General technological trends

Emerging pervasive new technologies

An important trend in technological developments is the emergence of perva­ sive generic technologies or new technology systems that have such wide ranging applications that they may affect the conditions of production and distribution in all or almost all sectors of the economy.

Steam-power for example was a pervasive technology in the past, since it made possible the mechanisation of most manufacturing processes and, through its application in railway systems and ships, radically changed distribution systems, transport costs and economies of scale for many services as well as for manufacturing. Electric power is another example. Today’s most pervasive technology is information technology, defined as a combination of radical innovations based primarily on computers, micro-electronics and telecommuni­ cations. Some economist have used the expression ’techno-economic para­ digm’ to describe those technologies that are so pervasive that they affect the entire economic system.

The importance of the emergence of pervasive information technology is that it requires a redesign and reconfiguration of capital stock, a new skill profile in the labour force, new management structures and work organisation, a new pattern of industrial relations and a new pattern of industrial regulation at national and international level. Information technology is so pervasive and has so many new features that it is the latest ’hurricane’ in Schumpeter’s successive ’creative gales of destruction’.

In particular SMEs play an important role in this ’gale of destruction’ because it will by they who will discover an unlimited number of as yet unknown new applications.

Other important new technologies, although not as yet pervasive as information technology are biotechnology, materials technology, space technology, nuclear technology and environmental protection1.

The acceleration of technological progress

’Time to market’ had become a crucial variable in the strategy of firms because of the general availability of basic technologies, the shortening of product life cycles, dynamic technological developments and the erratic developments in

1 OECD, New Technologies in the 1990s; a Socio-economic Strategy, Paris, 1988,35,36. OECD, Technology in a Changing World, The Technology/Economy Programme, Paris, 1991, 94.

market demands. Decrease in product life cycles can be illustrated by several examples: thirty years ago a firm in electromechanical engineering could take a headstart with a new product of 4 to 5 years, while today in consumer elec­ tronics a product life cycle of six months is usual; the first modern typewriters were mechanical and dominated the market 25 years, while the following gener­ ations had a life cycle of 15 (electromechanical), 7 (electrical) and 5 years (first generation wordprocessors)1.

At the beginning of the life cycle, the new technologies are not yet standard­ ized, brand loyalty is weak, further improvements and new applications are explored, close producer-user relations are necessary, price is not the most important competitive factor, uncertainties and scepticism are the dominant feelings, a lot of experimentation takes place, scale economies are unimportant and market shares are volatile. Because of these characteristics small firms play a dominant role at the start of the life product cycle.

However, when demand is expanding and the product becomes more mature large firms may become important and overshadow small firms. In the mature phase of the product life cycle price competition becomes more important. Lowering costs of production is achieved by concentration, by process rational­ ization and by achieving economies of scale.

Thus in these final phases of the product life cycle large firms and plants play a more dominant role than SMEs2.

Because nowadays markets appear and disappear quickly, they are highly frag­ mented and volatile. More and more products do not enter the final phases of their life cycles or do so very shortly. This acceleration of technological prog­ ress and shortening of life cycles is strengthening the role of SMEs as a group. The volatility within innovative SMEs as a group (failures and new entrants) makes that the SME sector could benefit from this trend. Nevertheless, it will be evident that the large group of marginal, traditional, individual firms, particu­ larly if they are not continuously improving their products, production processes and organisation, will have extreme difficulty to survive in this new turbulent environment.

More cooperation among firms

A general tendency in technological developments is that different technologies are more and more linked with each other. Examples are the combination of

1 C. Stevens, ’Adjustment issues in the electronics industry’, in : STI Review, OECD, 1989, no. 5; T. Michael Nevens, Gregory L. Summe and Bro Uttal, op. cit., 8.

2 Paul Stoneman, The economic analysis of technological change, Oxford, 1983, 241, 242.

mechanical engineering and electronics (mechatronics) and the combination of telecommunication and informatics (telematics).

It is expected that the most important technological breakthroughs will take place at these crossroads of different fields of technology.

Because of these linkages, the increasing R&D expenditures and the tendency for each individual firm to concentrate on its core competences, cooperation becomes increasingly important. Although one often assumes that large firms cooperate more than small firms in their R&D efforts and in developing new products, a closer look does not reveal systematic differences among firms by size class. In different countries and regions of Europe, as well as in Japan, many SMEs are engaged in technological cooperation with large firms or with other small firms. Firms with different competences and specialities are working closely together and are forming strong networks and clusters of economic activities.

Different national and international technology programs and local public institutions are fostering cooperation among firms1. The cooperative networks that grew and prospered in mid and nothern Italy in hte 1970s and early 1980s seemed, however, to be undergoing some reversal in the late 1980s2.