Do Import Restraint Policies Influence Marketing, R&D, and Manufacturing Orientations?

By Balakrishnan, Subra | Advances in Competitiveness Research, January 1, 1997 | Go to article overview

Do Import Restraint Policies Influence Marketing, R&D, and Manufacturing Orientations?


Balakrishnan, Subra, Advances in Competitiveness Research


INTRODUCTION

Voluntary Restraint Agreements or VRAs have been in place to protect selected domestic industries from foreign competition. Some of the industries that have successfully negotiated VRAs in the past include automobiles, machine tools and steel (Adams, Gangnes and Huang 1994; Carbaugh & Wassink 1991; Horton 1988; Pomfret 1988; Wall Street Journal 1991a). These industries have sought protection from countries that export to the US in large volume. VRAs are bilateral in scope between the US and the exporting country, and have typically been for a period of three to five years.

There has been considerable debate about the usefulness of import restraint policies in helping US industries gain a competitive advantage in a global context. Free trade advocates have long argued that VRAs hurt US exports because the country in question also sets serious limits on what and how much US companies can export (Fillinger 1988). An even more compelling argument from free trade advocates is that VRAs may actually serve as a disincentive for the protected industry to improve its market orientation, or to invest in R&D and manufacturing facilities. They have argued that without uninhibited competition from imports, the US industry may end up charging higher prices for products that may not necessarily be the best in the world (Mendez and Berg 1989; Seebald 1992; Stundza 1988; Wall Street Journal 1991e). Another fear often expressed by free trade advocates is that VRAs designed for one industrial context have a tendency to cascade to other industries that have lost share to imports. If the steel industry lobbies the US government successfully, the automotive industry is quick to follow suit, followed by the machine tool industry and so on (Wall Street Journal 1991d, 1991f). Some have also questioned the effectiveness of VRAs in light of the fact that some foreign manufacturers have overcome these hurdles by setting up manufacturing facilities here in the US. Some foreign companies that have set up manufacturing facilities here in the US actually welcome VRAs because it protects them from foreign competition, especially in the first few years of their new operations (Skrentny 1987).

Proponents of VRAs have noted that they are the only way to create a level playing field with a foreign country that has tight import controls for US exports (Wall Street Journal 1991a). They argue that unless the US limits markt access to exporters from Japan and Taiwan, those countries would not fully appreciate the meaning of free trade. Another argument that has been quite persuasive even in free trade circles is that US national security interests may be at risk if an entire core industry loses out to foreign competition. In 1986 and in 1991, the defense department came out in support of VRAs for machine tools because it felt that national security would be at risk if defense sector firms did not have domestic machine tool suppliers. Relying on foreign suppliers for critical machine tools during war time could seriously jeopardize American interests, the defense department argued (Wall Street Journal 1991c). VRAs are also welcome in some political circles because they protect

US jobs.

In this study, we examine whether or not CEO attitudes toward VRAs have a bearing on business strategy. The machine tool industry provides a suitable setting to explore this issue for a few good reasons. First, this industry is widely recognized by economists as a core sector because its sales volume is a leading indicator of the economy's growth or slow-down. Few other industries cater to as wide a range of markets as the machine tool industry does. A second reason has to do with the fact that firms in this industry have faced intense competition from imports since the late 1970s, and have lost their global leadership position over the last fifteen years to competitors from Japan and Europe. This slide in leadership position is viewed by many analysts as seriously undermining the ability of US manufacturing industries to remain globally competitive.

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