©Michael Borrus, 2003 Analyzing a Political Economy Independent Variables Political system and policy Production profile of the economy Structure of domestic industry Structure and operation of domestic markets Organization of major factor inputs: – Capital – Labor – Resources – Technology

©Michael Borrus, 2003 Japan During the High Growth Years (post-WWII – late 1980s) Japan as “developmental state” – Rapid development through technological catch-up For tech competition: two sets of innovations – Role of government Gatekeeper policies –Market access, capital access, tech access Promotion of “controlled competition” –Capital allocation, tech diffusion, market creation, sunset – Organization of industry Keiretsu – horizontal industry groups Vertical enterprise groups

©Michael Borrus, 2003 Impact of Japanese Organizational Innovations (under conditions of rapid growth!!) Increased predictability for investment Easy access to cheap capital (and other resources) Decreased transaction costs Increased information- and risk-sharing Life-time employment and ability to capitalize investment in upskilling Control over distribution Access to global markets

©Michael Borrus, 2003 Undoing of “Japan Inc.” 80s asset bubble exacerbates hidden problems, then: Asset bubble bursts exposing vulnerabilities Recession = system badly positioned for slow growth Entrenched political system incapable of responding Yen appreciation exacerbates market shifts US adjustment pressures Japan from ‘above’ New entry from Taiwan/Korea pressures Japan from ‘below’

©Michael Borrus, 2003 Class Project: Homeland Security Info Security Energy New Technologies Biodefense Physical Security ComponentsEnabling TechnologiesInfectious Disease: Prevention Smart Cards and Biometrics Systems and NetworksInfrastructureDetection and Diagnostics Detection and Prevention Systems Software and ServicesOil/Gas, Electricity etc. TreatmentAccess Control MEMS and NanoTech New Materials Eng. Data Architectures, etc. Asia Programs, Industry Homeland Security Global Industry Context Global Market and Mkt. Segmentation Value Chain and Production Org. Evolution Europe Programs, Industry

©Michael Borrus, 2003 Evolution of Chip Competition III 1990s Policy: STA; Sematech; Telecom dereg. and Internet in US; MOF bursts Japan Asset Bubble Lead Market: Proliferation and networking of “open-but- owned” microcomputer–based systems (desktop, enterprise, portable, wireless) Demand: Implementing standards (for low costs and interoperability); providing functionality, features, performance (for product differentiation); managing volatility (declining product cycle times) Structure: Vertical dis-integration and specialization (due to market segmentation and capital intensity of production) leading to outsourcing and collaboration (networks) Strategic Advantage: Continuous Product Innovation Result: US firms regain global leadership; Major market entry from Korea and Taiwan who seize manufacturing leadership; Japanese firms squeezed in-between

©Michael Borrus, 2003 Global Market and Regional Shares Source: SIA, WSTS

©Michael Borrus, 2003 Proliferation of the Foundry Model Source: IC Insights