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Technological Extinctions of Industrial Firms: An Inquiry into their ...

Technological Extinctions of Industrial Firms: An Inquiry into their ...

46 two decades after the

46 two decades after the shakeout began. Furthermore, the innovative trends in the 1970s were largely driven by novel integrated circuitry made possible by the semiconductor industry and involved redesign rather than standardization of the product. In terms of the hypothesis of increasing returns to R&D, the television industry exhibited substantial innovative challenges that continued over time, rising substantially in the eras of transistors and especially integrated circuits. The firms with the largest market shares were in the vanguard of innovation, consistent with the hypothesis. The pattern is perhaps less pronounced for process than for product innovation, in that before the 1970s Zenith was reluctant to adopt the more automated production techniques. But by the 1970s, the stakes for R&D had increased, and the dependence on technology emphasized by the increasing returns hypothesis became plainly apparent. Japanese firms led in the use of integrated circuits, 39 and by 1978 automatically inserted 65-85% of their components, versus 40% or less for U.S. producers (Wooster [1986, pp. 140-142]). 40 The U.S. firms, pressured by declining profits, tightened their R&D budgets at a time when Japanese R&D budgets, already large compared to those of U.S. firms, expanded (Wooster [1986, pp. 251-253, 401-402]). 41 These changes coincided with Japanese firms’ gains in output. By 1977, Matsushita had 17% of the world market, and Sony’s 9% share equaled those of RCA and Zenith (Wooster [1986, p. 152]). The increasing R&D pressures, which through the 1950s and 1960s affected most U.S. firms, by the 1980s and 1990s caught up to the 39 Integrated circuits required design principles new to electronic engineers, and Japanese engineers had greater experience with the circuits. Also, the backward integration of Japanese set manufacturers into integrated circuitry may have given them increased flexibility to develop proprietary circuitry. The potential for integrated circuits was not obvious to U.S. manufacturers. A noted example is RCA’s 1971 plant to manufacture thick-film ceramic circuit modules. After spending over $5 million to build the plant, RCA scuttled the plan because advances in integrated circuits made the ceramic circuits obsolete (Wooster [1986, pp. 74-75]). Besides aiding in the use of automatic insertion, Japanese firms’ lead in integrated circuitry helped to push their color TV defect rate down to 0.4% by 1979, versus 5.0% in the same year for U.S. producers (Wooster [1986, p. 435]). 40 Zenith in 1971 had still not adopted automatic component insertion and was forced into a crash program to develop automatic component insertion methods (HBS [1977]). 41 U.S. firms’ R&D budgets were by no means small. One project, a failed joint venture of Zenith and Corning Glass to develop and put into production a low-cost Able picture tube, cost $70-100 million (Wooster [1986, p. 252]).

47 last of the U.S. manufacturers and RCA and then Zenith sold out to their foreign competitors. While the nature of process innovation in the era of international competition is consistent with the increasing returns hypothesis, the time trend in TV process innovation is not. There was not a steady early growth in process innovation as expected under the theory and as occurred in autos and tires. The departure from the theory may be attributable to outside influences. The heavy early process innovation in the industry was driven largely by radio production techniques that could be usefully adapted to TVs. Developments in the semiconductor industry may have played a similar role in many of the later reductions in production costs. 6. Penicillin For our final product, we turn to penicillin. As with the other products, U.S. firms were leaders in developing this manufacturing industry, and exports far exceeded imports well through the period of the shakeout. 6.1. Industry Evolution Penicillin was in its laboratory stages until World War II, when it was developed in a massive wartime effort. Production of penicillin from 1945 through 1987 is reported in the U.S. Tariff Commission’s annual reports Synthetic Organic Chemicals for selected years. 42 Once the war ended, firms continued to increase their production capacities greatly. Production rose from 11,000 pounds in 1945 to 10,200,000 pounds in 1987 as the price of bulk penicillin plummeted by orders of magnitude. From 1945 to 1948, output grew by 145% per year. The rate of growth gradually slowed, dropping to 25% per year during 1948-1954, 16% per year during 1954-1971, and 1.6% per year during 1971-1987. Most penicillin manufacturers entered production during World War II, with further entry after wartime restrictions were removed. Figure 6 shows the annual number of 42 Figures for 1945-1947 were converted from billions of Oxford units to thousands of pounds by assuming 0.7 billion units per pound on the basis of figures presented by the FTC [1958, p. 355].

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