Chapter 6: Industry, Technology, and the Global Marketplace

New High-Technology Exporters

Several nations made tremendous technological advances over the past decade and are positioned to become more prominent in technology development because of their large, ongoing investments in S&T education and R&D.[24] However, their success also may depend on other factors such as political stability, access to capital, and an infrastructure that can support technological and economic advancement.

This section assesses a group of selected countries and their potential to become more important exporters of high-technology products during the next 15 years, based on the following leading indicators:[25]

  • National orientation— evidence that a nation is taking action to become technologically competitive, as indicated by explicit or implicit national strategies involving cooperation between the public and private sectors.

  • Socioeconomic infrastructure— the social and economic institutions that support and maintain the physical, human, organizational, and economic resources essential to a modern, technology-based industrial nation. Indicators include the existence of dynamic capital markets, upward trends in capital formation, rising levels of foreign investment, and national investments in education.

  • Technological infrastructure— the social and economic institutions that contribute directly to a nation's ability to develop, produce, and market new technology. Indicators include the existence of a system for the protection of intellectual property rights, the extent to which R&D activities relate to industrial application, competency in high-technology manufacturing, and the capability to produce qualified scientists and engineers.

  • Productive capacity— the physical and human resources devoted to manufacturing products and the efficiency with which those resources are used. Indicators include the current level of high-technology production, the quality and productivity of the labor force including the presence of skilled labor, and the existence of innovative management practices.

National Orientation

The national orientation indicator identifies nations in which businesses, government, and culture encourage high-technology development. It was constructed using information from a survey of international experts and previously published data. The survey asked the experts to rate national strategies that promote high-technology development, social influences that favor technological change, and entrepreneurial spirit. Published data were used to rate each nation's risk factor for foreign investment during the next 5 years.

Five of the 15 countries examined received high overall scores on this indicator: Israel, Malaysia, the Czech Republic, China, and Ireland. The high scores for this indicator for Israel, China, and Malaysia reflect high ratings for each of the expert-opinion components, while the Czech Republic's score was elevated by its rating as one of the safest countries for foreign investment. Like the Czech Republic, Ireland was considered a safe haven for foreign investment, but its score was strengthened more by the experts' high opinions of Ireland's national strategies promoting high-technology development and social influences favoring technological change. The Czech Republic and China stand apart from the other three countries by showing marked improvement over results published just 2 years ago,[26] when, for example, China's score was more than 13 points lower than the 2005 score (figure 6-20 figure., appendix table 6-9 Excel table.).

Venezuela received the lowest composite score of the economies examined. It was rated low for all variables, but mostly suffered because it was considered the riskiest or least attractive site for foreign investment. Indonesia and Argentina also received consistently low scores on each variable, but mostly were affected by the very low expert ratings of their national strategies for high-technology development.

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Socioeconomic Infrastructure

The socioeconomic infrastructure indicator assesses the underlying physical, financial, and human resources needed to support modern, technology-based nations. It was built from published data on percentages of the population in secondary school and in higher education and from survey data evaluating the mobility of capital and the extent to which foreign businesses are encouraged to invest and do business in that country[27] (figure 6-20 figure.).

Israel and Ireland received the highest scores among the emerging and transitioning economies examined. In addition to their strong records in general and higher education, Ireland and Israel's scores reflect high ratings for the mobility of capital and the encouragement of foreign investment. Their scores were similar to two other economies that currently export large quantities of high-technology products in the global marketplace— Taiwan and Singapore.

Among the remaining nations, Malaysia and two other Central European countries, Hungary and Poland, all received similar high scores. As with Ireland and Israel, the socioeconomic infrastructure score for Malaysia was bolstered by the experts' high opinion of the mobility of capital in the country and its encouragement of foreign investment, whereas the two Central European countries received high scores for their strong showing in the published education data and expert opinion on the mobility of capital.

As it did 2 years ago, Indonesia received the lowest composite score of the 15 nations examined, largely because of low marks on two of the three variables: educational attainment (particularly university enrollments) and the variable rating of the extent to which foreign businesses are encouraged to invest and do business in Indonesia.

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Technological Infrastructure

Five variables were used to develop the technological infrastructure indicator, which evaluates the institutions and resources that help nations develop, produce, and market new technology. This indicator was constructed using published data on the number of scientists in R&D, published data on national purchases of electronic data processing (EDP) equipment, and survey data that asked experts to rate each nation's ability to (1) locally train its citizens in academic S&E, (2) make effective use of technical knowledge, and (3) link R&D to industry.

Although the United States and Japan scored highest for technological infrastructure, with Germany close behind, China and Israel received the highest scores in this area among the newly industrialized or transitioning economies examined (figure 6-20 figure.). This was also the case 2 years ago, but at that time, the two nations' scores were very close. By 2005, China had surged ahead of Israel by 12 points.

