Chapter

CommercializationGovernment and Industry

CONTENTS

PageSummary . . .The Government Role , . . . . . . ., . ,

Support for Industry: Direct and Indirect . . . , . . .R&D Funding and Objectives. . . . . . . ., . . . , , . . . .

Commercialization ●

Four Examples . . ● ✌

Inputs to Commercialization: Technology and theStrengths, Weaknesses, and Strategy . . . . . . . . . . . . .

Product/Process Strategies . . . +. . . . . . . . . . . . . . . .

, . . . 0 . . . . , . .

* * , * * * * * * . . ,

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● ✎ ☛ ✎ ☛ ☛ ✌ ✎ ☛

● ☛ ☛ ☛ ✌ ☛ ☛ ✌ ☛

● ☛ ✌ ☛ ☛ ☛ ☛ ✎ ☛

✎ ☛ ✌ ☛ ☛ ✎ ☛ ✎ ☛

✎ ✎ ✎ ✎ ✎ ✎ ✎ ✎ ✎

✎ ✎ ✌ , s . , . ,

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172020232727283233343535404244

. .**..***,,*

. *.*...*.,*,* * * * * * * * * * * *Marketplace

● 4 * * * * * * * * * *

. , 0 . 9 9 . , . . . ,

Research, Development, and Engineering: Parallel or Sequential? . . . . . . .Commercializing HTS . . . . . . . . . . . . . . . . . . 0 . , , . . . , . 0 , . 0 , , , , , , . . , , , . , , .

Microelectronics, and Other Precedents , *******,,**..*..***..*.****,HTS Technologies . . . . . . ,,*, ***o*,***,**,*,.,

Concluding Remarks . . ,Appendix 2A: R&D and Commercialization: Four Examples. . . . . . . . . . . . . .

BoxesBox PageB. The Reagan Administration’s Superconductivity Initiative . . . . . . . . . . . . . 24C. The Discovery of High-Temperature Superconductivity ,.. .D. Commercialization in Europe ● ,.,,

● ☛ ☛ 26● * . 43

*,******● ✎ ☛ ☛ ✎ ☛ ☛ ✌

FiguresFigure1. U.S. Government R&D by Mission, 1988 . . . . . . . . . . . . . . . . . .

Page. . 25. . . 28● ** 30

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Systems2. The Process of Commercialization. . . . . . . . . . . . . . . . . . . . . . .3. Development Stages for Magnetic Resonance Imaging (MRI)

TablesTable1. R&D Budget by U.S. Government Agency, 1988 . . . . . . . . . . .2. Distribution of Costs for Development and Introduction

of New Products and Processes . . . . . . . . . . . . . . . . . ... , . . . .

Page, 25

32● . . 36

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✎ ✎ ✎ ✌ ✎ ☛ ✎ ☛

● ☛ ☛ ✌ ✎ ✌ ☛ ☛3. U.S.4. U.S.

Strengths and Weaknesses in Commercialization . . . . . .Advantages and Disadvantages in Commercializing HTS . . . . . . .

Chapter 2

Commercialization: Government and Industry

SUMMARY

The United States invents and Japan commer-cializes. So say some. Is it true? If so, this wouldsuggest not only that American companies failto capitalize on technologies developed here,but that Japanese firms get a free ride on Amer-ican R&D. Furthermore, if this has happenedin other industries and with other technologies,it could happen with high-temperature super-conductivity (HTS).

Has American industry really had that muchdifficulty in commercialization—in designing,developing, manufacturing, and marketingproducts based on new technologies? Yes—insome industries and with some kinds of tech-nologies. In other cases—for example, biotech-nology or computer software—American firmscontinue to do better at commercialization thantheir overseas rivals. Nonetheless, the competi-tive difficulties of American semiconductorfirms have long since shown that continuingU.S. advantages in high technology cannot beassumed. And sectors like consumer elec-tronics demonstrate that, when it comes to engi-neering, if not science, Japan has been a for-midable presence since the 1960s.

Commercialization is the job of the privatesector. Government plays a critical role in tworespects:

1. R&D funding. Federal agencies will spendsome $60 billion on R&D in 1988. Govern-ment dollars create much of the technol-ogy base that companies throughout theeconomy draw on. In 1988, the U.S. Gov-ernment will spend some $95 million onHTS R&D. This is about as much as theAmerican firms surveyed by OTA say theywill spend on superconductivity R&D (LTSas well as HTS) in 1988. (See ch. 3, box F).

2. The environment for innovation and tech-nology development. A host of policies—ranging from regulation of financial mar-kets, to protection for intellectual property,

and education and training—affect com-mercialization by companies large andsmall.

Private firms use scientific and technicalresults—more or less freely available, includ-ing knowledge originating overseas—in theirefforts to establish proprietary advantages.Universities and national laboratories createmuch of the science base. Some industrial re-search contributes to the storehouse of scien-tific knowledge. All three groups—universities,government laboratories, industry—contributeto the larger technology base (which includesscience but goes well beyond it).

Much technical knowledge remains closelyheld–protected by patents, by secrecy (classifi-cation for reasons of national security, tradesecrets), or simply as proprietary expertise.Much proprietary information resides in peo-ples’ heads, in organizational routines, man-agement styles, as tacit know-how. Companiesalso write down some of their organizationalknowledge: in product drawings and specifica-tions; in process sheets, manuals, and computerprograms for running production lines and en-tire factories. The manufacturing skills thathelped Japanese semiconductor manufacturersoutstrip their American competitors dependheavily on proprietary know-how, much of itembodied in the skills of their employees—skillsthat people often cannot fully articulate orexplain.

Commercialization of HTS will depend onscientific knowledge, much of this available toanyone who can understand it. It will also de-pend on know-how, hard-won learning andexperience—making good thin films, orientingthe grains in superconducting ceramics to in-crease current-carrying capacity. Knowledgeof markets will count too.

Government contributes directly throughsupport for the technology and science base.

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Federal agencies may spend their HTS R&Dbudgets wisely, or not. National laboratoriesmay transfer technologies to the private sec-tors quickly, or only after long bureaucraticdelays.

Government policies also affect commerciali-zation indirectly. Patents and legal protectionof trade secrets help firms stake out proprie-tary technical positions. Education and train-ing policies (and immigration policies) affectthe labor pool from which companies hire peo-ple who can understand the science of HTS,envision new computer architectures based onsuperconducting electronics, grasp the marketopportunities created by the new materials.

No one anticipated superconductivity at 90or 125 0 K. No one can predict what will comenext. More likely than not, 5 to 10 years ofR&D—much of it supported by Federal agen-cies—lie ahead before HTS markets will havemuch size or begin to grow rapidly. A few nicheproducts could come sooner. So could somemilitary applications. New discoveries couldchange the picture radically. The ways in whichthe Federal Government spends its R&D dol-lars matter right now. Policy makers may havea bit more leisure to review the other channelsof policy influence on commercialization ofHTS. The stakes are high—for the private sec-tor, and for government decisionmakers.

Potential for dramatic breakthroughs, cou-pled with great uncertainty, makes for difficultdecisions. OTA sees no reason to rule out thepossibility of room-temperature superconduc-tivity (next month, next year). Room-tempera-ture superconductivity—in a cheap material,easy to work with—has almost unimaginableimplications. Companies with proprietary tech-nical positions could reap huge rewards. Therisks of inaction are high; on the other hand,progress could stall. High expectations and me-dia hype could be followed by disillusionment,difficulty in raising capital, inaction on the pol-icy front. Biotechnology has already livedthrough several such waves. HTS probably willtoo.

Early applications of new technologies tendto be relatively specialized, of modest economic

significance. The public may lose interest, fi-nancial markets downgrade the prospects. Noone can know, at this point, whether HTS couldturn out to be a solution in search of a problem.The laser—invented in 1960—never seemed tolive up to expectations. And yet solid-statelasers eventually made fiber-optic communica-tions possible—an innovation with vast impactson a worldwide scale (including, for example,a new source of competition for satellite com-munications systems). It was not that the pos-sibilities went unrecognized.1 Prospective ap-plications of the laser to eye surgery and opticalcommunications got immediate attention; butwhile ophthalmologists quickly began usinglasers, little progress was made in communi-cations for 15 years. It took, not only solid-statelasers, but low-loss glass fibers to make opticalcommunications a reality.

In the early years of laser technology, no onefully anticipated the possibilities for fiber-opticcommunications networks; they snuck in throughthe back door. The same could happen withHTS. One of the tasks for public policy is tobring stability to the early years of new tech-nologies, building a base for later commerciali-zation. Industry will not do this alone, absentthe potential for near-term profits.

OTA’s analysis suggests that commercializa-tion of HTS will proceed somewhat faster thanmany American companies expect, though notas fast as the Japanese companies that have beenmaking heavy investments seem to anticipate.(Ch. 3 outlines U.S. and Japanese business strat-egies toward HTS.) As American companiesmove down the learning curves that mark outaccumulated knowledge and experience inHTS, federally funded R&D will provide criti-cal support for the technology base that allfirms—but particularly smaller companies—draw from.

I“The Maturation of Laser Technology: Social and TechnicalFactors,” prepared for OTA by J.L. Bromberg, The Laser His-tory Project, under contract No. H3-521O, January 1988, pp. 7-9.Theodore Maiman, who built the first laser in 1960, stressed thecommunications possibilities—multi-channel capability, low costper channel—at the press briefing announcing his invention.

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The analysis in this chapter leads to the fol-lowing conclusions:

● Small, entrepreneurial firms will be wellplaced to develop commercial applicationsof HTS. The conditions are right: a newscience-based technology; synergistic linkswith existing industries, including low-temperature superconductivity (LTS) andelectronics; venture capital for good ideas.But while small companies have been a ma-jor source of U.S. strength in high technol-ogy, few can assemble the financing, thetechnological breadth, or the productionand marketing capabilities to grow as fastas their markets.

● Larger American corporations may findthat they are starting out behind some oftheir Japanese rivals. The new HTS mate-rials are ceramics, Japanese firms have auseful lead in both structural and electronicceramics. Some of this expertise will trans-fer to HTS. So will a good deal of know-how developed for fabricating microelec-tronic devices—another field where Japa-nese firms have demonstrated themselvesto be at least as good and sometimes bet-ter than American companies.

● Processing and fabrication techniques willbe critical for commercialization. Amer-ican companies have fallen down in man-ufacturing skills across the board; the moreheavily process-dependent HTS applica-tions turn out to be, the more difficult itwill be for U.S. firms to keep up with theJapanese.

● Product as well as process technologieswill demand much trial-and-error develop-ment. Japanese engineers and Japanesecorporations are good at this. Americancompanies are not. To the extent that com-mercialization of HTS depends on step-by-step, incremental improvements—brute-force engineering–U.S. companies will bein relatively poor positions to compete.

● R&D funded by the U.S. Government willhelp American companies in commercial-izing HTS, but the spinoffs from defense-related R&D may not be large or long-lasting if military requirements become

●

highly specialized and diverge from com-mercial needs.Indirect policy measures—intended to re-move the roadblocks to commercializationand increase the rewards for innovatorsand entrepreneurs—can also help. But theindirect approach alone will not be an ade-quate response to the coming internationalcompetition in HTS.

What about U.S. commercialization in gen-eral—the backdrop for the statements above?

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Mobility among scientists, engineers, andmanagers has spurred rapid growth andtechnological innovation in postwar U.S.high-technology industries ranging fromcomputers and semiconductors (starting inthe 1940s and 1950s) to biotechnology (be-ginning in the late 1970s). Venture capitalfor small, high-technology firms, likewise,has been a consistent source of competi-tive strength, one that will continue to workto U.S. advantage in HTS.Many larger American companies havepulled back from basic research and risk-ier technology development projects. Easein establishing new small firms compen-sates in part for these relatively conserva-tive investment decisions; indeed, negativedecisions on proposed R&D projects some-times spawn startups that go on to com-mercialize new technologies. Some of thiswill probably happen in HTS.With few American firms self-sufficient intechnology, a lack of long-term R&Din theprivate sector, and managements that lookfor home-run opportunities rather thanbuilding technologies and markets step-by-step, the Federal Government has, by de-fault, become a primary source of supportfor technology development. As yet, agen-cy missions do not reflect this new role.Despite the onslaughts of foreign firmssince the late 1960s, many American com-panies have not yet made the changes intheir own organizations necessary to com-pete more effectively. Paying little morethan lip service to well-known engineer-ing methods such as simultaneous prod-

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uct and process design, they fail to givemanufacturing high priority. Neither man-agers nor engineers in the United Stateshave learned to take advantage of technol-ogies originating overseas.

● Industry cannot justifiably blame the U.S.Government for its failures. Comparedwith most other industrial economies, U.S.policies create a favorable environment forinnovation and commercialization.

