Paradigm Shift in the Definition of ‘Domestic’: A Global Perspective

1. Paradigm Shift in the Definition of ‘Domestic’: A Global Perspective Yunus Çengel Professor Emeritus of Mechanical Engineering University of Nevada, Reno (USA) 1st International Conference on Innovations in Natural Science and Engineering Famagusta, N. Cyprus January 3-6, 2018

2. Why Domestic?

3. Q: Why domestic goods & services?A: The benefits it provides to nation/citizens • Job creation, • Skills (know-how) accumulation, • Continual tech. development & leadership in technology • Derivative product potential, • Establishment of a powerful information ecosystem and innovation chain, • Reducing foreign dependence on technologies (esp. critical ones) • Full control over products & ability to use them w/o imposed restrictions • Secrecy and national security, • High prestige and high moral, • Strengthening national pride, increasing sense of belonging • Foreign currency gain; better current account balance, • Etc.

4. OLD paradigm in ‘domestic’ (INPUT based): Domestic goods: Those produced in the nation, with domestic parts by national work force. Domestic firms: Those which produce in the nation using domestic parts and employing nationals.

5. NEW paradigm in ‘domestic’ (OUTPUT Based): • The most domestic or national product of a country is one that is made by a company belonging to that country and provides the highest benefit to the people of that country regardless of the ratio of the domestic parts used and the country in which it is developed or manufactured. • The most domestic or national company is the one that belongs to that country and provides the highest benefit to the people of that country regardless of the ratio of the domestic parts it uses and the country where the manufacturing plants and research centers are established.

6. Realities of the new ‘Global World’: • Firms see the whole world as the potential production sites, suppliers and markets. • A national company of a country today may become part of a company of another country tomorrow. Large companies often take over other companies, license technology and even merge with companies from other countries. • Even rival companies initiate joint R&D programs to gain competitive advantage in global competition by reducing the cost of technology development. • To attempt to manufacture all products domestically will not bring about making the market domestic; it will hand over the market to foreign products since domestic products will no longer be competitive. • Governments’ desire: High domestic productionIndividuals: High quality, low cost products or services.

7. Rational approach to ‘domestic goods’: • In this age when products know no national borders, and technology advances in dazzling speed, a country must determine the areas/products/services for which it can be competitive in the global arena after a careful analysis, and to focus its activities in those areas only, instead of attempting to manufacture everything domestically. • Those who try to do everythingcannot do anything economically, and cannot become competitive in anything. Also, they cannot improve and sustain what they do since they cannot allocate sufficient resources. • Forcing the use the parts that do not have these qualities just because they are domestic means promoting products that lack global competitiveness due to low quality and high cost. • Job creation and developing/producing high value added products should not be mixed with each other. • The way to increase job creation is to make domestic and foreign companies prefer to build their production facilities in the country by making the climate of manufacturing in the country more attractive.

8. Smart move in ‘parts manufacturing’:Manufacture parts that can be marketed globally • The goal of parts manufacturing should be to gain a significant share in the global market, instead of to save the money spent on imported parts. • Infrastructure should be established to improve the parts constantly with necessary R&D investments and to remain competitive. GE, CFM, Pratt & Whitney and Rolls-Royce do not manufacture aircraft. But they manufacture almost all the jet engines of commercial aircraft and they share the market of $25 billion a year. http://www.statista.com/statistics/261934/world-commercial-aircraft-engine-manufacturer-market-share/

9. North Korea vs. South Korea:Closed&Independent vs. Open&Dependent economies GDP per capita (1960): North Korea: $384 South Korea: $156

10. North Korea vs. South Korea:Variation of GDP per capita over years

11. BOEING 787:%65 of parts are imported • Boeing (2015 revenues:$96 billion)imports most parts used in airplanes it manufactures. • Boeing and other US aviation companies focus on parts that they can remain competitive globally and retain this competitive edge through continuous innovation. • As a result of focusing, the US exports of aircraft parts reached $56 billion in 2014. • 65% of the parts used in Boeing 787 come from outside the US. • This does not change the fact that Boeingairplanes areUS products. http://trade.gov/topmarkets/pdf/Aircraft_Parts_Top_Markets_Report.pdf; https://en.wikipedia.org/wiki/Boeing

