[IEEE Engineering Management Society Conference on Managing Projects in a Borderless World - New Delhi, India (17-18 Dec. 1993)] Proceedings of Engineering Management Society Conference on Managing Projects in a Borderless World - Managing innovation projects in the global system

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MANAGING INNOVATION PROJECTS IN THE GLOBAL SYSTEM p.ptnkayastha Sag& Process Analysts, 303, Elite House 36, Community Centre, Zaauudpur New Delhi 110048 (India) . Absrrucr The scheme of global integration currently coming into place reduces tariff barriers while building other forms of resaictians. It is also not an equal one, with different coun- tries integrating themselves at different levels. To improve these terms, the third world countries will have to develop innovatian management. For a number of third world coun- tries, this would consist of locating windows of opportunities and concentfating their resources in a narrow domain. It is argued tbat flexible production systems and procesk descaling provides such windows of opportunity today. Globalisation and global integration in a borderless world are being discussed about today with slightly mystical overtones tovexlooking the rather ugly reality beneath. The Globaliition that people are talking about is not the free flow of people or ideas but of free flow of commodities and capital. For people, the borders are real and the immigration laws are getting in- creasingly tougher. Ideas ofcourse come under Intellectual Property Rights and there is a restriction on the free flow of knowledge and information under this garb. And there are other restrictions in tenns of technology flows in the shape of COCOM, Nuclear Non Roliferation Treaty 0 etc., which are certainIy quite different from the pretty picture of a borderless world. While the GAIT negotiating Draft - the famous Dunkel Draft - argues for a relaxation of trade and tariff barriers, it is im- portant to note that non-tariff baniers are actually growing in todays world. The non-tariff barriers directed, specifically against third world countries, are of various kinds. At the sim- plest level they consist of Standards like IS0 90o0 which the EEC insists the Third World possess in order to enter the EEC market. Then we have the US, which under the Intellectual property Rights Regime, seeks to force other countries to con- form to its domestic patent laws, without which US will im- pose restrictions under 301 and Super 301. We have further restrictions of other kinds l i i COCOM, Nuclear Non-prolif- eration Treaty (NPT), Missile Technology Control Regime (Fa) etc., all of which seek to create effective barriers against certain countries. Then there are anti-dumping provi- sions which can be invoked if the Third World goods are found cheap. And finally, all else failing there is ofcourse of the con- science of the West which can be roused in the name of Hu- man Rights, Environment etc., to create further physical bar- r i a particularly if third world goods are found competitive. It is not being suggested that the alternative to global integra- tion is a retreat into a neo-autarchic regime of trade and tariff controls. It is only king pointed out that the global world is by no means a buderless or an equal one. Each country is integrating itself in the global order at different levels. In this integration, control of technology is the key to det-g the level at which countries integrate themselves. At the low- est rung, are the countries who are bartering their natural re- sources for the manufamd countries. At the middle level are countries U e South Korea Taiwan, China etc., which are able to win some space for themselves and are able to sell manutkturedgoods; at the top oftheheap are a d v d c o u n - tries who not only sell knowledge intensive goods but also knowledge itself as a commodity. It is in this context that we have to look at the development of technology and therefore knowledge intensive industries, if the terms of integration are to be improved. Technical innovation is the key to the development of knowl- edge intensive industries [I]. The global system which is now coming into place will see increasing restrictions on global flows of knowledge for the development of technology. There- fore, if the third world has to develop technologically,it is im- perative that it is also able to innovate in order to improve its position in the global schema. However, the innovation man- agement for the advanced countries and the third world may not be an identical phenomena. In fact, it will be argued here that innovation management in the Third World consists of locating windows of oppomnity and the ability to concen- trate its resources m a namw domain to achieve certain break- throughs. Only then will it be in a position to bargab on bet- ter tenns on the trade of