C I S a C Center for International Security and Arms Control

S t a n f o r d U n i v e r s i t y C I S A C Center for International Security and Arms Control The Center for International Security and Arms Control, part of Stanford University’s Institute for International Studies, is a multidisciplinary community dedicated to research and train- ing in the field of international security. The Center brings together scholars, policymakers, scientists, area specialists, members of the business community, and other experts to examine a wide range of international security issues. CISAC publishes its own series of working papers and reports on its work and also sponsors a series, Studies in International Se- curity and Arms Control, through Stanford University Press. Center for International Security and Arms Control Stanford University 320 Galvez Street Stanford, California 94305-6165 (415) 723-9625 http://www-leland.stanford.edu/group/CISAC/ Commercializing High Technology: East and West Selected Conference Papers Judith B. Sedaitis, editor Center for International Security and Arms Control Stanford University i Commercializing High Technology: East and West Selected Conference Papers Judith B. Sedaitis, editor Center for International Security and Arms Control Stanford University January 1996 ii Judith B. Sedaitis is a research associate at Stanford University’s Center for International Security and Arms Control. She is writing a book on defense conversion in Russia. The Center is grateful to the Carnegie Corporation of New York for supporting this project. The opinions expressed here are those of the authors and do not represent positions of the Center, its supporters, or Stanford University. The Center for International Security and Arms Control, part of Stanford University's Institute for International Studies, brings together Stanford faculty members from several scholarly disciplines with senior specialists from around the world and pre- and postdoctoral fellows for research projects, seminars and conferences, and international scholarly exchange. The Center publishes its own series of reports and papers on its work and also sponsors a series, Studies in International Security and Arms Control, through Stanford University Press. Center for International Security and Arms Control Stanford University 320 Galvez Street Stanford, California 94305-6165 (415) 723-9625 Megan Lauppe, Reports editor © 1996 by the Board of Trustees of the Leland Stanford Junior University Printed in the United States of America ISBN 0-935371-40-0 iii Contents Introduction Judith B. Sedaitis vii SECTION ONE Technology Policy, Defense Conversion, and Economic Competitiveness Science, Technology, and Economic Competitiveness John A. Alic 3 Research and Development after the Cold War Linda R. Cohen 19 Roger G. Noll Defense Industry Conversion in the United States Jacques S. Gansler 35 and Russia: Methods and Prospects Dismantling Russia’s Technotopia: Harley Balzer 47 Six Ministries in Search of an Industrial Policy SECTION TWO The Problems and Prospects of Technology Transfer Inter-Organizational Technology Transfer: David V. Gibson 73 From Standard Technology Packages to Spin-Offs A Model for Entrepreneurship Infrastructure Raymond Radosevich89 Development in the Creation of Technopoleis Gary S. Smith Defense Conversion and Restructuring in the Russian Jacques Sapir 109 High-Technology Sector: Is There an Alternative to Uncontrolled Exports? Commercializing State-Owned R&D: Judith B. Sedaitis 131 A Russia–U.S. Comparison iv SECTION THREE Managerial Strategies and Strategic Alliances Defense Conversion in the Former Soviet Union: Lori A. Coakley 151 The Influence of Culture on the Strategic Planning Process Linda M. Randall Learning to Learn: Emerging Patterns of Enterprise Yevgeny Kuznetsov 163 Behavior in the Russian Defense Sector, 1992-1995 Defense Enterprise Adaptation in St. Petersburg Andrew J. Aldrin 185 The Role of Third Party Facilitators in Public-Private Stephen L. Gomes 217 R&D Collaborations in the United States General Trends in International Technology Partnering: John Hagedoorn 231 The Prospects for European Economies in Transition Bert Sadowski SECTION FOUR Inside the Commercializing Firm: Legal and Structural Issues Spin-offs as a Restructuring Strategy David Ellerman 247 for Post-Socialist Enterprises Commercialization without Privatization: Corinna-Barbara 259 Government Spin-offs in China’s High-Tech Sector Francis Financing the Commercialization of Russian Defense Larry W. Schwartz 285 Technologies: Venture Capital and Related Transactional Structures New Company Formation in Russia: Legal Regulation Edward Kayukov 301 Emily Silliman v vi Commercializing High Technology: East and West Introduction In the aftermath of the Cold War, global economic competition has come to play an increasingly important role in defining national security and the shape of the future world order. As international conflict shifts from military to economic competitiveness, many nations are now hoping to extract economic advantage from their investments in defense research and production. This volume brings together papers on several key aspects of defense commercialization and attempts to bridge the divide between research on conversion efforts in the United States and studies of transition in post-Communist economies. In Section One of this volume, authors focus on U.S. and Russian state policy toward conversion and the implication of past U.S. conversion experience as Russian defense enterprises struggle with their new austerity. In the United States, policies have been driven by the dual pressures of economic competitiveness and structural adjustment. As John Alic points out in the leading chapter, the growing trade deficit and alarming decline in the U.S. share of global markets have increased pressure to find ways to utilize investments in defense R&D to increase the competitiveness of U.S. industry. Improving the interface between federal labs and research sites and private industry is seen as a crucial mechanism for increasing productivity, stimulating economic growth, and creating jobs in the reoriented defense R&D sector. Yet, Alic argues, the history of defense spending and the nature of developmental research hampers an easy transfer of defense technology to commercial use. To expect otherwise assumes a “pipeline” approach where innovation is neatly separate from product development, which belies concrete experience and may explain the rather dismal performance of attempts to spin off new businesses from the national laboratory system. Alic suggests that U.S. policymakers should redefine current policies in light of the nature of developmental research to support the diffusion of knowledge as well as the generation of new knowledge, particularly in the form of critical infrastructural technologies. The latter are key to future U.S. development, yet historically have proven too costly for the private sector to bear. Linda Cohen and Roger Noll extend further a critical review of past U.S. commercialization policy, which they fault as motivated by political, and not economic, rationale. Instead, they agree with Alic that state dollars should go to support the vii strengths of our current national R&D program. In their view this entails a focus on basic research historically supported by federal dollars at universities and the national labs. In this way, research is integrated with education in the United States more so than in any other country. As a result, faster and more broadly based technical discoveries take place that ultimately permit a greater range of potential application in the long run. The chapters by Jacques Gansler and Harley Balzer turn to the policies of conversion in post-Soviet Russia. Gansler succinctly critiques the three main approaches to past defense conversion attempts in the United States to highlight in particular the dangers of diversifying. While new products should be driven by market demand and not the technology at hand, converting firms should be careful not to lose their core competencies by producing below their technological competencies. He suggests that the Russian government stands to play an important role providing assistance for needed market research and capital investment, and by focusing on high-technology infrastructural needs, such as improving telecommunica- tions, railways, and air traffic controls. As Harley Balzer writes, however, the Russian state is playing catch-up with its policies on science and technology. While it continues to place great stock in the value of a plan, its S&T policies are still in the making. Despite several new government committees focused on industrial and science policy, ministerial rivalries have hampered consensus on the future of state research. At the same time, Balzer finds the majority of enterprise directors expect industrial policy to be nothing short of a bailout of their unstructured enterprises. At the heart of accessing the potential of defense R&D is the process of technology transfer, in which an idea or innovation becomes a concrete, marketable product. In Section Two, “The Problems and Prospects of Technology Transfer,” authors focus on different aspects of that usually long and complicated process. Based on his research of MCC, the first R&D consortium in the United States, David Gibson theorizes on the different stages inherent to technology transfer and suggests several elements key for its success. Firstly, he finds that participants in the process need to actively communicate with one another, which

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