The indirect policy approach the U.S. Gov-ernment has traditionally relied on to stimu-late innovation and commercialization workedwell for many years. Today, with foreign com-petition stronger than ever before, it seems timeto explore new directions. The Federal R&Dbudget has grown rapidly over the postwarperiod. Management practices in governmentagencies, mechanisms for setting priorities, forensuring an adequate technology base, have notkept pace.

The climate for innovation can always be im-proved, the barriers reduced. But the barriersare low already, and limited scope remains forpolicies intended simply to unleash Americanindustry to compete more effectively. Indeed,the short-term perspectives of U.S. corpora-tions, many of which have been unwilling tokeep pace with foreign investments in new tech-nologies, stem in part from the removal ofanother set of barriers—deregulation in U.S. fi-nancial markets.

Unless the United States learns to match thekinds of supports for commercialization thathave proven effective elsewhere–topics treatedin more detail in later chapters—only small im-provements can be expected. U.S. industrycould fall behind in HTS, and in the uses thisnew technology will find.

THE GOVERNMENT ROLE

HTS is fresh from scientific laboratories, butmany commercial innovations begin with ex-isting knowledge, gleaned from textbooks, de-sign manuals, the schoolhouse of experience.The work of commercialization centers on engi-neering: development of new products and newmanufacturing processes. Companies supporttheir development groups with marketing peo-ple, and in some cases with research. Some-times new science is part of commercialization,but not always.

The process may begin with an idea that isold, but has never been reduced to practice be-cause of gaps in the technology base. The auto-mobile, the airplane, and the liquid-fueledrocket all had to await needed pieces of tech-nical knowledge. The Wright brothers learnedto steer and stabilize their flying machine. De-spite years of trial and error (and centuries ofspeculation), they were the first to find a wayaround these technical barriers.

Superconductivity itself, discovered in 1911,has a long history as a specialized field ofphysics, and a shorter history—beginning about

1960—as a technology that private firms soughtto exploit. Appendix B, at the end of this re-port, summarizes the science and technologyof superconductivity at both low temperatures(e.g., where liquid helium commonly providescooling) and high (above the boiling point ofliquid nitrogen).

Support for Industry: Direct and Indirect

What does this have to do with government?Today, governments finance much of the R&Dthat provides the starting point for commerciali-zation. Companies everywhere start with thispublicly available pool of technical knowledgein their search for proprietary know-how andcompetitive advantage. Second, public policiesinfluence the choices companies make in fi-nancing their own R&D, and in using the knowl-edge available to them. Tax and regulatory pol-icies encourage or discourage investments incommercial technology development. Patentscreate incentives, high capital gains taxes dis-incentives.

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Smaller companies depend heavily on exter-nally generated knowledge; many manufactur-ing firms with hundreds of employees have fewif any engineers on their payrolls. But if smallercompanies have the greatest needs, science andtechnology move so fast today that big compa-nies also rely heavily on government R&D.Moreover, pressures for near-term profits haveforced many larger U.S. corporations awayfrom basic research. In the United States, a fewhundred large companies account for the lion’sshare of industry-funded R&D—three firms(IBM, AT&T, General Motors) for more than15 percent.

Half of all U.S. R&D dollars come from theFederal treasury. The fraction is smaller in mostother countries, but in all industrial economiespublic funds pay for a substantial share of na-tional R&D. The reasons begin with health andwith national defense, but competitiveness hasbeen one of the rationales: the first governmentresearch laboratories, established in the earlyyears of this century in Britain, Germany, andthe United States, were intended to help do-mestic industries meet foreign competition.

Foreign firms have access to many of the re-sults of federally funded R&D, just as U.S. firmscan tap some of the technical knowledge gen-erated with foreign government support. Gov-ernments seek to use technology policy to helpdomestic firms compete, while commercial en-terprises seek to take advantage of the worldstore of technical knowledge. Technology pol-icy begins with R&D spending—setting broadpriorities, making funding decisions at theproject level, agency management. Other toolsinclude intellectual property protection, whichcan help domestic firms establish and protecta technological edge. Of course, many coun-tries also provide direct funding for commer-cially oriented R&D.

The U.S. Position in Technology

Past OTA assessments have examined U.S.competitiveness in a number of industries, andlinked technological position with competitive-ness; the most recent found signs of slowdownin U.S. R&D productivity, as well as evidencethat newly industrializing countries have made

surprising gains in technology.2 Principal find-ings from these earlier assessments include:

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Technology is vital for competitive successin some industries (including services likebanking). In others, it may be secondary.But in all or nearly all sectors, the techno-logical advantages of American firms havebeen shrinking for years. The United Statesmay be able to retain narrow margins insome technologies. Parity will be the goalin others. Regaining the advantages of the1960s will, in the ordinary course of events,be impossible.In newer technologies, those that have de-veloped since the 1960s, the Japanese havebeen able to enter on a par with Americanfirms, and to keep up or move ahead. Ex-amples include optical communications,and both structural and electronic ce-ramics. European firms, in contrast withthe Japanese, have had trouble turningtechnical knowledge into competitive ad-vantage.Today, U.S. military and space expendi-tures yield fewer and less dramatic spinoffsthan two decades ago. The U.S. economyis vast and diverse. Defense R&D—increas-ingly specialized when not truly exotic—cannot provide the breadth and depth ofsupport needed for a competitive set of in-dustries.Japan and several European countriesplace higher priorities on commercial tech-nology development than does the UnitedStates. R&D spending by Japanese indus-try reached 2.1 percent of gross domesticproduct in 1986, compared with 1.4 per-cent here.

Productivity, Innovation, Competitiveness,Commercialization

Import penetration in steel and consumerelectronics, going back two decades, marks thebeginnings of the wave of concern over lagging

zzn~erna~jona~ competition h Services (Washington, DC: Of-fice of Technology Assessment, July 1987), ch. 6. Also see “De-velopment and Diffusion of Commercial Technologies: Shouldthe Federal Government Redefine Its Role?” staff memorandum,Office of Technology Assessment, Washington, DC, March 1984.

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U.S. productivity growth and competitiveness.Commercialization is simply the latest catchphrase for problems that are all of a piece. Theongoing policy debate has centered on theproper mix of policies in the United States,where government has been reluctant to inter-vene as directly or as deeply in the affairs ofindustry as, say, in Japan or France.

During the Carter Administration, an inter-agency task force, supported by a panoply ofprivate-sector advisory committees, labored for18 months to produce a Domestic Policy Re-view of Industrial Innovation (DPR). The rec-ommendations included:3

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easier licensing of federally owned patents;stronger ties between universities and in-dustry;help for small, entrepreneurial firms throughsmall business innovation research grants;removal of unnecessary regulatory bar-riers;signals to industry that antitrust policy didnot bar cooperative R&D;tax incentives for R&D and innovation.

Plainly, the focus was on indirect policies. Inone form or another, most of these steps havebeen taken.

Other recommendations of the Carter DPR,dealing with direct support for technology de-velopment, were not implemented. After Con-gress passed the Stevenson-Wydler TechnologyInnovation Act in 1980, the Reagan Adminis-tration declined to act on the central provisionsof the legislation, which called for a networkof Centers for Industrial Technology chargedwith supporting commercial technology devel-opment.4

The Reagan White House began its own studyof the problems in mid-1983, creating a Com-mission on Industrial Competitiveness headedby John Young, president of Hewlett-Packard.When the Commission delivered its findingsa year and a half later, many of the recommen-dations were familiar: “balance” in regulations;better labor-management cooperation; strongerprotection for intellectual property.5 Althoughits leadoff recommendation called for a newDepartment of Science and Technology (whichgot a frosty reception from an Administrationcommitted to scaling back the Federal bureauc-racy), the Young Commission, like the CarterDPR, stressed the indirect influences of Fed-eral policies on technology development. TheCommission helped turn the spotlight on tech-nology transfer from the national laboratories,and urged use of the tax system to encourageprivate-sector R&D.

During the 1980s, then, the environment fortechnology development continued to evolvealong the lines mapped out by the Carter DPR.Congress included an R&D tax credit in the1981 tax bill, and extended it—although at alower level-–in 1986. In 1982, Congress passedthe Small Business Innovation DevelopmentAct, requiring Federal agencies to set aside 1.25percent of extramural R&D budgets exceeding$100 million for awards to smaller companies.With the executive branch adopting a much-relaxed enforcement policy for antitrust, theNational Cooperative Research Act of 1984 ex-plicitly permitted certain forms of joint private-sector R&D, while limiting private antitrustsuits to actual (rather than treble) damages. TheAdministration also began negotiations withthe governments of several foreign countries

‘For a brief summary, see J. Walsh, “What Can GovernmentDo for Innovation?” Science, July 27,1979, p. 378, together withN. Wade, “Carter Plan to Spur Industrial Innovation,” Science,NOV. 16, 1979, p. 800.

In addition to agency participants, several hundred people fromoutside government took part in the Carter DPR; for the reportsof the private sector committees and subcommittees, see Advi-sory Committee on Zndustriid Innovation: Final Report (Wash-ington, DC: Department of Commerce, September 1979).

4Section 6 of the Stevenson-Wydler Technology Innovation Actof 1980 (Public Law 96-480) directed the Secretary of Commerceto “provide assistance for the establishment of Centers for In-dustrial Technology.” Section 8 extended this authority to the

National Science Foundation, The centers were envisioned assupporting generic technologies at the pre-competitive stage—those that could benefit many companies and industries. Com-monly cited examples included R&D on welding processes, oron steelmaking. See Implementation of P.L. 96-480, Stevenson-Wydler Technology Innovation Act of 1980, hearings, Subcom-mittee on Science, Research, and Technology, Committee on Sci-ence and Technology, U.S. House of Representatives, July 14,15, 16, 1981 (Washington, DC: U.S. Government Printing Office);also International] Competition in Services, op. cit., pp. 364-365.

5Global Competition: The New Reality, vols. I and 11 (Wash-ington, DC: U.S. Government Printing Office, January 1985). Mostof the 30 members of the Young Commission were businessmen.

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where pirating of U.S. intellectual property hasbeen at its worst.

At the same time, Federal laboratories—particularly those funded by the Departmentof Energy (DOE)—were seeking tighter linkagesand better working relationships with privateindustry. During the early 1980s, the Federallaboratory system had come in for some ratherharsh scrutiny.’ An outside review panel (headedby David Packard, one of Hewlett-Packard’sfounders and a former Pentagon official) calledfor closer interactions with the private sector,setting the stage for efforts still underway toopen up the laboratories and place their rela-tionships with industry on a new footing (ch.4). Meanwhile, State Governments began tak-ing more active roles in technology policy.

President Reagan’s proposed Superconduc-tivity Competitiveness Act (box B) continuesthe stress on indirect policies. The draft leg-islation—which would further relax U.S. anti-trust policy, while extending the reach of pat-ent protection—would apply quite generally toU.S. industry: there is little that is specific toHTS.

R&D Funding and Objectives

If the weight of explicit shifts in U.S. tech-nology policy during the 1980s has been on theindirect side, the direct role of the Federal Gov-ernment has also changed—though not in thedirection of support for commercial technol-ogy development. Government R&D has grownunder the Reagan Administration, but muchof the expansion has been for defense. Supportfor commercially oriented R&D has lagged, andin many cases been cut back.

%ee, for example, P.M. Boffey, “National Labs Reel UnderCriticism and Investigation,” New York Times, Aug. 24, 1982,p. cl.

The Packard report, below, appeared as Report of the WhiteHouse Science Council Federal Laboratory Review Panel (Wash-ington, DC: Office of Science and Technology Policy, May 1983).For more recent perspectives, see F.V. Guterl, “TechnologyTransfer Isn’t Working,” Business Month, September 1987, p.44; and E. Lachica, “Federal Labs Give Out Fruit of More Re-search For Commercial Uses,” WaJ] Street ]ourna], Feb. 1, 1988,p. 1.

Department of Defense (DoD) R&D went from$20.1 billion in fiscal 1982 to $37.9 billion in1988 (table 1). DoD R&D, plus the defense-related portion of DOE spending (about half theDepartment’s R&D), account for nearly 70 per-cent of all Federal R&D (figure 1); the greatmajority consists of applied research and theengineering of weapons systems.

As figure 1 suggests, the U.S. Governmenthas not paid much attention, relatively speak-ing, to R&D of interest to companies outsidethe defense, aerospace, and health sectors. Andin the 1980s, Federal agencies have backedaway even further (e.g., from energy R&D). TheReagan Administration has held that govern-ment has no business supporting commercialtechnology development. Fundamental research,yes, but anything more would be a subsidy—unjustified and likely to create harmful eco-nomic distortions.

