Business Symposium

‘Open Innovation In Global Networks’

26 Feb 2008

Futoshi NASUNO

METI, JAPAN

"Current Status and Future Development

of "OPEN INNOVATION" in Japan"

1

The Era of Innovation

2

Aging economy

with less population

→Smaller domestic

market

Globalization

→ Global Competition

Creating values/profits by making products or services

different from others is essential for business.

Knowledge Economy

→Knowledge in

Intangible assets

became more valuable

-S＜Ｄ → Supply＞Demand esp. after the end of Cold War

＝Product oriented→ Value/Human oriented

-Differentiation, coming from its own personality is the key

factor in the competition, or corporate benefit.

Why does innovation matter now?

3

Elements of Innovation

Creation of brand new knowledge through some fusion of

different kinds of existing knowledge

= The element of ‘managing knowledge or intellectual assets

incorporating the peculiar knowledge’ is essential.

New Convergence

Differentiation, coming from brand new knowledge does not

necessarily result in the realized value.

→Only when the newly created knowledge meets the needs of

many customers, the value is realized with destructive impact.

Destructive Impact

4

Combination of

technologies necessary

→Companies need to

rely on outside

resources

ICT improvement→

Outside knowledge

can be achieved in

easy, costless and

speedy way.

More importance

on knowledge

fusion→ Outside

knowledge could

be a trigger of

fusion

Open innovation or reliance on outside knowledge is a

rational choice because

-it could also reduce the cost and risk due to the utilization

of existing result of investment.

-the attitude to open some part of the achievement could

make it easier for a company to grasp further knowledge

which would raise the ability for innovation.

Open Innovation

5

１．Status of Innovation in Japan

6

- Huge amount of investment into innovation- Abundant outcome in the shape of patents- Limited values and profits being generated- Mainly caused by poor corporate management

- Scientific knowledge rarely utilized in industries- A lot of nuisance in the Knowledge convergence- Mobility of highly skilled people limited.

Present Situation of Innovation in Japan

7

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

（年度）

（％）

日本

米国

ドイツ

フランス

イギリス

中国

韓国

The ratio of total R&D expense in Japan vis-a-vis GDP exceeds 3 % which is extremely high

level compared with those in other countries.

Sources

①ＷＩＰＯ「 INDUSTRIAL PROPERTY STATISTICS」②JPO annual report in 2005

Trend in the ratio of R&D expense/GDP (%)

Source: METI (calculated from Science & Technology Summary

published by MEXT)

JAPAN

US

Germany

France

UK

China

Korea

R&D Expense

8

Large amount of R&D investment generated lots of seeds, especially when compared

by the number of registered patents.

0

50,000

100,000

150,000

200,000

250,000

1980 1985 1990 1995 2000 2001 2002 (年)

(件)

日本

米国

ドイツ

フランス

イギリス

韓国

中国

Registered Patents（right holders nationality basis）

Japan

Germany

year

US

France

UK Korea

China

Achievement from R&D investment

JAPAN

US

Germany

France

UK

Korea

China

9

Large amount of R&D investment generated lots of seeds, but limited values/profits.

More companies have a short sighted view on investment affected by the too much

attention on short-term profit by stakeholders especially by shareholders.

経済成長における技術進歩の伸びの変化

←増大

減少→

←減少 民間研究開発投資の対売上高比率の変化 増大 →

出典：ＯＥＣＤ

【主要国の民間研究開発投資と経済成長の技術進歩との関係】（８０年代と９０年代の比較；ＯＥＣＤ）

【我が国製造業の研究開発効率の推移】

（出典）科学技術の振興に関する年次報告（平成１５年度）

Limited profits

R&D Expenditure (right)

Operating Profit (right)

Profit/R&D(%)(left)Profit/R&D/firm (%)

Operating Profit/firm

100

mil.yen

R&D expenditure/firm

(%)

Source: Annual Report on

promoting Science and

Technology in 2003

10

Strength and shortage from the viewpoint of competitiveness (Fy2004)

Source：survey on science technology development in 2004, METI

328 companies with large R&D investment were selected . Left: N=175 Right: N-177

Poor quality in corporate management

It is commonly believed that problem in corporate management is the cause of small profit.

Ratio of people who responded that the element is recognized as the origin of competitive sｔｒｅｎｇｔｈ (%) competitive weakness (%)

42.3 R&D capability 17.543.4 Application of technology 10.750.3 production /manufacturing technology 7.9

13.7 business strategy 24.96.9 Management (related to technology) 20.39.7 Product Planning / Design 36.2

17.7 Leadership of corporate manager 5.628.0 Quality of human resources 13.64.0 Quantity of human resources 25.47.4 Collaboration with other companies 15.310.3 Challenging spirits 22.06.3 Absence of global competition 10.7

3.4 Miscellaneous 4.0

11

- Science linkage in patent is limited.

- Radical transformation in business model is scarce.

Science linkage in US patents

From HP of MEXT

Sceience linkage is the number of citation of scientific articles described in

the examination report of US patent.

Limited substantial research

United States

EU-15

Japan

Year

Number of science

linkage

US

12

○Opportunities and occasions are scarce for substantial convergence of

knowledge.

○Open innovation is more valuable and necessary than before

○Some companies have already taken some measures to accelerate the

fusion of knowledge with somebody outside the companies.

○Some affiliates of foreign companies have progressive mechanism for

accelerate knowledge fusion.

○Most companies see that core technology and know-how should be

confined inside the company since they are the origins of competitiveness.

○NIH syndrome is still evident in general.

6) NIH (Not Invented Here) Syndrome

13

(Recognition of the industry side)

○Capable colleges, which usually have abundant financial resources

provided by the government, are not eager to voluntarily attempt the real

collaboration with companies.

○Most colleges have deficiencies in the ability for R&D management or

contract and operating staff.

○Excessive focus on IPRs or short-term profit tends to undermine the

substantial research.

○Companies themselves is less strategic in utilizing colleges.

○Colleges are failing to provide human resources which meet the needs of

industries.

7) Industry – Academy Collaboration to be improved

14

Due to the lack of forward-looking vision and the viewpoint

to other areas, the flow of knowledge is limited, short, one-

way and stagnant.

Science Technology

College/public research institutes Company

Research

division

Business

division

Too much focus on

short-term competition,

NIH syndrome and

sectionalism

One way with selfish

participants, and small

collaboration

Lots of nuisance

in a company

and between

companies

Compartmentalize

d and little respect

on application

Business/Management

8) Nuisance against Knowledge fusion

15

Percentage of foreign-born persons and of foreigners in the total population in OECD

countries, circa 2001

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Ko

rea

Jap

an

Mexic

o

Tu

rkey

Po

lan

d

Slo

vak R

ep

ub

lic

Fin

lan

d

Hu

ng

ary

Italy

Czech

Rep

ub

lic

Sp

ain

Po

rtu

gal

Den

mark

No

rway

Un

ited

Kin

gd

om

Fra

nce

Neth

erl

an

ds

Gre

ece

Irela

nd

Belg

ium

Sw

ed

en

Un

ited

Sta

tes

Germ

an

y

Au

str

ia

Can

ad

a

New

Zeala

nd

Sw

itzerl

an

d

Au

str

alia

Lu

xem

bo

urg

Percentage foreign-born

Percentage foreigners

9) Limited inflow of human resources

- No specific common goals, resulting in inadequate performance and limited attractiveness to

foreign people, especially to highly skilled ones.

Source: OECD 16

Immigrants as a % of highly skilled native population Emigrants as a % of highly skilled in the country of origin

OECD STI Scoreboard 2005

- Mobility of highly skilled people are extremely limited.

17