Innovation in a Borderless World Economy

Abstract

Ever since the establishment of the World Trade Organization (WTO) in 1995, moves to create a borderless world economy have proceeded quickly. The drive toward the borderless economy is led by the 28 developed countries of the Organization for Economic Cooperation and Development (OECD), but many other nations are also actively involved. Another noteworthy phenomenon is the rapid growth of regional trade groupings, such as the European Union (EU), the North American Free Trade Association (NAFTA) and the Association of South-East Asian Nations (ASEAN). However, these first steps toward the borderless economy are also giving rise to complex and delicate issues. The responses to this transition have been mixed; the United States, for example, takes a regional and bilateral approach at times, as seen through its support of NAFTA, while continuing to work through the WTO. Figure 1, illustrating the progress of industrialization in various countries, shows certain trends in GDP growth over the past 100 years. These trends reveal that the borderless economy holds the potential for greater GDP growth, but that industrialization also requires a considerable period of time. Domestic activities remain important for each country, even in a borderless economy, and the benefits of a borderless economy should be pursued by compromising between local and global issues arising from the globalization of industries. Globalization and Diversification In the borderless world economy, it is necessary for a company to be internationally competitive. However, in advanced countries, mature and labor-intensive industries may have difficulty staying competitive, because their labor and welfare costs are higher. Consequently, companies in such industries may need to gradually transfer their technology to developing countries for local production. In this new production scheme, a company in an advanced country exports technology, management know-how and key components, while importing finished products. Globalization may be an imperative strategy for a company striving to maintain its competitiveness (Figure 2). In advanced countries, companies must create new employment opportunities in cooperation with governments in their home countries to prevent the so-called hollowing out caused by technology transfer. Therefore, they must create new industries with higher added-value, developed through R&D efforts. Based on this concept, it is important for companies in advanced countries to have another strategy of diversification utilizing the results of their innovations. Successful innovation demands that the diversified industries be superior to the original industries. To survive in the borderless economy, companies must establish and effectively operate a global production system, matching industries to countries. A company can select the country with optimum conditions by assessing local government regulations, taxation, environmental protection, education levels, labor and benefit costs, etc. The industries may be labor-intensive, capital and technology-intensive, or R&D-intensive. At the same time, multinational companies must invest in the future, developing their human and capital resources to create new high-tech industries, thus helping to relieve the hollowing out of their home economies, with the attendant unemployment problems caused by the industry shift. Basic research is essential for the creation of new industries. Companies in the new industries will be required to satisfy customer demands and win competition. Innovations result from basic research, development, production, and marketing. In existing industries, linear innovation might be applicable. To create new industries, however, it would be desirable to conduct research, development, production, and sales concurrently. Multimedia-New High-Tech Industry To make innovations in the borderless world economy, many key technologies will be required. …