TECHNOLOGICAL

COLLABORATION
IN INDUSTRY
Strategy, policy and internationalization
in innovation

Mark Dodgson

ROUTLEDGE LIBRARY EDITIONS:

THE ECONOMICS AND BUSINESS OF
TECHNOLOGY
 ROUTLEDGE LIBRARY EDITIONS:
THE ECONOMICS AND BUSINESS OF
TECHNOLOGY

Volume 11

TECHNOLOGICAL
COLLABORATION IN INDUSTRY
 TECHNOLOGICAL
COLLABORATION IN INDUSTRY
Strategy, policy and internationalization
in innovation

MARK DODGSON
First published in 1993 by Routledge
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Technological collaboration
in industry

Strategy, policy and

internationalization in innovation

Mark Dodgson

R
London and New York
 For Jack

First published 1993

by Routledge
11 New Fetter Lane, London EC4P 4EE
Simultaneously published in the USA and Canada
by Routledge
29 West 35th Street, New York, NY 10001
© 1993 Mark Dodgson
Typeset in Times by Michael Mepham, Frome, Somerset
Printed and bound in Great Britain by
Mackays of Chatham PLC, Chatham, Kent
All rights reserved. No part of this book may be reprinted or reproduced or
utilized in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
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Contents

Figures and tables vii

Preface ix
1 Technology in industry 1
The economic dimension 1
The social dimension 3
National differences 4
The challenge for firms 8
2 Technological collaboration in industry 10
What is collaboration? 10
The extent of collaboration 14
The focus of collaboration 17
Conclusions 24
3 Why collaborate? 25
An innovation perspective 25
A corporate perspective 30
A public policy perspective 36
An internationalization perspective 38
Conclusions 39
4 Theoretical approaches to collaboration 41
Changing systems of production 42
Technology and innovation 43
Economic and competitive relations 46
Collaboration and learning 49
Conclusions 55
5 Collaboration and innovation – the case of biotechnology 57
Collaboration and the innovation process 57
Evolution in new technology: the case of biotechnology 59
The institutional response: collaborative policies 63
Case Study: Celltech/American Cyanamid 65
Conclusions 69
vi Contents

6 Collaboration and innovation 一 networks, intermediaries and

standards 71
Regional networks 71
Contract research organizations 74
Standards 77
Case Study: GEC Sensors – TID/Alcatel 79
Conclusions 85
7 Public policy and technological collaboration 87
Support for collaboration 87
The ESPRIT programme 87
The Eureka programme 89
The Alvey programme 91
Case Study: Racal Electronics 93
Conclusions 99
8 Corporate technology strategy 100
Technology strategy and collaboration 100
Case Study: BT&D technologies 103
Case Study: Quantel/SSL 108
Conclusions 111
9 Internationalization and technological collaboration 113
Internationalization of technology 113
Case Study: Ricardo/DLW 119
Conclusions 125
10 Technological collaboration in Japan 126
Collaboration in Japan 126
Conclusions 136
11 The collaborative technological activities of small firms 138
SmalI firm collaborations 138
External linkages of SMEs 141
Conclusions 149
12 Management of technological collaboration 150
The management problem of inter-firm linkages 150
Conclusions 161
13 The new challenges of technological collaboration 163
Corporate challenges 163
Public policy challenges 168
References 175
Index 187
Figures and tables

FIGURES
2.1 Growth of newly established technology cooperation
agreements in general and in information technology 17

2.2 Mergers and alliances among semiconductor firms 19

3.1 The Fifth Generation Innovation Process 26
3.2 DTI expenditure on innovation support 37
5.1 The 'coupling’ model of innovation 58
5.2 Conceptualization of technology 68
9.1 Geographical distribution of alliances 116
9.2 Agreements by region and function 117
12.1 Motives and contributions in the case studies 155

TABLES
1.1 R&D expenditure by performing sector 5
1.2 Trends in industry-funded R&D 5
1.3 The largest corporate R&D spenders 6
1.4 National technological positions 7
2.1 1990–4 EC Framework Programme 15
2.2 Studies of technological agreements 18
2.3 Focus of international collaborations 20
2.4 Technological intensity of alliance 22
3.1 Major public IT programmes – 1980 to present 34
viii Figures and tables

