Nathan Rosenberg; W. Edward Steinmueller *
Why are Americans Such Poor Imitators?
The American Economic Review
Volume 78, Issue 2,
May 1988, 229-234.
Despite American success in previous historical eras in imitating the technology and organizational structure of our industrial rivals in other nations, there is mounting evidence that our capacity to absorb and adapt our rivals’ advantages to our own purposes has diminished in recent years. While these concerns are voiced with regard to a number of nations, the recent success of Japanese firms has been noteworthy and deserves special attention.
One reason Americans have been such poor imitators is that, until very recently, we were not even aware that there was much in Japanese industry that was worth imitating. Japanese economic competitiveness was, for a long time, dismissed as simply reflecting lower labor costs, which were regarded as decisive in certain industries. Later, Japanese success was dismissed as ephemeral, reflecting the ease of rapid growth on the part of a “mere imitator” following the innovative leads of other nations, particularly our own.
More recently, as competition has become more heated and as certain American industries have suffered heavily from Japanese imports, the successes of Japanese firms have been attributed to policies of “industrial targeting” orchestrated by the Ministry of International Trade and Industry (MITI), usually said to involve extensive government subsidies and coordination of import policies that unfairly tilted what should have been a level playing field.
We do not wish to deny that there may have been some truth to each of these beliefs at one point in time. However, an unfortunate consequence of such beliefs has been that they have delayed efforts to monitor
*Fairleigh S. Dickinson, Jr. Professor of Public Policy, Department of Economics, Stanford University, Stanford, CA 94305, and Deputy Director, Center for Economic Policy Research, 100 Enema Commons, Stanford University, Stanford, CA, 94305, respectively.
and study the performance of the Japanese manufacturing sector with any care.
Certainly an earlier complacency has now unravelled. It is abundantly clear that there is much to admire, and perhaps to emulate, in some parts of the Japanese manufacturing system, particularly in the production of goods with a high degree of systemic complexity - for example, plain paper copiers, automobiles, some machine tools, and consumer electronics. In retrospect it is obvious that there has been much that has been worth imitating, but Americans, even when they have become aware of this, have been poor imitators. Why should this have been so? Why have the Japanese been so much better at imitation than the Americans? What has made the Japanese, if we may be permitted to use the phrase, such “creative imitators?”
During the past twenty years, the composition of Japanese exports to the United States has shifted dramatically away from industries where labor intensity provided comparative advantage, to industries where sophisticated manufacturing skills and technology are of central importance. This shift has been so marked that, in 1985, over 80 percent of Japanese exports to the United States were in electrical, electronic, transportation equipment, and machinery sectors. In short, Japanese “imitation” has been concentrated in a few specific sectors where American industry had previously been dominant for many years following World War II. The imitative processes that were used by Japanese industry in catching up to U.S. firms in these sectors should now be recognized as having major implications for how Japanese firms are prepared to succeed at the more difficult task of forging ahead (Moses Abramovitz, 1986).
The first part of our answer to the question of why Americans have been such poor imitators is that there has been a distinct asymmetry in the strengths developed by each of these industrial economies. This asymmetry partly accounts for why it has taken so long to appreciate fully the sources of Japanese industrial capabilities. The Japanese have been very successful in borrowing and developing technologies initially created by American firms. These technologies have been largely of a hardware nature, in particular, a stream of highly visible product innovations.
By contrast, what may be most worth imitating on the Japanese side is much more subtle and much less visible. It includes ways in which certain activities are carried out, rather than readily identifiable pieces of hardware. These differences lie at the levels of organization and incentives for improvement. The first is the efficient coordination of product design and manufacturing functions. The second is effective solutions to the myriad small problems that are key to efficient mass production techniques. An important part of the reason that it has been so difficult to appreciate the nature of these Japanese achievements is that they are heavily concentrated in a collection of activities - development - that economists have, so far, failed to unpack and subject to detailed and critical analysis.
