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

Chapter: 3 Are the U.S. and Japanese Innovation Systems Converging? Evidence for and Against

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Suggested Citation:"3 Are the U.S. and Japanese Innovation Systems Converging? Evidence for and Against." 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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Suggested Citation:"3 Are the U.S. and Japanese Innovation Systems Converging? Evidence for and Against." 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 15
Suggested Citation:"3 Are the U.S. and Japanese Innovation Systems Converging? Evidence for and Against." 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 16

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ARE THE U.S. AND JAPANESE INNOVATION SYSTEMS CONVERGING? EVIDENCE FOR AND AGAINST 14 3 Are the U.S. and Japanese Innovation Systems Converging? Evidence for and Against How are the innovation strategies of Japanese and U.S. corporations changing, and to what extent are they becoming more alike as they adjust to new and unprecedented global market conditions? The attempt to answer such questions involves a discussion of the concept of "convergence"—the hypothesis that globalizing market and financial conditions tend to force similar responses from globally competing companies, irrespective of their national origins, whereas heretofore the strategies of companies based in different countries were shaped more significantly by national differences in circumstances and needs. Some observers believe that the attention being paid to innovation in both countries, brought on by emergent trends in science, engineering and management, is resulting in a growing similarity in approaches to industrial innovation in the two countries. According to this formulation, this similarity appears as the problems addressed by corporate innovation in the two countries converge toward each other under the influence of these emergent trends. As evidence, they point to the fact that Americans are adopting many Japanese practices, including fewer suppliers with stronger relationships, just-in-time production, and heightened attention to quality control through process control; and Japanese firms are adopting U.S. practices by expanding their relationships with universities and urging greater investments by government in fundamental research.1 Some observers argue that Japan and the United States have both entered a new era in relationships in which we face each other more as equals economically and technologically than in the past.2 With improvement in the cost and quality of many U.S. products in industries that had been hurt—and stimulated to improve—by Japanese competition, a number of sectors, such as semiconductors and automobiles, have seen increased market shares in recent years. 3 It can be postulated that, if the innovation systems of both countries were to converge on a more common model, relationships might be expected to exhibit less friction, especially in trade relations. Although it is often asserted that U.S. and Japanese industry and government are converging and changing drastically, it is unclear whether this is happening and to what extent. At the national level, U.S. defense R&D continues to be predominant.4 Japanese industry still funds a higher percentage of the total national R&D effort than U.S. industry, although they have been converging in recent years. High technology start-ups, which play a very important role in commercializing U.S.-generated innovations, are not prominent in Japan. Given the diversity of approaches by industries and individual companies within each country, it is difficult to draw firm conclusions. Finally, some experts believe that even as the strategies of multinational corporations based in different countries become more similar, regional and national specialization in the generation of innovation may become more pronounced.5 The following sections include a review of how Japanese and American universities, industry and government are adapting to changing global conditions and a discus sion whether conclusions can be reached

ARE THE U.S. AND JAPANESE INNOVATION SYSTEMS CONVERGING? EVIDENCE FOR AND AGAINST 15 about the extent of convergence. Box 3-1 describes the Joint Task Force's approach to convergence. BOX 3-1 DEFINING "CONVERGENCE" Amid the changing strategies for corporate innovation on which the Joint Task Force has focused, it is clear that certain aspects of U.S. and Japanese corporate innovation have grown more similar to each other while others have remained distinct. Just what can be said about the aggregate trend of these changes and the resulting implications is less obvious. For this reason, the question covered in this chapter—whether or not U.S. and Japanese companies are moving toward similar approaches to innovation—is a central issue in the report. In order to address this question, the task force employed the concept of convergence as a tool with which to elucidate the complex and often confusing array of adaptations occurring in corporate innovation strategies. Such a framework enables the strategies to be analyzed in light of the innovation process itself. Therefore, the Joint Task Force thought it would be useful to clarify its own definition, and relate its approach to other debates over U.S.-Japan convergence. One usage of convergence which is distinct from the usage by the task force is one which we call "productivity convergence." This is an aspect of growth theory that concerns the striking postwar convergence between industrial nations in terms of productivity, per capita income and other indicators. Productivity convergence research attempts to understand the mechanisms that have enabled the convergence to occur and is thus positive (empirical) in nature. Its focus is on the catch-up process of lagging nations rather than on new strategies for corporate innovation.1 Another usage, which we call "institutional convergence," addresses the desire for a common ideology as a way for industrial nations to overcome the challenges of globalization. In theory, as the ideologies of nations converge, national policies, particularly economic policies, can be brought in line with each other through negotiated agreements so as to allow smooth transnational interactions. Implementation may be problematic, however, particularly when proponents of convergence adhere too rigidly to a specific model. In the case of the United States and Japan, some proponents of convergence have assumed that Japan should fit into the set of constructs used to analyze U.S. trade policies. It may make more sense to build upon the individual constructs of each country to form a set applicable to both the United States and Japan. As Eileen M. Doherty observes, "Historically, U.S. trade policy has been based on the belief that market economies can, and should, converge. Consequently, trade talks have centered on the need to remove trade barriers. More recently, (beginning primarily with the Uruguay Round), negotiations have focused on ways to harmonize trade-related rules (such as intellectual property rules and trade-related investment measures) and domestic regulatory structures." 2 Advancement of one-sided convergence concepts has elicited strong criticism, such as this one by Chalmers Johnson: "The idea of Japanese-American convergence is a Western intellectual conceit with roots in the Allied Occupation of Japan after World War II and in the United States' shift from an alliance with China to an alliance with Japan as the basis of its Cold War strategy in East Asia."3 In the view of the Joint Task Force, institutional convergence is an attempt to change the nature of corporate innovation rather than a result of the changing nature of corporate innovation. Biased implementation of it may create rather than resolve problems associated with globalization. The Joint Task Force wants to make it clear that it is not advancing an analogous one-sided concept of convergence in the area of corporate innovation. In this report, the Joint Task Force would like to advance the concept of "problem convergence" as an outgrowth of the process of innovation itself. Problem convergence is based on two factors common to all players. The first factor is the driving force of technological innovation in today's businesses (companies on the cutting edge must increasingly respond to similar market conditions in similar ways). The second factor is the growing inter-penetration of vanous players into each other's markets due to the process of globalization (markets themselves