technological knowledge. Self Reliance in a World Self Reliance has been theslogan of a number of newly inde- pendent countries. Generally, it has consisted of creation of highly protective trade barriers within which techoological base was sought to be create& The key was indigemisation - the indigenous content of products was to be in- till the product was wholly indigenised. In a certain sense it was au- tarchic. It was felt that the entire economy needed to be pro- tected while self reliance was also expected to be achieved across the board. This resulted in growth of rather inefficient monopolies which were quite comfortable with the system of protection f2.31 and had little desire for developing techaol- 201 ogy. Apart from the creation of monopolies, the scheme also assumed that technology changes were not rapid, and there- fore indigenisation really meant self reliance. Technologies of the '50s and '60s were relatively different compared to today's technologies. They were relatively ma- ture i.e. had been developed some time back and were not subject to rapid changes. Thus a scheme of indigenisation of such a technology is different from a technological scenario where continuous change is the order of the day. Where change is not so rapid, indigenisation means the ability to increase progressively the indigenous content and over a period of time to bring it to a very high level. The prevailing technological paradigm in such a scheme is import substitution - once a technology is borrowed, it only needs to have its inputs from the country in order for self reliance to be achieved. While '50s and early '60s were to see generally stable tech- nology regimes and extension of production as the major thrust, this was to radically change in the succeeding decades. The development of micro-electronics and cheap computing power was to introduce a new dynamism in almost all pro- duction technologies and the capital goods sector [4]. Apart from the relative speed of change of technologies in the '70s and '80s. there was another major development that was tak- ing place globally in the system of production. The post 60's period was to see an increasing degree of complexity of the system of production. The ability to incorporate 'intelligence' in the products was also to see the development of a whole range of new industrial and consumer products. Earlier, it was relatively simple to estimate a country's development - it was strongly correlated to the amount of steel and energy being used by a given economy. However, with the growth of the information sector in advanced countries which today is of the order of 25 %I, such co-relations do not work anymore. Further, a study of a cross-section of industrial and consumer products will show that the complexity of today's products are far more than a similar range of products of the earlier period. Apart Erom the dynamic nature of technology today, it is also the complexity of both the products and the produc- tion systems that has a vital bearing on the policies for engen- dering self reliance. The earlier attempts for self r e l i c e was, as already stated, characterised by a highly regulated system consisting of im- port controls and production controls. These controls were physical and required the administrative machinery to be fully knowledgeable both about the nature of the regulations and the entire range of production systems. Obviously, the speed with which technology was changing and the complexity of the system were responsible for the crisis of this system. With increasing complexity of the production system, maintaining physical controls become increasingly difficult. It is easy to show that if the number of products to be controlled increases ~ 202 physically, the regime of controls will be faced with an expo- nential increase of work. Physical controls would then s*- ply slow down the processing of information and the flow of goods, finally clogging the system. If indigenisation was not leading to self- reliance, what then can be a new definition of self-reliance? In a system of pro- duction which is dynamic and part of a an increasingly global order, the key to self reliance consists of the ability to de- velop new technologies and knowledge [5 ] . This can no longer be across the board but must be of an order that it can be used to to trade with other such possessors on more equal terms. The key to self reliance today is the ability to develop future technologies rather than producing second rate goods with borrowed knowledge in aprotected home market. We are not discussing the policy implications of this approach here. Suf- fice it to say that the issue of selective protection and planned development is still central to this appmach rather than a laissez faire approach to trade and capital liberalisation. R . 