How firm capabilities affect who benefits from foreign technology

We explore how firm capabilities affect the diffusion of technology brought with foreign direct investment (FDI). Using a panel dataset on Indonesian manufacturers from 1988 to 1996, we measure how the productivity of differing domestic firms responds to the entry of multinational competitors. We find that firms with investments in research and development and firms with highly educated employees adopt more technology from foreign entrants than others. In contrast, firms that have a small “technology gap,” meaning that they are close to the international best-practice frontier, benefit less than firms with weak prior technical competency. This finding suggests that the marginal return to new knowledge is greater for firms that have more room to “catch up” than it is for already competitive firms.     

A model of “coupled” technology transfer : A logistic curve approach

This article presents a mathematical model relating to the technology transfer problem. The origin of the problem stems from the existing trade-offs between the strategies of “technological progressiveness” and “static efficiency” employed by firms or countries defined as “leaders” and “followers,” respectively. The formulation of the model is based on the assumption that the technological development of a firm or a country follows a logistic growth curve when related to a specific technology. During the process of a “coupled” technology transfer, the development of the follower changes and its behavior is described by a first order nonhomogenous deferential equation. Different scenarios of the “coupled” technology transfer between the leader and the follower are being discussed.     

The analysis of a price war strategy under market demand growth

We use the finite repeated Prisoners' Dilemma game model herein to discuss how firms choose their optimal strategy under a price war with market demand growth. This model has two players: one is an R-type player and the other is a TFT-type player. Each player has two strategies to choose from: a preemption strategy and a “wait” strategy. Our results indicate that: (i) if the probability that the opponent is an R-type (TFT-type) player is high, then the time when the opponent adopts a preemption strategy will be early (late); (ii) Market demand growth is an incentive for cooperation among firms; (iii) if the market demand growth rate is high, then the R-type player will not have an evolutionary advantage. We use the competition between cell phone manufacturing firms Nokia and Motorola in China as an example. When Nokia is an R-type player and adopts a preemption strategy, Motorola should preferably use a preemption strategy rather than a “wait” strategy. However, as a TFT-type player, this will benefit Motorola under the situation of market demand growth.     

Increasing returns and the share economy

Under imperfect competition, profit maximization by firms results in the market price exceeding the marginal cost of production; Weitzman terms this “excess supply” Weitzman wishes to replicate in the cost function (in terms of labor) the properties of the revenue function (in terms of output), thus generating “excess demand” for labor. A revenue-sharing scheme will achieve this if and only if there are decreasing returns to scale. Hence increasing returns apparently play no role in Weitzman's analysis.     

Absenteeism: A comparison of incentives in alternative organizations

This paper uses a game-theoretic model to analyze the incentives workers may have to play “hookey” from work given that there is an outwardly unobservable probability of being sick and thus being unable to work. We compare incentives and equilibria in labor-managed firms (LMFs) and in profit-maximizing firms (PMFs), both in single-period and repeated games. We show, among other things, that in an egalitarian LMF there are circumstances under which members will not work when it is optimal to work, while the PMF suffers from the opposite problem; daily paid workers will work even when it would be better if they did not.     

Venture capital: Structure and incentives

Venture capital is a major source of financing for firms in their early stages of development. Such businesses, especially in the high technology industries, are characterized by a high degree of uncertainty and asymmetry of information. In this paper we analyze the relationship between a venture capital organization (“capitalist”) and the initial owner of an entrepreneurial entity in which it invests (“entrepreneur”). We focus on the agency problems and derive a compensation system. In our model the capitalist provides a combination of equity and debt financing while the owner provides equity financing which serves as a signal affecting the beliefs (“optimism”) of the capitalist. The interesting result is that since the capitalist is assumed to be more risk averse than the entrepreneur, he is made to be more optimistic than the entrepreneur at the optimum.     

Critical Success Factors for Business Reengineering and Corporate Performance: The Case of Korean Corporations

This article briefly reviews the literature on business reengineering (BR), analyzes critical success factors (CSFs) for BR, develops a BR-CSFs model, empirically tests the model on Korean firms, and investigates the impact of BR on corporate performance in Korea. Many Korean firms are attempting to transform from Japanese- to American-style business management. As part of this process, BR has gained substantial critical mass as the first widely accepted American-born management methodology accepted in Korea. While Western-based BR methodologies provide general procedures and techniques the CSFs listed in this research focus on the key factors that Korean firms generally confront. In the present research, 20 CSFs, taken from a literature review were divided into four categories: strategic, organizational, methodological, and technological/educational. A survey was developed to assess the firm-specific importance and development of each of these CSFs. Survey responses from 162 Korean corporations indicate a positive association between the designated CSFs and corporate performance. Korean BR team leaders and CEOs/COOS rate “strategic” and “methodological” CSFs as most important while “organizational” and “technological/educational” CSFs are considered less important, a rank ordering challenged by the authors.     