5.1 Number of international agreements by biotechnology

companies 60

7.1 What Alvey allowed industrial participants to do 92

8.1 Technology diversity in large European firms 102
9.1 Joint ventures in the Soviet Union and Hungary 118
11.1 a US small businesses active in some high technology areas, by
industry 139
11.1b Number of innovations for large and small firms in the most
innovative industries 139
11.2 Some modes of large and small firm interaction 140
11.3 Large and small firm advantages in innovation 142
11.4 Kinds of agreements in high technology companies 143
11.5 Ways of relating to universities by size of company 146
12.1 Six case studies of technological collaboration 153
Preface

Technological collaboration in industry occurs for a wide variety of reasons and it

manifests itself in a number of forms. It has stimulated an enormous range of
interest from academics and industrial analysts. A great deal of this interest has
focused on specific forms of collaboration，be it joint ventures，or research consortia
or user/supplier links. It uses specific tools and language of analysis, be it from
economics or management and innovation studies or organizational behaviour.
This book, although not going into the depth of some of these individual analyses,
will try and present a broad picture of technological collaboration and, using some
of the wide range of tools and analyses, provide a more complete view of the
‘collaboration phenomenon'. It is necessary to do this as collaboration is such a
multi-faceted activity, and explanations for its multiplicity of motives，processes
and outcomes cannot be anything but multi-disciplinary.
Technological collaboration occurs essentially because of the complexity and
uncertainty of technological innovation. It is concerned with capability building
and learning. Technology is rarely created and marketed entirely by means of the
actions of brilliant individual scientists, engineers or entrepreneurs, or through
affluent and well-organized research groups in individual firms. Instead, its initia-
tion, formulation and diffusion depends on complex interactions between
individuals and groups of people in the science-base and research organizations,
firms acting as vendors, customers, partners and competitors, and the changing
demands of governments and individuals as customers and regulators. The
necessity of linkages between these actors in order to develop new products and
technologies and access new capabilities, and the maze of forms they take,
inevitably leads to some elements of formalization as firms try to control the
complication of it all. These formalized links are here called collaboration, and
reflecting the whole complexity of the relationships, the differing motives for them,
and wide-ranging forms and outcomes, a broad range of collaborations are con-
sidered.
This book provides a review of some of the major issues of technological
collaboration: its extent and form; explanations both theoretical and practical for
its existence; and its significance for firms, governments and the development and
diffusion of technology. The issues are not clear-cut. Evidence on, and interpreta-
x Preface

tion of, the collaboration phenomenon is often contradictory. Theories range from
purely economic to those which entirely discount price and cost considerations. In
evaluating the evidence, and critically examining the broadly differing theories of
collaboration，it is argued here that technological collaboration:
(a) is, and will remain, a significant feature within industry and of industrial
innovation. Technological collaboration has a long history. The present period
of rapid and uncertain technological change increases the propensity of firms
to collaborate, and this is facilitated by technology itself in the form of various
electronic media.
(b) has seen its importance exaggerated, which detracts from consideration of its
real value. Collaboration is no substitute for in-house technological efforts, and
in comparison to internal R&D efforts its scale is very limited. Nevertheless,
it can be valuable, assisting, for example, a greater pluralism in inputs to
technology development and is particularly useful in integrating the specialist
contributions of small firms.
(c) should be seen not only as a means of developing new products and processes,
but very importantly as a way of improving technological capabilities. The
enhancement of these capabilities is a target both of corporate strategies and
public policies. The formulation of such strategies and policies has, however,
to be shaped in the understanding that collaboration can have negative conse-
quences. It can, for example，reduce innovation and be anti-competitive.
(d) is particularly valuable in encouraging firms to learn to do things differently.
A major conclusion of this book, with relevance for the theory and practice of
collaboration, is that collaboration provides an important and necessary stimu-
lus to technological and organizational learning.
(e) has proved very difficult to manage successfully. The managers of few firms,
outside of Japan, are comfortable thinking in terms of capabilities and learning.
Such outcomes require the extension and development of forms of relationship
between firms, and management styles which are long-term and based on high
levels of trust. By focussing on short-term, individual product-related outputs,
collaboration has inevitably failed to meet its often high expectations.
The structure of the book is as follows. Chapter 1 introduces the whole question of
the significance of technology in industry, national differences and the challenge
faced by firms. Chapter 2 introduces technological collaboration, looking at its
extent, form and focus. Chapter 3 poses the question: why collaborate? It answers
from within four perspectives: an innovation perspective, which is examined in
greater detail in Chapters 5 and 6; a public policy perspective, studied in Chapter
7; a corporate perspective, which is further examined in Chapter 8; and an
internationalization perspective, studied further in Chapter 9. Prior to these chap-
ters, Chapter 4 reviews some of the theoretical and analytical approaches to
collaboration. Chapter 10 begins a consideration of some particular issues in
collaboration, in this case, collaboration in Japan. Chapter 11 examines technolo-
gical collaboration in small firms, and Chapter 12 looks into the management of
 Preface xi