ARE THE U.S. AND JAPANESE INNOVATION SYSTEMS CONVERGING? EVIDENCE FOR AND AGAINST 16 are merging). Rather than implying that the United States and Japan will converge to a similar, normal way of business, the idea is that the problems addressed by corporate innovation throughout the world have more in common than they once did. In such an environment, "the great national differences that used to matter are no longer national."4 As the problems faced by companies become more similar, aspects of the innovation systems of the two countries may converge toward each other as they approach a new innovation model relevant to all players. While the specific structures for innovation naturally differ among industrial nations, such trends may lead to a stronger level of functional equivalence among the structures. In this way, increased similarity of the problems addressed by corporate innovation in the two countries tend to increase the similarity of the two countries' innovation approaches, but does not necessarily imply that the approaches will become the same. For the United States and Japan, the implication is that although the two innovation systems are still very different, they are now less different than they were. Among the Joint Task Force membership, there is a range of views regarding the specifics of U.S.-Japan problem convergence in corporate innovation and its implications. There is consensus among all task force members that some degree of U.S.-Japan problem convergence in the area of corporate innovation is occurring. Most of the Japanese members along with several U.S. members would go further to argue that the approaches utilized by companies in the two countries are also converging. They emphasize the evidence for U.S.-Japan convergence, and believe that companies based in both countries are converging toward a new model, driven by globalization.5 In contrast, several of the U.S. members point to evidence that U.S. and Japanese companies continue to develop distinct approaches, even where they face similar problems, and these approaches are shaped by their previous organizational and technological development. Although a project of this type could not hope to confirm one or the other view, the task force does agree that the issue itself is and will continue to be critical. Distinguishing between the various convergence concepts is important to this project. For the innovation-based approach of the task force, convergence does not carry the baggage of implying shared core beliefs and attitudes, which has proved to be a stumbling block for institutional convergence. And while its positive rather than normative approach has similarities to productivity convergence, problem convergence's focus on the implications for innovation strategy makes it more suitable for the forward looking task at hand. 1 Moses Abramovitz, "Catching Up, Forging Ahead, and Falling Behind," Journal of Economic History, vol. 46, no. 2. 1986, pp. 386-406; Richard. R. Nelson and Gavin Wright, "The Rise and Fall of American Technological Leadership: The Postwar Era in Historical Perspective," Journal of Economic Literature, December 1992, pp. 1931-1964; "Economic Growth," The Economist, vol. 339, no. 7967, May 25, 1996. 2 Eileen M. Doherty. "Introduction," in Eileen M. Doherty, ed., Japanese Investment in Asia. International Production Strategies in a Rapidly Changing World, (Berkeley, Calif.: Asia Foundation and the Berkeley Roundtable on the International Economy, 1995), p. 22. 3 Chalmers Johnson, Japan: Who Governs? The rise of the Developmental State (New York: W.W. Norton and Company, 1995), p. 70. 4 Richard R. Nelson, "U.S. Technological Leadership: Where Did It Come From and Where Did it go?" Research Policy, vol. 19, 1990, p. 130. 5 For an example where the institutional convergence perspective led policymakers astray while problem convergence occurred in innovation strategies, see Gerald Hane. "The Real Lessons of Japanese Research Consortia," Issue in Science and Technology, Winter 1993-94, pp. 56-62.

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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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