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Research Spotlight  [back]
 
September 2008

Concern about U.S. competitiveness and jobs has risen to the fore in recent years in the face of technical innovation by foreign firms and the continuing shift of jobs overseas by U.S. multinationals. Toyota has replaced GM as the number one automaker in the world and Samsung is a rising star in electronics. Electronics companies such as Hewlett-Packard and Dell have outsourced product development jobs as well as production jobs offshore in order to be cost competitive.

During the 1960’s and 1970’s much of the concern focused on U.S. multinational firms’ investment in offshore production facilities. In the 1980’s and early 1990’s, there was concern about the growth of foreign competitors in industries such as autos and semiconductors, whose innovative performance and high-quality products threatened the viability of U.S. firms and industries. A more recent wave of concern over U.S. competitive prospects in the 21st century combines both elements.

Recognizing that the debate over the international transfer of technological and innovative capabilities and potential loss of U.S. competitiveness is a long running one, the Science, Technology and Economic Policy (STEP) Board of the National Academies undertook a study in 2006-07 of the changes in the structure of the innovation process that are associated with shifting perceptions of the competitive outlook for U.S. firms and domestic employment, especially in professional and engineering occupations.

In this collection, the STEP Board examined ten industries, including: personal computers, software, semiconductors, flat panel displays, lighting, pharmaceuticals, biotechnology, logistics, venture capital and financial services. Jason Dedrick and Ken Kraemer were invited to participate in the National Academy Study, which has just appeared in book form from the National Academy of Sciences Press. They conclude that although production jobs and some product development jobs have been lost through offshoring, on balance offshoring has allowed U.S. firms to lead the industry with around 41% share of the global market and the bulk of the higher wage jobs in innovation, design, sales and marketing and distribution. The following is a summary of the “Personal Computing” industry study by Jason Dedrick and Ken Kraemer:

“The personal computer (PC) industry now operates as a global network of independent suppliers of systems, components, peripherals and software. Although the pace of innovation in the industry is rapid, its character now is largely incremental because of the dominance of the “Wintel” PC architectural standard. One important future challenge is the integration of the PC with the proliferating array of consumer devices that “orbit the user” and provide computing and communication capability (e.g., PDAs, phones, music players).

The global division of innovation-related activities within the industry is characterized as follows: component-level R & D (concept design and product planning) is performed in the United States and Japan; applied R & D and development of new platforms (particularly notebook computers) take place in Taiwan; and product development for mature products (mainly desktop computers) and a majority of production and sustaining engineering are performed in China.

U.S. PC firms have benefited from the international division of labor in innovation that has supported rapid innovation and quicker integration of new technologies into new products. The growing demand for smaller, more mobile products plays to U.S. firms’ strengths in product architecture and early stage development. The shift in production activities away from the United States has pulled new product development activities to Asia, but design jobs, which are relatively few in number, are expected to remain largely in the United States.”

The study also discusses what has and has not changed since 1990, and policy issues and challenges. A copy of the book can be found here.