Japanese Innovation Systems, Facts and Problems:

Implications for Eastern European Countries

8th International Conference on Technology Policy and Innovation

July 7, 2005University of Lodz

Risaburo NezuFujitsu Research Institute

1

How is Japan ranked by the IMD?

• Overall performance 21-23-27-25-23-21• GDP 2• Patents granted 1• Total R&D personnel 3• Securing patents abroad 3• Total R&D expenditure ($) 2

- ratio of GDP 6• Number of scientific articles 2

Source: World Competitiveness Yearbook 2005

2

High Tech Trade Balance (export/import)

0

1

2

3

4

5

6

'86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03

JapanUSAGermanyFranceUK

Note: High tech goods are medical products, medical equipment, office equipment, computers, electronics, precision instruments, and aircraft and space technology.

Source: NISTEP

3

Productivity in Major Countries

-2

-1

0

1

2

3

4

5

6

7

8

9

78/87 88 89 90 91 92 93 94 95 96 97 98 99 2000 2001 2002 2003 2004

Year

Productivity

JPN

USA

Germany

Australia

United Kingdom

SWEDEN

Korea

Source: OECD Economic Outlook

4

Number of Patents Granted in the US (2004)

859Seiko Epson (JPN)181,534Hitachi (JPN)8

803AMD(US)201,342Toshiba (JPN)10826NEC (JPN)191,348Sony (JPN)9

907Bosch (Germany)171,604Intel (US)7915TI (US)161,605Samsung (Korea)6917Renesas Technology (JPN)151,761Micron Technology (US)5

978GE (US)141,780Hewlett-Packard (US)4

1,030Fuji Photo Film (JPN)131,813Canon(JPN)3

1,224Phillips (Holland)121,965Matsushita(JPN)2

1,320Fujitsu (JPN)113,277IBM (US)1

NoCompanyRankNoCompanyRank

Source: Dempa Shimbun June 28, 2005

5

International Comparison of R&D Spending

1862641261675Total research personnel(000)

42.1%31.5%28.6%20.2%Government

(0.59%)(2.3%)(2.5%)(2.6%)(3.1%)Ratio of GDP

1.132.660.3284.6124.19

Total R&D (billion $)

38.660.182.5294127.7Population(million $)

21017602403110044295GDP(billion $)

PolandFranceGermanyUSJapan

Source: IMD World Competitiveness Yearbook

6

Japan ranks 11th

Investment in KnowledgeSweden

USFinland

KoreaCanada

SwitzerlandDenmark

OECDGermany

NetherlandsJapan

FranceBelgium

UKAustralia

EUAustriaNorway

Czech RepublicIreland

HungarySpain

SlovakiaItaly

PortugalPolandMexicoGreece

R&DSoftwareHigher education

Source: OECD

7

Japanese Problems

--Sharp decline of competitiveness--Results of basic research do not lead to new

products (weak science link)--While businesses aggressively invest in R&D,

government spends less than other countries--Insufficient infrastructure for intellectual

knowledge

Though Japan invests a lot in R&D, the investmentsdo not produce results. Why ?

8

Three Policy Challenges1. How to improve competitiveness in the

global marketIndustrializing Asian countries, Increasing speed and shortening life cycles

2. How to meet society’s new demandsAging population, Environment, Safety

3. How to reinvigorate ailing local economiesDislocation of local economies, Decreasing public works

9

Key Policy Measures1. Introduce more competitive mechanisms into the

national innovation system 2. Reform national universities 3. Foster collaborations between universities, public

laboratories, and industry4. Strengthen the protection of intellectual property5. Open innovation 6. Increase the mobility of researchers7. Ensure public funds and prioritization through

competitive funding 8. Strengthen technology management (MOT)

10

The Four Principles of Japan’s IP Strategy1. Creation of IP

UniversityCompany

2. Protection of IPEfficient and effective examination of patent applications by JPOCreation of a patent courtStringent measures against fakes and counterfeitsInternational harmonization of IP rulesProtection of trade/business secrets

3. Active use of IPTechnology transfers from universities and national labsTechnology Licensing/Transfer Office (TLO/TTO )Evaluation of IP and encouragement of its utilization

4. Strengthening of the human resource baseEducation of expertsConsciousness of the general public about IP

11

Reform of National Universities

1. Less government control and more freedom to develop their own curriculum and research plans

2. Introduction of a management structure similar to that of private businesses

3. Rigorous assessment of performance by independent outsiders

4. Greater emphasis on professional education at the post graduate level

5. More competition amongst universities6. Greater freedom to work with business

12

Number of Patents Applications by Universities

1993

109

2015

63

2373

74

2734

76

3644

149

4140

243

4877

374

5623

577

1141 1335

0

1000

2000

3000

4000

5000

6000

93 94 95 96 97 98 99 '00 '01 '02

US Japan

Source: Patent Office (Japan :calendar year)

AUTM (US: Fiscal year)

13

University-Industry Collaborations

1997- Easing of restrictions on national university researchers who work off campus.

