the Balkans. Even when our analysis is drawn to rather simple questions, there remains a non-replicable element, because there are a hundred other factors, which cannot be precisely identified, much less controlled. The various social science disciplines are largely inseparable when dealing with questions of even reasonable magnitude.

In addition to the non-replicability bottleneck, we are faced with the chicken and egg dilemma. Are economic units more interdependent because of improved transportation opportunities? There is no denying that there is a relationship between the two, but might it not also be the case that the need of economic units to transport goods more efficiently leads to improved transportation? Similar arguments can be made about information and communications technologies (ICTs), other new technologies, international institutions, and the like.

I believe the best we can reasonably expect to say is that there are numerous factors that are interrelated, and should not worry too much about the direction of the causality or the relative importance of each. Academics (myself included) sometimes get mired in technicalities and miss the big picture.

After such an opening, it seems rather bold to attempt to map out the primary forces underlying globalization, but this is exactly what I have attempted to do in figure 1.1. This is not a complete taxonomy, and the layout, order and arrows are for illustrative purposes only, since cause and effect are hard to determine. I have tried to classify the causes of globalization into three distinct categories, as distinct from outcomes of globalization. However, there is a decided fuzziness between the two categories, and in this chapter I discuss some (but not all) elements from each of the categories:

1 Those associated with political economy and the environment (figure 1.1). Sections 1.3, 1.5, 1.6, 1.7, and 1.10 briefly discuss some of these forces. Note that there is considerable overlap between these variables, and with FDI and trade.
2 Those associated with technology are on the right-hand side of figure 1.1. In this chapter, I shall only discuss new technologies (section 1.8) and the multi-technology firm (section 1.9). This oversight is intentional, since technology is one of the main themes of the subsequent chapters.
3 Variables associated with the growth, spread and the intensity of MNE activity (figure 1.1), and are analysed in section 1.4. Note that, strictly speaking, the growth of MNE activity is a subset of financial liberalization, which itself is a function of numerous other political economy variables.
4 Variables that are most commonly identified as outcomes of globalization (figure 1.1). In this chapter I provide some brief comments on the homogeneity of consumption patterns and standardization (section 1.11).

Figure 1.1 Mapping globalization

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Note that the MNE category is purposely not sub-categorized, with the exception of globalization of innovation by MNEs (section 1.5). This is because MNE activity is itself a function of the various other primary forces. For instance, one can say that increased MNE activity is a result of increased cross-border competition. However, cross-border competition is a function of economic and regional integration. It is also a result of financial liberalization, the shift towards market economies and neo-liberal economic policies. These in turn are partly caused by the ascendancy of the US as a singular hegemonic power. There is also a process of positive feedback: the greater the spread of any given MNE, the greater the pressure on its competitors to spread likewise.

It should be patently obvious that the creation of four clear and distinct categories is fraught with difficulty. To give another example, new information and communication technologies may have reduced transaction costs, and made economic integration (both de facto and de jure) possible. But economic integration itself would not have been possible without the reduction of trade and investment barriers. Such reductions would not have occurred had not economic actors (such as MNEs) engaged in trade and investment demonstrated the positive social returns of increased cross-border activity. The increases in trade and investments have driven the need to improve appropriability of MNEs’ intellectual property rights, and the ability to enforce contracts across borders, prompting the development of supra-national institutions and international agreements. Such agreements are essential for economic integration, but creating such agreements depends on participants having sufficiently compatible legal frameworks. It should be obvious from these two examples that trying to map all inter-linkages is futile, because the links between all these factors are self-reinforcing and rampant.