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Suggested Citation:"Capital Markets." 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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ARE THE U.S. AND JAPANESE INNOVATION SYSTEMS CONVERGING? EVIDENCE FOR AND AGAINST 17 CHANGES IN INDUSTRY Table 3-1 shows trends in Japanese and U.S. industrial R&D expenditure. Spending was constrained in both countries during the early to mid 1990s. More recent U.S. statistics show that U.S. industrial R&D performance has risen moderately over the 1995-1997 period, but comparable figures for Japanese industry are not yet available. In some respects, large U.S. and Japanese companies appear to be adopting more similar approaches to technology strategy and management as they restructure themselves in response to new global economic conditions. U.S. firms are relying more on trusted suppliers for innovations, while Japanese suppliers are beginning to expand business with firms outside their normal business groups. Technological parity seems to have been reached in many high tech industries between the U.S. and Japan; and the rate of change of relative technical capability has slowed as U.S. firms in several industries have recovered some of the market share lost to Japan in the 1980s.6 In attempting to understand the changes in corporate innovation outlined in this chapter, it is important to keep in mind the effects of global partnering and the transnational nature of today's markets. The different approaches used by various alliances have broad implications for corporate innovation strategy. Because many alliances are multinational groupings of companies, comparative analyses must go beyond U.S.-Japan comparisons. In light of these trends, it may be less useful than it was in years past to think in terms of distinct U.S. and Japanese approaches. Corporate alliances are discussed in greater detail in Chapter 4. Capital Markets A major difference between Japan and the United States is that the United States has well-developed venture capital markets which provide an institutionalized system of capital for small, entrepreneurial high-tech enterprises, in combination with an active equity market that rewards successful ventures with cash for their equity interest when they sell their stock to the public.7 The U.S. business culture supports the formation and growth of technology-based firms, allowing successful entrepreneurs and their investors to reap significant rewards if successful. TABLE 3-1 U.S. and Japanese Industrial R&D Performance, billion dollars United States Japan 1990 109.73 47.45 1991 116.95 50.30 1992 119.11 51.20 1993 117.11 49.12 1994 119.60 49.59 NOTE: Figures are given in current purchasing power parity dollars. SOURCE: National Science Board, Science & Engineering Indicators 1998.

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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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