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New Strategies for New Challenges: Corporate Innovation in the United States and Japan (1999)

Chapter: R&D's Role in Setting Corporate Business Plans

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Suggested Citation:"R&D's Role in Setting Corporate Business Plans." National Research Council. 1999. New Strategies for New Challenges: Corporate Innovation in the United States and Japan. Washington, DC: The National Academies Press. doi: 10.17226/5823.
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Page 11

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PAST PERCEPTIONS OF U.S. AND JAPANESE INNOVATION SYSTEMS 11 FIRM LEVEL DIFFERENCES Different historical backgrounds and industrial structures make it inevitable that Japanese and U.S. corporations approach technology and innovation from different perspectives. Experts have noted the following firm-level characteristics and differences.7 Organization and Geography of R&D Japanese firms have tended to locate their divisional laboratories within or beside production facilities whether in Japan or in off-shore production sites, and maintain more of their technology development at the plant level, particularly incremental improvements in processes or products. However, Japanese corporations, like their U.S. counterparts, typically locate their basic research laboratories at some remove from their factory sites. The geographic, organizational and social distance between basic research and manufacturing is likely to increase as the pressures for globalization increase.8 In the United States, the location and relative emphasis of R&D vary greatly from firm to firm, but there has been a general movement to link R&D more closely with the needs of customers. Long-Term and Short-Term Perspectives The Japanese task force members and others have remarked on the tendency of corporate research in large Japanese companies to be persistent and to take a long-term perspective in speculative areas. This is seen as an important means of reducing technological and business risk for the company.9 R&D organizations in Japanese corporations allocate percentages of their budgets to "seed" research that is intended to encourage individual researchers to look into potentially promising areas that may or may not be tied to the company's shortand medium-term strategic plans. By contrast, U.S. companies that focus on quarterly financial results and short-term product development are thought to be more conservative and risk averse than those with a relatively long technological time horizon. R&D's Role in Setting Corporate Business Plans Differences in the degree of integration between research and business divisions in Japanese and U.S. corporations influence the role that R&D organizations play in carrying out fundamental business plans. Over the past two decades, Japanese firms have increasingly made their R&D organizations the centers of diversification efforts. While some leading U.S. industrial corporations have looked to acquisitions to diversify their businesses and technologies, Japanese firms have more often utilized internally sourced diversification, perhaps because acquisitions are much more difficult to accomplish in Japan. For example, Sumitomo Electric Incorporated (SEI) began in 1897 as a family copper smelting business combined with silver extraction. By 1931, it was manufacturing copper wire and cable. The manufacture of cable for the transmission of information is the defining market for SEI. SEI's technology strategy is based on diversification through innovation to ensure that its position in a well-defined market is not threatened by unexpected innovations outside the industry. This strategy led SEI to recognize the emergence of optical fiber as both a threat and an opportunity to be acted upon. As a guiding principle for diversification, SEI has a 50/50 program. The program maintains a 50:50 ratio between the company's main business and its

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Innovation, "the process by which firms master and get into practice product designs and manufacturing processes that are new to them," is vital for companies wishing to remain competitive in today's rapidly changing high technology industries. American and Japanese firms are among the world's most technologically innovative and competitive. However, the changing dynamics of global competition are forcing them to rethink their technological innovation strategies. The choices they make will have great impact on their futures as companies as well as on the livelihoods of their employees and the communities in which they operate.

In order to understand the ways in which Japanese and American companies are changing their technological innovation strategies and practices, the Committee on Japan of the National Research Council and the Committee on Advanced Technology and the International Environment (Committee 149) of the Japan Society for the Promotion of Science (JSPS) organized a bilateral task force composed of leading representatives from industry and academia to assess developments in corporate innovation strategies and report on their findings. Through a workshop discussion of the issues and subsequent interaction, the task force explored the institutional division of innovation in both countries: the structure and performance of technology-based industries, the role of the government in the support of science and technology, and the role of universities in the science and technology system. The task force was particularly interested in exploring the points on which the two systems are converging,-i.e., becoming more similar in strategy and practice-and where they continue to be distinct and different.

Although a comprehensive study of these trends in U.S. and Japanese innovation was not easily feasible, the task force was able to develop several conclusions based on its workshop discussion and follow-up interactions that were substantial in time and content. This report identifies a set of issues whose further elucidation should be helpful in guiding public policy in both nations. These issues include the role of external sourcing of innovation, transnational activity and globalization, the organization and performance of R&D, and the role of consortia, joint ventures and other joint activities. A call for greater international efforts to collect and analyze data on these important trends is the central recommendation of the task force.

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