Chapter 4/Competitive Intelligence Handbook

The International Background of CI

Hardly any time has been as important to the American corporation as the decade we have just entered. Foreign companies, both Japanese and European, have made inroads into domestic market share across a bridge of industries ranging from steel and automotive to home electronics and ceramics. In some cases, entire industries and their infrastructure have been abandoned to foreign competition. Foreign student SAT scores exceed those of U.S. students dramatically, with grave implications for our future technological capability. A German firm we know of was unable to sell its packaging machine to U.S. bottlers because domestic management felt the control panel was too complex for their under-educated workforce. It did not seem to matter that the machine offered economies of production and efficiency (economies which would have offset the cost of training operators by a significant degree). Turning away from enhanced productivity by saying "our workers aren't educated or literate enough to handle that" has become an expensive mind-set.

Both European and Far Eastern companies commonly expend far more than their U.S. counterparts on research. Sad to say, our products still do not, in spite of some efforts to change and improve, have a level of quality to match those of many European or Japanese companies. Many of our large firms are top-heavy, compared to their international competition, with layers of management between the worker and the CEO undreamt of elsewhere in the developed world. A major business news publication recently foresaw the era of the nineties as a "competitive hell for the U.S. corporation". It may very well prove to be exactly that, particularly if we continue to conduct our domestic business as we have done in recent decades.

The Boston Consulting Group, with the Wall Street Journal, recently polled Japanese and American managers on the perceived need for more R&D spending within their companies. Some 97 percent of the Japanese managers expressed a need for greater research and development expenditures in their corporations, compared with 61 percent among U.S. managers.

Without the advantages accruing from major R&D investment, U.S. companies may find themselves in the situation of some underdeveloped nations: rich in natural resources, but unable to bring those resources to market by adding value to them.

According to Jonathan Aylen, who periodically surveys the world steel industry, Japanese-owned steel mills are investing major R&D resources into such non-steel areas as ceramics and electronics. Aylen noted in Research-Technology Management that one company, Nippon Steel, is spending more on research than all eight leading U.S. mills combined. He noted that EC R&D steel investment is on a par with Japan's. Aylen has a regular column in the Steel Times International.

Japanese corporations are using our elite universities as a key resource in science and technology research. Everywhere leading-edge research is happening, from Stanford and Harvard to MIT, Japanese corporations are actively funding and endowing research. Half of the foreign companies participating in MIT's Industrial Liaison Program are Japanese. In addition to this, over a third of the corporate chairs endowed at MIT are sponsored by Japanese companies. These 19 chairs represent some $20 million to MIT. Evan Herbert has taken a look at the Japanese use of American technology and information, and it is a foreboding picture in some ways.

Academia insists that it does not sell its services, but rather seeks sponsors, and this is a sponsorship aggressive Japanese technology-driven companies are happy to provide. What do such companies get for their dollar? The keys to the store.

Fujitsu Limited, Japan's chief computer manufacturer, endowed the MIT Fujitsu Professorship of Electrical Engineering and Computer Science for $1.5 million in 1988. MIT chose one of its most respected scholars, Robert G. Gallager, to fill this chair. Gallager authored Information Theory and Reliable Communication. He co-directs the Laboratory for Information and Decision Systems. He was President of the Information Theory Society in 1971. He is recognized for his work in flow control, data compression and routing. What else does Fujitsu get for its $1.5 million? Access to MIT's other resources, primarily.

Marvin Minsky, arguably the leading authority on artificial intelligence, is also on the faculty at MIT. Minsky is one of two people Isaac Asimov named when asked if he knew anyone smarter than he was. (The other was the astronomer and author, Carl Sagan.) How could Japan resist having access to such talent? Why should anyone expect them to resist?

In its promotional literature, MIT notes: "The Industrial Liaison Program places at your disposal the expertise and resources of all the schools, departments, centers and laboratories of MIT." Given the value received, $1.5 million dollars sounds like smart shopping.

Recent changes in the status of eastern bloc nations and the ongoing evolution of the economic community do nothing to lessen this competitive threat. Given these events, and our recent failure to compete across a spectrum of technological areas, it behooves the American corporation to go through an agonizing reappraisal of its strategic position. The reasons for diminished competitive vigor probably have less to do with ability than with mind-set and attitude, but whatever the reasons, surely a knowledge of the competitive environment and the resources that define it is a necessary prelude to change.

A competitive parable:
The snail and the predatory crayfish
The growth patterns of a snail called Physella virgata virgata are significantly altered by the presence of a certain predatory crayfish. In an environment relatively free of this predatory crayfish, the snail reproduces when its shell is about 4 millimeters in length. The life span of snails in this environment is some three to five months (Science Magazine). However, if the water is also inhabited by the Orconectes virilis crayfish, the snails grow to twice their normal size, live over twice as long (11 to 14 months), and reproduce later. Scientists studying this phenomenon hypothesize that in such a harsh environment, the snail reallocates its resources away from reproduction and toward growth and community survival.

Suppose we compare this genetic developmental/biological response to the industrial/ccompetitive environment that the European Economic Community and the changes in Eastern Bloc nations will undoubtedly foster. This was the environment Europe and Japan struggled with following WWII, when immediate pleasures had to be postponed for growth and community survival. (An analogy to early reproduction for U.S. corporations might be our short-sighted focus on quarterly or annual results rather than managing resources for long-term benefit.) Michael Porter, writing of the research findings in his recent book, The Competitive Advantage of Nations, noted: "...I found that competitive advantage springs not from static efficiencies but from improvement, innovation and the ability relentlessly to upgrade competitive advantages to more sophisticated types. These in turn result not from a comfortable home environment but from pressure and challenge. We could have used a few more predatory crayfish in our comfortable home environment, apparently, and a bit more pressure and challenge. As Shakespeare wrote,

Sweet are the uses of adversity; Which like the toad, ugly and venomous, Wears yet a precious jewel in his head; And this our life, exempt from public haunt, Finds tongues in trees, books in the running brooks, Sermons in stones, and good in every thing.

As You Like It, Act II, Sc. I, Line 12

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