The basic research portion of the DoD bud-get does contribute quite directly to the Nation’sstore of commercially relevant technical knowl-edge. The Pentagon, for example, providesnearly 40 percent of Federal support for univer-sity research in engineering.7 In constant dol-lars, however, DoD basic research (budgetedat $892 million for fiscal 1988) remains atroughly the same level as in 1967, while the to-tal DoD R&D budget has been steadily expand-ing in real terms.

Based on 1987 obligations, the Federal R&Dbudget breaks down as follows into the threebroad categories of basic research, applied re-search, and development:

Basic research . . . . . . . . . . . . . . . . . . . . ..$ 8.8 billionApplied research. . . . . . . . . . . . . . . . . . . . 9.0 billionDevelopment . . . . . . . . . . . . . . . . . . . . . . . 38.7 billion

$56.5 billion

The National Science Foundation follows, at about 30 per-cent. Universities carry out half of all DoD-sponsored basic re-search. See Directions in Engineering Research: An Assessmentof Opportunities and Needs (Washington, DC: National Acad-emy Press, 1987), pp. 46 and 63. Recently, the military has spenta little more than 2 percent of its R&D budget on fundamentalresearch; 5 percent of private industry’s R&D total goes for basicwork.

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Many agencies subdivide these categories Basic research itself covers a wide range offurther.8 activities. Some of this really is “untargeted”

science—work that could be called pure re-8N0 figures for 1988 were available as this report was being search, Nobody expects that astrophysics or thecompleted. Distinctions between these categories are necessarily

arbitrary; for the Federal Government definitions, see ScienceIndicators: The 1985 Report (Washington, DC: National Science 6.3 Advanced DevelopmentBoard, 1985), p. 221. DoD subdivides its R&D budget into six 6.4 Engineering Developmentsubcategories, designated as follows: 6.5 Management Support

6.1 Research 6.6 Operational Systems Development6.2 Exploratory Development Several of these are further subdivided,

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Table 1 .—R&D Budget by U.S. Government Agency,1988”

Obligational Percentage ofauthority total

(billions of Federal R&Ddollars) budget

Department of Defense(military functions only)

Department of Health andHuman Services . . . . . .

Department of Energy . . .National Aeronautics and

Space Administration .National Science

Foundation . . . . . . . . . . .

. . $37.9 b 63.20/o

. . 7.2 12.0

. . 5.1 8.5

. . 4.8 8.0

. . 1.5 2.5All others. . . . . . . . . . . . . . . . . 3.5 5.8

$60.0 100 ”/0aExclud~~ $2 billion in obligations for R&D facilities.%he three services expect to commit a total of $29.4 billion in fiscal 1988-$15.2billion for the Air Force, $9.5 billion for the Navy, and $4.7 billion for the Army.Adding in the rest of the DoD R&D budget (e.g., spending by agencies suchas the Defense Advanced Research Projects Agency) brings the total to $37.9billion.

SOURCE: Special Analyses: Budget of the United States Government, Fiscal Year1989 (Washington, DC: U.S. Government Printing Office, 1988), pp. J-3,J-5.

Figure 1.— U.S. Government R&D by Mission, 1988

Environment,natural

resources,E n e r g y , 2 %

Nationaldefense,

68%

SOURCE: Federal R&D Funding by Budget Function, Fiscal Years 1987-1989,NSF-813-315 (Washington, DC: National Science Foundation, 1988), p 4

Superconducting Super Collider will lead to re-sults of much practical use in the foreseeablefuture. Understanding is the motive.

Other projects, likewise defined as basic re-search for budgetary purposes, nonethelessbear quite directly on agency missions. Almostall the R&D funded by the National Institutesof Health (NIH, part of the Department of Healthand Human Services) could be termed directedresearch. NIH supports much fundamental sci-ence—e.g., in molecular biology—but it does sowith a view toward eventual improvements inhealth care; many NIH-sponsored projects havequite specific objectives such as a cure forAIDS, or better understanding of the growthof cancerous cells.

Likewise, DoD and DOE R&D serve agencymissions. Research in physics laid the founda-tions for nuclear weapons, with DOE inherit-ing much of the ongoing support for physicsfrom the Atomic Energy Commission. Whenthe armed services or the Defense AdvancedResearch Projects Agency (DARPA) sponsorwork in the behavioral sciences, they seek in-sights into the responses of fighter pilots to sen-sory overloads, or knowledge that will helpmake artificial intelligence a practical tool forbattle management.

Research carried on in industrial laboratories,almost by definition, has a practical orienta-tion. So does engineering research in univer-sities and nonprofit laboratories. Plainly, dis-tinctions such as that between untargeted anddirected research will always be arbitrary.Nonetheless, such distinctions help in think-ing about R&D and how it supports commer-cialization.

Within directed research, further distinctionscan be made. Incremental work, for example,takes a step-by-step approach toward reason-ably well-defined goals. The problems may betechnically difficult, but the territory has beenat least partially explored. Much of the workon synthesis of new materials that laid thegroundwork for the discovery of HTS (box C)falls in this category, as does the many yearsof R&D aimed at improving the properties ofLTS materials.

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Most research serves the needs of govern- petition have driven the scientific enterprisement or industry. Military needs, social objec- at least since the end of the 19th century.tives such as health care, and industrial com-

COMMERCIALIZATION

Both industry and government support di-rected research. Promising results lead natu-rally into development. Research and develop-ment then go on in parallel, with researchoutcomes suggesting new avenues for devel-opment, and problems encountered in devel-opment defining new research problems.

While the U.S. Government has a long tradi-tion of support for basic research and mission-oriented R&D, it usually leaves pursuit of com-mercial technologies to the private sector. Thispolicy worked well for many years. For in-stance, continued development of fiber-rein-forced composite materials–lighter and withgreater stiffness, strength, and toughness thanmany metals—builds on a technology base thathas been expanding at a rapid rate since the1950s. 9 The primary stimulus came from themilitary, where composites found their first ap-plications in missiles, later in manned aircraft.penetration into commercial aircraft followed.

When it comes to technologies where Fed-eral agencies have been less active, U.S. firmshave often fallen behind. Although the U.S.Government has spent several hundred milliondollars for R&D on structural ceramics sincethe early 1970s (app. 2A, at the end of the chap-ter), the effort has been a small one comparedwith fiber composites. Japan, meanwhile, hasestablished a useful lead in structural (as wellas electronic) ceramics. In semiconductors,American firms established a commanding leadduring the 1950s and 1960s, when militaryprocurement provided much of the demand (ch.4). In later years, as production swung towardscivilian markets, Japanese firms closed the gap.

BAdvanced Materials by Design: New Structural MaterialsTechnologies (Washington, DC: Office of Technology Assess-ment, June 1988).

Four Examples

In addition to summarizing Federal programson ceramics, appendix 2A outlines the evolu-tion of the video-cassette recorder (VCR)—aquite different case from any of those men-tioned so far. The appendix also reviews thedevelopment of magnetic resonance imaging(MRI) systems, a relatively new product of themedical equipment industry, and LTS magnets.Magnets wound with niobium-titanium alloy—the most widely used LTS conductor—find usesnot only in MRI, but in scientific research.

The examples in appendix 2A illustrate some-thing of the range and complexity of commer-cialization. Sometimes government R&D sup-port is critical (LTS magnets), sometimes nearlyirrelevant (the VCR—although much of theunderlying technology of magnetic recordingdid benefit from ongoing government-spon-sored R&D). Sometimes governments try topush a technology, to little avail (ceramics forgas turbine engines). For MRI, the major pol-icy impacts had little to do with R&D: commer-cialization depended on regulatory approvals,as well as Medicare and Medicaid paymentpolicies.

The starting point may be new science, cre-ating new opportunities (MRI, LTS magnets),or it may be the prospect of a huge market ifdevelopment problems can be solved (VCRs).Inter-firm competition may be intense and in-ternational (MRI, VCRs), or it may be largelyirrelevant (LTS magnets, where much of thework was undertaken within Federal labora-tories).

Government agencies supported R&D on LTSmagnets as part of larger, ongoing programs:high-energy physics research, nuclear fusion.Development of niobium-titanium wire for thesemagnets has been mostly a matter of painstak-

28

Photo credit: University of Kansas Medical Center

Magnetic resonance image of human face.

ing engineering. Federal funds paid for muchof the work.10

The U.S. Government pushed structural cer-amics technologies for different reasons. Mostrecently, DOE has supported work on ceramicsfor gas turbine engines, hoping to overcometheir efficiency limitations; with greater fueleconomy (and low enough manufacturing costs),the hope was that turbines could compete withgasoline and diesel engines for automotive ap-plications. While these objectives are consist-ent with DOE’s mission, there has been littlepull from the marketplace.

@’Superconductive Energy Storage,” vol. IV, DOE/ET/26602-35, Final Technical Report, January 1976 to October 1981, pre-pared by the Applied Superconductivity Center, University ofWisconsin-Madison, for the U.S. Department of Energy, July1983, ch. III.

Inputs to Commercialization:Technology and the Marketplace

Product or process development—whetheradapting LTS magnet technology for medicalimaging systems, or generic techniques forcomputerized process control to steelmaking—depends on at least two inputs from outside thedevelopment group itself. The first of these isknowledge drawn from the technology base,including science, engineering, and shopfloorknow-how (figure 2). The second input is knowl-edge of markets—what potential customerswant and need. Steelmaker may improve theirprocess control systems because their custom-ers want better formability, which requiresmore precise control of melt chemistry. Thepurchasers of steel maybe seeking to provide

Figure 2.—The Process of Commercialization

SOURCE: Office of Technology Assessment, 19SS.

29

their own customers with products (automo-bile fenders, dishwashers) that have better-looking painted surfaces.

R&D and Marketing

Innovations follow their own paths. Figure3 summarizes the later stages for MRI—thoseafter initial research and feasibility demonstra-tion. Science came first, the complete chronol-ogy beginning in 1936 with theoretical predic-tions of the underlying phenomenon of nuclearmagnetic resonance. Experimental demonstra-tions followed a decade later, with the first two-dimensional images (e.g., of a wrist) in 1973.

Heavy continuing involvement by physiciansand scientists made MRI something of an ex-ception. Normally, commercialization is a jobfor engineers, supported on the one side byknowledge flowing from the technology and sci-ence base, and on the other by information oncustomer, wants, needs, and perceptions.

Much of the early work in HTS will be un-dertaken by multidisciplinary groups includ-ing physicists, chemists, materials scientists,and ceramists, along with electrical, chemical,and mechanical engineers. The known HTSmaterials are oxide ceramics—brittle and dif-ficult to work with. Learning to use them meansdrawing where possible on past R&D—work un-dertaken earlier and for other purposes onstructural and electronic ceramics, as well asprocessing, fabrication, and design techniquesfrom microelectronics.

As applications come into view, companieswill call on marketing tools ranging from fea-sibility studies (which may include detailed pro-jections of manufacturing costs) to consumersurveys. Technical objectives shift as prospec-tive markets emerge; some firms use “technol-ogy gatekeepers” to help match research resultsand market needs. This is an area where U.S.and Japanese strategies in HTS contrastmarkedly, with Japanese companies muchquicker to begin thinking about applicationsand the marketplace (see ch. 3).

Judging market prospects can be harder thanjudging prospects for technical progress. Fur-thermore, market prospects often depend on

technological capabilities. Early efforts by Mat-sushita and Toshiba to design VCRs for house-hold use failed: production costs were high;recording times were short. Not many peoplewould pay upwards of $1000 for a machinelimited to 30 minutes per cassette. But improve-ment was steady. RCA’s VideoDisc died in themarketplace in part because the company mis-calculated the speed with which VCR manu-facturers could reduce their costs to matchRCA’s target price (initially, $500 at retail). RCAalso underestimated the weight consumerswould place on off-the-air recording capabil-ity, and, failing to grasp the implications of rap-idly growing rentals of videotapes, prohibitedrentals of its discs.

HTS Markets

It is too early to reach many conclusionsabout markets for HTS. The more obvious high-current, high-field applications—magnets, elec-tric generators, coil and rail guns for themilitary—have all been analyzed for feasibil-

Photo credit: Argonne National Laboratory

HTS wire, flexible before firing,

30

Figure 3.—Development Stages for Magnetic Resonance Imaging (MRI) Systems

I1

Technical analyses

Preliminary design,

Commercialization

● Primarily aimed at developing the technology of MRI and, learning to use it (establishing effkacy, subject safety, etc )•*pdm~~ aimed at tearing prototype MRI syetem

SOURCE: Baaed on Haalti Tactuwbgy Caaa Sfudy 27: Nuclear Magnetk Rtbsomrrcu knagkrg Tachrmbgy (kfhahington, DC (Mce of Technology Assessment, September19S4), ch 4

ity, but no one knows much about making prac-tical wire, cables, or current-carrying tapesfrom the new materials (app. B). These will needhigher current densities than yet in view.

