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6 Conclusion Technological links between the United States and Japan are growing rapidly, resulting in an increasingly apparent interdependence of the two countries in industrial R&D. This report has dealt with some of the motivat- ing forces, mechanisms for collaboration, and the problems and opportunities associated with this collaboration. It is striking that many of those with first-hand knowledge of U.~.-Japan collaboration in industrial technology find reasons for optimism. From a Japanese perspective, there are at least two related and relevant themes that seem to indicate that collaboration will increase. One relates to a concept familiar to technology policy experts in Japan "technology fusion." The analysis that underlies this concept is the observation that technological breakthroughs in particular industries depend increasingly on breakthroughs in other industries and on the fusion of technologies developed in many industries. Mechatronics, a term used widely in Japan, is an example. Here the emphasis is on the combination of mechanical and electronics technolo- gies.45 If the combination of technologies originating in different industries is overtaking industry-specific know how as the driving force of industrial tech- nology innovation, the argument goes that the effect will be to increase the impetus for cooperation among rival firms. Considering the high cost of high technology-oriented R&D and the limited resources of individual companies, technology fusion may be extended across national borders. Furthermore, because of the very nature of technology fusion, cooperation is more likely in 32

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33 high technology among firms from different industries. According to this line of argument, the future of international cooperation also may see firms from a variety of industries acting together. Japanese participants at the U.S.- Japan workshop on industrial R&D noted that significant participation by Japanese industry is, in practice, a prerequisite for any meaningful intema- tional cooperative effort involving Japan.46 There are, however, a number of questions that complicate an assessment of future prospects for U.S.-Japan collaboration. Not the least of these derives from differences in the organization of industrial R&D in the two countries. Whereas in Japan rival firms have been able, sometimes with the encouragement of government, to join forces, in the United States antitrust restrictions and weaker linkages among firms in the same industry have made such cooperation rare. Cognizant of weaknesses in Japan's university research, Japanese govern- ment and industry see international consortia as potential vehicles for foreign- ers to gain access to Japanese technology. A number of Japanese consortia now are open to foreign researchers.47 From the U.S. industry perspective, however, there are a number of factors that must be considered in determin- ing whether to participate in industrial R&D consortia in Japan. First, the cost of full membership (and full access to the research results) can be pro- hibitive. Also, it may be difficult to make an evaluation about the benefits of joining as a non-Japanese "outsider." Many U.S. firms suspect that they will end up losing more technology than they gain in this environment. Additional factors that tend to limit foreign participation are the language barrier and the culture or structure of many U.S. corporations that leave them ill equipped to make use of foreign-acquired information. Regardless of how individual U.S. and Japanese firms judge the potential gains and problems associated with technological collaboration, there are larger questions of what the impacts will be on the national economy and technology base. So far, large international consortia have been the purview of government-to-government efforts to facilitate collaboration primarily in basic science and, to a lesser extent, in technology transfer. Japanese govem- ment ministries attempt to promote cooperation with their U.S. government counterparts through such projects, normally under the auspices of the U.S.- Japan Agreement for Cooperation in Science and Technology and related agreements. Official efforts to promote cooperation, however, often are con- strained by political pressures to show short-term results; concern that the United States may give more technology than it gets; limits on funding; and, especially in the United States, by inadequate channels for effective commu- nication with industry. As a result, efforts to structure U.S.-lapan collabora- tion in industrial R&D are proceeding slowly. Nevertheless, company-to

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34 . . . . company activities in joint venture licensing and technical exchanges are expanding significantly. The discussions at the workshop on "Industrial R&D in the United States and Japan" documented successful technology transfer through company-to- company vehicles provided by joint ventures; licensing; offshore facilities; and, in some cases, consortia. Although these discussions suggest evidence of mutually beneficial U.S.-Japan cooperation in industrial R&D at the com- pany-to-company level, it remains to be seen whether the experiences of large, well-established multinationals can be shared by small- and medium- size firms that have fewer resources and less experience to devote to intema- tional cooperation. It may be necessary to consider new approaches, in view of concerns that have been raised in public policy debates, particularly in the United States, about whether international technological linkages work to the advantage of the U.S. partners and the United States as a country. In this context U.S. and Japanese industry leaders may need to take on additional responsibility in improving the climate for technological cooperation. A suggestion was made that an unofficial, private sector forum be estab- lished by industry leaders from both countries, with the purposes of resolving problems that inhibit collaboration in industrial R&D and communicating to policy makers.48 This suggestion is based on the assumption that the private sector has, in practice, already taken the lead in expanding technological link- ages and that those with first-hand experience are in the best position to resolve problems and share lessons about which approaches work best to ensure that partners from both countries benefit. Working groups of experts from both countries would have to meet relatively frequently to address such issues as standards, guidelines for licensing and joint ventures, harmonization of approaches to intellectual property protection, institutionalization of mech- anisms for exchange of researchers among corporate laboratories, and struc- turing of cooperative projects in generic R&D involving firms from both countries. The question is whether industry leaders from both countries can make the considerable commitment of resources to take the initiative in prob- lem solving or whether problems will continue to be addressed primarily at a governmental level once they have become the topics of controversy.

