Is Technology the Basis of Long-Term National Competitive Advantage? Essay

Technological developments have shaped our world since the beginning of civilization. In this report, by examining the important influences of technology and other factors which may also be powerful influences on human history, we will discuss whether technology is the basis of long-term national competitive advantage. We will base our argument on Porter’s and Chandler’s theories, and support it with research evidence. In the following report, we will answer the questions in detail.

In order to compare differences in the innovation systems of leading economies, industries and firms, the structure of the argument is going to be three-tiered; broken down by national level, industrial level and firm level. We will mainly focus on the automobile industry due to the fact it has been one of the most important and biggest industries since the first industrial revolution. At the national level, five leading economic countries will be compared horizontally: the US, China, Japan, Germany and the UK. At the industrial level, we will look at the history of automobile development.

At the firm level, we will carefully compare two case studies, Toyota and BMW. 2. Technological Influences on Long-term National Competitive advantage To achieve a national competitive advantage is one of the most significant goals for any nation. In looking at national competitiveness, Porter (1990) defined the competitive advantage of a nation as its capacity to attract local and foreign firms to use the country as a platform to conduct business and achieve national economic success. One of the major reasons behind national competitive advantage is technology.

According to Porter (1998) technological change is one of the principal drivers of competition, which is at the heart of economic growth and development. This is because technology development can lead to product designs and service that differentiate or lower cost from its competitors. Technology also plays an important role in shaping the pattern of product innovation and enhances a firm’s ability to provide a better customer service than its competitors. For a nation to sustain a competitive advantage in a particular industry sector requires dynamic advantage.

Some leading industries have managed to gain competitive advantage in world markets through sophisticated technology and innovation, such as the Japanese car industries. Firms must broaden and extend the basis of their competitive advantage by innovation through technology development and update (Fitzgerald, 1994). Innovation through technological development also leads to a national comparative advantage. Comparative advantage is based on being able to produce particular goods or service at a lower opportunity cost than other countries through technological superiority.

Therefore, technology seems the basis of a long-term national competitive advantage. Although technology is regarded as a primary determinant of driving national economic success, it doesn’t work alone. There are many other influential factors which are considered equally crucial, such as government support, research and development (R&D), professional management, human resource (HR) and culture. Technological change has been a major force in the sustained economic growth of nations’ wealth since the late 19th century.

Large industrial enterprises have thus been a substantial part of this economic achievement mainly through the commercialization of new products and processes which embodied innovating technologies. The major contributions of the worlds’s large industrial enterprises to economic growth during the twentieth century appear to be four. First, lowered the cost of production; Second, by recruiting the human capital; Third assured flow of materials and information and direct contacts with distributors in national and global markets. Fourth, a primary driver of technological advances (Chandler, 1999).

In summary, supporting innovation and use of technology helps a country move forward in the long term. 3. Comparison of Countries – Japan / USA / UK / Germany / China In this report, there are five countries (Japan, the USA, the UK, Germany and China) compared at the macro level, which is about the origin of resource, input amount on R&D, numbers of degree holders in science and engineering, efficiency, innovative capacity index and relation to policy. The resources for Japan’s innovation is mostly from private firms, universities and public research institutes; for America it is mainly from non-U.

S. firms as well as universities (Buiges, 2009). For the UK, Germany and China, the origin of the national innovation system is the governments of those countries. To compare the national expenditure for R&D, this report focuses on comparing the input to R&D as the share of the economic output of those countries. Japan has the highest share of expenditure for R&D which has been more than 3% of the country’s output since 2007 and the percentage is increasing (Abe and Fitzgerald, 1995). The USA has a stable expenditure share between 2. to 3% since 1996 (Dicken, 2003). The expenditure of Germany and the UK have stayed between 1. 5 to 2% since 1996. However, China’s input to R&D has risen from less than 1% in 1996 to more than 2% at the end of 2007(Sun et al, 2007), and keeps growing. Table 1 illustrates the comparison made of the number of degree holders of scientists and engineers. Japan has the highest Index in comparison. Table 1 – The comparison made of the number of degree holders of scientists and engineers JAPAN USA UK GERMANY CHINA Rank 1 6 18 11 44 Index 4. 5 4. 3 3. 9 4. 1 2. 3

Comparatively, Japan has the most efficient innovation system. Both Japan and the USA are heavily dependent upon universities. Japan has a higher index of degree holders of scientists and engineers, and those are increasing – however, those in America are decreasing, meaning there is less support or resources from universities. In addition, one of the main origins of American innovation is the non-USA firms, mostly related to Japan, so Japan will be more efficient than the USA. Students in Germany are trained not only in school, but also in different companies.

However, China is focusing on occupational study at school, thus Chinese graduates are lacking in real-world experience and Chinese firms are lacking skilled and experienced labor (Buiges, 2009). This leads to Germany being more efficient at transforming innovation to competitive advantage than China. Nevertheless, in China, the relevant indicators are growing much faster, thus indicating increasing systemic efficiency and pointing to areas in which the country is focusing its leapfrogging efforts, such as nanotechnology (Fitzgerald, 1994).

