What Makes The Automation Industry Strategic?∗

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Abstract
Based on a theoretical discussion of user-supplier relationships in the innovative process and on a historical analysis of such relationships in the machine tool industry, we propose the following hypothesis: In order to have an engineering industry at the forefront in terms of production technology, it is of primary strategic importance to have user firms on the technological frontier, i.e., firms which have the competence to formulate technical problems whose solution is generalizable to a larger set of problems and firms. Because of their size and technical leadership, these firms are attractive for any supplier, domestic or foreign, to assist them in finding technical solutions to new problems. Without such leading users, there is no basis for a domestic supplier industry. For these technological leaders it may not be vital, although still advantageous, to have domestic suppliers of automation. But users which are not on the technological frontier depend to a much greater extent on domestic suppliers which can therefore be considered strategic. Empirical evidence in support of the hypothesis is presented for the Swedish automation industry. Implications for public policy are discussed.