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Endnotes 1 In 1985 Japanese expenditures for nondefense R&D amounted to 2.8 per cent of GNP whereas similar U.S. expenditures amounted to 1.9 percent of GNP. Kagaku Gijutsu Cho (Science and Technology Agency), Kagaku Gijutsu Yoran (Indicators of Science and Technology), 1989, 6-7. See National Science Foundation, The Science and Technology Resources of Japan: A Comparison with the United States, NSF 88-31S, 1988, p. 18. By 1986 lapan's industrial R&D expenditures were one-half U.S. company-funded expenditures. Comparisons were in constant 1982 dollars. Note that Japanese R&D expenditures in 1965 were only about $2.5 billion, whereas, U.S. R&D expenditures amounted to more than $40 billion. See Science and Technology Agency, White Paper on Science and Technology, Summary, 1989, 4. Id real terms and with 1982 as a base, Japanese R&D expenditures funded by industry grew to 160 percent by 1987, whereas similar expenditures by U.S. industry grew in real terms to 120 percent of the 1982 level. U.S. industry carries out more than 70 percent of all R&D in the United States; Japanese industry carries out about 66 percent of the total. 6 During the 1980-1985 period, company-funded R&D grew at a rate of 8.2 percent annually, but the National Science Foundation (NSF) esti mates that there was a real decrease in 1989 of 0.9 percent although it 35

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36 was expected that there would be a slight increase in the 1990 funding levels of 1.1 percent. This information is based on mail responses to an annual NSF inquiry for its Industrial Panel on Science and Technology and on interviews with R&D officials in major it&D-performing compa- nies. 7 Some examples of major international research programs promoted by the Japanese government include the Human Frontier Science Program, the Intelligent Manufacturing Systems Program, the Human Genome Project, the Exploratory Research in Advanced Technologies (ERATO) Program, the International Superconductivity Technology Center, and the Frontier Science Program of STA. 8 In the presentation "Corporate R&D Climate in Japan: Partnership Between the U.S. and Japan" (at the U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 2, 1990), Dr. Michiyuki Uenohara, executive advisor to the NEC Corporation, stated that 10 years of R&D investment often is required to develop a market-ready product. According to Dr. Uenohara, there is a 5- to 10-year period, or up to 5 years prior to market introduc- tion, where firms can collaborate on precompetitive research without risk of losing competitive advantage. 9 See, for example, D. Eleanor Westney and Kiyonori Sakibara, "The Organization and Careers of Engineers in the Computer Industry in Japan and the United States," MIT Working Paper, 1985. 10 In the past many U.S. firms also have done this. The difference seems to be that such funding is not increasing-and in some industries is declin ing-in the United States. 11 Tatsuya Kimura, "The Organization of Industrial R&D at Nippon Steel Corporation," U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 12 This is primarily goal-oriented basic research work not usually defined as basic research in the U.S. context. 13 The Engineering Development Departments are carrying out short-term research (1 to 3 years) in fields such as lap-top computers and 4 Mbit DRAMs, whereas the Development Laboratories are working in fields such as large-capacity digital PBXs, flat panel displays, and HDTV on medium-term research (3 to 5 years). 14 The information on Toshiba Corporation contained in this report was obtained from the presentation "Corporate R&D in Toshiba" by Dr. Kiyoshi Nagai, Statutory Auditor, Toshiba Corporation, at the U.S.-Japan