Table 2 below illustrates the rank and index of national innovation capacity. Table 2 – The national innovation capacity JAPAN USA UK GERMANY CHINA Rank 12 1 4 3 43 Index 26. 4 30. 3 27. 0 27. 2 18. 1 America, the UK and Germany have a longer history of national innovation since the industrial revolution, thus those countries have a higher capacity of national innovation. China also started investing into R&D heavily since adoption of the “open door” policy.

In Japan, China and the UK, the financial support and the decision making of R&D are heavily supported by their governments (Taplin, 2006), thus those countries are more dependent on their governments than the US. 4. Industrial Level: Automobile Industry Throughout the history of industrial development, technological advances have become one of the most important forces for changing the nature of the industry and creating many “periodic clusters”. In this section, the automobile industry will be selected as an example to illustrate how every technological revolution is changing the way cars are produced and commercialized.

After the first “industrial revolution” during the 18th, steam power’s prevalence results in the world’s first steam-powered vehicle, the gugnot steam trolley in 1769, after that, the cars history witnessed several transformation such as the gasoline replaced the steam power and the gasoline cars, by the early 1900s, had outsold than other motor vehicles which leads to the urgency for industrial production. In 1889, the cars industry met the first car manufacturing in France, Pannerd and Levassor, who used to be a car’s engineer had started cars manufacturing and further improve the automobile design.

He is the first designer to move the engine to the front of the car and use a rear-wheel drive layout which quickly became a universal standard (Bellis, 2009). Automobiles didn’t achieve large-scale manufacturing and commercialization at an accepted price in the mass market until 1913, when America’s Henry Ford invented an improved assembly line and installed the first conveyor belt-based assembly in his car factory around 1913-1914. The assembly line’s improvement dramatically reduced the assembly time and increased the scale of production, resulting in the successful introduction of the ‘Model T’ in 1908.

From developments in the electronics and biotechnology industries, sources other than gasoline oil have become used in automobiles, creating the so called hybrid and electric vehicles. In 2004, the Toyota Prius 2 won awards from motor trend magazine and the North American auto show. Toyota was surprised by demand for the new vehicle and pumped up its production from 36,000 to 47,000 for the US market (Nolan, 2001). In September, Ford released the Escape hybrid, the first American hybrid and the first SUV hybrid. 5. BMW and Toyota When talking about the automobile industry, we can compare two leading companies- Toyota and BMW.

These two companies are highly dependent on technological innovations. However, other factors such as production process and management style can also affect the future success of the companies. Every year, Toyota actively invests in R&D believing that technological capabilities enhance firm’s competitiveness. The main goal of Toyota’s technology and product development is to create advanced vehicles that enrich the lives of people by minimizing the negative aspects of cars, such as environmental burden and traffic accidents, while maximizing the positive aspects, such as driving pleasure and comfort.

Whereas at BMW, the way things are done is slightly different. BMW is known for its German engineered cars but it still has put some innovative cars in the vehicle market. BMW’s success is based on strategic focus of developing customer-friendly innovations, coupled with an approach to innovations management that is unique within the motor industry. BMW has kept a constant eye on the world supplier markets so that they can adopt anything new and promising which comes out into the market.

When it comes to innovation, BMW is open to new ideas and is even willing to work with smaller companies (Sweetman, M. 2006). An innovative system introduced by Toyota was the Hybrid Synergy Drive System. When compared with other hybrid systems, it’s the first system that allows the hybrid car to run on petrol or electricity or a combination. It provides energy saving benefits along with a great driving experience. Toyota Prius is the prime example of the hybrid car. It advances the hybrid power technology and environmental leadership. It’s the world’s most technically advanced main stream car.

BMW Efficient Dynamics is already competing with Toyota Hybrid cars by developing the technologies that will take driving pleasure into the future: BMW Active Hybrid and BMW Clean Energy. The Active hybrid system competes directly with the Hybrid Synergy system of Toyota. The Active hybrid is the first of its kind that combines V8 gasoline engine, eight speed automatic transmissions and an electric motor as a mild hybrid concept. In the development of safety technology, Toyota continues development of active safety and passive safety technologies.

For example, Toyota was the first to commercialize a pre-crash safety system with a driver monitoring function that recognizes which direction the driver is facing. In addition, aiming to realize outstanding passenger protection, the company launched the world’s first SRS two-chamber airbag, which features an innovative shape and is based on the omni-support concept. In the development of environmental technology, Toyota continues to take wide range of measures aimed at reducing CO2 emissions. The amount of money spent on research and development by BMW in 2009 was 5. % of its sales, or $4 billion, whereas Toyota spent $8. 4 billion respectively. Comparing the innovation systems of the two giants is a tricky business as both are competing in new ventures and fields and trying hard to pioneer in the industry and become the global players. 6. Conclusion In every developed economy such as the Big Five we mentioned above, huge amounts of money are spent annually on R&D and training purposes. The reason behind this action is motivating the current technology to meliorate, causing the overall efficiency to increase and eventually generate more profits for the company.

Nevertheless, relying on technology as a competitive advantage alone is definitely an ineffective way for any organization to run their business. In conclusion, we totally agree that technology is an essential factor that drives a nation to economic success due to the positive results that technology will bring. Hence technology itself is not comparable, only the products which are innovated by it can add value to the nation or company, combining technology with other domestic advantages is the key to sustaining long term national competitive advantage.

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