1998- Law on technology transfers from the university (TLO).

1999- Japanese Dayh-Dole Law ( Universities can hold the IPR’s of government funded research. )

2000- Further easing of restriction on faculty who work in the private sector

14

Science Linkage by Country

0

0.5

1

1.5

2

2.5

3

3.5

1991 91 93 94 95 96 97 98 99 2000 1 2 3

USAJPNGermanyFranceUK

Source: NISTEP

15

Science Linkage by Sector in the US

0

5

10

15

20

25

30

1991 92 93 94 95 96 97 98 99 2000 1 2

agriculturemedicinenon organic chemicalorganic chemicalbiochemistrycomputingsemiconductor

Source: NISTEP

16

Number of Collaborations Between National Universities and Companies in Japan

Number of implementing private institutions

Number of implementing universities

Number of contracts

FY

Num

ber

of im

plem

entin

g un

iver

sitie

s and

pri

vate

inst

itutio

ns

Source: NISTEP

17

Partnerships by the Japanese national universities

Source: MEXT

0102030405060708090

2000 2001 2002 2003 2004

Joint R&DR&D Contracts

(Billion yen)

18

From Closed Innovation to Open Innovation: A paradigm shift (1)

1. Large Japanese companies have long believed that they could establish and maintain technology leadership by controlling the whole innovation process. (Not Invented Here (NIH) Syndrome)

2. Throughout the 1990s, a new method of innovation became dominant in information technology and bio-technology. Companies began to concentrate their resources on their strongest technology and rely on external resources for the rest. This development was supported by the advent of specialized venture businesses.

3. The Bayh-Dole Act of 1980 allowed private companies to use research conducted by universities and national laboratories for commercial purposes, and thereby helped to revive the industrial competitiveness of the US. This became the model for other countries, who have begun strengthening university-industry collaboration.

19

From Closed Innovation to Open Innovation: A paradigm shift (2)

4. In the past few years, this movement has hit Japan and other Asian countries. The large central research departments of private companies have become outmoded. Many large companies have reduced their spending on R&D and have began using external knowledge.

5. The following changes are required for U-I collaborations to succeed:

- an open and free flow of information about technologies and research activities,

- high mobility of scientists and engineers,- adequate protection of IP,- and a risk-taking capital market.

Many developing countries lack such an environment.

20

University orResearchInstitute

52%

Entreprise16%

VentureCompany

32%

Entreprise86%

Venture Company

2%

University or Research Institute

12%

(Note2) 1971 – August, 1998 (publication year) Japanese applicants’ patent published by JPO

(Note1) 1971 – 1998 (grant year) U.S. applicants’ patent granted by USPTO

The number of companies and employees in the biotechnology field U.S. Europe Japan

Large Enterprises 800 540 260 Venture Companies 1,300 700 60

Employees 150,000 28,000 30,000

Universities and venture companies account for more than 80 % of the patents filed in the US; in Japan, their roles are much smaller

Genetic Engineering Patents Filed: The US & Japan

Source: Japanese Patent Office

21

Allocation Changes in the Research Budget of the US government (1990-99)

Source：NSF, SRS, Survey of Federal Funds for Research and Development

Science & Engineering Indicators, 2002

-4-3-2-10123456

Life

Sci

ence

s

Com

pute

rSc

ienc

es

Oth

er S

cien

ces

not e

lsew

here

clas

sifie

d

Soci

alS

cien

ces

Psyc

holo

gy

Mat

hem

atic

s

Env

iron

men

tal

Sci

ence

s

Eng

inee

ring

Phys

ical

Sci

ence

s

(%)

22

R&D Allocation in the Japanese Government Budget

Source： METI, “An Innovation Oriented Science and Technology Policy.” February, 2005

020

0040

00

6000

8000

1000

012

000

1400

016

000

1800

020

000

2200

0

2001

2002

2003

2004 Life ScienceInformation TechnologyEnvironmentNano, MaterialEnergyManufacturingSocial InfrastructureSpace, OceanNuclear

100 million yen

FY

23

Corporate Attitudes Toward Japanese Universities and National Laboratories

8.3%

13.7%

4.9%

10.7%

3.9%

19.6%

21.0%

27.7%

30.5%

38.8%

0% 10% 20% 30% 40% 50%"Japanese labs are better" "Foreign labs are better"

Keen to obtain IPR

Information is available and they are easy to contact

Research level is high

Fast in producing results

Highly aware of importance of protecting IPRs and low

risk of information leak

Source: MEXT

24

Number of University Spawned Ventures in Japan

0

200

400

600

800

1000

1200

1979 89 95 96 97 98 99 2000 1 2 3 4FY

Source: METI

25

Problems Faced by University Spawned Ventures in Japan

1. Securing and nurturing skilled experts2. Finding clients and marketable products3. Securing adequate financing4. Developing the necessary technology5. Finding space for office and laboratories6. Handling relations with universities