This is surprising for a number of reasons, not the least of which is that R&D is, in fact, overwhelmingly D. Yet, we know more about the 12 percent of R&D that constitutes basic research than of the 68 percent that constitutes development. While this may be understandable on the part of natural scientists, it is less so on the part of economists. Nevertheless, American thinking about the innovation process has focused excessively upon the earliest stages - the kinds of new products or technologies that occasionally emerge out of basic research, the creative leaps that sometimes establish entirely new product lines, the activities of the “upstream” inventor or scientist rather than the “downstream” engineer. American discussions of technical change are more likely to be presented in terms of major innovations and pioneering firms, rather than in terms of the success of particular sectors or firms at catching up and overtaking other organizations through sustained effort and small improvements. In this respect, the dominant view of the innovative process is still overly Schumpeterian, in its preoccupation with discontinuities and creative destruction, and its neglect of the cumulative power of numerous small, incremental changes. We suggest that the Japanese have had a much deeper appreciation of the economic significance of these vital development activities than their American counterparts.
Development, of course, covers a range of activities whose content differs widely from one industry to another. It generally includes the designing of new products, testing and evaluating their performance (which in some industries may involve the building and testing of prototypes, or experimentation with pilot plants), and inventing and designing new and appropriate manufacturing processes. In each of these activities, the role of minor modifications and small improvements that better integrate design and production, establish closer feedbacks from users to suppliers, and more effectively “tune” existing production methods, are critically important. Individually, each of these modifications and improvements will bring about some slight reduction in cost or improvement in performance. Their cumulative effects may, however, be immense, as when the semiconductor industry moves, through a multitude of small steps, from a handful of transistors on a chip to a million such transistors, or when the channel capacity of a 3/8” coaxial cable expands, through a succession of small improvements, by more than an order of magnitude, or when the speed of computers increases by several orders of magnitude.
It is the essence of these development activities that they have no well-defined terminus. They do not end when a new or improved product is brought to market. Quite the contrary. A continual stream of small improvements is often the essence of success in the competitive process. In industries such as those that currently account for the bulk of Japanese exports to the U.S., development is a never-ending activity. They are not, from some points of view, very exciting activities. They are activities that do not win Nobel Prizes; nor, for the most part,
do they even win recognition at the Patent Office. This low visibility accounts for the very limited awareness of their economic importance. Nevertheless, poor performance in the development process can be commercially fatal to firms that are highly successful at research. Such poor performance can readily translate into final products of inferior design, lower quality, and poor reliability. It can also translate into higher cost and, therefore, inability to sustain a market position originally achieved through the innovation process. These shortfalls can convert a technological head start, resulting from successful innovation, into a scramble to retain what turns out to be a shrinking market share against the cost and performance advantages of competitors, including those who may have had no role in the initial innovation or in the antecedent research that made it possible.
These possibilities are, of course, not offered as mere idle rumination. There is an accumulation of evidence that many Japanese successes in recent years are a consequence of greater effectiveness in organizing and providing strong incentives for these “downstream” development activities. In the internal organization of their firms, the Japanese commonly provide for much closer interaction between product designers and production engineers, they devote far more attention to the refinement of the appropriate process technologies, and they also assign a more prominent role to the engineering department.  In considerable measure, then, their skill in imitation has been an accompaniment of their skill in, and concern with, development activities. The significance of these activities is heightened by a recognition that the ability to imitate and improve upon one’s own prior performance, rather than starting from scratch, is often central to success at development activities. If American industry were to improve its development skills it would also, simultaneously, improve its capacity to imitate. The two capabilities overlap heavily.
This statement applies with particular force to the cultivation of a strong interface between product design and engineering. Japanese strength at this interface has facilitated its technology-imitation activities by the ease with which it enables foreign products to be quickly adapted and modified to suit domestic requirements, and low production costs to be speedily achieved (see Mansfield). Furthermore, it has made it possible to move to positions of leadership where new technologies call for simultaneous optimization on both the process and product sides. The more rapid exploitation of robotics in Japan appears to be due, in important measure, to the alacrity with which Japanese firms modified and simplified product design in order to accommodate the new robotics technology. It has probably been more sensible to simplify the design of products so that robots could readily assemble them - reducing the number of component parts and simplifying the method by which parts are attached to one another - than to design robots of more general, and therefore more sophisticated, assembling capabilities.