12. Q: Which parts of iPhone does Apple manufacture?A: None (just integration) Total cost for Parts&Manufacturing 32-GB: Cost: $208; Price $749 64-GB: Cost: $218; Price: $849 Profit: Over 50% (S&P 500 Automotive: 4%) 2016 revenue: $216 billion CPU (A7): SAMSUNG DISPLAY: JAPAN DISPLAY, LG, SHARP BATTERY: SONY CHIPS: TOSHIBA, SanDisk, ELPIDA,.. RF TRANSCEIVER: QUALCOMM iOS (Software): APPLE MAKER of iPhone: FOXCONN (China) Q: Is iPhone with ‘Made in PRC’ label on it a Chinese product or US product? Source: http://www.eeherald.com/section/news/onws20130929006f.html/; http://www.isuppli.com/Teardowns/News/Pages/Default.aspx

13. APPLE: A desirable or undesirable firm for US?Is Apple a good model for others to follow? Multi-national US firm APPLE (2016) • Market value: $750 billion (#1 in the world) • 2016 revenues: $216 billion. Profits: $46 billion • Cash it has: $203 billion • Employment: 115 bin (world wide) • Parts manufactured inhouse: %0 (software only). • Designed in: California, ABD • Manufactured in: China (Foxconn) https://en.wikipedia.org/wiki/Apple_Inc. http://www.cnbc.com/2015/07/21/just-how-much-cash-does-apple-have.html

14. APPLE: The firm that makes us question what ‘domestic’ is • Is Apple, which has its products manufactured in a foreign country by a foreign company with mostly foreign parts, a domestic company for the US that needs to be cherished by the US? • Should products with low domestic content like iPhone in the US be viewed as domestic or foreign products? • Are the ordinary US citizens and US government happy that the Apple company was founded in the US, or are they bothered by it? • Is iPhone known as a product of USA or China? • Do we wish to have a company like Apple, or, a company that manufactures its products in our country using mostly domestic parts even if it is not globally competitive?

15. An Example of ‘Apple Model’ in Turkey: AirTies ‘Designed in Turkey, Manufactured in China’ • R&D and Design in Turkey, • Patents from US and inhouse in Turkey, • Manufacturing in China, • Worldwide sales (%90 export) Bülent Çelebi, Founder (Founded: 2004) http://www.dunya.com/guncel/dunyaya-teknoloji-satiyor-ama-kamu-ihalelerine-girmiyor-256671h.htm

16. Consequences of new paradigmALTERNATIVE INOVATION

17. An Indicator of Knowledge-Based Economy: Fraction of Intellectual Property (2015: 84% http://www.oceantomo.com/blog/2015/03-05-ocean-tomo-2015-intangible-asset-market-value/

18. Cross-border licensing and royalty income:(2013 global total: $255 billion) Billion USD 2013: $255 billion Source: WIPO (World Intellectual Property Organization) http://www.wipo.int/export/sites/www/freepublications/en/intproperty/944/wipo_pub_944_2011.pdf

19. Technology licensing income of Qualcomm: $8 billion/year (2015) • US-based Qualcomm Inc. develops mobile technologies (5G, IoT). • Revenue from chip sales: $17 billion/year ($2b profit). • Revenue from Technology Licensing: $8 billion/year ($7b profit). (17 Dec 2015) https://finance.yahoo.com/news/qualcomm-gets-majority-profits-licensing-140637621.html

20. PATENTS: A Measure of Technological Advancement No. of patents granted by countries (2014) Turkey: 1,176 https://en.wikipedia.org/wiki/World_Intellectual_Property_Indicators

21. R&D Expenditures, Patent applications and Export of High-Tech Products *(2013 R&D spending/GDP ratio, %) http://anahtar.sanayi.gov.tr/tr/news/ar-ge-harcamalarinin-yuksek-teknolojili-urun-ihracati-uzerindeki-etkileri-turkiye-incelemesi/9407

22. Welcoming foreign brain power: SILICON VALLEY • Silicon Valley is just the ground of brain power and creative thinking, not the source. • Silicon valley is merely the field where the orchards of creativity (that blossomed in the garages) are planted. • “Today, knowledge and skills now stand alone as only the source of comparative advantage. Silicon Valley and Route 128 are where they are, simply because that is where the brain power is.” Lester Thurow, MIT Economist • “In the U.S. immigrants have founded 52 percent of Silicon Valley’s companies and created millions of jobs.” Vivek Wadhwa, Washington Post, Oct. 4, 2011. • YÖK rule for Turkish universities: “Foreign faculty members cannot exceed 2%”.