collaboration. Chapter 13 examines the future implications of technological colla-

borations for firms and public policy.
Throughout the book six detailed case studies are presented to illustrate a
number of the most important issues in R&D collaboration, and also to put some
flesh on the bones of collaboration by describing how it comes about, the processes
involved in its undertaking, and the problems, particularly in its management.
These case studies provide much of the basis for Chapter 12.
The book does not address at any length the questions of links between firms
and research institutes. This is the focus of a forthcoming book on Technology
Transfer in Europe by the author and John Bessant, to be published by Routledge.
The writing of this book has been supported by the Economic and Social
Research Council’s Designated Research Centre in Science，Technology and
Energy Policy at the Science Policy Research Unit. The case studies were funded
by the Centre for the Exploitation of Science and Technology (CEST), and
appeared in a much truncated form in Dodgson (1991a). Three of the case studies
(GEC, BT&D and Ricardo) were undertaken by Paul Simmonds, and one (Racal)
by Paul Quintas. My thanks are extended to them, to John Bessant, John Cheese,
Mari Sako and Nick von Tunzelmann, and to many more of my colleagues at SPRU
who kindly provided so much information and analysis. Particular thanks for their
advice and encouragement are gratefully offered to Margaret Sharp and Keith
Pavitt，and to Roy Rothwell who co-wrote much of Chapter 11，and whose work
on the innovation process infuses much of the book. The shortcomings in the book
are, of course, all mine. As ever, nothing could have been done without the
forbearance of my wife, Yo.
Mark Dodgson
Chapter 1

Technology in industry

This chapter analyses how important technology is to economic development and

social well-being. It describes the marked differences in technological performance
amongst industrial nations, and the primary contribution made to this by firms. It
then describes some of the major challenges firms are facing in dealing with the
complexities and difficulties of technological change.

THE ECONOMIC DIMENSION

In every industrialized nation the economic standard of living and the social quality
of life depends crucially upon the way industry uses technology to enhance
competitiveness. To this end nations and firms devote enormous resources to their
technological activities. The OECD nations are currently spending over £170
billion annually on Research and Development (R&D), which employs many of
the best-trained and creative people in each country. There are increasing numbers
of scientists and engineers working in R&D and in total there are around one million
R&D employees in Britain, France and Germany. There are roughly six million
business establishments in the USA working in high technology industries, and
scientists and engineers comprise over 4 per cent of the total USA workforce. This
dedication to technological innovation is enormously important for economic
prosperity and social welfare.
Technology and innovation are argued to be important factors influencing world
economic growth cycles. Ever since the Russian economist Kondratiev noted in
the 1920s the relationship between technological innovation and the roughly
fifty-year economic cycles of prosperity, recession, depression and recovery, there
has been a debate about the relationship between macro-economic activity and
technological change. Economists such as Schumpeter have argued the importance
of periods of intensive innovation in stimulating economic revival from recession.
History has seen periods of 'clustering' of radical innovations. These major
technological innovations, in conjunction with other circumstances such as war and
famine, have been argued to be associated with economic cycles. Thus, steam
power and textiles in the late 18th and early 19th centuries are associated with the
first of what has become known as 'Kondratiev waves' of economic activity.
2 Technological collaboration in industry