China's high score for this indicator was influenced greatly by the two components that reflect the size of its population: its large purchases of EDP equipment and its large number of scientists and engineers engaged in R&D. Another factor behind China's high score is the experts' higher rating this year for China's ability to locally train its citizens in S&E.

Israel 's high score on this indicator was based primarily on high expert ratings for its ability to locally train its citizens in academic S&E, make effective use of technical knowledge, and link R&D to industry, as well as Israel's contribution to scientific knowledge.

Indonesia and Thailand received the lowest scores among the 15 countries examined.

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Productive Capacity

The productive capacity indicator evaluates the strength of a nation's manufacturing infrastructure and uses that evaluation as a baseline for assessing the country's capacity for future growth in high-technology activities. The indicator considers expert opinion on the availability of skilled labor, the number of indigenous high-technology companies, and the level of management ability, combined with published data on current electronics production in each country.

By a wide margin, China had the highest score in productive capacity among the 15 developing and transitioning nations examined. China's score was boosted by its prominence in producing electronics, but it also received strong scores on each expert-derived indicator component. Trailing China on this indicator was a group of five nations that received similar overall scores: India, Israel, Ireland, the Czech Republic, and Poland (figure 6-20 figure.). Although all five of these countries posted higher scores than China on each of the expert-derived indicator components, they fell considerably short of China in the current production of electronics. Production of electronics products within Malaysia and Mexico was greater than all other 15 developing countries examined except for China. Malaysia's overall score was hurt by experts' low ratings of its indigenous electronics components suppliers and of the capabilities of its industrial managers. Mexico's overall score suffered from the experts' low rating of the quality of Mexican skilled manufacturing labor.

Findings From the Four Indicators

Based on this set of four leading indicators, Israel and China received the highest composite scores of the 15 nations examined. Both appear to be positioning themselves for future prominence as exporters of technology products in the global marketplace. Israel ranked first in national orientation based on strong governmental and cultural support promoting technology production, and first in socioeconomic infrastructure because of its large number of trained scientists and engineers, its highly regarded industrial research enterprise, and its contribution to scientific knowledge. Israel placed second and third on the two remaining indicators (figure 6-21 figure., appendix tables 6-9 Excel table., 6-10 Excel table., and 6-11 Excel table.).

China 's composite score for 2005 fell just short of Israel's, but the rise in its overall score over the past 2 years is noteworthy. China showed improvement in all four indicators and significant improvement in three: national orientation, technological infrastructure, and productive capacity. Its large population helped raise its score on several indicator components; this shows how scale effects, both in terms of large domestic demand for high-technology products and the ability to train large numbers of scientists and engineers, provide advantages to developing nations.[28]

Ireland, the co-leader with Israel two years ago, fell below China in this latest round of data, although it still made a strong showing across all four indicators. The Czech Republic and Malaysia posted high composite scores bolstered by high scores in the national orientation and productive capacity indicators.

Although not yet compiling high composite scores, several other countries appear to be laying the foundation for manufacturing and exporting high-tech products in the near future. Overall scores for Thailand, Mexico, and Argentina have trended upward in each of the last two periods, 2003 and 2005. Thailand's 2003 score was elevated because of a jump in a statistical rating for a rise in the number of Thai students enrolled in tertiary education, while its score in 2005 was elevated by a jump in electronics production. Mexico's overall score rose in 2003 based on higher expert-derived ratings in national orientation and technological infrastructure and improved statistical scores on student enrollments in secondary and tertiary education. In 2005 Mexico's scores held steady on these three indicators while its rating in the productive capacity indicator increased. Argentina showed gradual steady increases in most indicators during 2003 and 2005.

These indicators provide a systematic way to compare future technological capability for a wider set of nations than would be available using other indicators. The results highlight how the group of nations that compete in high- technology markets may broaden in the future. Results also reflect the large differences among several emerging and transitioning economies.

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[24] See chapter 2 for a discussion of international higher education trends and chapter 4 for a discussion of trends in U.S. R&D.

[25] See Porter and Roessner (1991) for details on survey and indicator construction; see Roessner, Porter, and Xu (1992) for information on the validity and reliability testing the indicators have undergone.

[26] See National Science Board 2002, , vol. 1, figure 6-14 figure.: 6-17 figure.; and vol. 2, appendix table 6-5 Excel table.: A6-32.

[27] The Harbison-Myers Skills Index, which measures the percentage of the population attaining secondary and higher education, was used for these education-based assessments. See appendix table 6-9 Excel table. for complete source reference.

[28] See Romer PM (1996). Why, indeed, in America? Theory, history, and the origins of modern economic growth. American Economic Review 86(2)(May):202–6; also see Freeman RB (2005). Does Globalization of the Scientific/Engineering Workforce Threaten U.S. Economic Leadership?, Working Paper 11457, National Bureau of Economic Research, June 2005,; and Jacobson K (2005). China and India Are Poised to ‘Leapfrog' U.S. in Innovation. Manufacturing & Technology New 12(14).

National Science Board.