23. Foreign-born scientists in top 10 US universities: 76% of patents

24. Investing in where Brains are: Chinese Companies Invest in US R&D Labs • In the US, there are over 800,000 people with research doctoral degrees in science, engineering, and health. • Annual flows of Chinese FDI into US was $14.3 billion in 2013 and $11.9 billion in 2014, • Huawei is a world leader in producing telecommunications equipment and has 6 U.S. research centers. • German companies extracted 1,416 patents in 2014 using U.S researchers. • Investment by Chinese companies in U.S. research labs is yielding a fast-growing trove of patents, part of a push to mine America for ideas to help China shift from being the world's factory floor to a driver of innovation. June 22, 2015 http://www.reuters.com/article/2015/06/22/usa-china-investment-idUSL1N0Z52TZ20150622

25. Going Where the Action is/Brains are: Samsung launches Silicon Valley incubator • Samsung opened the doors of a startup and entrepreneurship incubator/accelerator nestled in the heart of Silicon Valley. • Samsung will also open a new Samsung Strategy and Innovation Center in Palo Alto, and incubators in other tech hubs such as New York, Austin, Boston, Russia, and Israel. Samsung Ventures America is a $1 billion fund. http://venturebeat.com/2013/07/12/samsung-launches-silicon-valley-incubator/ July 11, 2013

26. Adding a Research Base in a US University: Toyota teams up with Stanford & MIT &UM on driverless cars April 2016 • In 2015 Toyota announced a $1 billion Advanced Projects Lab in Silicon Valley to expand its research in autonomous driving and AI. • Univ of Michigan is Toyota’s 3rd university collaboration in the US after Stanford and MIT to try to advance its efforts in autonomous driving. • Toyota also bought the entire staff of Jaybridge Robotics in Cambridge. http://www.wsj.com/articles/toyota-teams-up-with-university-of-michigan-researchers-on-autonomous-driving-1460056847

27. Investing in Start-Up Companies: FORD invests $1 billion in ‘self-driving car’ AI firm Feb 10, 2017 • Ford is investing $1 billion over 5 years in the artificial intelligence (AI) startup ARGO to further the development of autonomous vehicle technology. • Ford working to develop a new software platform for its fully autonomous vehicle, expected in 2021. It could also license the software to other carmakers. http://www.cio.com/article/3168780/car-tech/ford-to-invest-1b-in-ai-startup-toward-self-driving-cars.html

28. Investing in Global Start-Up Companies: Samsung invests $18M in Israeli firm on fast-charging Aug 19, 2015 • StoreDot, an Israeli startup that makes ultra-fast charging batteries using bio-organic technology, has raised $18 million for electric car batteries. • StoreDot’s goal is to build the “first ever instantly-charging car prototype” (charging in 5 minutes). • Another goal: to fully charge a smartphone in 30 seconds. • Samsung and LC Chem are EV Battery manufacturers. http://venturebeat.com/2015/08/19/storedot-raises-18m-to-help-build-instantly-charging-batteries-for-electric-cars/

29. A Short Cut to Becoming a World Brand-Name:BUY a World Brand (IBM); BECOME a World Brand (LENOVO) • Founded (as Legend): 1984 (Beijing) • Headquarters: Morrisvill, NC (USA) • Products: PC, Notebook, Tablet, … • Revenue (2016): $43 billion • Employees: 52,000 • Operations: 60+ countries • Sales: 160 countries • In 2013, Lenovo was the World’s largest PC vendor by unit sales. • Lenovo acquired IBM’s Personal computer business in 2005 for $1.8 billion; instantly became the world’s 3rd largest computer maker. • Entered the smartphone market in 2012; the largest vendor in China. • Acquired the mobile phone maker Motorola Mobility from Google in 2014. • Lenovo's official language: English http://en.wikipedia.org/wiki/Lenovo

30. Acquisitions: Quick Access to Technology • Microsoft acquires Nokia's devices and services unit and license the company's mapping services in a deal worth $7.2 billion in a bid to bolster the company's position in the smartphone market. • The software giant will pay $5 billion for "substantially all" of Nokia's phone unit and another $2.2 billion to license its patents.

