Nontariff Barriers

The Effects on Corporate Strategy in High-Technology Sectors

Michael F. Oppenheimer

• Publisher: Taylor & Francis
• Year: 2019
• eBook ISBN: 9780429712838
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This book explores the impact of Japanese and European nontariff barriers (NTBs) on the international marketing, investment, and technology strategies of small- to medium-sized high-technology U.S. firms. The study documents a pronounced dichotomy between strategies of small and large companies that, to a significant extent, reflects the gap in the resources, bargaining power, and familiarity with foreign markets of these two groups. Conclusions concerning the efficacy of corporate strategies adopted are supported by an analysis of over 20 case studies. These strategies range from licensing agreements with local firms to use of a trading company or local distributor, formation of a joint venture with a local firm, and establishment of a wholly owned subsidiary in the foreign market.

1
Executive Summary

This study was conducted for the Office of Advocacy of the Small Business Administration in Washington, D.C., over an eleven-month period ending in September 1985. The basic objective of this study was to explore the impact of Japanese and European nontariff barriers (NTBs) on the international marketing efforts and investment and technology strategies of small- to medium-sized high-technology U.S. firms. Underlying this effort was the belief that NTBs have a greater impact on smaller firms than on larger ones because of the less-extensive international presence of most small businesses, their lack of sophistication in international trade matters, and the lack of resources such companies can devote to responding to NTBs.

Our previous work in this area convinced us that the most useful NTB research in support of trade policymakers is to provide detailed case histories describing the interaction of high-technology firms with the import regimes of our principal trading partners. The status of NTB data was reviewed in some detail in our previous work, wherein we found several NTB data bases of significant volume but lacking in timeliness, consistency, and detail. We were particularly determined to go beyond a simple inventory of NTBs to describe their workings at the company level, and to improve our understanding of the strategies that small- to medium-sized firms adopt in the presence of barriers to market entry. Most observers are accustomed to describing the effects of NTBs as “subtle,” but what precisely are these subtle effects? How do firms—and small- to medium-sized high-technology firms, in particular—alter their marketing, investment, technology licensing, and R&D strategies in the presence of these barriers? How do the firms themselves weigh the costs and benefits of these strategies over time? Do the subtle adjustments that firms make in response to NTBs raise policy issues not adequately addressed currently? What practical problems exist in framing a trade negotiating agenda around barriers with which U.S. firms—in making their strategic adjustments—implicitly comply? In short, it is the interactions among market distortions, corporate strategy, and U.S. trade policy that occupy us in this report.

For purposes of this study, small- to medium-sized firms were identified by the Office of Advocacy as those companies whose total assets do not exceed $50 million. To determine the differential impact of these barriers, both large and small high-technology firms were interviewed so that the unique behavior of small firms would be highlighted. An examination of Table 1.1 shows that over 25 percent of the case studies included in this report fall into the small- to medium-sized category defined by the SBA as appropriate for these high-technology sectors.

The process of identifying and eliciting case material from these firms proved a greater task than had been anticipated. A large number of the firms contacted were unwilling to participate in the study because they did not recognize nontariff barriers as such—but rather considered the difficulties they encountered as legitimate aspects of doing business in an affected market—or because they recognized the existence of market distortions and their effect on firm behavior, but did not want to talk to the study team for fear of foreign government retaliation or of leaking important competitive information to other firms. As a result, case material was difficult to obtain. In the process of this search, the study team conducted over seventy face-to-face interviews with individuals from industry, government, consulting, and various trade organizations. Regional and state SBA offices were contacted by mail and phone to explain our study objectives and request potential sources of case study material. Several hundred leads produced by these efforts were followed up, resulting in the twenty-three cases summarized in Table 1.1. The companies interviewed for this study encountered a wide range of market access problems. Among those, four main nontariff barrier types emerged—standards, performance requirements, government procurement, and patents. Table 1.2 lists the types of NTBs most commonly encountered within each industry sector and provides examples of case studies in which these barriers were encountered; further discussion of these NTBs can be found at the end of each industry chapter immediately preceding the case material.

Not surprisingly, an analysis of the strategies adopted by small- to medium-sized firms and large firms in response to these market barriers revealed a pronounced dichotomy that, to a large extent, reflects the gap in the resources of these two groups.

Table 1.1 Summary of case studies

Firm No.	Total Assets ($ Mil)	Strategy	Reason
1	55	Joint venture in Japan with nonpharmaceutical company; limited technology transfer	Need for non-U.S. source of manufacture to circumvent U.S. regulations. Need for local partner to deal with Japanese regulatory authorities and system need for capital; desire to retain rights to U.S. market
2	44	Sells through Japanese trading company; technology transfer outside of company’s area of proprietary research; in Europe has own marketing representative	Perceived difficulty of marketing in Japan due to cultural differences and complex regulatory structure; need for capital, but desire to maintain an area of proprietary research
3	over 500	Wholly owned marketing and service organizations throughout Europe with a manufacturing facility in Germany; two joint ventures with local Japanese companies; greater emphasis on developing products specifically for the Japanese market in the future	Nationalistic attitudes throughout Europe; “buy national” in France; difficulty selling to PTTs in Europe; teamed with local Japanese companies that were not competitors; heavy competition in large-scale computers from local Japanese companies and appearance of regulation in that market
4	502	In Europe and Japan, began with distributors and then set up wholly owned subsidiaries for sales and marketing; also wholly owned manufacturing subsidiaries in Europe	Increasing pressure to contribute to local economy; pressures to perform local R&D, joint R&D with local firm, or source from local companies; difficulty retrieving some of the costs associated with adapting the product to Japanese market
5	88	Licensed product in Japan and lost market there	Need for capital; did not do sufficient R&D to create products for local Japanese market; unable to obtain patent in Japan
6	over 100	Joint venture in Austria for manufacturing and design; Design Center in Japan	Circumvent duty system; enable interactive custom design; difficulties selling to European PTTs (specifications used to favor local vendors); broadly defined NTT specifications; nationalistic attitudes
7	%	Joint venture in Japan since the 1950s for sales and marketing only (not very success ful); hope for wholly owned manufacturing in Asia in the future; no great optimism for European market	Unable to obtain patents in Japan; problems with “slippery” standards in Japan and Europe; nationalistic attitudes in Europe and preference for Siemens in Germany
8	265	Wholly owned sales and manufacturing subsidiaries employing local nationals	Strong commitment to “making it on its own” and desire to maintain control
9	25	Joint venture in Japan for sales, manufacturing, R&D for local market; wholly owned subsidiaries in Europe	Problems with distributor relationships in Europe (copied product) and Japan (no contact with customer); difficulty obtaining financing for 100 percent owned facility in Japan; received pressure from French government to form a joint venture with local firm and transfer technology
10	65	Began with trading company in Japan and later established joint venture for sales and manufacturing; wholly owned sales subsidiaries in Europe with manufacturing site in France	Need to have more direct involvement in Japan because of market size and importance; difficulty hiring salesm...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• CONTENTS
• Preface
• Acknowledgments
• 1 EXECUTIVE SUMMARY
• 2 INTRODUCTION
• 3 NONTARIFF BARRIERS AND THEIR EFFECTS
• 4 BIOTECHNOLOGY
• 5 COMPUTERS
• 6 SEMICONDUCTORS
• 7 SOFTWARE
• 8 TELECOMMUNICATIONS EQUIPMENT
• 9 OBSERVATIONS ON TRADE POLICY IMPLICATIONS
• List of Abbreviations
• Bibliography
• About the Authors