5 Looking into the Future on JAS Gripen Spillovers
5.11 Notes
172 5 Looking into the Future on JAS Gripen Spillovers
12. This is still a great concern in economic theory. Prices (prices carry information) are analyzed under the assumption of constant structures, and vice versa, produc-tion theory assumes constant prices.
13. The German and French markets, however, had been closed in practice, appar-ently, the Modig management believed, by a prevailing nationalistic business mentality there. German and French customers, it is true, courted Modig and learned what the company could offer, but orders always went to a domestic producer.
14. For its history, see Nilsson (2003).
15. The sensors of today are however based entirely on electronics.
16. Hence, about one-third of Gripen is American, one-third European, and only one-third Swedish (Militaer Teknikk, 4–5/2006:4)
17. Saab Tech Electronics manufactured structural components and Saab Ericsson Space developed the computing, guidance, and control system and assembled and tested the entire satellite.
18. This work is based on the anticollision or sense and avoidance systems that had been developed for, and installed on the JAS 39 Gripen. Saab, in fact, had advanced plans to test its sense and avoidance system in an UAV over Linköping in 2008 (See Ny Teknik, Sept. 3, 2007:23 and 2008:36).
19. The notion of a learning curve was first developed in military aircraft industry (Wright 1936).
20. There is an interesting parallel. It was long argued that the establishment of engineering schools and universities has been a vehicle for moving the Industrial Revolution. How come then that England, where the industrial revolution started had no such technological universities. On this Hill (1965) observes that in the emerging industrial areas in England, a prosperous and growing engineering consulting industry could be found that specialized in converting the new sci-ence principles into industrial practice. These consulting firms were, however, too small to be “statistically observed” by the economic historians. It is also worth noting in the special context of this book that the first technical university in the world, Ecole Polytechnique, established in 1794 in Paris, was founded to teach military engineers build roads and bridges to beat the English in war.
21. Until 1996, Combitech Software that was created from Saab Instruments in Jönköping in 1992 in response to a growing demand for software in Saab’s products.
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Spillovers are a positive characteristic of an advanced product. They carry extra value to the buyer and the local economy over and above the product itself. Their value, however, depends on the local receiver or commercialization competence to create a business on them. This local receiver competence is embodied in what we have called local competence blocs. The quality of the competence blocs as indus
trial “business promoters” varies from economy to economy. Since the receiver competence of a company is strongly related to its own R&D spending we would expect the industrial economies to be far superior in their ability to benefit from spillovers to the industrially developing economies and that the smaller the economy the larger the share of benefits drawn from global spillovers. The South African purchase of 26 JAS 39 Gripen military aircraft, therefore, offers an opportunity to compare the industrial spillover effects between an industrially developing econ
omy and that of Sweden.
The South African purchase was intermediated in 1995 by a joint industrial company created between Swedish Saab and British Aerospace.1 Even though the JAS 39 Gripen had been developed and largely manufactured in Sweden the purchase was accompanied by a number of industrial cooperation programs designed, as part of the purchase contract, to support the local South African capa
city to benefit from the spillovers and the presence of Swedish industrial firms. The strategic aim of most of the agreements was to support local industrial development under a long time horizon, not the creation of temporary employment. In that sense the Saab sale of Gripen to South Africa can be seen as part of an industrialization support program competing with other forms of industrial development programs.
I have found the main contributions of the Saab/BAE Systems sale to South Africa to be:
1. Saab/BAE Systems contributed industrial management competence in return for profitable industrial cooperation. The transfer of management knowledge is the perhaps most important contribution to South Africa, even though,
Chapter 6
Saab in South Africa: Technology Transfer to an Industrializing Economy
** This chapter is based on two interview visits to South Africa in 2008 and has benefited very much from the perspective of two previous interview visits to South Africa in 2000.
G. Eliasson, Advanced Public Procurement as Industrial Policy, Economics of Science, Technology and Innovation 34, DOI 10.1007/9781441958495_6,
© Springer Science+Business Media, LLC 2010
for some reasons, offset credits were not granted for such knowledge transfers (More on this below).
2. Saab/BAE Systems has been a competent purchaser of sophisticated compo
nents in South Africa, thus operating as very competent customers and stimu
lating the development of a competent local subcontractor industry.
3. Saab/BAE Systems and associated firms have helped local firms reach foreign commercial markets.
4. Important in the long run is the establishment of specialized subcontractor arrangements for subsystems and components for the JAS 39 Gripen assembly in Sweden. Several South African subcontractors have gradually learned the manufacturing precision and quality control requirements. They have also learned that delivery commitments have to be honored by suppliers to become part of a modern logistics system and to participate in today’s globally distributed production.
5. To be counted as a successful generator of future exports the public customer has to insist on commercially sound contracts and avoid distributing favorable subcontracts to politically allied businesses.
6. The South African military aircraft deal has contributed to the development of a growing pool of skilled and experienced workers. The rate of growth of the entire South African economy is, however, limited by the size of the advanced industry from which workers can learn modern industrial methods and practices, and growth in this advanced part of industry is in turn limited by the availability of educated and experienced labor. This catch can only be resolved through increases in foreign direct investment (FDI). And foreign investment will only be in steady supply if politicians make it their prime objective to create and main
tain a viable and predictable entrepreneurial climate with low political risks.
All this has been (and will be) necessary for South African industry to return to modern industrial practices lost during three decades of isolation.
Well formulated offset trade contracts should therefore benefit both parties, especially offset trade agreements that focus on the support of both local receiver or commercialization competence and on the development of worker skills. We are then talking about incentive contracts formulated such that economically valuable spillovers are both generated and captured locally.
So if political uncertainty can be kept low and the situation maintained that makes foreign direct investment reasonably profitable, industrial wealth in South Africa will grow along with the supply of labor skills.
The Saab/BAE Systems consortium has thus functioned as a technical university that delivers research, experience, and training services to other firms in related industries and of a kind close to operations that a more theoretically inclined tech
nical university is incapable of developing and providing. This latter practical knowledge transfer is important for the already developed industrial economies.
However, as Keller (2001) observes, it may be far more important for the less
developed economies. But for the lessdeveloped economies to benefit from the global pool of spillovers they have both to attract advanced spilloverrich industrial
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