31. A recent global service: FacebookSocializing globally since 2004

32. A global business model: UBER (vs. TAXI): Connecting drivers with riders via Apps • Founded: 2009 in San Francisco (USA) • Service: 60+ countries, 404 cities • Value: $62.5 billion (2015) • Product: Apps for smartphones • Rank: 48th Most Powerful company (2014) • Revenues (in $billions): 0.7b (2013), 2.9b (2014), 10b (2015) https://en.wikipedia.org/wiki/Uber_(company)

33. Redefining ‘Shop’ (A New Model for ‘Service’):Amazon.com: World’s Largest Shopping Center (E-commerce) • Founded: 1994 (Seattle, USA) • Products: Online retailing, Kindle, … • Revenue (2016): $136 billion • Employees: 340,000 • Costumer Accounts: 310 million

34. BOSCH (Germany): Company language: English • 2016: • Revenues: 73 billion Euro • Employees: 390,000

35. Local vs. Global Thinking in Innovation: A New Product, A New Process, A New Business Model, A New Service

36. Local vs. Global Thinking in Innovation: “Science, technology & engineering; Technological goods & services have No nationality, ethnicity or religion.”

37. National vs. global approach to wind turbines:Turkey vs. China Example (2007 - …) TURKEY started a ‘National Wind Turbine Project’ (MILRES) in 2007 with the goal to develop a 2.5 MW wind turbine, using 100% native and domestic resources. Status in 2017: A 500-kW turbine prototype whose future is uncertain. CHINApurchased companies, formed cooperation with the existing wind turbine manufacturers, transferred technology and eventually produced its own turbines. Status in 2017: World leader in wind turbine manufacturing, surpassing US, Germany and Netherlands.

38. Turkey vs. China Experience:Lessons learned • For commercially mature products, how realistic is it to think that, globally competitive products can be develop by starting from scratchand working in a closed circuit while being limited with native brainpower and resources? • Isn’t it wiser to start one step ahead by forminginternational cooperationor by purchasing a company that has already developed technology and patented it? • Was it worth spending 10 years to make a prototype of the native version of a globally available existing product that improves continually in this age of knowledge economy where continuous development is the rule and shorter and shorter product life is a reality?

39. Global Perspective in AUTOMOTIVE

40. PROTON:National car experience of Malaysia (since 1983) • Malaysia started the Proton brand "National Car Project' adventure in collaboration with Japan's Mitsubishi company in 1983. • People of Malaysia had to pay high taxes imposed on imported vehicles & parts so that Proton would succeed in the domestic market. • Despite all protectionistmeasures that disturbed the free market conditions, the sales of Proton plummeted, and it was unable to pay its debts to parts suppliers as of March 2016. It is trying to survive with the $500 million bailout package given by the Malaysian government. • Instead of taking a pride in their national car, today Malaysia is discussing whether Proton should be continued to be supported by the taxes paid by the people. There are negotiations to sell 50% of Proton to China. http://www.straitstimes.com/asia/se-asia/malaysias-proton-gets-government-bailout-package-more-than-a-week-after-mahathir

41. Instant Presence in Worldwide Automotive Market:China Acquired VOLVO in 2010 for $1.9b • By acquiring Volvo, China’s Geely got instant presence in the U.S. market as well as decades’ worth of engineering and manufacturing expertise to use in its own cars. • Geely focused on increasing Volvo sales in China, doubling them to 61,146 by 2013. • It aims to sell 800,000 vehicles in 2020 (200,000 in China, 120,000 in US, and the rest in Sweden and Europe. • Geely invests $11 billion for 3 new factories in China, U.S. marketing campaign, and SUV designed for US. 1927 Founded 1999 Purchased (car division) by FORD for 6.45 billion USD. 2010 Purchased by Geely Automobile of China for $1.8b. Headquarters: Gothenburg, Sweden No. Employees: 110,000 http://www.bloomberg.com/bw/articles/2014-06-26/volvo-seeks-u-dot-s-dot-sales-revival-with-return-to-swedish-roots