Good thin film fabrication methods, the pre-condition for applications to sensors and elec-tronics, will probably be easier to achieve. Evenso, as of mid-1988, there had been no publicannouncements of reproducible HTS Joseph-son junctions (JJs). Many of the technical ques-

tions on which practical applications dependwill not be answered until R&D groups learnto fabricate JJs easily.

Later sections of the report discuss these tech-nical matters in more detail. Here the point issimply that, until the technological prospectscome into sharper focus, it will be impossibleto do more than speculate about markets. Andeven then, uncertainty will remain high. Noone—scientists, engineers, marketing special-

31

ists, science fiction writers—can predict withmuch accuracy how a new technology like thiswill eventually be applied. Nor can potentialcustomers say what they might want, or be will-ing to pay, if they cannot imagine the possibil-ities. It is the unexpected that will probably havethe greatest impact.

Success and Failure

What makes for success or failure in the mar-ketplace? Product and process engineering,marketing skills, luck, sometimes research re-sults. No one has a recipe, any more than a rec-ipe for room-temperature superconductivity.

Costs are central for some products, but forothers — MRI is one — competition revolvesaround non-price features. Many hospitals willreadily pay a premium of several hundred thou-sand dollars for an MRI system with superiorimaging performance. At the same time, smallprivate clinics or rural hospitals make up aniche market for which a number of manufac-turers have designed low-cost systems.

Products may come out too late or too early.A company may fall behind its competitors andnever get much market penetration. Early in-novators in the semiconductor industry havesometimes failed and sometimes succeeded.11

The pioneer minicomputer manufacturer, Dig-ital Equipment Corp., whose PDP-8 establishedthis part of the market, went onto become thesecond largest computer firm in the world, Onthe other hand, the microcomputer pioneers—Altair, Imsai, polymorphic Systems—disap-peared. Toshiba invented helical scan record-ing but the company ended up licensing Sony’sBetamax technology (which itself has lost muchground to VHS).

Cost and Risk

As firms move further along the developmentpath, mistakes become more costly. Only oneoften projects launched at the R&D stage ever

l~see, for example, lrlter~~tiOrA Competitiveness in Electronics(Washington, DC: Office of Technology Assessment, November1983), “Appendix C: Case Studies in the Development and Mar-keting of Electronics Products, Semiconductors: The 4K DynamicMOS RAM,” pp. 524-531.

brings in profits. Before reaching the market-place, half of all R&D projects fail for techni-cal reasons; poor management or financialstringencies kill two or three more. Of thosethat do enter production, some never earnenough to cover development costs.

The vast majority of project budgets go forproduct engineering, process design and de-velopment, tooling and production start-up, andtest marketing. Introducing an MRI systemmeans investments of $15 million and up forR&D alone; pilot production and field trials re-quire much larger financial commitments. Sel-dom does research account for more than 10percent of total project outlays, although thedistribution of costs varies a good deal fromproject to project and industry to industry. Thedistribution also varies between the UnitedStates and Japan.

As table 2 shows, Japanese companies (forthe industries and time period examined) spenta bit less on R&D than the average Americanfirm, and much less on manufacturing startupand product introduction. They budgeted morein gearing up for production—on facilities, tool-ing, and special manufacturing equipment (adifference that may also reflect higher projectedvolumes). Japanese firms no doubt have lowerstartup costs because they invest more in front-end process development. Yet a substantialdifference remains. Adding the percentages fortooling and equipment to those for manufac-turing startup gives a total of 40 percent for theU.S. companies, 54 percent for the Japanese.The greater proportion of total project expensesfor tooling and equipment reflects the higherpriorities Japanese managers place on manu-facturing as an element in competitive strategy.

Such priorities will make a difference in com-mercialization of HTS, which will depend crit-ically on process know-how. U.S. firms haveunderinvested in process technology for years—one reason for competitive slippage in indus-tries ranging from steel to automobiles to elec-tronics.

32

Table 2.—Distribution of Costs for Development and Introduction of New Products and Processesa

Percentage of total project cost

Research,development Prototypeor Tooling and Manufacturing Marketingand design pilot plantb equipment startup startup

U.S. companies . . . . . . . . . . . . . . . 26940 17% 23% 17% 17%

Japanese companies . . . . . . . . . . . 21 16 44 10 8asuw~y figureS from 1 g~ for 50 matched pairs of u,S, and Japanese firms, The total of 100 included ~ chemical companies, 30 machinery, 20 eleCtriCd and electronics,

and 14 from the rubber and metals industries.bFor cases of ~roduCt develo~rnent, the costs are for prototyping; for process development, they include investments in pilot plWltS.

NOTE: Totals may not add because of rounding.

SOURCE: E. Mansfield, “The Process of Industrial Innovation in the United States and Japan: An Empirical Study,” unpublished seminar paper presented Mar. 1, 1988in Washington, DC.

Competitive Advantage

What does it take to use technology effec-tively? The examples mentioned above, andothers, point to the following common factors:

● Appropriate use of technology and science,new and old—whether a company gener-ates the knowledge internally, or gets itelsewhere. Much of the science base forHTS will be available to everyone. To estab-lish a competitive advantage, companieswill have to develop proprietary know-how, and do it ahead of their competitors.

● Effective linkages between engineeringand marketing. Customers for many of theearly applications of HTS—in military sys-tems, electronics, or perhaps energy stor-age—will be technically astute. Marketingwill count, but not so heavily as for con-sumer products.

● Effective linkages between product devel-opment groups and manufacturing—apoint already stressed for HTS.

Ž Managerial commitment to risky and un-certain R&D projects. The next chapter ex-plores this dimension more fully for HTS.

What are the conditions under which Amer-ican firms have trouble in commercialization—in the effective utilization of technical knowl-edge, new or old? Under what circumstancesdo American firms perform best? Effective pol-icies depend on the answers to such questions.

Generally speaking, OTA assessments havefound the problems to be most acute when itcomes to applications of existing technologyby firms in older industries—and particularlywhen it comes to shopfloor manufacturing tech-nologies. In the earlier years of high technol-ogy, the United States had potent competitiveadvantages: entrepreneurship and venture cap-ital; a decentralized science infrastructure withmany centers of excellence both inside and out-side the Nation’s universities; flexible labormarkets, with high mobility among engineers,scientists, and managers. These strengths havebegun to wane. In many industries, Japanesecompanies are out-engineering Americanfirms. Even in high technology, the Japanesehave been able to move quickly from the lab-oratory to the marketplace. The days when U.S.companies could take their time in commer-cializing R&D are past.

STRENGTHS, WEAKNESSES, AND STRATEGYWhat does the discussion above (and in app. problems they failed to anticipate. Powertrains

2A) imply for U.S. abilities in commercializa- , wore out quickly in long-distance driving. Com-tion? The first point is simply that taking a new panics like Honda found themselves trying toproduct into the marketplace is always diffi- sell cars with fenders that would rust throughcult. In their efforts to penetrate the U.S. mar- after one or two northern winters. Federallyket, Japanese automakers suffered from many mandated recalls were frequent.

33

Product/Process Strategies

Japan’s automakers overcame these difficul-ties. They redesigned their products to suit U.S.needs and tastes, establishing deserved repu-tations for quality and reliability. They builtstrong dealer organizations that helped themunderstand American consumers. In contrastto European manufacturers, the Japanese be-gan developing vehicles specially tailored to theU.S. market—small pickup trucks, four-wheeldrive vehicles, sports and luxury models. Mostwere variants on products sold in Japan andother foreign markets, but a few—such as Nis-san’s Pulsar—were designed primarily in theUnited States to appeal to Americans.12

Japan’s automakers learned many lessonsfrom their American rivals, and learned themwell. The credit goes to the industry, which ben-efited from government policies, but not nearlyso directly as, say, Japanese computer manu-facturers. In the past several years, with theirupmarket moves and new brand names, Japan’sautomakers have taken another leaf from AlfredSloan: in turning their automobiles into high-fashion products, they have introduced newmodels much more quickly than American orEuropean firms—a necessary capability for im-plementing such a strategy.

Design/development/tooling cycles for Japa-nese automakers have shrunk to little more thanhalf those in the United States; Honda’s modelcycle is down to 40 months, while Americanfirms take 5 or 6 years.13 U.S. automakers have

‘2J, Yamaguchi, “Quick-change open-top car matches closedcoupe in body rigidity, ” Automotive Engineering, February 1987,p, 167.

When Toyota models got poor ratings on U.S. crash tests, thecompany quickly made design changes that upped their scores—L. McGinley, “Car Crash Rankings: Safety Guide Or NumbersThat Don’t Add Up?” Wa]] Street ~ournal, Dec. 1, 1987, p. 39.

la’’ Honda’s R&D Mastermind,” Automotive Industries, Novem-ber 1987, p. 52, More generally, see H. Takeuchi and 1, Nonaka,“The new new product development game,” Harvard BusinessReview, January-February 1986, P. 137; J. Bussey and D.R. Sease,“Manufacturers Strive To Slice Time Needed To Develop Prod-ucts, ” Wall Street ~ournal, Feb. 23, 1988, p. 1; R. Poe “AmericanAutomobile Makers Bet On CIM To Defend Against JapaneseInroads,” Datamafion, Mar. 1, 1988, p, 43; K.B. Clark and T.Fujimoto, “Overlapping Problem Solving in Product Develop-ment,” working paper, Harvard Business School, April 1988,Part of the Japanese advantage may come simply from putting

looked to computer-aided engineering to nar-row the gap. The Japanese, however, appearto succeed through quite conventional ap-proaches to engineering development, carefullymanaged. Certainly they do not have the leadin such computer-intensive techniques as nu-merical analysis of vehicle structures, aero-dynamic modeling and simulation, or analyti-cal predictions of vehicle ride, vibration, andhandling.

The high-fashion, product differentiationstrategy is new for Japanese companies onlyin the automobile industry. It is one the Japa-nese have used in the past in cases like con-sumer electronics and motorcycles. Success-ful targeting of markets—whether for consumergoods, for capital equipment (machine tools),or for intermediate products (semiconductorchips)—has been a hallmark of Japan’s competi-tive success.14

As discussed in the next chapter, Japanesecompanies have already put a good deal of ef-fort into thinking about new applications of su-perconductivity; they may well locate some ofthe possible market niches before Americanfirms. The Japanese have often carved out sub-stantial markets by starting from small niches;large, integrated Japanese firms have been more

more engineers to work: GM, Ford, and Chrysler employ a totalof 30,000 engineers, Toyota, Honda, and Nissan more than40,000—J, McElroy, “Outsourcing: The Double-Edged Sword, ”Automotive Industries, March 1988, p. 46.

While it takes much longer for American firms to introducenew products in some industries, according to a recent survey,the U.S.-Japan difference in design and development times doesnot hold across the board—E. Mansfield, “The Process of In-dustrial Innovation in the United States and Japan: An Empiri-cal Study, ” unpublished seminar paper presented Mar. I, 1988in Washin@on, DC. Professor Mansfield’s survey does show thatJapanese companies were generally much quicker than Amer-ican firms when product development efforts began with licensedtechnologies. Moreover, Japanese firms willingly absorb substan-tially higher costs to shorten their development cycles.

W% the Japanese approach to product planning and market-ing, see J.K. Johansson and I. Nonaka, “Market research the Jap-anese way,” Harvard Business Review, May-June 1987, p. 16;P. Marsh, “The ideas engine which drives Japan, ” FinancialTimes, May 29, 1987, p. 14; P. Marsh, “why research is in the

driving seat,” Financial Times, June 2, 1987, p. 12; C. Lorenz,“ ‘Serum and Scramble’—the Japanese Style, ” Financial Times,June 19, 1987, p. 19; P.S. Leven, “Repatriate product Design,”

Across the Board, December 1987, p. 39; C. Rapoport, “HowHonda research runs free and easy, ” Financial Times, Feb. 16,1988, p. 10.

34

aggressive than their American counterpartsin pursuing specialized products, including ad-vanced materials. Japanese companies are will-ing to start with small-volume production andgrow with their markets—a strategy likely toprove successful in HTS, indeed one that mayprove necessary.

How do companies based in Japan do so wellat defining and attacking market segments, par-ticularly in countries foreign to them? Most Jap-anese companies do use market research tech-niques, although table 2 showed they spend lesson this than American companies. As someU.S. firms also realize, the best marketing re-search often remains as informal today as it was50 years ago—a matter of good judgment fromwithin the company more than consultingfirms, focus groups, and consumer surveys.

Japanese firms in many industries have alsocapitalized on the quality of their goods. Lag-ging quality not only leaves customers unhappy,it raises manufacturing costs. Quality and relia-bility problems have plagued American indus-tries ranging from automobiles to semiconduc-tors. Careful control of the production processwill be necessary for fabricating the new HTSmaterials, as it is for high-technology electronicand structural ceramics, or for integratedcircuits.