Railroad, iron, coal and construction innovations are associated with the second
Kondratiev wave in the second half of the 19th century, and the period from then
until after the Second World War is linked to the third wave development of the
electrical power, automobile, chemical and steel industries. The post-war period
has seen the fourth wave of continued innovation in automobiles, and developments
in electronics and semiconductors, aerospace, pharmaceuticals, petrochemicals
and synthetic and composite materials. Some argue that a fifth wave is going to be
typified by continuing developments in communications and information tech-
nology, biotechnology, new materials, and computer-integrated manufacturing
technologies.
Freeman and Perez (1988) describe the relationships between long waves of
economic development and changes in techno-economic paradigm, which they
refer to as
a combination of interrelated product and process, technical, organisational and
managerial innovations, embodying a quantum jump in potential productivity
for all or most of the economy and opening up an unusually wide range of
investment and profit opportunities.
(Freeman and Perez 1988:48)
They argue that recession and depression periods witness a mismatch between the
possibilities of new technologies and organization of production and the existing
social and institutional characteristics in industry. During a period of considerable
adaptation and adjustment, these two areas are eventually integrated and are
associated with economic recovery. For Freeman and Perez, therefore, it is not just
periods of technological innovation that affect economic long waves, but also their
combination with a number of economic and organizational changes.
Technology provides a means by which countries and firms compete interna-
tionally, and it underpins the remarkable re-alignment of national comparative
advantage in the last thirty years. It is on the basis of its technological excellence
that Japan has grown into an economic super-power. At the same time the declining
international competitiveness of countries like Britain and the USA have been
caused by an inability to remain technologically competitive. Between 1970 and
1986, for example, Japan's world share of high-technology manufactured products
increased from 16 per cent to 32 per cent, while the USA's share declined from 51
per cent to 42 per cent, and the UK's from 8 per cent to 5 per cent (NSF 1989).
The level of technological activities in a country directly influences the wealth
of nations. In a study of over 20 countries, Fagerberg (1987) found a statistically
significant relationship between R&D and patenting performance and GDP per
capita. He further argues that R&D and international patenting are significant
determinants of differences between countries in export and productivity perform-
ance. Pavitt and Soete (1980) also show a positive statistical relationship between
national technological activities and export performance.
 Technology in industry 3

THE SOCIAL DIMENSION

Technological development is intimately related to social and organizational
development. Technological change derives from society and influences that
society. Technology affects life at work and home. It can liberate us from repetitive,
soul-destroying tasks, facilitate communications and travel, enhance the delivery
of education and improve healthcare. At the same time hardly any technology is
without negative implications. Technology has given us global warming, numerous
local ecological disasters, machines of mass destruction, and the means to restrict
and control civil liberties. It is also helping extend the wealth divide between
developed and under-developed nations, between the technology-haves and have-
nots.
The ways in which technology is developed and then used is of central import-
ance for societies and economies. It is necessary to understand the ways in which
technology is formulated and diffused through institutions and their organizational
relationships in order to be able to influence it. Governments and industry and their
agencies; individual firms and their managers, scientists and engineers; individuals
as workers, consumers and voters all affect the way technology is created and
shaped. To use the examples of the government and of individuals in the case of
industrial innovation: governments play a vital role in shaping technology through
their role as technology supplier (finance for the science-base), regulator (concern-
ing intellectual property rights and technical standards, for example) and user
(through procurement policy). Governments should, of course, be responsive to the
pressures from their electorate, and individuals as voters can influence innovation
in this manner. They can also be influential in other ways. The Japanese experience
shows, for example, how important it can be to elicit feedback and new ideas from
the workforce in order to enhance innovation. Consumer learning is a very
important aspect of innovation, shown clearly in the differing fortunes of the new
interactive service Minitel in France, which is now widely used by the public, and
its British counterpart Prestel which only has a limited business function.
One current area where decisions of individuals as voters, workers and con-
sumers are of increasing importance is that resulting from increasing environmental
consciousness. Difficult decisions about, for example, the balance between con-
tinuing demand for automobiles and cheap electrical power and the dangers of CO 2

emissions and nuclear waste disposal need to be based on informed debate about
technology as the cause of and solution to these problems. Knowledge is required
at a national and international level of what the potentials of technology are, and
what the political and corporate forces are which shape it. For example, what are
the implications of international technological collaboration? On the positive side,
can it offer global solutions to the global problems of over-population, pollution,
and differential wealth and quality of life? Or, on the negative side, can it accelerate
national disparities by excluding backward nations, and promote oligopoly and
restrict competition in firms? Understanding the forces which shape technology is
the basis of effective democratic decision making about it.
4 Technological collaboration in industry