42. IEEE: 75% of Cars Will Be Autonomous By 2040 • The Institute of Electrical and Electronics Engineers recently released predictions that autonomous cars will account for up to 75% of vehicles on the road by 2040. • IEEE went even further, forecasting how infrastructure, society and attitudes could change when self-driving cars become the norm around the middle of the century." Source: http://www.wired.com/autopia/2012/09/ieee-autonomous-2040/ (18 Sep 2012)

43. Developing and testing technology:Driverless car technology from Google

44. Driverless cars as enabling technology:Pilotless aircraft (Boeing – Airbus collaboration) Advances in sensors and AI are making the development of self-flying aircraft possible Pilotless Helicopter http://www.pantagraph.com/business/investment/markets-and-stocks/move-over-driverless-cars-pilotless-planes-are-coming/article_d28e0fb3-c34e-58c2-8991-65cceb71ebfa.htmlAug. 31, 2017

45. Developing driverless systems for global markets: Intel acquires Israeli startup Mobileye for $15 billion • Mobileye, founded in 1999, accounts for 70% of the global market for driver-assistance and anti-collision systems (supplier to over 20 vehicle manufacturers). “Investing in enabling technologies.” • It employs 660 people and had a net income of $173 million in 2016. • Goldman Sachs revenue projections for advanced driver assistance systems and autonomous vehicles : • $3 billion in 2015, $96 billion in 2025. • Digital mobility services for automobiles: • $920 billion in 2016; $2.0 trillion in 2025. • Intel already invested in 5 start-ups developing sensors, machine vision, etc. for self-driving systems (3 US, 1 JP, 1 FR). • Intel+Mobileye+BMW partnership: Introduce fully autonomous cars by 2021. Mar 13, 2017 http://www.reuters.com/article/us-intel-mobileye-idUSKBN16K0ZP

46. Hot pursuit in electric cars: FORD to invest $11 billion by 2022 in electric cars • FORD will have 40 hybrid and fully electric vehicles by 2022. • Of these, 16 will be fully electric and the rest will be plug-in hybrids. • VW plans to spend $40 billion on electric cars, autonomous driving and new mobility services by the end of 2022. • The plan includes an electric Ford Focus with a 160-km range and 30 minute battery recharge. • All new vehicle platforms will come equipped with engine- and battery-powered capabilities. (Jan. 15, 2018 https://www.reuters.com/article/us-autoshow-detroit-ford-motor/ford-plans-11-billion-investment-40-electrified-vehicles-by-2022-idUSKBN1F30YZ

47. Hot Pursuit in Electric Cars: Mercedes plans to sell 100,000 EV/year in 2020 • Daimler plans to invest over $8 billion in green technologies over the next two years alone. • As part of the plan, Mercedes-Benz will eventually electrify every single model series of its passenger vehicles. It plans a new EV with 300-mile range. (June 13, 2016 http://www.autoblog.com/2016/06/13/daimler-exec-promises-100000-annual-ev-sales-2020/#slide-3827788

48. Samsung EV battery (2021):600-km range, 20-min fast charge (9 January 2017) https://www.engadget.com/2017/01/09/samsung-sdi-fast-charge-car-battery/

49. Safer Alternative to Lithium-Ion Batteries: Solid-state design; Non-flammable electrolyte • Uses sodium rather than lithium. • 3 times more energy dense. • Better performance, lower cost. • Noncombustible due to the solid-state design, which replaces the flammable liquid electrolyte used in lithium-ion battery cells with a solid material (glass). • Glass-electrolyte solid-state battery can charge and discharge fasterand will have a longer lifespan than current lithium-ion designs. • Developed by John Goodenough from the University of Texas Austin, the co-inventor of the lithium-ion cell. (March 4, 2017 http://www.csmonitor.com/Business/In-Gear/2017/0304/Inventor-of-lithium-ion-battery-introduces-safer-faster-charging-alternative

50. Extending the Life of Lithium-ion batteries to infinity • Brittleness is solved by coating a gold nanowire in a MnO2 shell and encasing it in an electrolyte made of a plexiglas-like gel. • The combination is reliable and resistant to failure, lasting 100,000+ cycles instead of just 5000 without losing any capacity. (22 April 2016) http://www.computerworld.com/article/3060005/mobile-wireless/scientists-can-now-make-lithium-ion-batteries-last-a-lifetime.html