1 R - lations Globally, the development of information technologies has led to the increasing importance of knowledge-intensive in- dustries. We are using the term 'knowledge-intensive' rather than 'science-based since the latter denotes a m m determin- istic scheme than that existing in practice. Hitherto, R&D- intensive industries were largely chemicals, pharmaceuticals, aerospace and materials. With micro-electronics and infor- mation technologies, a much larger domain of R&D-inten- sive or knowledge-intensive industries have been established. The chemical and pharmaceutical sectors are R&D intensive but not necessarily knowledge-intensive in the same way as information technologies are. Once a product is found to have certain properties, duplicating it is not difficult. The impor- tance of patent protection for this sector stems &om this speci- ficity of the industry. Micro-electronics has generally been identified as the first knowledge-based industry. Bbtechnology is the next. In the OS, and now in the '9Os, biotechnology is poised to enter into a variety of sectors including agriculture and animal hus- bandry 161. The micro-electronics revolution brought to the fore that knowledge as a commodity could be the mjor cost of a prod- uct. Apart from labour and capital, the two traditional factors of plioduction, knowledge or human capital was increasingly becoming important in the production process [71. While information technology and biotechnology have been identified as the major knowledge intensive industries today, however, these are not the only R&D-intensive industries. In fact, traditional engineering industries are also becoming in- creasingly R&D intensive. For instance, the Airbus Industries consortium in Europe was formed specifically to meet the soaring R&D costs which no single company was able to meet individually. Knowledge intensive industries differ from such industries in only one aspect: the cost of knowledge as an mnwgible is a large part of the cost of the commodity itself. The clearest example of this is software, where the cost of the tangibles, namely software media and manuals, are very small compared to the total Cost of the software as such. However the distinction between knowledge intensive industries and other R8tD intensive industries would require a mote detailed analysis tban is possible here and may, indeed, not be as sharp as made out above. The development of manufacturing industries in commies like Egypt, India, ASEAN countries, China, Korea, Tawan etc. have created a condition where the West can no longer look for a permanent monopoly in all manufactured goods. Whiie they continue to fight vigorously to open up other economies while closing theirs, there is littl~ doubt that this cannot be done indefinitely. The West is therefore looking to retain its economic dominance by concenmting on the more knowl- edge-intensive industries. Today the structuring of interna- tional technological relations means that technologies for a variety of manufactured goods are available for transfer to third world countries while knowledge-intensive industries are coming under various restrictions. George Keyworth, then Resident Reagans scieace advisor described US leadership in science to be an economic im- perative. He also emphasiied that if the newly industrialized countries move towards taking a bigger share of the manu- factured goods market, we, along with other advanced na- tions, will increasingly have to shift to even higher technolo- gies and services.[8] It is important to note that R&D intensive industries tradi- tionallyhavehighermarginsthanconventionalindustriessince there is a monopoly in newly created knowledge which per- mits higher margins in the nature of a monopoly rent. -The US for instance depends on high-tech products for its most valuable exports. Between 1969 and 1979, for example, US trade surplus in R&D intensive goods rose from $10.5 bil- lion to $39.3 billion; during the same period, its deficit in non-R&D intensive goods went from $6.7 billion to $34.8 billion [8]. And a large proportion of this increase was in sales to the Wid world. The knowledge intensive industries, particularly in informa- tion technology and materials are often tenned strategic in- dushiis. They determine the development of a whole rabge of technologies and provide a competitive edge far beyond their nonnal domain. That is why these technologies are gen- erallyregardedas dualpurpose andcomeunderresrrictions either under COCOM, IWT, MTCR etc. Recesses for such strategic technologies are also well guarded by MNCs who generally do not license out such technolo- gi~.For~~severalsoudiesbaveshowathatwhileMNcS readily part with some new technologies developed as a prod- uct, they are loth to do so when processes are involved. One survey [8] showed that when the new technology was devel- @as a product, m 72% of the casesit was tnmsferredabroad