The primary point is this: by the 1960s, Amer-ican firms had come to think of their skills inengineering and marketing as far and away thebest in the world. If this was true then, it is trueno longer. Many U.S. companies have not yetfaced up to the need to do better. Others peri-odically rediscover such well-known manage-ment and engineering practices as simultane-ous engineering, design for production, orquality engineering, but fail to follow throughwith actions that institutionalize them. Somestill look to techniques like quality circles formiracle cures.

Research, Development, and Engineering:Parallel or Sequential?

Simultaneous engineering means nothingmore than tackling product and process devel-opment in parallel, with overlapping respon-

sibilities in design and manufacturing groups,if not a fully integrated approach. Simultane-ous engineering may be hard to achieve in amodern American corporation, but in princi-ple is nothing but common sense. A hundredyears ago, technology was simpler and no onehad discovered any need to separate design andmanufacturing.

The chain can be extended back to research.But given the uncertainties that accompany thesearch for new knowledge, and the high costsof downstream development, many U.S. execu-tives have come to view research, development,and product planning as sequential processes.Only when consistent, verifiable, and poten-tially useful results begin to emerge from thelaboratory do American companies think aboutincorporating engineers into the effort. Evenat this point, research may remain separatedfrom development: the scientists pass alongtheir findings, but the two groups continue towork independently. Under these circum-stances, the entire process can become almostpurely sequential—running from applied re-search to product planning and developmentto manufacturing engineering, with littleoverlap.

Technology-based Japanese companies, incontrast, have developed simultaneous or par-allel processes to a high level. Many are nowbusy integrating backward into research–a taskthey see as necessary for commercializing hightechnologies like HTS. Already, they do a bet-ter job of responding to design and marketingrequirements through incremental, applied re-search.

Japanese managers, moreover, tend to be op-timistic about research in general and aboutHTS specifically (ch. 3). Perhaps because theymix development and engineering personnelinto project groups at an early stage, the beliefseems pervasive that useful results of one sortor another will inevitably emerge from HTSR&D. Japanese managers have strong convic-tions on these matters. They believe it wrongto think about technical developments as pro-ceeding more-or-less linearly from basic re-search to applied research, then to developmentand product design, and finally to process engi-

35

neering. More to the point, they are acting onthese beliefs in HTS.

American managers know just as well thatmany of the steps should take place in parallel.But for reasons ranging from trouble in learn-ing to manage parallel processes effectively (one

reason for longer product development cycles),to the characteristics of U.S. financial markets,they do not always act on this knowledge, Whenit comes to HTS, American managers have beenrelatively cautious; they want to see results fromthe laboratory before taking the next step.

COMMERCIALIZING HTS

There is a bright side. The United States re-tains major sources of strength in commer-cializing new technologies. Table 3—whichdraws heavily on past OTA assessments ofcompetitiveness —summarizes advantages anddisadvantages of U.S. firms. Table 4 outlinesthe implications for HTS. Later chapters ex-pand on many of the points in these two tables,particularly where the Federal Government haspolicy leverage.

Table 3 has a simple message: the UnitedStates has a number of areas of advantage, cou-pled with several serious handicaps. Thosehandicaps—emphasis on short-term financialpaybacks, low priorities for commercial tech-nology development and for manufacturing—have put U.S. firms at a severe disadvantagein competing with Japan. Some of the conse-quences can already be seen in HTS.

On the other hand, American firms have oftenbeen successful—at least in the past—when newscience has led to new products and new in-dustries, especially where fast-growing andvolatile markets promise rich rewards (table 3,factor 1). American companies perform lesswell, and often poorly, at incremental innova-tion—more-or-less routine improvements to ex-isting products and processes. These kinds ofproblems have been much more prevalent insteel than in chemicals, in machine tools thanin computer software, in automobiles than incommercial aircraft.

Most of the success stories came in the yearsbefore U.S. industry had much to worry aboutfrom international competition. Table 4 sum-marizes the lessons that past performance andevents thus far hold for HTS, and compares thestrengths and weaknesses of American com-panies with those in Japan. Some of the U.S.

entrants will be new companies, started spe-cifically to exploit HTS and staffed by peoplewith strong credentials in related fields of sci-ence and technology. Other firms will move infrom a base in LTS. Both kinds of companiesshould be able to respond effectively to the prob-lems and opportunities that emerge in the earlyyears of HTS—with good ideas and a strongscience base, together with venture capital andentrepreneurial drive, leading to success in spe-cialized products and niche markets.

The picture could change as the technologystabilizes and financial strength becomes moreimportant. When production volumes increase,manufacturing capabilities will grow more im-portant. Companies will have to carefully tailorproducts to emerging markets, and find capi-tal for expansion. U.S. industries that flourishedas infants have run into difficulty as competi-tors—primarily the Japanese—caught up andpulled ahead in the race to capitalize on newapproaches to factory production or new knowl-edge concerning electron devices; in the yearsahead, the biotechnology industry could stum-ble, just like the semiconductor industry.15

Microelectronics, and Other Precedents

A decade ago the semiconductor industry stillseemed a bastion of U.S. strength. The Japa-nese were nibbling at the margins, no more.Today, the Federal Government finds itself put-ting money into the new consortium Sematech,trying to help American firms regain a techno-logical lead lost seemingly overnight.

15s0 far, however, there has been little sign of such slippage.See New Developments in Biotechnology: U.S. Investment inBiotechnology (Washington, DC: Office of Technology Assess-ment, July 1988).

36

Table 3.—U.S. Strengths and Weaknesses in Commercialization

U.S. strengths U.S. weaknesses Comments

Factor 1. Industry and market structure: market dynamics.In the past, U.S. firms performed well in rapidlygrowing industries and markets, especiallyduring the early stages in R&D-intensive in-dustries.

American companies have had trouble copingwith slow growth or contraction. Although newtechnologies promising greater productivitymight improve competitive Performance in in-

Other countries frequently look to public pol-icies to help companies and their employeesadjust to decline.

dustries like steel, ’corporate executives fre-quently choose to invest in unrelated busi-nesses. Where foreign firms might take a moreactive approach to managing contraction,American companies sometimes let troubleddivisions struggle along, without new invest.ment, until profits disappear. Then they shutthe doors.

Factor 2. Blue and gray collar labor force.High labor mobility helps American companies Many development projects depend on crafts- In the past, U.S. wage rates worked to the dis-attract the people they need. men who can fabricate prototypes and modify advantage of American firms, while creating in-

them quickly based on test results and field ex- centives for investments in R&D and new man-perience. In some U.S. industries, shortages of ufacturing technologies that could raiseskilled Iabor—e.g., technicians, modelmakers productivity. Today, international differences in—have begun to slow commercialization. labor costs are less of a factor than in the

U.S. apprenticeship programs have been in de- 1970s.cline. Vocational training reaches greater frac-tions of the labor force in nations like West Ger-many; large Japanese companies invest moreheavily in job-related training for blue- and gray.collar employees than do American firms.

Factor 3. Professional and managerial work force.Mobility among managers and technical pro- American companies underinvest in processfessionals has stimulated early commercial- (as opposed to product) technologies. This isization in high-technology industries. New part of a bigger problem: too many managersproducts have reached the marketplace more and engineers in the United States avoid thequickly because people have left one company factory floor:and started another to pursue their own ideas. ● for managers, marketing or finance has beenDeep and well-integrated financial markets— the road to the top.e.g., for venture capital—have helped. s engineers—schooled according to an applied

science model—have been insensitive, notonly to role of manufacturing, but to the sig-nificance of design and marketing. Put sim-ply, the engineering profession has divorceditself from the marketplace, and the needsand desires of potential customers (particu-larly when it comes to consumer products).

Compounding these problems, many Americancompanies underutilize their engineers. Finally,many U.S. firms provide little support for con-tinuing education of their technical employees.

Managers and professionals in the UnitedStates sometimes place individual ambitionover company goals. Competition among indi-viduals may make cooperation within the orga-nization more difficult (e.g., between productengineering and manufacturing).

More upper level managers in Japanese andWest German firms have technical back-grounds than in the United States; they appearmore sensitive to the strategic significance ofmanufacturing, and in at least some cases tonew technological opportunities.

Factor 4. Industrial Infrastructure (also see Factor 6 below).American companies can call on a vast array of U.S. competitiveness in capital goods like ma- At present, the independent computer softwarevendors, suppliers, subcontractors, and service chine tools has slipped, compounding the prob- and services industry is perhaps the preemi-firms for needs ranging from fabrication of pro- Iems in manufacturing technology. nent illustration of U.S. infrastructural strength.totypes to financing, legal services, and mar- Arms-length relationships between Americanketing research. Few other countries have a firms and their vendors and suppliers may notcomparable range Of capabilities so easily be as conducive to commercialization as theavailable. a

relationships found in Japan (relations whichmight be classified as close and cooperative,or perhaps with equal accuracy as coercive anddependent).

% the importance of specialty firms for the U.S. microelectronics industry, particularly those supplying semiconductor manufacturing equipment, see h’rterrrat/orra/CornpetWveness In Electrons (Washington, DC: November 19S3), PP. 144-145. On sewice inPuts, see Irrternatlonal Conwet/t/on In Services (Washington, DC: JulyI@~, pp. 32-34 and 55-57.

37

Table 3.—U.S. Strengths and Weaknesses in Commercialization—Continued

U.S. strengths U.S. weaknesses Comments

Factor 5. Technology and science base (alsoU.S. strength in basic research—both scienceand engineering—has been a cornerstone ofcommercialization.

The national laboratory system is a major re-source, although one that has not been turnedto the needs of industry.

Multidisciplinary R&D—essential in industrial(and government) laboratories–has been theexception rather than the rule in Americanuniversities. Foreign university systems, how-ever, have probably been even worse at multidis-ciplinary research.

see Factor 7 below).U.S. strength in basic research has not alwaysbeen matched by strength in applied research,nor in the application of technical knowledge.The Nation depends heavily on a relatively smallnumber of large corporations for industrial R&Dand the development of new commercial tech-nologies. When R&D is not close enough to any-one’s interests, gaps open in the technologybase. Moreover, U.S. firms seem to be fallingbehind in their ability to move swiftly from theR&D laboratory to the marketplace. Diffusionof technology within the U.S. economy has beena persistent and serious problem.

American engineers and their employers haveoften remained unfamiliar with technologies de-veloped elsewhere, reluctant to adopt them.This reluctance is evident, for instance, whenit comes to rules of thumb and informal pro-cedures—sanctioned by experience if not byscientific knowledge. Examples include shop-floor practices for job scheduling and qualitycontrol.

The science base and technology base are notidentical. The latter spreads much morebroadly, encompassing, for instance, the intui-tive rules and methods—many of them tacitrather than formally codified—that lie at theheart of technological practice. The semicon-ductor and biotechnology industries have bothsprung from scientific advances. But the theo-retical foundations for each remain relativelyweak. As a result, progress depends heavily onexperience and empirical know-how—again,part of the technology base but not the sciencebase.

Japanese and German firms give commercialtechnology development higher priorities. Gov-ernments in these countries also give more con-sistent support to generic, pre-competitiveR&D.

Factor 6. The business environment for innovation and technology diffusion (also see Factor 7 below).— ----Clusters-of-knowledge and skills such as foundin the Boston area, or Silicon Valley, help speedcommercialization. While some of this en-trepreneurial vitality can be linked to major re-search universities, other regions have becomecenters of high-technology development eventhough lacking well-known schools like MIT orStanford.

The size and wealth of the U.S. market, and thesophistication of customers—especially busi-ness customers—work to the advantage of in-novators; indeed, foreign companies some-times come to the United States simply to tryout new ideas.

Many American firms seem preoccupied withhome runs—major breakthroughs in themarketplace—unwilling to begin with nicheproducts and grow gradually.

Poor labor relations sometimes slow adoptionof new technology. Reluctance among Amer-ican engineers and managers to learn fromshop-floor employees hurts productivity andcompetitiveness.

Companies in other parts of the world may besomewhat more willing to cooperate in R&D.

Linkages between universities and industrycould be stronger, but nonetheless probablyfunction better in the United States thanelsewhere.

Business and consumer confidence encourageinnovation and rapid commercialization. Overthe past few years, business confidence ap-pears to have ebbed somewhat–a casualty ofFederal budget deficits, trade imbalances, rapidexchange rate swings, and the evident inabilityof the Government to address these issues. Atthe same time, the political stability of theUnited States remains a major strength.

Factor 7. The policy environment for innovation and technology development.The United States h-as a deeply rooted commit-ment to open markets and vigorous competi-tion. (So does Japan, when it comes to domes-tic markets and domestic competition.) Withwidespread economic deregulation since theearly 1970s—pIus a tax system and financialmarkets that reward entrepreneurs—startupsand smaller companies have often been leadersin commercializing new technologies.

