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Japan’s postwar experience with technology transfer 1975

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JAPAN'S POSTWAR EXPERIENCE WITH TECHNOLOGY TRANSFER by James Thomas Goode B.A., U n i v e r s i t y of B r i t i s h Columbia, 1972 A T h e s i s Submitted i n P a r t i a l F u l f i l l m e n t of The Requirements f o r the Degree of Master of Science in.Business Administration i n the Department of Commerce and Business A d m i n i s t r a t i o n We accept t h i s t h e s i s as conforming to the re q u i r e d standard The U n i v e r s i t y of B r i t i s h Columbia, 15 December, 1975. In p r e s e n t i n g t h i s t h e s i s in p a r t i a l f u l f i l m e n t o f the r e q u i r e m e n t s f o r an advanced degree a t the U n i v e r s i t y o f B r i t i s h Co lumb ia , I a g ree t h a t the L i b r a r y s h a l l make f t f r e e l y a v a i l a b l e f o r r e f e r e n c e and S tudy . I f u r t h e r a g ree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y purposes may be g r a n t e d by the Head o f my Department or by h i s r e p r e s e n t a t i v e s . It i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s thes.is f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . Department o f The U n i v e r s i t y o f B r i t i s h Co lumbia Vancouver 8, Canada ( i ) ABSTRACT The i n t e r n a t i o n a l t r a n s f e r of technology i s i n c r e a s i n g l y seen as a major element i n economic development f o r both the developed and l e s s - developed c o u n t r i e s . The t h e s i s examines Japan's postwar economic development and the r o l e played i n t h a t process by imported, f o r e i g n t e c h n o l o g i e s . The d i s c u s s i o n focuses on commercial t r a n s f e r s of technology and, because of the frequent c l o s e connection between technology t r a n s f e r and f o r e i g n d i r e c t investment, there i s c o n s i d e r a b l e d i s c u s s i o n of f o r e i g n d i r e c t investment i n Japan. The paper i s based on an extensive review of e x i s t i n g government and non- government m a t e r i a l i n both Japanese and E n g l i s h and on a s e r i e s of i n t e r v i e w s with Japanese government and business o f f i c i a l s i n v o l v e d i n postwar t r a n s f e r s . In a d d i t i o n , three case s t u d i e s of technology t r a n s f e r s were c a r r i e d out and are i n c l u d e d as appendices. F a l l o w i n g an i n t r o d u c t o r y chapter d e a l i n g with general i s s u e s of technology t r a n s f e r and economic development, the postwar Japanese experience i s t r e a t e d c h r o n o l o g i c a l l y f o r the p e r i o d : 1945-1955 "Japan's Postwar Recovery", 1955-1963 " S t r u c t u r a l Transformation", and 1963-1973 " L i b e r a l i z a t i o n and I n t e r n a t i o n a l i z a t i o n " . The c e n t r a l importance to Japan's postwar development of the p e r i o d of " s t r u c t u r a l t r a n s f o r m a t i o n " , and the technology t r a n s f e r which took place during t h a t p e r i o d , i s s t r e s s e d . The c u r r e n t s t a t u s of technology t r a n s f e r i n Japan i s a l s o discussed and the present and f u t u r e importance t o Japan of technology e x p o r t a t i o n and independent technology development i s pointed out. A concluding chapter o u t l i n e s major s p e c i a l c h a r a c t e r i s t i c s of the Japanese postwar experience and suggest what lessons i t may hold f o r o t h e r s . I t i s ( i i ) argued t h a t the favourable domestic and benign i n t e r n a t i o n a l environments as w e l l as the l a r g e s i z e of the domestic market and a b a s i c antipathy to f o r e i g n d i r e c t investment are a l l s p e c i a l c h a r a c t e r i s t i c s which s t r o n g l y i n f l u e n c e d the course of postwar technology t r a n s f e r to Japan. On the other hand, a competitive domestic business environment, c o n s u l t a t i o n between government planners and businessmen, s e l e c t i v e or d i s c r i m i n a t o r y development p o l i c y , and widespread p u b l i c support f o r goals supportive of technology change are a l l argued to be aspects of the postwar Japanese experience which hold important and general l e s s o n s f o r other c o u n t r i e s . ( i i i ) TABLE OF CONTENTS INTRODUCTION AND ACKNOWLEDGEMENTS Page I ECONOMIC DEVELOPMENT AND TECHNOLOGY TRANSFER 1. Technology and S o c i a l Change fa) Technology 1 lb) T e c h n o l o g i c a l Change 2 [ c j S o c i o - t e c h n i c a l Change and I n d u s t r i a l i z a t i o n 3 2. Technology and Development fa) The Ideology of I n d u s t r i a l i z a t i o n 6 (bj Government, the P r i v a t e Sector, and Technology 7 3. The Role of Technology T r a n s f e r fa) V a r i e t i e s of Technology T r a n s f e r 9 fb) Technology T r a n s f e r as a Process 11 (c) Technology T r a n s f e r as D i r e c t e d Change 15 4. The Relevance of the Postwar Japanese Experience 16 I I JAPAN'S POSTWAR RECOVERY (1945-1955) 1. Japan i n Defeat 24 2. The Prewar Legacy 25 ia) N a t i o n a l Ambition and Cohesion 25 b) Government I n i t i a t i v e 27 c) The People 28 3. The Occupation, Redevelopment, and Technology T r a n s f e r (a) Occupation P o l i c i e s 29 (b) Demonstration and Linkage E f f e c t s 30 (c) Recovery to Postwar Le v e l s 33 I I I STRUCTURAL TRANSFORMATION (1955-1963) 1. The Consumption Revolution 36 2. The Technology Revolution fa) Changes i n I n d u s t r i a l S t r u c t u r e 39 (b) The Role of Technology T r a n s f e r 41 3. Regulation and C o n t r o l of Technology T r a n s f e r 53 f a ) Formal Laws and Regulations 54 (b) A d m i n i s t r a t i v e A t t i t u d e s 58 4. I n t e r - f i r m Competition and Technology T r a n s f e r 63 ( i v ) IV LIBERALIZATION AND INTERNATIONALIZATION (1963-1973) 1. Rapid Economic Expansion 70 2. Japan i n the I n t e r n a t i o n a l Economy (a) Pressures f o r R e c i p r o c i t y 72 (b) Antipathy to F o r e i g n D i r e c t Investment 72 (c) Formal En t r y i n t o the World Economic Community 75 3. The Course and Impact of L i b e r a l i z a t i o n on Technology T r a n s f e r (a) The Stages of L i b e r a l i z a t i o n 76 (b) The Impact of L i b e r a l i z a t i o n on Technology T r a n s f e r 80 ( c j L i b e r a l i z a t i o n and F o r e i g n D i r e c t Investment B3 (d) L i b e r a l i z a t i o n and Domestic Firms 88 V TECHNOLOGY TRANSFER AND JAPAN TODAY 1. The Changing C h a r a c t e r i s t i c s of Technology T r a n s f e r 94 2. Growth i n Cooperative Ventures 97 3. Expansion i n Technology Exports 99 4. The Search f o r " T e c h n o l o g i c a l Independence" 101 VI THE JAPANESE POSTWAR EXPERIENCE WITH TECHNOLOGY TRANSFER: CONCLUSIONS 108 1. S p e c i a l C h a r a c t e r i s t i c s of the Japanese Case (a) Favourable Domestic Environment 108 l b ] Benign I n t e r n a t i o n a l Environment 1Q9 f c ] Large S i z e of Domestic Market 109 (d) Antipathy to F o r e i g n D i r e c t Investment 110 2. "Lessons" From the Japanese Experience (a) Technology T r a n s f e r and N a t i o n a l I d e n t i t y 111 (b) NatipnalJ.Goals and Technology T r a n s f e r 112 f c ) L i c e n s i n g versus F o r e i g n D i r e c t Investment 112 ( d l Competition and Technology T r a n s f e r 115 (e) Technology T r a n s f e r and the Role of Government 116 3. Future Research (a) R e l a t i v e Importance of Government P o l i c y and Market F a r c e s an Technology T r a n s f e r 117 (b) R e l a t i v e Importance of "Domestic" versus " F o r e i g n " - derived T e c h n o l o g i c a l Change 119 NOTES TO THE TEXT 123 "1 APPENDICES Case Study 1. 133 Case Study 2. 157 Case Study 3. 171 BIBLIOGRAPHY 181 FIGURES 1. A Schematic p r e s e n t a t i o n of the US trade p o s i t i o n i n the product l i f e - c y c l e , 14 2. Diagram of technology t r a n s f e r approval procedures ( c a . I960) 55 3. Trends i n technology imports, p r i v a t e equipment investment, and 'foreign d i r e c t investment: 1951-1966 66 4. Approvals of t e c h n i c a l a s s i s t a n c e agreements: 1950-1973 81 5. M o t i v a t i o n f o r involvement with f o r e i g n d i r e c t investment i n Japan 84 6. Trends i n annual no. of mergers: 1948-1973 91 7. Trends i n the importation of "new" t e c h n o l o g i e s as a pro p o r t i o n of t o t a l technology imports - by i n d u s t r y 93 TABLES 1. Trends i n employment by i n d u s t r y category: 1920-1970 20 21 2. Trends i n the composition of Japan's "top-ten" export items* 1950-1971 3. I n t e r n a t i o n a l comparison of the share of e n t e r p r i s e s with f o r e i g n ownership i n manufacturing i n d u s t r y 23 4. Japan's World War Two l a s s e s of ass e t s 26 5. D i f f u s i o n of some consumer durables 38 6. Trends i n the output of some p r i n c i p a l products: 1934-1974 40 7. Postwar Japanese technology importations: 1950-1973, by f i e l d o f -technology 42 8. Postwar Japanese technology importations: 1950-1973, by country of o r i g i n 43 9. Payments f o r t r a n s f e r r e d technology by f i e l d of technology and year: 1950-1960 44 10. Technology t r a n s f e r - r e l a t e d machinery and equipment imports as a pr o p o r t i o n of t o t a l machinery and equipment imports 46 11. Japan's technology imports by i n d u s t r y and by pe r i o d of i n i t i a l i n d u s t r i a l a p p l i c a t i o n : 1956 vs 1966 48 ( v i ) 12. A comparison of Japan and world i n i t i a l i n d u s t r i a l a p p l i - c a t i o n s of petrochemical t e c h n o l o g i e s 50 13. Type of technology t r a n s f e r r e d by i n d u s t r y 1961 survey 51 14. C o n t r o l s on f o r e i g n d i r e c t investment, ca 1959-1960 57 15. Development time, s a l e s , and R & D expense by source of technology: 1957-1961 67 16. E f f e c t s of t r a n s f e r r e d technology on r e c i p i e n t company,-, 1961 survey 68 17. Trends i n Japan's share of world t r a d e : 1938-1972 71 18. Japan's imports by provenance and exports by d e s t i n a t i o n : 1963- 1972 73 19. J o i n t ventures i n Japan: a comparison of the r e s p e c t i v e con- t r i b u t i o n s of the Japanese and f o r e i g n partners at s t a r t - u p and over time 85 20. Establishment of j o i n t - v e n t u r e s : 1950-1971 86 21. N a t i o n a l o r i g i n of f o r e i g n d i r e c t investment i n Japan by amount of investment: 1971 87 22. F o r e i g n d i r e c t investment i n Japan by business, type of company, and home country of f o r e i g n i n v e s t o r 89 23. Trends i n Japanese overseas t r a v e l 96 24. Japan's exports o f major items of chemicals and s y n t h e t i c t e x t i l e s - r e l a t e d technology, 1950-1972 102 25. Trends i n Japan's balance of i n t e r n a t i o n a l technology payments: 1950-1973 106 26. I n t e r n a t i o n a l comparison of balance of i n t e r n a t i o n a l technology payments 106 27. Japan's top ten general t r a d i n g companies: share of exports and imports, turnover as a percent of GNP 114 28. Economic r a t e s of growth by country and c o n t r i b u t i o n s of component sources 120 ( v i i ) I n t r o d u c t i o n T h i s paper deals with the dual themes of technology t r a n s f e r and Japan's postwar development. The separate themes are both of i n t e r e s t ; technology t r a n s f e r (TT) as a major means of d i r e c t i n g o v e r a l l t e c h n o l o g i c a l change, and postwar Japan as the exemplar f o r r a p i d economic growth and as the f i r s t 'non-western' a d d i t i o n to the ranks of the advanced developed n a t i o n s . The themes are, however, i n t e r r e l a t e d . Technology t r a n s f e r and o v e r a l l t e c h n o l o g i c a l development are p r i m a r i l y of i n t e r e s t because of t h e i r a s s o c i a t i o n with economic growth and development. Conversely, Japan's amazing postwar r e c o r d of economic growth and development was accompanied by a massive t r a n s f e r of i n d u s t r i a l technology from other c o u n t r i e s to Japan. While no c l a i m can be made that the d i s c u s s i o n here d e f i n i t i v e l y deals with the question of the extent and nature of the r e l a t i o n between TT and Japan's postwar development, t h i s j o i n t examination of the two themes shows them to mutually i l l u m i n a t e important aspects of each other. The d i s c u s s i o n i s p r i m a r i l y centered on commercial t r a n s f e r s of i n d u s t r i a l technology to postwar Japan. T h i s i s p a r t l y because of data a v a i l a b i l i t y ( o f f i c i a l s t a t i s t i c s , f o r example, deal almost s o l e l y with such t r a n s f e r s ) and p a r t l y because such t r a n s f e r s seem to be most c l o s e l y r e l a t e d to the main c u r r e n t s of postwar Japanese t e c h n o l o g i c a l change. F u r t h e r , because of the r e l a t i v e l y e x p l i c i t nature of such t r a n s f e r s , comparison of the Japanese experience with those of other c o u n t r i e s w i l l l i k e l y be e a s i e r i f s t u d i e s , such as t h i s present one, concentrate on examination of commercial TT. ( v i i i ) E x t e n s i v e use i s made of o f f i c i a l government r e p o r t s and s t a t i s t i c s which are, g e n e r a l l y , f a r more comprehensive i n the case of Japan, because of o f f i c i a l i n t e r e s t i n TT during the p e r i o d , than they are f o r other c o u n t r i e s . T h i s data i s not without i t s d e f e c t s and l i m i t a t i o n s but, w i t h a l l , provides a depth, breadth, and c o n t i n u i t y exceeding any other a v a i l a b l e sources. T h i s o f f i c i a l data i s supplemented with other Japanese-language m a t e r i a l , r e l e v a n t non-Japanese sources, and m a t e r i a l gathered i n the course of numerous i n t e r v i e w s with informants i n Japanese government and business. In a d d i t i o n , a s e r i e s of three case s t u d i e s of s p e c i f i c postwar TT were c a r r i e d out by the w r i t e r and are i n c l u d e d here i n summary form as appendices 1., 2., and 3. The concept 'technology t r a n s f e r ' has taken on a v a r i e t y of meanings and, as w e l l , i s imbedded i n a body of l i t e r a t u r e encompassing i s s u e s of s o c i a l change, economic growth, and modernisation of f a r broader g e n e r a l i t y than postwar Japanese development and TT. Chapter one c l a r i f i e s the concept of TT and i t s r e l a t i o n s h i p to these broader i s s u e s . I t concludes with a d i s c u s s i o n of the relevance of the postwar Japanese experience as regards TT and some of these l a r g e r i s s u e s with which TT i s a s s o c i a t e d . The subsequent three chapters which deal s p e c i f i c a l l y with the Japanese postwar experience with TT pose some o r g a n i z a t i o n a l problems. On the one hand, the importance of v a r i o u s Japanese s o c i a l , economic and o r g a n i z a t i o n a l f e a t u r e s to the o v e r a l l d i s c u s s i o n argue f o r treatment of the p e r i o d under a s e r i e s of t o p i c a l headings r e l a t i n g these., v a r i o u s f e a t u r e s to postwar TT. On the other hand, the a c t u a l course of postwar TT seems t o be best t r e a t e d as a s e r i e s of c h r o n o l o g i c a l l y ordered stages or 'periods'. ( i x ) The compromise u l t i m a t e l y adopted here t r e a t s Japan's postwar TT under three c h r o n o l o g i c a l l y ordered headings with chapters two through f o u r d e a l i n g , r e s p e c t i v e l y , with; 1945-1955 'Japan's Postwar Recovery', 1955-1963 ' S t r u c t u r a l Transformation', and 1963-1973 ' L i b e r a l i z a t i o n and I n t e r n a t i o n a l - i z a t i o n ' . Within each of these chapters v a r i o u s aspects of the Japanese s o c i a l , o r g a n i z a t i o n a l , and economic environment are developed as the flaw of the n a r r a t i v e n e c e s s i t a t e s . On occasion, r e l e v a n t background m a t e r i a l has been r e l e g a t e d to the 'Notes to the Text' i n order t o maintain the c o n t i n u i t y and coherence of the main t e x t . The compromise adopted has l e d a t o some d i s p r o p o r t i o n i n the length of the ^chapters, and, of course, d e t r a c t s from whatever i n c i d e n t a l merit t h i s paper might have had as an o u t l i n e of the Japanese business environment, per se. I t i s f e l t , however, that there i s mare than compensating gain i n the c o n t i n u i t y and coherence with which the two themes which are the focus of the paper are developed. F o l l o w i n g t h i s , chapter f i v e o u t l i n e s the current s t a t u s of TT i n Japan and suggests what w i l l be the trends i n the years ahead. The s i x t h , and l a s t , chapter, d i s c u s s e s the ' s p e c i a l c h a r a c t e r i s t i c s ' of the Japanese postwar experience with TT and the l e s s o n s that experience may hold f o r others. F i n a l l y , some areas f o r f u r t h e r research are suggested. A debt of g r a t i t u d e i s owed to the many Japanese i n business and govern- ment i n whose i n t e r e s t , time, and knowledge I indulged myself, i f not always with wisdom, with l i t t l e r e s t r a i n t . The Japanese M i n i s t r y of Education i s t o be thanked f o r t h e i r f i n a n c i a l support during the p e r i o d of study i n Japan as i s Rikkyo U n i v e r s i t y , i n Tokyo, f o r p r o v i d i n g a supportive academic environment. A s p e c i a l debt of g r a t i t u d e i s owed, r e s p e c t i v e l y , to P r o f e s s o r S. Takezawa of Rikkyo and to P r o f e s s o r W. Winiata of the U n i v e r s i t y of B r i t i s h (x) Columbia, i n Vancouver, f o r t h e i r support and encouragement. Were!it not f o r t h e i r i n t e r e s t and concern, t h i s paper would undoubtedly have been completed sooner, but, a l s o undoubtedly, would have lacked much of whatever merit i t has. More importantly, the 'doing of i t ' would have been a f a r l e s s i n s t r u c t i v e and p e r s o n a l l y rewarding experience. - 1 - I . ECONOMIC DEVELOPMENT AND TECHNOLOGY TRANSFER 1. Technology and S o c i a l Change (a) Technology Technology profoundly a f f e c t s the l i v e s we l e a d ; the amount and forms of our work and l e i s u r e , where we l i v e and the length of our l i v e s , the content and forms of our education - i n short, both the r e a l i t i e s of the world around us and our perceptions of them. To say t h i s i s merely to echo what has become a common perception of people i n the i n d u s t r i a l i z e d , _ world of the c e n t r a l r o l e of technology i n t h e i r l i v e s . What i s somewhat s u r p r i s i n g , however, i s that some s i m i l a r perception of the r o l e of technology was absent i n the p r e - i n d u s t r i a l world. For then too, no l e s s than now, technology was a major determinant of the l i v e s men l e d ; of whether they plowed f i e l d s or hunted, how they d i d so and f o r whom. Technology, of course, i s and was not the only determinant of the l i v e s men l e a d . I t i s , however, technology and mens* perceptions of i t which have i n the past two hundred years or so moved from being perceived, i f at a l l , as p e r i p h e r a l to the concerns of mankind to being one of the c e n t r a l concerns. And t h i s i s t r u e even where, as i n much of the less-developed world, the b a s i c t e c h n o l o g i e s employed are l i t t l e changed from those of c e n t u r i e s ago. For, even where modern i n d u s t r i a l t e c h n o l o g i e s have had no impact on the l i v e s people are l i v i n g , i t has had enormous impact on the l i v e s they a s p i r e to l i v e and on what they perceive to be the 1 processes which w i l l enable them to do so. 'Technology* can be defined i n a multitude of ways but a u s e f u l s t a t e - ment, f o r our purposes, defines technology as: " . . . knowledge of a - 2 - v e c t o r of a c t i v i t i e s which transforms, with a more or l e s s high degree of p r e d i c t a b i l i t y , i n p u t s such as resources, labour, and c a p i t a l i n t o goods and s e r v i c e s . " 1 I t should be noted t h a t the 'vector of a c t i v i t i e s ' r e f e r r e d to both can and, t a k i n g the d e f i n i t i o n i n i t s most g e n e r a l i z e d sense, should be i n t e r p r e t e d as i n c l u d i n g not only the more ob v i o u s l y t e c h n i c a l aspects of processes 'transforming i n p u t s i n t o outputs' but, a l s o , the s o c i a l environment i n which productive a c t i v i t i e s take p l a c e . I t i s perhaps p r e c i s e l y these s o c i a l i m p l i c a t i o n s of technology and the s o c i a l changes at once demanded and made p o s s i b l e by t e c h n o l o g i c a l change which have made technology a c e n t r a l concern of mankind during the past two hundred years of r a p i d change we now recognize as ' i n d u s t r i a l i z a t i o n 1 . (b) T e c h n o l o g i c a l Change In terms of the above d e f i n i t i o n of technology, t e c h n o l o g i c a l change can be broadly c l a s s i f i e d i n t o one of two c a t e g o r i e s . The f i r s t of these, what we w i l l here term 'new-production technology', c o n s i s t s i n a^change to a new v e c t o r of a c t i v i t i e s producing e s s e n t i a l l y the same output (goods or s e r v i c e s ) u s u a l l y , but not n e c e s s a r i l y , from a d i f f e r e n t 'mix' of i n p u t s . To the extent t h a t such change economizes on the use of f a c t o r i n p u t s (at e x i s t i n g r e l a t i v e p r i c e s ) i t means that more goods and s e r v i c e s can be obtained from the same amount of i n p u t s . I t i s a change of t h i s type which i s most commonly r e f e r r e d to as ' t e c h n i c a l progress* 2 3 and which Schumpeter and others have i d e n t i f i e d as a prime source of economic growth. The other broad category of t e c h n o l o g i c a l change we w i l l term 'new product technology*. In t h i s i n s t a n c e , the change i n v o l v e s the use of f a c t o r i n puts i n the production of new, h i t h e r t o nonexistent, goods or s e r v i c e s . Such - 3 - change, of course, i n v a r i a b l y i n v o l v e s a new mix of f a c t o r i n puts or a new v e c t o r of a c t i v i t i e s , or both. The s i g n i f i c a n c e of change of t h i s l a t t e r type i s a f a r mare contentious i s s u e - i n v o l v i n g , as i t does, such d i s p a r a t e 'new products' as the a i r p l a n e , c o l o u r t e l e v i s i o n , n u c l e a r weapons, and v a g i n a l deodorants. Controversy can centre around the extent to which such change r e p r e s e n t s a change i n va l u e s - as opposed t o t e c h n o l o g i c a l progress - and, i n any event, argument i t s e l f tends to i n v o l v e value judgements. A d d i t i o n a l l y , there i s the p r i o r judgement as to whether, or t o what extent, the change, i n f a c t , i n v o l v e s a 'new product'. For, at some l e v e l of a b s t r a c t i o n , almost any such change can be i d e n t i f i e d with some p r i o r product and be viewed as a mere incremental metamorphosis of an e x i s t i n g product, or as a new man i f e s t a t i o n of a good or s e r v i c e meeting some immutable human need. In f a c t , of course, t e c h n o l o g i c a l change seldom f a l l s n e a t l y i n t o one or the other of these two c a t e g o r i e s and almost always i n v o l v e s some elements of both. The value of the two concepts, t h e r e f o r e , l i e s l e s s i n t h e i r taxonomic p r e c i s i o n than i n t h e i r i d e n t i f i c a t i o n of two aspects of a l l t e c h n o l o g i c a l change; the o b j e c t i v e , i n which change can be measured by some t e c h n i c a l e f f i c i e n c y c r i t e r i o n , and the s u b j e c t i v e , i n which value judgements r e f l e c t i n g the s o c i a l environment of change are i n e v i t a b l y r e l e v a n t . The broader s i g n i f i c a n c e of t h i s t e c h n i c a l - s o c i a l d u a l i t y of t e c h n o l o g i c a l change i s e s p e c i a l l y evident when we examine the changes a s s o c i a t e d with the process of i n d u s t r i a l i z a t i o n . (c) S o c i o - t e c h n i c a l Change and I n d u s t r i a l i z a t i o n The I n d u s t r i a l Revolution i s g e n e r a l l y dated from 18th Century England and s i n c e then numerous other c o u n t r i e s , mainly 'western', have i n var y i n g degrees undergone a process of i n d u s t r i a l i z a t i o n . The process has by no means been uniform from case to case. In f a c t , v a r i a t i o n s i n s t a r t i n g time, i n i t i a l s o c i a l and n o n - s o c i a l resources, and many i n c i d e n t a l 'autonomous' events, among other f a c t o r s , have l e d i n v a r i o u s ways to a v a r i e t y of forms of ' i n d u s t r i a l i z e d country'. I t i s p o s s i b l e n e v e r t h e l e s s , to i d e n t i f y some major aspects of s o c i a l change which have tended to accompany the r e v o l u t i o n i n i n d u s t r i a l technology wherever i t has occurred. While there have been many attempts to q u a n t i f y the r e l a t i v e importance and to e s t a b l i s h the temporal ordering of these aspects of s o c i a l change 4 a s s o c i a t e d with i n d u s t r i a l i z a t i o n , we w i l l , here, t r e a t them under a few broad, t o p i c a l headings without intending to imply r e l a t i v e importance or temporal o r d e r i n g . Economic o r g a n i z a t i o n : In t r a d i t i o n a l , subsistence economies the processes of production are l a r g e l y c a r r i e d on w i t h i n the confines of f a m i l y - or v i l l a g e - b a s e d groups i n which b a r t e r i s common and exchange ' r e l a t i o n s h i p s are importantly r e l a t e d to r e l i g i o u s or k i n s h i p f a c t o r s . I n d u s t r i a l i z a t i o n , i n c o n t r a s t t o ' t h i s , i s a s s o c i a t e d with the e v o l u t i o n of a d i f f e r e n t i a t e d market economy i n which money commands the movement of an i n c r e a s i n g l y l a r g e proportion of goods and s e r v i c e s and t r a d i t i o n a l , p a r t i c u l a r i s t i c , exchange r e l a t i o n s h i p s disappear or are g r e a t l y reduced i n r e l a t i v e importance. Of course, by d e f i n i t i o n , i n d u s t r i a l i z a t i o n means that the importance of manufacturing grows i n r e l a t i o n to the primary i n d u s t r i e s and, with t h i s , there i s increased u r b a n i z a t i o n of the population and f u r t h e r d i f f e r e n t i a t i o n of work tasks and increase i n the numbers and importance of b u r e a u c r a t i c forms of o r g a n i z a t i o n . P o l i t i c a l forms: P o l i t i c a l change a s s o c i a t e d with i n d u s t r i a l i z a t i o n p a r a l l e l s changes i n the economic sphere. The p o l i t i c a l system comes to be separated from i t s t r a d i t i o n a l f a m i l i a l , caste or r e l i g i o u s contexts and - 5 - takes on an i n c r e a s i n g l y independent e x i s t e n c e . With t h i s , p o l i t i c a l r o l e s become, as Almond and Powell put i t : ". . . more s p e c i a l i z e d or more autonomous . . . new types of r o l e s are e s t a b l i s h e d . . . (and p o l i t i c a l a c t i o n becomes) . . . i n c r e a s i n g l y r a t i o n a l , a n a l y t i c a l and e m p i r i c a l . . . ." As a r e s u l t , the p o l i t i c a l system becomes i n c r e a s i n g l y able to e x t r a c t goods and s e r v i c e s from the s o c i e t y , to r e g u l a t e behaviour i n i t and to serve as a symbol of the s t a t e as a whole. S o c i a l s t r u c t u r e : The reduced economic and p o l i t i c a l r o l e of the extended f a m i l y (or s i m i l a r p a r t i c u l a r i s t i c groups) which accompanies i n d u s t r i a l i z a t i o n weakens t r a d i t i o n a l s a n c t i o n s and c o n t r o l s on behaviour. T h i s i s r e f l e c t e d , f o r example, i n a tendency f o r u n i v e r s a l i s t i c , r a t i o n a l c o n s i d e r a t i o n s to supplant those of nepotism i n the h i r i n g p r a c t i c e s of economic o r g a n i z a t i o n s . There i s , s i m i l a r l y , a tendency t o g r e a t e r i n d i v i d u a l and i n t e r - g e n e r a t i o n a l economic and s o c i a l m o b i l i t y as the p a r t i c u l a r i s t i c t r a d i t i o n a l r o l e s and s anctions diminish i n importance. I d e o l o g i c a l change: With (some might say p r i o r to) i n d u s t r i a l i z a t i o n there i s u s u a l l y a s h i f t from a s t a t i c and f a t a l i s t i c view of s o c i e t y and mankind to a b e l i e f i n both the p o t e n t i a l f o r and e t h i c a l i t y of change. F u r t h e r , there i s a tendency f o r n a t i o n a l i s m to r e p l a c e or subsume e x i s t i n g r e l i g i o u s i d e o l o g i e s and, o ften, to serve as a means of s a n c t i o n i n g many of the d r a s t i c changes i n t r a d i t i o n a l s o c i a l forms brought about by i n d u s t r i a l i z a t i o n . ? C o n s i d e r i n g the depth and breadth of the s o c i a l changes a s s o c i a t e d with i n d u s t r i a l i z a t i o n one might w e l l wonder that i t should have occurred at a l l , l e t alone i n a v a r i e t y of c o u n t r i e s . More than t h i s , one might wonder that people would i n t e n t i o n a l l y court such d r a s t i c s o c i a l upheaval by seeking - 6 - to set t h e i r nations on the path to i n d u s t r i a l i z a t i o n . One might wonder, that i s , were i t not f o r the f a c t that the small proportion of mankind which has managed to i n d u s t r i a l i z e i s almost u n i v e r s a l l y deemed t o l i v e b e t t e r , f u l l e r , and l e s s b r u t i s h l i v e s than t h e i r brethren i n the n o n - i n d u s t r i a l i z e d world. I t i s p r e c i s e l y that f a c t which has made i n d u s t r i a l i z a t i o n not a s o c i a l trauma to be avoided but, r a t h e r , a goal f o r most of humanity and the most s u c c e s s f u l ideology of modern,or perhaps of a l l , times. 2. Technology and Development (a) The Ideology of I n d u s t r i a l i z a t i o n I t has now long since been demonstrated t h a t the complex of s o c i o - t e c h n o l a g i c a l change we term ' i n d u s t r i a l i z a t i o n * has the c a p a c i t y t o improve the l o t of man. I t has only r e c e n t l y , and then only i n the most i n d u s t r i a l i z e d c o u n t r i e s , become evident t h a t there can a l s o be e x c e s s i v e l y high s o c i a l and environmental c o s t s a s s o c i a t e d with i n d u s t r i a l i z a t i o n under c e r t a i n c o n d i t i o n s . Even where these costs have become apparent however, the impulse, with a few exceptions, i s not to seek a r e t u r n t o the pre- i n d u s t r i a l or l e s s - i n d u s t r i a l i z e d c o n d i t i o n but, r a t h e r , to adjust the form of i n d u s t r i a l i z a t i o n - perhaps through f u r t h e r i n n o v a t i o n - so t h a t the same or a higher l e v e l of i n d u s t r i a l or " p o s t - i n d u s t r i a l " s o c i e t y can be maintained at a more acceptable l e v e l of s o c i a l and environmental c o s t s . T h i s same tendency to view i n d u s t r i a l technology - extant or as yet unknown - as the panacea f o r the i l l s of mankind i s perhaps even more evident i n the l e s s - or n o n - i n d u s t r i a l i z e d c o u n t r i e s . Indeed, i n these c o u n t r i e s , the words 'modern', "advanced', and 'developed' have become a l l synonymous with i n d u s t r i a l i z a t i o n . In these c o u n t r i e s however, u n l i k e the i n d u s t r i a l i z e d c o u n t r i e s which are concerned with incremental adjustments - 7 - t o the form of t h e i r i n d u s t r i a l i z a t i o n , i n d u s t r i a l i z a t i o n and the change and adaptation which i t i m p l i e s have yet t o occur or have only j u s t begun. A great deal of t h e o r e t i c a l and e m p i r i c a l e f f o r t has gone i n t o examination of the * i n d u s t r i a l i z a t i o n - m o d e r n i z a t i o n * process. Most of t h i s e f f o r t has i n v o l v e d a n a l y s i s of the h i s t o r i c a l processes of i n d u s t r i a l i z a t i o n i n the 8 western, developed nations and most of our understanding of i n d u s t r i a l i z a t i o n and i t s concomitants d e r i v e s from such analyses. However,, i n c o n t r a s t to these r e l a t i v e l y u n d irected h i s t o r i c a l processes of i n d u s t r i a l i z a t i o n , today men i n both the developed and undeveloped c o u n t r i e s c o n s c i o u s l y seek t o , i n the former case, shape the f u r t h e r e v o l u t i o n of t h e i r i n d u s t r i a l i z a t i o n and, i n the l a t t e r case, to i n i t i a t e and maintain an i n d u s t r i a l i z a t i o n process. In t h i s important sense then, i n d u s t r i a l i z a t i o n has ceased to be, i f indeed i t ever was, something th a t could be viewed as a 'natural process' and has become both an ideology and a s t r a t e g y f o r development. T h i s i s most c l e a r l y evident i n the less-developed c o u n t r i e s which face the d i f f i c u l t t ask of t r y i n g to reshape what has, i n the past, seemed t o be an e v o l u t i o n a r y process i n t o a d i r e c t e d , r e v o l u t i o n a r y transformation of t h e i r s o c i e t i e s . (b) Government, the ' P r i v a t e Sector', and T e c h n o l o g i c a l Change Regardless of p o l i t i c a l persuasion; s o c i a l i s t , communist, or c a p i t a l i s t , i n d u s t r i a l i z a t i o n or f u r t h e r i n d u s t r i a l development has become a c e n t r a l g o a l of governments everywhere. Moreover, the p o l i t i c a l i m p l i - c a t i o n s ( i n the n o n - d o c t r i n a i r e sense) of i n d u s t r i a l i z a t i o n , and the change and c o n f l i c t i t i m p l i e s , bear no simple r e l a t i o n s h i p to p o l i t i c a l categor- i z a t i o n s based simply on the ownership of the means of production. The challenge to t r a d i t i o n a l values and i n s t i t u t i o n s i m p l i c i t i n i n d u s t r i a l i z a t i o n extends f a r beyond the economic sphere and to some degree or another can touch on a l l t h a t comprises a c u l t u r e . In r e f l e c t i o n of t h i s , there remain - a - c o n s i d e r a b l e d i f f e r e n c e s among e x i s t i n g i n d u s t r i a l i z e d c o u n t r i e s and one can expect f u r t h e r ' v a r i a n t s ' t o appear as the p r e s e n t l y underdeveloped c o u n t r i e s , r e p r e s e n t i n g a broader c u l t u r a l spectrum than the p r e - i n d u s t r i a l west, achieve t h e i r i n d u s t r i a l i z a t i o n . But, r e g a r d l e s s of the c u l t u r a l s e t t i n g or the p o l i t i c a l d o c t r i n e which p r e v a i l s i t i s c l e a r t h a t s u c c e s s f u l i n d u s t r i a l i z a t i o n i s dependent upon both the government ( l e a d e r s h i p ) and the p r i v a t e elements (masses) i n a s o c i e t y . While both elements need not be p o s i t i v e l y committed to i n d u s t r i a l i z a t i o n and change at l e a s t one must be so committed (most o f t e n the l e a d e r s h i p ) while the other i s at l e a s t more or l e s s amenable or p o s i t i v e l y responsive to the process. The r o l e of government may extend to the d e t a i l e d planning and admin- i s t r a t i o n of i n d u s t r i a l i z a t i o n or may be confined t o a passive responsiveness to p r i v a t e s e c t o r i n i t i a t i v e s (and i t i s here th a t d o c t r i n a i r e p o l i t i c a l i d e o l o g i e s can play a major r o l e ) . But, almost i n v a r i a b l y , the government serves as a source of n a t i o n a l s a n c t i o n f o r much of the more traumatic change a s s o c i a t e d with i n d u s t r i a l i z a t i o n . The ' n a t i o n a l i n t e r e s t ' i s invoked - with varying degrees of success - as a j u s t i f i c a t i o n f o r the r e s o l u t i o n of the i n t e r n a l c o n f l i c t s and the passing of t r a d i t i o n a l values and i n s t i t u t i o n s which accompany i n d u s t r i a l i z a t i o n . Even where, as i n much of the less-developed world today, 4 there i s a strong governmental commitment to and c e n t r a l planning f o r i n d u s t r i a l i z a t i o n , the importance t h a t there be motivation f o r change supportive of indus- t r i a l i z a t i o n among the masses of s o c i e t y i s evident. T h i s need not, of course, be perceived by the masses as a motivation r e l a t e d to the i n d u s t r i a l i z a t i o n process. I t may, at r o o t , be as d i f f u s e and personal a motivation as the d e s i r e f o r personal advancement. Of course, the mere prospect of a ' b e t t e r l i f e * can provide such motivation but - and t h i s i s a c r u c i a l p a i n t - i t must be a motivation s u f f i c i e n t l y strong as t o overcome man's inherent conservative nature. As W..-E. Moore has put i t : Given the o p t i o n , or even the knowledge of a l t e r n a t i v e s e x i s t i n g elsewhere, . . . most people i n most places p r e f e r food to hunger, heal t h to s i c k n e s s , p h y s i c a l comfort to s u f f e r i n g and l i f e to death. Whether they a l s o p r e f e r work to " l e i s u r e " , urban agglomeration t o v i l l a g e ' l i f e , c l o s e temporal s y n c h r o n i z a t i o n t o the uneven pace of t r a d i t i o n a l production i s more do u b t f u l , and i t i s at t h i s l e v e l t h a t problems a r i s e i n the process of development and i n d u s t r i a l i z a t i o n . Even where c o n d i t i o n s i n the government and p r i v a t e s e c t o r are favourable f o r i n d u s t r i a l i z a t i o n there remains, of course, the f u r t h e r requirement of i n d u s t r i a l technology or the means of a c q u i r i n g i t . In the developed nations t h i s requirement i s met both by a domestic i n n o v a t i v e c a p a b i l i t y and by a c q u i s i t i o n from other developed c o u n t r i e s . In the less-developed c o u n t r i e s , however, there i s , most of t e n , n e i t h e r the c a p a b i l i t y nor the n e c e s s i t y to develop t e c h n o l o g i e s d o m e s t i c a l l y as these can be acquired on one b a s i s or 12 another by means of t r a n s f e r from more developed c o u n t r i e s . 