through a foreign subsidiary, 24% by unaiiibted licensing andonly495 bydirectexports.However, whenpnxessswere involved, 17% was transferred through foreign subsidiaries andm 83% of the cases, the innovation was dtbrough never used in such technologies. export of the resultant products, - licensing was 203 It has been argued that control over the results of scientific research bas clear c o m m a as well as military implica- tions. The military argument can be used to legitimize restric- tions on a whole host of technologies so that the wmmercial interests of advanced countries can be preserved. Thus COCOM regulations resaict transfer of techaologiesrelating to computer networking, software, simulation software, su- per computers, chip making etc., for allegedly military rea- sons to countries who are not thought to be firmly in the US camp. And all these are required fora wide range of industrial activities as well. As many commentators havenoted, botb in Indiaandabroad,thereceatUSbanonISROandGlavirosmoS has as much to do with protection of US commercial interests as with control of missile technologies. The above description of the global d o a of those who control S&T knowledge may sound pessimistic, with no vis- ible way out for third world countrieis, even relatively devel- oped ones. Particularly when advanced Countries are seeking mucb greater protection of their rights to monopoly over knowledge through new patent regimes, the chances of being able to change the terms of integration of third world ccow). mies may seem rather bleak. The question really boils down to whether a window of op- portunity exists for India and similar countries without sur- renderiog to MNCs and the West. In orhex words, can the third worldwuntfiesparticipa&withgreaterautommyinthepro- ductionoftechnologidaodscientiticImowledge?Asalready discussed, self-reliance in todays world meam the ability to produce and exchange scientific and techaological knowledge on equal terms ratber than re-inventing the wheel in every area [9]. It is neceSSary to develop a few such areas through which one can improve the terms of global integration and continuously enlarge these areas. The key would be state in- tervention in terms of leadership and infrasiructural support rather than the exercise of stifling controls. Perez and Luc Soete [ 101 have argued that the development of technology grows Frough four phases as depicted sche- matically in Fig 1. The comparative costs for the innovator and the imitator is shown in Fig. 2. Correspondingly, they have also argued that the costs go up with maturity while the scientific and technological knowl- edge go down with the maturity of the technology. The first phase therefore requires human capital in terms of knowl- edge and trained human power to come up with a fast sec- ond to technological innovations permitting a window of op- portunity at lower costs. This is what Japan has traditionally done especially in the earlier period. South Korea has also demonstrated a similar fast second approach and both these countries have invested heavily in R&D after initial market successes. While the approach appears attractive, it has some obvious risks in that the initial growth of technology can take various directions. Ultimately, success lies in choosing the correct direction in both market and technological terms. However, there is little doubt that this approach does provide an alternative route to the current policy paradigms. How- ever, such an approach would also require the ability to pro- vide globally competitive inputs without going through a va- riety of controls. Perez and Luc Suete have also identified that the other entry point would be the mature phase of technologies. Here the investment costs are high but risks are low. Traditionally, the third world has chosen this route. With no initial pool of skilled man-power, this virtually the only option available. In this, obviously, the terms of global integration terms do not change as the skill level required for entry at this stage is not very high and developing a new technology at the mature stage is a near dead end. However, this stage does provide the devel- opment of necessary skills for the next level of intervention. Windows o f Opportun itv: Flexible Production Syste ms and Descallng There is also potential for looking beyond the extant techno- logical paradigm and working towards new scenarios of pro- duc tion and distribution with accompanyini new technolo- gies which, while meeting domestic demand, could also be globally competitive in terms of both quality and cost. In fact, information technologies provide the potential to actualize such a scenario. A brief and schematic presentation of one such initiative is made below. Manufacturing and process industries in advanced countries are undergoing radical changes coupled with advances in