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COPYRIGHT 2005 American Society for Competitiveness
ABSTRACT
High technology contributes to rapid growth by changing the key factors of success. It has now emerged as the major source of wealth generation as opposed to the resource-based industries that dominated the twentieth century. Recent data in high technology trade shows that a small number of countries such as the USA and UK show increasing surpluses, while most other countries tend to show chronic deficits. Existing studies on high technology trade tend to focus on advanced countries and are often devoid of empirical examination. This paper develops a model of the determinants of high technology exports, which is tested on a sample of 55 developed and developing countries. It is hypothesized that high technology exports are a function of a country's level of inward foreign direct investment, home demand conditions and technological infrastructure. Using factor analysis and multiple regression, the study examined the effects of these variables on high technology exports. Some important implications flow from the results. First, inward foreign direct investment has a significant and positive effect on high technology exports. For many developing countries with limited indigenous technological capability, foreign multinationals have played a major role in providing the requisite expertise to enable them to export a variety of high technology products. In Malaysia and Singapore, foreign multinationals have set up advanced manufacturing, design and development capabilities, thus allowing them to export a whole range of high technology goods.
Second, sophistication of buyer needs play an important role in influencing a nation's high technology exports. This variable which is taken on a scale of 1-7 measures the extent to which a country's buyers are knowledgeable, demanding and buy innovative products. The results indicate that there is a strong positive relationship between sophistication of buyer needs and high technology exports. Thus, the existence of sophisticated buyers pushes companies to employ advanced technologies in order to remain competitive.
Third, the results also show that national technological infrastructure contributes to enhance high technology exports. A nation's stock of technological infrastructure is critical to competitive success in knowledge intensive industries. In short, these results indicate that success in high technology exports depends on a number of factors including inward FDI in sophisticated industries, demanding local buyers and a developed technological infrastructure.
INTRODUCTION
High technology is often used to refer to firms and industries whose products or services embody advanced and innovative technologies. Such firms have in common a reliance on advanced scientific and technological expertise and are often identified by high research and development expenditures (Keeble & Wilkinson, 2000). In this study, high technology is operationally defined to cover products that fall under sections 84-92 of the harmonized tariff classification. The harmonized tariff classification system which is now adopted by many countries is a commodity description and coding system that defines goods according to their essential character (Seyoum, 2000). High technology products include aerospace, computers, software and related services, consumer electronics, semiconductors, pharmaceuticals, scientific instruments and electrical machinery (OECD, 1990). In the context of this study, the terms "technology-based products," "advanced-technology products" are also used to denote high technology goods. The term "competitiveness" is defined as the nation's ability to produce and distribute goods in the international economy in competition with those produced in other countries. A good measure of national competitiveness in high technology is the presence of substantial and sustained exports in the high technology sector (Seyoum, 2004).
High technology sectors contribute to rapid growth in both manufacturing and services by increasing the overall efficiency of labor and capital. A recent study shows that the growth rate of the top fifty countries (in terms of R & D intensity, and scientific manpower i.e., number of scientists and engineers) was about three times higher than the rest of the world for the period 1986-1994 (OECD, 1999). High technology also provides firms with a competitive advantage by changing the key factors of success. In some cases, small firms with limited experience have managed to overcome the cost handicap created by dominant competitors through technological innovation. In the future, high technology industries will be the primary source of wealth generation, as opposed to the resource, labor and capital-intensive industries that dominated the twentieth century (Reich, 1991). Many countries have now embarked on technology-based development. New Silicon Valleys have begun to sprout in many parts of the world. In most of the OECD countries, for example, trade in manufactures is composed of an increasing share of high technology goods. A small group of developing nations also produces and exports a rising share of high technology goods (Table 1). The data in Table 1, however, does not provide the breakdown for re-exports.
Although the overall trends are clear, large differences remain between countries. Among the industrial nations, the United States, the United Kingdom, the Netherlands, Japan, Finland and Ireland appear to be in the lead in the transition to a knowledge-based economy as is indicated by the level of high technology exports as a share of manufactured exports. Similarly, among developing nations, the export of high technology is concentrated within a handful of countries, notably S. Korea, Malaysia, Philippines, Singapore and Thailand (World Bank, 2001). Many other developed and developing nations lag in many important areas including investment in knowledge innovation and growth of a high-skilled workforce (OECD, 2001; Mani, 2000).
High technology exports of developed and developing nations are by and large similar in terms of product specialization and technological sophistication. Available data for high technology exports (1997) show that both groups of nations increasingly specialize in the production and export of components and parts in both electronic and office equipment products (Table 2).
In both groups, over one-third of total high technology export is composed of electronic integrated circuits and parts of automatic data processing machines. In spite of these similarities, it is also important to note some salient differences in the structure of high technology exports between developed and developing nations. Developed countries tend to have a more diversified export structure than developing nations. If we compare the leading high technology exports for both groups, we find that the top ten items (products) account for over three-quarters of developing country exports while it accounts for only about one-half of developed country exports. Secondly, many developing countries have yet to develop indigenous technological capability as is indicated by the limited level of domestic R & D as well as patenting activity (World Bank, 2001). Even among the top five high technology exporters in developing countries, only South Korea and Taiwan have significant indigenous technological capability. This means that foreign multinational firms make most of the high technology exports from these countries.
Recent data on technology balance of payments show that in most OECD countries, technological receipts and payments increased sharply during the 1990s. If we take royalty payments and receipts for technology licenses as one measure (balance of technology trade), a small number of countries such as the USA and UK show increasing surpluses while most other countries tend to show chronic deficits (World Bank, 2000-2003). A balance of payments deficit in technology may not necessarily indicate low competitiveness, but the result of increased imports of technology (Table 3).
The market competitiveness of a nation's technological advances when embodied in new products and processes provides an important evaluation of the economic productivity of its science and technology system. For example, many Asian countries have become important suppliers of high technology products to the world market. Such success indicates a national orientation towards high technology development through upgrading of the necessary scientific and technological resources. Asian sales of high technology products to United States averaged over...
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