3. The Role of Technology T r a n s f e r (a) V a r i e t i e s of Technology T r a n s f e r (TT) As the term 'technology t r a n s f e r ' ( h e r e i n a f t e r , 'TT') i s used with a v a r i e t y of meanings, i t w i l l be u s e f u l to c l a r i f y the sense i n which we w i l l use the term here. F i r s t , a u s e f u l d i s t i n c t i o n can be made between ' v e r t i c a l ' and ' h o r i z o n t a l t r a n s f e r s . V e r t i c a l TT r e f e r s to the process of moving from b a s i c s c i e n t i f i c knowledge to a new product or production process. T h i s need not take place w i t h i n a s i n g l e o r g a n i z a t i o n (or country, f o r that matter). I t i s , i n essence a process of r e l a t i n g a b s t r a c t knowledge to human needs f i r s t , c o n c e p t u a l l y (as i n a p p l i c a t i o n s research) and, second, i n p r a c t i c e (as i n the manufacture of a new product or s t a r t - u p of a new production p r o c e s s ) . - 1 0 - In c o n t r a s t to t h i s , h o r i z o n t a l TT can be viewed as the t r a n s f e r of an e x i s t i n g technology meeting s p e c i f i c needs i n one environment to another environment - i n order t o meet i d e n t i c a l or s i m i l a r needs. T r a n s f e r s from one company, i n d u s t r y , or country to another would a l l be examples of h o r i z o n t a l TT. The l a s t of these, TT across n a t i o n a l boundaries, i s the p a r t i c u l a r sub-type of TT of concern t o us here - i n t e r n a t i o n a l t r a n s f e r of technology. H e r e i n a f t e r , unless otherwise i n d i c a t e d , 'TT 1 w i l l s i g n i f y such i n t e r n a t i o n a l t r a n s f e r of technology. A second, or f u r t h e r , d i s t i n c t i o n i s often made between TT to developed and t o less-developed c o u n t r i e s . Though the conceptual reasons f o r making the d i s t i n c t i o n are of t e n not made e x p l i c i t , i n most cases i t corresponds with the view t h a t , i n the case of the developed c o u n t r i e s , TT i s l a r g e l y a matter of economic or t e c h n i c a l f a c t o r s (eg. market s i z e , l e v e l s of income, t r a n s p o r t a t i o n c o s t s , sources of supply, e t c . ) while, i n the case of the less-developed country, i t i s much more profoundly a f f e c t e d by 'non-economic' or s o c i a l f a c t o r s (eg. l e v e l s of education, values, s o c i a l s t r u c t u r e , e t c . ) . In a sense, then, t h i s f u r t h e r d i s t i n c t i o n can be viewed as being between i n t e r n a t i o n a l TT across n a t i o n a l boundaries and TT across c u l t u r a l boundaries - with an i m p l i c i t dichotomy between the c u l t u r a l forms 'modern, i n d u s t r i a l i z e d ' 13 and 'other*. While the d i s t i n c t i o n i s ob v i o u s l y a s i m p l i f i c a t i o n which obscures a great deal of v a r i e t y within both c a t e g o r i e s i t does accord i n a broad, i n t u i t i v e , sense with r e a l i t y and we, here, w i l l a l s o adopt t h i s d i s t i n c t i o n where i t seems a p p r o p r i a t e . F i n a l l y , a s e r i e s of f u r t h e r conceptual d i s t i n c t i o n s can be made as regards the form i n which technology i s t r a n s f e r r e d . Technology can be t r a n s f e r r e d by i n t e r n a t i o n a l movements of id e a s , people, l i t e r a t u r e , e t c . , and the a c t u a l TT may or may not be the primary, e x p l i c i t purpose of the - 11 - a c t i v i t y . The i n t e r n a t i o n a l t r a n s f e r of products - e s p e c i a l l y producer's goods and the information r e q u i r e d to use them - can a l s o be a t r a n s f e r of technology. The purposive i n t e r n a t i o n a l t r a n s f e r of technology i s , however, most often a s s o c i a t e d with commercial ventures - with the main a l t e r n a t i v e forms being f o r e i g n d i r e c t investment (FDl) and l i c e n s i n g . T h i s i s not to say t h a t such t r a n s f e r s are, i n sum, more important than (or, even, always c l e a r l y d i s t i n c t from) other forms of TT. In f a c t , such commercial t r a n s f e r s themselves u s u a l l y i n v o l v e movement of ideas, people, products and w r i t t e n documentation as a necessary part of c a r r y i n g out the TT. I t i s t r u e , however, that the concrete, d e l i m i t e d , and c o n t r a c t u a l nature of such purposive, commercial, t r a n s f e r s makes them both more evident and more amenable to examination than are other forms of TT. Moreover, they tend to be more ' c o n t r o l l a b l e ' than other forms of TT and thus of g r e a t e r i n t e r e s t to persons with e i t h e r an academic or concrete, a p p l i e d , i n t e r e s t i n TT. In r e f l e c t i o n of t h i s , most d i s c u s s i o n of TT - i n c l u d i n g t h i s present one - focuses on such purposive, commercial, t r a n s f e r s of technology. (b) Technology T r a n s f e r as a Process A great d e a l has been w r i t t e n , l a r g e l y by economists, about the broader subject of t e c h n o l o g i c a l change because of i t s a s s o c i a t i o n with 14 economic growth. Comparatively l i t t l e i n the way of t h e o r e t i c a l models has been developed f o r t h a t sub-species of t e c h n o l o g i c a l change which i s i m p l i c i t i n TT. There are, however, two models drawn from i n t e r n a t i o n a l trade theory which have found some a p p l i c a t i o n i n d i s c u s s i o n s of TT and which deserve b r i e f mention here. F i r s t , there i s what we might term a 'dynamic comparative advantage model* of TT. The ( s t a t i c ) comparative advantage trade theory leads to the c o n c l u s i o n t h a t nations w i l l tend t o s p e c i a l i z e i n the production of those - 12 - th i n g s i n which t h e i r r e l a t i v e e f f i c i e n c y ( v i s - a - v i s other nations) i s gr e a t e s t and t o exchange some p o r t i o n of that production f o r goods f o r which other nations possess a comparative advantage i n production. There i s , however, much evidence t h a t comparative advantages are not, i n f a c t , s t a t i c over the longer term and, as comparative advantages change, production of v a r i o u s goods tends to s h i f t from one country to another. T h i s s h i f t i n g of production i m p l i e s t h a t a t r a n s f e r of production technology may take place, and i n t h i s sense the trade theory suggests a model of TT as a process. Unfortunately,, models of t h i s s o r t seldom provide much i n s i g h t i n t o the f a c t o r s which le,ad to a change i n comparative advantage and,, thus, tend to beg c r u c i a l questions as to the primal causes of such TT. Nevertheless, something l i k e the process suggested seems to account f o r some types of TT. Perhaps the c l a s s i c a l example would be the r e p e t i t i v e t r a n s f e r of the t e x t i l e i n d u s t r y and i t s technology to su c c e s s i v e areas of lower-cost labour. The second model, the 'product l i f e - c y c l e model', i s c l o s e l y a s s o c i a t e d with Raymond Vernon and h i s a s s o c i a t e s at Harvard. As Vernon puts i t , the product l i f e - c y c l e approach: " . . . puts l e s s emphasis upon comparative cost d o c t r i n e and more upon the timing of inn o v a t i o n , the e f f e c t s of s c a l e economies and the r o l e s of ignorance and u n c e r t a i n t y i n i n f l u e n c i n g trade p a t t e r n s . " T h i s approach takes the view t h a t innovation - in', the sense of the a c t u a l a p p l i c a t i o n of a new production technology or the production of a new product - i s not a random event. The p o t e n t i a l f o r an innovation i s l i k e l y to be f i r s t a ppreciated by an entrepreneur i n or of the major p o t e n t i a l market f o r the i n n o v a t i o n . Though the approach need not be l i m i t e d to innovat i o n s o r i g i n a t i n g i n the USA i t i s conventional to use the US case i n d i s c u s s i n g the model. In the US case, market c h a r a c t e r i s t i c s (eg. a f f l u e n c e ) and r e l a t i v e f a c t o r c osts (eg. high-cost labour) tend to - 13 - generate the r e c o g n i t i o n of o p p o r t u n i t i e s f o r labour-conserving and, high- income consumers' goods i n n o v a t i o n s . The model f u r t h e r argues that the i n i t i a l production of these goods, a l s o , w i l l take place i n the US - d e s p i t e the f a c t t h a t the i n p u t s and c o s t s a s s o c i a t e d with the i n i t i a l production process might argue f o r production overseas f o r export to the US market. T h i s w i l l be so, the model argues, because, on the one hand, the unstandardized and e v o l v i n g form of the new product r e q u i r e s prompt feedback from and response to market preferences as they are r e v e a l e d and, on the other hand, the f i r m , t y p i c a l l y , f a c e s a r e l a t i v e l y p r i c e - i n e l a s t i c demand curve s i n c e such new products u s u a l l y are something of a 'luxury item* i n i t i a l l y and i n any event are d i f f i c u l t f o r the consumer to compare on the b a s i s of p r i c e . T h i s i n e l a s t i c i t y of demand reduces the pressures t o seek out the lowest-cost l o c a t i o n f o r production. As the product becomes standardized and the domestic and export markets expand however, the balance of i n c e n t i v e s s h i f t s so t h a t e i t h e r f o r e i g n producers or f o r e i g n s u b s i d i a r i e s of the US innovators are e s t a b l i s h e d to meet f o r e i g n , and then US domestic demand (see f i g u r e 1 on page 14]. Thus, the product l i f e - c y c l e approach a l s o provides a model f o r TT with the t r a n s f e r of a production technology being a f u n c t i o n of i t s own degree of s t a n d a r d i z a t i o n and of l o c a l market c o n d i t i o n s i n the r e c i p i e n t n a t i o n . T h i s model, l i k e the comparative advantage model, does not address i t s e l f to some fundamental questions - i n t h i s l a t t e r case, f o r example, to the primal causes of changes i n non-US markets which create the c o n d i t i o n s necessary f o r TT to them. Nevertheless, t h i s model., too, seems to account f o r some types of TT - p a r t i c u l a r l y TT of production t e c h n o l o g i e s f o r many of the consumer durables goods. - 14 - Figure K A Schematic Presentation of tha U.S. Trade Position in the Product Ufa Cycle Net Exporter Net Importer Priose I Phase! • Phase EI P'nass Iff Phose AH production Production Europe Europe LDC's in U.S. started in exports to exports . export Europe L D C V to U.S. to U.S. U.S. exports U.S. exports U.S. expar's lo many mostly to to LDC's countries LDC's displaced Source: L.T. Wells (ed.) The Product L i f e - C y c l e and In t e r n a t i o n a l Trade. Boston, D i v i s i o n of Research, G.S.B.A., Harvard U n i v e r s i t y . - 15 - Both of the models discussed, however, share two c h a r a c t e r i s t i c s which l i m i t t h e i r value as models of TT. In the f i r s t i n s t a n c e , they do not begin to encompass more than a small part of the t o t a l complexity which inheres i n i s s u e s of s o c i e t y and technology and, thus, i n the i s s u e of TT. On t h i s p o i n t , the product l i f e - c y c l e model i s probably the more s a t i s f a c t o r y of the two. In the second i n s t a n c e , both models c o n c e p t u a l i z e TT as a more or l e s s ' n a t u r a l ' process, th a t i s , as a process a r i s i n g from e x i s t i n g environmental r e a l i t i e s . T h i s , of course, has (an intended) value i n seeking the, or some of the, underlying environmental fac t o r s - which favour TT. In f a c t , however, TT (along with i n d u s t r i a l i z a t i o n , i t s e l f ) has became one af the means c o n s c i o u s l y used by nations everywhere - often i n s p i t e of underlying r e a l i t i e s i n i m i c a l to the TT - to f u r t h e r extend or to i n i t i a t e 17 and maintain t h e i r i n d u s t r i a l i z a t i o n . (c) Technology T r a n s f e r as D i r e c t e d Change In both developed and less-developed c o u n t r i e s nations seek to shape t h e i r own d e s t i n i e s . In both cases technology plays an important r o l e i n n a t i o n a l development p o l i c i e s which i n c o r p o r a t e v a r i o u s laws, r e g u l a t i o n s , and i n c e n t i v e s r e l a t e d to t e c h n o l o g i c a l development. I t i s a f a c t t h a t the bulk of modern i n d u s t r i a l technology i s possessed by a 18 few developed nations and, of them,;the US i s by f a r the best endowed. One study of 110 s i g n i f i c a n t postwar i n n o v a t i o n s found t h a t SO/o of them were f i r s t commercially e x p l o i t e d i n the USA. Despite t h i s , US dominance of world trade i n manufactures has not i n c r e a s e d but has, i n f a c t , decreased somewhat, even (in the ' s c i e n c e - i n t e n s i v e ' manufactures, as a r e s u l t of TT to the other developed c o u n t r i e s . 2 0 Among the developed c o u n t r i e s at l e a s t , TT has been a f a i r l y e f f i c i e n t 21 a c t i v i t y . In the less-developed c o u n t r i e s , however, TT has been - 16 - complicated c o n s i d e r a b l y by problems of ' s o c i a l e n g i n e e r i n g 1 - such as those a l l u d e d t o e a r l i e r (see pp. 4-6). I n c r e a s i n g l y of recent years, however, both developed and less-developed c o u n t r i e s have concerned themselves not j u s t with whether TT takes place but a l s o with the form i n which i t takes pl a c e . While there are those who argue that the f o r e i g n d i r e c t investment 23 form of TT may be the most e f f i c i e n t form or even t h a t i n c e r t a i n cases OA i t may be necessary, there i s a contrary tendency f o r governments, i n c r e a s i n g l y , to encourage other forms of TT not i n v o l v i n g f o r e i g n d i r e c t investment. T h i s i s , p r i m a r i l y , not a r e f l e c t i o n of the t e c h n i c a l e f f i c a c y or i n e f f e c a c y of the FDI mode of TT but, r a t h e r , of i t s a s s o c i a t i o n , r e a l or imagined, with 'economic im p e r i a l i s m ' and of the diminished sense of c o n t r o l engendered i n governments and nations by the presence of f o r e i g n 25 companies or t h e i r s u b s i d i a r i e s . As a consequence, governments are i n c r e a s i n g l y seeking, i n t h e i r e f f o r t s at d i r e c t e d change of t h e i r s o c i e t i e s , to ensure not only t h a t a p p r o p r i a t e t e c h n o l o g i e s are t r a n s f e r r e d at the r i g h t time but a l s o t h a t they are t r a n s f e r r e d i n a form which impinges as l i t t l e as p o s s i b l e on f e e l i n g s of n a t i o n a l s o v e r e i g n i t y and independence. In p r a c t i c a l terms, t h i s has been evidenced by a preference f o r TT which i n v o l v e s , not f o r e i g n d i r e c t i n v e s t - ment, but the l i c e n s i n g of indigenous companies to use foreign-developed t e c h n o l o g i e s . There has a l s o been a p a r a l l e l tendency, at l e a s t i n the advanced developed nations, to t r y to encourage the developemnt of the indigenous c a p a c i t y f o r t e c h n o l o g i c a l i n n o v a t i o n . 4. The Relevance of the Postwar Japanese Experience Much has been w r i t t e n of the postwar Japanese "economic m i r a c l e " , and understandably so. Not only i s Japan the most recent a d d i t i o n to the ranks of the developed (some would say a f f l u e n t ) nations, but i t i s a l s o - 17 - the f i r s t of the "non-western" nations to u n e q u i v o c a l l y reach th a t stage of development. As such, present day Japan has come to serve as an o f t - used p o i n t of r e f e r e n c e or " t e s t case"'' f o r a s s e s s i n g the g e n e r a l i t y of t h e o r i e s and hypotheses as to the concomitants of the advanced i n d u s t r i a l s t a t e . S i m i l a r l y , • the Japanese process of modernization and i n d u s t r i a l i z a t i o n i s examined f o r the c l u e s i t may provide regarding t h a t process i n g e n e r a l . In e i t h e r case, however, the importance of developments p r i o r to World War Two q u i c k l y becomes apparent. • As regards the Japanese adaptation to i n d u s t r i a l i z a t i o n , t h e r e i s continuing debate as to e x a c t l y when t h i s can be s a i d to have begun but, i n any case, there i s general agreement t h a t i t began at l e a s t as e a r l y as the l a t e Nineteenth Century. Indeed, recent s c h o l a r s h i p s t r e s s e s the importance of s o c i a l and economic developments during the p e r i o d of self-imposed i n t e r n a t i o n a l i s o l a t i o n i n the Tokugawa era (1600-1868] f o r the subsequent, and more obvious, process of modernization/ i n d u s t r i a l i z a t i o n . S i m i l a r l y , the importance of the importation of f o r e i g n technology to Japanese development i s not of recent o r i g i n . Such technology t r a n s f e r s have had major impact s i n c e at l e a s t as e a r l y as the Seventh Century wave of T'ang Chinese i n f l u e n c e s which swept through Japanese s o c i e t y , i r r e v o c a b l y (though not immutably) a l t e r i n g i t and i n f l u e n c i n g a l l subsequent develop- ment. Moreover, even i f we c o n f i n e ourselves to modern, i n d u s t r i a l t e c h - n o l o g i e s we f i n d the beginnings of such TT l i e i n the l a t e Nineteenth Century and i n some cases preceded the formal reopening of i n t e r n a t i o n a l contacts i n the 1850's. In s h o r t , considered from the broad standpoint of economic development and technology t r a n s f e r o u t l i n e d i n the preceeding s e c t i o n s of t h i s chapter, an examination of the postwar Japanese experience can only be.a part of the - 18 - s t o r y . The threads of s o c i a l , i d e o l o g i c a l , p o l i t i c a l , and economic change which t r a c e Japan's modern development do not begin with nor were they, severed by World War Two. But, g r a n t i n g some fundamental "seamlessness" to h i s t o r y , there remain persuasive reasons f o r f o c u s s i n g on the postwar p e r i o d . There i s , f i r s t , the f a c t t h a t the use of World War Two as an h i s t o r i c a l d i v i d i n g l i n e i s more than a convenient convention. I t r e f l e c t s , r a t h e r , a major t u r n i n g p o i n t i n world p o l i t i c a l , i d e o l o g i c a l , and economic groupings which, i n i t s e l f , would j u s t i f y the treatment of the postwar p e r i o d as a separate e r a . T h i s i s perhaps p a r t i c u l a r l y t r u e i n the case of Japan which, as a r e s u l t of World War Two, was f o r the f i r s t time i n i t s h i s t o r y occupied by a f o r e i g n power and, moreover, by a power i n t e n t on e f f e c t i n g a fundamental transformation of Japanese s o c i e t y . A second reason f o r f o c u s s i n g on the postwar p e r i o d r e l a t e s to the very drama and r a p i d i t y of Japan's postwar development which a l s o tends to d i s t i n g u i s h i t from the prewar p e r i o d . In part, of course t h i s drama and r a p i d i t y are more apparent than r e a l . The s t a t e of devastation and poverty from which Japan's postwar development began cr e a t e s an a r t i f i c i a l appearance of foreshortened, r a p i d , development from extreme poverty to a f f l u e n c e and obscures Japan's impressive prewar record of modernization and development. And ; yet, even a l l o w i n g f o r the d i s t o r t i o n s a r i s i n g from wartime d e s t r u c t i o n , Japan's postwar development remains a much more r a p i d and dramatic process than tha t of the prewar p e r i o d . T h i s i s t r u e not only as regards such gross aggregate i n d i c a t o r s of development as GNP but a l s o as regards s t r u c t u r a l and q u a l i t a t i v e measures of development. Thus, f o r a l l i t s c o n s i d e r a b l e i n d u s t r i a l ' development, prewar Japan remained a l a r g e l y a g r i c u l t u r a l s o c i e t y with as much as 50/o of i t s employed population engaged - 1 9 - i n primary i n d u s t r y as l a t e as 1930. As against t h i s , the percentage of persons employed i n primary i n d u s t r i e s f e l l from 48% to 19% i n the twenty years between 1950 and 1970. In f a c t , i f we consider the s t r u c t u r e of Japanese employment i n terms of the three c a t e g o r i e s , primary, secondary, and t e r t i a r y , the primary i n d u s t r y group moved from being the most important (41%) to being the l e a s t important (25%) i n the b r i e f ten years from 1955 to 1965 (see t a b l e 1.). S i m i l a r l y , the content of Japan's prewar i n d u s t r i a l output had never s e r i o u s l y challenged t h a t of the developed western world i n the i n t e r n a t i o n a l marketplace except where Japan's lower l a b o r c o s t s and/or lower q u a l i t y (thus lower p r i c e ) provided economic advantage i n some few i n d u s t r i e s and markets. Again, the postwar r e c o r d i s s t a r t l i n g l y d i f f e r e n t . Japan's a b i l i t y t o compete i n export markets r a p i d l y s h i f t e d from the r e l a t i v e l y simple-technology products of l i g h t i n d u s t r y t o complex-technology products of heavy i n d u s t r y i n d i r e c t competition with a broad range of" t h e i n d u s t r i a l output of the developed western nations (see t a b l e 2.). T h i s second point suggests, or can be reformulated i n t o , a t h i r d reason f o r f o c u s s i n g on the postwar p e r i o d . Many non-western (and, f o r that matter, western) n a t i o n s have launched development programmes aimed at a t t a i n i n g the l e v e l s of i n d u s t r i a l i z a t i o n common i n the western developed n a t i o n s . Many of these, notably i n c l u d i n g prewar Japan, have made cons i d e r a b l e advances along the path to i n d u s t r i a l i z a t i o n . In a l l too many cases however, the gap between these c o u n t r i e s and the advanced nations has remained r e l a t i v e l y unchanged, or widened. Thus of a l l the " t a k e o f f s " i n i n d u s t r i a l development,to borrow Rostow's term, postwar Japan i s one of the very few to have arguably " a r r i v e d " at a poin t of e q u a l i t y with the advanced western n a t i o n s . To focus on t h i s " a r r i v a l process", on, that i s , the postwar Table 1 Trends i n Employment by Industry Category: 1920-1970 'Ntjategoi " y PRIMARY SECONDARY TERTIARY Year \ Employed persons % Employed persons % Employed persons % 1920 14,672,164. 53.82 5,597,905. 20 .53 6,463,586. 23.71 1930 14,710,820. 49.67 6,002,032. 20 .26 8,836,206. 29.83 1940 14,392,482. 44.31 8,442.502. 25 .99 9,429,391. 29.03 1950 17,208,447. 48.30 7,811,950. 21 .93 10,568,475. 29.67 1955 16,111,216. 41.04 9,219,905. 23 .48 13,928,005. 35.48 1960 14,239,420. 32.57 12,761,770. 29 .19 16,703,590. 38.21 1965 11,737,950. 24.64 15,242,410. 32 .00 20,622,955. 43.30 1970 10,087,190. 19.36 17,705,915. 33 .98 24,297,675. 46.63 Source: Jinko Mondai Skingikai (Population Council). Nihon Jinko no DoKo - S e i s h i Jinko o Mezashite (Japanese population trends - towards a stable population). - Japanese - 1974, pp.326-327. 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Toys o m O Rayon Fibres _ • — .— CO CO rH cu cd i-i CO 4-1 CO fi cu CU CO 4J 4J rH £ CU a a •rl rH fi cd 4-1 CO •rl -fi 14H X 3 4-1 o fi ca CU O X u fl T3 H u cd CU p-l 60 cd o M H fi o fi CU CU •rl O O rH Fn fi fi CO X rH 4-1 CU 1 ^ O •rl ft 4-1 cd 4-1 cu fi rH U •rl O 4-1 r H O 4-1 O •rl cd cd X r H cu •rl u CO CO Pi a CO CJ CO O rH CN CO in vO 00 cy> rH CO CU •rl U 4-1 fi CU fi a) H ft o H - 22 - period, i s to focus on a p a r t i c u l a r l y s i g n i f i c a n t stage i n the development process and on the r o l e that TT plays i n that stage. F i n a l l y , Japan's postwar transformation to advanced i n d u s t r i a l s t a t u s was, i n f a c t , accompanied by major t e c h n o l o g i c a l changes and importations of f o r e i g n t e c h n o l o g i e s and these appear to have been not i n c i d e n t a l but, r a t h e r , fundamental to that t r a n s f o r m a t i o n . Moreover, while these imported te c h n o l o g i e s were i n c r e a s i n g l y s o p h i s t i c a t e d , s t a t e - o f - t h e - a r t , techniques l e a d i n g to increased Japanese a b i l i t y to compete with t h e i r technology s u p p l i e r - c o m p e t i t o r s i n the developed nations, Japan managed to acquire them without any major penet r a t i o n of i t s economy by f o r e i g n d i r e c t investment (see t a b l e 3 on page 23). Thus the Japanese postwar experience with TT i s of p a r t i c u l a r i n t e r e s t . I t appears to be perhaps the most dramatic and s u c c e s s f u l example of TT i n the s e r v i c e of n a t i o n a l goals and a s p i r a t i o n s i n the postwar world. I t can be argued, moreover, to i l l u s t r a t e a c r i t i c a l , and r e l a t i v e l y unique, period i n the development process - the t r a n s i t i o n from "developing" to "developed" s t a t u s . At the same time, the apparent s i g n i f i c a n c e of t e c h n o l o g i c a l change i n postwar Japan suggests th a t an examination of the period from the stand- point of TT can y i e l d u s e f u l i n s i g h t s i n t o that period of Japanese h i s t o r y . -23- Table 3. International Comparison of the Share of Enterprises with Foreign Ownership (E.F.O.'s) i n Manufacturing Industry. Country Year Share of E.F.0's(%) % of Foreign Ownership Parameters Canada 1969 58.1 25%+ Sales Japan 1970 3.0 20%+ Sales Belgium 1968 33.0 n.a. Turnover Finland 1970 7.0 15%+ Turnover France 1970 1 0 . 0 ( a ) 20%+ ( a ) Turnover Germany (West) 1970 21.3 50%+ Turnover Netherlands 1971 18.9 1%+ Turnover Sweden 1970 9.7 20%+ Turnover Turkey 1968 7.6 10%+ Turnover United Kingdom 1963 9.1 n.a. Sales Source: O.E.C.D. Interim Report of the Industry Committee on International Enterprises, P a r i s ; Publications Centre, 1974, Note: (a) estimate - 24 - I I JAPAN'S POSTWAR RECOVERY (1945-1955) 1. Japan i n Defeat In the aftermath of World War Two, the Japanese faced an enormous task of r e c o n s t r u c t i o n . I f i n the days immediately f o l l o w i n g surrender the c a p i t a l c i t y of Tokyo showed l e s s evidence of d e s t r u c t i o n than many European c a p i t a l s , i t was only because the combination of wood construc- t i o n and fire-bombing had made the d e s t r u c t i o n more complete and turned much of the c a p i t a l c i t y i n t o a neat, but l i f e l e s s , p l a i n of ashes. Very q u i c k l y , of course, makeshift b u i l d i n g s arose out of the waste as people s t r u g g l e d to e s t a b l i s h and maintain a new subsistence f o r themselves. While the m a j o r i t y of the Japanese concerned themselves with the immediacies of a catch-as-catch-can e x i s t e n c e , those few who had the time, or r e s p o n s i b i l i t y , to consider the longer-term i s s u e s of postwar recon- s t r u c t i o n were seldom o p t i m i s t i c about Japan's chances of r e t u r n i n g to the s t a t u s of an advanced i n d u s t r i a l i z e d n a t i o n . There was much to support 26 such pessimism. The l o s s of the war meant the l o s s of Japan's major export markets and sources of supply as the 'Greater E a s t - A s i a C o - p r o s p e r i t y Sphere 1 was dismantled. The l o s s of overseas t e r r i t o r i e s was a l s o accompanied by the r e p a t r i a t i o n of 6,220,000 overseas Japanese e x p a t r i a t e s between 1945 and 1949 - accounting,along with n a t u r a l i n c r e a s e , f o r an i n c r e a s e i n p o p u l ation d e n s i t y on the main i s l a n d s during the same perio d from the prewar l e v e l of 145.9 t o 211.9 per square k i l o m e t r e . 2 7 At the same time, there had been con s i d e r a b l e l o s s e s of i n d u s t r i a l a s s e t s through - 25 - bombing and, i n the overseas t e r r i t o r i e s , through c o n f i s c a t i o n (see t a b l e 4 on page 26). 2. The Prewar Legacy (a) N a t i o n a l Ambition and Cohesion Despite the co n s i d e r a b l e m a t e r i a l and psychic damage s u f f e r e d by Japan i n i t s defeat and occupation by an a l i e n army, the nation s t i l l possessed many resources and c h a r a c t e r i s t i c s favourable to redevelopment. Perhaps foremost among these was the r a c i a l and c u l t u r a l homogeneity and sense of nationhood which had played such an important r o l e i n Japan's prewar development. A l l i e d with t h i s was a n a t i o n a l , or r a c i a l , p r i d e which from the e a r l i e s t days of M e i j i set a n a t i o n a l goal of e q u a l i t y with the advanced nations and which go a l , i n t u r n , both sanctioned and imbued with n a t i o n a l purpose much of the prewar i n d u s t r i a l i z a t i o n of Japan. True, t h i s same s p i r i t of n a t i o n a l i s m and ambition was s t r o n g l y i m p l i c a t e d i n the r i s e of Japanese m i l i t a r i s t i c i m p e r i a l i s m and, u l t i m a t e l y , i n the agony of the P a c i f i c War. I t was soon to be evident however tha t defeat, f o r a l l the di s r e p u t e i t brought down upon the m i l i t a r i s t i c l e a d e r s and t h e i r p o l i c i e s , d i d not diminish Japanese n a t i o n a l ambition and fundamental cohesion but, r a t h e r , rechanneled i t i n t o a n o n - m i l i t a r i s t i c search f o r , f i r s t , recovery to prewar standards and, then, f o r e q u a l i t y i n s t a n d a r d - o f - l i v i n g , i f not i n m i l i t a r y power, with the advanced c o u n t r i e s of the west. - 2 6 - Table 4'\ Japan's World War Two Losses of Assets Losses of Assets as a Percent of National Total A B Overall 25.4% 101.1% Construction 24.6 89.4 Harbors & Waterways 7.5 123.3 .-. Bridges 3.5 121.2 ••••:• ! Industrial Machines & Tools 34.3 180.6 Roads & Railways 7.0 106.6 . '•.-Vehicles ' 21.9 92,4 ••: Shipping 80.6 56.8 Electricity & Gas Plants 10.8 148.1 Telegraphs & Broadcasting Equipment 14.8 109.9 Waterworks 16.8 106.8 Personal Goods & Possessions 21.6 94.6 Furniture, Household Effects 20.6 93.7 Manufactured Goods 23.9 106.6 Precious Metals 4.5 35.7 Miscellaneous 20.0 190.3 A = direct & indirect losses as a proportion of total remaining assets at the close of hostilities. B=total remaining assets at war's end as a proportion of total assets in 1935. Proportional Losses of Industrial Assets High Rate of Loss Others Power Oil Refining 58.0% Thermal Electricity : 30.2% Iron & Steel Pig Iron 24.5 Carbon Steel 14.4 Nonferrous Metals "Aluminum 23.9 Electrolytic Copper 22.1 Machinery Vacuum Valves 55.7 Machine Tools 25.0 • •• Chemicals Sulphur 54.1 Cement 27.0 Textiles Carded Wool : 42.4 • Paper Pulp 10.4 (, Source: Yamamoto, Noboru The Modernization of the Economy and Postwar Expansion Tokyo, In t e r n a t i o n a l A s s o c i a t i o n f o r Educational Informatiori, 1973. p.27.. - 27 - (b) Government I n i t i a t i v e Japan has been p o l i t i c a l l y u n i f i e d s i n c e the 17th Century and has a long h i s t o r y of strong c e n t r a l government as w e l l as h i e r a r c h i c a l t r a d i t i o n s supportive of such c e n t r a l i z e d government. Since the M e i j i R e s t o r a t i o n of 1868, at the l a t e s t , one r e f l e c t i o n of t h i s has been a c l o s e involvement of government i n the planning and implementation of Japan's i n d u s t r i a l i z a t i o n and a high degree of government-business int e r a c t i o n , . T h i s t r a d i t i o n of c e n t r a l government guidance of the economy was r e f l e c t e d i n a competent, and prestigeous, bureaucracy which was to prove a f u r t h e r asset i n Japan's postwar r e c o n s t r u c t i o n and developemnt. I t i s important to note, however, that the e f f e c t i v e n e s s of c e n t r a l l e a d e r s h i p was not simply a f u n c t i o n of p r e s t i g e , competence, and power (though, e s p e c i a l l y i n the e a r l y postwar pe r i o d , i t possessed an abundance of these) but a l s o of a t r a d i t i o n and a c a p a c i t y f o r c o n s u l t a t i o n and compromise possessed by both the c e n t r a l p o l i t i c a l and bureaucratic: 28 l e a d e r s h i p and by l e a d e r s i n the business world. The i n i t i a l g o a l of l e a d e r s h i p was to recover Japan's p o l i t i c a l s o v e r e i g n i t y and economic independence. To t h i s l a t t e r end, plans were formulated to r e v i t a l i z e and modernize the b a s i c i n d u s t r i e s (eg. s t e e l , e l e c t r i c power) and to develop an export t r a d e f o r l i g h t manufactures. In t h i s connection, the technology gap between Japan and the developed nations of the West was o f f i c i a l l y recognized as e a r l y as: the f i r s t White Paper • on Science and Technology i n 1949. T h i s gap r e f l e c t e d i n part the i s o l a t i o n of Japan i n the 193Q's and 1940*s and i n part the l e s s advanced s t a t e of Japan's i n d u s t r i a l i z a t i o n . - 28 - (c) The People I f Japan's i n d u s t r i a l i z a t i o n was t e c h n i c a l l y not as advanced as i n the West, i t s s o c i a l adaptation to i n d u s t r i a l i z a t i o n was w e l l advanced. Indeed, the d i s c i p l i n e s and demands of the m i l i t a r i s t i c 30's and the P a c i f i c War on both the m i l i t a r y and c i v i l i a n p o p u l a t i o n may have served to f u r t h e r break down t r a d i t i o n a l a t t i t u d e s a n t a g o n i s t i c to i n d u s t r i a l i s m . In terms of o v e r a l l l e v e l s of l i t e r a c y and education, Japan already ranked high compared to other c o u n t r i e s . The e d u c a t i o n a l system was of course not immune to the d i s r u p t i o n s of wartime but, with the r e t u r n of peacetime, Japan was p r o v i d i n g by the end of the 194-0's a compulsory, primary education to over 99/o of school-age c h i l d r e n (as had been done s i n c e as e a r l y as the 1 9 2 0 's) and, of these, w e l l over 40/o were proceeding to high-school s t u d i e s . I t i s t r u e , of course, that the Japanese s o c i a l adaptation to i n d u s t r i a l i z a t i o n e x h i b i t s d i s t i n c t d i f f e r e n c e s from the "Western model". These d i f f e r e n c e s are most remarked upon by f o r e i g n observers as regards the s o c i a l o r g a n i z a t i o n of work. In c o n t r a s t to the western tendency t o emphasize i n d i v i d u a l i t y , emotional n e u t r a l i t y , fundamental e q u a l i t y , and u n i v e r s a l i s t i c performance standards, the Japanese work environment tends to emphasize group o r i e n t a t i o n , emotional commitment, h i e r a r c h y 29 and p a r t i c u l a r i s t i c performance e v a l u a t i o n s . F o r a l l t h a t , however, i t has proved to be an extremely v i a b l e form of adaptation to i n d u s t r i a l i s m . Moreover, i n a l l i t s e s s e n t i a l s i t was already a ' f a i t accompli* by the 1 9 4 0 *s. Thus, i n terms of the problems of s o c i a l engineering which hinder development i n much of the world, Japan was w e l l s i t u a t e d at the - 2 9 - end of World War Two to c l o s e the technology gap with the West - given the opportunity to do so. On t h i s l a t t e r point - the o p p o r t u n i t i e s to be a f f o r d e d Japan i n the postwar era - much depended upon the p o l i c i e s to be adopted by the Occupation f o r c e s . 3. The Occupation, Redevelopment, and Technology T r a n s f e r (a) Occupation P o l i c i e s The occupation a u t h o r i t i e s (nominally A l l i e d , but i n f a c t American) d i d not adopt a rapacious a t t i t u d e towards Japan. Indeed, t h e i r p o l i c y o b j e c t i v e s of " d e m i l i t a r i z a t i o n and democratization" were probably as popular as any such e x t e r n a l l y imposed p o l i c i e s c o u ld have been. Nevertheless, the scope ofproposed reforms was extremely broad and, s p e c i f i c a l l y , i n c l u d e d p o l i c i e s aimed at 'economic democratization and d e m i l i t a r i z a t i o n ' which, however l o f t y t h e i r o b j e c t i v e s , i m p l i e d a f u r t h e r , postwar, rending of the Japanese s o c i a l and economic f a b r i c - r a t h e r than r a p i d recovery. The most prominent of these economic p o l i c i e s was aimed at the d i s s o l u t i o n of the ' z a i b a t s u ' - f i n a n c i a l combines - and other 'non- democratic' concentrations of economic power. The fundamental motivation f o r these p o l i c i e s was i d e o l o g i c a l and aimed a t : " . . . transforming a small number of m o n o p o l i s t i c combines i n t o numerous competing u n i t s . . . ( t o ) . . . e r e c t a s o l i d bulwark against the spread of i d e o l o g i e s or systems d e s t r u c t i v e of both f r e e e n t e r p r i s e and p o l i t i c a l freedom under on democratic c a p i t a l i s m . " I t was, however, for' e s s e n t i a l l y the same s o r t of i d e o l o g i c a l reasons t h a t many of the more sweeping reforms proposed were never, or only - 30 - s u p e r f i c i a l l y c a r r i e d out. With the v i c t o r y of the Chinese Communists and the emergence of the 'cold war' with the USSR, the value of Japan as an economically v i a b l e , non-communist, a l l y of the US took precedence over e a r l i e r concerns f o r a more sweeping reform of Japanese s o c i e t y . With t h i s , the emphasis swung towards the encouragement of r a p i d economic r e v i v a l of Japan and the outbreak of the Korean War i n 1950 provided dramatic and immediate support f o r t h i s . (b) Demonstration and Linkage E f f e c t s At many l e v e l s , the US presence i n Occupied Japan (and, t o a l e s s e r extent, i n post-occupation Japan as w e l l ) had a major impact on 31 postwar Japanese t e c h n o l o g i c a l development. Spencer, who has i n v e s t i g a t e d t h i s aspect of the US m i l i t a r y presence, makes a u s e f u l d i s t i n c t i o n between the unintended or 'demonstration e f f e c t ' TT and the intended or 'linkage e f f e c t ' TT which was r e l a t e d to the US m i l i t a r y presence. By h i s use of the term 'demonstration e f f e c t ' Spencer intends: " . . . demonstration i n some general connection with the m i l i t a r y . Thus, the mere presence of f o r e i g n m i l i t a r y u n i t s a c t s as a stimulant to emulative behaviour. I n d i v i d u a l s see how the f o r e i g n i n d i v i d u a l s do t h i n g s and copy them i f they t h i n k the f o r e i g n way i s s u p e r i o r or advantageous i n some 3? sense to them,.n In t h i s regard he c i t e s the adoption of equipment s i m i l a r to t h a t used i n US m i l i t a r y f a c i l i t i e s by Japanese companies as w e l l as the process of "reverse engineering" whereby a piece of equipment, introduced to the country i n connection with the US m i l i t a r y presence, i s t o r n down, analyzed, and copied on the s o l e i n i t i a t i v e of the would-be c o p i e r . Information regarding such copying tends towards the anecdotal and, as might be expected, there i s l i t t l e hard, documented, evidence of i t s extent. Nevertheless, t h i s p a t t e r n of unli c e n s e d , and unintended, TT would seem to have been at l e a s t one c h a r a c t e r i s t i c form of TT i n the e a r l y postwar p e r i o d . At a more general l e v e l , however, perhaps the most profound 'demonstration e f f e c t ' of the US v i c t o r y over and subsequent occupation of Japan (aside from i t s reinforcement of the longstanding Japanese view of the Americans as people from whom to l e a r n ) l a y i n i t s d i r e c t exposure of the Japanese to the 'American way of l i f e " . The impact of the US occupation on Japanese c u l t u r e can e a s i l y be exaggerated. Nevertheless, when one considers the f a c t t h a t the Japan of the 1970*s resembles, at the l e v e l of popular c u l t u r e and consumers' goods, no other country so much as i t does the US, i t i s d i f f i c u l t t o avoid the concl u s i o n t h a t some of the main o r i g i n s of Japan's postwar changes i n l i f e s t y l e s l i e i n the d i r e c t exposure to US l i f e s t y l e s during the Occupation p e r i o d . In the context of Spencer's a n a l y s i s , the 'linkage' (as opposed to the 'demonstration') e f f e c t s of the US m i l i t a r y presence r e f e r to a c t i v i t i e s of the .military'intended, to induce long-run e f f e c t s i n the c i v i l i a n economy. These could i n v o l v e TT which was not primary but, r a t h e r , i n c i d e n t a l to the a c t i v i t y i t s e l f or, a l t e r n a t i v e l y , TT i n which the t r a n s f e r of the technology i n v o l v e d was the a c t u a l focus of the a c t i v i t y . In e i t h e r case however, such TT was e x p l i c i t l y intended. I n c i d e n t a l TT was a s s o c i a t e d with the need to supply and maintain the m i l i t a r y presence i n Japan, the Korean War e f f o r t , and US m i l i t a r y a s s i s t a n c e programmes to f r i e n d l y c o u n t r i e s i n the P a c i f i c area. " S p e c i a l procurements" by the US, l a r g e l y i n connection with the Korean War, were a major f a c t o r i n Japan's economic recovery i n the f i r s t h a l f of the 1950*s. The t o t a l value of - 32 - these c o n t r a c t s f o r the peri o d from June, 1950, to June, 1955, was over 33 1.6 b i l l i o n US d o l l a r s and covered a wide range of goods and s e r v i c e s . Aside from the immediate economic impact on the s u p p l i e r i n d u s t r i e s and i n the economy as a whole, these " s p e c i a l procurement" c o n t r a c t s were a l s o the v e h i c l e f o r a great deal of such " l i n k a g e e f f e c t " TT. The forms or channels of such TT i n c l u d e d d i r e c t h i r i n g of Japanese personnel (by, say, a US supply and r e p a i r depot), 'labour c o n t r a c t s ' under which a Japanese government agency arranged f o r c o n t r a c t s with Japanese companies to supply personnel to operate a US army f a c i l i t y , as w e l l as the d i r e c t placement of procurement c o n t r a c t s with Japanese f i r m s to manufacture items f o r the US Armed F o r c e s . In each case, there was c o n s i d e r a b l e US i n s t r u c t i o n , t r a i n i n g , and monitoring of Japanese a c t i v i t i e s i n order to enable and to ensure t h a t performance s p e c i f i c a t i o n s were met. The types of technology t r a n s f e r r e d i n t h i s way were v a r i o u s and extended down to the procurement of d a i l y n e c e s s i t i e s such as vegetables produced without the use of night s o i l . At the l e v e l of i n d u s t r i a l technology, Spencer c i t e s the t r a n s f e r of plywood production technology i n order t o meet the c o n s t r u c t i o n needs of the US Armed F o r c e s . He suggests tha t the present i n t e r n a t i o n a l competitive strength of the Japanese plywood i n d u s t r y has i t s o r i g i n s i n t h i s e a r l y m i l i t a r y - r e l a t e d TT. In c o n t r a s t to the above TT which was i n c i d e n t a l to the primary purpose of meeting the needs of the US presence i n the P a c i f i c , there was a l s o TT which had as i t s e x p l i c i t purpose the upgrading of Japan's t e c h n o l o g i c a l c a p a b i l i t i e s . The main v e h i c l e f o r t h i s l a t t e r TT was the M i l i t a r y A s s i s t a n c e Programme (MAP), under which a vast amount of m i l i t a r y - i n d u s t r i a l technology was t r a n s f e r r e d to Japan. One of the more s i g n i f i c a n t areas of such TT was m i l i t a r y a v i a t i o n and t h i s provided the f i r s t , e a r l y impetus t o r e v i v a l of - 33 - the Japanese a i r c r a f t i n d u s t r y as w e l l as having 'linkage e f f e c t s ' of i t s 34 own among a broad spectrum of r e l a t e d s u p p l i e r i n d u s t r i e s . (c] Recovery to Postwar Lev e l s Aside from the g l o b a l p o l i t i c a l and m i l i t a r y developments discussed above which favoured Japan's redevelopment f a r more than any mere p o l i c y of development a i d would have, there were.of course domestic, c i v i l i a n , measures which c o n t r i b u t e d to recovery. The government's p o l i c y s t r e s s e d the r e v i t a l i z a t i o n and modernization of b a s i c i n d u s t r i e s - p a r t i c u l a r l y e l e c t r i c power and s t e e l . In both cases, TT played a major r o l e . A d m i n i s t r a t i v e procedures t o r e l e a s e f o r e i g n exchange f o r purposes of a c q u i r i n g technology were set up upon proclamation of the F o r e i g n Exchange C o n t r o l Law (1949) and the F o r e i g n Investment Law (1950). T hese r e g u l a t i o n s and the a t t i t u d e s brought to bear i n e n f o r c i n g them w i l l be discussed i n more d e t a i l i n chapter three (see e s p e c i a l l y pp. 54-55}. Almost as soon as these p r o v i s i o n s were set up those companies i n the e l e c t r i c a l equipment f i e l d with prewar t i e s to f o r e i g n companies 35 r e - e s t a b l i s h e d them. A measure of the s i g n i f i c a n c e of the t e c h n o l o g i c a l gap i n t h i s area i s provided by a comparison of the e f f i c i e n c y r a t e s of two h y d r o e l e c t r i c generating p l a n t s opened i n 1952. The one which used domestic technology had a 25.1% e f f i c i e n c y r a t e , while the other using imparted US generating equipment achieved 33.0% e f f i c i e n c y . The c o n s t r u c t i o n of h y d r o e l e c t r i c dams, i t s e l f , introduced to Japan under t e c h n i c a l a s s i s t a n c e agreements with US companies new, l a r g e - s c a l e c o n s t r u c t i o n p r o j e c t techniques as w e l l as equipment (eg. power shovels, b e l t conveyors, dumptrucks, e t c . ) many times the c a p a c i t y of e x i s t i n g Japanese equipment. In t h i s way, even c i v i l i a n p r o j e c t s may have had major i n c i d e n t a l or secondary TT e f f e c t s by demonstration of US, or other f o r e i g n , equipment and techniques i n concrete 37 p r o j e c t s . - 34 - In the s t e e l i n d u s t r y t h e r e was some delay i n implementing e f f o r t s t o r e b u i l d the i n d u s t r y u n t i l the pressures of the 'cold war' removed i n i t i a l occupation plans to s e v e r e l y l i m i t Japanese c a p a c i t y i n t h i s c r u c i a l i n d u s t r y . The F i r s t S t e e l Industry R a t i o n a l i z a t i o n Plan of 1951 mapped out the i n i t i a l postwar modernization of the_Japanese s t e e l i n d u s t r y . The programme aimed to begin a catch-up process with the European and the US i n d u s t r i e s . In t h i s regard, the biggest gap was i n the area of r o l l i n g m i l l technology and, as a consequence, the r e p r e s e n t a t i v e TT of the e a r l y 1950's was of s t r i p - m i l l technology and equipment. In a d d i t i o n , the l a r g e - s c a l e i n t r o d u c t i o n of Oxygen-process s t e e l production technology began during t h i s p e r i o d - l a y i n g the foundations f o r the subsequent strong world competitive p o s i t i o n of the Japanese i n d u s t r y . General s t e e l i n d u s t r y equipment was a l s o modern- i z e d and by around the end of the planning period, i n 1955, about 30/a of the t h i n - p l a t e , open-hearth, and s t e e l tubing manufacturing equipment and 50)& of the t h i c k p l a t e and s t e e l - r o d equipment had been updated. ^8 i t i s l i k e l y t h a t a great deal of the TT of the period was r e l a t e d to t h i s equipment renovation programme e i t h e r d i r e c t l y or i n d i r e c t l y , v i a the manufacturing equipment i n d u s t r y . By 1951 Japanese production had reached the l e v e l s of the immediate prewar period and, by 1954, consumption i n both r u r a l and urban areas had regained prewar l e v e l s . With t h i s , the postwar recovery p e r i o d could be s a i d t o be at an end. In the course of recovery however, Japan had not merely regained prewar l e v e l s of output and consumption but had a l s o made major, fundamental progress i n strengthening her b a s i c i n d u s t r i a l technology and p l a n t . In t h i s , TT had played a c r i t i c a l r o l e but was, by and l a r g e , l i m i t e d - both by n e c e s s i t y and design - to e x i s t i n g i n d u s t r i e s f o r which redevelopment and modernization was deemed b a s i c to economic recovery. As such, i t was only a prelude to the much more sweeping wave of technology t r a n s f e r which - 35 - was to f o l l o w - touching on a broader range of e x i s t i n g i n d u s t r i e s , e s t a b l i s h i n g new major i n d u s t r i e s , and shaping the massive transformation of the Japanese i n d u s t r i a l s t r u c t u r e which began i n the l a t t e r h a l f of the 1950's. - 36 - I I I STRUCTURAL TRANSFORMATION (1955-1963) 1. The Consumption Revolution From the p e r s p e c t i v e of the 1970*s i t seems as though the Second World War stands as a d i v i d e between two Japanese n a t i o n a l concep- t i o n s of the purposes of technology. I f the prewar view can be c h a r a c t e r i z e d as ' n a t i o n a l strength through technology', the postwar view i s much c l o s e r to Dupont's o l d slogan 'better l i v i n g through chemistry '. T h i s postwar view of the purpose of technology as being a b e t t e r way of l i f e f o r the i n d i v i d u a l might best be viewed as a s h i f t i n emphasis - and one made p o s s i b l e , i n part, by the postwar guarantee of n a t i o n a l s e c u r i t y i m p l i c i t i n the US' nuclear 'umbrella*. Whatever i t s o r i g i n s , however, i t was a change of fundamental importance to Japan's postwar development. T h e 7 i n i t i a l p e r i o d of postwar recovery n e i t h e r r e q u i r e d nor gave p a r t i c u l a r expression to t h i s change. The n a t u r a l and most pressing g o a l s were to r e t r i e v e n a t i o n a l s o v e r e i g n i t y and some semblance of prewar standards of l i v i n g and t h i s , i n i t s e l f , need not have i n v o l v e d any fundamental change i n viewpoint as regards technology and the r o l e of the consumer i n the s o c i e t y . By 1955 however, 'postwar recovery' was at an end and the f i r s t glimmerings of the personal consumption boom began to appear. With the completion of the postwar recovery process i n the mid-1950's, the view t h a t Japan's growth r a t e would i n e v i t a b l y slow down from the high r a t e s t h a t had p r e v a i l e d s i n c e the Korean War was common. The 1956 Economic White Paper a l s o r e f l e c t e d t h i s view but, at the same time, pointed out where the sources of impetus f o r f u t u r e growth would l i k e l y l i e . In what was t o become something of a catch phrase, the - 37 - White Paper dec l a r e d 'The postwar era i s already o v e r 1 and went on to point out th a t economic growth based on recovery from the war was at an end and that.subsequent growth would be a s i g n i f i c a n t l y d i f f e r e n t process. In p a r t i c u l a r , i t s t r e s s e d the f u t u r e importance f o r economic growth of consumers' goods and, not un r e l a t e d , investment i n t e c h n o l o g i c a l modernization of the Japanese i n d u s t r i a l s t r u c t u r e . In the event, t h i s was to prove a prophet i c a n a l y s i s - as i s i n d i c a t e d by t a b l e 5 on page 38, showing trends i n the d i f f u s i o n r a t e s f o r some major consumers durables. The o r i g i n s of t h i s consumption r e v o l u t i o n began modestly enough i n the atmosphere of mild p r o s p e r i t y f o l l o w i n g on completion of postwar recovery. The i n i t i a l o b j e c t s of consumers' a t t e n t i o n were p r i m a r i l y household f u r n i s h i n g s beginning with such minor amenities as f l u o r e s c e n t l i g h t i n g , r a d i o s , chests of drawers, e l e c t r i c fans and sewing machines. T h i s soon expanded to i n c l u d e a broad v a r i e t y of consumers durables i n c l u d i n g many items new to the Japanese consumer market such as washing machines, e l e c t r i c r i c e cookers, and t e l e v i s i o n s e t s . Aside from the i n t r o d u c t i o n of many new products, the enormous s i z e of the emerging consumer market, was i n i t s e l f a stimulus to i n d u s t r y change. The cost r e d u c t i o n s achieved through enlarged production s c a l e and new t e c h n o l o g i e s are a p t l y suggested by t h a t most r e p r e s e n t a t i v e consumer good of the period - t e l e v i s i o n . From a p r i c e l e v e l of 180,000 yen i n 1954 (about $500 US, at the then cu r r e n t exchange r a t e ) , t e l e v i s i o n s e t s were reduced i n p r i c e t o 80,000 yen i n 1956 and to 60,000 yen i n 1959. 