Purchases by the Federal Government havestimulated some industries, particularly in theirearly years. Examples range from aircraft andcomputers to lasers and semiconductors.

A broad range of other U.S. policies—e.g.,strong legal protections for intellectual prop-erty-helps companies stake out and exploitproprietary technological positions.

Deregulated U.S. financial markets bear some Many government policies act on commercial i-of the blame for the risk aversion and short-term zation indirectly. Industries have evolved indecisions common in American business. different ways in different countries, in part be-

Sometimes U.S. regulatory policies delay com- cause of these influences:

mercialization. Examples include approvals for • Along with antitrust, financial market

drugs and pharmaceutical products. regulations—e.g., rules covering holdings ofstock in one company by others—affect theextent of vertical “and -horizontal integration.

● Tax policies—treatment of capital gains, R&Dand investment tax credits—influence cor-porate decisions on investments in new prod-ucts and processes.

● Antitrust enforcement helps set the environ-ment for inter-firm cooperation in R&D.

. Trade protection can reduce the risks of newinvestment, thereby stimulating commerciali-zation. On the other hand, protected firmsmay grow complacent and decline to investin new technologies.

● Technical standards sometimes act to speedthe adoption of new technologies. If prema-ture or poorly conceived, however, they canimpede commercialization.

● Education and training have enormous longrun impacts on commercialization and com-petitiveness.

SOURCE: Office of Technology Assessment, 1988.

38

As yet, no one knows very much about thetechnical problems that will have to be over-come in commercializing the new supercon-ductors. Still, parallels have begun to emerge.In microelectronics, product and process know-how are closely tied.16 This will also be the casein HTS, where the companies that move downlearning curves the fastest will reap competi-tive advantages.

Semiconductor firms must grapple with dif-ficult technical problems in the heat of fiercecompetitive struggles: understanding the effectsof purity and defect population in the silicon

IeInternatjona] competitiveness in Electronics, OP. cit., ch. e.As the example of Trilogy Systems illustrates, firms must be able,not only to design, but to build new types of devices; Trilogyhad to abandon its planned line of computers after finding itcould not fabricate the wafer-scale integrated circuits required.

crystals with which production begins; proc-ess variables for the steps in diffusion or for-mation of oxide layers. Costs depend on yield—the fraction of functional chips produced. Bothyield and quality depend on the design of thechip as well as control of the manufacturingprocess. With the technology of semiconduc-tor devices ahead of the underlying science,chip designers and process engineers must pro-ceed on a largely empirical basis as they worktoward ever denser and more powerful circuits.New applications of HTS will likewise requiretailoring of material properties on a micro-scopic scale, probably without much theoreti-cal guidance.

Companies in the semiconductor industrymust solve problems today so they can com-pete in the marketplace tomorrow. HTS is not

Table 4.–U.S. Advantages and Disadvantages in Commercializing HTS

U.S. advantages U.S. disadvantages Comments

Factor 1. Industry and market structure; market dynamics.New science and technology make for condi- At some point, financing constraints may make Past U.S. successes in high technology cametions under which American firms should be it difficult for startups and smaller U.S. compa- when international competition was a minorable to commercialize quickly and compete ef- nies to continue in HTS on an independent ba- factor. Foreign firms have now proven they canfectively. sis. Mergers may be necessary for growth. move quickly from the R&D stage to the mar-

ket place.

Mergers or other arrangements driven byfinancing needs sometimes help, sometimeshurt. Ties with larger companies may stifle in-novation. In biotechnology, linkages betweensmall firms and larger companies have helpedwith regulatory approvals and process scale-UPS. American semiconductor firms, however,have seldom been willing to sacrifice their in-dependence for new capital—one reason theyhave fallen behind large, integrated Japanesecompetitors.

Factor 2. Blue and gray collar labor force.Some American companies start with a core of Japanese companies with ceramics businesses So far, few American ceramics firms have beenemployees having experience in low-tempera- can draw on larger numbers of people with rele- prominent in HTS R&D.ture superconductivity (LTS). A portion of these vant skills. These employees will help give Ja-skills will translate to HTS. At the same time, pan a head start in certain kinds of HTS R&D–given that the new HTS superconductors are e.g., mechanical behavior, processing and fabri-fundamentally different materials—ceramics cation. Japanese firms also have many workersrather than metals—a wide array of quite differ- with extensive and transferable experience inent skills will be needed. Some of the skilled microelectronics.employees may come from related industries,including electronics.

Factor 3. Professional and managerial work force.Managers, engineers, and scientists moving Decisionmakers in American companies, large At least initially, HTS startups will haveinto U.S. HTS companies from industries like and small, may not be willing or able to make managerial staffs with strong technical back-microelectronics will bring new insights and long-term commitments to HTS-related R&D, grounds. Some larger U.S. firms with the re-new ideas. particularly more basic work. sources to compete in HTS-related markets

—

39

Table 4.—U.S. Advantages and Disadvantages in Commercializing HTS—Continued

U.S. advantages U.S. disadvantages Comments

Processing and fabrication will pose difficulttechnical problems, of a sort that Americancompanies have not been very good at solving.

Much of the R&D needed to develop HTS willbe empirically-based engineering, with heavydoses of trial and error. Japanese companiesdo very well at this kind of development, oftenbetter than their American counterparts.

may chose other investments because man-agers fail to understand the technology or rec-ognize the opportunities.

Managers with previous experience in LTS maytend to err on the side of conservatism. On theother hand, HTS has had more than its shareof exaggerated publicity already. A cautiousview of HTS, born of past experience in LTS,could prove realistic.

Factor 4. Industrial infrastructure (also see Factor 6 below).The generally strong U.S. infrastructure for high When it comes to the science and technology Japan’s HTS infrastructure exists mostly insidetechnology should be an advantage in HTS. of ceramics, specifically, the U.S. infrastructure large, integrated companies. In the United

is weak. American HTS companies with States, startups will have to rely heavily on helpceramics-related technical problems may have from outside. The US. approach has advan-trouble finding help. tages in flexibility and creative problem-solving,

while Japan’s reliance on internal resourcescreates reservoirs of skills and expertise thatwill be very effective over the longer term.

Factor 5. Technology and science base (also see Factor 7 below).Despite lack of attention to ceramics compared Military and civilian applications of HTS will di- In 1966, U.S. engineering schools granted 3700with Japan, the United States has a relatively verge rapidly, limiting the spillover effects from PhDs—but only 14 in ceramics.strong base in materials R&D. DoD R&D spending. Without major policy shifts, Federal agenciesIn the early years of HTS development, the de- will fund little R&D that directIy supports com-fense emphasis of federally supported R&D will mercialization. Nonetheless, the United Stateswork in some ways to the U.S. advantage. Fund- is beginning to address the problems of trans-ing from the Department of Defense (DoD) will ferring federally funded R&D to industry.help train engineers and scientists, and may American companies will probably be at a dis-support the development of some dual-use HTStechnologies (e.g., powerful magnets). DoD

advantage for years to come in solving the

support for processing R&D could be especiallymanufacturing-related problems of HTS. To

important.make progress here, American scientists andengineers—including those engaged in univer-

A number of national laboratories have the re- sity research—must be willing to spend moresources, including specialized equipment, to of their time working on industrial problemshelp with the technical problems of HTS. (even if the scientific and university communi-

ties continue to view practical work as less thanfully respectable). Without substantial effortsin manufacturing R&D, some American compa-nies could be forced into partnerships with Jap-anese firms simply to get access to process-ing know-how.

Factor 6. The business environment for innovation and technology diffusion (also see Factor 7 below).U.S. markets should prove receptive to newproducts based on HTS. Some foreign compa-nies could find they need an R&D presencehere simply to keep up.

With Japanese firms starting on a par withAmerican companies, know-how from abroadmay prove essential for keeping pace. ManyAmerican companies have been unable or un-willing to reach useful technology transferagreements with Japanese firms. Lack of ex-perience in doing business with the Japanesecould become a significant handicap in HTS.

University-industry relations in the UnitedStates seem to be following patterns similar tothose in biotechnology, with strong andproductive linkages developing.

Small U.S. firms have begun devising strategiesfor commercializing HTS. Many larger Amer-ican firms with the resources to compete inHTS, however, seem to be adopting a wait-and-see attitude.

Factor 7. The policy environment for innovation and technology development.So far, the U.S. policy approach seems con- After the initial announcement of the Adminis- While Federal procurements helped the U.S.ducive to entrepreneurial startups in HTS. tration’s 1 l-point superconductivity initiative, semiconductor industry get off the ground inThere is little indication that the 1966 changes little was heard for 7 months—a long time in the 1960s, poor experience with demonstrationin U.S. tax law—which increased rates on cap- such a fast-moving field. Budgetary uncertain- projects in energy and transportation hasital gains—have choked off funds for HTS ties, moreover, delayed decisions on Federal soured prospects for some kinds of policystartups. R&D funding well into the 1966 fiscal year, ham- options that otherwise might provide stability

pering progress in universities, industry, and and support for HTS during a long period ofthe national laboratories. gestation.

Some companies continue to express concernthat U.S. antitrust policies will limit opportuni-ties for consortia and other forms of joint R&D.However, OTA has not learned of any case inwhich U.S. antitrust enforcement has in factstopped firms from cooperating in R&D.

SOURCE: Office of Technology Assessment, 1988.

40

yet at this stage. There is no market. The raceis still a scientific race. But if HTS lives up toexpectations, some of the history of microelec-tronics may be replayed.

Commercialization, indeed, may begin withspecialized electronic devices—perhaps verysensitive detectors of electromagnetic signals,or high-speed digital circuits (app. B). HTS-based devices maybe used in conjunction withsemiconductors. Other parallels are non-technical—matters of industrial structure, cor-porate decisionmaking, and public policy. Rela-tively small U.S.-based semiconductor firmsfind themselves competing with vertically in-tegrated Japanese multinationals, enterpriseswith far more money and manpower. Thesesame Japanese firms have made heavy commit-ments to HTS R&D. Government policies forHTS in Japan, while far removed from the (false)stereotype of industrial targeting, show manyfamiliar features: notably, pragmatic attentionto bottlenecks that might slow commercializa-tion by Japan’s very aggressive private sector.

The Japanese firms that have made so muchprogress with electronic and structural ceram-ics will be well placed when it comes to fabricat-ing wires, cables, tapes, and other forms of con-ductors made from the new HTS materials.Learning to make practical conductors fromthe new materials—for the circuitry inside com-puters, or for electrical windings in generatorsor energy storage systems—will require a greatdeal of trial-and-error development. Japanesecompanies do well at this kind of engineering.Some of the specific skills in ceramics proc-essing they have developed will transfer, justas will some of their skills in semiconductorprocessing. American firms, in contrast, havefallen down badly in processing and manufac-turing skills over the past two decades.

HTS Technologies

Appendix B outlines prospective applicationsof HTS (table B-l), including estimated timeframes for commercialization (table B-3). Earlyapplications of HTS will be highly specialized—military equipment, niche markets on the com-mercial side (perhaps in scientific apparatus,

or for nondestructive inspection). Japanesefirms will provide strong competition from thebeginning.

High-Current, High-Field Applications;Electrical Machinery and Equipment

Japan’s lack of energy resources means strongmotives for commercializing HTS in order toconserve electrical power. Even though super-conductivity offers relatively small efficiencyincrements (because large-scale conventionalequipment is highly efficient already), Japanesecompanies may make more rapid progress thanAmerican firms in superconducting motors andgenerators, as well as transformers and energystorage systems. Similar forces are at work formagnetically levitated trains, where the moti-vation comes from a heavy existing commit-ment to fixed-rail passenger transportation—natural in a small and crowded nation like Ja-pan. Summarizing:

●

●

●

●

Both the United States and Japan start froma roughly equivalent experience base inLTS motors and generators, but the Japa-nese have more work underway at present,and will probably pull ahead when and ifsuitable HTS conductors become available.Each country has one or more active LTSenergy storage projects (large supercon-ducting rings in which electrical currentcirculates indefinitely, to be withdrawnwhen needed). With SDI funding, two U.S.firms are designing a prototype ring thatwould quickly dump the stored energy intopowerful lasers. Japan’s R&D has beendirected at storage for electric utilities,where discharge rates will be much lower.While the U.S. effort will yield some les-sons for utilities, design trade-offs will biasthe prototype—and the knowledge gainedfrom it–towards the quick-discharge mil-itary application.DoD R&D aimed at coil and rail guns andother high-power, high-field applications(e.g., ship propulsion) could strengthen thegeneric technology base in HTS, helpingcommercial industries indirectly.When it comes to possible applicationssuch as magnetically levitated trains, the

41

United States starts out behind, havinghalted R&D in 1975 (see box K, ch. 3). How-ever, it is not yet clear that HTS would of-fer much advantage here.

