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ARE THE U.S. AND JAPANESE INNOVATION SYSTEMS CONVERGING? EVIDENCE FOR AND AGAINST 18 Japan does not yet have an incentive system to compare with this, although recent developments in Japan, such as changes in stock market regulations allowing firms to list intellectual assets and attempts to develop a venture market, indicate a desire to develop venture capital as a factor in Japanese financing. The U.S. business culture is also more supportive of talented individuals who leave large, established firms to start new technology ventures than is the business culture of Japan. The cost of capital is frequently mentioned as one of the principal factors influencing differences in the behavior of U.S. and Japanese companies.8 Many believe that the gap in interest rates which was highly advantageous to Japanese companies, has largely disappeared after the collapse of Japan's bubble economy, leading to a more similar environment in the two countries. Others contend that the cost of capital in Japan has again receded to very low levels, making it still cheaper than in the United States. Still others argue more fundamentally that the cost of capital is neither a compelling nor useful explanation of the success of Japanese industry compared to U.S. industry.9 Corporate Innovation Management In the area of corporate innovation strategy, there are indications that firms in the two countries are converging in their approaches to management. Many U.S. companies are beginning to focus their R&D efforts on being more responsive to market needs, improving existing products and shortening product cycles. For example, the trend in GE research and development over the past twenty years has been away from "field of dreams" research motivated primarily by intellectual curiosity, to market-oriented R&D. This is exemplified by the teaming with customers at GE's Research and Development Center, especially with GE's own businesses, on multi- generational product developments. Other prominent examples of U.S.-based companies that are shifting their R&D operations to more market-oriented, short-term work include IBM and AT&T.10 A related trend in the United States is a shift away from central corporate control of R&D toward more control by business units. Survey results show that very few U.S. companies reported increasing corporate control of R&D, in contrast to Europe and Japan.11 The U.S. trend is also apparent at the firm level. For example, GE businesses in 1994 accounted for roughly 50 percent of the funding for corporate R&D, whereas in 1986 they accounted for less than a quarter.12 Focus on Improving Productivity Intense competition has driven corporate managements in both nations to heightened efforts to increase productivity, match R&D to market needs, shorten product cycles, and seek to identify and optimize each firm's competitive advantage. The resulting constraints on investment call for a strict reprioritization of resources. One approach is a focus on the core competence of the company.13 Rather than view the company as a portfolio of businesses, the core competence approach seeks to establish business advantage by exploiting company capabilities that are used in more than one business, deliver value to the customer, and are difficult to duplicate. Examples of core competence strategy include NEC's concentration on communications and computing technology, 3M's capability in adhesives and overall new product development, Xerox's