3 9 Such p r i c e trends, of course, f u r t h e r enlarged the market f o r consumers goods. -38- Table 5. Di f f u s i o n of Some Consumer's Durables '(% of surveyed households c i t i e s of over 50,000 populatLo Item " • — — Y e a r 1958 1960 1965 1970 1974 Black and White T e l e v i s i o n 15.9 44.7 95.0 9o;i 56.2 Colour T e l e v i s i o n - - - 30.4 87.3 Stereo - - 20.1 36.6 50.4 Transistor Radio - 16.5 55.8 76.0 79.4 Camera 43.1 45.8 64.8 72.1 79.4 Automobile - - 10.5 22.6 37.6 E l e c t r i c Refrigerator 5.5 10.1 68.7 92.5 97.0 E l e c t r i c Washing Machine 29.3 40.6 78.1 92.1 97.6 Vacuum Cleaner - 7.7 48.5 75.4 91.5 O i l Heater - - 49.9 82.2 89.1 Room A i r Conditioner - - 2.6 8.4 15.1 E l e c t r i c Fan 27.6 34.4 77.3 88.5 94.4 Stainless Steel Kitchen Sink - - 24.2 49.1 71.1 Western Style Clothing Bureau 55.0 58.5 77.3 88.2 (94.3)* Sewing Machine 66.3 69.5 83.9 84.5 83.7 * 1973 Source: Ando, Yoshio ed. Kindai Nihon K e i z a i s h i Yoran (A Handbook of Modern Japanese Economic History) - Japanese - Takyo, Tokyo U n i v e r s i t y Shuppankai, 1975. p.187. - 39 - 2. The Technology Revolution (a) Changes i n I n d u s t r i a l S t r u c t u r e The 'consumption r e v o l u t i o n ' was, n a t u r a l l y enough, i n t e r - woven with fundamental changes on the production s i d e . The amazing r a t e s of growth beginning around 1955 i n both the 'basic i n d u s t r i e s ' - which had r e c i e v e d e a r l i e r a t t e n t i o n - and i n many new i n d u s t r i e s i s i n d i c a t e d i n t a b l e 6 on page 40. As discussed e a r l i e r , the s t e e l i n d u s t r y had undergone co n s i d e r a b l e modernization and expansion during the e a r l y 1950's. The pace of modernization and expansion wasiquicker',yet during-the second r a t i o n a l - i z a t i o n plan p e r i o d from 1956 to 1960. The number of hot s t r i p m i l l s i n c r e a s e d from three to seven to rank second only to the US i n number and i n e f f i c i e n c y of operation second to none. At the same time, the i n d u s t r y expanded i t s product l i n e i n t o a l a r g e v a r i e t y of new s p e c i a l s t e e l products. The e l e c t r i c power i n d u s t r y s i m i l a r l y expanded i t s c a p a c i t y and, a l s o began a fundamental s h i f t away from h y d r o e l e c t r i c and towards thermal- based power ge n e r a t i o n . Moreover, a s h i f t away,from c o a l and t o o i l - f i r e d thermal generation reduced the c o s t s of power ge n e r a t i o n . Developments i n the s t e e l and power i n d u s t r i e s had r e p e r c u s s i o n s f o r a l l of Japanese i n d u s t r y but those i n the s t e e l i n d u s t r y had p a r t i c u l a r l y strong impact i n the i n d u s t r i a l machinery and s h i p b u i l d i n g i n d u s t r i e s as w e l l as over a wide range of consumers goods. Changes i n the e l e c t r i c power i n d u s t r y , i n a d d i t i o n to a s s u r i n g a s t a b l e supply of low-cost energy through conversion to o i l - f i r i n g (at l e a s t u n t i l the 1970's!), combined with an i n c r e a s i n g l e v e l of m o t o r i z a t i o n i n Japan TRENDS IN OUTPUT OF SOME PRINCIPAL PRODUCTS (1934-1974) \ P r o d u c t E l e c t r i c Coal Heavy '.. . .Crude E l e c t r i c Passenger Steel Polye-. Viscase Synthetic Power f u e l o i l Steel Refriger 1 Cars Vessels thylene Rayon Fabrics ( m i l l i o n (1000 (1000 (1000 rator (no.) completed (M.T.) Fabrics (1000 m2) Year KWn) M.T.) Kl.) M.T.) (lOOOno) (1000G/T) (1000 m2) 1934 19,799. 35,925. 225. 3,114. 145. 419,987. 1935 22,349. 37,762. 329. 3,737. - - 142. - 611,510. - 1940 30,720. 56,313. 454. 4,522. - 1,479. 307. - 528,135. - 1945 20,982. 29,879. 100. 898. - - 608. - 5,176. - 1950 39,123. 38,459. 807. 3,483. 5. 1,593. 227. - 331,846. - 1955 54,917. 42,423. 4,408. 9,408. 31. 20,261. 735. - 647,006. 54,187. 1956 62,652. 46,555. 5,982. 11,106. 81. 32,056. 1,759. - 769,823. 90,507. 1958 74,701. 49,674. 7,938. 12,118. 415. 50,643. 2,012. - 676,106. 136,647. 1960 101,292. 51,067. 16,723. 22,138. 908. 165,094. 1,759. 41,179. 770,729. 423,886. 1962 122,446. 54,399. 24,025. 27,546. 2,671. 268,784. 2,182. 142,512/ 660,104. 644,511. 1964 154,435. 50,929. 38,865. 39,799. 3,205. 579,660. 4,079. 289,385. 421,970. 1,052,829. 1966 181,723. 51,347. 53,705. 47,784. 2,565. 877,656. 6,396* 556,383. 382,772. 1,443,063. 1968 227,032. 46,569. 74,468. 66,893. 3,471. 2,055,821. 8,481. 856,623. 399,491. 1,893,075. 1970 288,923. 39,694. 101,575. 93,322. 2,631. 3J_78,708. 9,917. 1,304,770. 354,065. 2,746,149. 1972 336,756. 28,099. 118,702. 96,900. 3,455 4022,289. 12,834. 1,480,225. 264,405. 2,717,931. 1974 20,333. 136,763. 117,131. 4,312. 3^31,842. . — 1,897,047. 200,862. 2,621,793. \ Source: Nihon Ginko, Tokei Kyoku (Bank of Japan, S t a t i s t i c s Department). K e i z a i Tokei Nempo, Showa 49 nen (Economic S t a t i s t i c s Annual, 1974) -Japanese - Tokyo, 1975 PP. 227-232. - 41 - to produce a r a p i d i n c r e a s e i n consumption of petroleum products and act as a spur to modernization and expansion i n that i n d u s t r y . Among the newly developing i n d u s t r i e s , the major growth and d i v e r s i f i c a t i o n was i n the chemical i n d u s t r y . From around 1955, the nature of the i n d u s t r y began to s h i f t i t s emphasis from a g r i c u l t u r a l chemicals to high-pblymer petrochemical products. In 1953 nylon production began - f o l l o w e d , i n 1955, by v i n y l o n and, i n r a p i d succession, by polyethylene, p o l y a c r y l i c , polypropylene and, c o n c u r r e n t l y , a wide v a r i e t y of s y n t h e t i c f i b r e - , rubber-, and resin-based f i n i s h e d goods. Many, i f not most, of these developments i n i n d u s t r y i m p l i e d and were, i n f a c t , a s s o c i a t e d with t e c h n o l o g i c a l change. Moreover, TT was a major element i n t h i s process. (b) The Role of Technology T r a n s f e r The b a s i c data on numbers of approvals of TT ( t a b l e 7 on page 42) over the period 1950-1973 i n d i c a t e t h a t , i n the aggregate, TT p a r a l l e l e d the general developments i n Japanese i n d u s t r y with the major flow of TT being t o the chemical i n d u s t r y and t o the v a r i o u s equipment and machinery i n d u s t r i e s . S i m i l a r l y , the dominance of TT from the US i s c l e a r i n the data on country of o r i g i n ( t a b l e 8 on page 4 3 ) . 40 A much more dramatic i n d i c a t i o n of the sudden spurt i n TT a c t i v i t y and of i t s c l o s e r e l a t i o n to the. major trends i n Japanese i n d u s t r i a l a c t i v i t y i s provided, however, by data on the payments made to acquire technology (see t a b l e 9 on page 4 4 ) . The y e a r l y payments f o r technology i n the chemical i n d u s t r y were double the 1954 f i g u r e i n 1955 and had increased by a f a c t o r of ten by I960 . Somewhat smaller, but s t i l l impressive, i n c r e a s e s appeared i n Table 7 i Post-war Japanese Technology Importations (1950-1973) S by F i e l d of Technology (number of cases approved) . i Y E A R TOTAL F i e l f of Technology Type of 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1973 Techno- logy Chemical A 8 23 16 14 21 17 34 27 11 27 64 33 46 71 66 67 97 115 210 189 223 229 202 199 2009 B 24 37 41 45 60 49 86 66 59 78 91 100 100 146 156 116 122 153 109 36 94 108 93 86 2055 Petroleum and Coal A ( 1 . J - 1 14 - - 3 5 2 2 5 8 4 3 2 7 1 16 10 26 20 31 47 52 49 308 Metals and Metal A 3 12 18 8 3 7 19 10 17 23 23 34 25 42 46 29 77 52 68 79 77 85 100 87 944 Products B 4 15 25 35 33 24 42 40 41 37 49 59 51 63 71 42 52 104 101 22 14 20 14 13 971 General A< 2> 8 24 15 15 15 19 21 • 26 39 65 81 87 201 155 125 17,3 161 253 ,309 324 419 460 450 "U81 Machinery B 17 19 ?4 16 4 19 11 7 10 55 54 60 140 1,90 137 182 215 185 2,39 112 99 85 122 2225 Transportation Equipment A 2 8 ?n 6 6 6 12 5 5 6 16 25 15 16 22 ,31. 27 33 60 58 69 78 90 108 724 B _ 3 4 4 • 5 6 4 2 1 1 16 8 4 6 3. 3 6 17 ? 22 39 32 194 E l e c t r i c a l Machinery and Products A 4 15 21 45 23 17 16 29 17 30 101 64 83 142 79 101 h 109 195 188 188 226 320 305 2389 B 2 5 11 16 10 3 4 5 2 8 1?, 11 17 25 27 25 31 ,37 61 37 41 31 29 62 512 T e x t i l e s and A 4 5 7 8 1 14 8 3 7 8 23 15 18 19 14 14 29 49 66 103 105 171 232 923 Textile- Products B _ _ ' _ _ 1 5 _ 6 4 7 4 24 34 43 58 58 82 81 86 90 94 107 91 875 Other A 2 14 12 7 6 5 24 16 9 16 42 56 54 72 106 104 126 129 200 245 315 357 521 501 2939 B 2 11 9 18 20 13 14 .12 30 41 47 46 81 107 103 57 71 93 86 54 79 87 120 113 1314 A . . 27 101 142 102 82 71 143 118 90 153 327 320 328 564 500 472 601 638 1061 1154 1330 1546 1916 1931 13717 TOTALS 8146 B 49 87 110 133 131 113 167 136 152 225 261 281 429 573 541 486 552 657 683 475 438 461 487 519 A+B 76 188 252 235 213 184 310 254 242 378 588 601 757 1137 1041 958 1153 1295 1744 1629 1768 2007 2403 2450 21863 Source: Kagaku Gijutsu cho (Science and Technology Agency). Gaikoku Gijutsu Donyu Nenji Hokoku, Showa 48 Nendo (Importation of Foreign Technology Annual Report, 1973). Tokyo, 1975. pp.34-37 and 42-43. . Note: 1. No entry for Class B Petroleum and coal technologies. These, i f any, may be included i n "0thef category. 2. Excludes petrochemical plant engiieering which i s included i n "Other" category. I n a l l , such T.T. amounted to only 180 cases. Table 8. Post-war Japanese Technology Importations (1950-1973) L, By Country of Origin (Number of cases approved) - <*> Y . E A R TOTAL Country Type of Technology 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 -1973 U.S.A. A 21 74 97 71 58 44 84 61 63 92 200 181 203 355 274 265 329 388 602 598 745 825 1010 988 7634 B" 136 171 203 261 212 223 215 288 309 185 181 219 234 269 5806 CANADA A - - 8 4 1 2 3 2 2 2 2 7 2 4 6 8 39 10 13 12 12 24 24 25 212 8 B 1 2 4 2 8 3 6 14 6 5 4 5 4 72 UNITED KINGDOM A - 1 3 3 1 3 11 3 2 7 12 16 12 36 49 40 46 57 105 108 108 139 154 175 1091 21 36 44 67 498 B 11 7 39 50 39 33 30 38 48 35 WEST GERMANY A - - 12 6 5 8 11 7 6 16 45 40 46 64 60 55 66 69 150 146 189 213 228 224 1666 B 58 51 99 124 134 88 108 156 140 92 65 56 50 48 1269 FRANCE A - 2 5 4 1 4 6 4 1 7 5 10 8 25 15 21 33 29 37 62 73 88 150 193 783 '.: B 17 12 36 49 57 . 45 56 50 53 65 72 76 73 66 727 . SWEDEN A - 6 5 - 1 1 1 2 2 3 8 8 6 6 5 3 5 2 11 20 16 39 43 3C 223 ' B V - 1 5 3 1 6 9 2 3 10 11 3 9 9 72 : HOLLAND A - - 1 - - 1 2 18 - 9 7 7 13 15 9 22 16 8 23 44 23 22 33 .31 304 j B 14 14 2 3 1 11 6 4 10 16 7 8 6 13 115 OTHER A 6 18 11 14 15 8 25 21 14 17 . 48 45 38 59 82 58 67 75 120 164 164 196 274 265 1804 1 B 36 34 60 81 85 73 84 89' 111 77 66 59 55 74 984 • TOTALS A 27 101 142 102 82 72 143 118 90 153 327 320 328 564 500 472 601 638 1061 1154 1330 1546 1916 1931 13717 , B 49 87 110 133 131 113 167 136 152 225 261 281 429 573 541 486' 552 657 683 475 438 461 487 519 8146 ; A+B 76 188 252 235 213 184 310 254 242 378 588 601 757 1137 1041 958 1153 1295 1744 1629 1768 2007 2403 245C 21863 Source: Kagaku Gijutsucho Gaikoku Gijutsu Tonyu, op.cit. pps. 38-39 and 44-45 Payments for Transferred Technology: by F i e l d of Technology and Year 1950-1960 (in m i l l i o n Yen) \ . Time ^ s . Period Y E A R - Type of Technology \ . 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 Totals No.of Cases Textiles — 21 66 92 164 203 383 428 556 749 2,663 37 Paper, Pulp - 2 7 5 1 3 5 7 8 16 29 84 4 Printing - 2 2 2 2 4 4 2 3 • 3 24 2 Chemical 34 345 391 903 1121 2498 3600 5982 5481 5082 12438 37,875 148 O i l Refining 14 - 108 1657 173 505 511 268 756 565 1498 6,122 19 Rubber, Leather - 81 217 288 287 285 488 605 ' 540 772 781 4,344 19 Glass , Ceramics - - 7 16 50 26 62 141 161 412 497 1,372 17. Steel - 149. 136 166 271 . 412 578 831 930 1054 1544 6,070 55 Non-Ferrous Metals - 9. 1 4 11 11 37 20 44 64 129 331 17 Metal Manufactures - - - 1 . 1 44 60 74 78 111 128 495 11 General Machinery 63 271 607 1011 966 1187 1978 2954 3040 3873 6258 22,208 231 E l e c t r i c a l Machinery 36 281 642 1062 1278 1553 2344 3042 4840 6792 8541 30,409 -< 190 Transportation Equip ment _ 17 33 282 473 384 830 1226 1333 1324 1930 7,831 78 Nuclear Power - - - . - • - - - - 44 136 180 2 Construction - - 114 121 63 12 54 125 129 142 93 854 7 Other - - 5 21 2 6 28 46 27 44 64 243 7 Total 146 1155 2291 5607 47.92 7091 10851 15705 17796 20852 34818 121,104 859 Source: Tsushosangyosho, KigyKyoKu (M.I.T.I..Enterprise Bureau), Gaikoku Gijutsu Donyu no Genjoto Mondaiten (Present Conditions and issues of foreign Technology Importation) 1962. pp.14-17.' Note: Class A technologies only. Based on a 1961 survey. These are before-tax figures and do not correspond to Bank of Japan figures. - 45 - other growth i n d u s t r i e s of the p e r i o d such as s t e e l , e l e c t r i c a l and general machinery and t r a n s p o r t a t i o n equipment. The f i g u r e s f o r the petroleum r e f i n i n g i n d u s t r y are s u r p r i s i n g l y low but may r e f l e c t the uniquely high l e v e l of f o r e i g n ownership i n t h i s i n d u s t r y (over 50)4 of t o t a l s a l e s ) and a r e s u l t a n t high c a p a c i t y f o r i n f o r m a l t r a n s f e r of technology, a r e l a t i v e l y high p r e - e x i s t i n g l e v e l of technology, and as w e l l , the use of 'nominal* p r i c i n g i n formal TT agreements. With regard to the payments made e x p l i c i t l y f o r the purpose of TT i t i s important to note t h a t , while they may i n d i c a t e trends i n the g eneral l e v e l of TT a c t i v i t y , they cannot be viewed as r e p r e s e n t i n g the t o t a l c o s t s of the t r a n s f e r r e d technology t o the r e c i p i e n t companies. Technology t r a n s f e r commonly, i f not i n v a r i a b l y , i n v o l v e d other, hidden, c a s t s o f t e n i n the form of c o n t r a c t u a l o b l i g a t i o n s to buy p a r t s and raw m a t e r i a l s from the technology-supplying company. One survey i n d i c a t e s t h a t expenditures f o r such purchases may-have amounted, i n the aggregate, to some m u l t i p l e of the e x p l i c i t payments f o r TT (see t a b l e 10 on page 46). The p r o p o r t i o n of these payments which re p r e s e n t s a premium over market p r i c e s and thus can be viewed as an a d d i t i o n a l cost of the TT, per se, i s however u n c l e a r . During the l a t t e r part of the 1950's and during the 1960*s, government and p u b l i c i n t e r e s t i n TT l e d to a number of s p e c i a l government s t u d i e s , the r e s u l t s of which were pu b l i s h e d . These s t u d i e s shed f u r t h e r l i g h t on the nature of TT over t h i s p e r i o d . The m a j o r i t y of t h i s data r e l a t e s only to G l a s s A t e c h n o l o g i e s - which, i n essence, are those technology t r a n s f e r s i n v o l v i n g payments of f o r e i g n exchange over a p e r i o d i n excess of one year (the d i s t i n c t i o n between c l a s s A and c l a s s B TT i s d i s c u s s e d at g r e a t e r l e n g t h , below). While there i s no c e r t a i n t y i n the matter, -46- Table 10. T.T. - related Machinery and Equipment Imports and T o t a l Machinery and Equipment Imports. (Technology Importing Companies only) 1950 - 1960 ( i n m i l l i o n Yen) Industry (a) T.T.-related Machinery and Equip. Imports (b) Total Machinery and Equipment. Imports a/b (%) Number of Companies A l l Industries 77,186. 177,219. 43.6 192. Manufacturing 73,984. 163,709. 45.2 183. Food Products 174. 916. 19.0 3. T e x t i l e s 2,402. 6,998. 34.3 20. Wood 532. 532. 100.0 2. Paper, Pulp 9. 793 1.1 1. P r i n t i n g , Publishing 149. 623. 23.9 2. Chemicals 17,030. 22,456. 75.8 43. Petroleum, Coal Products 6,514. 9,316. 69.9 9. Rubb er 2,148. 2,341. 91.8 5. Glass, Ceramics 484. 644. 75.2 6. Steel 24,858. 64,894. 38.8 13. Non-ferrous Metals 1,386. 5,898. 23.5 10. Metal Manufactures 43. 281. 15.3 2. General Machinery 1,085. 6,783. 16.0 20. E l e c t r i c a l Machinery 6,785. 9,430. 71.9 23. Transportation Equipment 9,577. 28,881. 33.2 17. P r e c i s i o n Machinery 701. 2,671. 26.2 4. Other Manufacturing 106. 252. 42.1 3 Other Industries 3,202. 13,510. 23.7. 9. Source: Gaikoku Gijutsu Donyu noGenjo to Mondaiteu, o p . c i t . pp.70-71. - 4 7 - the f a c t t h a t government i n t e r e s t i n v a r i a b l y centered on such c l a s s A TT probably i n d i c a t e s , i n i t s e l f , t h a t such TT was not s o l e l y of s p e c i a l concern because of i t s impact on f o r e i g n exchange r e s e r v e s but a l s o because i t was g e n e r a l l y of g r e a t e r s i g n i f i c a n c e to Japan's t e c h n o l o g i c a l develop- ment than was most c l a s s B TT. One such study compared the'vintage' of t e c h n o l o g i e s t r a n s f e r r e d to Japan i n 1956 and 1966. As t a b l e 11 (on page 48) i n d i c a t e s , i n both 1955 and 1966, there were some i n t e r - i n d u s t r y d i f f e r e n c e s i n the time- l a g between the p e r i o d of o r i g i n a l i n n ovation and the time of i n i t i a l TT to Japan. At the same time, however, the r e s u l t s of the study tend t o confirm t h a t the t r a n s f e r of prewar t e c h n o l o g i e s was a major f a c t o r i n the 1950's but d e c l i n e d i n importance, as the e a r l i e r t e c h n o l o g i c a l gap with the West was narrowed, and became r e l a t i v e l y unimportant during the 1960*s. T h i s t r e n d i s c l e a r e s t i n the chemicals i n d u s t r y - p r e c i s e l y where Japanese development of the l a t t e r 1950*s was most remarkable and the volume of TT among the highest of a l l i n d u s t r i e s . T h i s suggests one simple, but important reason f o r the high l e v e l of TT a c t i v i t y i n the chemical i n d u s t r y over t h i s p e r i o d - the f a c t t h a t t h e r e was a major 'backlog' of t e c h n o l o g i c a l i n n o v a t i o n s a v a i l a b l e . Simply put, TT i t s e l f depends on p r i o r t e c h n o l o g i c a l i n n o v a t i o n and we would t h e r e f o r e expect TT a c t i v i t y to highest i n those i n d u s t r i e s where i n n o v a t i v e a c t i v i t y i s , or has been, high. However, even though t a b l e 11 i n d i c a t e s t h a t a c o n s i d e r a b l e amount of prewar technology was s t i l l being t r a n s f e r r e d to Japan i n 1966, t h i s data makes no attempt to d i s t i n g u i s h between 'major' and 'minor' items of technology. Watanabe's study of the Japanese chemical i n d u s t r y 4 1 attempts to make such a d i s t i n c t i o n , and h i s o u t l i n e of the major postwar i n n o v a t i o n s i n the Japanese chemical -48^ Table 11 Japans Technology Imports* by Industry and by Period of I n i t i a l I n d u s t r i a l A p p l i c a t i o n of the Technology - 1956 VS. 1966 (% of T o t a l f o r industry) I N D U S T R Y Period of o r i g i n a l "Innovation" Machinery E l e c t r i c a l Metals Chemical Other To t a l 1956 1966 1956 1966 1956 1966 1956 1966 1956 1966 1956 1966 P r i o r to or during 2nd World War 42 18 42 11 35 6 64 24 35 14 48 16 Post-War 58 82 58 89 65 94 36 76 65 86 52 84 * Class A Technologies only Source: Kagaku Gijutsucho (Science and Technology Agency). G i j u t s u Donyi Hokoku (REport on Technology Importation) - Japanese - Unpublished, i n t e r n a l report of Science and Technology Agency, 1966, p.31. - 49 - i n d u s t r y i s reproduced here as t a b l e 12 (see page 50). As the diagram i n d i c a t e s , there was an enormous flow of major chemical t e c h n o l o g i e s i n the l a t e 1950's, but probably by I960 most of the main prewar i n n o v a t i o n s i n chemical technology had already been t r a n s f e r r e d to Japan. As the diagram a l s o i n d i c a t e s , by I960 the Japanese i n d u s t r y had already progressed t o the p a i n t where i t was developing i t s own unique t e c h n o l o g i c a l i n n o v a t i o n s (Maruzen Petroleum - Paraxylene). Another study examined the type of t e c h n o l o g i e s t r a n s f e r r e d i n a sampling of postwar c l a s s A TT. As t a b l e 13 ( on page 5 l ) shows, i n the aggregate and f o r most i n d i v i d u a l i n d u s t r i e s TT by the e a r l y 1960's was already p r i m a r i l y of new or improved "p r o d u c t - t e c h n o l o g i e s " . There are some major, and understandable, exceptions to t h i s i n the l a r g e process i n d u s t r i e s of s t e e l , chemicals, and o i l r e f i n i n g where production process t e c h n o l o g i e s predominated but, even i n the f i r s t two of these, TT of new product technology accounted f a r a s i g n i f i c a n t p r o p o r t i o n of the t o t a l . In some i n d u s t r i e s , such as the e l e c t r i c machinery i n d u s t r y , the TT of new product technology was probably q u i t e d i r e c t l y r e l a t e d to the ongoing r e v o l u t i o n i n consumers' demand (eg. household e l e c t r i c a l a p p l i a n c e s ) . In many other i n d u s t r i e s , however, the connection was undoubtedly l e s s d i r e c t - with the 'new product * a new or improved item of i n d u s t r i a l equipment r e s u l t i n g from a TT which was importantly, but only i n d i r e c t l y , r e l a t e d to the e v o l v i n g consumer market. The low l e v e l of t r a n s f e r of management technology shown i n t a b l e 13 r e q u i r e s some comment. F i r s t , i t should be pointed out t h a t even the small number of cases i n d i c a t e d may not represent a c t u a l t r a n s f e r s of management technology. They may, r a t h e r , r e f l e c t the nominal use of a management con t r a c t to d i s g u i s e payments r e l a t i n g to other a c t i v i t i e s - Table 12. A COMPARISON OF JAPAN AND WORLD INITIAL INDUSTRIAL APPLICATIONS OF PETROCHEMICAL TECHNOLOGIES 1940 42 44 (IG Farben) 1930,, (Shell Chem.) 1931, (Standard O i l NJ 1920, (Courtaulds) (ICI) 1939 , (UOC) 1937 , IG Farben 1930,. Standard o i l N.J. IG Farben 1937*. IG Farben IG Farben IG Farben 1936 1937. UCC 1933, 46 48 1950 52 54 56 58 1960 62 64 . 66 68 1970 31 Polystyrene(Asahi Dow, Mitsubishi Monsanto) (Maruzen Petroleum) (Eastern State Petroleum 1952, 1942 , 1953 ^ h a w i n i i t a m -o IPA Acetone (Nihon Petrochemical) I - P B T X (Yuddex) (Mitsubishi Petroleum) —oEthylene(Mitsui Petrochemical,Sumitomo Chemical) dlligh pressure polyethylene(Sumitomo chemical) Ethylene Oxide (Mitsui Petrochemical) Hoechst Chemical 1955 . P h i l l i p s l 9 5 6 1942 dCumene-process Phenol(Mitsui Petrochemical) «JMC:process Terephthalic acid(Mitsui Petrochemical) et Low-pressure polyethylene(Mitsul Petrochemical) — A p h i l l i p s - p r o c e s s polyethylene(Nihon Olefin) oStyrene monomer(Mitsubishi Petrochemical) oButadiene (Nihon Petrochemical) il-JBR (Nihon Zeon) ^ Standard-process Polyethylene(Funlkawa Chemical) I ? |0xasynthetic Alcoholl (Mitsubishi Kasei) (Para-Xylene I (Maruzen Petroleum) O SBR (Nihon Synthetic Rubber) 1 1942. Uni Royal 1950. S-Copolymer(Mitsui Toatsu Chemical, Asahi Dow, M i t s u b i s h i - (Monsanto) oABS-Copolymer (Mitsui Toatsu Chemical) Hoechst Montecatini 1957 1959r 01onitl945« <iwacker-process Acetylaldehyde (Mitsui Petrochemical) Wacker l i P o l y p r o p y l e n e (Mitsui Toatsu Chemical) Alkylbenzene(Nikon Sekiyu Senzai) Sohio 1960 « j&ohio-process A c r y l o n i t r i l (Asahi Kasei) -JS^MIBK(Mitsui Petrochemical) P h i l l i p s 1960 -|> Polybutadiene (Asahi Kasei) I JMixed gas process I v i n v l - c h l o r i d e monomer KKureha Chenicd. Monsanto 1961 — UCC 1962 ICI 1965' | Wacker-process Acetone(Kyowa Yuka) ||Oxychlorination-process v i n y l monomerl (Toyo Soda) Uni Royal 1963 .fftormal paraffinl(Nihan Kogyo Kuka) •—iiEthylene-process Synthetic v i n y l acetate (Tokuyama Petrochemical) , ĉ EPDM (Sumitomo Chemical) \ A l e f i n Rubber (Nihon A l e f i n Rubber) • = Date of i n i t i a l I n d u s t r i a l application(world).Company o = Date of i n i t i a l i n d u s t r i a l application(Japan).Company Q = Japanese developed technology Source: Watanabe, Tokuji Nihon no Kagaku KORVO. (Japan's Chemical Industry)-Japanese Tokyo, Iwanami.Shoten, 1974, pp.61-62. -51- Table 13. Type of Technology Transferred by Industry (Post war Class A T.T.'s 1961 Survey) N. Nature of Technology N^Transferred New Product Improved Product Product ion Process -Equip- ment Manage- ment Compre- hensive Other Industry N . T e x t i l e s 14 15 19 3 — 7 - Paper, Pulp 6 6 - - - 1 - P r i n t i n g 2 - 1 - - - - Chemicals 114 39 136 40 6 29 7 .. O i l Refining 2 5 34 14 2 4 - .^Rubber, Leather 12 5 13 3 2 7 - Glass, Ceramics 7 5 6 3 - 3 1 Steel 29 8 40 9 4 - 1 Non-ferrous Metals 6 1 6 7 - 5 - Metal Manufactures 7 - 2 1 1 2 1 General Machinery 142 79 55 20 4 48 1 E l e c t r i c Machinery 154 62 52 8 3 20 4 Transportation Equipment 46 16 18 3 3 15 1 Nuclear Power - - - - - 1 1 Construction 2 - 1 1 - - 2 Other 7 1 3 2 - - - T o t a l 550 242 386 114 25 142 19 Source: MITI, Gaikoku Gijutsu Donyu no Genjo to Mondaiten 1962, o p . c i t . pp.10-13 - 52 - such as ownership t i e s or the p r i o r or concurrent t r a n s f e r of new product - or new production - t e c h n o l o g i e s . In any event,the f a c t t h a t the f i g u r e s are low (and may be lower than i n d i c a t e d ] i s not too s u r p r i s i n g . A great deal of what i s termed 'management e x p e r t i s e ' or 'management technology' i s e i t h e r c u l t u r e - s p e c i f i c or e l s e i s such an organic and i n e x t r i c a b l e part of the f i r m which possesses i t t h a t i t cannot or cannot e a s i l y be commercially packaged and s o l d . T h i s , indeed, i s one of the explanations (or j u s t i f i c a t i o n s ) 42 often o f f e r e d with respect to f o r e i g n d i r e c t investment. E i t h e r because of i t s i n a p p r o p r i a t e n e s s t o the Japanese environment or the Japanese a n t i - pathy to f o r e i g n d i r e c t investment (a point to be discussed below) one would not expect much of t h i s s o r t of management technology to be t r a n s f e r r e d . T h e r e , i s , however, a l a r g e body of management technology which c o n s i s t s , i n the main, of a b s t r a c t , a n a l y t i c a l or c o n t r o l methods and which i s both separable from the o v e r a l l a c t i v i t i e s of any given f i r m and of f a i r l y u n i v e r s a l a p p l i c a b i l i t y . By and l a r g e , such t e c h n o l o g i e s e x i s t as unprotected i n t e l l e c t u a l property and are widely d i f f u s e d on a non-commercial b a s i s through books, j o u r n a l s , conferences and personal observation or c o n t a c t s . At t h i s , non-commercial, l e v e l there has apparently been a c o n s i d e r a b l e amount of TT. In the l a t e 1950's a l a r g e number of o r g a n i z a t i o n s developed t o improve management techniques i n Japan. These i n c l u d e d the Japan P r o d u c t i v i t y Center, the Japan Management A s s o c i a t i o n , the Japan Marketing I n s t i t u t e and Japan I n d u s t r i a l Engineering I n s t i t u t e . In a d d i t i o n , the book Keieigaku Nyumon, " I n t r o d u c t i o n to the Science of Management" (Tokyo; Kobunsha, 1958) by F u j i y o s h i , Sakamoto q u i c k l y became a b e s t - s e l l e r i n the l a t e 1950's and so marked a g e n e r a l , popular, i n t e r e s t i n management which continues to date. The major i n f l u e n c e s came (and-continue to come) from US theory and p r a c t i c e , and the i n i t i a l tendency was t o 'swallow i t - 53 - whole'. L a t e r however, i n the e a r l y and mid-1960's, an i n c r e a s i n g l y c l e a r d i s t i n c t i o n began to be made between, on the one hand, the subject areas and techniques i d e n t i f i e d (eg. long-range planning, market and o r g a n i z a t i o n a l a n a l y s i s , i n v e n t o r y c o n t r o l ) and, on the other hand, the philosophy - e s p e c i a l l y v i s - a - v i s personnel management and human r e l a t i o n s - imbedded i n the f o r e i g n theory and p r a c t i c e s . I n c r e a s i n g l y , Japanese f i r m s separated out and adapted the former while adopting a more c r i t i c a l a t t i t u d e towards the relevance of the l a t t e r i n ' t h e context of the Japanese o r g a n i z a t i o n a l environment. The f a c t , as j u s t discussed, t h a t management technology was t r a n s f e r r e d p r i m a r i l y by means other than f o r e i g n d i r e c t investment i s a l s o , i n pa r t , a r e f l e c t i o n of one, pervasive aspect of Japan's postwar TT - government r e g u l a t i o n s and c o n t r o l s :on TT. We turn now, t h e r e f o r e , t o a more d e t a i l e d examination of government involvement i n postwar TT. 3. Regulation and C o n t r o l of Technology T r a n s f e r Government involvement i n postwar TT was evidenced by a l a r g e body of formal laws and r e g u l a t i o n s . Some of these r e l a t e d to TT, per se, while others were of s i g n i f i c a n c e to TT only when i t was a s s o c i a t e d with f o r e i g n d i r e c t investment. These are discussed, i n t u r n , i n s e c t i o n (a) (Formal Laws and Regulations) below. In a d d i t i o n to these formal m a n i f e s t a t i o n s of government c o n t r o l of TT - which changed very l i t t l e u n t i l l i b e r a l i z a t i o n began i n the 19S0's - i t i s necessary to look beyond these t o the und e r l y i n g a t t i t u d e s which i n f l u e n c e d t h e i r a d m i n i s t r a t i o n . The r e l a t i v e importance of these v a r i o u s a t t i t u d e s and concerns of the government and the bureaucracy v a r i e d over time and, thus, t h i s s u b j e c t i s discussed by time periods i n s e c t i o n (b) ( A d m i n i s t r a t i v e A t t i t u d e s ) . - 54 - (a) Formal Laws and Regulations The formal laws and r e g u l a t i v e procedures bearing on TT i n the postwar peri o d remained l i t t l e changed u n t i l the advent of l i b e r a l - i z a t i o n measures i n the e a r l y I 9 6 0 ' s , ( t h i s w i l l be discussed i n the- f o l l o w i n g c h a p t e r ) . Commercial TT was subject to the p r o v i s i o n s of e i t h e r the F o r e i g n Exchange C o n t r o l Law ( e s t a b l i s h e d i n 1949) or the F o r e i g n Investment Law ( e s t a b l i s h e d i n 195C1). The former i s a general law r e g u l a t i n g f o r e i g n exchange t r a n s a c t i o n s and was too r e s t r i c t i v e f o r a l l but the most (monetarily) t r i v i a l TT t r a n s a c t i o n s . The l a t t e r law provides f o r payments of l a r g e r amount or of longer d u r a t i o n ( i n excess of one year) and f o r t r a n s a c t i o n s i n v o l v i n g the a c q u i s i t i o n of a s s e t s i n Japan by a f o r e i g n company or i n d i v i d u a l . Technology t r a n s f e r s under the former law are termed ' c l a s s B' TT and those under the l a t t e r , ' c l a s s A 1. The administ- r a t i o n and records-keeping p r o v i s i o n s f o r these two types of TT were somewhat d i f f e r e n t . In p a r t i c u l a r , c l a s s A t e c h n o l o g i e s were viewed as being of more importance and as a r e s u l t more d e t a i l e d r e c o r d s were maintained on them and, as w e l l , any s p e c i a l government surveys and s t u d i e s t h a t occurred tended to concentrate on them. The review and approval procedures f o r proposed c l a s s A TT, c i r c a the e a r l y 1960's, are i n d i c a t e d i n f i g u r e 2 (see page 55). The procedures f o r c l a s s B t e c h n o l o g i e s were somewhat l e s s complex. In e i t h e r case, however, there was ample opportunity f o r •inter-departmental c o n s u l t a t i o n and compromise i n the handling of any given a p p l i c a t i o n f o r approval of a TT agreement or, more p r e c i s e l y , f o r approval of the r e l e a s e of f o r e i g n exchange funds r e q u i r e d by the TT agreement. While formal r e s p o n s i b i l i t y f o r c o n t r o l of f o r e i g n exchange funds l a y with the M i n i s t r y of Finance, Figure 2. Diagram of Technology Transfer Approval Procedures (ca.1960) A | P P L T C A N T .(negotiationsX- Bank of Japan (Government Proposals) J Working Committee of Foreign Investment Council : * Inter-Organizational|£ Meetings (Submission and Reconciliation of various view points) Bank of Japan, Foreign Division,] Foreign Capital Section National Science and Technology Agency Development Division, International Section Other Relevant Govt. Organizations Foreign Investment Council* Ministers of Relevant Ministries Bank of Japan (Formal Review and Action on Proposed Government "decisions") (Formal "Approval" or "Conditional Approval") (Issu Not i f i c a t i o n of Approval) * A government advisory body Including business and academic representatives Source: Gaikoku Gijutsu Donyu Yoran - Japanese - (Foreign Technology Importation Handbook). Tokyo, Jukagaku Kogyo Tsushinshia, 1965, p.58 - 56 - i n the case of technology t r a n s f e r s because of the d i r e c t connection with Japan's t e c h n i c a l and i n d u s t r i a l development, the primary r e s p o n s i b i l i t y f o r review of proposed TT agreements l a y with the M i n i s t r y of I n t e r n a t i o n a l Trade and Industry (MITl) which decided whether or not a recommendation f o r r e l e a s e of funds should- be made to the M i n i s t r y of Finance. In p r a c t i c e , t h e r e f o r e , the approval of MITI was a necessary and, u s u a l l y , s u f f i c i e n t c o n d i t i o n f o r approval of a TT. T h e o r e t i c a l l y , any m i n i s t r y might c l a i m an i n t e r e s t i n a TT but, i n p r a c t i c e , the m i n i s t r i e s other than MITI which might have an involvement i n a TT approval were g e n e r a l l y the F a i r Trade Commission, the M i n i s t r y of F o r e s t s and A g r i c u l t u r e , and the M i n i s t r y of Finance, i t s e l f . The extensive p r o v i s i o n s f o r i n t e r - and i n t r a - m i n i s t e r i a l c o n s u l t a t i o n and compromise and the 1 f a c t t h a t , at l e a s t u n t i l the e a r l y 1960's, approval was on a case-by-case b a s i s meant that the ease with which a proposed TT r e c e i v e d approval depended l e s s on the complexity or s i m p l i c i t y of the formal r e g u l a t i o n s than i t d i d on i n f o r m a l c o n s i d e r a t i o n s and a d m i n i s t r a t i v e a t t i t u d e s to be discussed below. What we have discussed so f a r r e l a t e s to the formal procedures f o r commercial TT not i n v o l v i n g f o r e i g n d i r e c t investment (FDl) i n Japan. In many cases, however, FDI would form part of the proposed TT and i n such cases the r e g u l a t i o n s governing FDI, per se, had a bearing on the TT approval. T a b l e 14 (see page 57) i n d i c a t e s the r e g u l a t i o n s a p p l i e d to FDI as of the l a t e 1950's and e a r l y 1960's. Again, as formal procedures, these changed very l i t t l e over the whole of the postwar pe r i o d u n t i l the l i b e r a l i z a t i o n measures adopted i n the 1960's. There appear to have been, des p i t e formal i n v a r i a n c e i n government r e g u l a t i o n and c o n t r o l of TT, major d i f f e r e n c e s over time i n the s p i r i t and i n t e n t with which these formal means of c o n t r o l were a p p l i e d . I t -57- Table 14 Controls on Foreign D i r e c t Investment (ca. 1959-1960.) Requiremei i t s Category Investor Currency E x i s t i n g  1 Shares New Shares C a p i t a l , P r o f i t Repatriation Guarantee Desired Foreign Investor Foreign Approval Approval Yen Prohibited Prohibited C a p i t a l , P r o f i t Repatriation Guarantee not Desired Foreign Investor National of a "Designated Country."(1) Uncontrolled Industry Foreign Open Open Yen Open Open C o n t r o l l e d ( 2 Industry Foreign Approval R e g i s t r a t i o n Yen Approval Registration Foreign Investor: Foreign Approval Registration A l l other Countries Yen Prohibited Registration Source: Tsushosangyosho, Kigyo Kyoku (MITI, Enterprise Bureau). Daishi Donyu: SonoSeido to J i t t a i (Induction of Foreign Investment: Procedures and Status). Tokyo: Tsushosangyosho, Chosakai, 1960. p.57. Note: 1. "Designated Countries at t h i s time were; Finland, Greece. India, Holland, Sweden, Switzerland, Thailand, U.S.A., Uruguay, Yugoslavia, Norway, West Germany and Taiwan. 2. "Controlled Industries" included; U t i l i t i e s , Transportation, Finance, Ship construction and Mining. - 58 - w i l l be u s e f u l , t h e r e f o r e , to o u t l i n e some major, c h a r a c t e r i s t i c , adminis- t r a t i v e a t t i t u d e s brought to bear i n t h e i r implementation and o f f e r some . suggestions as to which of them predominated at v a r i o u s times. (b] A d m i n i s t r a t i v e A t t i t u d e s Of the multitude of a t t i t u d e s (not seldom c o n t r a d i c t o r y ) t h a t enter i n t o p o l i c y formulation and implementation i n any l a r g e bureaucracy some more than others can be a t t r i b u t e d to the o v e r a l l bureaucracy. Among such ' a d m i n i s t r a t i v e a t t i t u d e s ' i n postwar Japanese government and the bureaucracy ( p r i m a r i l y WlITl) at l e a s t f i v e appear to have borne importantly on postwar TT. These are: 1 Concern over c o n t r o l and conservation of f o r e i g n exchange r e s e r v e s ; 2 D e s i r e t o mesh TT with b a s i c i n d u s t r i a l p o l i c i e s ; 3 De s i r e f o r general t e c h n o l o g i c a l development; 4 Concern over maintenance of i n t r a - i n d u s t r y harmony; 5 Antipathy to f o r e i g n d i r e c t investment, which w i l l be discussed at g r e a t e r length i n chapter f o u r . At a higher l e v e l of a b s t r a c t i o n , a l l of these a t t i t u d e s e x i s t e d against the background of a d e s i r e f o r economic growth and independence. I t i s important a l s o to recognize t h a t while there were d i f f e r e n c e s over time as regards which of these a d m i n i s t r a t i v e a t t i t u d e s most c h a r a c t e r i z e d the s p i r i t and i n t e n t with which TT was c o n t r o l l e d and re g u l a t e d , a l l of them were of some importance at a l l times, and any one of them might be of d e c i s i v e i n f l u e n c e i n a given case of TT. Thus, f o r example, scarce f o r e i g n exchange reserves were a matter of considerable o f f i c i a l concern - 59 - u n t i l at l e a s t the middle 1960's and bore importantly on TT p o l i c y throughout most of the postwar e r a . Bearing the above q u a l i f i c a t i o n s i n mind, however, the patterns of change i n the a d m i n i s t r a t i v e a t t i t u d e s which c h a r a c t e r i z e d TT p o l i c y up to the l i b e r a l i z a t i o n measures of the 1960's can u s e f u l l y be summarized as f o l l o w s . Postwar recovery p e r i o d (1945-1955) The concern over c o n t r o l of f o r e i g n exchange res e r v e s seems to have most s t r o n g l y c h a r a c t e r i z e d TT p o l i c y i n the e a r l y p e r i o d of economic recovery. T h i s i s understandable given the shaky s t a t e of Japanese f i n a n c e s - e s p e c i a l l y p r i o r to the Korean War boom. The preamble to the F o r e i g n Investment Law makes reference both to an i n t e n t to ' . . . ( l i m i t ) the i n d u c t i o n of f o r e i g n investment to t h a t which w i l l c o n t r i b u t e to the s e l f - s u p p o r t and sound development of the Japanese economy1 and the aim of *. . . p r o v i d i n g f o r remittances a r i s i n g from f o r e i g n i n v e s t - 43 ment and . . . adequate p r o t e c t i o n f o r such investment.' In f a c t , however, the emphasis was l e s s on i n h i b i t i n g f o r e i g n investment - which, i n any event, was not f l o c k i n g around Japan at t h i s time - than on l i m i t i n g government commitments to provide f o r r e p a t r i a t i o n of p r o f i t s . T h i s was i n d i c a t e d by Prime M i n i s t e r Ikeda i n a 1950 speech i n New York where he s a i d ; Of course, everybody i s welcomed i n so f a r as he does not demand a p r i o r commitment of the Government f o r t r a n s f e r . I t i s however, much more a d v i s a b l e t h a t he t e l l s the Government beforehand about h i s investment and sees how much the Government guarantees to t r a n s f e r out of the p r o f i t . . . . T h i s checking system i s by no means intended to create red tape. I t i s the device of a poor but honest borrower who does not want t o cheat c r e d i t o r s . ^4 During t h i s p e r i o d , i n f a c t , many f o r e i g n e r s e s t a b l i s h e d ( u s u a l l y q u i t e small) "yen-base" companies which were subjected to much l e s s c o n t r o l and r e g u l a t i o n but which lacked guarantees of p r o f i t and c a p i t a l r e p a t r i a t i o n . Thus, i n i n t e n t - i f not i n e f f e c t - the laws and procedures c o n t r o l l i n g TT were not the t o o l f o r i n h i b i t i n g such investment th a t they were to become l a t e r . One consequence of t h i s concern over scarce reserves of f o r e i g n exchange was a tendency to s t r o n g l y favour the t r a n s f e r of only those t e c h n o l o g i e s c o n s i s t e n t with the o v e r a l l i n d u s t r i a l development plans of the time. As a p r a c t i c a l matter, t h i s meant t h a t approval was more l i k e l y i f the TT r e l a t e d to the development of the b a s i c i n d u s t r i e s discussed e a r l i e r or would c o n t r i b u t e to the development of export i n d u s t r i e s . P e r i o d of s t r u c t u r a l t r a n s f o r m a t i o n (1955-1963) In t h i s p eriod, the changed i n d u s t r i a l p o l i c y favoured the development of consumer goods i n d u s t r i e s and a broader modernization of the i n d u s t r i a l s t r u c t u r e than i n the e a r l i e r p e r i o d . Thus, the d e s i r e to mesh TT with i n d u s t r i a l -policy-took on much l e s s r e s t r i c t i v e i m p l i c a t i o n s . T h i s was r e f l e c t e d i n the a c t u a l course of TT during the peri o d which became much more a c t i v e over a broad range of i n d u s t r i e s and e s p e c i a l l y so i n consumer goods i n d u s t r i e s and i n the o f f i c i a l l y favoured new " b a s i c i n d u s t r y " chemicals. At the same time, concern over maintenance of i n t r a - i n d u s t r y harmony came to be a major f a c t o r i n determining the handling of a p p l i c a t i o n s f o r TT. With freedom to acquire technology from abroad spreading to a number of new i n d u s t r i e s and with the burgeoning consumer goods market holding - 61 - out prospects of c o n s i d e r a b l e competitive advantage t o those f i r m s doing so, government handling of TT a p p l i c a t i o n s took on a new and p o t e n t i a l l y d i s r u p t i v e p o t e n t i a l to i n f l u e n c e the competitive p o s i t i o n s of f i r m s . Thus, the concern f o r maintenance of i n d u s t r y "harmony" - the concern t h a t a f i r m not gain a d e c i s i v e advantage over i t s competitors s o l e l y on the b a s i s of the e x c l u s i v e possession of an imported technology - came to be a more important c o n s i d e r a t i o n i n TT p o l i c y . ̂ 5 T h i s would not, of course, always be an important f a c t o r i n a TT d e c i s i o n but, where i t was, i t l e d t o the o f f i c i a l encouragement of non-exclusive or m u l t i p l e l i c e n s i n g arrangements or, i n other cases, to the approval of a TT to one company g r e a t l y i n c r e a s i n g government i n c l i n a t i o n s to approve t r a n s f e r of s i m i l a r technology to other companies i n the i n d u s t r y , should they apply f o r such approval. Another aspect of government c o n t r o l of TT was o f f i c i a l monitoring of and concern f o r the c o n t r a c t p r o v i s i o n s of the s p e c i f i c TT agreements i n i t i a l l y negotiated between buyer and s e l l e r . T h i s concern was not unique to the p e r i o d 1955-1963 but i t i s reasonable t h a t , as a p r a c t i c a l matter, i t gained i n importance during t h i s p e r i o d as the number and d i v e r s i t y of f i r m s i n v o l v e d increased and i t became l e s s f e a s i b l e to exert governemnt i n f l u e n c e during the e a r l y technology s e l e c t i o n and n e g o t i a t i o n phases of a TT. There i s evidence that a f a i r l y d e t a i l e d , and yet ' i n f o r m a l ' and unpublished, set of g u i d e l i n e s regarding c o n t r a c t p r o v i s i o n s f o r v a r i o u s t e c h n o l o g i e s and v a r i o u s i n d u s t r i e s evolved during t h i s p e r i o d (see appendix 1 f o r a concrete example i n v o l v i n g such guide- l i n e s ) . The extent to which these g u i d e l i n e s were ' i n d i c a t i v e * r a t h e r than 'compulsory' i s u n c l e a r . There are numerous s t o r i e s of the f r u s t r a t i o n s v i s i t e d by such i n f o r m a l g u i d e l i n e s upon f o r e i g n businessmen - 62 - attempting to n e g o t i a t e TT agreements. On the other hand, Japanese business- men f a m i l i a r with the TT n e g o t i a t i o n process at the time r e c a l l t h a t i t was not unheard of f o r the Japanese s i d e to a t r a n s a c t i o n to use the MITI an d - t h e i r ' g u i d e l i n e s ' as a "bogeyman" i n order to s t r i k e a b e t t e r bargain f o r themselves. Moreover, i n my one case study which e x p l i c i t l y touches upon such g u i d e l i n e s (see Appendix l ) , MITI appears to have i n t e r p r e t e d the g u i d e l i n e s q u i t e f l e x i b l y . I t may be t h a t , i n the aggregate, the p o t e n t i a l f o r government d i s a p p r o v a l of c o n t r a c t p r o v i s i o n s had more impact on the TT agreements a c t u a l l y negotiated than d i d any avert govern- ment a c t i o n s . 