Performance and R

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Performance and RD Expenditures in U.S. and
Japanese Manufacturing Firms (A Published
Research Article by H. C. Co and K. S. Chew)

• Henry C. Co
• Technology and Operations Management,
• California Polytechnic and State University

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Joseph Schumpeter

• Joseph Schumpeters postulate on big firms and
  concentrated industries as the promoters of
  technological progress.
• The hypothesis is that large firms, being better
  endowed, are likely to undertake innovating
  activities and spend more on RD.
• In view of Schumpeters proposition, economists
  sought to elucidate the relationship between
  technical innovation and variables such as firm
  size, market structure, technology opportunities,
  sales growth and profitability.

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Reichs List

• 1970-79, U.S. market share fell by more than 50.
  Americas loss Japans post-war economic
  miracle.
• Artificially low wage,
• governments protection and financial support,
• low interest rates,
• widespread adoption of advanced manufacturing
  technology.
• Theory Japanese managers take long-term
  orientation towards investment in future, such
  as Research and Development (RD).

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Hypotheses

• Hypothesis 1
• During difficult times, Japanese firms cut RD
  expenditures as much as their American
  counterparts did.
• Hypothesis 2
• There is no difference between DEA-efficient and
  DEA-inefficientJapanese companies with regards to
  future RD budgeting during difficult times.
• Hypothesis 3
• There is no difference between DEA-efficient and
  DEA-inefficient U.S. companies with regards to
  future RD budgeting during difficult times.

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DEA-Efficient Firms

• DEA
• Data Envelopment Analysis
• An efficiency-evaluation model.
• To classify the companies into efficient versus
  inefficient firms.
• Criterion for classification How efficiently
  each company uses its resource inputs.
• One of the resources is the RD expenditures. It
  is therefore necessary to consolidate the payoff
  of past RD expenditures into a single measure of
  input.
• Intuitively, it is expected that time lag exists
  between RD expenditures and their payoff (e.g.,
  sales). Moreover, after the payoff peaked at some
  point in time, it is expected to diminish with
  time.

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Summary of DEA Analysis
7
Rank-Sum Tests
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Hypothesis 1

• Null Hypothesis
• During difficult times, Japanese firms cut RD
  expenditures as much as their American
  counterparts did.
• Large automotive, chemicals, electronics, and
  pharmaceuticals industries companies with high
  RD expenditures-to-sales ratio.
• Rank-sum test
• Contrary to popular belief, and statements by
  many writers and researchers, the study found no
  evidence that Japanese and American firms are
  different in the way they treat their RD
  budgeting.
• In some cases, Japanese firms actually cut their
  RD expenditures more than American companies!

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• In fact, in all except Pharmaceuticals (no
  evidence of difference), of the firms which
  increased RD budget during difficult times, the
  American firms actually increased their RD
  budget more
• In the chemical industry, Japanese firms
  increased their RD budget more than their
  American counterparts during good times (other
  industries showed no difference).

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Hypothesis 2

• Null Hypothesis
• There is no difference between DEA-efficient and
  DEA-inefficient Japanese companies with regards
  to future RD budgeting during difficult times.
• Rank-sum tests
• Tests could not reject this hypothesis.
• It appears that Japanese firms which cut RD
  expenditures during difficult times, did so
  irrespective of DEA-efficiency.

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Hypothesis 3

• Null Hypothesis
• There is no difference between DEA-efficient and
  DEA-inefficient U.S. companies with regards to
  future RD budgeting during difficult times.
• Rank-sum tests
• Tests rejected this hypothesis in three out of
  the four industries studied.
• This reinforces our conjecture that DEA-efficient
  U.S. firms are less likely than their
  DEA-inefficient counterparts to jeopardize their
  future by cutting back on RD during difficult
  times.

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Conclusion

• U.S. Industries Are Not Myopic.
• From the 50s to the late 80s, Japans economy had
  been growing rapidly. Studies and observations
  made during this rapid-growth period belonged to
  Case 1 of the study (good times).
• In the chemical industry, Japanese firms actually
  increased their RD budget more than their
  American counterparts did during good times
  (other industries showed no difference).
• This study did not find U.S. firms to be any less
  long-term oriented than their Japanese
  counterparts.
• In fact, this study showed that in Case 2 (when
  Sales declined), U.S. firms are actually more
  concerned with long-term growth, when times are
  difficult.