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37 Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 2, 1990. 15 Marv Sullivan Taylor, "A Transaction Cnst Analv.s :1 , is of Japanese Employment Relationships," PhD Dissertation, University of Washington, 1989. The study, based on a survey of 550 R&D engineers and scientists, provides empirical evidence of the preference for general- ists, the homogenization of rewards across functions in Japanese firms, and the movement of Japanese researchers out of R&D and into other functions within the corporation. 16 Udo Axen, remarks at the U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 17 Some U.S. firms, such as Upjohn, have found that the dual ladder system is not as powerful an incentive for scientists to remain in R&D as are other more traditional rewards, such as recognition for accomplishment from the professional scientific community and increased resources for the laboratory. 18 Japan Productivity Center, Organization and Administration of R&D Personnel in Japan, 1988, 76-81. 19 Ibid. 20 Japanese corporations seem more likely to retrain researchers, although the hiring of some important key outsiders often is an important compo- nent of the process. Kiyoshi Nagai, "Corporate R&D in Toshiba," US-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 22 Kimura, op. cit. 23 Ibid. 24 F. Peter Boer, remarks at the U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 25 Ibid. 26 Data from "Cooperative R&D Ventures Under the National Cooperative Research Act," U.S. Department of Commerce, March 1990. This figure comprises ventures (mostly private, joint R&D projects) that have regis- tered with the Department of Justice under the terms of the Cooperative Research Act. 27 Congress attempted to provide a mechanism to counteract the disincen- tives to consortia formation created by antitrust concerns by passing the

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38 National Cooperative Research Act of 1984. The act provides a shield from potential treble damage liability under current antitrust law to coop- erative ventures who register with the Department of Justice. 28 Michael Mintz, paper on consortia presented at the U.S.-lapan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 29 National Academy of Engineering, Assessment of National Science Foundation's Engineering Research Centers Program, 1989. See also National Research Council, Learning the R&D System: National Laboratories and Other Non-Academic, Non-Industrial Organizations in Japan and the United States, Washington, D.C., 1989, 32-33 and Cross- Disciplinary Engineering Research Committee, Commission on Engineering and Technical Systems, National Research Council, The Engineering Research Centers and Their Evaluation, National Academy Press, 1988, and other work of the committee. 30 Ibid., NRC, Learning the R&D System, 27-28. 31 Fumio Kodama, "Rivals' Participation in Collective Research: Its Economic and Technological Rationale," Workshop on Expanding Access to Precompetitive Research in Japan and the United States, January 22-23, 1990. 32 Reiichi Iokibe and Morio Ikehara, "Research Consortium on Protein Engineering," U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 33 Tokuta Inoue, "Consortia in the Japanese Auto Industry," U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, Califomia, March 1-2, 1990. 34 Ibid. 35 Iokibe and Ikehara, op. cit. 36 Most of the information on MCC in this report was obtained directly from the presentation made by Barry Whalen of MCC at the U.S.-lapan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. Note that partici- pants in MCC projects cannot transfer technology developed in MCC projects to third parties. 37 Some Japanese companies believe that if they are invited to join a gov- ernment-sponsored consortium, they are obliged to accept in order to maintain goodwill with government bureaucrats and to show responsibil- ity toward government policies.

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39 38 Most of the information for this case study was obtained from a presenta- tion by Donald Hammond, Director, Hewlett Packard Labs (retired) at the U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 39 Presentation of Tsuneo Nakahara of Sumitomo Electric Industries, Inc., at the U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 40 This discussion is based in part on comments by Mary L. Good of Allied- Signal, Inc. 41 Presentation of Satoshi Imai of Honda America at the U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 42 Presentations by Hubert Schoemaker and Harvey Berger of Centocor, Inc., at the U.S.-Japan Dialog on the Working Environment for Research, Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. Presentation by Justin Bloom, Technology International, Inc., at the U.S.- Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 44 Evan Herbert, "Japanese R&D in the United States," in Research Technology Management 32-6 (1989~: 11-20. 45 See the work of Fumio Kodama, including the paper "Rivals' Participation in Collective Research," discussed at the U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. See also MITI, Industrial Technology White Paper, 1988. 46 Presentation by Tsuneo Nakahara, "Prospects for U.S.-Japan Collaboration in Industrial R&D," U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, Irvine, California, March 1-2, 1990. 47 Examples cited include the Human Frontier Science Program, the International Superconductivity Technology Consortium, and a Japanese proposal for an Intelligent Manufacturing System (IMS) project involv- ing the United States, Europe, and Japan. 48 Comments by Justin Bloom on "Prospects for Collaboration," at the U.S.-Japan Dialog on the Working Environment for Research: Workshop on Industrial R&D, ~vine, California, March 1-2, 1990.