46 Some authors have analyzed such Japanese government i n t e r v e n t i o n i n the TT n e g o t i a t i o n process i n terms of Stephen Hymer's theory of 4R i n t e r n a t i o n a l o p e r a t i o n s . By t h i s a n a l y s i s , Japanese government behaviour i s i n t e r p r e t e d as i n t e r v e n t i o n c o n s c i o u s l y aimed at reducing the monopoly advantages of the technology possessors v i s - a - v i s the l a r g e number of p o t e n t i a l Japanese purchasers. In f a c t , however, i t seems l i k e l y that i n a l l but a few e x c e p t i o n a l cases the f o r e i g n s e l l e r possessed nothing l i k e a monopoly and t h a t the Japanese purchasers, e s p e c i a l l y i n t o the mid- or late-1960's, had a number of a l t e r n a t i v e US, or other, p o t e n t i a l s u p p l i e r s of the same or s i m i l a r technology. Thus, one might more simply - and at l e a s t as v a l i d l y - a s c r i b e Japanese i n t e r v e n t i o n as being motivated by a long-range concern over Japan's f o r e i g n exchange re s e r v e s which were viewed as c h r o n i c a l l y scarce u n t i l the mid-1960*s. Such a long-range and n a t i o n a l concern would, n a t u r a l l y , not be f u l l y shared by the Japanese purchasing companies and l i k e l y accounts s u b s t a n t i a l l y f o r government i n t e r v e n t i o n i n t h i s area. ^ The question of i n t r a - i n d u s t r y competition has already been a l l u d e d to - 63 - a number of times. In f a c t , t h i s i s s u e warrants some separate d i s c u s s i o n , to which we now t u r n . 4. I n t e r - f i r m Competition and Technology T r a n s f e r One cannot r e a l l y begin a d i s c u s s i o n of i n t e r - f i r m competition i n Japan without r e f e r e n c e to the Japanese system of employment to which i t i s c l o s e l y r e l a t e d . The f a c t that Japanese i n d u s t r y widely p r a c t i c e s a system of 'permanent employment' i s , by now, q u i t e w e l l known i n the 5D West. Under t h i s system one t y p i c a l l y enters a f i r m immediately upon l e a v i n g - s c h o o l and remains with t h a t f i r m u n t i l eventual r e t i r e m e n t . Changing employers - v o l u n t a r i l y or i n v o l u n t a r i l y - i s r a r e and i s viewed as aberrant behaviour. P a r t l y as a r e f l e c t i o n of t h i s , both the 51 economic and the s o c i a l aspects of the employees' l i f e tend t o be centred on the f i r m . T h i s p a t t e r n of l i f e l o n g membership i n a group which combines both the s o c i a l and economic aspects of l i f e f i n d s many c o r r e l a t e s i n Japanese h i s t o r y - p a r t i c u l a r l y i n the patterns of s o c i a l o r g a n i z a t i o n p r i o r to Japan's i n d u s t r i a l i z a t i o n . I t cannot, however, be dismissed as a 'feudal remnant' which i s out of place i n present-day Japan. In f a c t , t h i s employment system has been conducive to the formation of the i n t i m a t e i n t e r p e r s o n a l r e l a t i o n s and i n d i v i d u a l f e e l i n g s of group membership i n which the Japanese work most e f f e c t i v e l y . As such, i t can be seen as a h i g h l y f u n c t i o n a l c u l t u r a l adaptation to the demands of i n d u s t r i a l i z a t i o n . Because t h i s system of permanent employment both r e f l e c t s and serves 52 t o maintain a low r a t e of employee m o b i l i t y between f i r m s , f o r p r a c t i c a l purposes, an employees' economic well-being and s o c i a l s t a t u s are no more or l e s s than th a t of the f i r m he works f o r . A l s o , because of the long-term - 64 - nature of the employment r e l a t i o n s h i p , the time horizon of relevance to the economic aspects of the c o r p o r a t i o n are often longer than i n other c o u n t r i e s . T h i s i s combined with a strong tendency f o r the s o c i a l s t a t u s and p r e s t i g e of a company and i t s employees (as w e l l as corporate access t o f i n a n c i n g ) to be c l o s e l y r e l a t e d to i t s absolute s i z e and, w i t h i n an i n d u s t r y , to i t s market share. As a consequence, there i s a strong tendency f o r c o r p o r a t i o n s to engage i n vigorous competition to i n c r e a s e t h e i r s i z e and, more p a r t i c u l a r l y , t h e i r market share - often d e s p i t e immediate economic c o n s i d e r a t i o n s . T h i s f r e q u e n t l y takes the form of competitive expansion i n manufacturing c a p a c i t y which exceeds the e x i s t i n g market demand and has been, at times, the r o o t cause of 'dumping' complaints l e v e l l e d at Japanese i n d u s t r y by Japan's t r a d i n g p a r t n e r s . In a p e r i o d of change i n the i n d u s t r i a l s t r u c t u r e , such as began i n the mid-1950's, t h i s competition can a l s o be r e v e a l e d i n a d i f f e r e n t p a t t e r n as companies scramble to gain a strong p o s i t i o n i n emerging new i n d u s t r i e s or "in i n d u s t r i e s undergoing d r a s t i c change. The low l e v e l of worker m o b i l i t y and the c o n c e n t r a t i o n of access to f i n a n c i n g on e s t a b l i s h e d f i r m s not only f a c i l i t a t e s but r e q u i r e s e x i s t i n g f i r m s e f f o r t s to seek entry i n t o new growth markets and i n d u s t r i e s as they a r i s e . Only by so doing can they hedge against the f u t u r e and i n s u r e the well-being, not to say v i a b i l i t y , of the corporate group and the employees who 52 c o n s t i t u t e i t . The main arena f o r t h i s i n t e r - f i r m competition has been the domestic market. In the l a t t e r 1950's and e a r l y 1960's, as one aspect of t h i s competition, the importance of TT i n c r e a s e d . Because TT i s i n many re s p e c t s analogous t o , and i n concrete cases often i n s e p a r a b l e from, equipment investment i t i s not s u r p r i s i n g to f i n d o v e r a l l trends i n TT - 65 - and equipment investment c l o s e l y c o r r e l a t e d (see f i g u r e 3 on page 6 6 ) . The r e l a t i v e importance of TT when compared to t o t a l machinery and equipment 54 investment i s , however, d i f f i c u l t to assess. One survey , done i n 1 9 6 1 , i n d i c a t e d t h a t purchases of T T - r e l a t e d equipment accounted f o r about 22% of t o t a l equipment investment f o r those f i r m s which imported technology but only f o r 4.7% of a l l i n d u s t r y equipment investment ( f i g u r e s r e l a t e to the period 1 9 5 0 - 1 9 6 0 ) . I t i s important, however, to note t h a t , while TT r e l a t e d equipment investment by i n d u s t r i a l equipment manufacturers may have accounted f o r only a small part of t o t a l equipment investment, the subsequent TT-based output of new i n d u s t r i a l equipment by these Japanese f i r m s l i k e l y accounts f o r a much l a r g e r p r o p o r t i o n of t o t a l Japanese equipment investment. The same survey i n d i c a t e d t h a t TT expenditures, on average, amounted to s l i g h t l y l e s s than 50/o of the (separate) research expenditures of surveyed f i r m s . Perhaps more i n d i c a t i v e of the s i g n i f i c a n c e of TT are the r e s u l t s of a separate survey comparing the s t a r t - u p and R & D expense and the t o t a l s a l e s a t t r i b u t a b l e to items of technology from d i f f e r e n t sources. As t a b l e 15 (see page 67 ) shows, t r a n s f e r r e d technology was both more c o s t l y ( i n terms of R & D and s t a r t - u p expense) and generated more s a l e s on a per-case b a s i s than d i d domestic t e c h n o l o g i c a l i n n o v a t i o n s . As the survey was done i n 1963 - a f t e r c o n s i d e r a b l e Japanese t e c h n o l o g i c a l development had already occurred - i t can e a s i l y be imagined th a t the implied importance (again, on a per-case b a s i s ) of TT would have been g r e a t e r had such a survey been done, say, i n 1 9 5 5 . F i n a l l y , there i s evidence th a t TT had an impact not only on longer-term goals of i n c r e a s e d market share and e n t r y to new domestic markets but a l s o t h a t i t had concrete, favourable, impact on shorter-term, p r o f i t goals (see t a b l e 16 on page 6 8 ) . Thus i t i s reasonable to conclude th a t one of - or perhaps 'the' - - 6 5 - Figure 3. Trends iri Technology Imports, Privat e Equipment Investment and Foreign D i r e c t Investment - (1951-1966) . Class A Technology Imports (No. of Case's) P r i v a t e Equipment Investment ( T r i l l i o n Yen) I. — - 3.. New Foreign C a p i t a l - r e l a t e d Enterprises (No. of Companies) Note: The reference for 1 and 2 gives as a measure of-. t h e i r c o r r e l a t i o n R = 0.92 ^ / \ / \ .600 500 A 00 300 200 4-100 1951 T r i l l i o n ' Yen of . No. o Companies Source: 1 and 2, adopted from Gi j u t s u Doryu Hsksku ' ; (Report on Technology Importation) - Japanese -' Unpublished i n t e r n a l report of Kagaku G i j u t s u cho, 1966. p.39 3. Tsushosangyosho, KigyoKyoku (MITI, E n t e r p r i s e Bureau). (Gaishikei Kigyo - Sono J i t t a : to Eikyo (Foreign C a p i t a l r e l a t e d E n t e r p r i s e s : t h e i r status and impact) Japanese . MITI, 1968, p.268. ases Table 15. Development Time, Sales, R & D and Start-up expense by Source of Technology (1957-1961) (1962 survey) "^^Technology (Including ^ ^ ^ n e w product ^"^^technology) ^""""-^flource Item ^^--^ Self-Developed Tech. Import ,Co-operative Development Other To t a l Aggre- gate i • per case Aggre- gate per case Aggre- gate per case Aggre- gate per case Aggre- gate per case Total Sales,1961 (b) Amount (53.0%) 5,428. 4.5 (33.7%) 3,445. 9.0 (9.8%) 1,006. 3.8 (3.5%) 361. 3.8 (100.0%) 10,229. 5.3 No. of Cases 1,194 382, 262, 95. 1,933. R & D Expense .(b) Amount (50.2%) 249. 0.2 (25.8%] 128. . 0.5 (20.2%) 100 0.5 (3.8%) 19. , .2 (100.0%) 496. 0.3 JNo. of Cases 1,061. 128, 216. 88. 1,603 Start-up expense Amount (35.8%) 1,266. 1.5 (49.5%; 1,750; 6.3 (6.8%) 242. 1.3 (7.9%) 278. 3.3 (100.0%) 3,536. 2.6 No. of Cases 819. 279 180. 84. 1,362. Average Develop- ment time i n years 2.35 2.50 2.24 2.21 2. 35 New technology (including new products)by Source-All Industry( a) percent of t o t a l 60.4 20.8 100% 18.8 Note:(a) These percentages for new technology by source are based on a more i n c l u s i v e sample and thus d i f f e r s l i g h t l y from any of the figures v a r i o u s l y implied by the "No. of Cases" indicated f o r the sales, R&D. expense and start-up expense rows. (b) In one hundred m i l l i o n s of Yen. Source: Tsushosangyosho, Kogyo G i j u t s u i i n (MITI, I n d u s t r i a l Technology Board). Gi j u t s u Doko Chosa Hokokusho (Technology Trends, research report) Tokyo: Jigyo Kohosha, 1963, pp. 11 and 126. -68- Table 16. E f f e c t s of Transferred Technology on Recipient Company (1961 Survey, post-war T.T.'s T y p ° " f Response ^ - > « ) Response Item — - ^ f s P ° n s e s Remarkable . Considerable Unremarkable Increased Sales 790 37.5 42.2 20.3 Increased P r o f i t s 736 28.7 41.7 29.7 Increased R e l i a b i l i t y 752 50.4 36.8 13.0 Increased o v e r a l l corporate technological l e v e l 745 39.9 42.2 17.9 S i g n i f i c a n c e i n gaining entry into a new domestic market 734 40.9 40.9 18.2 E f f e c t i n d i s p l a c i n g competitive products 501 29.8 42.7 27.5 Increased domestic market share 648 31.0 43.2 25.8 Increased Exports 433 19.6 33.7 46.7 S i g n i f i c a n c e i n gaining entry to new Export Markets 368 16.8 31.8 51.8 Source: MITI, Gaikoku Gijutsu Donyu no Genjo to Mondaiten, 1967. o p . c i t . , p.74. - 69 - major sources of i n i t i a t i v e f o r much of Japan's postwar TT was competition among Japanese f i r m s contending f o r a l a r g e r share of the r a p i d l y growing and e v o l v i n g domestic market. The government, f o r i t s p a r t , appears t o 55 have played more the r o l e of a mediator than of an i n i t i a t o r of TT. At the same time, f o r e i g n possessors of technology appear not to have been major sources of i n i t i a t i v e i n t r a n s f e r s of technology. ̂  T h i s and some other aspects of what we have discussed i n t h i s s e c t i o n are f a i r l y w e l l i l l u s t r a t e d by the case study forming appendix 1 of t h i s paper. T h i s i s s u e of domestic competition between Japanese f i r m s continued to a f f e c t TT but, i n the e a r l y 1960's, the broader i s s u e s of i n t e r n a t i o n a l competition and trade and demands by Japan's t r a d i n g partners f o r l i b e r a l i z a t i o n measures came to a f f e c t i t even more. I t i s t h i s subsequent peri o d of i n t e r n a t i o n a l i z a t i o n and l i b e r a l i z a t i o n which i s the focus of the f o l l o w i n g chapter. - 70 - IV LIBERALIZATION AND INTERNATIONALIZATION (1963-1973) 1. Rapid Economic Expansion Japan's r a t e of economic growth i n the 1960's ranged, i n r e a l terms, between 10% and 16/a annually - with the exception of the two r e c e s s i o n years of 1962 (6.4/ o ) and 1965 ( 4 . 6 / o ) . These growth r a t e s were even higher than those of the l a t t e r 1950's but were founded on the massive s t r u c t u r a l transformation th a t had begun i n t h a t e a r l i e r p e r i o d . The output of the new and renovated i n d u s t r i e s of the l a t t e r 1950's grew not only i n quan t i t y but al s o i n q u a l i t y and s o p h i s t i c a t i o n throughout the 1960's - notably i n the e l e c t r o n i c consumers goods and automobile i n d u s t r i e s . I n c r e a s i n g l y , as income l e v e l s rose, even the lower-income groups were able to p a r t i c i p a t e i n the consumption boom while middle- and upper-income groups upgraded t h e i r purchases to st e r e o s , l i v i n g - d i n i n g room s e t s and automobiles. Even i n the e a r l y 1960's, before the r a p i d p e r i o d of growth tha t make her u n e q u i v o c a l l y one of the world's major economic powers, Japan's r a p i d development was a t t r a c t i n g a mixture of admiration and concern from the i n t e r n a t i o n a l community. T h i s was p a r t i c u l a r l y t r u e of the developed c o u n t r i e s . Between 1958 and 1965 Japan's share of world exports i n c r e a s e d by 66-/d and of world imports by 52/a (see t a b l e 17 on page 7 l ) . Aside from the imbalance i n the i n c r e a s e s i n exports and imports the content of Japan's imports continued to c o n s i s t mainly of raw m a t e r i a l s and s e m i - f i n i s h e d goods while her exports were i n c r e a s i n g l y of s o p h i s t i c a t e d , high value-added manufactures ( t a b l e 2 on page 2 l ) . As might be expected, an i n c r e a s i n g ' p r o p o r t i o n of these exports were i n d i r e c t , c o m p e t i t i o n with the output of manufacturers i n the developed c o u n t r i e s . In f a c t , the -71- Table 17. Trends i n Japans Share of World Trade: 1938-1972 (in m i l l i o n U.S. d o l l a r s , current prices) IMPORTS ( c . i . f . ) EXPORTS (f.o. b.) ear Japan-*- World 2 Japan/world Japan"*" World 2 Japan/world 938 1,070. 25,400. .042 1,109. 23,500. .047 948! 684. 63,500. .011 258. 57,500. .004 958 3,033. 114,100. .027 2,877. 108,200. .027 963 6,736. 162,400. .041 5,452. 154,100. .035 965 8,169. 197,400. .041 8,452. 186.400. .045 967 11,663. 226,600. .051 10,442. 214,500. .049 968 12,987. 251,900. .052 12,972. 239,100. .054 969 15,024. 285,800. .053 15,990. 272,600. .059 970 18,881. 327,500. .058 19,318. 312,000. .062 971 19,712. 364,100. .054 24,019. 348,100. .069 972 23,471. 427,500. .055 28,591. 412,400. .069 Notes: 1. Beginning 15 May 1972 including trade for Okinawa prefecture. P r i o r to 15 May 1972, a l l figures adjusted to approximate trade of 1971 census area. 2. Excluding trade among: China, Mongolia, Democratic People Republic of Korea, and Democratic Republic of Vietnam and trade between the Federal Republic of Germany and German Democratic Republic. Source: Kokusai Rengo (United Nations), Sekai Tokei Nenkan - 1973 ( S t a t i s t i c a l Yearbook - 1973) Tokyo: Havashobo, 1974. pp.394-401. - 72 - t r e n d throughout the 1960's was f o r an i n c r e a s i n g percentage of Japanese exports to be d i r e c t e d p r e c i s e l y at the home markets c f these developed c o u n t r i e s (see t a b l e 18 on page 73). 2. Japan i n the I n t e r n a t i o n a l Economy (a) Pressures f o r R e c i p r o c i t y Not s u r p r i s i n g l y , Japan's i n c r e a s i n g share of world trade and her inroads i n t o the domestic markets of the developed c o u n t r i e s were of concern to her t r a d i n g p a r t n e r s . In a d d i t i o n , f o r e i g n f i r m s were becoming i n c r e a s i n g l y aware of the p o t e n t i a l s of the booming Japanese domestic market and i n c r e a s i n g l y f r u s t r a t e d by Japanese government r e g u l a t i o n of entry i n t o t h a t market. There were t h e r e f o r e growing demands that Japan provide to f o r e i g n goads and i n v e s t o r s r e c i p r o c a l ease of access to her markets. Thus was set one of the major themes of Japan's i n t e r n a t i o n a l r e l a t i o n s i n the 1960's and e a r l y 1970*s; the tug-of-war between her t r a d i n g partners, who wanted the l i b e r a l i z a t i o n process speeded up and Japan, which sought to proceed only at such a pace as would assure the p r i o r development of a Japanese i n d u s t r y capable of r e s i s t i n g both the blandishments and competition of f o r e i g n i n v e s t o r s and products. Of the two, f o r e i g n investment and f o r e i g n goods, i t was the former which was the most,problematic as w e l l as being the most c l o s e l y r e l a t e d to TT - as the major a l t e r n a t i v e to a c q u i s i t i o n of technology v i a l i c e n s i n g . Thus,the problem of f o r e i g n d i r e c t investment warrants some separate d i s c u s s i o n here. . (b) Antipathy t o F o r e i g n D i r e c t Investment The f a c t t h a t antipathy to f o r e i g n d i r e c t investment was one of the a t t i t u d e s importantly e f f e c t i n g the pattern of postwar TT to -73- Table 18. Japan's Imports by Provenance and Exports by Destination: 1963 - 1972. (F.O.B. value i n m i l l i o n U.S. D o l l a r s ) ^Proven-. Developed Developing C e n t r a l l y \ ance WORLD Market % Market % Planned % Economies Economies Economies 1 r e a r ^ I 1963 5,550. 3,210. 57.8 •2,110. 38.0 235. 4.2 M 1965 6,790. 3,620. 53.3 2,730. 40.2 435. 6.4 P 1966 8,140. 4,240. 52.1 3,310. 40.6 590. 7.2 0 1967 9,890. 5,250. 53.1 3,960. 40.0 680. 6.8 R 1968 10,740. 5,770. 53.7 4,270. 39.8 690. 6.4 T 1969 12,510. 6,770. 54.1 5,060. 40.4 680. 5.4 S 1970 15,280. 8,700. 56.9 5,850. 38.3 730. 4.7 1971 15,730. 8,350. 53.0 6,540. 41.5 840. 5.3 1972 19,470. 10,410. 53.4 8,010. 41.1 1,050 5.4 1963 5,450. 2,650. 48.6 2,550. 46.8 250. 4.6 E 1965 8,450. 4,350. 51.5 3,620. 42.8 480. 5.7 X 1966 9,780. 5,060. 51.7 4,120. 42.1 600. 6.1 P 1967 10,440. 5,350. 51.2 4,570. 43.7 530. 5.1 0 1968 12,970. 6,810. 52.5 5,580. 43.0 580. 4.5 R 1969 15,990. 8,410. 52.6 6,810. 42.6 760. 4.7 T 1970 19,320. 10,540. 54.5 7,730. 40.0 1,050. 5.4 S 1971 24,020. 13,180. 54.8 9,690. 40.3 1,150. 4.8 1972 28,650. 16,170. 56.4 11,040. 38.5 1,450. 5.1 Source: Kokusai Rengo (United Nations), Sekai Tokei Nenkon, Showa 49 nenpan (U.N. S t a t i s t i c a l Yearbook - 1973 - Japanese edition) - Japanese - Tokyo, Harashobo, 1974. pp. 402-404. - 7 4 - Japan was mentioned i n chapter t h r e e . The reason f o r i t s importance i s , of course, th a t flows of technology and investment (as w e l l as of goods and equipment r e l a t e d to these) are not n e c e s s a r i l y and, i n f a c t , often are not separate processes. Rather, they are f r e q u e n t l y part and p a r c e l of a s i n g l e business proposal. Nevertheless, as regards f o r e i g n d i r e c t investment ( F D l ) , the Japanese have never welcomed such f o r e i g n i n v o l v e - ment i n t h e i r country and t h i s i s r e f l e c t e d - to t h i s day - i n the low l e v e l of such f o r e i g n investment (see t a b l e 3 on page 23). With the pressures f o r r e c i p r o c i t y and l i b e r a l i z a t i o n of Japan's r e g u l a t i o n s regarding f o r e i g n investment an i n c r e a s i n g l y l u c i d r a t i o n a l e f o r Japanese r e l u c t a n c e took shape. F i r s t , i t i s argued, f o r e i g n owner- ship i m p l i e s f o r e i g n management p a r t i c i p a t i o n . T h i s r a i s e s the spectre of f o r e i g n owners d e c i d i n g , i n t h e i r g l o b a l i n t e r e s t , to suddenly c l o s e down a f a c t o r y or l a y o f f workers, f o r example. Given the Japanese system of permanent employment (and the attendant d i f f i c u l t i e s i n f i n d i n g new employment having once entered i n t o a company) such a c t i o n would have profound i m p l i c a t i o n s f o r the Japanese c i t i z e n s thus a f f e c t e d . Secondly, the i n f o r m a l c o n s u l t a t i o n and guidance between government and business i n Japan i s an i n t e g r a l and major aspect of managing the Japanese economy. Fo r e i g n management has n e i t h e r the c a p a c i t y to p a r t i c i p a t e nor an i n c e n t i v e comparable to t h a t of 'Japanese companies' to co-operate i n t h i s process. Thus FDI impairs the a b i l i t y of the government to manage the economy. T h i r d l y , and more d i r e c t l y r e l a t e d to technology, i n many in s t a n c e s f o r e i g n f i r m s have a t e c h n o l o g i c a l advantage over t h e i r Japanese counter- p a r t s which would enable them to q u i c k l y dominate the i n d u s t r y . Aside from the i m p l i c a t i o n s of t h i s f o r the Japanese companies and t h e i r ' l i f e - l o n g ' - 75 - employees, t h i s i n h i b i t s development of an indigenous Japanese c a p a c i t y f o r t e c h n o l o g i c a l i n n o v a t i o n . The f i r s t of these three arguments regarding FDI (and, to a l e s s e r extent, the second as w e l l ) have some claim to the s t a t u s of " s p e c i a l Japanese circumstances" - deserving, and to a l a r g e extent r e c e i v i n g , s p e c i a l c o n s i d e r a t i o n by Japan's t r a d i n g p a r t n e r s . The t h i r d i s perhaps 57 a more u n i v e r s a l concern of c o u n t r i e s regarding FDI - though not, by reason of t h a t , any the l e s s a l e g i t i m a t e matter of concern. Whatever the r a t i o n a l e o f f e r e d however, the l e v e l of antipathy to f o r e i g n investment i n Japan i s d i s p r o p o r t i o n a t e l y high. Some c o u n t r i e s simply e x h i b i t a higher s e n s i t i v i t y to a f o r e i g n commercial presence than do others and the explanation f o r t h i s i s not l i k e l y to be found e n t i r e l y i n the r a t i o n a l and o b j e c t i v e . ̂  In the case of Japan t h i s s e n s i t i v i t y i s high and probably but one m a n i f e s t a t i o n of the ' f o r t r e s s m e n t a l i t y ' growing out of c e n t u r i e s of separation from major outside i n f l u e n c e s and the concurrent (though not n e c e s s a r i l y i n e v i t a b l e ) development of a c u l t u r e which places c e n t r a l emphasis on 'in-group' and 'out-group' d i s t i n c t i o n s . (c) Formal Entry i n t o the World Economic Community The demands by Japan's t r a d i n g partners t h a t she l i b e r a l i z e her r e s t r i c t i o n s on f o r e i g n trade ( i n c l u d i n g investment) were, i n e f f e c t , demands t h a t she abandon the p r o t e c t i o n i s t stance of a poor, underdeveloped nation and forge new trade r e l a t i o n s on a b a s i s of e q u a l i t y with the developed n a t i o n s . T h i s i s an important p o i n t f o r , from the e a r l i e s t years of M e i j i , the goal of e q u a l i t y with the advanced nations has been the most constant theme of modern Japanese h i s t o r y . Thus, i t should be - 76 - apprec i a t e d t h a t at the same time as there was concern over the impact of l i b e r a l i z a t i o n (as di s c u s s e d above) there was a concurrent d e s i r e t o proceed with i t because of the r e c o g n i t i o n of Japan's e q u a l i t y which i t i m p l i e d . F o r s i m i l a r reasons, Japan's r o l e as host of the 1964 Tokyo Olympics and the i n t e r n a t i o n a l a t t e n t i o n which i t a t t r a c t e d imbued the e n t e r p r i s e , f o r many Japanese, with a sense of symbolic reacceptance i n t o the i n t e r n a t i o n a l community of advanced n a t i o n s . Of g r e a t e r importance, however, was Japan's entry i n A p r i l of the same year i n t o the OECD (Organization f o r Economic Cooperation and Development) - the major i n t e r n a t i o n a l economic body of the advanced, i n d u s t r i a l i z e d 59 n a t i o n s . The importance of t h i s step l a y not only i n i t s symbolic s i g n i f i c a n c e as r e c o g n i t i o n of Japan's advanced stage of development but al s o i n the f a c t t h a t entry f o r m a l l y committed Japan to l i b e r a l i z a t i o n of i t s trade r e l a t i o n s . 3. The Course and Impact of L i b e r a l i z a t i o n on Technology T r a n s f e r (a) The Stages of L i b e r a l i z a t i o n L i b e r a l i z a t i o n of trade r e l a t i o n s had broad i m p l i c a t i o n s - extending to the use of import r e s t r i c t i o n s on f o r e i g n goods. We w i l l here, however, concentrate on l i b e r a l i z a t i o n as i t a f f e c t e d TT, per se, and the r e l a t e d a c t i v i t y , f o r e i g n d i r e c t investment. The formal laws and r e g u l a t i o n s bearing on TT up u n t i l l i b e r a l i z a t i o n were discussed e a r l i e r , i n chapter three. In essence, these r e g u l a t i o n s c a l l e d f o r a 'case-by-case* handling of a l l proposed TT. Even p r i o r to formal entry i n t o the OECD there was some a d m i n i s t r a t i v e r e l a x a t i o n of 60 procedures. For example, the b a s i c c r i t e r i o n t h a t TT make a ' p o s i t i v e ' c o n t r i b u t i o n to Japan's balance-of-payments, p u b l i c u t i l i t i e s , or major i n d u s t r i e s was r e l a x e d to the requirement t h a t TT simply not have an adverse e f f e c t i n these areas. With entry i n t o the OECD however, two new, more l i b e r a l , c a t e g o r i e s of TT procedures were f o r m a l l y e s t a b l i s h e d . The f i r s t of these we w i l l here term 'Bank of Japan-Approval 1. Under t h i s procedure an a p p l i c a t i o n f o r TT, i n p r i n c i p l e , was approved w i t h i n one month of a p p l i c a t i o n i n the absence of a s p e c i f i c o b j e c t i o n or i n t e r - j e c t i o n by a concerned m i n i s t r y . As was mentioned e a r l i e r , the phrase 'concerned m i n i s t r y ' was not a r e s t r i c t e d or defined term but would always i n c l u d e MTTI and the M i n i s t r y of Finance and, depending on the nature of the TT, perhaps the M i n i s t r y of A g r i c u l t u r e and F o r e s t r y or the F a i r Trade Commission. The second new approval procedure we w i l l term ' f u l l l i b e r a l i z a t i o n ' . T h i s , too, was administered by the Bank of Japan but approval was automatic and the procedure was represented as more of a r e g i s t r a t i o n system than an approval procedure. The implementation of these two new approval procedures d i d not have major impact u n t i l the formal announcement of a s p e c i f i c set of l i b e r a l i z a t i o n measures i n 1967 and t h e i r implementation beginning i n June 1968. In b r i e f , the l i b e r a l i z e d r e g u l a t i o n s f o r TT provided as f o l l o w s : 1. TT i n v o l v i n g payments of under US $50,000 (from December 1973, under $30,000) were ' f u l l y l i b e r a l i z e d ' - except f o r TT which i n v o l v e d establishment of a new company or a c r o s s - l i c e n s i n g agreement. 2. TT other than th a t f a l l i n g under the p r o v i s i o n s of 1. or 3. (below) was moved to a 'Bank of Japan-Approval' b a s i s . - 78 - 3. TT r e l a t e d to the f o l l o w i n g seven f i e l d s remained subject to a case-by-case review: a v i a t i o n , f i r e a r m s , e x p l o s i v e s , atomic energy, outer space, computers, petrochemicals. Even with t h i s , however, Japan remained the only OECD member country with such overt c o n t r o l s over inward flows of technology and continued to r e c e i v e pressures f o r f u l l e r l i b e r a l i z a t i o n . As a r e s u l t , a schedule f o r f u r t h e r l i b e r a l i z a t i o n was s e t t l e d upon i n J u l y 1972. T h i s schedule provided, roughly, as f a l l o w s : 1. TT r e l a t e d to a v i a t i o n , f i r e a r m s , e x p l o s i v e s , atomic energy and outer space were moved to a 'Bank of Japan-Approval' b a s i s . 2. P e t r o c h e m i c a l s - r e l a t e d TT was moved to a ' f u l l - l i b e r a l i z a t i o n ' b a s i s except f o r TT r e l a t i n g to ' d e r i v a t i v e products' - manufacturing technology which was to be f u l l y l i b e r a l i z e d as of January 1973. 3. The treatment of computer-related TT was to vary with the content and value of the t r a n s f e r . Excepting the t r a n s f e r of software technology exceeding (US) §50,000.and hardware technology exceeding $100,000 i n value, TT was f u l l y l i b e r a l i z e d . The excepted c a t e g o r i e s of computer-related TT would a l l be moved to f u l l l i b e r a l i z a t i o n as of J u l y , 1974. As a r e s u l t of these f u r t h e r steps, "pure" ( i . e . uncontaminated by FDI) TT to Japan was, by and l a r g e , a l l ' f u l l y l i b e r a l i z e d ' as of 1974. We have suggested already th a t l i b e r a l i z a t i o n of f o r e i g n d i r e c t i n v e s t - ment was more problematic than t h a t of TT, per se. In f a c t , i t has proceeded at a slower pace than has TT l i b e r a l i z a t i o n s . Nevertheless, the 1967 l i b e r a l i z a t i o n measures were a l s o a s i g n i f i c a n t step forward r e g a r d i n g EDI i n new e n t e r p r i s e s (the purchase or a c q u i s i t i o n of shares - 79 - i n e x i s t i n g f i r m s remained - and remains - more c a r e f u l l y c o n t r o l l e d ) . These l i b e r a l i z a t i o n measures e s t a b l i s h e d two c a t e g o r i e s of l i b e r a l i z e d i n d u s t r i e s ; C l a s s 1, i n d u s t r i e s , where f o r e i g n p a r t i c i p a t i o n was l i m i t e d t o 50% and C l a s s 2, i n d u s t r i e s , where 100% f o r e i g n ownership i s permitted. , S i g n i f i c a n t l y , the l a t t e r category c o n s i s t e d mainly of i n d u s t r i e s i n which Japanese i n t e r n a t i o n a l strength was already high (eg. motorcycles, pianos) or i n which Japanese companies were already e i t h e r s t r o n g l y entrenched or of d e c l i n i n g i n t e r n a t i o n a l importance (eg. or d i n a r y s t e e l , rayon, cotton f i b r e s ) . The i n d u s t r i e s i n i t i a l l y i n c l u d e d i n the more r e s t r i c t e d C l a s s 1. (33, i n a l l ) i n c l u d e d a g r i c u l t u r a l chemicals, r a d i o s , t e l e v i s i o n , and watches. Again, these were i n many cases i n d u s t r i e s i n which Japanese companies were already h i g h l y competitive and the group d i d not i n c l u d e many i n d u s t r i e s of highest appeal to pr o s p e c t i v e f o r e i g n i n v e s t o r s (computors, drugs, h y d r a u l i c equipment, r e t a i l trade, e t c . ) . In subsequent years however, a schedule of gradual expansion i n the number of l i b e r a l i z e d i n d u s t r i e s was e s t a b l i s h e d and, by May 1976, almost a l l i n d u s t r i e s w i l l be open to 100/o f o r e i g n ownership i n new e n t e r p r i s e s . Remaining exceptions w i l l i n c l u d e a g r i c u l t u r e , f o r e s t r y , f i s h e r i e s , l e a t h e r and l e a t h e r by-products, r e t a i l trade exceeding 11 s t o r e s i n number, and the o i l i n d u s t r y . In a d d i t i o n , f o r e i g n investment i n e x i s t i n g e n t e r p r i s e s remains s u b j e c t , i n a l l cases, to government approval and i n c e r t a i n r e s t r i c t e d i n d u s t r i e s - such as fi n a n c e , u t i l i t i e s , t r a n s p o r t , and communications - i s subject to s t a t u t o r y l i m i t a t i o n s or p r o h i b i t i o n . (Domestic, Japanese,takeover bids are a l s o subject to s t r i n g e n t c o n t r o l s , both formal and i n f o r m a l . ) On t h i s l a t t e r p o i n t , of course, Japan i s not unique and many c o u n t r i e s impose s i m i l a r s t a t u t o r y l i m i t s or p r o h i b i t i o n s - 8 0 - on c e r t a i n s p e c i f i c , c r i t i c a l , i n d u s t r i e s . Moreover, Japan's maintenance of c o n t r o l s over f o r e i g n investment i n e x i s t i n g e n t e r p r i s e s , a l s o , i s not out of tune with the times as even i n the USA (with the sudden emergence of o i l - r i c h Arab c o u n t r i e s l o o k i n g f o r investment o p p o r t u n i t i e s ) there has been in c r e a s e d t a l k of adopting some form of monitoring of f o r e i g n takeovers. Thus, Japan can f a i r l y be s a i d to have completed a process of formal l i b e r a l i z a t i o n and i n t e r n a t i o n a l i z a t i o n . Moreover, while i n f o r m a l impediments may remain, these are l i k e l y to pose few s e r i o u s o b s t a c l e s t o R3 the flow of technology. (b) The Impact of L i b e r a l i z a t i o n on Technology T r a n s f e r As f i g u r e 4 (see page S i ) shows, there was a f a i r l y steady and r a p i d i n c r e a s e i n TT beginning i n the e a r l y 1960's and the pace of TT quickened with the l i b e r a l i z a t i o n measures of 1967-1968. The i n c r e a s e s i n TT a c t i v i t y cannot be e n t i r e l y a t t r i b u t e d to the l i b e r a l i z a t i o n measures. Japan's f u r t h e r economic expansion and development towards a f f l u e n c e , as w e l l as the r a p i d increase i n Japan's f o r e i g n exchange r e s e r v e s (frpm.around 1965) a l l favoured i n c r e a s e d TT a c t i v i t i e s . Nevertheless, even p r i o r to the formal l i b e r a l i z a t i o n measures i n 1968, i n f o r m a l response to demands f o r l i b e r a l i z a t i o n c o n t r i b u t e d to the surge i n TT. The formal l i b e r a l i z a t i o n measures of 1967-68 are, of course, most c l e a r l y c a u s a t i v e of the concurrent o v e r a l l i n c r e a s e i n the y e a r l y r a t e of TT. More dramatic than t h i s , however, i s the sudden s h i f t from c l a s s B to c l a s s A TT agreements. I t seems c l e a r t h a t the l i b e r a l i z a t i o n measures not only encouraged more TT but tha t ( r e c a l l i n g t h a t the main d i s t i n c t i o n between the two types of TT was whether payments exceeded one year i n dur a t i o n or n o t ) , they a l s o encouraged companies to enter i n t o agreements of a longer-term, more ongoing nature. Approvals of Technical Assistance Agreements, 1950 - 1973 ases) I Source: Kagaku G i j u t s u cho (Science and Technology Agency) Gaikoku G i j u l s u Donyu Denji Hokoku (Annual Report on Foreign Technology Importation) - Japanese - 1975, p.5. - 82 - Ozawa, goes f u r t h e r and suggests tha t t h i s sudden t u r n i n g away from c l a s s B towards c l a s s A TT: ". . . may s i g n a l a t u r n i n g p o i n t i n Japan's postwar t e c h n o l o g i c a l progress; i t s t e c h n i c a l c a p a c i t y had s u b s t a n t i a l l y advanced to such an extent that i n d u s t r y became l e s s dependent on i n c i d e n t a l 64 t e c h n i c a l a s s i s t a n c e from the West." A r e d u c t i o n i n dependence on the West f o r ' i n c i d e n t a l t e c h n i c a l a s s i s t a n c e ' had undoubtedly taken p l a c e . On the f a c e of i t , however, i t seems h i g h l y u n l i k e l y that a major t u r n i n g p o i n t c o i n c i d e d with the 1967-68 l i b e r a l i z a t i o n measures and, moreover, occurred i n a l l i n d u s t r i e s at about the same time (see t a b l e .7 on page 42). What's more, as was pointed out e a r l i e r , the d i s t i n c t i o n between c l a s s A and c l a s s B c a t e g o r i e s of TT does not bear any necessary r e l a t i o n s h i p to the ' t e c h n i c a l ' content of the TT. An item of c l a s s A TT may t r a n s f e r only the r i g h t s to use a brand name while c l a s s B t t o f t e n i n v o l v e s p r e c i s e l y such ' i n c i d e n t a l t e c h n i c a l a s s i s t a n c e 1 i n the form of short-term c o n s u l t a t i o n or a d v i s o r y s e r v i c e s . In the f i n a l a n a l y s i s , the s i g n i f i c a n c e of t h i s change, i n terms of the content - as opposed to the duration - of TT agreements, probably cannot be e s t a b l i s h e d without a d e t a i l e d examination of s p e c i f i c c o n t r a c t s both before and a f t e r the l i b e r a l i z a t i o n measures. Un f o r t u n a t e l y , no such study appears to have been c a r r i e d . o u t . I t seems l i k e l y t h a t , were such a study done, i t would r e v e a l a c l o s e connection between the r a p i d t r e n d to c l a s s A TT agreements and the i n c r e a s e i n f o r e i g n d i r e c t investment a c t i v i t i e s - which were a l s o a f f e c t e d by the l i b e r a l i z a t i o n measures. That i s to say, as more f o r e i g n f i r m s opted f o r FDI i n Japan there would, n a t u r a l l y , be an upsurge i n the number of c l a s s A ( l o n g e r - term) TT agreements between the Japanese venture and i t s f o r e i g n parent - 83 - or partner. Such longer term and more comprehensive agreements appear to have taken the place of many of the, e a r l i e r , c l a s s B TT a c t i v i t i e s of these same companies. (c) L i b e r a l i z a t i o n and Foreign D i r e c t Investment The strong connection between FDI and TT, as a general phenomenon, has been discussed e a r l i e r . In the Japanese case the connection appears to have been p a r t i c u l a r l y strong and important. In f a c t , the r a p i d i n c r e a s e i n FDI i n the 1960's can be l a r g e l y viewed as an exchange of technology (or the l e g a l r i g h t s to use i t ) f o r access to the Japanese market. T h i s view i s supported by s t u d i e s published by Ml ITI i n 1968' which i n d i c a t e t h i s to have been the case both as regards the s u b j e c t i v e motivations f o r entry i n t o a j o i n t venture (see f i g u r e 5 on page 84) and i n the r e s p e c t i v e c o n t r i b u t i o n s a c t u a l l y made by the partners at the time of formation of a j o i n t - v e n t u r e (see t a b l e 19 on page 85). As f i g u r e 3 (on page 66) i n d i c a t e d , FDI, i n terms of numbers of cases, roughly p a r a l l e l e d trends i n Japanese p r i v a t e equipment investment and trends i n TT, per se, though i t was i n c r e a s i n g at a s l i g h t l y f a s t e r r a t e . The l i b e r a l i z a t i o n measures of 1967-68 gave FDI even more impetus and the annual r a t e of new j o i n t - v e n t u r e formation was running above 200 cases per year by 1970 - more than double the f i g u r e i n 1967 (see t a b l e 20 ) The 1960's witnessed a co n s i d e r a b l e i n c r e a s e i n the pro p o r t i o n of j o i n t - ventures engaged i n nan-manufacturing a c t i v i t i e s and l i k e l y , t h e r e f o r e , to be l e s s a s s o c i a t e d with TT. In terms of c a p i t a l i z a t i o n , however, there remains an overwhelming dominance of manufacturing concerns (see t a b l e 21 on page 87). As t a b l e 21 i n d i c a t e s , the average l e v e l of f o r e i g n ownership f o r FDI i n Japan i s only s l i g h t l y over 50% and t h i s -84- Figure 5 Motivation for Involvement with Foreign D i r e c t Investment i n Japan ( ) = No. of p o s i t i v e responses gjBjffi = Proportion giving t h i s as the most important motivation Foreign Companies Procurement of parts, raw materials E x p l o i t Labour resources E x p l o i t technological resources E x p l o i t C a p i t a l resources Growth c h a r a c t e r i s t i c s of the market Value as a Foothold i n Asian market Absence of Competing Companies Other reasons Response unclear (44) (61) (90) (1 10 (160) (50) (45) (20) (326) Japanese Companies Access to C a p i t a l Access to raw materials, parts Use of Brand name (domestically) Use of Brand name (Export markets) Exports A c q u i s i t i o n of Production Technology A c q u i s i t i o n of Management Technology] Other reasons (27) (43) ,11 i i It' T (129) (35) (93) (290) (26) (24) Source: Tsushbsangyosho, Gai s h i k e i Kigyb Sono J i f f a i to Eikyo, op. c i t . pp. 31 and 34 Table 19. Jo i n t Ventures i n Japan: A comparison of the respective contributions of Japanese and Foreign partners at Start-up and over time. Investor Inves tment Numb er of Investors Total Investment % Respective share of Total Investment c o Cash % Equipment % Technology % Other % At Time of S U R V E Y (1967) J A P A N E S E Actual Number 2,212. 101,027,587. 100. 60.3 94,360,203. 93.4 3,862,436. 3.7 26,995 0. 2,777,953 2.7 IN o • or Responderts 285. - - - 285. - 7. - 2. - 7. - F 0 R E I G N Actual Number 326. 66,499,547. 100. 39.7 54,978,319. 82.8 205,211. 0.3 9,151,900. 13.8 2,064,117. 3.1 No. of Respondents 285. 270. - 4. - 31. - 7. - At Time of S t a r t - up ( V a r i - ous) J A P A N • E S E Actual Number 1,608. 35,701,667. 100. 55.8 31,665,573. 88.7 3,862.971. 10.8 26,995 0.1 146,128. - No. of Respondents 281. - - - 279. - 8. - • 2. 1 1. - F 0 R E I G N Actual Number 327. 28,303,412. 100. 44.2 19,878,701. 70.2 115,211. 0.4 8,309,500 . 29.4 0. - Np. of Respondents 283. - - • - 258. - 3. - 31. - .0 - Source: Tsuchosangyosho (MITI), Gaishikei Kigyo - sono J i t t a i to Eikyo (Foreign Capital-related Enterprises: t h e i r Status and Impact) - Japanese - Tokyo, 1968. pp.272-273. -86- Table 20. Establishment of Joint Ventures (Number of Cases) by Main Industrial Categories: 1950 - 1971 ndust \ry pea\ A l l Industry Machinery Metals Chemicals Textiles Petroleum Other Manufact- uring Commerce and Trade Other .0-53 70 21 4 10 4 5 9 12 5 .954 6 1 1 3 1 .955 2 1 1 .956 5 1 2 1 1 L957 7 4 2 1 .958 1 1 .959 10 5 2 1 2 .960 12 4 1 6 .961 19 10 1 3 2 1 2 .962 22 12 1 8 1 .963 53 23 3 11 1 1 7 4 3 .964 77 24 5 11 2 12 15 8 .965 69 18 4 13 1 1 7 14 11 .966 78 18 1 19 1 10 20 9 .967 93 29 6 12 3 3 6 29 5 .968 106 28 1 11 2 8 44 12 .969 174 41 9 29 15 54 26 .970 209 42 5 28 4 25 64 41 .971 217 37 10 18 3 1 30 77 41 971 dist) (100.0) (17.1) (4.6) (8.3) (1.4) (0.5) (13.8) (35.5) (18.9) otal .950- 1,230. 31.9. 54. 189. 24. 12. 135. 333. 