● In medical electronics—e.g., MRI—theUnited States has a substantial lead inknow-how and experience, one that shouldpersist (although LTS might again continueto be the technology of choice for sometime).

Pursuing most of these applications will de-mand technical resources and experience, aswell as financing, on a scale beyond that of thesmall, entrepreneurial firms that emerged inthe early years of LTS, and those being startedtoday to exploit specialized HTS applications.If big U.S. companies prove reluctant to moveinto markets for electric power equipment—andsmaller entrants cannot—integrated foreignproducers will probably take the lead, interna-tionally and perhaps in the U.S. market.

Superconducting Electronics

Progress in thin films for electronics shouldbe more rapid than for the conductors neededin high-power applications. When it comes toelectronics, the Japanese will probably benefitto some extent from R&D on Josephson-basedcomputers; government and industry in Japancontinued work on JJs for computing after U.S.companies dropped most of their own activity(see box J in the next chapter).

Josephson junctions, however, function onlyas two-terminal devices, weak amplifiers atbest. No one knows how to make useful three-terminal devices like transistors from supercon-ducting materials. A practical three-terminalsuperconducting device, even one restricted toliquid helium temperatures, could open up abroad range of opportunities. Whether this willbe possible is an open question. JJs also makefor highly sensitive detectors of infrared andother electromagnetic radiation. LTS sensors—and in the future perhaps HTS sensors (e.g.,for satellites, where passive cooling should keepoperating temperatures below the transitiontemperatures of the new materials)—have po-tentially important military applications. As a

result, DoD has funded a good deal of R&D overthe years on these devices, as well on super-conducting components for very powerful com-puters. AS DoD R&D increasingly focuses onHTS, some of its work—perhaps in sensors—will contribute to commercial spin-offs.

Japanese companies will prove able competi-tors over the long run in both devices and sys-tems applications of HTS. In their efforts tocatch up with IBM and other U.S. computerfirms, Japan’s integrated manufacturers—sev-eral of which make chips, computers, andtelecommunications hardware—have beenspending heavily on R&D for years. They areseeking a technological window that wouldhelp them overtake the United States in high-technology electronics, and particularly incomputers—a field where American firms re-main broadly superior. The Japanese see HTSas a possible window.

Smaller American firms will probably findelectronics markets attractive. Hypres, for ex-ample, founded by an ex-IBM physicist afterthe computer manufacturer scaled back its LTSJJ computer project in 1983, introduced a veryhigh-speed LTS-based data-sampler in 1987.The company hopes its experience base willgive it advantages in HTS. Other small LTSspecialists also plan to move into HTS by build-ing on their past work with the older materials.

42

CONCLUDING

The next chapter looks in some detail at cor-porate strategies toward HTS in the UnitedStates and Japan. European countries, too, haveexcellent science and engineering capabilitiesin both private and public sectors. But long-standing problems in capitalizing on thesestrengths suggest that European firms will notbe able to keep up in the race to commercializeHTS. Box D summarizes the reasons.

Companies everywhere look for proprietaryadvantages from R&D—patentable inventions,expertise they can protect through trade secrets.Semiconductor companies, for example, eachhave their own process technology. Much ofthe information is closely held; some of it is em-bodied in the skills of their employees. In LTSas well, proprietary know-how helped smallcompanies stake out positions in the manufac-ture of wire and in specialized electronics.

The Japanese developed a great deal of pro-prietary technology in commercializing theVCR. The story is one of Japanese success ininnovation—engineering design and develop-ment, market research, mass production man-ufacturing. But in related markets like personalcomputers there is little evidence of slippage,despite many past predictions of a Japanesetakeover. Nor have the Japanese been able, forinstance, to move from success in high-densitymemory chips to microprocessors. U.S. leadsin computer software, or biotechnology, mayhave narrowed in the last 5 years, but not bymuch. Japan’s bet on structural ceramics maynot pay off; the technical problems of achiev-ing reliability in very brittle materials couldprove too difficult.

Scientific knowledge and technological un-derstanding–not the same–interact through-out such development efforts. Sometimes newscience leads to new technology. This has beenthe case in superconductivity, beginning withits discovery in 1911, but especially since the1960s. In other cases, demand for new tech-nology spurs scientific advance. Much militaryR&D works this way.

Corporations are more likely to invest theirown money in R&D, and take the risks of com-mercialization, if they expect rapid marketgrowth. Government policies can reduce theserisks. Trade protection does so, along with fi-nancial subsidies, and government purchasesof a company’s products. Strong legal protec-tions for proprietary technology make R&Dmore attractive. Some governments go so faras to give financial help to customers for newtechnologies (computers and industrial robotsin Japan). But with new knowledge eventuallybecoming available everywhere and to every-one, those who use it fastest and most effec-tively will come out ahead in international com-petition.

U.S. industry has been falling behind in theuse of new technical knowledge, in part becauseof slow product development cycles. In manyfields, the Japanese are not only doing a betterjob of engineering than their American rivals,they are doing it faster. Speed in moving fromresearch to production and the marketplace willbe a major factor in competitive success in HTS,just as in industries like automobiles or semi-conductors. American firms have also had trou-ble as production volumes rise, and been poorat incremental product/process improvements.Their production capabilities enabled Japan’ssemiconductor manufacturers to establishthemselves in world markets and compete suc-cessfully with American firms that had the leadin many of the functional aspects of circuit de-sign. Many of the manufacturing techniquesneeded for HTS electronics will be similar tothose for semiconductor devices (and ceramics).

Still, at the level of R&D and product devel-opment teams, Japanese firms do not seem tooperate in greatly different fashion from suc-cessful American companies. The differencesthat do exist are important, however:17

ITK. Imai, I. Nonaka, and H. Takeuchi~ “Managing the NewProduct Development Process: How Japanese Companies Learnand Unlearn,” The Uneasy AIJiance: Managing the Productivity-Technology Dilemma, K.B. Clark, R.H. Hayes, and C. Lorenz[eds.) (Boston, MA: Harvard Business School Press, 1985), pp.372-373. Also see the “Commentary” by J.L. Doyle, p. 377.

43

●

●

American firms tend to proceed through narrow technical expertise; Japanese com-a more analytical and sequential approach, panics staff their development groups withone of narrowing down the alternatives. greater numbers of generalists, includingJapanese firms operate in a looser style, people from sales and marketing. They maywith more room for trial-and-error. also involve the firm’s suppliers.product development groups in the United • Japanese companies use product develop-States rely more heavily on engineers with ment groups as a device to break down

44

some of the rigidities in their corporatecultures—e.g., the seniority system—andto create a place where creativity can flour-ish. Many American firms would like tothink they don’t suffer from such problems,but probably do.

At the same time, all of the attributes of Japa-nese product development efforts can be foundin some American firms. It is the more success-ful Japanese firms that are visible in the UnitedStates: we seldom hear about the failures.

HTS poses difficult technical challenges. Jap-anese companies will, no doubt, solve some ofthe purely technical problems before Americanfirms. Japanese companies will also do well at

scaling up HTS manufacturing processes. Somewill succeed in defining profitable markets. Inshort, they will prove highly capable and com-petitive in HTS. And while many large U.S. cor-porations have been turning away from long-term, high-risk R&D—the kind of work that willbe called for in commercializing HTS–-the Jap-anese are making a major effort to show theworld they can be as creative and innovativein science as they are in technology. It wouldbe a grave mistake to assume that Americanfirms will have a head start in HTS because ofU.S. skills in research. The suddenness of theturnaround in microelectronics should havepounded home the message that both industryand Government will need to do things differ-ently in the future.

APPENDIX 2A: R&D AND COMMERCIALIZATION: FOUR EXAMPLES

Ceramics for Heat Engines1

The U.S. Government has spent perhaps $300 mil-lion since the early 1970s pursuing ceramic engines.Much of the money has gone for applied researchand development on components, and for demon-strations. Success has been elusive.

Over the past two decades, advanced ceramicshave come into widespread use in electronics, aswell as for specialty applications such as wear partsand cutting tools. Ceramics hold their strength athigh temperatures much better than metals, but arebrittle. If reliable ceramic combustors and rotorblades could be made for gas turbines, operatingtemperatures could be raised, making possiblesmaller, lighter, and more efficient powerplants.

Increased Automobile Fuel Efficiency and Synthetic Fuels (Washing-ton, DC: Office of Technology Assessment, September 1982), pp. 144-145; T. Whalen, “Development Programmes–USA,” Proceedings of theFirst European Symposium on Engineering Ceramics, Feb. 25-26, 1985(London: Oyez Scientific and Technical Services Ltd., 1985), p. 177; K.H.Jack, “Silicon Nitride, Sialons, and Related Ceramics,” High-TechnologyCeramics: Past, Present, and Future, W.D. Kingery (ad.) (Westerville, OH:American Ceramic Society, 1986], p. 259; Ceramic Technology for Ad-vanced Heat Engines, Publication NMAB-431 (Washington, DC: NationalAcademy Press, 1987); J. Zweig, “Deja vu–yet again,” Forbes, NOV. 16,1987, p. 282; “Case Studies of ‘Flagship’ Technology,” prepared for OTAby W.H. Lambright and M. FeUows, Syracuse Research Corp., under con-tract No. H3-5565, Dec. 31,1987, ch. IV; R.P. Larsen and A.D. Vyas, “TheOutlook for Ceramics in Heat Engines, 1990-2010: Results of a VVorld-wide Delphi Survey,” Paper No. 880514, prepared for the 1988 Interna-tional Congress, Society of Automotive Engineers, Detroit, Feb. 29-Mar.4, 1988; Advanced Materials by Design: New Structural MateriaJs Tech-nologies, op. cit., ch. 2.

possible defense applications include stationarypower units and engines for tanks, trucks, andcruise missiles (ceramic components may never bereliable enough for manned aircraft).

In 1971, DoD’s (Defense) Advanced ResearchProjects Agency embarked on a ceramics R&D pro-gram, funding mission-oriented work of interest tothe Army and the Navy on ceramic gas turbines,as well as research into design methodologies forbrittle materials. The DARPA program continuedinto 1977, with funding that averaged slightly over$10 million annually. The Army continued someceramic engine work thereafter, but DOE (then theEnergy Research and Development Administration,ERDA) soon emerged as the primary source of sup-port for applications-oriented ceramics R&D.

The ERDA program, in which NASA also par-ticipated, aimed at a gas turbine engine for trucks,seeking better fuel economy. Gas turbines makemore sense for trucks than for passenger cars,which operate most of the time at light loads, whereturbines give poor fuel economy. However, the fo-cus on truck engines did not last. In 1980, respond-ing to a high-level political call for the “reinventionof the automobile,” DOE created a new program—one that would demonstrate small gas turbines forpassenger vehicles. Initially funded at $20 millionannually, the incoming Reagan Administrationsought to scale the effort back (along with otherenergy R&D); lobbying by industry contractorshelped keep things going.

45

Recent Federal spending (for all structural cer-amics R&D) has averaged about $50 million per year(figure 2A-1), but the turbine programs appear tohave moved prematurely into development anddemonstration, before establishing an adequatetechnology base, Industry cost sharing has beenrelatively low; companies that saw more value inthe work presumably would be willing to kick inmoney at a higher level.

Rather than turbines, Japanese firms have putmuch of their effort into piston engines, both gaso-line and diesel. While brittleness is a serious prob-lem in ceramics for piston engines, it is easier todeal with than in highly stressed rotating blades.Moreover, ceramics can be introduced incremen-tally, substituted for a few parts in an otherwise con-ventional design.

Some of the technical problems of structural cer-amics overlap those that will be encountered incommercializing HTS ceramics. A stronger basicresearch effort in ceramics, rather than the dem-onstration projects of recent years, might have putthe United States in a better position to commer-cialize the new superconductors.

Video-Cassette Recorders*

Beginning in the 1950s, and through the follow-ing decade, half a dozen and more Japanese com-panies raced to develop low-cost VCRs. Commer-cialization meant solving a long chain of toughengineering problems, so that VCRs could beproduced cheaply with the features consumerswanted.

Helical scan video-tape recording technology–first patented by Toshiba (table 2A-1)—became acritical feature in VCRs, although Toshiba itselfnever capitalized on its early lead in helical scan-ning. Matsushita entered pilot production first, in1973, but shortly withdrew, deciding its technol-ogy was not good enough. Two years later, nearly20 years after the U.S. firm Ampex built the first

21nternational Competitiveness in Electronics, op. cit., pp. 70, 119-123,and 186-187; R.S. Rosenbloom, “Managing Technology for the LongerTerm: A Managerial Perspective,” The Uneasy Alliance: Managing theProductivity-Technology Dilemma, op. cit., p. 297; R.S. Rosenbloom andM.A. Cusumano, “Technological Pioneering and Competitive Advantage:The Birth of the VCR Industry,” California Management Review, vol.XXIX, summer 1987, p. 51.