NATIONAL DIFFERENCES IN TECHNOLOGICAL PERFORMANCE

While many developed countries have benefited considerably from their creation
and use of technology, other industrialized countries have fared less well. Before
examining national differences it should be noted that there are considerable
difficulties with all the measures of technological activities: R&D expenditure and
employment, and patenting. These can at best be seen as piecemeal indicators, and
are in no way comprehensive in their coverage (there are differences in what is
recorded as R&D expenditure and who are R&D employees, and in the propensity
of different firms and sectors to patent); nor can they be argued to cover all the
technological activities of firms. Nevertheless, they are the best we have, and can
be argued to be broadly indicative.
In its gross expenditure on R&D the USA predominates in the world, spending
around one-half of total OECD gross expenditure. These figures, however, are
limited as they do not reveal the expenditure dedicated to military aims, nor do they
show trends. In 1989, 65 per cent of US government expenditure was military
(compared with 45 per cent in the UK, 12 per cent in the Federal Republic of
Germany, and 5 per cent in Japan) (Cabinet Office 1991). As for trends, the rate of
growth in non-defence R&D between 1975 and 1988 increased by an average 10.9
per cent in Japan, nearly double that of the USA (5.8 per cent) and West Germany
(5.5 per cent), and three times that of the UK (3.2 per cent) (NSF 1991). Gross
R&D expenditures as a proportion of Gross National Product remained roughly the
same in the USA and the UK between the early 1960s and late 1980s at around 2.5
per cent, while those of Japan and West Germany doubled during this period and
actually overtook the USA's and UK's commitment in the late 1980s (NSF 1989).
Crucial in this change has been the commitment to technological activities of
business firms, and the way that technology is managed and used. Business
expenditure on R&D is the largest component of gross national expenditure in R&D
in almost all developed nations, and its relative contribution is increasing compared
to that of governments and higher education (see Table 1). Furthermore, since the
Second World War business enterprise R&D expenditures have grown more
rapidly than output growth in most OECD countries (Soete 1991).
As seen in Table 1.1, the majority of leading OECD nations' gross expenditure
on R&D is undertaken in the business sector. However, there is considerable
international variance in industry financing of R&D. Much higher proportions of
national R&D efforts are funded by industry in Japan and Germany than in the UK
and USA (Soete, 1991). The most revealing statistics in this respect relate to trends
in industry-funded R&D. These are shown in Table 1.2.
The steady growth of industrial commitment to R&D seen in Japan, Germany
and Sweden is in marked contrast to the relatively low and static figures in France,
Italy and the UK. The contribution of US industry is at a medium level and does
not show the growth enjoyed by the leading countries during the 1980s. However,
individual US companies predominate in R&D spending. Table 1.3 indicates the
extent of the commitment to technology by some companies, showing the five
 Technology in industry 5

Table 1. 1 R&D expenditure by performing sector (percentage shares)

Country 1971 1980 Most recent year
Enterprises
France 56.2 60.4 61.3 (1990)
Germany 63.7 70.3 73.5 (1990)
Japan 58.4 59.9 67.9 (1988)
UK 61.3 61.8 66.6 (1988)
USA 65.7 69.3 70.7 (1990)
Government sector
France 26.9 23.1 24.9 (1988)
Germany 14.2 14.8 12.0 (1990)
Japan 12.4 11.8 8.8 (1988)
UK 25.2 22.1 14.4 (1988)
USA 16.2 12.1 11.1 (1990)
Higher education
France 15.6 15.4 14.8 (1988)
Germany 21.6 15.5 13.9 (1990)
Japan 27.6 25.5 19.0 (1988)
UK 11.0 13.3 15.1 (1988)
USA 14.9 14.5 15.5 (1990)
Source: OECD. STIID Data Bank (Quoted in Soete 1991)