164. .971 of 'otal 100.0 25.9 4.4 15.4 2.0 1.0 11.0 27.1 13.3 Source: Fujiwara, Ichiro Shihon Jiyukato Takokusekikigyo (Capital Liberalization and Multinat-onal Enterprise)-Japanese-Tokyo,Nikon Keizai Shimbunsha, 1973. p.100. Notes : 1. This data i s not restricted to newly established companies and includes agreements between foreign investors and existing Japanese companies. 2. Includes Yen-base companies -87- Table 21. National Origin of Foreign D i r e c t Investment i n Japan by amount of Investment (as of 1971) """"" ~ ~ - ^ I n d u s t r y , C a p i t a l , Home " ^ _ % ^ o f t o t a l Country A l l Industry Manufacturing C a p i t a l i z a t i o n (100 mil.Yen) % of T o t a l C a p i t a l i z a t i o n (lOOmil.Yen % of Total U.S.A. 1,535 68.5 1,350 73.4 Europe 572 25.4 373 20.2 England 222 9.9 83 4.5 Switzerland 169 7.5 146 7.9 West Germany 50 2.2 35 1.9 France 35 1.5 33 1.8 Other Europe 96 4.3 75 4.1 Canada 108 4.8 108 5.9 Other 28 1.3 10 0.5 Foreign C a p i t a l , T o t a l (A) 2,243 100.0 1,841 100.0 To t a l C a p i t a l i z a t i o n of Foreign C a p i t a l - r e l a t e d Enterprises(B) 4,109 - 3,674 - A/B x 100 (%) 54.6 - 50.1 - Source: Tsushosangyosho, KigyoKyoKu (MITI, Enterprise Bureau). Gaishikei Kigyo no Doko (Trends i n Foreign C a p i t a l - r e l a t e d Enterprises) - Japanese - Tokyo, p.29. - 88 - r e f l e c t s the f a c t t h a t the most common form of FDI i s the j o i n t venture (see t a b l e 22 on page 8 9 ) . The USA i s the l a r g e s t d i r e c t i n v e s t o r i n Japan and accounts f o r about 62/o of t o t a l companies and 68/a of t o t a l c a p i t a l i z a t i o n ( t a b l e s 21 and 2 2 ) . T h i s US dominance of FDI i s high but not un i q u e l y so - an OECD study i n d i c a t e s an even stro n g e r US 65 domination of t o t a l FDI i n Canada and the UK. In view of the strong h i s t o r i c , l i n g u i s t i c and ( i n the case of Canada) geographic t i e s between these l a t t e r two and the US and the corresponding l a c k of such t i e s between the US and Japan however, the high Japanese f i g u r e s suggest th a t the postwar t i e s forged between Japan and the US have had p a r t i c u l a r l y strong impact on the propensity f o r US FDI i n Japan (the same OECD study showed, f o r example, that US FDI accounts f o r only about 44°/o of t o t a l FDI i n the other high-growth postwar economy, West Germany). (d) L i b e r a l i z a t i o n and Domestic Firms As we have already i n d i c a t e d , l i b e r a l i z a t i o n l e d many Japanese f i r m s to enter i n t o longer-term and c l o s e r r e l a t i o n s h i p s with f o r e i g n companies. There were a l s o , however, other and more g e n e r a l i z e d e f f e c t s f o l l o w i n g on l i b e r a l i z a t i o n which had s i g n i f i c a n c e f o r TT. In the f i r s t p lace, the trend towards l i b e r a l i z a t i o n i n c r e a s e d - or threatened to i n c r e a s e - competition i n the Japanese domestic market from f o r e i g n products and f i r m s . As a consequence, there was consi d e r a b l e o f f i c i a l and p u b l i c concern over ' r a t i o n a l i z a t i o n ' of Japanese i n d u s t r i e s so t h a t they might more e f f e c t i v e l y meet the forthcoming " f a c e - t o - f a c e " competition from l a r g e i n t e r n a t i o n a l f i r m s i n t h e i r home market. In the main, the envisioned r a t i o n a l i z a t i o n process i m p l i e d a r e d u c t i o n i n the numbers of f i r m s i n va r i o u s i n d u s t r i e s so as to develop an i n d u s t r y Home Country of Foreign Investor T Y P E O F B U S I N E S S |Type of Company and \. A l l Enterprises Manufacturing Commerce Other !Home Country of \ |Foreign Investor \^ No. of Cos. % of To t a l No. of Cos. % of Tota l No. of Cos. % of Total No. of Cos. % of To t a l 1 i T O T A L 1,006 100.0 565. 56.2 323. 32. 118. 11.8 Type of Company - - - - - - - - ! T o t a l l y Foreign C a p i t a l 274. 27.2 45 4.5 163. 16.2 66. 6.6 J o i n t Venture Co. 650. 64.6 474. 47.2 130. 12.9 46. 4.6 Foreign Capital-Importing Japanese Comgany_ 82. 8.2 46 4.6 30. 3.0 6. 0.6 Home Country of Foreign Company - - - - j - - - U.S.A. 620. 61.6 414. 41.2 135 13.4 71. 7.1 Canada 24. 2.4 14. 1.4 8. 0.8 2. 0.2 Europe 288. 28.6 129. 12.8 i 127. 12.6 32. 3.2 England 50. 5. 24. 2.4 19. 1.9 7. 0.7 France 29. 2.9 11. 1.1 j 12. 1.2 6. j 0.6 West Germany 70. 6.9 36. 3.6 28. 2.8 6. j 0.6 Switzerland 67. 6.7 32. 3.2 31. 3.1 4. : 0.4 Other Europe 72. 7.1 26. 2.6 37. 3.7 9. I 0.9 Other 74. 7.4 8. 0.8 53. 5.3 13. 1.4 Note ;i "Foreign Capital-importing Japanese Company" indicates a Foreign e n t i t y has purchased shares i n an e x i s t i n g Japanese company. This category implies that there i s no d e f i n i t e management p a r t i c i p a t i o n by the Foreign investor. Where there i s clear evidence of such p a r t i c i p a t i o n the firms are r e c l a s s i f i e d as a j o i n t venture. " J o i n t Venture", except as implied i n the preceeding, i n d i c a t e s a company o r i g i n a l l y established i n partnership with a f o r e i g n investor. Source: MITI, G a i s h i k e i Kigyo so Doko, o p . c i t . pp.32-33. - 90 - s t r u c t u r e composed of a s m a l l e r number of l a r g e r f i r m s . T h i s , i t was f e l t , would produce more e f f i c i e n t i n d u s t r i e s capable of t e c h n o l o g i c a l s c a l e economies and, i n the longer run, t e c h n o l o g i c a l i n n o v a t i v e a b i l i t i e s comparable to those of l a r g e i n t e r n a t i o n a l f i r m s . T h i s concern, and the remedy proposed, r e f l e c t e d the f a c t t h a t i n many of the boom i n d u s t r i e s of the 1950's there were a l a r g e number of marginal, s m a l l - s c a l e , producers many of which had poor access to f i n a n c i n g due to the h i g h l y c e n t r a l i z e d Japanese f i n a n c i a l system. Thus i n d u s t r y c o n s o l i d - a t i o n would a l s o improve the f i n a n c i a l a b i l i t y of Japanese i n d u s t r y to compete. The amendment of the Anti-Monopoly Law of 1947 to permit what were termed 'recession and r a t i o n a l i z a t i o n c a r t e l s ' provided a u s e f u l means of p r o v i d i n g o f f i c i a l encouragement towards i n t e r - f i r m cooperation and eventual i n d u s t r y c o n s o l i d a t i o n . Aside from whatever impact government encouragement of i n d u s t r y c o n s o l i d a t i o n may have had, there are i n d i c a t i o n s t h a t the r i g o u r s of the market-place, i t s e l f , began to enforce a c o n s o l i d a t i o n process on i n d u s t r y as the weaker f i r m s i n many cases became l e s s and l e s s able to keep pace with expansion and t e c h n i c a l change i n t h e i r i n d u s t r y and t h e i r market shares dwindled (appendix 1. provides a r a t h e r extreme example of i n d u s t r y 'crowding' i n the l a t e 1950's). An even sharper spur to r e d u c t i o n i n the number of f i r m s i n the v a r i o u s i n d u s t r i e s was provided by the severe r e c e s s i o n years of the e a r l y 1960's. Thus, from a combination of o f f i c i a l encouragement and market f o r c e s , the 1960's was marked by a c o n s i d e r a b l e degree of c o n s o l i d a t i o n i n Japanese i n d u s t r y . T h i s process i s r e f l e c t e d i n the sharp upturn i n the number of mergers per year beginning i n 1960 and continuing through i n t o the 1970's (see f i g u r e 6 on page 91) . - 91 - Figure 6 Trends i n Annual Number of Mergers Source: Dosei T o r i h i k i l i n k a i ( F a i r Trade Commission). Dokusen Hakusho, Showa 49 Neupan (Monopoly White Paper, 1974 E d i t i o n ) - Japanese 1975, p.308. - 92 - Another, p o s s i b l y r e l a t e d , development of the 1960's may have been an i n c r e a s i n g t e c h n o l o g i c a l ' e q u a l i t y ' among Japanese f i r m s . As f i g u r e 7 (see page 93) i n d i c a t e s , the p r o p o r t i o n of 'new' technology, t h a t i s , technology not p r e v i o u s l y imported i n t o Japan, d e c l i n e d f a i r l y s t e a d i l y . Conversely, t h i s i m p l i e s t h a t an i n c r e a s i n g p r o p o r t i o n of the ( i n c r e a s i n g amount of) TT i n the 1960's was of technology already possessed by one or more of the importing companys' competitors. O v e r a l l , t h i s meant a l e v e l l i n g of the t e c h n o l o g i c a l c a p a b i l i t i e s among Japanese f i r m s and, at the same time, an i n c r e a s e i n i n d u s t r y average t e c h n o l o g i c a l c a p a b i l i t i e s . Thus, the r e a l i t y and the ' t h r e a t ' posed by the movement towards l i b e r a l i z a t i o n i n the 1960's helped spur on i n d u s t r y c o n s o l i d a t i o n and t e c h n o l o g i c a l development over the same p e r i o d . In any event, by the l a t t e r part of the 1960's, the i n c r e a s i n g s o p h i s t i c a t i o n of Japan's e x i s t i n g t e c h n o l o g i c a l c a p a b i l i t i e s l e d t o an i n c r e a s e i n the amount of development e f f o r t s Japanese f i r m s were making at the t e c h n o l o g i c a l ' f r o n t i e r s ' of t h e i r r e s p e c t i v e s c i e n c e s . With t h i s , the r o l e . o f TT, while s t i l l of major importance, i s coming to be subordinate i n o f f i c i a l and popular t h i n k i n g to the growing emphasis on the development of the independent t e c h n o l o g i c a l i n n o v a t i v e c a p a b i l i t i e s of Japanese i n d u s t r y . T h i s , ongoing, transformation i n the r o l e of TT which began i n the l a t e 1960's and e a r l y 1970's i s one theme of the f a l l o w i n g chapter d i s c u s s i n g "TT and Japan today". -93- Figure 7 Trends i n the Importation of "new" *technology as a component of T o t a l Technology Imports - by industry (Class A Technology only) M •4M m m !?i III w I A' MA I f f ft m. 1 1 i i -is V i f s % pfe : J | - I _ III i t I r ft W A w im Mi A A 1961 1965 1966 A l l Industry Chemical Machinery] Metals E l e c t r i c a l J Other (including t e x t i l e s ) Source: Kagaku Gij u t s u cho, Gijutsu Donyu Hokoku, 1966. op. c i t . p.32 * "New technology" r e f e r s to technology of a type not previously imported into Japan. - 94 - V TECHNOLOGY TRANSFER AND JAPAN TODAY In Japan i n 1975 the themes of the recent past o u t l i n e d i n the previous chapter s t i l l p e r s i s t . The purpose of t h i s chapter, i n c o n t r a s t to t h a t of chapter f o u r , i s not t h e r e f o r e t o o u t l i n e the course of major change over time i n the p a t t e r n of TT to Japan i n the past few years but, r a t h e r , to provide a statement of the current s t a t u s of Japan v i s - a - v i s TT and to suggest what may be the major r e l a t e d themes i n the near f u t u r e . In t h i s r e s p e c t , r e l a t i v e l y recent developments of the past few years have probably served t o c l a r i f y what these themes w i l l be. In p a r t i c u l a r , the growing problems of ' o v e r - i n d u s t r i a l i z a t i o n ' i n Japan, the energy and resources c r i s e s , and major changes i n Japan's f o r e i g n r e l a t i o n s are a l l recent changes which have i m p l i c a t i o n s f o r Japan ,and TT and which have served to c l a r i f y some of the l i k e l y develop- ments i n t h i s area over the near and medium-term f u t u r e . 1. The Changing C h a r a c t e r i s t i c s of Technology T r a n s f e r to Japan The tendency noted e a r l i e r (see f i g u r e 7 an page 93) f o r m u l t i p l e t r a n s f e r s of a given technology to more than one Japanese company would seem to have evolved i n t o a new, standard pattern i n which TT i s ' c l u s t e r e d ' around s i g n i f i c a n t new i n n o v a t i o n s as they occur. T h i s impression i s p a r t i c u l a r l y strong i n i n d u s t r i e s i n which Japan's t e c h n o l o g i c a l l e v e l i s h i g h . Thus, i n 1973, 168 of the t o t a l of 305 t r a n s f e r s to the Japanese e l e c t r o n i c s i n d u s t r y were ' m u l t i p l e ' - with one technology alone accounting f o r 24 of the t r a n s f e r s . ^ In terms of the content of TT agreements themselves, the growth t o a f f l u e n c e during the 1960's has created i n Japan the world's second l a r g e s t mass-consumption market ( a f t e r the USA). Thus, there i s and - 95 - should continue to be a major market i n Japan f o r TT r e l a t e d to the f a s h i o n , s p o r t s , l e i s u r e , and s e r v i c e i n d u s t r i e s . In t h i s connection the r a p i d l y i n c r e a s i n g flow of t e x t i l e and t e x t i l e - p r o d u c t s - r e l a t e d technology which began i n the l a t t e r 1960's (see t a b l e 8 on page 43) l i k e l y r e f l e c t s the s a l e a b i l i t y of f a s h i o n a b l e f o r e i g n brand names and c l o t h i n g designs i n con- temporary Japan - r a t h e r than any more c l e a r l y " t e c h n i c a l " r e l i a n c e on foreign''tee)=inp]pgies.v,;;Bne..••special source of impetus f o r such TT may be the i n c r e a s i n g amount of f o r e i g n tourism by Japanese. As t a b l e 23 shows (see page 96), the number of Japanese going abroad as t o u r i s t s i n c r e a s e d by a f a c t o r of .more than 10 between 1968 and 1974. As these hordes of conspicuous consumers r e t u r n to Japan laden with t h e i r usual mass of souvenirs (and knowledge of others they d i d n ' t r e t u r n with) they sew the seeds f o r a d d i t i o n a l 'fads' i n f o r e i g n - i n s p i r e d consumers goods and prepare the way f o r f u r t h e r TT. Thus, one major and growing area or type of TT to Japan, both now and i n the f u t u r e i s f a r l e s s r e l a t e d to the t e c h n i c a l than i t i s to the f a s h i o n a b l e - to... the s p e c i a l cachet of a f o r e i g n brand name or design. There are, of Bourse, areas where TT of a more c l e a r l y t e c h n i c a l nature i s and i s l i k e l y to continue to be a c t i v e . These would prominently i n c l u d e the areas of energy, information processing, and p o l l u t i o n c o n t r o l , i n c l u d i n g r e c y c l i n g techniques. T h i s l a t t e r category i s a p a r t i c u l a r l y i n t e r e s t i n g area. I t may be a f i e l d where a c y c l e of technology import- technology s e l f development-technology export w i l l occur i n a r a p i d , foreshortened form due to the r a p i d i t y with which the i n d u s t r y developed and the s e v e r i t y of the p o l l u t i o n problems (and r e g u l a t i o n s ) i n contemporary Japan (see appendix 3. f o r a case study of TT i n t h i s f i e l d ) . Table 23. -96- TRENDS IN JAPANESE OVERSEAS TRAVEL a) Yearly Totals 1950 -1974 Year T o t a l Year To t a l Year T o t a l 1950 8,922. 1960 76,214 1970 663,467. 1951 20,011. 1961 86,328. 1971 961,135. 1952 25,597. 1962 74,822. 1972 1,392,045. 1953 34,813. 1963 100,074. 1973 2,288,966. 1954 34,593. 1964 127,749. 1974 2,335,530. 1955 1956 42,900. 35,803. 1965 1966 158,827. 212,409. 1957 45,744. 1967 267,538 1958 49,263. 1968 343,542 1959 57,194 1969 492,880. b) Composition ( category d e f i n i t i o n s underwent minor chai Year Business Academic Tourist Other T o t a l * 1965 1968 66,752. 122,754. 2,526. (si c . ) 5,393. 49,468. 152,513. 44,164. 62,407. 162,910. 343,067. 1971 241,540. 2,244. 638,489. 78,862. 961,135. 1974 375,171. 5,324. 1^82,415. 72 ,620. 2,335,530. * D i f f e r s from fi g u r e s i n a) due to differe n c e i n data c o l l e c t i o n procedures. Source: Unpublished data received from the Japanese Mi n i s t r y of J u s t i c e , Immigration Department, June, 1975. - 97 - 2. Growth i n Cooperative Ventures The t e c h n o l o g i c a l c a p a b i l i t i e s possessed by Japanese f i r m s - and the competitive n e c e s s i t i e s they face d o m e s t i c a l l y and i n t e r n a t i o n a l l y - i n c r e a s i n g l y mean t h a t t e c h n o l o g i c a l advance i m p l i e s advance at the f r o n t i e r s of t h e i r r e s p e c t i v e s c i e n c e s . Due to the often major c o s t s and almost i n v a r i a b l y u n p r e d i c t a b l e r e s u l t s of research at t h i s l e v e l there i s co n s i d e r a b l e appeal i n 'hedging"one's bets' by e n t e r i n g i n t o some farm of cooperative agreements with other organizations.engaged i n s i m i l a r r e s e a r c h . T h i s can take many forms; from j o i n t development, to c r o s s - l i c e n s i n g , to 'mere* information s h a r i n g . C o n s i d e r a t i o n s such as t h i s can lead of course to cooperative agreements among domestic f i r m s . Indeed, such c o n s i d e r a t i o n s have played a part i n , f o r example, the formation of Japanese computer f i r m s i n t o two groups of cooperating companies ( f o l l o w i n g c o n s i d e r a b l e , strong, government encourage- ment). Moreover, there are i n d i c a t i o n s that the 1970's w i l l see a broad and c o n t i n u i n g e f f o r t on the part of both business and government to encourage such domestic cooperative e f f o r t s at t e c h n o l o g i c a l development. ^7 Qzawa has argued th a t Japan may, i n f a c t , possess an advantage i n t h i s area f o r , As the com p l e x i t i e s of the problems to be d e a l t with and the s c a l e of research i n c r e a s e , a systems approach and i n t e r d i s c i p l i n a r y teamwork are r e q u i r e d . Here the Japanese may have an advantage, s i n c e they can m o b i l i z e the devoted e f f o r t s of a group of rese a r c h e r s of d i v e r s e backgrounds i n r e l a t i v e harmony. A strong group o r i e n t a t i o n i s a p e c u l i a r l y Japanese c h a r a c t e r i s t i c . In f a c t , however, while Japan may possess advantages they are u n l i k e l y to l i e i n the a b i l i t y to 'mobilize the devoted e f f o r t s of a group of re s e a r c h e r s of d i v e r s e backgrounds* - p r e c i s e l y because of a 'strong group o r i e n t a t i o n * . That i s to say, except i n unusual circumstances (as i n - 98 - wartime or some other s i t u a t i o n which expands group i d e n t i f i c a t i o n beyond normal bounds), the tendency of a group of Japanese, r e s e a r c h e r s or not, i s to remain h i g h l y aware of 'diverse backgrounds' and t o respond and behave as members or r e p r e s e n t a t i v e s of t h e i r primary group. To the extent t h a t research demands the r e p e t i t i v e formation and d i s p e r s a l of p r o j e c t - o r i e n t e d research 'teams', the Japanese are more l i k e l y to possess a disadvantage than an advantage. There i s the f u r t h e r f a c t t h a t i n both the general case and (perhaps p a r t i c u l a r l y ) i n the Japanese case there i s a tendency f a r f i r m s t a view a l l r e l e v a n t domestic o r g a n i z a t i o n s as major competitors. T h i s can make f i r m s more w i l l i n g to enter i n t o cooperative agreements with f o r e i g n f i r m s r a t h e r than with domestic ' r i v a l s ' . In some c o u n t r i e s , i n c l u d i n g Japanj ther e i s a l s o the p o s s i b i l i t y t h a t a n t i - t r u s t laws and r e g u l a t i o n s can act to make such cooperative agreements e a s i e r to form with f o r e i g n than with domestic f i r m s . In f a c t , f o r whatever combination of reasons, there i s already an i n d i c a t i o n that cooperative agreements with f o r e i g n f i r m s are of growing importance as regards TT to (and from) Japan. T h i s i s r e f l e c t e d i n a growing number of c r o s s - l i c e n s i n g agreements with f o r e i g n f i r m s . In the maj o r i t y of cases to date however, such agreements have been l i n k e d t o payments by the Japanese s i d e - suggesting t h a t the f o r e i g n f i r m remains t e c h n o l o g i c a l l y dominant i n such cooperative r e l a t i o n s . In the extreme, such 'cooperative agreements' take the form of j o i n t - venture companies i n Japan (or elsewhere). In t h i s regard, the i n c r e a s e i n FDI i n Japan witnessed i n the 1960*s, and e a r l y 1970's, i s l i k e l y to continue and to maintain the c h a r a c t e r i s t i c j o i n t - v e n t u r e form. There - 99 - w i l l not l i k e l y , however, be any f u r t h e r major, formal, l i b e r a l i z a t i o n 69 measures i n the near f u t u r e - e s p e c i a l l y as regards f o r e i g n 'takeovers' of e x i s t i n g f i r m s . 3. Expansion i n Technology Exports Perhaps the major Japanese development v i s - a - v i s technology t r a n s f e r i n the 1970's has been and w i l l continue to be the expansion i n Japanese exports of technology - i n , th a t i s , 'outward' TT. One of the major forms of such outward TT has been, i n the Japanese case as i n the general case, f o r e i g n d i r e c t investment. Japanese FDI has grown r a p i d l y i n recent years and i n r e f l e c t i o n of t h i s MITI, i n 70 1971, began p u b l i c a t i o n of an annual r e p o r t on Japanese FDI. There has been some amount of Japanese FDI s i n c e the e a r l y 1950's but major growth didn't begin u n t i l the mid-1960's and, as of March 1974, about t h r e e - q u a r t e r s of t o t a l Japanese FDI (around US $10,270 m i l l i o n at t h a t 71 time) had been i n v e s t e d i n the immediately preceeding f o u r years. Not a l l of t h i s FDI can be r e a d i l y equated with TT and a great deal of i t i s i n commerce and f i n a n c e r a t h e r than i n the more c l e a r l y T T - r e l a t e d manufacturing i n d u s t r i e s . Moreover, a c o n s i d e r a b l e p r o p o r t i o n of t h i s FDI i s i n developed c o u n t r i e s over which Japan possesses no major 72 t e c h n o l o g i c a l l e a d s . In f a c t , as of 1974, the l a r g e s t s i n g l e geographic area of Japanese FDI was North America, which accounted f o r 23.6/o of t o t a l investment and f o r 29.S/0 of the t o t a l cases of Japanese FDI; f a l l o w e d by A s i a , 23/o and 35.9/a and by C e n t r a l and South America, 17.6/a and l l . ? / o . As might be expected, investments i n North America are p r i m a r i l y i n commerce, f i n a n c e , and other non-manufacturing i n d u s t r i e s which account f o r 60% of the t o t a l (the balance being l a r g e l y composed of investment i n resource - 100 - development f i e l d s such as pulp, f o r e s t r y , and mining). Not s u r p r i s i n g l y , the comparable data on Japanese FDI i n the less-developed nations of A s i a and the Americas imply a higher l e v e l of TT. Investment i n manufacturing and resource development account f o r about 80/a of t o t a l Japanese FDI i n A s i a and f o r a s i m i l a r p r o p o r t i o n of investments i n C e n t r a l and South America and, to date, a m a j o r i t y ownership p o s i t i o n has 73 been the norm. 74 A 1971 study of Japanese FDI i n d i c a t e s t h a t , o v e r a l l , Japanese motivations f o r such FDI are l i t t l e d i f f e r e n t from those of businessmen from other c o u n t r i e s (eg. p r o t e c t i o n or development of the l o c a l market, advantages of production i n proximity to the market, u t i l i z a t i o n of l o c a l , lower-cost labour r e s o u r c e s ) . An examination of FDI i n the e x t r a c t i v e and f o o d - r e l a t e d p r i m a r y - i n d u s t r i e s i n d i c a t e s , however, tha t an extremely high percentage of such investment i s aimed at securing resources f o r Japanese secondary- and t e r t i a r y - i n d u s t r i e s . T h i s r e f l e c t s the high 75 l e v e l of Japanese dependence on f o r e i g n sources of supply. An examination of the data on Japanese e x p l i c i t r e c e i p t s f o r TT a l s o i n d i c a t e s t h a t A s i a i s the major customer f o r Japanese technology. The f i g u r e s f o r 1972 show that A s i a accounted f o r 50/o of a l l r e c e i p t s and 4B/o of a l l cases of e x p l i c i t Japanese TT i n that year; followed by Europe (24.3-/o and 22.6)d) and North America (l4.9)d and 17.2 /a). The less-developed c o u n t r i e s should continue t o dominate i n Japan's export trade i n technology over the next ten years or so but the p a t t e r n and nature of t h a t trade should undergo some s i g n i f i c a n t changes. F i r s t , the ownership percentage held by the Japanese s i d e i n i t s FDI a c t i v i t i e s w i l l l i k e l y d e c l i n e as o p p o s i t i o n to f o r e i g n m a j o r i t y ownership and indigenous t e c h n i c a l and management s k i l l s i n c r e a s e . Secondly, the - 101 - importance of areas other than A s i a should r a p i d l y i n c r e a s e (as i t has already done f o r the Mid-East and may do f o r China and the Eastern USSR). T h i r d l y , the range of t e c h n o l o g i e s exported w i l l l i k e l y expand r a p i d l y i n t o a wide range of heavy manufacturing i n d u s t r i e s . T h i s trend i s e s p e c i a l l y evident i n the petroleum-producing c o u n t r i e s which have launched ambitious i n d u s t r i a l i z a t i o n plans r e q u i r i n g massive amounts of f o r e i g n technology. Japan i s l i a b l e to f i g u r e importantly i n t o , f o r example, t h e i r plans f o r developing the petrochemicals i n d u s t r i e s . As regards exports of technology to the developed n a t i o n s , there should be l e s s e x p l o s i v e but s t e a d i e r and, i n terms of Japan's t e c h n o l o g i c a l development, more s i g n i f i c a n t growth. Here the o p p o s i t i o n to FDI - e s p e c i a l l y to Japanese FDI - should be l e s s severe than i n many developing c o u n t r i e s and the amount of Japanese FDI i n manufacturing i n d u s t r i e s i n the developed c o u n t r i e s may w e l l i n c r e a s e s i g n i f i c a n t l y . The amount of TT such FDI w i l l i m p l i c i t l y represent i s l i k e l y to i n c r e a s e as compared to the recent past but to s t i l l represent only a small p r o p o r t i o n of Japan's o v e r a l l technology exports. Perhaps a more l i k e l y form of increased TT to the other developed nations w i l l l i e i n the commercial s a l e of incremental t e c h n o l o g i c a l advances to e x i s t i n g manufacturers i n developed c o u n t r i e s . As t a b l e 24 (on page 102) i n d i c a t e s , the Japanese chemical i n d u s t r y has already s u c c e s s f u l l y s o l d major items of chemicals and s y n t h e t i c t e x t i l e s - r e l a t e d technology abroad, p r i m a r i l y to the US and Western Europe. In t h i s regard however, longer term success i s l i k e l y to hinge on Japanese e f f o r t s to strengthen t h e i r a b i l i t y f o r independent t e c h n o l o g i c a l i n n o v a t i o n . 4. The Search f o r 'Technological Independence' Japan i n the years s i n c e World War Two has transformed i t s e l f - -102- Table 24. Japan's Exports of Major items of Chemical and Synthetic T e x t i l e s - r e l a t e d Technology: 1950-1972. ^ ^ - \ T i m e period. Area ^ ^ ^ ^ 1950-1963 1964-1967 1968-1972 United States 3. 7. 14. Western Europe 13. 11. 13. South-East Asia 6. 5. 3. Other 1. 3. 3. To t a l 23. 26. 33. Source: Watanabe, Tdkuji Nihon no Kagaku Kogyo (Japan's Chemical Industry) - Japanese - Tokyo, Iwanami Shoten, 1974 (4th e d i t i o n ) , pp. 64-65. - 1 0 3 - with the help of a great deal of f o r e i g n technology - i n t o one of the world's more e f f i c i e n t ' f a c t o r i e s ' . As a consequence, i t i s now one of the world's mast a f f l u e n t nations and the second l a r g e s t mass consumer market. At the same time, however, i t has come to s u f f e r from some of the world's worst urban and i n d u s t r i a l overcrowding and lag s f a r behind other developed c o u n t r i e s i n many s o c i a l c a p i t a l items (such as roads, sewers, parks, e t c . ) . Thus, there i s a growing consensus that emphasis should s h i f t towards improving the q u a l i t y of l i f e i n Japan by increased emphasis on developing such s o c i a l c a p i t a l . I t i s f u r t h e r recognized, however, that l i t t l e improvement i n the q u a l i t y of l i f e i n Japan can be achieved without major adjustment to the very i n d u s t r i a l s t r u c t u r e which made postwar development p o s s i b l e - and at the same time created c r i t i c a l and pervasive p o l l u t i o n problems. Moreover, f u r t h e r pressures to r e v i s e the i n d u s t r i a l s t r u c t u r e a r i s e from d i f f i c u l t i e s i n meeting the massive raw m a t e r i a l s demands im p l i e d by the present s t r u c t u r e now and i n the f u t u r e . These d i f f i c u l t i e s appear l i k e l y to be even g r e a t e r i n the f u t u r e - with or without Japanese economic growth - both because of absolute l i m i t s on resource s u p p l i e s and because of a growing d e s i r e on the part of resource producing nations to expand t h e i r processing and manufacturing i n d u s t r i e s . Because of her high l e v e l of dependence on f o r e i g n s u p p l i e r s of resources t h i s c r e a t e s an e s p e c i a l l y p r e c a r i o u s s i t u a t i o n f o r Japan. Thus, the e x i s t i n g Japanese i n d u s t r i a l s t r u c t u r e poses both domestic, environmental problems and problems r e l a t i n g to the i n t e r n a t i o n a l v u l n e r a b i l i t y of the Japanese economy to emerging trends among resource s u p p l i e r s . There.-are, t h e r e f o r e , compelling domestic and i n t e r n a t i o n a l pressures f o r r e s t r u c t u r i n g Japanese economic a c t i v i t i e s and the - 104 - i m p l i e d d i r e c t i o n of s t r u c t u r a l change i s towards a l a w - p o l l u t i o n , resource- conserving, and knowledge-intensive i n d u s t r i a l s t r u c t u r e . Again, as i n the mid-1950's, the Japanese bureaucracy and government seem to have f a i r l y a c c u r a t e l y and e x p l i c i t l y i d e n t i f i e d the problems and pointed out the d i r e c t i o n i n which a s o l u t i o n should l i e . U n l i k e the s i t u a t i o n i n the 1950's however, there i s no vast stock of f o r e i g n technology r e a d i l y a v a i l a b l e to a s s i s t i n t h i s t r a n s f o r m a t i o n . The areas, and l e v e l s , of technology development of most concern i n Japan today are, by and l a r g e , the same as those i n the other developed c o u n t r i e s (eg. p o l l u t i o n c o n t r o l , atomic and other new energy sources, ocean resources e x p l o i t a t i o n , computers, information systems, e t c . ) . Because ofv Japan's circumstances, however, development i n these areas i s perhaps more c r i t i c a l than i n other developed c o u n t r i e s . In t h i s regard, i t i s important to r e i t e r a t e t h a t Japan's postwar success to date has been l e s s founded on the d i s c o v e r y of t e c h n o l o g i c a l i n n o v a t i o n s than i t has been on the i n v e n t i v e and r a p i d a p p l i c a t i o n of innov a t i o n s discovered elsewhere. I t i s t r u e th a t Japan's expenditures on R & D have i n c r e a s e d over the 1960's and e a r l y 1970's but i n 1970 they s t i l l only amounted to 1.663/a of GNP - compared to USA 2 . % ' (l970.), UK 2.1% (1970), West Germany 2.0% (1969), and France 1.9$ (1970). 7 7 Moreover, the vast m a j o r i t y of Japanese R & D i s performed by companies and with r e l a t i v e l y l i t t l e government s u b s i d i z a t i o n of R & D. Not s u r p r i s i n g l y t h e r e f o r e , Japanese R & D e f f o r t s have been concentrated on a p p l i c a t i o n s and development work and not on b a s i c research (which accounted f o r only 8.1% of the t o t a l i n the 1972-1973 f i s c a l year). 7 8 T h i s accounts, i n part, 7 9 f o r the s t a t u s of Japan's balance of i n t e r n a t i o n a l r e c e i p t s and payments f o r technology which showed only - 105 - gradual improvement over the 1960's ( t a b l e 25 on page 106) and s t i l l l a g s w e l l behind those of other developed nations ( t a b l e 26 - a l s o on page 106). There i s , t h e r e f o r e , considerable concern and e f f o r t i n Japan today being d i r e c t e d towards the strengthening of Japan's independent t e c h n o l o g i c a l c a p a b i l i t i e s . Thus, there are at l e a s t two aspects to the 'search f o r t e c h n o l o g i c a l independence'now underway i n Japan. The l e s s obvious but probably more important of the two has to do with the v u l n e r a b i l i t y of the present i n d u s t r i a l s t r u c t u r e to emerging trends i n the resource-producing c o u n t r i e s - p a r t i c u l a r l y those of the less-developed world. 'Technological independence', i n t h i s sense, i m p l i e s a t e c h n o l o g i c a l transformation of the e x i s t i n g s t r u c t u r e towards one which i s l e s s dependant on o f f s h o r e resource s u p p l i e r s . F o r t u i t o u s l y or not, t h i s same im p l i e d t e c h n o l o g i c a l transfo r m a t i o n w i l l l i k e l y serve a l s o to meet some part of the domestic environmental problems created by the e x i s t i n g i n d u s t r i a l s t r u c t u r e . The second aspect of t h i s 'search f o r t e c h n o l o g i c a l independence' has to do with Japan's c a p a c i t y f o r independent development of the technology r e l a t e d to t h i s t e c h n o l o g i c a l transformation of the i n d u s t r i a l s t r u c t u r e . There i s no i n t e n t , here, to imply that Japan i s or should be seeking t o t a l independence i n t e c h n o l o g i c a l development. That i s not a s e r i o u s p r o p o s i t i o n f o r any country, i n c l u d i n g the US. In l a r g e measure, the needed technology w i l l undoubtedly continue to be a v a i l a b l e through t r a n s f e r from other developed c o u n t r i e s . But, because some of Japan's present and f u t u r e t e c h n o l o g i c a l needs cannot be met by any a v a i l a b l e t e c h n o l o g i e s , there i s a n e c e s s i t y f o r independent t e c h n o l o g i c a l development c a p a c i t y i f Japan i s not to be f o r c e d i n t o a passive posture of waiting f o r app r o p r i a t e developments to occur elsewhere i n the developed world. In -106- Table 25. Trends in Japans Balance of International Technology Payment 1950-1973 Year Item 1950 1955 1956 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 Total 1950 1973 Technolc paymc (Millior )gy Imports mts is of $) 68.9 280.5 113 114 136 156 166 192 239 314 368 433 488 572 715 4355.4 Tech. Imports No. of Cases Class A 525 831 320 328 564 500 472 601 638 1061 1154 1330 1546 1916 1931 13717 Class B 623 941 281 429 573 541 486 552 657 683 475 438 461 487 519 8.146 Total 1148 1772 601 757 1137 1041 958 1153 1295 1744 1629 1768 2007 2403 2450 21.863 lecnnoiogy Exports Receipts (Millions of $) 0.7 4.3 3 7 7 15 17 19 27 34 46 59 60 74 88 461 Ratio of Receipts to Payments(%) 1.0 1.5 2.7 6.1 5.1 9.6 10.2 9.9 11.3 10.8 12.5 13.6 12.3 12.9 12.3 10.6 Source: Kagaku Gijutsucho (Science and Technology Agency). Gaikoku Gi Nenji Hokoku, Showa 48 Nenpan(Importation of Foreign Technolo - Japanese - Tokyo, 1975, p.56 jutsu gy An Dony nual u. Repot t, 19 73) Table 26 International Comparison of Balance of International Technology Payments Country JAPAN U.S.A. UNITED KINGDOM FRANCE WEST GERMANY Item Rece- ipts A Pay- ments B A/B Rece- ipts A • Pay- ments B A/B Rece- ipts A Pay- ments B A/B Rece- ipt s A Pay- ments B A/B Rece- ipt s A Pay- ments B A/B Year 1963 7 136 0.05 1163 122 10.38 - - - 138.6 188.7 0.73 50.0 135.3 0.37 1964 15 156 0.10 1314 127 10.35 123.2 115.1 1.07 144.0 191.0 0.76 62.0 153.3 0.40 1965 17 166 0.10 1534 135 11.36 133.8 128.5 1.04 168.0 213.0 0.79 75.3 165.5 0.45 1966 19 192 0.10 1682 140 12.01 160.1 132.4 1.21 180.0 243.0 0.74 73.3 175.3 0.42 1967 27 239 0.11 1836 166 11.06 175.5 164.6 1.07 195.0 230.0 0.85 89.8 192.0 0.47 j 1968 34 314 0.11 2000 186 10.75 204.5 185.0 1.11 164.5 275.2 0.60 98.5 219.5 0.45 1969 46 368 0.13 2183 221 9.88 211.9 212.4 1.00 193.3 305.5 0.63 96.5 251.3 0.38 1970 59 433 0.14 2502 225 11.12 263.5 239.3 1.10 214.4 349.9 0.61 118.6 307.1 0.39 1971 60 488 0.12 2787 241 . 11.56 282.7 264.7 1.07 395.3 464.1 0.85 148.9 405.2 0.37 1972 74 572 0.13 3078 296 10.40 295.7 297.6 0.99 576.0 578.7 1.00 209.2 465.5 0.45 1973 88 715 0.12 3578 384 9.32 - - - - - - - Source: Same as above, p.57. - 107 - a d d i t i o n , there i s the Further point t h a t , because Japan's t e c h n o l g o i c a l needs e x i s t at e s s e n t i a l l y the same f r o n t i e r s as do those of the other developed nations, there i s and w i l l be a competitive n e c e s s i t y , as w e l l , f o r Japanese i n d u s t r y to achieve independent t e c h n o l o g i c a l advances i n at l e a s t some areas i f i t i s to maintain i t s i n t e r n a t i o n a l competitive a b i l i t i e s . Thus, i n summary, there i s one o v e r r i d i n g t e c h n o l o g i c a l theme which seems l i k e l y to dominate the next ten or twenty years of Japanese development. T h i s theme w i l l l i e i n the o r c h e s t r a t i o n of a dual process of, on the one hand, " s e l l i n g " e x i s t i n g i n d u s t r i a l technology to developing nations ( p a r t l y to acquire, i n the short term, access to raw m a t e r i a l s f o r Japan's e x i s t i n g i n d u s t r i a l s t r u c t u r e and p a r t l y as a business i n i t s own r i g h t ) while, on the other hand, s t a v i n g o f f the u l t i m a t e impact of r i s i n g competition from these same c o u n t r i e s by c a r v i n g a niche f o r Japan i n the " p o s t - i n d u s t r i a l " world v i a independent development of app r o p r i a t e t e c h n o l o g i e s . In t h i s , Japan i s not without advantage. Her population which i s among the world's l a r g e s t , i s a l s o one of the most l i t e r a t e and h i g h l y educated. Given a consensus on a new v i s i o n of Japan's f u t u r e , and there are signs t h i s i s e v o l v i n g , the b a s i c cohesiveness of Japanese s o c i e t y should, again as i n the past, prove a val u a b l e n a t i o n a l a s s e t . Moreover, i f some form of knowledge-intensive, p o s t - i n d u s t r i a l s o c i e t y does prove to be'the wave of the f u t u r e 1 , Japan may possess the i r o n i c advantage of 'urgency' more than do many other p o t e n t i a l candidates - possessing l a r g e r domestic resources and/or l e s s p r e s s i n g p o l l u t i o n problems. For, i f n e c e s s i t y i s not i n e v i t a b l y the mother of i n v e n t i o n , i t i s almost i n v a r i a b l y i t s midwife, nurse, and patron. - 108 - VI THE POSTWAR JAPANESE EXPERIENCE WITH TECHNOLOGY TRANSFER: CONCLUSIONS The preceeding study of the Japanese postwar experience with TT suggests that i t was a f u n c t i o n of a v a r i e t y of f a c t o r s . Some of these, i f not e x a c t l y unique to Japan, are, at l e a s t , l e s s u n i v e r s a l i s t i c than are othe r s . We w i l l , t h e r e f o r e , f i r s t d i s c u s s these ' s p e c i a l c h a r a c t e r i s t i c s ' of the Japanese experience. T h i s w i l l be fallowed by a d i s c u s s i o n of the i n s i g h t s or 'lessons' the Japanese case may hold as regards some of the more u n i v e r s a l questions r e l a t e d to TT. F i n a l l y , there i s a b r i e f d i s c u s s i o n of areas f o r f u t u r e r e s e a r c h . 1. S p e c i a l C h a r a c t e r i s t i c s of the Japanese Case (a) Favourable Domestic Environment !• Examination of postwar Japanese TT po i n t s up the importance of Japan's e a r l i e r , prewar, development which made f o r an environment h i g h l y favourable to TT. Despite the d e s t r u c t i o n of wartime, Japan remained a nation of cons i d e r a b l e c a p a c i t y and possessed s t i l l , the n a t i o n a l cohesiveness, p r i d e , and ambition which had spurred Japanese development s i n c e the M e i j i R e s t o r a t i o n . In f a c t , the hardships of a subsistence l e v e l of ex i s t e n c e i n the immediate postwar f o l l o w i n g on the d e s t r u c t i o n of. .much of Japan's i n d u s t r y was, i t s e l f , dramatic evidence of the extent to which the natio n had both adjusted to and came t a depend an i n d u s t r y . Thus, both a strong d e s i r e and the c a p a c i t y to acquire advanced i n d u s t r i a l t e c h n o l o g i e s was present - added to which was the n e c e s s i t y to ' r e f i t * an i n d u s t r i a l p l a n t h e a v i l y damaged i n wartime. A l l of these f a c t o r s created an environment p a r t i c u l a r l y f avourable t o TT. - 109 - (b) Benign I n t e r n a t i o n a l Environment The c e n t r a l r o l e of the USA i n Japan's postwar i n t e r n a t i o n a l environment was favourable to TT. The importance of TT a s s o c i a t e d with the US m i l i t a r y presence has been mentioned, but even i n the broader, g e o - p o l i t i c a l sense the Japanese alignment with the US seems to have supported TT to Japan. C e r t a i n l y , the US, even g r a n t i n g i t s t e c h n o l o g i c a l s u p e r i o r i t y , would seem to have supported Japanese t e c h n o l o g i c a l develop- ment more than the USSR has supported that of i t s a l l i e s , which have experienced pressures to make t h e i r development complement and support tha t of the USSR. So too, the US support of r e l a t i v e l y f r e e i n t e r n a t i o n a l t r a d e may have helped Japan secure access to o f f s h o r e markets f o r the output derived from new, imported, t e c h n o l o g i e s . F i n a l l y , i n t e r n a t i o n a l business i n the 1950's and e a r l y 1960's seems to have been f a r l e s s attuned to the business p o t e n t i a l s i n non-western c o u n t r i e s than now. T h i s may have f a c i l i t a t e d Japanese a c q u i s i t i o n of technology on i t s own terms; t h a t i s to say, v i a l i c e n s i n g r a t h e r than f o r e i g n d i r e c t investment. (c) Large S i z e of the Domestic Market, The l a r g e population of Japan can be viewed, of course, as a p o t e n t i a l or a c t u a l burden. In the event, and given i t s high l e v e l s of education and adaptation to i n d u s t r i a l i z a t i o n , i t has probably been a b l e s s i n g as regards postwar TT. In any case, i t played a major r o l e i n shaping postwar TT. For, as Japanese postwar development progressed, Japan came more and more to present an environment amenable to the kinds of l a r g e - s c a l e , mass-production, and consumer-oriented t e c h n o l o g i e s evolved i n the developed c o u n t r i e s , most p a r t i c u l a r l y i n the USA. Thus, while many c o u n t r i e s possess the t e c h n i c a l e x p e r t i s e to acquire many advanced US-developed te c h n o l o g i e s they o f t e n do not have the p o t e n t i a l - 110 - mass market to j u s t i f y doing so. In co n t r a s t to t h i s , Japan has, by now, reached the poin t where most s i g n i f i c a n t US commercial i n n o v a t i o n can immediately f i n d a place i n Japanese i n d u s t r y . (d) Antipathy to Fo r e i g n D i r e c t Investment The high l e v e l of Japanese antipathy to f o r e i g n d i r e c t investment has been much remarked. So too have been o f f i c i a l e f f o r t s to l i m i t and c o n t r o l such investment and the a c t u a l low l e v e l of FDI i n Japan. As we have i n d i c a t e d , f o r e i g n i n d i f f e r e n c e to the Japanese market as w e l l as r a t h e r high c u l t u r a l and l i n g u i s t i c b a r r i e r s have a l s o i n h i b i t e d FDI. C l e a r l y , however, Japanese antipathy to FDI has played a major r o l e i n l i m i t i n g t h a t form of TT and i n encouraging the use of l i c e n s i n g arrangements. The o f f i c i a l m a n i f e s t a t i o n of t h i s antipathy i n r u l e s and r e g u l a t i o n s l i m i t i n g FDI were, however, only a r e f l e c t i o n of a much more pervasive and enduring antipathy to ' o u t s i d e r s ' which e x i s t s at the l e v e l of the i n d i v i d u a l and group throughout Japanese s o c i e t y . Thus, even i f there had been an absence of formal and o f f i c i a l c o n t r o l s on TT v i a the FDI mode, there has been, and remains, a pervasive and emotional antipathy to FDI which i n h i b i t s i t . T h i s antipathy extends to (or i s , perhaps, rooted i n ] the p s y c h o l o g i c a l and economic a t t i t u d e s of the i n d i v i d u a l s who would be the pr o s p e c t i v e employees of f o r e i g n s u b s i d i a r i e s . Thus, i t s impact has been f a r g r e a t e r than would be that of an antipathy grounded s o l e l y i n economic theory or i d e o l o g i c a l .nationalism and manifested merely i n formal laws and r e g u l a t i o n s or i n the a t t i t u d e s of a l e a d e r s h i p ' e l i t e ' . 