A Noncooperative Analysis of Hotelling's Location Game

We study the location equilibrium in Hotelling's model of spatial competition. As d'Aspremontet al.have shown, with quadratic consumer transportation cost the two sellers will seek to move as far away from each other as possible. We show that the location game possesses an infinity of mixed strategy Nash equilibria. In these equilibria coordination failure invalidates the principle of “maximum differentiation” and firms may even locate at the same point.Journal of Economic LiteratureClassification Numbers: C72, D43, L11.     

企业社会责任标准国际化背景下企业进入策略研究*

本文通过构建博弈模型，对企业社会责任（CSR）标准国际化背景下企业进入策略进行研究。本文发现，企业最优进入策略受到进入成本影响，当进入成本较低时所有企业都适合选择进入高CSR标准市场，当进入成本较高时所有企业都不适合选择进入，当成本介于两者之间时适合部分企业选择进入。在对社会福利的分析中还发现，当进入是企业最优策略时，无论是部分进入还是全部进入，企业承担更高的社会责任能同时提升企业利润和社会福利水平。     

The Downside of Knowledge Spillovers: An Explanation for the Dispersion of High-tech Industries

Both theoretical work on knowledge spillovers and regional policy initiatives often assume that there exists a general and unanimous advantage for firms to cluster. But opposed to the benefit is the disadvantage of sharing knowledge with other (rival) firms. This paper highlights the “downside” associated with knowledge spillovers and presents a four-stage game of location choice where spillovers result from labour poaching and where the strategic interaction between firms may make them avoid co-location with spillovers. The model provides an explanation for the dispersion of German high-tech industries found in a companion paper.     

Can the share economy cure our macroeconomic woes? Probably not

This paper introduces the major ideas in Martin Weitzman's The Share Economy. It notes that a “share” economy is one in which the marginal cost of labor is less than the average cost of labor; moreover, this condition can be induced by sharing revenues or profits. According to share theory, such contracts will lead firms to create more vacancies and thereby lower the average unemployment rate. Weitzman proposes to induce more share arrangements by giving a tax preference to share-type income.     

Effects of Incumbency and R&D Affiliation on the Legitimation of Electric Vehicle Technologies

Non-economic forces distort “rational” competitions among emerging technologies and associated trajectories. For example, incumbent and credibly affiliated firms use their legitimacy to promote their technological preferences and denigrate the efforts of less legitimate firms. This article reports results of a study which examined these dynamics in the competition among emerging electrochemical innovations aimed at the electric vehicle industry. It also presents the first-known use of the technology forecasting technique called morphological analysis in business academia. Similarities and differences between media representations of innovation activities, versus actual industry-wide developments, were found to have theoretical and practitioner implications. It was found that (1) incumbent firms were not participating meaningfully, rendering that variable largely moot; (2) effects of R&D affiliation were marginally significant; that while (3) performance advantages and disadvantages were reported in the media much more frequently than respective cost-price advantages and disadvantages, that (4) the relative performance advantages and disadvantages of competing innovations were reported in a balanced way, but that (5) the pattern of reports concerning cost-price was unbalanced in a way that favored the dominant design plus relatively modest departures from it. The overall interpretation indicated that relatively modest types of innovations were “winning” the early battle in a subtle but important way, despite representing a trajectory that was not certain to be the most rational, from a performance and/or cost-price focus.     

Are environmental concerns drivers of innovation? Interpreting Portuguese innovation data to foster environmental foresight

The relationship between environmental concerns and innovation is analyzed in the context of Portuguese manufacturing firms, with the ultimate goal to foster measures of environmental foresight.Based on data from the Community Innovation Survey in Portugal, simple statistical tests, including Chi², t, and Levene's tests and contingency tables (adjusted standardized residuals), were used to study the relationship between firms' characteristics and the introduction of innovation aiming to reduce environmental damage. Environmental foresight is discussed based on three groups of variables that allow considering the industrial context that frames firm's actions, the economic performance of the firm and its innovation patterns.Results show that the development of innovation due to environmental concerns is positively associated with the firm's size and exports share, and negatively associated with its technological content. Moreover, it is shown that the firms that introduced innovations due to environmental concerns are likely to belong to an economic group, to have performed continuous R&D, or received public support. It is also shown that “lack of organizational flexibility” and “lack of receptivity by customers” are the two most relevant innovation barriers for these firms.     

Characteristics of technology transfer in business ventures: the case of Daejeon, Korea

This article explores the characteristics of venture business and entrepreneurs in Korea to (1) identify technology transfer activities, (2) analyze the differences between technology transfer in linear and nonlinear venture businesses, and (3) guide more effective venture business policy and strategy. This empirical assessment reveals that entrepreneurs have insightful evaluations about their resources and capacities as well as expectations with regard to functions and features of science parks and incubators. Respondents from “linear model”-based start-ups tend to be older and have higher education, employ more basic research and development (R&D) and have more R&D-oriented careers, and have more varied work experience than “nonlinear”-based start-ups. The functions and features of science parks and incubators were generally not considered a critical influence on start-ups nor on the growth of venture businesses. Accordingly, alternative venture-nurturing strategies are discussed as being key to accelerate venture businesses growth.     

