by HENRY KRESSEL
Sony employee Suzuyo Suzuki displays the MD Walkman MZ-E55 (left) and a mini-disc at the company’s headquaters in Tokyo, on September 7, 1998 PHOTO/AFP/Toru Yamanaka
I spent the first 20 years of my career in the research and development laboratories of the RCA Corporation, then one of the leading electronics companies in the world and led, for many years, by a great visionary in David Sarnoff.
In addition to developing color television, RCA Laboratories’ inventions included flat panel displays, lasers of all kinds, solid state imaging devices, CMOS chip technology and communications systems including microwave and optical systems. These innovations helped build industries with close to a trillion dollars of current annual revenues that are the foundations of the digital world.
But few of these electronic infrastructure products are now made in the United States and in none has the US maintained world leadership. For example, the flat panel industry that serves practically all electronic products yields over US$100 billion of annual revenues – from factories in Asia. And 73% of all color television sets are now produced in China. In chips, two world leaders are now in Taiwan and South Korea, respectively, with China rapidly developing its own industry.
There is a sobering lesson here: Industrial competitive advantage is a fragile thing. The US used to lead these industries because they were invented in the US, supported by major corporate resources focused on innovation and also indirectly supported through Federal research and development funding of universities and major corporate laboratories.
In an ideal world, each country leverages its competitive advantage by producing and exporting what it competes best at, in terms of cost and quality, in an open interchange of goods and services. In this ideal world, consumers benefit and businesses can prosper because they operate on a large world market. But this is all happy classroom theory. We are not living in an ideal world of free trade because country leaders game the system through industrial subsidies and legal restrictions that bolster favored industries by limiting competitive imports and promoting their own exports.
Sure, some competitive advantages are based on geography and result in low-cost agricultural or mineral products. But when it comes to electronic products, competitive advantage is totally man-made.
At RCA, the first serious challenge to its leadership was from Japanese electronics companies that began, in the 1970s, a focused campaign to capture the consumer electronics market – then primarily color television receivers. The technology was licensed from RCA, which had a policy of open licensing. Japan had no competitive advantage on entering consumer electronics — except government support, which included blocking television imports and hence kept domestic prices much higher than in the US. In the 1970s, a Japanese television set sold for US$300 in the US and the equivalent of US$500 in Tokyo. In effect, Japanese consumers, by paying high prices, were subsidizing products exported to capture the world market and in particular the US, where no restrictions were placed on imports and distribution channels were readily available.
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