2 . "Lessons" from the Japanese Experience Many aspects of the Japanese experience with TT - i n c l u d i n g some - I l l - of the " s p e c i a l c h a r a c t e r i s t i c s " discussed above - seem to provide i n s i g h t s of some g e n e r a l i t y . The f o l l o w i n g seem p a r t i c u l a r l y s i g n i f i c a n t . (a) Technology T r a n s f e r and N a t i o n a l I d e n t i t y C l e a r l y , Japan has undergone an enormous amount of change i n the t h i r t y years since the end of World War Two. T h i s i s most c l e a r l y evident i n the m a t e r i a l and popular c u l t u r e and i n the pattern of d a i l y l i f e . To some major extent these changes are r e l a t e d to Japan's postwar t e c h n o l o g i c a l development "and the TT which helped to f u e l i t . Indeed, as regards the major postwar c u l t u r a l change, to a mass-consumer s o c i e t y , the l i n k with imported technology i s extremely c l o s e . While Japan has changed however, i t has not i n any fundamental sense become l e s s 'Japanese'. In some cases the t r a d i t i o n a l ways have undergone only s u p e r f i c i a l change while, where there has been more sub s t a n t i v e change, i t has by and l a r g e been adaptable to the e x i s t i n g i n s t i t u t i o n a l framework. Thus, g i f t s , f o r example, continue to be given f o r t r a d i t i o n a l reasons to the t r a d i t i o n a l persons - with the s u b s t i t u t i o n of imported whisky f o r Japanese 'sake'. Again, while the a s p i r a t i o n s and expectations of young men of today may d i f f e r widely from those of t h e i r f a t h e r s 25 or 30 years ago, the vast m a j o r i t y s t i l l seek t o - f u l f i l l them w i t h i n a corporate environment p r o v i d i n g ' l i f e t i m e ' s e c u r i t y and a degree of c l o s e and emotional i n t e r p e r s o n a l content not found i n other developed n a t i o n s . J u s t as e a r l i e r Japanese development provided the most dramatic evidence th a t i n d u s t r i a l i z a t i o n allows f o r c o n s i d e r a b l e c u l t u r a l d i v e r s i t y , so too, the postwar transformation to a f f l u e n c e suggests a tendency to c u l t u r a l d i v e r s i t y r a t h e r than c u l t u r a l convergence even at the f r o n t i e r s of the development process. - 112 - (b) N a t i o n a l Goals and Technology T r a n s f e r The Japanese postwar experience r e i n f o r c e s the view t h a t t e c h n o l o g i c a l development and TT i s f a c i l i t a t e d by the presence of c l e a r and a r t i c u l a t e d n a t i o n a l g o a l s . Perhaps the most s t r i k i n g example of the o f f i c i a l a r t i c u l a t i o n of such goals was the 1956 Economic White Paper which emphasized the importance of developing the consumers goods i n d u s t r i e s and heralded the s t a r t of the postwar r e v o l u t i o n i n consumption. More i n p o r t a n t , however, was the f a c t that the goal of a c h i e v i n g the a f f l u e n t consumer-oriented s o c i e t y t y p i f i e d by the USA was not merely an ' o f f i c i a l ' g oal imposed from above but was, r a t h e r , ,a goal widely accepted throughout the n a t i o n . The importance of such broad support f o r - and, thus, assurances as to - the b a s i c d i r e c t i o n of development to those immediately concerned with TT d e c i s i o n s i n the business world was undoubtedly g r e a t . In p a r t i c u l a r , such assurances would have reduced - though c e r t a i n l y not e l i m i n a t e d - the perceived r i s k s of importing technology much more than would mere ' o f f i c i a l ' , governmental assurances. The Japanese case would suggest, t h e r e f o r e , that broad p u b l i c support, and not mere goal s e t t i n g by the government or bureaucracy, i s of importance i n encouraging TT appropriate to those g o a l s . Thus, i n the absence of such support, importance should be attached to ' s e l l i n g ' those g o a l s -, and plans not only t o those who w i l l be d i r e c t l y i n v o l v e d i n the r e l a t e d TT but a l s o t o the p u b l i c at l a r g e . (c) L i c e n s i n g versus F o r e i g n D i r e c t Investment Japan i n the postwar period managed a major process of inward TT p r i m a r i l y by means of l i c e n s i n g and without any l a r g e - s c a l e f o r e i g n d i r e c t investment. I t does not, however, stand as an unmitigated testament - 113 - to the f e a s i b i l i t y of a n a t i o n a l p o l i c y to encourage TT while i n h i b i t i n g FDI. In the f i r s t p lace, of course, most of the less-developed c o u n t r i e s do not possess anything near the t e c h n o l o g i c a l and i n d u s t r i a l background possessed by Japan at the end of World War Two. For them, some form of longer-term f o r e i g n presence -whether through FDI or by means of same other, more l i m i t e d , form of management presence - i s probably i n e v i t a b l e i f TT i s to take place at a l l . However, even where the necessary i n d u s t r i a l and t e c h n o l o g i c a l p r e r e q u i s i t e s are present, as i n most of the developed c o u n t r i e s , the r a p i d i n t e r n a t i o n a l i z a t i o n of business i n the 1960's may have made many p o t e n t i a l s u p p l i e r s of technology l e s s w i l l i n g than i n the e a r l i e r postwar peri o d to s e t t l e f o r a simple l i c e n s i n g arrangement without f i r s t c o n s i d e r i n g the FDI a l t e r n a t i v e more s e r i o u s l y . Thus the p o t e n t i a l supply of some t e c h n o l o g i e s f o r t r a n s f e r v i a l i c e n s e may be s m a l l e r or more co n s t r a i n e d than has been the case i n the past. F i n a l l y , and most g e n e r a l l y , many te c h n o l o g i e s r e q u i r e access to a l a r g e market i f they are to be e f f i c i e n t l y employed. In many cases as w e l l , a technology w i l l r e q u i r e a supporting i n t e r n a t i o n a l network of information and resource supply i f i t i s to operate e f f i c i e n t l y . Where these c o n d i t i o n s do not e x i s t , the only f e a s i b l e form of TT may be one i n v o l v i n g some form of FDI and p a r t i c i p a t i o n i n the worldwide production and marketing network of a m u l t i n a t i o n a l f i r m . In the Japanese case, the l a r g e s i z e of the domestic market served, i n t h i s sense, to make TT v i a l i c e n s i n g more f e a s i b l e . In a d d i t i o n , the c e n t r a l r o l e played by the Japanese t r a d i n g company i n her i n t e r n a t i o n a l trade (see t a b l e 27 on page 114) may have provided many of the m u l t i - -114- Table 27. Japan's Top Ten General Tradng Companies: Share of Exports and Imports, Turnover as % of G.N.P. a) Share of Exports Year Exports (A) Exports v i a B/A "Top Ten"(B) 1960 14,817 6,924 "A 46.7 1961 15,555 7,304 47.0 1962 18,032 8,861 49.1 1963 20,289 10,370 51.1 1964 25,873 13,480 52.1 1965 31,406 16,581 52.8 1966 35,848 18,636 52.0 1967 38,786 19,726 50.9 1968 49,381 23,783 48.2 1969 60,523 28,395 46.9 1960-1969 (4.08)* (4.16) V b) Share of Exports Year Exports (A) ' Exports v i a B/A Top Ten(B) 1960 16,776 10,134 7 60.4 1961 21,632 13,394 61.9 1962 20,239 12,724 62.9 1963 26,089 16,439 63.0 1964 28,515 18,094 62.0 1965 30,301 19,569 64.6 1966 36,068 23,416 64.9 1967 43,423 28,252 65.1 1968 47,844 30,191 63.1 1969 57,618 35,878 62.3 1960-1969 (3.44) (3.54) c) Comparison of Turnover with G.N.P. Year G.N.P. (A) -Turnover of "Top Ten"(B) B/A 1960 162,070 39,808 % 24.6 1961 198,528 50,089 25.2 1962 216,959 52,483 24.2 1963 255,759 67,344 26.3 1964 295,305 79,164 26.8 1965 326,504 86,543 26.5 1966 381,179 106,146 27.8 1967 447,668 117,213 26.2 1968 527,803 133,746 25.3 1969 625,500 167,062 26.7 1960-1969 (3.86) (4.19) * Figures i n brackets i n d i c a t e r a t i o 1969/1960. Source: A r i t a , Kyosuke Sogo Shosha (General Trading Companies)- Japanese - Tokyo, Nihon K e i z a i Shimbunsha, 1970. p.21. - 115 - n a t i o n a l c a p a b i l i t i e s demanded by imported t e c h n o l o g i e s which would otherwise have made TT v i a simple l i c e n s i n g arrangements i n f e a s i b l e . I t i s t h i s l a t t e r point - the implied p o t e n t i a l f o r a small number of l a r g e , indigenous, t r a d i n g companies to develop and provide to i n d u s t r y some of the s p e c i a l e x p e r t i s e and c a p a b i l i t i e s possessed by m u l t i n a t i o n a l companies - which may hold the most general lesson f o r nations seeking to encourage t e c h n o l o g i c a l development while, at the same time l i m i t i n g the inroads of FDI. (d) Competition and Technology T r a n s f e r The extremely competitive domestic business environment would appear to have been one of the prime .motive f o r c e s encouraging postwar TT to Japan. While some of the o r i g i n s of t h i s competitive s p i r i t l a y i n such unique, Japanese, f a c t o r s as the l i f e t i m e employment system (and the commitment to the f i r m which i t c r e a t e s ) the f a c t t h a t a competitive environment encouraged TT has relevance beyond the Japanese case. I t i s t r u e , of course, t h a t r e s t r i c t i o n s of market s i z e and on the a v a i l a b l e t r a i n e d personnel may make a competitive, m u l t i - f i r m i n d u s t r i a l s t r u c t u r e i n f e a s i b l e i n many n a t i o n s . Moreover, there i s no reason to b e l i e v e t h a t strong c e n t r a l government e f f o r t s t o see t h a t t e c h n o l o g i c a l development i s maintained i n a s p e c i f i e d and l i m i t e d number of c r u c i a l i n d u s t r i e s cannot be s u c c e s s f u l , even i n a monopolistic environment - given the a d m i n i s t r a t i v e and..other resources necessary to impose such an e f f o r t . Nevertheless, the Japanese case would suggest t h a t , i f a widespread and ongoing process of t e c h n o l o g i c a l upgrading i s d e s i r e d , nothing i s so c e r t a i n - 1 1 6 - and e f f i c i e n t a means to promote i t as the development and maintenance of a competitive environment - whether the o r i g i n s of tha t competition are domestic or i n t e r n a t i o n a l . (e) Technology T r a n s f e r and the Role of Government Government and the bureaucracy have played a very prominent r o l e i n postwar Japanese development. I t i s c l e a r , too, that the i n t e n t of government a c t i v i t y was to encourage t e c h n o l o g i c a l development and the TT which t h i s i m p l i e d . The extent to which the high l e v e l of TT which, i n f a c t , took place can be viewed as a ' r e s u l t ' of government t e c h - nology development p o l i c i e s i s l e s s evident - i f only because such p o l i c i e s were only one of the f a c t o r s which impinged on TT d e c i s i o n s . Moreover, i n terms of what might be g e n e r a l i z e d from the Japanese experience, the c l o s e and complex i n t e r a c t i o n s which c h a r a c t e r i z e Japanese government-business r e l a t i o n s seem to be much more an aspect of the Japanese c u l t u r a l m i l i e u than they are a general "formula" f o r a p p l i c a t i o n i n other s e t t i n g s . They do suggest however the value of having government policy-making take place so f a r as p o s s i b l e , not i n a b u r e a u c r a t i c vacuum but i n c l o s e c o n s u l t a t i o n with the persons and i n d u s t r i e s t h a t w i l l be a f f e c t e d - and which, i n the f i n a l a n a l y s i s , w i l l determine the success or f a i l u r e of those p o l i c i e s . Another aspect of Japanese government p o l i c y - the w i l l i n g n e s s to be d i s c r i m i n a t o r y and s e l e c t i v e i n the encouragements given to i n d u s t r i e s - a l s o seems to be i n s t r u c t i v e . While there were some general, broad- spectrum, p o l i c i e s which undoubtedly encouraged t e c h n o l o g i c a l development and TT i n most, i f not a l l , of Japanese i n d u s t r y i t i s not these but, r a t h e r , the more focussed e f f o r t s of postwar; p o l i c y to give s p e c i a l - 117 - c o n s i d e r a t i o n and a t t e n t i o n to s e l e c t e d i n d u s t r i e s which seem most c h a r a c t e r i s t i c . In t h i s r e s p e c t , the presence of l a r g e , m u l t i - i n d u s t r y corporate groupings i n Japan may have made such d i s c r i m i n a t o r y p o l i c i e s more f e a s i b l e . Such corporate groupings, i n - s o - f a r as they r e c e i v e both the adverse and the favourable impact of s e l e c t i v e p o l i c i e s , are more l i a b l e to support them than i s the i n d u s t r i a l "establishment" i n many other n a t i o n s . Nevertheless, given the n e c e s s i t y of f o c u s s i n g i n d u s t r i a l and t e c h n o l o g i c a l development p o l i c i e s , the Japanese experience urges the view t h a t , f i r s t s d i s c r i m i n a t o r y p o l i c i e s are adviseable and, second, tha t p o t e n t i a l o p p o s i t i o n to such p o l i c i e s should not be m o l l i f i e d by weakening the s e l e c t i v e impact of p o l i c y but, r a t h e r , by co-opting the p o t e n t i a l o p p o s i t i o n to p o l i c y by emphasizing, or c r e a t i n g , an i n t e r e s t i n i t f o r them. 3 . Future Research T h i s r e s e a r c h has, perhaps, r a i s e d more questions t h a t i t has answered, but, i n so doing, i t has i n d i c a t e d some question areas to be of more fundamental importance than others. Two such question areas seem p a r t i c u l a r l y a p propriate f o r f u r t h e r research and study and d e a l , f i r s t , with the r e l a t i v e importance of government p o l i c y and 'market f o r c e s ' i n s t i m u l a t i n g TT and, second, with the r e l a t i v e importance of domestic and f o r e i g n sources of t e c h n o l o g i c a l change. We conclude, t h e r e f o r e , with a b r i e f d i s c u s s i o n of these two i s s u e s . (a) The R e l a t i v e Importance of Government P o l i c y and 'Market Fo r c e s ' Japan's postwar development i s reputed to owe much of i t s - 118 - success to the p o l i c i e s of the Japanese government and bureaucracy. As regards the s p e c i f i c area of t e c h n o l o g i c a l development and TT as w e l l , the present study has shown a high l e v e l of c e n t r a l government i n t e r e s t and involvement i n these s p e c i f i c areas. A m u l t i p l i c i t y of laws, r e g u l a t i o n s , tax p r o v i s i o n s , and other instruments of p o l i c y bearing on TT were devised and implemented i n the postwar p e r i o d . There would appear, however, to be no s i n g l e p o l i c y or set of p o l i c i e s which s u b s t a n t i a l l y accounts f o r the high l e v e l of TT and t e c h n o l o g i c a l advance experienced i n postwar Japan. As was suggested e a r l i e r , t h i s may be because much of the apparent success of c e n t r a l government p o l i c i e s owe more to the organic process of c o n s u l t a t i o n and consensus-building which., c o n s t i t u t e s Japanese p o l i c y making than i t does to any of the r e s u l t a n t p o l i c e s , per se. A l t e r n a t i v e l y , however, the answer may l i e i n the impact of such p o l i c i e s having been f a r l e s s than the impact of other, more general and pervasive f a c t o r s impinging on the p r o p e n s i t i e s of Japanese i n d u s t r y and f o r e i g n s u p p l i e r s to engage i n TT. Some such f a c t o r s are suggested i n s e c t i o n s 1. and 2 . of t h i s chapter. To those we might add those government f i s c a l , monetary, and other p o l i c i e s which - while not aimed p r i m a r i l y , or perhaps even c o n s c i o u s l y , at TT or t e c h n o l o g i c a l development - may have had market i m p l i c a t i o n s f o r them f a r exceeding those of p o l i c i e s more e x p l i c i t l y concerned with TT and t e c h n o l o g i c a l development. I t may be f e a s i b l e to s o r t out i n an .econometric or q u a n t i t a t i v e f a s h i o n the l i k e l y r e l a t i v e impact of f a c t o r s bearing on Japan's postwar TT and to draw some conclusions as to the r o l e of government TT p o l i c y . I t seems however, that one i s l i k e l y to shed more d i r e c t l i g h t on the nature and r e l a t i v e importance of the f a c t o r s i n postwar TT d e c i s i o n s by - 119 - the development of a body of case s t u d i e s of concrete examples of TT (the case s t u d i e s appended to t h i s paper are one r e s u l t of a p i l o t study f o r such a p r o j e c t ) . Whatever approach i s adapted, however, i t i s only by such assessment of the v a r i o u s f a c t o r s which, i n f a c t , impinged on TT d e c i s i o n s and t h e i r r e l a t i v e impact t h a t we can evaluate the p u t a t i v e importance a s c r i b e d t o government p o l i c y i n Japan's postwar t e c h n o l o g i c a l development. At the same time as i t c l a r i f i e s the Japanese case such a n a l y s i s should add s u b s t a n t i a l l y to our understanding of the general case and of the extent t o which the Japanese experience holds lessons f o r o t h e r s . (b) The R e l a t i v e Importance of Domestic and F o r e i g n Sources of T e c h n o l o g i c a l Change A second, and more fundamental, area f o r research r e l a t e s not to the i d e n t i t y and r e l a t i v e importance of f a c t o r s impinging on TT - but r a t h e r , to the importance of TT, i t s e l f , as a c a u s a t i v e f a c t o r i n Japan's postwar economic growth. As t a b l e 27 (see page 120) i n d i c a t e s , one conventional approach to the assessment of t e c h n o l o g i c a l change as a f a c t o r i n economic growth measures changes i n a set of f a c t o r i n puts (eg. labour, c a p i t a l ) and compares them over time with changes i n some measure of aggregate output (eg. GNP). Growth i n output unaccounted f o r by changes i n f a c t o r i n p u t s i s assumed t o r e f l e c t • t o t a l f a c t o r p r o d u c t i v i t y growth' or, i n other words, change i n the aggregate o n production f u n c t i o n due to t e c h n o l o g i c a l advance. Such analyses of postwar Japanese experience i n d i c a t e t h a t t e c h n o l o g i c a l change has been a major, i f not the primary, source of Japan's postwar economic growth. The question t h e r e f o r e a r i s e s as to the o r i g i n s of t h i s t e c h n o l o g i c a l change. As t h i s paper ha-s i n d i c a t e d , one major source of t e c h n o l o g i c a l change -120- Table 28. Economic Growth Rates by Country and Contributions of Component Sources (Annual Rates of Change i n Percent) ^•^^Coun t r y , x ime Growth"""""" r^JPeriod. Variable and ^ " ^ " V Component Source \ Japan 1955-1968 W.Germany 1950-1962 I t a l y 1950-1962 France 1950-1962 U.S. 1950-1962 U.K. 1950-1962 National Income Growth 10.1 7.26 5.96 4.92 3.32 2.29 Labour Input Contribution 1.31 1.37 .96 .45 1.12 .60 C a p i t a l Input Contribution 2.72 1.41 .70 .79 .83 .51 Tot a l Factor P r o d u c t i v i t y Growth Contribution 6.1 4.48 4.30 3.68 1.37 1.18 Source: Kanamori, Hisao " Nihon no K e i z a i Seichoritsu wa Naze Takai Ka" ("Why i s Japan's Growth Rate High?") K e i z a i Bunseki No.31 (Oct. 1970) Tokyo, Economic Planning Agency, 1970. p.4. - 121 - has probably been the importation of new t e c h n o l o g i e s from abroad. I t i s , however, by no means proven th a t t h i s was the major, l e t alone the s o l e , source of postwar t e c h n o l o g i c a l advance. Before one can so conclude i t i s l o g i c a l l y necessary t o examine p o t e n t i a l domestic sources of t e c h n o l o g i c a l advance. In t h i s regard, though no systematic attempt t o do so has been made by t h i s w r i t e r , i t seems very l i k e l y that such an examination of the major new developments i n i n d u s t r i a l technology i n postwar Japan would support the view t h a t i t was TT - and not domestic i n v e n t i v e a c t i v i t y - which was the primary source of t e c h n o l o g i c a l change. The thus f a r unimpressive improvement i n Japan's i n t e r n a t i o n a l balance of payments f o r technology, r e f e r r e d to e a r l i e r , provides i n d i r e c t evidence of t h i s . There i s , however, another, l e s s dramatic, source of o v e r a l l , aggregate, t e c h n o l o g i c a l advance which may have been of major importance - the d i f f u s i o n of e x i s t i n g t e c h n o l o g i e s to a broader segment of Japanese business and i n d u s t r y . The i n t e r - r e l a t e d processes of u r b a n i z a t i o n , c l u s t e r e d i n d u s t r i a l development, and improvement i n communications and d i s t r i b u t i o n flows t h a t have c h a r a c t e r i z e d postwar Japan would seem to be p a r t i c u l a r l y conducive to such d i f f u s i o n of the t e c h n o l o g i c a l 'best' (or ' better') p r a c t i c e s . To the extent that' such a d i f f u s i o n process has r a i s e d the 'average p r a c t i c e ' t o a t e c h n o l o g i c a l l y more advanced l e v e l , TT does not account f o r Japan's postwar ' t o t a l f a c t o r p r o d u c t i v i t y growth'. Because such a d i f f u s i o n process can be part of a s u b t l e , organic, process of s t r u c t u r a l change i t i s undoubtedly more d i f f i c u l t to assess than i s the e x p l i c i t , d i s c r e t e , commercial t r a n s f e r of new i n d u s t r i a l t e c h n o l o g i e s from abroad - p a r t i c u l a r l y so, given the l a r g e body of o f f i c i a l - 122 - data a v a i l a b l e regarding the l a t t e r . A promising approach to the problem may. l i e , however, i n the a n a l y s i s of o v e r a l l s t r u c t u r a l and t e c h n o l o g i c a l change i n s p e c i f i c c a t e g o r i e s of business and i n d u s t r y i n the postwar pe r i o d . In p a r t i c u l a r , some form of ' t o t a l f a c t o r p r o d u c t i v i t y growth' a n a l y s i s - disaggregated to the i n d u s t r y l e v e l - might be v a l u a b l e . I f such an a n a l y s i s d i d not r e v e a l some p o s i t i v e r e l a t i o n between t o t a l f a c t o r p r o d u c t i v i t y growth and the amount and q u a l i t y of t r a n s f e r r e d technology i t would c o n s t i t u t e i n d i r e c t evidence of the importance of other, domestic, sources of t e c h n o l o g i c a l change. - 123 - NOTES 1 Kosabud, .•Richard 'The r o l e of i n t e r n a t i o n a l t r a n s f e r of technology i n Japan's economic growth' i n T e c h n o l o g i c a l F o r e c a s t i n g and S o c i a l Change. .5 1973, pp 395-406 (p 399). 2 See, Schumpeter, Joseph The Theory of Economic Development. (Cambridge; Harvard U n i v e r s i t y Press, 1934). 3 A s i m i l a r view i s i m p l i c i t i n much of K a r l Marx's w r i t i n g - which i s , however, much more e x p l i c i t l y concerned with the s o c i a l consequences of t e c h n o l o g i c a l change. F o r some r e l e v a n t excerpts from Marx on t h i s , see Burns, Tom (ed.) I n d u s t r i a l Man (Harmondsworth; Penguin, 1973), pp 35-42. 4 See, f o r example; Adelman, I. and M o r r i s , C.T. 'An econometric model of socio-economic and p o l i t i c a l change' i n The American Economic Review, V o l LVIII No. 5, part 1 (Dec. 1968), pp 1184-1217; Harbison, F r e d e r i c k H., et a l , Q u a n t i t a t i v e A n a l y s i s of Modernization and Development ( P r i n c e t o n , 1970); Sigelman, Lee 'Lerner's model of modernization: a r e a n a l y s i s ' i n The J o u r n a l of Developing Areas 8, J u l y 1974, pp 525-536. 5 F o r an e x c e p t i o n a l l y l u c i d account of t h i s process i n Tokugawa Japan, see Smith, T. C. The Agrarian O r i g i n s of Modern Japan.(Stanford; Stanford U n i v e r s i t y Press, 1959). 6 Almond, G. A. and Powell, G. B. J r . Comparative P o l i t i c s : a Developmental Approach (Boston, Little,--Brown, 1966), pp 22-24. 7 On t h i s see H o s e l i t z , Bert F. 'Nationalism, economic development and democracy' i n F e i n s t e i n , Otto (ed.) Two Worlds of Change (Garden C i t y , - 124 - New York; Anchor Books, 1964), pp 249-267. 8 Perhaps the most i n f l u e n t i a l example i n the post-World War Two era has been, flostow, W. W. The Stages of Economic Growth, see Second e d i t i o n (Cambridge; Cambridge U n i v e r s i t y Press, 1 9 7 l ) . 9 On t h i s , see f o r example; Neghandi,." A. R. (ed.) Environmental S e t t i n g s i n O r g a n i z a t i o n a l F u n c t i o n i n g (Kent, Ohio; Kent State U n i v e r s i t y Press, 1970); H a l l , Edward T. The Hidden Dimension (New York; Doubleday, 1966) espec. pp 131-164; Almond and Powell Comparative P o l i t i c s , op c i t . 10 For a t h e s i s along these l i n e s ; see, McLelland,. David C. The Achieving S o c i e t y ( P r i n c e t o n N .J Van Nostrand, 1961). 11 Moore, W. E. S o c i a l Change, Second e d i t i o n (Englewood C l i f f s , N.J.; P r e n t i c e - H a l l , 1974), pp 92-93. 12 There i s , however, a view which argues the d e s i r e a b i l i t y of the LDC developing t h e i r own forms of i n d u s t r i a l technology. See, f o r example; G i r a l , Jose "Development of appropriate chemical technology: a programme i n Mexico' i n Choice and Adaptation of Technology innPeveloping Countries (Paris;; OECD, 1974), pp 182-186 and 'Review of d i s c u s s i o n s ' i b i d . pp 79-85. 13 I t i s i n t e r e s t i n g to note that t r a n s f e r s across • c u l t u r a l boundaries need not be international.- I t was reported i n the Vancouver Sun of March 10, 1975 (p 25) tha t n a t i v e i n d i a n s working on highway c o n s t r u c t i o n i n northern Canada have some d i f f i c u l t y i n a d j u s t i n g to the i d e a of a f i x e d q u i t t i n g time because, '. . . they have been used to doing t h i n g s l i k e s k i n n i n g a moose. And when you are skinning a moose you keep on going u n t i l the job i s done.' 14 See, f o r example; Hahn, F. H. and Matthews, R. C. 0. 'The theory of - 125 - economic growth: a survey' i n Economic J o u r n a l , V o l . 74, 1964, pp 825-850; Solaw, R. M. 'Technical change and the aggregate production f u n c t i o n ' i n Review of Economics and S t a t i s t i c s , V o l , 39, 1957, pp 312-320; Schmookler, J . 'Economic sources of i n v e n t i v e a c t i v i t y * i n J o u r n a l of Economic H i s t o r y , March 1962, pp 1-20; Ruttan, V. 'Usher and Schumpeter on i n v e n t i o n , i n n o v a t i o n , and t e c h n o l o g i c a l change' i n Q u a r t e r l y J o u r n a l of Economics, November 1959, pp 596-606. Fo r a d i s s e n t i n g view which minimizes the importance of t e c h n o l o g i c a l change v i s - a - v i s economic growth see Jorgenson, D. W. and G r i l i c h e s , Z. 'The explanation of p r o d u c t i v i t y change' i n Review of Econometric Studies, V o l . 34, 1967, pp 249-283. 15 For a d e t a i l e d d i s c u s s i o n of the product l i f e - c y c l e approach see, Wells, L o u i s T. J r . (ed.) The Product L i f e - c y c l e and I n t e r n a t i o n a l Trade (Boston; D i v i s i o n of Research, G.S.B.A. Harvard U n i v e r s i t y , 1972). 16 Vernon, R. - ' i n t e r n a t i o n a l investment and i n t e r n a t i o n a l trade i n the product c y c l e ' i n Q u a r t e r l y J o u r n a l of Economics, V o l . LXXX, May 1966, No 2, pp 190-207 (p 190). 17 As a separate but r e l a t e d p o i n t , Vernon, himself, has suggested the product l i f e - c y c l e approach may be l o s i n g what d e s c r i p t i v e and p r e d i c t i v e value i t may have as a r e s u l t of m u l t i n a t i o n a l c o r p o r a t i o n s and t h e i r world-wide operations and information networks. On t h i s , see Vernon, S o v e r e i g n i t y at Bay (Harmondsworth; Penguin, 1973), pp 109-236. 18 See, Gaps i n Technology: A n a l y t i c a l Report ( P a r i s ; 0ECD, 1970), espec. pp 180-236. 19 I b i d . , p 198. 20 I b i d . , p 257, pp 237-274 i n passim. 21 See, US Dept. of Commerce, F a c t o r s A f f e c t i n g the I n t e r n a t i o n a l T r a n s f e r - 126 - of Technology Among Developed Countries..(Washington; US Government P r i n t i n g O f f i c e , February 1970), p 9. 22 An i n d i c a t i o n of the v a r i e t y of i s s u e s and the country to country v a r i a t i o n s i n t h e i r p a r t i c u l a r s can be obtained from the f o l l o w i n g : Kojima, K. and Wionczek, N I . S. (eds.) Technology T r a n s f e r i n P a c i f i c Economic Development (Tokyo; Japan Economic Research Center, 1975); Korean N a t i o n a l Committee, 22nd Session Committee f o r Asian and F a r Eastern A f f a i r s - I n t e r n a t i o n a l Chamber of Commerce, Te x t s of Speeches and Reports and Investment and T r a n s f e r of Technology (background paper, Doc. No. 520/XXIl/l.) (Seoul; ICC-Korean N a t i o n a l Committee, 1974); OECD, •j^ Development Centre, Choice rand Adaptation of Technology, op c i t . and T r a n s f e r of Technology f o r Small I n d u s t r i e s ( P a r i s ; OECD, 1974). ̂ 23 In t h i s regard, i t should be noted that same w r i t e r s suggest f o r e i g n d i r e c t investment may be the most e f f i c i e n t farm of TT. See, f o r example, Caves, Richard E. ' M u l t i n a t i o n a l f i r m s , competition, and p r o d u c t i v i t y i n host country markets', i n Economica, V o l . 41, No. 62, May 1974, pp 176-193. 24 See Vernon, S o v e r e i g n i t y , op c i t , pp 256-257. 25 See i b i d , f o r one of the more recent and l u c i d d i s c u s s i o n s of these and r e l a t e d -.issues. 26 T h i s i s discussed i n Kobayashi, Y o s h i a k i Showa K e i z a i s h i (An economic h i s t o r y of the Showa era) - Japanese - (Tokyo; Sottekusha, 1975), pp 57 f f . 27 The f i g u r e s i n t h i s paragraph -are from Yamamoto, Naboru The Modernization of the-Economy and Postwar Expansion (Tokyo; I n t e r n a t i o n a l A s s o c i a t i o n f o r E d u c a t i o n a l Information, 1973). 28 A more d e t a i l e d d i s c u s s i o n of business-government i n t e r a c t i o n can be - 127 - found i n Kaplan, E. J . Japan: the Government-Business R e l a t i o n s h i p (Washington; US Department of Commerce, 1972) and a l s o i n Yoshino, M. Y. '..Japan's Managerial System (Cambridge, Mass.; MIT Press, 1968), espec. pp 162-195. 29 See, f o r example; Abegglen, James The Japanese F a c t o r y (Glencoe; Free Press, 1958); Yoshino, M. Y. op c i t ; and Cole, Robert E. Japanese Blue -Collar., (Berkeley; U n i v e r s i t y of C a l i f o r n i a , 1971). A standard Japanese-language book on the subject i s Hazama, H i r o s h i Nihon T e k i K e i e i (Japanese Management) (Tokyo; Nihon K e i z a i Shimbunsha, 1971). 30 General D. MacArthur, quoted i n L i v i n g s t o n , J . et a l (eds.) The Japan Reader (New York; Random House, 1973) pp 104-105. 31 Spencer, D a n i e l L. 'An e x t e r n a l m i l i t a r y presence, technology t r a n s f e r and s t r u c t u r a l change' i n Kyklos, Fascv 3., 1965 ( B a s e l , S w i t z e r l a n d ) , pp 451-474. 32 I b i d . , p 455. 33 See, Ando, Y. K i n d a i Nihon K e i z a i s h i Yoran (A Handbook of modern Japanese economic h i s t o r y ) - Japanese - (Tokyo; Tokyo Daigaku Shuppankai, March, 1975), p 154. 34 See f o r example, H a l l , G. R. and Johnson, R.E. 'Transfers of United States aerospace technology to Japan''in Vernon, R. (ed.) The Technology F a c t o r i n I n t e r n a t i o n a l Trade (New York; Columbia U n i v e r s i t y Press, 1970). 35 S p e c i f i c a l l y , M i t s u b i s h i Denki-Westinghouse, F u j i Denki-Siemens, and Toshiba-G. E. F o l l o w i n g t h i s , i n 1953, H i t a c h i purchased thermal generator c o n s t r u c t i o n technology from G. E. 36 Arisawa, Hiromi et a l Nihon Sangyo Hyakunenshi - Gekan (A l'OO year indus- t r i a l h i s t o r y of Japan.Vol 2) - i n Japanese - (Tokyo; Nihon K e i z a i Shimbunsha, 1967), p 42. - 128 - 37 I t should a l s o be mentioned - though, f o r obvious reasons i t i s d i f f i c u l t to document - tha t there i s reputed to have been a c o n s i d e r a b l e amount of o u t r i g h t , u n l i c e n s e d , copying of f o r e i g n technology. A p r o j e c t , f o r example, might r e q u i r e seven machines one of which would be purchased from a f o r e i g n s u p p l i e r with the others being produced by a Japanese manufacturer - using the f o r e i g n o r i g i n a l as a model. The extent to which t h i s took place i s unknown. I t may be, however, that t h i s pattern was most t y p i c a l of the immediate postwar peri o d before there were p r o v i s i o n s f o r r e l e a s i n g f o r e i g n exchange to acquire f o r e i g n technology ( i . e . before 1949-1950). T h i s i s , of course, the c i v i l i a n , p u b l i c works, analogy to the s i m i l a r 'copying 1 reported by Spencer (note 31.) i n connection with the m i l i t a r y . 38 Arisawa, Hiromi et al... Nihon Sangyo Hyakunenshi - Gekan, pp c i t , pp 47-48. 39 The m a t e r i a l i n t h i s paragraph draws h e a v i l y on the d i s c u s s i o n i n Arisawa, Hiromi et a l , . op c i t . 40 In t h i s , Japan i s not n e c e s s a r i l y unique. Other data i n d i c a t e t h a t the US was the major s u p p l i e r of technology to the world i n the postwar era (see, f o r example, OECD, Gaps i n Technology, op c i t ) . In the case of other developed c o u n t r i e s however, TT was most commonly i n the form of f o r e i g n d i r e c t investment. Thus an examination of data on US r e c e i p t s f o r l i c e n s e s and r o y a l t i e s , alone (see f o r example, Ozawa, Terumoto Japan's t e c h n o l o g i c a l challenge t o the West, 1950-1974 /Cambridge, Mass.; MIT Press, 1974/,„p 28) can lead to an unsupported c o n c l u s i o n tha t Japan was by f a r the major f o r e i g n user of US technology. 41 Watanabe,.- T o k u j i and Hayashi Y u j i r o Nihon no Kagaku Kogyo (japan's Chemical i n d u s t r y ) r r'dapanesjBM:•'fourth'.Bdi-tio'uv. (.Tokyo; Iwanami Shoten, 1974), p 28. - 129 - 42 For t h i s reason, any s e r i o u s attempt to measure the TT of management tec h n o l o g i e s would have to take account of f o r e i g n d i r e c t investment. 43 Qzawa, op c i t , c i t e s an English-language v e r s i o n of the law: Law concerning f o r e i g n investment, the r e g u l a t i o n r e l a t i n g to the e n f o r c e - ment of the law concerning f o r e i g n investment and f o r e i g n investment commission law (Tokyo; I n d u s t r i a l Bank of Japan, 1950). 44 Quoted i n Ozawa, op c i t , pp 17-rlB, and r e p r i n t e d i n f u l l i n A Guide to Investment i n Japan (Tokyo; M i n i s t r y of Finance,: Japan, 1950). 45 I t i s i n t e r e s t i n g to note tha t John E. T i l t o n i n h i s I n t e r n a t i o n a l D i f f u s i o n of Technology: The Case of Semiconductors (Washington; Brookings I n s t i t u t e , 1971) suggests a d i f f e r e n t i n t e r p r e t a t i o n . He p o i n t s out tha t FDI proved to be a major f a c t o r i n disco u r a g i n g t e c h - n o l o g i c a l stagnation and encouraging t e c h n o l o g i c a l development among indigenous semiconductor manufacturers i n Europe. Thus, i n l i g h t of Japanese r e s t r i c t i o n s on FDI, government a d m i n i s t r a t i v e a c t i o n of t h i s type could be i n t e r p r e t e d as being aimed at the maintenance of a ' c r e a t i v e l e v e l of competition'. However, as w i l l be argued l a t e r i n t h i s chapter, other f a c t o r s ( T i l t o n , himself, p o i n t s out the high degree of i n t e r n a t i o n a l competition i n e x p o r t - o r i e n t e d product groups) tended t o keep competition at a high l e v e l and, thus., maintenance or c r e a t i o n of a ' c r e a t i v e competition' i s not a convincing i n t e r p r e t a t i o n of government motivations i n t h i s area. 46 For example, Ozawa, op c i t , pp 54-55. 47 Another p o t e n t i a l form of government i n t e r v e n t i o n , the p r o v i s i o n of d i r e c t i n c e n t i v e s f o r TT, appears to have been l i t t l e used. Of course, many of the i n c e n t i v e s provided f o r i n d u s t r i a l development and - 130 - modernization were tantamount to a TT i n c e n t i v e . With the promulgation of the Industry R a t i o n a l i z a t i o n Law of 1 9 5 2 , f o r example, there were p r o v i s i o n s f o r s p e c i a l a c c e l e r a t e d d e p r e c i a t i o n of up to 5 0 / o on equipment f o r the modernization of i n d u s t r i e s and, as w e l l , a r e d u c t i o n i n the tax r a t e on i n d u s t r i a l a s s e t s . In a d d i t i o n , f u l l e r use was made i n the postwar peri o d of an e a r l i e r , prewar, tax exemption system of s i m i l a r nature f o r designated 'major manufacturers'. In the case of goods deemed of s p e c i a l importance to the n a t i o n a l economy, a three year t a x - h o l i d a y system was devised f o r mining and manufacturing income derived from new equipment investment. There were a l s o p r o v i s i o n s f o r exempting from customs d u t i e s equipment and machinery intended f o r i n d u s t r i a l modernization. Aside from the d i r e c t e f f e c t s of these programmes on the costs of TT, they served to enlarge the market f o r new producers' goods and thus had the secondary e f f e c t of encouraging TT by manufacturers of such producers' goods. T h i s t o p i c i s discussed at some length i n Arisawa, Hiromi et a l , op c i t . 48 The o r i g i n a l source on t h i s i s Hymer's o f t - c i t e d but unpublished, I n t e r n a t i o n a l operations of n a t i o n a l f i r m s - A study of d i r e c t f o r e i g n investment (Phd d i s s e r t a t i o n , WITT, I960]. 4 9 Developments from 1 9 6 3 and on are the subject of the f o l l o w i n g chapter and, a c c o r d i n g l y , we w i l l not dwell, here, on the a d m i n i s t r a t i v e a t t i t u d e s c h a r a c t e r i z i n g TT p o l i c y during t h a t p e r i o d . In b r i e f , however, the peri o d of i n t e r n a t i o n a l i z a t i o n and l i b e r a l i z a t i o n from 1 9 6 3 - 1 9 7 3 (discussed i n chapter f o u r ) seems to have witnessed the emergence of a b a s i c antipathy to FDI. T h i s needs some q u a l i f i c a t i o n however. The b a s i c antipathy, i t s e l f , was present from the e a r l i e s t days of the postwar peri o d and, i t i s argued i n chapter f o u r , can even be viewed - 131 - as r e f l e c t i n g a n a t i o n a l Japanese c h a r a c t e r i s t i c . Moreover, the 'emergence' of t h i s a n t i p a t h y was f a r l e s s a matter of change on the part of the Japanese than i t was on the part of f o r e i g n f i r m s . Simply put, as the Japanese market became more appealing to f o r e i g n f i r m s i n the e a r l y 1960's more and more of them became i n t e r e s t e d i n d i r e c t investment i n Japan thus arousing the underlying a n t i p a t h y . As a consequence, Japanese a n t i p a t h y to FDI became one of the c e n t r a l i s s u e s of the 1960's and 1970's. 50 There are, of course, other and i n t e r - r e l a t e d p e c u l i a r i t i e s of the Japanese employment system which have a t t r a c t e d Western a t t e n t i o n - notably the use of a f a i r l y r i g i d s e n i o r i t y system and of a 'consensual' decision-making process. See, f o r example, the r e f e r e n c e s i n note 29. 51 Cole, op c i t , c i t e s the example of workers from two nearby f a c t o r i e s p l a y i n g 'catch' s i d e - b y - s i d e a t lunch hour f o r years without ever becoming acquainted with one another. 52 There are some i n d i c a t i o n s t h a t a growing number of young people i n the postwar p e r i o d are f i n d i n g some aspects of t h i s system (notably, s e n i o r i t y ) l e s s compatible than i t was to e a r l i e r g e nerations. As regards the 'permanent employment system', i t s e l f , however, i t i s important to recognize t h a t - even f o r a person whose p e r s o n a l i t y i s i l l - s u i t e d to t h i s system - there are powerful economic reasons, given the Japanese business environment, f o r remaining i n one f i r m f o r the d u r a t i o n of one's working l i f e . Thus, while the system w i l l undoubtedly change over time i t w i l l l i k e l y do so only slowly. 53 T h i s tendency f o r many fi r m s to almost simultaneously enter newly emerging o r growth i n d u s t r i e s has been supported by p a r a l l e l competition among f i n a n c i a l i n s t i t u t i o n s ~ e s p e c i a l l y the l a r g e ' c i t y ' banks. The - 132 - .high debt-equity r a t i o . i n Japanese companies both r e f l e c t s and maintains c l o s e t i e s between banks and t h e i r corporate customers. P a r t i c u l a r l y i n the l a t e 1950's and e a r l y 1960's, ther e was c o n s i d e r a b l e inter-bank competition i n which each bank sought t o ensure t h a t the c l u s t e r of c o r p o r a t i o n s dependent upon i t f o r f i n a n c i n g i n c l u d e d a ' f u l l s e t 1 of the newly emerging i n d u s t r i e s and, moreover, tha t i t s group held a major market share i n those i n d u s t r i e s . I t appears that i n recent years these bank-centered groups have d e c l i n e d somewhat i n importance i n part because the s i z e of some fi r m s has come to exceed the c a p a c i t y of any one f i n a n c i a l i n s t i t u t i o n to meet i t s needs and because of the growing importance of i n t e r n a l f i n a n c i n g . 54 . See, MITI, Gaikoku G i j u t s u Donyu no Genjo to Mondaiten (Present c o n d i t i o n s and i s s u e s of f o r e i g n technology importation] - Japanese - (Tokyo; MITI, 1962), pp 62-63. 55 The c h a r a c t e r i z a t i o n of the government's r o l e v i s - a - v i s TT ( o r , even, v i s - a - v i s business i n general) as t h a t of a mediator i s perhaps i n s t r u c t i v e . While MITI, f o r example, has the p r e s c r i b e d r e s p o n s i b i l i t i e s and power to take strong u n i l a t e r a l a c t i o n a f f e c t i n g the business community (though perhaps l e s s now than i n the peri o d up to the mid-1960's) i t has not c h a r a c t e r i s t i c a l l y done so. One can view t h i s as a man i f e s t a t i o n of the Japanese tendency to avoid d i r e c t c o n f r o n t a t i o n and to seek consensus - even on the part of a r e s p o n s i b l e government agency. In t h i s , one would not be t o t a l l y wrong. There i s , however, another - and perhaps more important - aspect to the 'law key' behaviour of MITI v i s - a - v i s the business community. To a very r e a l extent the pervasive and profoundly personal - 133 - i m p l i c a t i o n s of i n t e r - f i r m competition to the companies and employees i n v o l v e d i s conducive to extreme forms of competitive behaviour which are dangerous to a l l those i n v o l v e d and yet, again, because of the h i g h l y charged nature of the competition are d i f f i c u l t to terminate. Thus, there i s a need f o r some niediative t h i r d party - p r e f e r a b l y one to whom a l l p a r t i e s acknowledge some degree of a l l e g i a n c e or s u b o r d i n a t i o n . I t i s p r e c i s e l y such ' mediative'j work which forms a l a r g e part of MITI's r o l e v i s - a - v i s business. As a c o r o l l a r y of t h i s mediative r o l e and the ( n o n - d i c t a t o r i a l ) s u p e r i o r - s u b o r d i n a t e r e l a t i o n s h i p i t r e f l e c t s and r e i n f o r c e s the mediator takes on a degree of r e s p o n s i b i l i t y towards the contending p a r t i e s as regards the success of compromises a r r i v e d at and, by extension, as regards subsequent d i f f i c u l t i e s of whatever proximate cause. The upshot of t h i s i s t h a t government-business r e l a t i o n s tend to be ongoing and organic i n nature r a t h e r than i n t e r m i t t e n t and d i s c r e t e with problem areas u s u a l l y becoming a subject of concern w e l l before they reach a c r i t i c a l c o n d i t i o n conducive to open c o n f r o n t a t i o n and c o n f l i c t between government and business. 56 A 1963 r e p o r t i n d i c a t e d t h a t l e s s than 20/o of Japanese f i r m s who had imported technology had r e c e i v e d a proposal from a f o r e i g n company p r i o r to t h e i r t a k i n g the i n i t i a t i v e . See, Science and Technology ' Agency, G i j u t s u Doko Chosa Hokokusho (Technology trends: research r e p o r t ) - Japanese - (Tokyo; Jigyo Kohosha, 1963), p 59. 57 See V/ernon, S o v e r e i g n i t y , op c i t . The Japanese concern regarding l o s s of c o n t r o l over d i r e c t i o n of the n a t i o n a l economy i s but one, s p e c i a l case, of the more g e n e r a l i z e d concern of most nat i o n s regarding m u l t i n a t i o n a l business. - 134 - 58 Vernon di s c u s s e s t h i s i n op c i t , pp 189-223. 59 Concurrently, Japan acceded to A r t i c l e 8 s t a t u s i n the I n t e r n a t i o n a l Monetary Fund. 60 The case study which forms appendix 1. of t h i s paper suggests tha t such i n f o r m a l r e l a x a t i o n of r e g u l a t i o n s was evident as e a r l y as the l a t e 1950's. 61 A summary of the h i s t o r y of TT l i b e r a l i z a t i o n forms a part of the i n t r o d u c t i o n to the y e a r l y Japanese-language p u b l i c a t i o n of the Science and Technology Agency,, Gaikoku Gi.jutsu Donyu Nen j i Hokoku (importation of f o r e i g n technology: annual r e p o r t ) - Japanese - (Tokyo; M i n i s t r y of Finance, v a r i o u s y e a r s ) . 