The appliance of science

Amid the welter of management-guru books on knowledge management, here is a tome that no one will buy at an airport bookstall - a clear case of Gresham's law that bad currency drives out good.

Robert Pearce and his colleagues at Reading argue that global competition has been driving multinational enterprises to set up dispersed but internationally co-ordinated research centres across the globe, which both generate and diffuse technology worldwide. The effects are largely benign, giving consumers everywhere access to technologically advanced products and also, Pearce claims, retaining and developing individual countries' national competitiveness. The various essays explain this process of technological globalisation, show how individual MNEs manage knowledge flows, and provide survey and patent data to substantiate the argument.

The core idea is a development of John Dunning's so-called "eclectic" model of the internationalisation of business, in which firms go multinational when it gives them a competitive advantage in three areas. There is the advantage given by single ownership of multiple enterprise locations; the advantage to be gained from setting up operations in new and particular locations; and the reduction in costs from internalising transactions through unified management structure. In the past, these advantages have revealed themselves in more efficient production arrangements. But Pearce and colleagues argue that firms now also compete on the basis of superior product technologies and more rapid product-development processes. Single ownership, multiple sites across many geographic regions and well-managed relationships between these sites give competitive advantages in technology development and in first to market. Pearce also uses Vernon's life-cycle model and Posner's imitation-gap theory, giving them both a new twist. The original models dealt with given stocks of knowledge. What matters now is technology development and the management of the flow of knowledge, and MNEs are better placed and organised than markets or governments to manage that. Pearce is emphatic that the increased global reach of MNEs has come about because of their desire to generate and diffuse technology, rather than simply to exploit relatively cheap resources (including cheap labour) in particular locations, and therefore the effect on national economies is positive because they obtain access to improved technologies.

Though most of the essays report surveys and patenting data there is also a fascinating test case, which looks at MNEs and innovation in Romania. Pearce and Julia Manea note the extraordinarily high level of spending on research and development in Romania over the 30 years up to 1989 (sometimes only 30 per cent less than spending on education) but how limited its effect had been on the competitiveness of the country's industry. They argue that this substantial commitment to R&D, typical of many economies in Eastern Europe, had "created a strong scientific community, but that little of this scientific fertility had been related clearly to comparable areas of competitive industrial activity in terms of production innovation or improved engineering efficiencyI In the short-run, it is the MNEs that have the best prospects to discover these hidden assetsI and to build them into its industrial sector in the most efficient way."

If Pearce is right, there are strong policy implications of this thesis for developed nations as well as Romania. One is that national economic policy should encourage inward investment by MNEs, not by focusing so much on cheap labour, but on the way in which the MNEs can articulate with, and develop local sources of scientific and technological knowledge. Some enterprise agencies, not least Scottish Enterprise, are already doing this. Another implication, not drawn out by Pearce, is for government science and technology policy. What can be done to increase the connections between a nation's science base and the pattern of technology developments and diffusion within and among the MNEs that it hosts? In the UK, attempts have been made in recent years to enhance this connectivity - through technology foresight, research priority themes, Case awards, research council project funding tied to equal commercial funding, etc. In many academic minds this is seen as an attack on academic freedom rather than a rational response to the way in which science, technology and MNEs work. There are counter-arguments to the thesis in this book, and the evidence is not yet wholly conclusive, but the debate must go on.

Arthur Francis is director and professor of management, University of Bradford Management Centre.