Table 1.2 Trends in industry-funded R&D as a percentage of GDP in major

OECD countries, 1967-88
1967 1975 1985 1988
United States 1.01 1.01 1.35 1.38
Japan 0.83 1.12 1.84 1.95
Western Europe 0.79 0.83 1.07 1.17
France 0.61 0.69 0.94 0.96
FR Germany 0.94 1.12 1.58 1.78
Italy 0.35 0.47 0.58 0.54
Sweden 0.72 0.96 1.71 1.74
United Kingdom 1.00 0.80 0.96 1.06
Source: Patel and Pavitt (1991a)

largest R&D spending firms in Britain, Europe, the USA and Japan. It shows that
US companies are the largest spenders on R&D in the world: nearly one-half of
the world's top 200 R&D spenders are US companies (Business Week 25 October
1991).
Soete (1991) separates four groups of countries according to their relative R&D
efforts. Using a measure of R&D Intensities (RDI): (Business expenditure on
R&D/Gross Domestic Product x 100), 'technological leaders' are defined as having
6 Technological collaboration in industry

Table 1.3 The largest corporate R&D spenders

Current R&D expenditure (£ million)
Britain
ICI 591
Shell Transport and Trading 473
Unilever 408
Glaxo 399
SmithKline Beecham 392
Europe
Siemens (G) 2308
Philips Electronics (N) 1346
Alcatel Alsthom (F) 1249
Bayer (G) 949
Hoechst (G) 931
USA
General Motors 2984
IBM 2745
Ford Motor 1987
AT&T 1359
Digital Equipment 901
Japan
Hitachi 1682
Matsushita Electric Industrial 1353
Fujitsu 1171
Toshiba 1041
NTT 971
Source: Data derived from Business Week 25 October 1991 and Pari Patel.
Note: Exchange rate $1.79/£1

an RDI over 1.5; 'other high tech countries' as having an RDI of 1.0 to 1.5; 'middle
tech countries', 0.5 to 1.0; and 'low tech countries', up to 0.5. Table 1.4 shows the
countries in each group. The technological leaders are, with the exception of the
USA, denoted by the increasing commitment from the private sector to R&D. In
the USA, although both public and private sector R&D is increasing, the increase
in the private sector is about half the increase in Japan or Germany (Soete 1991).
Using the measures of R&D and international patenting, Pavitt and Patel (1988)
also describe a number of broad trends in national performance. Essentially, highest
growth in these areas is seen in Japan, middle growth is seen in continental Western
Europe in countries like Germany, Sweden and Switzerland, and lowest growth is
in the USA, UK and Netherlands. They characterize national technological systems
as 'dynamic' and 'myopic'. A number of inter-related reasons are suggested for
determining this distinction. In myopic systems investment in technology is made
on the basis of short-term financial criteria, with no understanding, as in dynamic
systems, of the way technology 'includes the prospect of creating new market
demands, and of accumulating over time knowledge and experience that open up
 Technology in industry 7

Table 1.4 National technological positions – OECD countries

Technological Leaders Other High Tech Countries
Germany Belgium
Japan Finland
Sweden France
Switzerland Netherlands
USA Norway
South Korea Taiwan
UK
Middle Tech Countries Low Tech Countries
Austria Argentina
Canada Australia
Denmark Greece
Ireland Iceland
Italy New Zealand
India Portugal
Mexico Spain
Turkey
Yugoslavia
Source: Soete(1991)

further technological applications and business opportunities in future' (Pavitt and

Patel 1988: 51).
Other reasons include the adhesion of myopic systems to inflexible corporate
structures, inappropriate technological and market management skills, and inade-
quate employee capability to learn from producing and using new technology.
It is therefore at the level of the firm that national differences in technological
performance are determined. US predominance in technological expenditure is not
translated into predominance in technological performance. The changes taking
place in key industries and technologies, with growing Japanese and declining
Western strength, occur because of what is going on in firms. As Porter (1990)
says, there is no such thing as competitiveness of nations, only competitiveness of
firms.
There are, of course, major differences in technological performance within
countries. The USA retains its considerable strength in military and raw materials-
related technology, while the Japanese, who have hardly any interests in these
areas, are particularly strong in electronics, automobiles and mechanical engineer-
ing. Some European countries have particularly strong sectors, such as fine
chemicals and pharmaceuticals in Britain and Switzerland; motor vehicles in
Germany; and mechanical engineering in Sweden. The strength of these sectors is
often allied to the technological activities of a few large firms (Pavitt and Patel
1988).
8 Technological collaboration in industry