62 A b r i e f , but u s e f u l , English-language r e f e r e n c e on these r e g u l a t i o n s i s S e t t i n g up i n Japan (Tokyo; I n s t i t u t e of I n t e r n a t i o n a l Investment, 1973). 63 Perhaps foremost among the more i n t r a c t a b l e i n f o r m a l o b s t a c l e s to the t r u e ' i n t e r n a t i o n a l i z a t i o n ' of the Japanese economy i s the Japanese character, i t s e l f . Despite the t r a d i t i o n a l Japanese w i l l i n g - ness, and a b i l i t y , to accept f o r e i g n 'technics* there i s the d i s t i n c t l a c k of any corresponding w i l l i n g n e s s and a b i l i t y to accomodate a f o r e i g n presence i n t o the s t r u c t u r e of Japanese o r g a n i z a t i o n s . The i n t e r n a t i o n a l i z a t i o n of Japan, i n t h i s sense, has some distance to go. Do m e s t i c a l l y , t h i s i s l i a b l e to pose f a r more of a problem f o r f o r e i g n f i r m s doing business i n Japan than i t i s f o r the Japanese - d e s p i t e t h e i r f e a r s to the c o n t r a r y . I n t e r n a t i o n a l l y , however, and p a r t i c u l a r l y i n the less-developed c o u n t r i e s where Japanese FDI has been heaviest, t h i s i s l i a b l e to pose a major problem f o r Japanese management i n the years to come. - 135 - 64 op c i t , p 18. 65 See OECD, Interim Report of the Committee on I n t e r n a t i o n a l ! E n t e r p r i s e s ( P a r i s ; OECD, 1974). 66 Science and Technology Agency, Gaikoku G i j u t s u Donyu N e n j i Hokoku, 1973, op c i t , p 13. 67 In f a c t , the Nihon Kogyo Shimbun newspaper of August 5th, 1975 reported on a technology management conference (attended by r e p r e s e n t a t i v e s of 52 major Japanese companies from a broad spectrum of Japanese i n d u s t r y ) at which i t was agreed to implement plans aimed at upgrading the t e c h n o l o g i c a l l e v e l of Japanese i n d u s t r i e s by means of such cooperative a c t i v i t i e s . T h i s would seem to be a d i f f i c u l t g o a l t o achieve i n Japan^'especially i n the more h o t l y competitive consumers goods i n d u s t r i e s and success w i l l probably depend a great deal upon the extent to which the i n d u s t r i e s , as a whole, f e e l threatened by t e c h n o l o g i c a l developments among f o r e i g n competitors. 68 Ozawa, op c i t , p 110. 69 With the p o s s i b l e exception of some f i e l d s i n d i s t r i b u t i o n - e s p e c i a l l y r e t a i l trade - as Japanese ' r a t i o n a l i z a t i o n ' takes hold or concern l e s s e n s . 70 See, f o r example, MITI, Wagakurii Kigyo no K a i g a i J i g y o Katsudo, Showa 49 Nenpan (Overseas business a c t i v i t i e s of Japan's e n t e r p r i s e s - 1974 e d i t i o n ) - Japanese - (Tokyo; M i n i s t r y of Finance, November 1974). 71 F i g u r e s are from i b i d . , pp 75-77. 72 I n t e r e s t i n g l y , one recent study has suggested some t r a n s f e r of 'management techniques' from Japan to the USA. See Johnson, R. T. and Ouchi, W. G. 'Made i n America - under Japanese management' i n Harvard Business Review - 136 - September - October, 1974, pp 61-69. 73 See Nihon Kigyo no Kokusaiteki Tenkai (The i n t e r n a t i o n a l advance of Japanese e n t e r p r i s e ) - Japanese - (Tokyo; M i n i s t r y of Finance, 1973), pp 13-17. 74 I b i d , pp 44-56. 75 Japan depends on f o r e i g n sources f o r 83.5)4 of i t s t o t a l energy needs (1970) as compared to the US's 9.9)4 and West Germany's 45.0)4. 76 Science and Technology Agency^ Kagaku Gi.jutsu Kakusho, Showa 49 (White Paper on science and technology 1974) - Japanese - (Tokyo; M i n i s t r y of Finance, 1974), p 300. 77 Science and Technology Agency, Kagaku Gi.jutsu Yoran, Showa 48 (Science and Technology Handbook 1973) - Japanese- (Tokyo; M i n i s t r y of Finance, 1973), pp 74-77. 78 Bureau of S t a t i s t i c s , O f f i c e of the Prime M i n i s t e r , Kagaku G i j u t s u Kenkyu Ghosa Hokoku, Showa 48 (Report on the survey of re s e a r c h and development i n Japan 1973) - b i l i n g u a l - (Tokyo; Nihon Tokei Kyokai, 1974), pp 116-117. 79 The i n t e r n a t i o n a l comparative f i g u r e s are l i k e l y q u i t e misleading. Payments f o r technology r e c e i v e d v i a the FDI form of TT are r e f l e c t e d poorly, i f at a l l , i n the data on e x p l i c i t payments f o r TT. Such TT forms a high proportion of the t o t a l TT to the developed c o u n t r i e s of Europe and a low p r o p o r t i o n of the TT t o Japan. S i m i l a r l y , a high proportion of Japanese outward TT - which has r a p i d l y i ncreased i n recent years - i s i n the form of FDI and i s not f u l l y r e f l e c t e d i n e x p l i c i t r e c e i p t s f o r TT. Thus, data on e x p l i c i t payments and r e c e i p t s f o r TT tend to understate the 'payments' of developed European c o u n t r i e s and to"'understate recent improvements i n Japan's ' r e c e i p t s * . - 137 - That such d i s c r e p a n c i e s can be i n t e r p r e t e d as r e f l e c t i n g t e c h n o l o g i c a l advance i s by no means a s e t t l e d question. A good, b r i e f , d i s c u s s i o n of the i s s u e s i n v o l v e d i s provided i n the Kosobud re f e r e n c e (see note l ) and a more r i g o r o u s c r i t i q u e can be found i n the Jorgenson and G r i l i c h e s r e f e r e n c e (see note-14). - 138 - TECHNOLOGY TRANSFER CASE STUDIES Case 1 P l a s - t e c h Company * * d i s g u i s e d name - 139 - HISTORY OF SPECIFIC TT (technology t r a n s f e r ] Company Background In I960, P l a s - t e c h Company of Tokyo, Japan, was one of Japan's l a r g e s t and most d i v e r s i f i e d producers of p l a s t i c s products. The company was founded i n the immediate postwar perio d and had grown r a p i d l y - p a r t i c u l a r l y i n the l a t t e r h a l f of the 1950's, when the company acquired a r e p u t a t i o n as one of Japan's foremost 'high growth' companies. D e c i s i o n to enter V i n y l F l o o r T i l e Industry Many of the company's products (eg. PVC pipe, adhesives, p l a s t i c p a n e l l i n g ) found a p p l i c a t i o n i n the Japanese c o n s t r u c t i o n i n d u s t r y - which was experiencing a p e r i o d of r a p i d growth. In 195B, the company decided to enter the v i n y l f l o o r t i l e i n d u s t r y because of i t s r a p i d growth and the company's e x i s t i n g experience with s i m i l a r technology. Although the technology i n v o l v e d was not p a r t i c u l a r l y complex and the company already possessed the necessary e x p e r t i s e , i t was decided to buy out an e x i s t i n g manufacturer in. order to more r a p i d l y enter production. A c c o r d i n g l y , i n September, 1958, the company purchased the equipment and took on the personnel of a small producer, Japan T i l e Company. The personnel and equipment of Japan T i l e was inco r p o r a t e d i n t o the company's B u i l d i n g M a t e r i a l s ' D i v i s i o n - where the i n i t i a t i v e to enter the v i n y l t i l e i n d u s t r y had o r i g i n a t e d . The management of t h i s d i v i s i o n had the primary r e s p o n s i b i l i t y f o r o r i g i n a t i n g development and expansion plans f o r the company w i t h i n the broad area of ' b u i l d i n g and c o n s t r u c t i o n ' . T h i s d i v i s i o n was a l s o to be the impetus behind a subsequent (1959-1960) d e c i s i o n by P l a s - t e c h to enter - 140 - the p r e f a b r i c a t e d housing i n d u s t r y . * T h i s d e c i s i o n was preceeded by d e v e l - opment w i t h i n the B u i l d i n g M a t e r i a l s D i v i s i o n of a prototype house i n c o r - porating many novel uses of p l a s t i c s . T h i s prototype development p r o j e c t , i t s e l f , had been i n s p i r e d by the u n v e i l i n g by Monsanto (U.S.A.) three years p r e v i o u s l y of an ' a l l - p l a s t i c 1 d i s p l a y house. Plas-Tech, l i k e the other Japanese manufacturers, was producing a non- patterned, ' u t i l i t a r i a n ' t i l i n g . T h i s was l a r g e l y a r e f l e c t i o n of the market they were s e r v i n g . V i n y l f l o o r t i l i n g had, thus f a r , found i t s major market i n i n s t i t u t i o n a l c o n s t r u c t i o n ( o f f i c e s , schools, e t c . ) - where u t i l i t a r i a n c o n s i d e r a t i o n s were dominant. There was a much smal l e r market i n p r i v a t e housing. T h i s was p a r t l y because p r i v a t e housing had, to date, r e c e i v e d l e s s emphasis by government i n Japan's postwar r e c o n s t r u c t i o n than had i n s t i t u t i o n a l c o n s t r u c t i o n . In a d d i t i o n , however, i t was a r e f l e c t i o n of the Japanese s t y l e of l i v i n g w i t h i n the home. F l o o r i n g f o r Japanese P r i v a t e Housing The t r a d i t i o n a l Japanese f l o o r i n g m a t e r i a l f o r homes i s e i t h e r bare wood or 'tatami' - a t h i c k , somewhat 'springy' straw matting. Tatami was t y p i c a l l y used i n the 'ima' (an a l l purpose room combining the f u n c t i o n s of l i v i n g , d i n i n g , and bed- rooms) because i t provided a s o f t e r s u r f a c e than wood and was l e s s c h i l l y i n winter. These c h a r a c t e r i s t i c s were p a r t i c u l a r l y d e s i r e a b l e because the Japanese customarily do not wear shoes i n s i d e the home and, t r a d i t i o n a l l y , s i t d i r e c t l y on the f l o o r or on t h i n cushions. The t y p i c a l Japanese house being constructed at the time c o n s i s t e d of a t o i l e t , bathroom, d i n i n g - k i t c h e n , entryway, and 'ima'. Some of the l a r g e r * The d i v i s i o n could be s a i d to have been q u i t e a g g r e s s i v e l y expansion-minded at t h i s time ( i n common with much of Japanese i n d u s t r y ) . The housing subsidiary.,. P l a s t e c h Homes, had became one of Japan's l a r g e s t producers of p r e f a b r i c a t e d housing by the 1970' s. - 141 - houses might a l s o i n c l u d e an 'osetsuma' - which might be compared to the western living-room, i n t h a t i t would be used f o r e n t e r t a i n i n g guests. V i n y l t i l e had become the m a t e r i a l of preference f o r the entryway and d i n i n g - k i t c h e n . In those r e l a t i v e l y few houses i n c o r p o r a t i n g an osetsuma there seemed to be a trend f o r t h i s to be decorated as a 'western-style 1 / room with sofas, c h a i r s , e t c . and i n .these cases, there was some demand f o r v i n y l f l o o r t i l i n g due to i t s image of 'western modernity'. As both the quant i t y and q u a l i t y of p r i v a t e housing was g e n e r a l l y deemed to be inadequate, i t was f e l t w i t h i n the c o n s t r u c t i o n - r e l a t e d i n d u s t r i e s t h a t Japan's r a p i d l y i n c r e a s i n g p r o s p e r i t y would soon l e a d - not only to a r a p i d i n c r e a s e i n the amount of p r i v a t e housing c o n s t r u c t i o n - but a l s o to a q u a l i t a t i v e s h i f t away from the u t i l i t a r i a n , with f a s h i o n a b i l i t y and s t y l e p l a y i n g an i n c r e a s i n g l y important r o l e . Some of the v i n y l t i l e manufacturers ( i n c l u d i n g Toyo Linoleum - one of the l a r g e s t companies i n the i n d u s t r y ) f e l t that t h i s would l e a d to a g r e a t l y increased p r i v a t e housing market f o r v i n y l t i l e . T h i s expectation was based not only on an a n t i c i p a t e d i n c r e a s e i n the number of housing s t a r t s but al s o on an expected i n c r e a s e i n the p o p u l a r i t y of western-style 'osetsuma' - where the t r a d i t i o n a l tatami f l o o r i n g was un s u i t a b l e both i n terms of s t y l e and a b i l i t y t o support heavy f u r n i t u r e . T h i s was part of a more general expectation t h a t there would be increased emphasis throughout the house on s t y l e - i n c l u d i n g entryways and d i n i n g - k i t c h e n s , where v i n y l t i l e was already- i n common use. Decision^ Acquire Technology The manager of the B u i l d i n g M a t e r i a l s D i v i s i o n , Mr Y, was a member of the Board of D i r e c t o r s (as were a l l other d i v i s i o n managers). In t h i s - 142 - dual c a p a c i t y , he made o c c a s i o n a l t r i p s abroad to survey developments i n the b u i l d i n g m a t e r i a l s i n d u s t r y . During these t r i p s he had been s t r u c k by the p o p u l a r i t y and l u x u r i o u s appearance of the m u l t i - c o l o u r , patterned t i l i n g being produced i n Europe and the U.S.A. In view of the expected changes i n the Japanese housing market, Mr Y f e l t i t would be wise to seek a quick competitive advantage over the company's many competitors by q c q u i r i n g the necessary technology to produce patterned t i l e i n advance of the soon expected s h i f t i n market demand. The 'Make' or 'Buy* D e c i s i o n The company f e l t i t had been a l i t t l e l a t e i n e n t e r i n g the v i n y l t i l e i n d u s t r y . As a r e s u l t , i t was eager to 'make up f o r l o s t t i m e 1 . T h i s a t t i t u d e accounts f o r the e a r l i e r d e c i s i o n to 'buy-out* an e x i s t i n g manu- f a c t u r e r and was a l s o a f a c t o r i n the d e c i s i o n t o purchase r a t h e r than develop (over an estimated p e r i o d of two or three years) t h e i r own technology to produce patterned t i l e . In a d d i t i o n , the company f e l t t h a t the market f o r v i n y l t i l e would change very soon (to an emphasis on p r i v a t e housing) and r e s u l t i n a s u b s t a n t i a l competitive advantage f o r those manufacturers capable of producing a more s t y l i s h or l u x u r i o u s product. T h i s i m p l i e d t h a t time was of the essence and t h e r e f o r e favoured TT r a t h e r than development. Another f a c t o r was the u n c e r t a i n t y a s s o c i a t e d with the development process. In p a r t i c u l a r , there was concern th a t even i f the development p r o j e c t was t e c h n i c a l l y s u c c e s s f u l , the product, i t s e l f , might not be as s u c c e s s f u l i n the market as would be t i l e s with the s t a t u s or ' p r e s t i g e ' - value of having been produced by imported technology and designs. A c c o r d i n g l y , Mr Y recommended to the board th a t the company attempt to - 143 - acquire f o r e i g n technology to produce patterned t i l e and t h i s recommendation was approved. I n v e s t i g a t i o n and Assessment of Technology Role of the Trading Company ('shosha 1) On the b a s i s of catalogue information from a t r a d i n g company i t was decided to l i m i t the s e r i o u s i n v e s t i g a t i o n of a v a i l a b l e technology to two US companies - Johns-Manville Company and Eagle F l o o r Products Company - n e i t h e r of which were known to be i n t e r e s t e d i n s e l l i n g .their technology. The r e s p o n s i b i l i t y f o r making the d e t a i l e d i n v e s t i g a t i o n s and assessment was given to Mr Y's a s s i s t a n t manager, Mr M. Mr M, l i k e Mr Y before him, was faced with c o n s i d e r a b l e problems on a business t r i p abroad. L i k e most Japanese businessmen, he had l i t t l e experience abroad - f o r one t h i n g , government f o r e i g n exchange c o n t r o l s l i m i t e d the p o s s i b i l i t i e s f o r frequent business t r i p s abroad. In a d d i t i o n , P l a s - t e c h , at the time, had no overseas s u b s i d i a r i e s or s a l e s o u t l e t s whose s t a f f could be c a l l e d upon f o r a s s i s t a n c e . A more fundamental problem was the language b a r r i e r . While Mr M had s t u d i e d E n g l i s h at school and had a working knowledge of w r i t t e n E n g l i s h w i t h i n h i s f i e l d , he had almost no f a c i l i t y at a l l with the spoken language. P l a s - t e c h 1 s c a p a c i t i e s f a r conducting business abroad were i n sharp c o n t r a s t to the v a r i o u s Japanese t r a d i n g companies, or 'shosha'. These companies t y p i c a l l y had o f f i c e s throughout the world s t a f f e d with men who were both r e l a t i v e l y knowledgeable regarding business and .business p r a c t i c e s i n t h e i r r e g i o n and capable of conducting business i n E n g l i s h . One of the f u n c t i o n s of these overseas s t a f f of the shosha was, i n f a c t , to expedite and a s s i s t i n the business a c t i v i t i e s abroad of businessmen, such - 144 - as Mr M - who represented c l i e n t (or p o t e n t i a l c l i e n t ) companies f o r the shosha's Japanese domestic marketing and other s e r v i c e s . P l a s - t e c h used a v a r i e t y of such shosha to market many of i t s existing,/ products and expected to continue to do so. Ac c o r d i n g l y , one of these shosha was contacted and during and p r i o r to Mr M's two t r i p s to the U.S.A. ( i n I960) the shosha provided the necessary i n t r o - c u t i o n , i n t e r p r e t a t i o n , and other s e r v i c e s . The 'unspoken assumption' was that t h i s shosha would, by reason of having provided these s e r v i c e s , have the i n s i d e t r a c k f o r p r o v i d i n g domestic s e r v i c e s to P l a s - t e c h i n marketing the new t i l e . A l l of the costs a s s o c i a t e d with t h i s a s s i s t a n c e to P l a s - t e c h were, however, borne by the shosha without any guarantee t h a t the venture would lead to an ongoing r o l e f o r a shosha or, i f i t d i d , that they would get the business. Assessment of the Technologies Having assembled the necessary data and samples during h i s two t r i p s to the U.S.A., Mr M had then to assess the r e l a t i v e merits of the t e c h n o l o g i e s . The main points he f e l t he had to evaluate were: 1 The appearance of the f i n a l product; 2 The production process c h a r a c t e r i s t i c s and f e a s i b i l i t y ; 3 The c h a r a c t e r i s t i c s of the patented (as opposed to the non-patented) technology i n v o l v e d ; 4 R e l a t i o n s h i p to e x i s t i n g Japanese technology. P o i n t s 1 and 2 were d i r e c t l y r e l a t e d to usual business c o n s i d e r a t i o n s . That i s , t o the m a r k e t a b i l i t y of the product and to the f e a s i b i l i t y and economics of the production process i n v o l v e d - e s p e c i a l l y v i s - a - v i s P l a s - t e c h ' s e x i s t i n g production process. - 145 - P o i n t s 3 and 4, however, were more c l o s e l y r e l a t e d to Japanese government p o l i c y with regard to TT. Purchase of f o r e i g n technology r e q u i r e d the r e l e a s e of f o r e i g n exchange funds which were f e l t to be i n short supply. Without the recommendation of MITI ( M i n i s t r y of I n t e r n a t i o n a l Trade and Industry) i t was a foregone conclusion t h a t the necessary approval f o r r e l e a s e of f o r e i g n exchange would not be granted. In t h i s regard, the amount and q u a l i t y of the patented (as opposed to non-patented) p o r t i o n of the t o t a l TT 'package' seemed to be a s i g n i f i c a n t f a c t o r i n determining MITI's a t t i t u d e towards any given TT proposal. In a d d i t i o n , approval was more l i k e l y to be forthcoming i f the technology was d i s s i m i l a r to that e x i s t i n g i n Japan and would make a s i g n i f i c a n t c o n t r i b u t i o n to Japanese economic growth. Considered i n t h i s l i g h t , the two t e c h n o l o g i e s d i d not d i f f e r s i g n i f i c a n t l y on p o i n t s 1, 2, and 4. With regard to point 3, however, a p o r t i o n of the Eagle F l o o r Products technology was patented - while none of the Johns-Manville technology was patented. T h i s i m p l i e d t h a t a proposal f o r a TT from Eagle F l o o r Products was more l i k e l y to r e c e i v e the necessary support from MITI. F i n a l l y , Eagle F l o o r Products was prepared to d i s c u s s immediate TT whereas Johns-Manville - while not r u l i n g out TT - was not prepared to proceed immediately. In view of P l a s - t e c h ' s i n t e n t - t o gain an advantage over competitors by moving i n t o production of patterned t i l i n g as r a p i d l y as p o s s i b l e , t h i s e f f e c t i v e l y r u l e d out a TT from Johns-Manville and i t was decided to open c o n t r a c t n e g o t i a t i o n s with Eagle F l o o r Products. Contract N e g o t i a t i o n s N e g o t i a t i o n s were conducted i n i t i a l l y by l e t t e r v i a the shosha, and, i n the l a t e r stages regarding the r o y a l t y , by telephone d i r e c t l y from P l a s - t e c h . The - 145 - major s t i c k i n g point i n the n e g o t i a t i o n s was the l e v e l of r o y a l t y to be paid. Eagle F l o o r Products was determined to get a running r o y a l t y of 5}d on y e a r l y s a l e s up to a s p e c i f i e d volume and t h i s posed an o b s t a c l e to the n e g o t i a t i o n s . In the f i r s t place, there was, of course, P l a s - t e c h ' s normal d e s i r e to pay as low a r a t e as p o s s i b l e . In t h i s r e spect, the company viewed the r o y a l t y to be paid not only as being the most f l e x i b l e or 'negotiable' of the costs of a c q u i r i n g the technology but a l s o as having the g r e a t e s t absolute s i g - n i f i c a n c e i n terms of i t s impact on the u l t i m a t e p r o f i t a b i l i t y of a c q u i r i n g the technology (as opposed, say, to the costs of equipment _and: new p l a n t c o n s t r u c t i o n which were a l s o e n v i s i o n e d ) . There was another, and more c l e a r l y c r u c i a l o b s t a c l e posed by Eagle's i n s i s t e n c e on a 5f0 r o y a l t y however. T h i s o b s t a c l e took the form of MITI ' g u i d e l i n e s ' f o r r o y a l t y payments. These g u i d e l i n e s v a r i e d depending on the f i e l d of technology i n v o l v e d and - while they had no o f f i c i a l s t a t u s - were g e n e r a l l y viewed as an e f f e c t i v e upper l i m i t i n the m a j o r i t y of cases. In the case of p l a s t i c s products production technology t h i s ' u n o f f i c i a l 1 g u i d e l i n e was 3}o - c o n s i d e r a b l y l e s s than the 5/o demanded by Eagle. In the event, Eagle c o n v i n c i n g l y asserted t h a t i t was not i n t e r e s t e d i n s e l l i n g i t s technology f o r l e s s than a '5}b running r o y a l t y and the n e g o t i a t i o n s produced, e s s e n t i a l l y , the c o n t r a c t sought by Eagle (see page 1 4 3 ) . I t may have been merely a bargaining s t r a t e g y but i t i s i n t e r e s t i n g that Eagle, which had had no p r i o r i n t e r e s t i n the Japanese market, hinted broadly during n e g o t i a t i o n s t h a t they were i n a p o s i t i o n to proceed with s e r i o u s n e g o t i a t i o n s with other p o t e n t i a l Japanese customers f o r t h e i r technology i f the P l a s - t e c h n e g o t i a t i o n s didn't go w e l l . Thus, the i n i t i a l approach by P l a s - t e c h to Eagle may have had the i n c i d e n t a l e f f e c t of ' s e n s i t i z i n g ' Eagle to o p p o r t u n i t i e s i n the Japanese market. - 147 - MIT I Approval of the Contract The c o n t r a c t was submitted to MITI f o r c o n s i d e r a t i o n and r e c e i v e d MITI recommendation and the subsequent approval f o r r e l e a s e of funds under the Foreign Exchange C o n t r o l Law. T h i s MITI recommendation was d e s p i t e the f a c t s t h a t : 1 The r o y a l t y p r o v i s i o n s exceeded the MITI g u i d e l i n e s and 2 the technology, i t s e l f , was (a) not very d i s s i m i l a r t o e x i s t i n g Japanese technology ( i . e . the d i f f e r e n c e s were only important i n - s o - f a r as the goal was to produce patterned r a t h e r than non- patterned t i l e ) ; (b) not of any major, d i r e c t , relevance to Japan's o v e r a l l economic growth. In the veiw of P l a s - t e c h , there were three major reasons f o r approval i n s p i t e of the above adverse f a c t o r s . 1 The government was, as a matter of p o l i c y , encouraging the development of the Japanese petro-chemical i n d u s t r y . T h i s i m p l i e d s i m i l a r encouragement of the downstream users of petrochemical products - which group i n c l u d e d the p l a s t i c s and p l a s t i c - b a s e d products manufacturers. I t i s f e l t by P l a s - t e c h that these s o r t s of c o n s i d e r a t i o n s l e d to a more l e n i e n t a t t i t u d e towards TT g u i d e l i n e s than would have been the case had there been no backward 'linkage' to a p r i o r i t y i n d u s t r y . 2 Eagle F l o o r Products had been c o n v i n c i n g l y vigorous i n i t s a s s e r t i o n s t h a t i t would not s e t t l e f a r any l e s s favourable terms. I t i s f e l t by P l a s - t e c h that MITI recognized, t h e r e f o r e , - 148 - OUTLINE OF TT CONTRACT PROVISIONS Date of c o n t r a c t : February 18, 1961, to be e f f e c t i v e from the date of approval of the c o n t r a c t under the F o r e i g n Exchange C o n t r o l Law ( i n the event, September 5, 1961). Duration: Ten years from e f f e c t i v e date. Acquired by P l a s - t e c h : The r i g h t to produce and s e l l (within Japan and South and East A s i a ) PVC f l o o r t i l e using technology developed by Eagle F l o o r Products ( s p e c i f i e d i n more d e t a i l i n the a c t u a l c o n t r a c t ) . Compensation to Eagle F l o o r Products: 1 License Fee: $50,000 (US) payable i n each of ten s u c c e s s i v e years from the e f f e c t i v e date. 2 Royalty: as per the f o l l o w i n g schedule: Gross Sales per year From NIL to ¥ 360,000,000. from ¥ 360,000,000. to ¥2,160,000,000. from ¥2,160,000,000. to ¥5,760,000,000. from ¥5,760,000,000. and above Miscellaneous There were v a r i o u s other supplementary p r o v i s i o n s r e l a t i n g to the r i g h t s and o b l i g a t i o n s of the two companies. Among these were p r o v i s i o n s r e q u i r i n g Eagle to supply a d v i s o r s to P l a s - t e c h - should P l a s - t e c h r e q u i r e such a s s i s t a n c e during c o n s t r u c t i o n and s t a r t - u p . T h i s p r o v i s i o n a l s o s p e c i f i e d the per diem cost of such servides-.to be paid by P l a s - t e c h . * The r o y a l t y on the i n i t i a l ¥360,000,000 of s a l e s each year to be a p p l i e d i n r e d u c t i o n of the License fee f o r t h a t year. At the then current r a t e of exchange (¥360 per $1 (US)) t h i s would, at the maximum, e x a c t l y equal the License fee of $50,000. Royalty Rate 5/o * 3)o 2$ Ifo - 149 - t h a t d i s a p p r o v a l of the proposal would not l i k e l y r e s u l t i n a r e t u r n to the bargaining t a b l e but, r a t h e r , b r i n g an end t o the n e g o t i a t i o n s . T h i s may have tempered any MITI i n c l i n a t i o n s to hold to the 3yd r o y a l t y g u i d e l i n e . 3 P l a s - t e c h , i t s e l f , had a r e c o r d of r a p i d growth and capable management. The P l a s - t e c h management f e l t t h a t t h i s record of success somewhat reduced the i n c l i n a t i o n of MITI to impose guidance on the company both i n the p a r t i c u l a r case and i n g e n e r a l . The Process of T r a n s f e r S h o r t l y a f t e r approval, a group of three technicians,(headed by Mr M, the a s s i s t a n t manager of the B u i l d i n g M a t e r i a l s D i v i s i o n ) went to Eagle F l o o r Products i n the US f o r a period of about one month. During t h i s period they mastered the b a s i c p r i n c i p l e s of the technology and i t s use and, as w e l l , acquired the necessary plan t l a y o u t , formulae, and process c o n t r o l data. The English-language a b i l i t y of these three t e c h n i c i a n s was qu i t e low but t h e i r a b i l i t y to understand what was s a i d t o them was g r e a t e r than t h e i r a b i l i t y to speak and t h e i r a b i l i t y t o read E n g l i s h was g r e a t e r s t i l l . Thus, while there were problems of communication there were no insurmountable d i f f i c u l t i e s . Meanwhile, i n Japan, P l a s - t e c h was e s t a b l i s h i n g a separate, 100j4-owned s u b s i d i a r y , Odaira P l a s - t e c h Company to take over a l l of the company's e x i s t i n g and f u t u r e t i l e production. A p a r c e l of land was purchased of which h a l f was to be used f o r the new t i l e p l a n t and h a l f earmarked f o r f u t u r e ex- pansion . The d e c i s i o n to e s t a b l i s h a new plant and s u b s i d i a r y company was due to the overcrowded c o n d i t i o n s of the e x i s t i n g d i v i s i o n a l f a c i l i t i e s and the - 150 - d e s i r a b i l i t y of a separate operating u n i t - given t h a t i t would now be necessary to provide data r e : output, p r i c e s , e t c . t o an outside company, Eagle F l o o r Products. The c o n t r a c t with Eagle provided f o r them to a s s i s t P l a s - t e c h i n a c q u i r i n g any necessary equipment not r e a d i l y a v a i l a b l e i n Japan. In the event, n o " such a s s i s t a n c e was r e q u i r e d . Eagle was a l s o to provide consultant s e r v i c e s i n the event P l a s - t e c h experienced d i f f i c u l t i e s with plant c o n s t r u c t i o n or s t a r t - u p . In f a c t , P l a s - t e c h experienced no major d i f f i c u l t i e s and a l i t t l e over one year a f t e r approval of the TT production of patterned t i l e s was begun. - 151 - D e s c r i p t i o n of the Technologies E x i s t i n g ( p r i o r to TT} Technology The e x i s t i n g production process technology i s o u t l i n e d i n the f o l l o w i n g diagram: Raw M a t e r i a l s Processing Product (Machinery) F 0 PVC r e s i n R S t a b i l i z e r M v . n n v ( t i l e sheet).- , 7 ^ ( v i n y l t i l e ) ,. > B l e n d e r — > R o l l e r - * 1 ^Cutteri» 1 3 Pigment U - F i l l e r (eg. L asbestos) A ^ ^ _ , "~->-y „ Process C o n t r o l Data and Techniques New (Post-TT) Technology The new technology was d i f f e r e n t from the e x i s t i n g technology p r i m a r i l y i n t h a t i t introduced a new stage i n t o the production whereby two (or more) d i f f e r e n t l y coloured sheets of t i l e could be combined i n a predeter- mined p a t t e r n p r i o r to being introduced i n t o the t i l e c u t t e r . The need to manipulate and bind more than one sheet i n t o a s i n g l e p a t t e r n r e q u i r e d however, d i f f e r e n t raw m a t e r i a l formulations and process c o n t r o l s . The new technology i s i n d i c a t e d i n the f o l l o w i n g diagram with the s i g n i f i c a n t d i f f e r e n c e s from the e a r l i e r technology i n d i c a t e d by a s t e r i s k s : Raw M a t e r i a l s F 0 R M Processing (Machinery) Product (unchanged) -4 Blender-* R o l l e r • ( t i l e sheet) P a t t ern- L A E * ( t i l e sheet) 1 -»Cutter v-» ^maker* — ( v i n y l t i l e ) J Process C o n t r o l Data and Techniques - 152 - F l o o r T i l e Industry Background The immediate antecedent of the v i n y l f l o o r t i l e i n d u s t r y was the asphalt t i l e i n d u s t r y which arose, i n i t i a l l y , i n response to the demand created by the post-war c o n s t r u c t i o n of US m i l i t a r y bases i n Japan. The development of v i n y l f l o o r t i l e technology i n the US reached the stage of economic production around 1952-1953 and i n 1956 production of v i n y l t i l e began i n Japan. The i n i t i a l p a r t i c i p a n t s i n the i n d u s t r y a l l had previous experience as s u p p l i e r s to the Japanese c o n s t r u c t i o n i n d u s t r y . As a r e s u l t , they had l o n g - e s t a b l i s h e d r e l a t i o n s h i p s with the l a r g e r c o n t r a c t o r s i n the c o n s t r u c t i o n i n d u s t r y . The strongest p a r t i c i p a n t companies had a background i n asphalt r o o f i n g m a t e r i a l s (eg. F u j i m u r i Kogyo Company, and Taj'ima Oyo Kako Company) or i n linoleum f l o o r i n g (eg. Toyo Linoleum Company). The i n d u s t r y grew r a p i d l y and soon a t t r a c t e d many new entrants with a v a r i e t y of backgrounds but many of them being, p r i m a r i l y , medium and s m a l l - s i z e d rubber goods manufacturers. Industry S t r u c t u r e At the time of the TT the number of f i r m s i n the i n d u s t r y had grown to approximately 60. In terms of market share; the two l a r g e s t firms (Toyo Linoleum and Tajima Oyo Kako) held about 25}&-30}o each follo w e d by a small number (three or f o u r ) of medium-sized f i r m s holding 5}d-10/o market shares.* P l a s - t e c h was i n t h i s l a t t e r group. The remaining f i r m s i n the i n d u s t r y held extremely small and t e n t a t i v e market shares of 2yd, l°/d, or l e s s . * estimates. - 153 - Research and Development The m a j o r i t y of f i r m s i n the i n d u s t r y engaged i n no R & D a c t i v i t i e s . Some of the medium and l a r g e - s i z e d f i r m s , however, had R & D p r o j e c t s underway. These were, t y p i c a l l y , aimed at ' r e f i n i n g ' the e x i s t i n g product by, f o r example, reducing shrinkage and l i f t i n g of the t i l e s a f t e r i n s t a l - l a t i o n . The b a s i c production technology was w e l l - e s t a b l i s h e d and didn't seem s u s c e p t i b l e to major i n n o v a t i v e improvements. The major concern of f i r m s i n the i n d u s t r y was not R & D or production but, r a t h e r , s a l e s and marketing. Markets--;';aWd M a r k e t i n g System Markets As mentioned e a r l i e r the major d i s t i n c t i o n i n the market f o r v i n y l f l o o r t i l e was between ' i n s t i t u t i o n a l ' and p r i v a t e housing a p p l i c a t i o n s of the product. I n s t i t u t i o n a l Market I n s t i t u t i o n a l customers i n c l u d e d o f f i c e s , f a c t o r i e s , schools, h o s p i t a l s and the l i k e . The appeal of v i n y l t i l e i n these a p p l i c a t i o n s l a y i n i t s d u r a b i l i t y , ease of upkeep, and neat appearance. Such i n s t i t u t i o n a l c o n s t r u c t i o n was encouraged both by government p o l i c y and by the r a p i d growth i n the Japanese economy. I t c o n s t i t u t e d about 50/0 of the t o t a l c o n s t r u c t i o n market at the time. P r i v a t e Housing P r i v a t e housing c o n s t r u c t i o n had been r e c e i v i n g low p r i o r i t y i n government planning but, nevertheless, accounted f o r the remaining 50$ of c o n s t r u c t i o n . In c o n t r a s t to the approximately 50:50 s p l i t of the c o n s t r u c t i o n market - 154 - between these two types of c o n s t r u c t i o n however, the i n s t i t u t i o n a l market was the dominant customer f o r f l o o r t i l i n g with p r i v a t e housing accounting f o r r e l a t i v e l y few s a l e s . There was, however, a general f e e l i n g i n Japan tha t p r i v a t e housing was hi g h l y inadequate - both i n qu a n t i t y and i n q u a l i t y . In a d d i t i o n , r i s i n g p r o s p e r i t y was p u t t i n g the prospect of, .new (or b e t t e r ) home ownership w i t h i n reach of an i n c r e a s i n g l y l a r g e number of people. As a r e s u l t , i t was g e n e r a l l y expected tha t the developing emphasis on p r i v a t e housing would soon reach boom proportions with a r a p i d i n c r e a s e i n both the quant i t y and q u a l i t y of p r i v a t e housing. To the companies i n the v i n y l t i l e i n d u s t r y t h i s i n d i c a t e d a r a p i d i n c r e a s e i n demand f o r t i l e from the p r i v a t e housing s e c t o r . Some fi r m s i n the i n d u s t r y a l s o f e l t t h a t , aside from a q u a n t i t a t i v e i n c r e a s e i n demand, the trends i n p r i v a t e housing would a l s o lead to a q u a l i t a t i v e change -.away •f r o m " - u t i l i t a r i a n t i l i n g and towards more de c o r a t i v e or ' l u x u r i o u s ' t i l e . The a c t u a l t i l e s u p p l i e d to the i n s t i t u t i o n a l . and p r i v a t e housing s e c t o r s at t h i s time was e s s e n t i a l l y the same. The d i s t i n c t i o n between the two se c t o r s was more s i g n i f i c a n t i n terms of the d i s t r i b u t i o n channels used. Marketing System The marketing systems f o r f l o o r i n g m a t e r i a l s had been h i g h l y s t a b l e over time. There were two major d i s t r i b u t i o n 'routes' as i n d i c a t e d i n the f o l l o w i n g diagram: lanufacturer Trading Comoanv > \ > > Secondary Wholesaler B u i l d e r (route l ) -(route 2) - 155 - One major route was from the manufacturer v i a i n t e r m e d i a r i e s to the b u i l d e r . T h i s route was the normal one f o r s a l e s to smaller c o n t r a c t o r s and p r i v a t e home c o n s t r u c t i o n . The other major route was from manufacturer d i r e c t l y to the b u i l d e r . T h i s route was common f o r volume s a l e s to major b u i l d i n g c o n t r a c t o r s engaged i n l a r g e - s c a l e c o n s t r u c t i o n ( o f f i c e s , f a c t o r i e s , e t c . ) . The f i r m s which had long been i n the business of supplying f l o o r i n g , m a t e r i a l s to c o n t r a c t o r s (eg. Toyo Linoleum and Tajima Oyo Kako-both of which had been doing so i n one form or another f o r about 45 years) held entrenched p o s i t i o n s i n route 2, based on strong t i e s with the l a r g e r c o n t r a c t o r s b u i l t up over many years of supplying, f i r s t , a s p halt or rubber- based and, l a t e r , PVC-based f l o o r i n g m a t e r i a l s . T h e i r many years i n the business had created confidence i n t h e i r product q u a l i t y while t h e i r high volume and_:direct s a l e s c o n t r i b u t e d to lower d e l i v e r e d c o s t s and p r i c e s . The newer entrants to the f i e l d , such as P l a s - t e c h , t y p i c a l l y had f a r weaker (or no) e x i s t i n g r e l a t i o n s with general c o n t r a c t o r s . In a d d i t i o n , operating on a lower-volume/higher-cost b a s i s without e s t a b l i s h e d r e p u t a t i o n s they faced severe d i f f i c u l t i e s i n e s t a b l i s h i n g such d i r e c t r e l a t i o n s . Route 1 was, of course, a l s o used by the l a r g e makers as t h e i r route to supply the smaller, low-volume customers. Here, t h e i r competitive advantage was l e s s as a small d i f f e r e n c e i n p r i c e d i d not make a major increment i n the c o n t r a c t o r s ' r e t u r n because the amount i n v o l v e d ( i n , say, a house) was minor - both i n absolute and, of t e n , i n r e l a t i v e terms - compared to the amount i n v o l v e d i n a l a r g e - s c a l e c o n s t r u c t i o n p r o j e c t . In a d d i t i o n , the re p u t a t i o n of one of the intermediary companies i n v o l v e d i n . d i s t r i b u t i o n was often of more importance to the f i n a l customer than was that of the o r i g i n a l manufacturer, i n t h i s s a l e s channel. - 156 - P l a s - t e c h was not t o t a l l y without connections with the l a r g e general c o n t r a c t o r s because of i t s p o s i t i o n as one of Japan's major producers of p l a s t i c pipe. These r e l a t i o n s were r e l a t i v e l y weak, however, f o r two major reasons: 1 The company was r e l a t i v e l y young and, t h e r e f o r e , the r e l a t i o n s which e x i s t e d had been of short duration; 2 The r e l a t i o n s which e x i s t e d were not d i r e c t supplier-customer r e l a t i o n s but r a t h e r took the form of o c c a s i o n a l contacts as ' t e c h n i c a l a d v i s o r s - propagandists' f o r new p l a s t i c pipe products and a p p l i c a t i o n s . The a c t u a l day-to-day s a l e s were handled v i a plumbing c o n t r a c t o r - s u p p l i e r s who handled a l l types of p i p i n g and plumbing m a t e r i a l s . The r a t h e r remote nature of P l a s - t e c h ' s r e l a t i o n s with general c o n t r a c t o r s by reason of i.ts.pipe production i s a r e f l e c t i o n of the f a c t that the c o n t r a c t o r s ' i n t e r e s t i n the product and i n d i r e c t r e l a t i o n s with the manufacturer was highest when the product a f f e c t e d the appearance of the b u i l d i n g . F o r other products; provided that they met the r e q u i r e d standards and a r e l i a b l e supply was a v a i l a b l e , there was no tendency f o r c o n t r a c t o r s to want d i r e c t d e a l i n g s with the manufacturers. - 157 - TECHNOLOGY TRANSFER CASE STUDIES Case 2 Sharp Corporation - 158 - Company Background Sharp Corporation i s the present name of the former Hayakawa E l e c t r i c Company whose founder, T. Hayakawa, invented a mechanical p e n c i l which he marketed as the 'Ever-Sharp P e n c i l ' i n 1915. As he expanded i n t o the e l e c t r o n i c s f i e l d the 'Sharp' product name was used f o r other products and i n 1929 was r e g i s t e r e d as a brand name. The product brand name e v e n t u a l l y came to i d e n t i f y the company, i t s e l f , and i n January 1970 the company's name was f o r m a l l y changed from Hayakawa E l e c t r i c to Sharp C o r p o r a t i o n . The company had a long h i s t o r y of ' f i r s t s * i n i n t r o d u c i n g new technology i n t o i t s product l i n e - i n c l u d i n g Japan's f i r s t r a d i o (1925) and t e l e v i s i o n set ( l 9 5 l ) . By the l a t e 1950's the company was producing a broad range of household e l e c t r o n i c s and appliances and was beginning t o expand i n t o the development of other, more s p e c i a l i z e d e l e c t r o n i c s goods (eg. e l e c t r o c a r d i o - graph, e l e c t r i c s c a l p e l , s o l a r b a t t e r y , e t c . ) . D e c i s i o n t o enter the Desk-top C a l c u l a t o r F i e l d In 1960, the company decided to enter the computer f i e l d because of i t s present and p o t e n t i a l growth and the s u i t a b i l i t y of the company's e x i s t i n g t e c h n o l o g i c a l c a p a b i l i t i e s to t h i s f i e l d . Development of the computer i n d u s t r y was a p r i o r i t y of government and the i n d u s t r y was being monitored and guided by MITI ( M i n i s t r y of I n t e r n a t i o n a l Trade and I n d u s t r y ) . I t was, i n f a c t , necessary f o r the company to obt a i n approval from MITI f o r i t s entry i n t o the f i e l d . As there were many companies seeking t o enter the i n d u s t r y , MITI was concerned about 'overcrowding* i n the i n d u s t r y and d i d not approve of Sharp's entry i n t o the f i e l d . In l i e u of e n t r y . i n t o the computer i n d u s t r y t h e r e f o r e , the company began t h i n k i n g i n terms of using and developing t h e i r technology i n somewhat r e l a t e d areas. One such area was b i l l i n g machines (which had been the - 159 - object of some e a r l i e r a t t e n t i o n by the company c o n c u r r e n t l y with t h e i r attempt to enter the computer f i e l d ) . Another area which seemed to be promising was desk-top c a l c u l a t o r s ( h e r e i n a f t e r r e f e r r e d to as 'DTC'). To date, DTC had been mechanically d r i v e n but the company f e l t t h a t the a p p l i c a t i o n of e l e c t r o n i c s technology developed i n and f o r the computer f i e l d would produce a h i g h l y competitive machine which was q u i e t e r and more t r o u b l e - f r e e than e x i s t i n g machines. In 1961, t h e r e f o r e , the.company decided to begin development of an a l l - e l e c t r o n i c DTC and i n 1964 the company introduced the world's f i r s t s o l i d - s t a t e ( ' t r a n s i s t o r i z e d ' ) DTC - the Sharp 'Compet'. T h i s was followed, i n 1966, by the f i r s t IC ( i n t e g r a t e d c i r c u i t ) - a p p l i e d DTC and, i n 1967, by the f i r s t a p p l i c a t i o n of MOS (metal-oxide semi-conductor) - IC technology to DTC. D e c i s i o n to move to LSI ( l a r g e - s c a l e i n t e g r a t i o n ) technology Around 1967, LSI technology was beginning to be a p p l i e d to the computer f i e l d . While LSI technology had not yet been a p p l i e d t o other f i e l d s ( excluding the US space and defence programmes), i t seemed c l e a r t h a t there was enormous p o t e n t i a l i n other f i e l d s - notably i n e l e c t r o n i c c a l c u l a t o r s - f o r c o s t r e d u c t i o n , f u r t h e r m i n i a t u r i z a t i o n , and increased r e l i a b i l i t y . b y a p p l i c a t i o n of LSI technology. In r e f l e c t i o n of t h i s , Japanese domestic LSI production c a p a b i l i t y was the a b j e c t of much government a t t e n t i o n