26

Japanese Company Support for University Research

0

200

400

600

800

1000

1200

1400

1600

1800

1990 91 92 93 94 95 96 97 98 99 2000 1 2

for Japanese universities

for foreign research organization

FY

100 million yen

Source: Ministry of Internal Affairs and Communications

27

Japanese Company Support for Japanese University Research

384

452492

558 564531

577 564604 594 619

675

0

100

200

300

400

500

600

700

89 90 91 92 93 94 95 96 97 98 99 0

Ratio of business funding to total university research funds:JPN 2.4% US 7.6% Germany 11.3%

Source: Ministry of Internal Affairs and Communications , MEXT

28

Patent Applications by Japanese Universities

0100200300400500600700800900

1000

1997 98 99 2000 1 2 3

Source: NISTEP

29

Major Trends in the R&D of Japanese Companies

Source: METI

1.3

16.1

40.6

32.9

57.4

0.0 20.0 40.0 60.0

Other changes

Active outsourcing of R&D to othercompanies and universities

Actively pursuing joint R&D with othercompanies and universities

More emphasis on company strategy

Shift of emphasis to a shorter time horizon

(%)

(N=155)

30

Competitive R&D Funding

• Government R&D funding should not be tied to any project; it should be distributed based upon the merits of individual proposals through an open and competitive process. There should be no sanctuary.

• In 2004, about 10 % of the government R&D funding was distributed through a competitive process. This percentage is expected rise.

31

Management of Technology (MOT)1. Japan devotes a large amount of resources, both financial and human, to

R&D and produces a growing number of patents that are filed throughout the world.

2. But, such R&D is not leading to the better performance of Japanese companies or the Japanese economy in general.

3. “Death Valley” is preventing basic knowledge from developing into commercial technology.

4. This is due to weak management of technology (MOT)5. In the US, MOT is already taught at 160 universities and twelve

thousand students graduate with this major every year. In addition, all MBA programs include courses on MOT.

6. In 2003, 16 Japanese universities ran degree programs (most of them at the post-graduate level) on MOT with a total of 670 students enrolled. While the number of programs is on the rise, their quality needs to be improved.

32

Entrepreneurial Spirit

Source: Fortune, February 9, 2004

33

Venture Capitals InvestmentRelative to GDP

0

0.1

0.2

0.3

0.4

0.5

U.S

.Ic

elan

dO

EC

DC

anad

aN

ethe

rlan

dsU

.K.

Swed

enK

orea

Bel

gium

Finl

and

EU

Ger

man

yN

orw

ayFr

ance

Irel

and

Spai

nA

ustr

alia

Switz

erla

ndPo

land

Den

mar

kIt

aly

Cze

chN

ew Z

eala

ndPo

rtug

alG

reec

eH

unga

ryA

ustr

iaJa

pan

Slov

akia

expansion stage

early stage

%

Note: average for period between 1998 and 2001

Source: Development Bank of Japan, Chosa No.67, August 2004

34

Percentage of International Scientific Papers

05

101520253035404550

1986 88 90 92 94 96 98 2000 2

JapanUSAGermanyFrance

Source: NISTEP

35

Ratio of R&D Devoted to the Manufacturing Sector

79.281.0UK

85.792.3France

91.396.1Germany

64.981.1USA

86.3%93.5%Japan

20001990

36

Total Primary Energy Supply Per Unit of GDPTons of oil (or equivalent) needed to produce one thousand 1995 US dollars. GDP

calculated using PPP.

0.240.250.250.260.260.260.27United States

0.310.330.340.340.340.340.37Slovak Republic

0.240.240.250.250.270.290.32Poland

0.160.170.170.170.180.170.17Japan

0.210.210.220.220.230.250.26Hungary

0.180.180.180.180.180.190.20Germany

0.310.300.300.310.300.320.33Czech Republic

2003200220012000199919981997

Source: OECD Factbook 2005

37

Lessons From the Japanese Experience1. Spending money on R&D does not always lead to good results. Sound

management of national innovation systems needs to be in place.2. The ivory tower mentality should be erased. Barriers separating

university, industry, and national laboratories must be removed. The flow of ideas, people, and money should not be inhibited.

3. Open innovation systems must be in place. External knowledge should be fully exploited.

4. Allocation of research fund should be flexible and subject to periodic reviews. It should be distributed based on the merit of proposals and performance.

5. . Effective protection of IPR is key.6. Universities should have clear policies in pursuing collaboration with

businesses in order to avoid conflict of interest.7. Where appropriate, let the market force to decide the direction of R&D.

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