THE EXTENT OF THE TECHNOLOGICAL CHALLENGE FOR FIRMS

It is within firms that technology is developed and put to use, and the extent of the
difficulties and uncertainties facing firms in their technological activities are
enormous. Freeman and Perez (1988) in their discussion of the new ‘techno-
economic paradigm’ of information technology describe its profound impact on
existing firms and sectors and its ability to generate new ones. This new paradigm
engenders the need for new organizational structures in order to adapt to and reflect
the opportunities and threats provided by radical technological change. They
consider that these new forms include greater ‘networking’ and technological
cooperation (see Chapter 4).
The extent of these difficulties are compounded by individual companies'
inability to control the development of technology and thereby restrain uncertainty.
The largest corporate spender on R&D in the world, General Motors, which spent
over $5 billion on R&D in 1990, accounted for only 3 per cent of USA expenditure.
Further difficulties arise due to the actual nature of technological knowledge.
Technology is not just information which can easily be bought and sold, packaged,
transferred and integrated. It is instead often knowledge which resides in indi-
viduals and in the routines and procedures of firms. It is commonly tacit knowledge
which cannot be codified, and is highly specific to individual firms. Furthermore,
it is cumulative over time (Pavitt 1991). This further differentiates firms' techno-
logical activities and affects the propensity to follow their previous paths of
technological development. As Dosi (1988) says, ‘what a firm can do in the future
depends on what it has done in the past’. Technological development depends
critically upon firms' ability to learn. These issues will be examined in more depth
in Chapter 4，but it is worth noting that learning in firms is severely constrained by
the tendencies of organizations towards introspection, and by the way strategies
reflect existing ways of doing things, rather than novel approaches.
Innovation and technology has to be managed, and this is an increasingly
complex task. The extent of scientific and technological knowledge is expanding
rapidly, and the sources of this knowledge multiplying. There are estimated to be
between 40,000 and 50,000 scientific journals currently being published world-
wide. Industrial firms are increasing their investment in academic R&D. In the
USA, industry more than doubled its expenditure in academic R&D between 1977
and 1987 in real terms (NSF 1987)，and German industry has been increasing its
external expenditure on R&D from around 3 to 4 per cent in the early 1970s to over
8 per cent in the mid and late 1980s (Hausier 1989). In Japan, where traditionally
university/industry links have not been extensive, funds provided by industry for
university research have increased very rapidly and are still increasing at around
20 per cent a year ( Nature 1 November 1990), and the number of joint research
projects increased from 56 in 1983 to 583 in 1988 (Hicks et al. 1992). Science and
engineering articles co-authored by industry and academic contributors doubled as
a proportion of all industry alone papers between 1973 to 1986, increasing from
13 per cent to 28 per cent (NSF 1989).
 Technology in industry 9

A very wide range of firms, including small ones, undertake R&D. It is estimated
that there are 25,000 small and medium-sized enterprises (SMEs) undertaking
R&D in (West) Germany (Kuhlmann and Kuntze 1991). There are over 1.5 million
high-technology small and medium-sized establishments in the USA (NSF 1989).
Small firms are important sources of innovation in particular industries and sectors
(Acs and Audretch 1990).
The technology which is so critical to the economic and social well-being of
nations is created and used within firms which are confronted by an immensely
complex environment of potential suppliers and users of technology. The organiza-
tional challenges to deal with this complexity are similarly far-reaching. R&D
managers, for example, frequently have to link the activities of their units with
other functions within the firm, other R&D units in the firm and in other firms, both
national and international, and they have to integrate new knowledge from univer-
sities, institutes of higher education and contract research organizations. The whole
process of innovation and technological change has, as we shall see, become very
much more complicated.
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