Striving for international competitiveness : lessons from electronics for developing countries : synthesis of findings from the research project "Technological change and the electronics sector, perspectives and policy options for newly industrialising economies"

Electronics has become critically important in every country's attempt to restructure or build its competitiveness. The developments in electronics have given rise to an industry with an unprecedented growth record in terms of sales and exports, innovative capacity, and spin-off potential for related services. But electronics has also infiltrated into many other industries through the pervasiveness of its application potential. Instead of competing solely on cost, competitive advantage is now often obtained by those who have the (temporary) benefit of having mastered cutting-edge technology. To the fore has come a type of innovation that builds on relations with users, on interaction with suppliers, subcontractors, universities, industry associations, government institutes, and even potential competitors through various kinds of co-operative agreements. Thus, the competitiveness of a firm depends not only on its own strength, but also on the support it receives from the external environment in which it operates. Clearly, this support varies markedly from industry to industry and from country to country. Even though industrial latecomers have realised successful entry in a number of electronics product groups, most parts of the industry have recently witnessed concentration and higher barriers to entry. The consumer electronics industry has been until recently a point of entry for industrial latecomers but now quality and reliability requirements have diminished the possibilities based exclusively on low costs. The battle on HDTV standards has turned the NIEs into mere bystanders. Some NIEs, notably Taiwan and Singapore, have been successful in the office automation industry, thanks to downsizing and outsourcing, and the development towards open non-proprietary systems. It remains to be seen, however, whether US and Japanese companies will give up their reluctance in making available new generation products like 32-bit microprocessors, 2.5 inch hard-disk drives, liquid crystal displays and ink-jet printers. In communications, the NIEs have been quite successful in terminal equipment, but this has not been the case in the public switching equipment industry where entry barriers are notoriously high. For strategic reasons, NIEs like Taiwan and Korea have become active in the production of integrated circuits, especially DRAMs. Prospects in this particular industry, however, are daunting, and it is unlikely that industrial latecomers will be in a position to generate any profits in this area. In the software industry, low entry barriers in terms of capital requirements, labour intensiveness in combination with the low-wage advantage and large backlogs are offset by the scarcity of an educated and preferably English speaking labour force. Besides, not only the production but also the diffusion of advanced electronics requires a sufficient technological capability. Advanced manufacturing technologies for example, a widely accepted tool in constructing competitiveness, are hardly used in developing countries because of the size of required investment, the abundance of cheap labour, outdated organisational structures and above all the lack of appropriate skills. In addition to these industry-related opportunities and constraints, every country has its particular historical, economic, political, and geographic features that make it into a more or less suitable player in the global electronics industry. The first-tier Asian NIEs (Korea, Taiwan, Singapore, and Hong Kong) are undoubtedly in the best position to compete with OECD-based firms. But even these countries are handicapped by their limited technological potential, while the rise of second-tier Asian NIEs (particularly Thailand and Malaysia) prevents them from competing solely on cost. This latter group of countries has benefited from a surge in inward-bound foreign direct investment. But it remains to be seen whether they will be able to absorb foreign technology and investment into the local economy. The Latin American NIEs and India face a particularly difficult situation. Their traditionally inward-looking orientation has led to the emergence of domestic electronics industries that are often inefficient and excessively diversified, while producing outdated models at high cost. Trade liberalisation, including the entry of foreign firms, has already led to rationalisation, but the sudden policy shift is likely to leave scars, like the weakening of a country's technological base. An almost unavoidable conclusion is that prospects for competing in electronics are very limited for the majority of developing countries. The electronics industry exemplifies the argument that constructed competitiveness is cumulative, benefiting those countries that have already developed a skilled workforce, good infrastructure, a viable home market, and a network of suppliers and related firms in combination with foreign investment. For industrial latecomers, striving for competitiveness in electronics means above all that the construction of an indigenous technological capability has to proceed in concordance with access to foreign technology, investments, and markets.