at the time. MITI was p r o v i d i n g • f a i r l y s u b s t a n t i a l ' s u b s i d i e s t o manufacturers f o r the development of LSI technology and the i n d u s t r y was engaged i n a major e f f o r t t o reach the l e v e l s of t e c h n o l o g i c a l c a p a b i l i t y a t t a i n e d i n the USA. As one of the aspects of t h i s e f f o r t , there was a cooperative r e s e a r c h - 160 - development programme aimed at developing LSI technology f o r a p p l i c a t i o n i n DTC. The programme brought together both Japanese semi-conductor manufacturers and DTC manufacturers. The cooperation took the form of i n f o r m a t i o n exchange and feedback among the p a r t i c i p a n t s r a t h e r than the establishment of an independent, j o i n t l y - s t a f f e d research group. Sharp's p a r t i c i p a t i o n i n t h i s i n c l u d e d the establishment i n A p r i l 1967 of a p r o j e c t team assigned the task of developing a l o g i c c i r c u i t r y design f o r an LSI s u i t a b l e f o r use i n DTC. The LSI design was completed i n e a r l y 1968 and, given the ' s t a t e - o f - t h e - a r t ' at the time was q u i t e complex - though no more so than (though d i f f e r e n t from) some of those a l r e a d y being produced f o r s p e c i a l computer a p p l i c a t i o n s . As a semi-conductor device f o r a p p l i c a t i o n i n DTC, however, i t was f a r more complex than anything thus f a r used. D e c i s i o n to use MOS-LSI r a t h e r than B i - p o l a r LSI While both of these types of LSI were being used i n the computer f i e l d the b i - p o l a r type was by f a r the most common and was l i k e l y t o remain so due to i t s higher 'speed' of o p e r a t i o n . MOS-LSI technology was, moreover, at an e a r l i e r stage of development and there were many outstanding questions regarding i t s u l t i m a t e f e a s i b i l i t y . MOS semi-conductors, at the time, s u f f e r e d from poor r e l i a b i l i t y and are, i n any event, i n h e r e n t l y 'slower' i n operation than b i - p o l a r types. In DTC a p p l i c a t i o n s , however, speed i s of l e s s importance than i n the case of computer a p p l i c a t i o n s . In a d d i t i o n , the MOS-type's p o t e n t i a l f o r a higher degree of m i n i a t u r i z a t i o n and lower cost production was p a r t i c u l a r l y a t t r a c t i v e f o r DTC a p p l i c a t i o n s . Sharp had, t h e r e f o r e , designed i t s proposed LSI with the aim of using MOS-LSI technology i n mind. - 161 - Sharp's design f o r a DTC-applications LSI was, however, j u s t t h a t - a design. The o v e r a l l cooperative research p r o j e c t had generated some advance i n a t e c h n i c a l sense but, i n terms of production technology had not succeeded i n devleoping a means of economically producing the d e s i r e d LSI f o r a p p l i c a t i o n i n DTC. D e c i s i o n to move i n t o production of semi-conductor devices About t h i s same time, Sharp began to consider not simply using" LSI i n i t s DTC but a l s o a c q u i r i n g manufacturing c a p a b i l i t y f o r LSI. The reasons f o r t h i s were r e l a t e d not so much to the i n a b i l i t y of present Japanese manufacturers to meet Sharp's needs as they were to a growing perception of the i m p l i c a t i o n s the advent of LSI technology might hold f o r the relevance and value of Sharp's e x i s t i n g t e c h n o l o g i c a l e x p e r t i s e . Sharp f i r s t used semi-conductor devices i n i t s r a d i o and t e l e v i s i o n s e t s - i n i t i a l l y , t r a n s i s t o r s and, l a t e r , IC's. These were purchased as p a r t s from semi-conductor manufacturers and used i n c i r c u i t r y designed by Sharp. In the case of IC's, of course, some of the c i r c u i t r y was contained i n the IC, i t s e l f , and t h e r e f o r e , i n some cases, the IC were custom-ordered from the manufacturers while i n other cases IC c o n t a i n i n g standardized c i r c u i t r y were purchased as f r e e l y a v a i l a b l e p a r t s . R e l i a n c e on out s i d e s u p p l i e r s f o r semi-- conductors devices (even though i n some cases custom-ordered) a l s o c h a r a c t e r i z e d the company's DTC production. The company's cons i d e r a b l e commercial success i n the f i e l d had been l a r g e l y a f u n c t i o n of i t s product design, l o g i c c i r c u i t r y y e x p e r t i s e , and production techniques. The advent of LSI technology, however, appeared t o hold grave i m p l i c a t i o n s f o r the relevance of these company c a p a b i l i t i e s to f u t u r e success i n the i n d u s t r y . - 162 - That i s to say, with t r a n s i s t o r s and, to a somewhat l e s s e r degree, with IC there i s s t i l l a major p o r t i o n of the t o t a l t e c h n o l o g i c a l e x p e r t i s e and manufacturing i n p u t s held by the DTC manufacturers. With the i n t r o d u c t i o n of LSI technology, however, a f a r g r e a t e r p r o p o r t i o n of the t o t a l i n p u t s i n t o the f i n a l product would be contained i n the LSI •chip', i t s e l f . With t h i s , the determinant design and production would l a r g e l y be i n the hands of those companies producing the LSI's. Moreover, the DTC manufacturers - ho longer holding the r e l e v a n t t e c h n o l o g i c a l e x p e r t i s e - would be dependant upon the LSI producers f o r subsequent t e c h n o l o g i c a l and design advances i n t h e i r f i e l d . As a consequence of t h i s a n a l y s i s of the i m p l i c a t i o n s of LSI f o r the DTC i n d u s t r y , the company decided t h a t , not only would i t have to move to the use of LSI but t h a t i t would a l s o have to acquire an LSI production c a p a b i l i t y i n order to maintain i t s c a p a c i t y f o r i n n o v a t i o n and c o n t r o l of technology i n i t s products. The D e c i s i o n t o approach North-American Rockwell As the company had no background i n the f i e l d of semi-conductor manufacturing i t was c l e a r t h a t i t would have t o acquire the necessary technology from an o u t s i d e source. The company's goal i n t h i s r e s p e c t was not simply an a b i l i t y to produce LSI such as those already being produced by semi-conductor manufacturers but, r a t h e r , the technology r e q u i r e d t o produce LSI f o r DTC a p p l i c a t i o n such as i t s l o g i c c i r c u i t r y experts had designed. Quite aside from the l i k e l y r e l u c t a n c e of e x i s t i n g Japanese semi-conductor manufacturers to help e s t a b l i s h Sharp as a competitor i n t h e i r f i e l d , i t was already c l e a r from the r e s u l t of the j o i n t r esearch p r o j e c t t h a t - 163 - domestic manufacturers were some distance away from developing the p a r t i c u l a r c a p a b i l i t y which Sharp wanted to a c q u i r e . On the other hand, Sharp was already aware of the news t h a t North American - Rockwell Corporation of the USA (nowadays and h e r e i n a f t e r , 'Rockwell Corporation*) had had impressive r e s u l t s i n the development of MOS-LSI technology to meet the needs of the USA A p o l l o Space programme. Ac c o r d i n g l y , i t was decided i n the l a t t e r part of 196S t o have a Sharp r e p r e s e n t a t i v e take the Sharp-designed LSI c i r c u i t r y along with him on h i s next r e g u l a r t r i p to the USA and combine a v i s i t and p r e l i m i n a r y d i s c u s s i o n s with Rockwell with h i s tour of Sharp r e p r e s e n t a t i v e s i n the USA. N e g o t i a t i o n s with Rockwell At t h i s time, Rockwell was a l e a d e r i n the f i e l d of MOS-LSI technology but MOS-LSI, themselves, had yet to f i n d any major a p p l i c a t i o n s outside the m i l i t a r y and space programmes i n the USA. As a r e s u l t , while Rockwell possessed a strong c a p a b i l i t y i n . the production of the complicated 'maisks' r e q u i r e d to produce LSI, .neither i t nor other companies had developed l a r g e - s c a l e production techniques f o r LSI. In e f f e c t , then, what Sharp was proposing was that Rockwell work with them to develop one of the f i r s t c i v i l i a n a p p l i c a t i o n s of MOS-LSI technology t o a mass-produced product. T h i s i m p l i e d c o n s i d e r a b l e development of production techniques because the r e q u i r e d higher volume and lower c o s t s of production were beyond the capab- i l i t i e s of e x i s t i n g production techniques. A f t e r c o n s i d e r i n g Sharp's proposal and studying t h e i r proposed LSI design, Rockwell advised t h a t i t f e l t development was f e a s i b l e given f u r t h e r j o i n t development work. As a r e s u l t concrete c o n t r a c t n e g o t i a t i o n s were begun. Sharp evaluated the proposed technology development and a c q u i s i t i o n p r o j e c t - 164 - i n terms of a f i v e year time-frame. In a d d i t i o n , the company assessed the proposed p r o j e c t and the value of a c q u i r i n g LSI technology s o l e l y i n terms of i t s DTC production and without any r e f e r e n c e to i t s many other product l i n e s . The r e s u l t i n g agreement provided f o r ; 1 An i n i t i a l development pe r i o d , followed by production by Rockwell of the LSI f o r use i n DTC assembly by Sharp, and, f i n a l l y , a three-stage t r a n s f e r of the LSI production process t o Sharp. The stages of TT envisioned at t h i s e a r l y stage were: i ) Techniques f o r assembly of LS I; i i ) fundamental design technology f o r MOS-LSI ( a b s t r a c t r a t h e r than s p e c i f i c J a p p l i e d technique); i i i ) t r a n s f e r of the new t e c h n o l o g i e s r e s u l t i n g from the i n i t i a l development p e r i o d . Each stage had a s e t , negotiated, f e e - f o r - s e r v i c e a s s o c i a t e d with i t but there was f l e x i b i l i t y as t o what p a r t s of each stage Sharp would, i n the event,.,, choose to acquire under the terms of the c o n t r a c t from Rockwell. 2 Sharp was t o send, at i t s expense, l o g i c c i r c u i t r y experts to Rockwell to a s s i s t i n the development programme f o r the LSI. 3 Rockwell was to provide ( f o r a f e e ) a l l necessary a s s i s t a n c e and advice to Sharp during the p e r i o d of u l t i m a t e p l a n t c o n s t r u c t i o n and s t a r t - u p i n Japan. Approval of the ...contract had to be obtained from MITI and t h i s posed no major problems though i t i n v o l v e d about two to three; months (concurrent with other r e l a t e d a c t i v i t i e s ) of d i s c u s s i o n s and n e g o t i a t i o n s . MITI r a i s e d a question regarding l e v e l of the r o y a l t i e s s p e c i f i e d i n the c o n t r a c t and, as a r e s u l t , they were lowered. In the event, the r e c e i p t of approval from - 165 - MITI a l s o took place i n stages with approval of the t r a n s f e r of LSI assembly technology being obtained i n February of 1969 and two l a t e r approvals being obtained i n June and August of 1971 f o r subsequent technology t r a n s f e r s . J o i n t Technology Development As had been agreed, Sharp sent two l o g i c c i r c u i t r y experts t o Rockwell t o a s s i s t i n the development programme. The English-language a b i l i t y of these two t e c h n i c i a n s was l i m i t e d to tha t acquired up to the u n i v e r s i t y l e v e l i n Japan - n e i t h e r of them had been abroad before. In essence, t h i s meant that they could read English-language m a t e r i a l ( e s p e c i a l l y i n t h e i r f i e l d of s p e c i a l i z a t i o n ) q u i t e w e l l , understand spoken E n g l i s h not so w e l l , and speak E n g l i s h only p o o r l y at the time they were sent to the USA. They had been chosen on the b a s i s of t h e i r r e l e v a n t t e c h n i c a l e x p e r t i s e and because of t h e i r p r i o r p a r t i c i p a t i o n i n the e a r l i e r technology development programme (discussed e a r l i e r ) . By coincidence, both were bachelors and thus there were no compli c a t i o n s r e l a t i n g t o wives and c h i l d r e n t o hinder t h e i r spending an extended p e r i o d of time abroad. During the succeeding year ( l a t e 1968 to 1969), these two engaged i n j o i n t development a c t i v i t i e s with t h e i r counterparts at Rockwell. A f t e r the f i r s t s i x months an i n i t i a l design was s e t t l e d upon ( i t was q u i t e d i f f e r e n t from t h a t o r i g i n a l l y proposed by Sharp). F o l l o w i n g a f u r t h e r s i x months of refinement and development of production techniques the necessary •mass-produceable' LSI and r e l a t e d technology was e s t a b l i s h e d . During t h i s p e r i o d the two Sharp t e c h n i c i a n s - though t h e i r e x p e r t i s e was not i n produc t i o n technology - i n the normal course of events were exposed to and developed t h e i r a b i l i t i e s to work wit h i n the developing LSI production technology. - 166 - A c t u a l T r a n s f e r of Technology With the establishment of the production techniques f o r the LSI, Rockwell began to supply the f i n i s h e d LSI f o r assembly i n Sharp's DTC. At the same time, Sharp sent a production s p e c i a l i s t to Rockwell f o r a pe r i o d of s i x months t o f a m i l i a r i z e himself with the production process. F o l l o w i n g the r e t u r n t o Japan of t h i s production s p e c i a l i s t , Rockwell i n ^mid-1970 sent the necessary plant l a y o u t s , o p e r a t i o n a l data and two adv i s o r s to Japan to a s s i s t Sharp with the plant c o n s t r u c t i o n and with equip- ment procurement and i n s t a l l a t i o n . One of the two a d v i s o r s sent to Sharp by Rockwell (a n i s e i , or e t h n i c Japanese) spoke q u i t e good Japanese while the other spoke Japanese only poorly. The necessary equipment f o r the pl a n t was i n accordance with s p e c i f i c a t i o n s l a i d down by Rockwell. Some of t h i s equipment was acquired from Japanese sources and some from US sources. In the case of US s u p p l i e r s , Rockwell i n some i n s t a n c e s a c t u a l l y placed the orders on beh a l f of Sharp. I t was during t h i s p e r i o d o f p l a n t c o n s t r u c t i o n and s t a r t - u p ( f i r s t , of LSI assembly, then, of LSI production) th a t the most e x p l i c i t process of TT occurred. In r e t r o s p e c t , Sharp f e e l s t h a t t h i s p e r i o d was important because of the knowledge i t acquired regarding the b a s i c engineering of an LSI production p l a n t and because of the i n s i g h t provided by the Rockwell r e p r e s e n t a t i v e s , as to the .present and f u t u r e p o t e n t i a l s of the equipment i n v o l v e d . In terms of the three-stage t r a n s f e r process envisioned i n the o r i g i n a l c o n t r a c t (see above), ;the equipment and l a y o u t - r e l a t e d technology a s s o c i a t e d with stages i ) and i i ) were f o r m a l l y t r a n s f e r r e d . Viewed from a s l i g h t l y d i f f e r e n t p e r s p e c t i v e , the t o t a l package of te c h n o l o g i e s i n v o l v e d can be s a i d to c o n s i s t of three main types: i ) 1 assembly techniques, i i ) l o g i c - 167 - design, i i i ) wafer design. A l l of these were t r a n s f e r r e d but, whereas the assembly techniques uan be s a i d to have been t r a n s f e r r e d e x p l i c i t l y and i n t o t a l , only the fundamental, general techniques a s s o c i a t e d with i i ) and i i i ) were e x p l i c i t l y t r a n s f e r r e d . There was, tha t i s , no need f o r the e x p l i c i t t r a n s f e r of 'new t e c h n o l o g i e s ' . p e c u l i a r to the s p e c i f i c LSI i n i t i a l l y designed. T h i s was l a r g e l y because the c l o s e involvement of competent people from Sharp i n the design process at Rockwell made such an e x p l i c i t TT of t h i s knowledge unnecessary. R e s u l t s of the TT The M G S T T L S I production f a c i l i t y was e s t a b l i s h e d as a separate d i v i s i o n . w i t h i n the company. I t produces a l i m i t e d range of LSI and IC, s p e c i a l i z i n g i n devices i n c o r p o r a t i n g c i r c u i t r y devised f o r use i n Sharp's DTC. About 8O70 of the d i v i s i o n ' s output i s used wi t h i n the company i n i t s c a l c u l a t o r and t e l e v i s i o n s et production. The remaining 2Oyo i s s o l d to outside customers c o n s i s t i n g l a r g e l y of other DTC manufacturers. About 1 year a f t e r the s t a r t - u p of Sharp's 'ELSI' p l a n t f o r the production of MOS-LSI and IC, the Japanese domestic semi-conductor manufacturers reached a comparable l e v e l of technology in- the production of MOS-LSI f o r use i n DTC. T h i s advance i n t h e i r t e c h n o l o g i c a l c a p a b i l i t i e s was p r i m a r i l y due to the development programmes begun i n 1967 ( i n which Sharp had p a r t i c i p a t e d ) and to the strong impetus f o r development of LSI f o r DTC- a p p l i c a t i o n s once the enormous s i z e of the p o t e n t i a l market became apparent. P a r t l y due to t h i s t e c h n o l o g i c a l advance among domestic Japanese manufac- t u r e r s , and p a r t l y because i t wasn't f e a s i b l e f o r Sharp to produce a l l of the v a r i o u s types of LSI and I C which i t needs; the company has continued to use o u t s i d e sources f o r a major p o r t i o n of i t s t o t a l requirements. - isa - At present (1975) approximately 20 - 25% of requirements f o r DTC LSI and IC are met by the 'ELSI' p l a n t with the balance being procured from o u t s i d e sources. The company's requirements f o r LSI and IC f o r i t s t e l e v i s i o n set production are met 90% by the 'ELSI* plan t but the absolute numbers are a very s m a l l p r o p o r t i o n of the t o t a l p l a n t production (about ldfa). Sharp's in-house MGS-LSI production technology has advance s i n c e the TT. One s i m p l i f i e d measure of t h i s i s the f a c t that the present techniques can 'pack!; about ten times the c i r c u i t r y i n t o an e q u i v a l e n t - s i z e d LSI. T h i s advance subsequent to the o r i g i n a l TT has been a r e s u l t of s e l f - generated t e c h n o l o g i c a l advance r a t h e r than of any subsequent e x p l i c i t t r a n s f e r of technology. On the other hand, whereas the LSI being produced at the time of s t a r t - u p of the 'ELSI' p l a n t was the world's most advanced f o r use i n DTC, the. p r e s e n t l y produced LSI are not the most advanced. - 169 - Retrospect E f f e c t of the TT on the Environment While i t might have been expected th a t the i n t r o d u c t i o n of LSI i n t o the DTC f i e l d would reduce the strength of those DTC manufacturers without an LSI production technology t h i s was not, i n f a c t , the case. There was an i n i t i a l p e r i o d of about two years during which manufacturers with such a c a p a b i l i t y held a s l i g h t advantage over those without because they were not dependant on outside semi-conductor manufacturers f o r s u p p l i e s of the necessary LSI. The use of L S I I i n DTC l e d , however, to extreme r e d u c t i o n s i n c a l c u l a t o r s i z e , power consumption, and c o s t s and, very q u i c k l y , created a much l a r g e r market than had p r e v i o u s l y e x i s t e d . As a r e s u l t , there was a l a r g e demand f o r MOS-LSI f o r use i n the standard types of DTC and the semi-conductor manufacturers moved q u i c k l y to f i l l t h a t demand. Such 'standard' LSI soon became f r e e l y a v a i l a b l e and r e l a t i v e l y cheap 'part* i n c o r p o r a t i n g almost a l l of the advanced technology and most of the 'manufacturing* processes needed t o produce the f i n a l product. T h i s made entry i n t o the DTC i n d u s t r y much e a s i e r than i t had been i n the past and manufacturers with t h e i r own LSI production f a c i l i t i e s q u i c k l y l o s t any i n i t i a l advantage they might have held i n the market f o r the standard types of e l e c t r o n i c c a l c u l a t o r s . In a d d i t i o n , with the advent of the LSI, the high technology component of DTC became ' b u i l t - i n * to the LSI chip i t s e l f and could r e a d i l y be exported to low-wage areas i n the less-developed c o u n t r i e s f o r f i n a l assembly and re-export to the consumer markets. T h i s i n j e c t e d a new competitive element - 170 - i n t o the i n d u s t r y . Sharp, i t s e l f , p a r t l y f a r these reasons and p a r t l y to avoid trade r e s t r i c t i o n s imposed by the European Economic Community began an assembly operation i n Korea to supply f o r e i g n consumer markets. On the other hand, ongoing t e c h n o l o g i c a l development i n the f i e l d of LSI has. s t e a d i l y reduced the amount of time r e q u i r e d f o r assembly-type operations i n the production of the f i n i s h e d DTC, With t h i s , the merits of l o c a t i n g such separate assembly operations i n low-wage areas i n the l e s s developed c o u n t r i e s has a l s o diminished. An example of t h i s s o r t o f advance would be the s o - c a l l e d ' c a l c u l a t o r - o n - s u b s t r a t e * (COS) technique whereby the e n t i r e c a l c u l a t o r (excluding the case and power source) can be produced on a s i n g l e 'part'. As a r e s u l t , the most recent trend of thought i n the i n d u s t r y seems t o be back towards i n t e g r a t e d manufacturing operations emphasizing s o p h i s t i c a t e d , c a p i t a l - i n t e n s i v e , equipment operations and i n v o l v i n g very l i t t l e manual labour. In conclusion.,; t h e r e f o r e , d e s p i t e the f a c t t h a t the o r i g i n a l l y a n t i c i p a t e d competitive advantage to be gained by the technology t r a n s f e r proved to be evanscent, over the longer term the acquired c a p a c i t y f o r independent t e c h n o l o g i c a l development i n the f i e l d of LSI i s l i k e l y to prove of major, ongoing importance to the company. - 171 - TECHNOLOGY TRANSFER CASE STUDIES Case 3 P o l l u t i o n C o n t r o l Technology - 172 - TT (technology t r a n s f e r ) of P o l l u t i o n C o n t r o l Technology A. General Background 1. I n d u s t r i a l Machinery Industry The " i n d u s t r i a l machinery i n d u s t r y " i s a r a t h e r loose concept i n c o r p o r a t i n g a wide v a r i e t y of companies. These companies can, however, be u s e f u l l y grouped i n t o three major c a t e g o r i e s , as f o l l o w s : (a) 'Standard' machine t o o l producers (b) S p e c i a l i z e d p l a n t equipment producers (c) I n d u s t r i a l p l a n t manufacturers. One s i g n i f i c a n t d i f f e r e n c e over these three c a t e g o r i e s i s i n the amount of 'working c a p i t a l ' r e q u i r e d to support a s i n g l e u n i t of production. T h i s i s , obviously, extremely high i n the case of companies c o n t r a c t i n g f o r the c o n s t r u c t i o n of e n t i r e i n d u s t r i a l p l a n t s . I t i s , t y p i c a l l y , much lower i n the case of standard machine t o o l and s p e c i a l i z e d i n d u s t r i a l equipment producers. As a consequence,-, i n d u s t r i a l 'plant-makers' almost i n v a r i a b l y have strong t i e s to and a r e l a t i v e l y high degree of dependence on outside o r g a n i z a t i o n s f o r f i n a n c i n g during the p e r i o d of c o n s t r u c t i o n of an i n d u s t r i a l p l a n t . These r e l a t i o n s h i p s are u s u a l l y with a l i m i t e d number of such outside o r g a n i z a t i o n s and are often accompanied or a f f i r m e d by ownership t i e s and/or marketing agreements between the manufacturer and an outside company or group of companies. Within the 'plant-maker' category one can make f u r t h e r d i s t i n c t i o n s between p a r t i c i p a n t companies on the b a s i s of the type of i n d u s t r i a l p l a n t ( p e t r o - chemical, pulp and paper, food processing, e t c . ) i n which they are - 173 - s p e c i a l i z e d . The growth r a t e of i n d i v i d u a l plant-makers i s , of course, h i g h l y s e n s i t i v e to growth r a t e s i n t h e i r c l i e n t i n d u s t r i e s and would vary somewhat between i n d i v i d u a l companies on that b a s i s . In gen e r a l , however, the 1960*s was a period of growth and p r o s p e r i t y f o r mast plant-makers - as a consequence of Japan's o v e r a l l economic growth and p r o s p e r i t y during t h a t p e r i o d . 2. The Pace of T e c h n o l o g i c a l Change The r a t e of t e c h n o l o g i c a l change i s not uniform over a l l i n d u s t r i e s However, during the l a t e 1950's and the 1960's there seemed to be a g e n e r a l i z e d quickening i n the pace of t e c h n o l o g i c a l change. The ..significance of t h i s f o r the i n d u s t r i a l machinery i n d u s t r y l a y i n the f a c t t h a t the l i f e - s p a n of t h e i r products or plant designs was shortened - by one estimate, from an average of 10 years i n the mid-1950's to an average of 3 years i n the e a r l y 1970's. The tendency seemed t o be towards a patte r n of the r a p i d i n t r o d u c t i o n of new technology, foll o w e d by a b r i e f p e r i o d of s a l e s based on that technology, foll o w e d by a f u r t h e r i n t r o d u c t i o n of new technology which, i f i t d i d not make the e x i s t i n g product or plant design o b s e l e t e , d i d c a l l f o r extensive redesign or m o d i f i c a t i o n s . As a consequence i t became i n c r e a s i n g l y l e s s p o s s i b l e f o r a f i r m to acquire a s t a t e - o f - t h e - a r t technology and then be able to concentrate an production and marketing based on that technology f o r an extended p e r i o d of time. As a r e l a t e d development, t h i s t r e n d created a new (or strengthened an e x i s t i n g ) dependency by many p a r t i c i p a n t companies on outside o r g a n i z a t i o n s f o r information regarding t e c h n o l o g i c a l developments, a n a l y s i s of f u t u r e market needs, and a s s i s t a n c e i n gai n i n g access t o patent and l i c e n s e r i g h t s f o r r e l e v a n t p r o p r i e t a r y t e c h n o l o g i e s . T h i s dependency was g r e a t e s t i n the case of small and medium-sized companies i n the i n d u s t r y as they, _ 174 - t y p i c a l l y , tended to l i m i t t h e i r c a p a b i l i t i e s to the production aspect of manufacturing f o r the domestic i n d u s t r y and to be more h i g h l y s p e c i a l i z e d as to c l i e n t i n d u s t r y or product l i n e - thus, both more v u l n e r a b l e to and l e s s able to a n t i c i p a t e and cope with t e c h n o l o g i c a l change. Among the s t r a t e g i e s adopted by small and medium-sized f i r m s , the p o l a r cases seem to be, on the one hand, to seek a small share of a l a r g e , d i v e r - s i f i e d market (eg. production of exhaust fans f o r use i n a wide v a r i e t y of i n d u s t r i a l s e t t i n g s ) and, on the other, t o seek a l a r g e share of a r e l a t i v e l y narrow, s p e c i a l i z e d market (eg. p r e c i s i o n instruments f o r s p e c i a l i z e d i n d u s t r i a l a p p l i c a t i o n s ) . Of these two s t r a t e g i e s , those companies adopting the l a t t e r would be more vu l n e r a b l e to the e f f e c t s of t e c h n o l o g i c a l change and more i n need of t i m e l y access t o new te c h n o l o g i e s i n t h e i r chosen f i e l d s . One consequence of t h i s i ncreased dependence on outside o r g a n i z a t i o n s during the 1960's may have been a growth i n the importance of the Japanese t r a d i n g companies (with t h e i r world-wide i n f o r m a t i o n networks and s p e c i a l i z e d research d i v i s i o n s ) i n monitoring t e c h n o l o g i c a l developments abroad, assessing the market f o r these t e c h n o l o g i e s i n Japan and - where i n d i c a t e d - f a c i l i t a t i n g the t r a n s f e r of technology t o such small and medium-sized Japanese companies. One p a r t i c u l a r l y good example of such a trend might be the formation i n the mid-1960's of the Z joint-venture Company by Y Tr a d i n g Company and X Company of the USA. X Company i s a l a r g e , high-technology company with a heavy R & D commitment i n a v a r i e t y of f i e l d s . The Z j o i n t - v e n t u r e Company was formed with the express purpose of f a c i l i t a t i n g the marketing of X Company's technology i n Japan by making ongoing and coordinated use of the Y Trading Company's c a p a b i l i t i e s f o r a n a l y s i s of and marketing to p r o s p e c t i v e Japanese customers. - 175 - 3. The Emergence of the P o l l u t i o n C o n t r o l Industry The p o l l u t i o n problems a s s o c i a t e d with i n t e n s i v e i n d u s t r i a l i z a t i o n became i n c r e a s i n g l y evident i n Japan during the l a t e r 1960's. By and l a r g e , however, such p o l l u t i o n was an e x t e r n a l diseconomy to the p o l l u t i n g f i r m s . That i s , they i n c u r r e d no measurable costs due to the p o l l u t i o n nor would they reap any measurable b e n e f i t s by reducing or e r a d i c a t i n g i t . I t was not, t h e r e f o r e , u n t i l the proclamation of the B a s i c -Law f o r Environmental P o l l u t i o n C o n t r o l , i n 1967, that there began to be any c l e a r i n c e n t i v e s f o r the adaption of p o l l u t i o n c o n t r o l techniques by Japanese i n d u s t r y . Even then, the f o r c e of the law .was c o n s i d e r a b l y diminished by the i n c l u s i o n of a clause c a l l i n g f o r ensuring 'harmony with the sound development of the nation's economy'. Growing p u b l i c pressure (and some dramatic c i v i l s u i t s brought by v i c t i m s of i n d u s t r i a l p o l l u t i o n ) l e d , however, to an extensive r e v i s i o n of p o l l u t i o n c o n t r o l laws i n 1971. T h i s i n c l u d e d a d e l e t i o n of the above-mentioned clause as w e l l as much more e x p l i c i t and s t r i n g e n t p r o v i s i o n s regarding a v a r i e t y of farms of p o l l u t i o n . With t h i s , the"adoption of p o l l u t i o n abatement techniques and equipment became a p r a c t i c a l n e c e s s i t y f a r a l a r g e s e c t o r of Japanese i n d u s t r y and the Japanese i n d u s t r i a l equipment i n d u s t r y was quick t o see the opportunity i n t h i s new market. Moreover, as the p o l l u t i o n c o n t r o l r e g u l a t i o n s t y p i c a l l y provided a schedule of l i m i t s on p o l l u t i o n which became i n c r e a s i n g l y severe over time, t h i s market was l i k e l y t o be a conti n u i n g one as new, more advanced, equipment became necessary to meet the p r o g r e s s i v e l y r e s t r i c t i v e a n t i - p o l l u t i o n r e g u l a t i o n s . B. The S p e c i f i c Technology T r a n s f e r 1. The Role of Z J o i n t - v e n t u r e Company - 176 - In 1972, the X Company of the USA,.feeling there was a p o t e n t i a l market i n Japan f o r i t s a i r - s c r u b b e r technology (a technique f o r reducing the discharge of p a r i t u l a t e s i n t o the atmosphere by i n d u s t r i a l p l a n t s ) , made the suggestion to Y Trading Company t h a t the a i r - s c r u b b e r technology be marketed i n Japan through t h e i r j o i n t - v e n t u r e , Z J o i n t venture Company. The Y Tr a d i n g company determined th a t there was a p o t e n t i a l l y l u c r a t i v e market f o r the technology i n Japan and f e l t t h a t i t could be best e x p l o i t e d v i a one of i t s s u b s i d i a r y manufacturing companies. A c c o r d i n g l y , companies A and B - both s u b s i d i a r i e s of Y Trading company - were approached. As i t happened, both of these companies were already producing a i r - s c r u b b e r s using s e l f - d e v e l o p e d technology. As a r e s u l t , even though the X Company technology., was more advanced and enabled the production of a more compact a i r - s c r u b b e r , n e i t h e r of these two companies was w i l l i n g to produce a scrubber under l i c e n s e from Z J o i n t - v e n t u r e Company - p r e f e r r i n g , i n s t e a d to e x p l o i t t h e i r s e l f - d e v e l o p e d technology. As a r e s u l t , the e f f o r t t o market the X Company a i r - s c r u b b e r technology i n Japan was te m p o r a r i l y * shelved'. 2. D Manufacturing Company - Background D Manufacturing Company was founded i n the 1920's and was operated during i t s f i r s t 30 years or so as a boiler-maker* subcontracting to l a r g e r companies. In the mid-1950's, however, a d e c i s i o n was made to break the pattern of dependency a s s o c i a t e d with s u b c o n t r a c t i n g by developing a c a p a c i t y to do business independent from a l a r g e r manufacturing company. The management f e l t t h a t i t s current a c t i v i t i e s i n a r e l a t i v e l y low- technology, l a b o r - i n t e n s i v e , i n d u s t r y o f f e r e d l i t t l e hope of escaping from t h e i r dependence on l a r g e r manufacturers. I t was decided, t h e r e f o r e , to t r y to move the company i n t o a more promising f i e l d , i n d u s t r i a l p l a n t c o n s t r u c t i o n - 177 - and, to do t h a t , i t was f e l t t h a t the company would have to develop a g r e a t e r independent t e c h n o l o g i c a l c a p a b i l i t y . To t h i s end, the company adopted a p o l i c y of i n v e s t i n g more h e a v i l y i n t e c h n i c a l personnel by r e c r u i t i n g increased numbers of engineers and other t e c h n i c a l l y - t r a i n e d people i n i t s annual recruitment of new graduates. P a r t l y as a r e s u l t of t h i s p o l i c y , the company was able, by the e a r l y 1960's, to evolve i n t o a plant-maker ( b u i l d i n g i n d u s t r i a l p l a n t s to order f o r corporate customers) with a s p e c i a l i z a t i o n i n pulp and paper p l a n t s and, as w e l l , was producing a l i m i t e d range of s p e c i a l i z e d i n d u s t r i a l equipment. In the course of t h i s corporate e v o l u t i o n i t was necessary to form c l o s e r e l a t i o n s with o u t s i d e o r g a n i z a t i o n s f o r the purposes of o b t a i n i n g f i n a n c i n g marketing s e r v i c e s , and, i n c r e a s i n g l y , access to technology f o r the company's products and p l a n t designs. A c c o r d i n g l y , the company e s t a b l i s h e d such r e l a t i o n s h i p s with a small number of t r a d i n g companies - the most important of which, by f a r , being t h a t with the Y Trading Company. 3» D Company's D e c i s i o n to Enter the P o l l u t i o n C o n t r o l F i e l d Towards the end of the 1960's and i n the e a r l y 1970*s D Company was experiencing a general slowdown i n i t s orders for. new p l a n t c o n s t r u c t i o n . There was, moreover, a growing f e e l i n g t h a t the r a p i d and r e p e t i t i v e i n c r e a s e s i n i n d u s t r i a l plant c a p a c i t y which had c h a r a c t e r i z e d much of the 1960's would not soon, i f ever, be repeated. A c c o r d i n g l y , the company began to place i n c r e a s i n g emphasis on i t s production of s p e c i a l i z e d i n d u s t r i a l equipment. The sudden emergence of a large^market.;for p o l l u t i o n - c o n t r o l equipment i n the e a r l y 1970's n a t u r a l l y , t h e r e f o r e , a t t r a c t e d the company's a t t e n t i o n as a p o s s i b l e source of f u t u r e growth and p r o f i t s . - 178 - As the company had no experience i n producing p o l l u t i o n - c o n t r o l equipment i t had to look to outside sources f o r the necessary technology and f o r t e c h n i c a l and market assessment of any given item of such technology. T h e r e f o r e , i n 1973, D Company approached Y Trading Company to seek t h e i r a s s i s t a n c e i n moving i n t o the production of a i r - p o l l u t i o n c o n t r o l equipment. At t h i s , the e f f o r t to market the X Company a i r - s c r u b b e r technology, which had been "shelved 1 i n 1972, was r e a c t i v a t e d and n e g o t i a t i o n s were begun between the v a r i o u s companies concerned. 4. The A c t u a l Transmission of Technology The two p r i n c i p a l s i n v o l v e d i n the marketing of the a i r - s c r u b b e r technology i n Japan were X Company of the USA and Y Trading Company. The v e h i c l e f o r marketing the technology was Z J o i n t - v e n t u r e Company. I t was decided between these companies to l i c e n s e two Japanese manufacturers - with r e s t r i c t i o n s on t h e i r r e s p e c t i v e markets such t h a t they would not compete with one another. D Company was assigned the r i g h t s to produce the a i r - s c r u b b e r f o r the pulp and paper i n d u s t r y and C Company - a member of the l a r g e corporate group centered on Y Company - was assigned the r i g h t s to produce f o r s a l e to the petrochemical and metal r e f i n i n g i n d u s t r i e s . In November 1973, D Company signed agreements with Z J o i n t - v e n t u r e Company to produce the a i r - s c r u b b e r under l i c e n s e and with Y Tr a d i n g Company to handle the marketing of D Company's output of a i r - s c r u b b e r s . The d e c i s i o n of D Company t o enter i n t o these agreements was made mainly on the strength of the t e c h n i c a l e v a l u a t i o n and market f o r e c a s t s of Y Trading Company and a 'brochure' d e s c r i b i n g the a i r - s c r u b b e r and i t s o p e r a t i o n . T h i s probably r e f l e c t s a c o n s i d e r a b l e amount of confidence by D Company i n both X Company - 179 - and Y T r a d i n g Company - due to t h e i r l a r g e s i z e and e s t a b l i s h e d r e p u t a t i o n s - as w e l l as a f e e l i n g t h a t there was a strong communality of i n t e r e s t of a l l the p a r t i e s i n v o l v e d . Contract P r o v i s i o n s In exchange f o r a c q u i r i n g a l i c e n s e to use X Company's a i r - s c r u b b e r technology, D Company was t o pay to Z J o i n t - v e n t u r e Company 2r% of the s a l e p r i c e of each u n i t s o l d . There was no ' i n i t i a l ' l i c e n s e payment r e q u i r e d . The a c t u a l s a l e s were t o be handled e x c l u s i v e l y by Y Trading Company f o r the standard commission of 3[o of t o t a l s a l e s . In a d d i t i o n , however, the agreement signed o b l i g e d the company to purchase one p a r t i c u l a r part ( r e q u i r e d f o r each a i r - s c r u b b e r ) e x c l u s i v e l y from X Company i n the USA. The p r i c e s p e c i f i e d f o r t h i s part was (at l e a s t i n the view of 0 Company) i n excess of the going market value and thus t h i s represented an a d d i t i o n a l 'hidden' cost of a c q u i r i n g the a i r - s c r u b b e r technology. At the& time of t h i s w r i t i n g ( l a t e 1975), however, n e g o t i a t i o n s were underway between D Company and X Company regarding t h e i r j o i n t production of t h i s part i n Japan. Transmission of the Technology In February of 1974, D Company sent three engineers to X Company's p i l o t p l a n t i n the USA. The group of engineers spent three weeks f a m i l i a r i z i n g themselves with the a i r - s c r u b b e r and i t s c o n s t r u c t i o n and, on t h e i r r e t u r n , brought back d e t a i l e d plans and operating manuals. In September of 1974, X Company sent three engineers to D Company i n Japan where they a s s i s t e d i n the c o n s t r u c t i o n and t e s t i n g of the i n i t i a l . a i r - scrubber. T h i s r e q u i r e d only about one month, i n a l l . The c o n s t r u c t i o n of the a i r - s c r u b b e r c a l l e d f o r no s p e c i a l new p l a n t - 180 - expansion or c o n s t r u c t i o n by 0 Company however i t was necessary f o r the company to acquire some s p e c i a l (Japanese-made) t o o l i n g equipment. I n c i d e n t a l Cost of a c q u i r i n g Technology Some co s t s were i n c u r r e d i n the t r a n s l a t i o n of t e c h n i c a l m a t e r i a l and preparation of b l u e p r i n t s e t c . as w e l l as f o r the c o n s t r u c t i o n of sample p a r t s and of a prototype machine. A l l these c o s t s were borne, e x p l i c i t l y or i m p l i c i t l y by D Company - as were the c o s t s of sending t h e i r engineers to X Company's plant i n the USA. In a d d i t i o n , although the costs a s s o c i a t e d with the one month stay i n Japan of the three engineers from X Company were the r e s p o n s i b i l i t y of X Company, D Company estimates t h a t i t (of i t s own v o l i t i o n ) i n c u r r e d entertainment expenses, f o r each of the three, of about 10,000 yen (around $33.00) per day. - 181 - BIBLIOGRAPHY 1. English-Language m a t e r i a l (a) Books Abbeglen, James. The Japanese F a c t o r y . Glencoe; The Free Press, 1958. 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(b) Government P u b l i c a t i o n s ( S t a t i s t i c a l (japan *s Note: Except where otherwise noted, a l l government p u b l i c a t i o n s l i s t e d below are published by Okurasha, Insatsukyaku ( M i n i s t r y of Finance, P r i n t i n g O f f i c e ) and only t h e i r date of p u b l i c a t i o n i s g i v e n . The o f f i c i a l o u t l e t f o r current Japanese government p u b l i c a t i o n s i s however not the Okurasho Insatsukyoku but, r a t h e r , S e i f u Kankobutsu Sabisu Senta (Government p u b l i c a t i o n s s e r v i c e c e n t r e ) , Chiyoda-ku, Kasumigaseki 1 - 2 - 1 , Tokyo. J i n k o Mondai S h i n g i k a i (Population c o u n c i l ) . Nihon Jinko no Doko - S e i s h i J i n k o o mezashite. (Japanese population trends - towards a s t a b l e p o p u l a t i o n ) , 1 9 7 4 . Kagaku G i j u t s u c h o (Science and technology agency). Gaikoku G i j u t s u Donyu N e n j i Hokoku. (importation of f o r e i g n technology, annual r e p o r t ) v a r i o u s . , G i j u t s u Donyu Hokoku. (Report on technology importation.). Unpublished, i n t e r n a l r e p o r t - • a- copy- o f whictr isj. h e ld i n the Kagaku Gijutsucho I - 185 - • . > L i b r a r y i n Tokyo, 1966. Kagaku G i j u t s u c h o , Kagaku G i j u t s u Hakusho Showa 49 nen. (White Paper on sci e n c e and technology, 1974J 1974. , Kagaku G i j u t s u Yoran Showa 48 Nenpan. (Science and technology handbook, 1973J, 1973. K e i z a i Kikakucho, Chosakyoku (Economic Planning Agency, research bureau). Shohi to Chochiku no Doko. (Trends i n consumption and s a v i n g s ) . V a r i o u s years. Kosei T o r i h i k i I i n k a i ( F a i r Trade Commission). Dokusen Hakusho, Showa 49 Nenpan (Monopoly White Paper'"',-. 1974 e d i t i o n ) , 1975. S o r i f u , Tokeikyoku ( O f f i c e of_the Prime M i n i s t e r , bureau of s t a t i s t i c s ) . Kagaku G i j u t s u Kenkyu Chosa Hokoku, 1973. (Report on the survey of research and development, 1973J. B i l i n g u a l . Tokyo; Nihon T o k e i Kyokai, 1974. Tsushosangyosho, Kigyokyoku ( M i n i s t r y of . ' i n t e r n a t i o n a l t r a d e and i n d u s t r y - "MITI" - E n t e r p r i s e bureau). Gaikoku G i j u t s u Donyu no Genjo to Mondaiten. (Present c o n d i t i o n s and i s s u e s of f o r e i g n technology i m p o r t a t i o n ) . TSkyo; Sangyo Kyokai, 1962. , . G a i s h i Donyu: sono Seido to J i t t a i . ^ I n d u c t i o n of f o r e i g n investment: procedures and a c t u a l s t a t u s J . Tokyo;. Tsushosangyosho, Chosakai, 1960. , . G a i s h i k e i k i g y o no Doko. (Trends i n f o r e i g n c a p i t a l - r e l a t e d e n t e r p r i s e s J , 1973. i • Gaishikeikigyo": sono J i t t a i to E i k y o . (Foreign c a p i t a l - r e l a t e d e n t e r p r i s e s : t h e i r s t a t u s and impactJ, 1968. Nihon Kigyo no Ko k u s a i t e k i Tenkai . (The i n t e r n a t i o n a l advance o f -'Japanese e n t e r p r i s e ) , 1973. , Kogyogijutsu I i n ( i n d u s t r i a l technology board). G i j u t s u Doko Chosa Hokokusho. (Technology trends, r e s e a r c h r e p o r t ) . Tokyo; J i g y o Kohosha, 1963. , Sangyo Seisakukyoku ( i n d u s t r i a l p o l i c y bureau). Wagakuni Kigyo no K a i g a i J i g y o Katsudo, Showa 49 Nenpan. (the overseas business a c t i v i t i e s of Japan's e n t e r p r i s e s , 1974 e d i t i o n ) , 1974. MITI — see Tsushosangyosho, Nihon Ginko, Tokeikyoku (Bank of Japan, s t a t i s t i c s department). K e i z a i T o k e i Nenpo. (Economic s t a t i s t i c s annual). Tokyo; Nihon Ginko Tokeikyoku, v a r i o u s years. (c) M i s c e l l a n e o u s " ' G i j u t s u Nibante' dappi e" (Outgrowing 'hand-me-down' technology), Nihon Kogyo Shinbun, August 5, 1975. Kanamori, Hisao. "Nihon no k e i z a i s e i c h o r i t s u wa naze t a k a i ka" (Why i s Japan's economic growth r a t e high?), K e i z a i Bunseki, V o l . 31, July,, 1970, pp 1-9.

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