A central theme in the study of the development process has been its integrated, interactive, and iterative nature. In sharp contrast, American firms have often compartmentalized research and manufacturing functions. Often, this has led to breakdowns in the development process characterized by “finger pointing,” in which functionally specialized groups within the firm assign blame to each other or to external suppliers. In spite of this, U.S. firms are often very good at innovation since individual ingenuity and sharply focused specialization can overcome many obstacles. But these same firms often find it difficult to make the small steps that are crucial to the ongoing development process. This leaves competitors with a host of opportunities for imitation and modification for improving performance or reducing costs,
1. In a recent comparison of innovation in Japan and the United States, Edwin Mansfield (1988) has observed a striking difference with respect to the allocation of R&D budgets between product and process technology. According to Mansfield, the American firms in his sample devoted 2/3 of their R&D budgets to improved product technologies and only 1/3 to improved process technologies, whereas among the Japanese firms only 1/3 of the R&D budgets were devoted to improved product technologies and 2/3 to improved process technologies.
thereby truncating the appropriation of returns from innovation.
The Japanese have, on numerous occasions, been the leaders in the commercialization of new products, in spite of the fact that the new product, or some essential component, was invented elsewhere. Although the United States pioneered both the scientific and technological frontiers in the invention of the transistor, Japanese firms were the first to succeed in large-scale application of this technology for radios, and later obliterated America’s earlier dominance of the market for color television receivers. Japanese success at quality and design improvements for mass-produced goods such as compact automobiles and consumer electronics are highly visible. Products requiring smooth coordination of different technologies (for example, electrical, electronic, and mechanical) for such things as plain paper copiers, facsimile machines, floppy disk drives, and personal computer printers, are strongholds of Japanese commercial and export success. None of these technologies rests on a single critical innovation. Instead, Japanese success in each of these areas can be traced to the cumulative impact of its great development capabilities.
Japanese success in development has often been able to overcome America’s much-heralded innovative capabilities. The more specialized an activity becomes, the greater the importance of efficient information exchanges if inappropriate tradeoffs or inappropriate optimization criteria are to be avoided. For specialists to work well in a large organization, there must be an intimate familiarity with one another’s goals and priorities. There must be a set of shared understandings and concerns. The development efforts of Japanese firms strongly emphasize rotation of personnel among departments in ways that lead to the exchange of useful information and the formation of common goals. In many cases, close communication among functionally separate specialists is strengthened by the awareness of a commonality of interest flowing from stable, long-term employment (and supplier) relationships. Japanese firms appear to make more systematic use of engineering skills and production worker experience throughout the entire sequence of development activities associated with the introduction of new products, including the most minute aspects of the eventual manufacturing process.
These activities are not well appreciated when, as is commonly the case, development is thought of as the application of scientific knowledge.  Development in fact incorporates knowledge from many sources. Even in those instances in which new scientific knowledge does provide the initial stimulus for a new product, the subsequent development process will draw upon a wide variety of sources, the most common of which is likely to be the existing “in-house” engineering knowledge. Organizational structures and incentive systems that can exploit these sources effectively will create economic advantages over competitors who cannot do so, even if these competitors have superior research capability. If these development capabilities are sufficiently strong, the stage of commercialization may be reached sooner, and will certainly be reached by firms in a better position to subsequently reduce cost and improve performance (Masahiko Aoki and Rosenberg, 1987).
In short, the economic value of “first-mover” advantages in capturing the economic returns from innovation is overrated, because innovations are commonly very poorly designed in their earliest stages and in numerous ways ill-adapted to their ultimate applications (Rosenberg, 1976, ch. 11). The incremental improvements underlying development play a critical role in the eventual capture of returns from innovation.