in- formation technologies. Given the rapid obsolescence now characterizing industry both in terms of products and plant/ machinery, flexible manufacturing and flexible batch-process- ing systems with automated controls are emerging as the al- temative to existing fixed structure systems. In the lam, when the finished product has become obsolete or when newer manufacturing systems have rendered it uncompetitive, the plant as a whole requires virtual replacement at huge costs. Flexible systems allow for switching of inputs and products with suitable changes in processes in keeping with needs to obviate this problem. Of course, to enable maxi efficien- cies, such flexible systems have invariably to be automated. The key issue is that under conditions of rapid technological change or market instability, the economy of scale of the fixed structure plant no longer holds good. In fact one can see easy evolutionary parallel from nature. Species which are highly adapted and efficient under a certain form of climatic regimes are generally poorly equipped to handle unstable environ- ments. Similarly, large plants are relatively unsuited to handle acynamic scenario as it is too well suited to a particular con- dition. Descaling and flexible response to a changing envi- ronment will be the key issues for the future and provides a possible window of opportunity for the Third World. At present, such flexible systems and their automation sys- tems on expensive hardware and software platfoms are highly capital intensive. Currently, traditional CAD/CAM systems can be introduced in plants in the $25 million to $100 million range: while such f m s are considered medium-scale in the US and Japan, in countries like India only a few large indus- tries would fall in this category. The possibility exists of developing indigenous low-cost au- tomation software on PC-based platforms to suit the smaller scales of the third world countries while enabling them to sub- stantially enhance their efficiencies and global competitive- ness. Indeed, plant sizes can also be reduced by devising suit- able networked systems of sub-units for different production functions: de-scaling of plants has recently received much attention especially in Japan with considerable evidence for reconsideration of traditional notions of economies of scale. The scope of this paper does not permit a more detailed pre- sentation of this idea, which has been discussed elsewhere [ll]. In brief it is argued that, whereas the existing global scenario appears to offer little opportunity for countries like India to break out of the present strangle hold of technologi- cal monopolykonml by advanced countries and MNCs, the potential exists for alternative technological paradigms based on contemporary advanced knowledge. In other words, the alternatives are not only between surren- 204 dering to ajunim-par&ner role on the one hand and an autar- chic reiWent-the-wheel mode on the other. Identifying and exploiting available windows of opportunity, as well as chart- ing new paths, are very real possibilities. [6] Commonwealth Wolking Group Report, Techolo&al -. Vol.II, Commonwealth Semtafiat, 1986 [7] Christopher heeman, - of - y&w, MIT Press, 1982 [8] David Dickson, The New Eplrt~cs Of REFERENCES University * . [I] David C. Mowery, and Nathan Rosenberg, Tec- Pres% 1988 GrowtB, Cambridge University [9] Mi Purkayastha, Self-Reliance - conceptual PIE- mises, All-India peoples Science Congress, Bangalore, 1989 Press, 1989 . [2] Nathan Rosenberg, W the B W Box: [ 101 Carlotta Perez and Luc Soete, Catching Up in Technol- Dosi,ChristopherFreanaa,RicbardNelson,GeraldSilverberg [31 Kurt Unger, Indusaial Structure, Technological Change and (h.), h and Microeconomic Behaviour in the LDcs, in Giovanni Do&, Christopher Freeman, Richard Nelson, Gerald Silverberg E1 13 Rabu Furkayastha and D.Raghunandan, Flexible Fro- -, Monograpb, Centre of Tecbnology and London, pinter Publishers, 1988. Deveonnent. 1992. Ecowmics. Cambridge University Press, 1982 ogy:EnayBarriersandw~sofoppoity,inGioMumi lef Publisb-1988. a n d L u c s o e t e ( e d s . ) , ~ ~ m n o m i c ~ e . FLEXIBLE SY!3lEMS APPROACH TO MANAGEMENT 1NABORDERLESSWOIU.D SUSHI1 Demrbnent of Manawment Studies Indian Institute of 1 . . 141 JW ~ada, 3 Cations. UNIDO, Vienna, 1982 TechnobgyHauz Khas, New-belhi-110016, INDIA [51 Rabu pmlrayastba New Technologies and Global Struc- tures of Dominance, coming. . . Forth- MaiIing adhss: Department of Management Studies Indian In- stitute of Technology Hauz Khas, New Delhi-110016, INDIA 205 . Phase I Phase I1 Phase Ill Late growth Degree of Maturity Fig. 1 Life cycle of a technology Knowledge - related cost of entry 9 T I I Aost I I I I I I curve Phase IV Maturity Time Relevant knowledge level of the firm Fig. 2 Varying knowledge - related cost of entry for different innovating and imitating firms. 206