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Business strategy is driven by the trend to global markets, by the growing strength of the NICs and by technology, which overturns old competitive advantages and enables new ones. To gain advantage, technology must be combined with a sharp understanding of customer needs. Three examples of this are in NC machine tools (Fanuc), red meat improvement (Sainsbury) and running shoe design and production (Nike). Innovation depends on people. There is a role for Government in broadening education. The main job of industry is to combine technical and market knowledge in the same individuals. That combination is more important than all the analytical skills of the traditional MBA.
A few years ago I visited the factory of Apple Computer in Singapore. I was told that 30% of all the staff were working in their own time to get further engineering qualifications. There seemed in Singapore, and in almost all the countries in the Far East, to be a national consensus that the commercialisation of technology was the key to international competitiveness, and that the training of engineers and technologists was a national priority. In this country technology is seen very differently. A certain amount of hand-waving takes place every time the percentage of undergraduates taking science and engineering falls. Every so often there is a call by scientists for Government to fund more fundamental research, and occasionally the CBI or the Institute of Directors expresses concern that there are not enough engineers in industry.
But there is little understanding of the key role that the commercialisation of technology plays in international competitiveness, or of the radical changes that need to take place if we are to be economically successful. This evening, therefore, I want to talk first of all about why technology has a key role to play in improving our standard of living, and then about what industry needs to do to improve its performance.
In today's world markets, there are three key factors which impact on the strategic thinking of every company. The first is the increasing trend towards global markets. Technological advances in transportation and communication have had a major impact on the shape of the international economy. In the years after the last war, advances in air transport and ocean shipping brought down significantly the cost per ton of international transportation so that, for a wide range of products, the cost of sending raw and finished materials from one country to another became an insignificant part of the final price of the product. A revolution in communications also had a profound impact on world trade. Advances in radio, telephone and computer communications made it possible for corporations to control operations as easily in different parts of the world as they had once controlled operations in different parts of the same town. These developments also helped the growth of international banking and finance networks which could transfer capital across national boundaries in a few seconds.
These developments in transportation, managerial control and finance made possible the growth of a truly integrated international economy, and shaped the form of a new economic entity -- the multi-national corporation. As a result, there are very few sheltered home markets left in most developed countries. Almost all markets in traceable products are open to international competition.
Secondly, the dynamics of world markets have been dramatically altered by the increasing role played by Newly Industrialised Countries such as South Korea, Taiwan, Singapore and Hong Kong. The share of world manufactured exports of the East Asian NIC's, for example, went up from 1.6% in 1963 to 8.8% in 1989. Because of the growth of literacy which is taking place in the Third World, cheap labour, which once could not be used because it was not productive enough, is now starting to reach productivity levels which make it competitive in world markets. And of course these countries have lower wages than us. In the past access to capital and technology enabled some countries to maintain a high standard of living. But increasingly all the factors of production other than workforce skills can move freely around the world. Capital, in the form of equity investment from international banking institutions, now flows freely across international boundaries, with the result that the cost of capital in different countries is now rapidly converging. A developing country can now buy the world's most modern steel-rolling mills, fibre plants or numerically controlled machine tools, and as a result compete in many capital intensive industries.
What then are the skills which enable a country to pay its workers 4 an hour and still compete against a country where they are paid 50p an hour? The answer is design skills, research skills, engineering skills which are too large or fast moving to be handled by license or by a few imported engineers, and large quantities of sophisticated management skills.
The third factor which is of vital importance to understanding the dynamics of world markets is technology. …