Figure 2A-1.-- Federal Funds for Structural Ceramics R&D

—

—

46

Table 2A-1.—Chronology of Video-TapeRecorder Developments

1951

1953

1954

1956

1958

1962

1969

1970-71

1971

1971

1972

1973

1975

1976

1988

R&D begins at RCA.

RCA demonstrates fixed head scanner.

Toshiba files patent applications for helicalscanning; prototype follows in 1959. (EarlierU.S. and European patents were never reducedto practice.)

Ampex introduces broadcast model videotaperecorder (VTR) with rotating scanning heads.(VTRs use reel-to-reel tape, rather thancassettes.)

Several Japanese firms, including Sony andMatsushita, embark on R&D directed at VTRsfor consumer markets; RCA drops its work onconsumer model VTRs.

Sony introduces its first helical-scanning VTR,intended for institutional markets (business andindustry, schools); JVC follows in 1983.

Sony announces first video-cassette recorder(VCR), replacing reel-to-reel tape with acartridge.

Ampex Instavideo camera/recorder systemshown in prototype form—never marketedbecause of production problems.

Sony U-Matic marketed for institutional use at$1000.RCA resumes VTR R&D, drops out again in1974.

JVC develops prototype of its VHS system.

Matsushita enters pilot production with aconsumer VCR, but withdraws after a fewmonths.

Sony introduces Betamax for home use.

JVC brings VHS recorders to market.

Sony to begin selling VHS machines alongsideits lagging Betamax system.

SOURCES: W.J. Abernathy and R.S. Rosenbloom, “The Institutional Climate forInnovation in Industry: The Role of Management Attitudea and Prac-tices,” The 5-Year Outlook for Science and Technology 1981: SourceMater/a/s, Volume 2, NSF 81-42 (Washington, DC: National ScienceFoundation, 1981), p. 407; R.S. Rosenbloom, “Managing Technologyfor the Longer Term: A Managerial Perspective,” The LJneasy A//iance:Managing the Productivity-Technology Dllenrma, K.B. Clark, R.H.Hayes, and C. Lorenz (eds.) (Boston, MA: Harvard Business SchoolPress, 1985), pp. 317-327; R.S. Rosenbloom and M.A. Cusumano,“Technological Pioneering and Competitive Advantage: The Birth ofthe VCR Industry,” California Management Review, vol. XXIX, sum-mer 1987, p. 51.

broadcast recorders (the size of a closet and sellingfor $50,000), Sony’s Betamax opened the consumermarket.

That an American firm produced the first video-tape recorders for broadcast applications was closeto irrelevant. The Betamax represented the fourthgeneration of Sony’s engineering development—the seventh generation if the company’s earlier in-dustrial and institutional models (e.g., the U-Matic,

which appeared in 1971) are included. Japanesecompanies, competing fiercely with one another,persisted with the VCR for years, in the face of manydisappointments.

It may be true in a narrow sense to say that theUnited States invented the videotape recorder andthe Japanese commercialized it. But in fact, some15 companies — American, Japanese, European—demonstrated 9 different technical approaches tohome video in the early 1970s. It took many yearsof money and manpower commitments by Japanesecompanies to win the race, and a great deal of highlycreative engineering—focusing on manufacturing,as well as product design. Once the VCR becamea commercial reality, competition centered on costreduction, better image quality (where manufac-turers of magnetic tape made major contributions),and longer recording and playing times.

Firms like Zenith and RCA—which now put theirlabels on foreign-made machines—never pursuedconsumer VCRs with the doggedness of the Japa-nese. After about 1980, no American companycould have entered without some sort of break-through—a product that would have opened a newround of competition. The Japanese were simplytoo far down the learning curve. South Korean firmswere in a different position: with wage rates wellbelow those in Japan, they had potential cost ad-vantages. When the Japanese refused them licenses,Korean firms developed their own VCRs.

The essential ingredients in Japanese success?First, willingness to make long-term investments inrisky and expensive product development efforts.Second, the manufacturing capability to mass-produce precision electro-mechanical componentssuch as the helical read-write heads that proved akey in turning the video-tape recorder into a house-hold product. Commercialization of the VCR exem-plifies the kind of incremental improvement andmarket-oriented engineering that the Japanese havebeen so good at.

Is the VCR story exceptional? Not really, and cer-tainly not in the context of consumer electronics,an industry that had stagnated in the United Statesby the mid-1970s. Price competition in traditionalproducts like color TVs was fierce, imports wereflooding the marketplace, and the stronger U.S.firms like RCA and GE were diversifying into otherlines of business.

Still, the risks did not stop RCA from investingin the VideoDisc.3 Indeed, the VideoDisc was a bold

3M. B.W. Graham, RCA and the VideoDisc: the business of research(Cambridge, UK: Cambridge University Press, 1986]. The company ulti-mately lost more than half a billion dollars.

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choice. If successful, it would have given RCA aunique product—something that none of its Japa-nese rivals had. In contrast, pursuit of VCR tech-nology would have meant competing in a class ofproducts that the Japanese plainly would be ableto build cheaply and well. RCA managers knewfrom experience in color TV production how diffi-cult this would be, particularly given the Japanesestrategy of attacking consumer electronics marketsworldwide (whereas RCA’s consumer sales hadbeen confined to the U.S. market).

MRI Systems4

Magnetic resonance imaging has been the biggestmarket for conventional superconducting technol-ogies over the past few years. In 1987, two dozencompanies worldwide sold a total of 500-plus MRIsystems to hospitals and clinics. At roughly $2 mil-lion each, industry sales came to perhaps $1 billion.Both production and sales are concentrated in theUnited States. Commercialization took many years,following research showing that nuclear magneticresonance (NMR)—a discovery made by physicists—could be a powerful tool for medical diagnosis.

To construct an MRI image, the patient must beplaced within a strong magnetic field—commonlyproduced by an LTS magnet. A computer processesthe resulting NMR signals, creating an image thephysician can examine (like an X-ray). MRI providesbetter contrast and resolution, particularly for thebrain and spinal cord, than competing diagnosticimaging techniques, including ultrasound and CTscanning.

During the middle 1970s, more than a dozen com-panies in the United States, Europe, and Japan be-gan working to commercialize MRI. Some droppedout along the way. Others were bought by strongerfirms, or merged with competitors. Japanese com-panies entered late, and have not been very activeoutside their home market.

European firms led the way in engineering de-velopment. The British company EMI built the firstprototype in 1978, and Bruker, a West Germanmanufacturer, followed the next year. Both thesecompanies had prototype systems operating in clin-ical settings by 1981. Shortly thereafter, EMIdecided to leave the medical equipment business,and sold its technology to a competitor. By the end

4Health Technology Case Study 27: Nuclear Magnetic Resonance Im-aging Technology (Washington, DC: Office of Technology Assessment,September 1984]; “Superconductive Materials and Devices, ” BusinessTechnology Research, Wellesley Hills, MA, September 1987, pp. 38-50.

of 1983, eight firms had commercial prototypesavailable—three American companies, four Euro-pean, and one based in Israel,

Early in design and development—e.g., during thestage labeled alternative conceptual design in fig-ure 3 (earlier in the chapter)—each firm faced deci-sions on its magnet system. The alternatives—permanent magnet, resistive (non-superconduct-ing), superconducting—carried advantages and dis-advantages in terms of factors such as initial andoperating costs, as well as field characteristics likestrength and stability. Most companies chose LTSmagnets, with several pursuing conventional mag-net designs in parallel. Because the design of themagnet affects image quality—a central concern inpurchasing decisions by hospitals–feedback from theclinical studies and clinical testing stages (figure3 played a vital role in refining prototype designs.)

This brief description illustrates, first, the waysin which research may enter the commercializationprocess. In this case, the R&D ranged from nuclearphysics (the NMR phenomenon itself), to the medi-cal studies demonstrating that MRI could be a val-uable diagnostic tool, to computerized signal proc-essing and superconducting magnet design,

MRI systems emerged as viable commercial prod-ucts in 1984. It was only then that designs stabi-lized and production became relatively routine, atleast in the leading companies. It took 38 years togo from scientific discovery (experimental verifi-cation of NMR) to marketplace success. Commer-cialization in the sense of engineering developmentspanned the years 1977 to 1984.

Regulatory approvals were an early hurdle. TheU.S. Food and Drug Administration spent severalyears evaluating the new technology. Manufac-turers had to estimate the effects of third-partypayment policies on market growth: Would Gov-ernment agencies responsible for Medicare andMedicaid give a quick okay to the new technology?Or would they delay? How about the big insuranceplans like Blue Cross/Blue Shield? In fact, hospi-tals were not generally reimbursed for MRI serv-ices until late in 1985. Furthermore, with MRIsystems costing several million dollars, State gov-ernment certificate-of-need approvals became aprecondition for many sales.

U.S. firms did not have the initial lead. Nonethe-less, they quickly emerged in the forefront as thetechnology moved out of the laboratory and becamea practical tool for medical diagnosis. A major rea-son for U.S. success was simply that this countryis the biggest market in the world by far for medi-cal equipment. That the U.S. economy is the world’s

48

largest and most diverse is both an advantage anda disadvantage for American firms. They are athome here, but their domestic markets are a mag-net for foreign firms—who may be willing to losemoney in the United States for the sake of learningand experience.

Designing and developing a new product fromscratch, as in the case of the first MRI systems, rep-resents a major corporate commitment. An all-newproduct takes much more time and money than theincremental redesigns, improvements, and newmodels that come later and constitute most of theroutine work of product/process development. Theall-new product (or manufacturing process) willalso, in the ordinary course of events, depend moreheavily on new knowledge—e.g., research results.Feedback from the R&D laboratory and the market-place remain important even for routine develop-ment work, however. Once the medical communityaccepted MRI, competing firms quickly began dif-ferentiating their products through stress on imagequality, good service, and reliability.

LTS Magnets5

Federal R&D, much of it for high-energy physicsexperiments and research into nuclear fusion, un-derlies development of the LTS magnets found inMRI systems. Wound with cable made from niobium-titanium alloy filaments embedded in a copper ma-trix, and cooled with liquid helium, the magnet ac-counts for up to a quarter of the cost of an MRIsystem.

‘D. Larbalestier, et al., “High-field Superconductivity,” Physics Today,March 1986, p, 24; L. Hoddeson, “The first large-scale application ofsuperconductivity: The Fermilab energy doubler, 1972 -1983,” HistoricalStudies in the Physical and Biological Sciences, vol. 18, 1987, p. 25; “Su-perconductive Materials and Devices,” op. cit., pp. 33-61; “Technologyof High Temperature Superconductivity,” prepared for OTA by G.J. Smith11 under contract No. J3-21OO, January 1988; “Government’s Role in Com-puters and Superconductors,” prepared for OTA by K. Flamm under con-tract No, H3-6470, March 1988, pp. 56ff. Also see app. B.

Until MRI markets began to grow, most super-conducting magnets were custom-designed for sci-entific equipment. The late 1960s saw the first majorapplication of niobium-titanium, a bubble chamberbuilt at Argonne National Laboratory. A muchlarger federally supported project—the Tevatronparticle accelerator, completed in 1983 at the FermiNational Accelerator Laboratory—consumed morethan 30,000 miles of niobium-titanium wire for itsnearly 1000 magnets. Most of the wire came fromIntermagnetics General Corp. (IGC), established byseveral former General Electric employees in 1971.

IGC and other small, specialized firms had begunmoving into LTS as major corporations—Westing-house as well as GE—withdrew, finding that mar-ket growth did not live up to their expectations. De-velopment of the processing techniques for LTSmagnet wire was a lengthy and complex task, onethat would have taken much more time without thedemand provided by the Tevatron. Private firmsdrew on the publicly supported technology base,and also helped to extend it, as they developed theknow-how needed for manufacturing LTS wire andcable (the Fermi Laboratory designed and built themagnets internally).

It took many years to raise the critical current den-sities of niobium-titanium wire to the levels neededfor the Tevatron and for MRI. The task hinged onthe relationship between fluxoids (each of whichcontains a magnetic flux quantum)—a matter ofphysics—and the microstructure of the wire.Through careful microstructural control–speciallytailored sequences of wire drawing and heat treat-ment—metallurgists and materials specialists wereable to create fine dispersions of second-phase par-ticles. These particles pin the fluxoids, keeping themfrom moving, The pinning can raise the critical cur-rent density—hence current carrying capacity—by10 times or more. R&D aimed at optimizing the proc-essing technology began in the late 1960s, and stillcontinues, with engineering development guidedby theoretical understanding.