Thus, there are two reasons for the primacy of development in capturing the returns from innovations in markets such as those in which the Japanese have demonstrated success. The first is that efficiency gains in mass production are often easier to achieve through large numbers of small improvements than
2. The National Science Foundation defines Development as “...the systematic use of knowledge or understanding gained from research directed toward the production of materials, devices systems, or methods, including design and development of prototypes or processes” (1985, p. 221, emphasis added).
through major revisions. The second is that cost reduction and performance improvements in a well-established technology are often capable of overtaking efforts to advance technology through discontinuous “leaps” or major innovative steps. The creative elements of imitation involve not only the adaptation of new or externally created technology, but a continuing refinement of existing technologies and manufacturing methods.
The expansion of Japanese industries in the sectors accounting for most of their exports to the United States is largely the consequence of success at development activities (see our 1988 paper). In the consumer electronics industry, successful Japanese development of video cassette recording (VCR) technology employed multiple prototype development efforts, close coordination of design and manufacturing, and numerous small improvements in a product of considerable systemic complexity (Richard Rosenbloom and Michael Cusanamo, 1987). In addition to providing Japanese firms with a major export market, continuing improvements in VCR products well after their initial introduction were a major factor in RCA’s failure to gain a market for video player technology (Margaret Graham, 1986). The same sorts of development activities, involving numerous small improvements and precise coordination of design and manufacturing, have been important in the commercialization of laser technologies for compact disc players and laser printers, markets that are currently experiencing major expansion.
The role of sustained incremental improvement and focus on manufacturing processes have also been important in electronics industries located upstream from the production of systems for end users. The technological innovativeness of the integrated circuit (IC) industry at producing intermediate goods for other electronics companies is by now well known (Ernest Braun and Stuart MacDonald, 1982). What has been less well appreciated by economists is that innovations in the IC industry have been strongly influenced by the incremental improvement of process technology (Steinmueller, 1987). Recent successes of Japanese IC firms in international competition have been heavily dependent upon success at manufacturing improvement. In IC production, the proportion of workable devices emerging from the production process, production yield, is the most important manufacturing cost factor (Steinmueller, 1987), and yield is very sensitive to both the extent of production experience and its successful integration with the design process. Japanese accomplishments in international IC competition involves several factors (Steinmueller, forthcoming), including successful product and process development and high yields in the large-scale production of IC memory devices. The implications of development success have not been confined within the Japanese IC Industry. The demands of Japanese consumer electronics provided important impetus to the development of CMOS (complementary metal oxide semiconductor) technology. In part due to continuing development efforts, CMOS recently has emerged as the leading technology for future very large scale IC devices. As a consequence, several international joint ventures and other agreements are creating a flow of technological knowledge from Japanese to American IC firms (Steinmueller, forthcoming 1988).
Close communication links between suppliers and users play a role at the interfirm level that is analogous to our emphasis on effective communication links among functional specialists at the intrafirm level. Recent detailed studies of the organization of parts purchases in the Japanese automobile industry by Banri Asanuma (1985) demonstrate the existence of long-term relationships with important institutional mechanisms for coordinating design and assuring timely supply. Aoki (1987, p. 335) cites an (unnamed) major auto manufacturer as having 122 stable “first tier” suppliers. More importantly, Aoki characterizes these relationships as “quasi-permanent,” noting that between 1973 and 1984 only 3 firms exited from this relationship while 21 firms entered. The consequences of such stable supplier relationships are that development efforts can be jointly initiated and pressed forward, further extending the coordination of product
design and manufacturing beyond the level of the individual firms as well as improving the flow of information for making modifications and improvements in the manufacturing process.
We draw an ironic conclusion from our examination of American and Japanese technological skills. The Japanese have indeed been excellent imitators. But instead of flourishing a trump card stating that Americans are excellent innovators, we need to fix our attention on the disconcerting prospect that innovative skills may count for a great deal less than we once thought - unless we can learn to become better imitators ourselves.
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