PUBLIC INVESTMENT,TAXATION AND TRANSFER OF TECHNOLOGY

A low‐wage developing economy (South) is interested in accessing and attracting superior technology from a high‐wage developed economy (North) with firms having heterogeneous quality of technology. To improve upon the initial market equilibrium, which shows that relatively inefficient technologies will move to the South, the host government invests in infrastructure financed through taxing the foreign firms. We discuss the problem of existence of such a tax‐transfer mechanism within a balanced budget framework. We argue that such a policy can increase tax revenue as well as instigate the transfer of better quality technology. It turns out that this policy is more likely to be successful when the production concerns high‐value, high‐price products in low‐wage economies. Our results improve upon the conventional strategy of a tax break.     

Conflict in the labor market: Seniority rules and unemployment

This paper examines the macroeconomic implications of two labor-market institutions that play an important role in worker-management interactions: seniority-based layoffs and majority voting on wage proposals. Together, these make the median worker, rather than the marginal worker, the important decision maker for wage and employment outcomes. Since he is risk-averse, he will trade off higher wages for greater security of employment; therefore, the equilibrium level of unemployment will be much less than 50%, but higher than the conventional natural rate of unemployment. Median-worker behavior helps to explain both the greater frequency of excess supply than excess demand (59.4% versus 40.6% of the time since 1890) and the wage concessions of 1981–1983. A new Phillips curve is derived which incorporates systematic influences of the size of the labor force (to correct for the inappropriate measure of excess supply) and Tobin's “q” variable (to measure the risk of unemployment for the median worker). With U.S. data for 1957–1983, this new Phillips curve has a higher explanatory power than the traditional one. Additional forces that influence wages and employment in this setting are identified: firms have an incentive to bargain actively over wages rather than accept union demands passively and senior workers have a “social contract” with junior workers that reduces the extent to which the former exploit the latter.     

Government funding strategy in technology programs

Industrial R&D in a market economy is mainly implemented in the private sector, therefore public funding is a very important tool of government to guide private R&D activities. This paper investigates the experience of funding national programs in a number of industrialized countries, and reaches some preliminary conclusions: (a) To reduce opportunistic behavior and ingrain intrinsic incentive in firms, both competition and cost-sharing principles should be used concurrently in underwriting firms' R&D projects. (b) Competition principles can be applied across many candidate projects around the same time or a series of one-of-a-kind projects over a longer time horizon. (c) The major threat to application of competition principles is that there is no “real competition” due to few qualified candidates in specific technological fields or in some, especially small, countries. (d) In practice, the appropriate cost-sharing level is difficult to determine. Fifty-fifty is used as a rule of thumb in many countries to simplify the decision making and circumvent “bounded rationality.” (e) Full cost endorsement may be another “quantum” alternative for projects urged by government but not felt to be very relevant by firms.     

Trade Liberalization and Technology Diffusion

The paper considers the role of technology diffusion and trade liberalization for the catching‐up of structurally backward countries. A New Economic Geography model is presented that accounts for firm entry/exit and international mobility of skilled labor employed in public R&D sectors. This raises the traditional agglomeration effects in a core–periphery setting as firms and mobile factors usually cluster within spatial agglomerations. With international technology diffusion, however, there is a counteracting effect on the traditional agglomeration effects as firms in the periphery also benefit from increasing R&D expenditures in the core lowering entry costs for firms. It is found that the catching‐up of structurally backward countries is spurred not only as a result of trade integration but also because of technology diffusion.     

Will low technology products disappear?: The hidden innovation processes in low technology industries

Political discussions and analyses have usually been devoted to an understanding of the development of high technology products, although low technology products have dominated the industrial structure of the Organization for Economic Cooperation and Development (OECD) countries. The important role of low technology products in these countries raises the question of whether we can observe a technological paradox in the industrial structure of the more advanced nations, the dominant role of this sector in spite of its competitive disadvantages because of high wages. Using the Danish packaging industry as an example, a central thesis in the article is that innovation processes are important in low technology industries. They are also often an integrated part of the marketing and production functions of the firm. The innovation processes in the low technology industries are therefore too complex for traditional R&D analyses to handle. The article points out that—especially in small firms—the “practical man” and his “tacit knowledge” play a very central role in both product and process development, and that low technology, even in the future, will play a central role in the industrial structure of the OECD countries.     

Forward and backward dynamics in implicitly defined overlapping generations models

In dynamic economic models derived from optimization principles, the forward equilibrium dynamics may not be uniquely defined, while the backward dynamics is well defined. We derive properties of the global forward equilibrium paths based on properties of the backward dynamics. We propose the framework of iterated function systems (IFSs) to describe the set of forward equilibria and apply the IFS framework to a one- and a two-dimensional version of the overlapping generations (OLG)-model. We show that if the backward dynamics is chaotic and has a homoclinic orbit (a “snap-back repeller”), the set of forward equilibrium paths converges to a fractal attractor. Forward equilibria may be interpreted as sunspot equilibria, where a random sunspot sequence determines equilibrium selection at each date.