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Suggested Citation:"Globalization of Innovation." 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.
Page 19
Suggested Citation:"Globalization of Innovation." 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.
Page 20

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ARE THE U.S. AND JAPANESE INNOVATION SYSTEMS CONVERGING? EVIDENCE FOR AND AGAINST 19 capability in developing and manufacturing machinery to move paper, and Sony's focus on miniaturization in new product innovation.14 Role of Knowledge The role of knowledge in value creation is becoming increasingly important and is giving rise to new ways of looking at the relationship between physical and intellectual capabilities as exemplified in the theory of innovation-mediated production discussed later in Chapter 5.15 It is also causing companies to look more closely at the kinds of knowledge actually being applied at various levels within the company. For example, companies are becoming increasingly aware of the importance of tacit knowledge—largely unspoken, unwritten, and often unrecognized knowledge and skills necessary to get the job done—as exemplified by Xerox's focus on communities of practice, a term which refers to slowly evolved often unstructured networks of people who get things done within the company. Priority Setting While firms are pursuing more productive approaches to innovation through prioritization and focus on critical capabilities, and often use the same phrases to describe it, it is not clear that each is addressing priority setting in the same way. Indeed, case studies suggest that such technology strategies will depend on the business model adopted by each firm.16 Therefore, it is uncertain how truly these concepts are influencing the way firms invest in and outsource R&D. When prioritization on core business activities leads to a narrowing scope of investment, which it surely does when overall expenditures are sharply reduced, it follows that requirements for innovations no longer addressed within the core investments must be outsourced. Other firms that are not reducing their overall level of expenditure and investment may also be deliberately reducing the scope of R&D in order to assure a strongly competitive technological position in their core technologies. Others may be focusing resources more sharply on diversification to meet competitive challenges from outside their historic competitor group. All of these strategies may lead to increased outsourcing of innovation. Globalization of Innovation The globalization of innovation has grown substantially over the past decade or so. And, while companies continue to do the lion's share of their research and development at home, they are rapidly expanding their global innovation efforts. Research indicates that roughly 15 percent of all U.S. patents are granted to foreign inventors. 17 It has also been found that the number of cross-national patents (that is, patents granted to inventors in two or more countries), while relatively small, is growing at a rapid rate. Furthermore, the United States is at the cutting edge of the shift toward global innovation. Table 3-2 shows off-shore R&D performed by U.S.-based companies. U.S. corporations spend roughly 10 percent of their total R&D expenditures on offshore facilities, and about 10 percent of all U.S. industrial R&D expenditures are provided by foreign-affiliated laboratories operating within the United States.18 While Japanese companies are rapidly increasing their offshore R&D spending in the United States, Europe and Asia, Japan itself has had a relatively low level of foreign-owned R&D facilities.19 There are indications that foreign-owned corporate R&D activity in Japan is increasing. 20

ARE THE U.S. AND JAPANESE INNOVATION SYSTEMS CONVERGING? EVIDENCE FOR AND AGAINST 20 TABLE 3-2 Company-financed R&D Performed Outside the United States by U.S. Companies and Their Foreign Subsidiaries, 1986-1996, million dollars Industry 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Total 4,624 5,226 6,208 6,706 7,952 9,147 10,063 9,565 9,395 13,052 14,050 Food, kindred, and 69 37 27 42 41 66 88 112 117 142 155 tobacco products Chemicals and allied 1,071 1,243 1,548 1,532 2,007 2,401 2,676 2,833 2,456 4,194 3,801 products Petroleum refining 40 47 59 47 76 107 119 104 111 76 78 and extraction Stone, clay, and glass a a a a 59 38 41 38 27 31 32 products Primary metals a 18 23 24 26 20 18 12 15 26 29 Fabricated metal 26 40 a a 95 86 109 119 125 111 133 products Machinery 951 1,233 1,326 1,432 1,451 1,476 1,439 340 308 501 1,404 Electrical equipment a 432 591 573 770 651 586 525 495 872 959 Transportation a a 1,750 1,916 2,055 2,402 a a a a a equipment Professional and 212 317 404 474 611 656 685 751 900 988 960 scientific equipment Other manufacturing 141 138 178 269 344 467 524 a 572 a a industriesb Nonmanufacturing 27 64 146 256 415 778 835 1,770 1,500 2,206 2,510 industriesb a Data have been withheld to avoid disclosing operations of individual companies. b Beginning in 1996 manufacturing companies with fewer than 50 employees and nonmanufacturing with fewer than 15 employees were sampled separately without regard to industry classification to minimize year-to-year variation in survey estimates. Estimates for manufacturing companies in this group are combined with those for companies in "Other manufacturing industries." Estimate for nonmanufacturing companies in this group are combined with those for companies in "Nonmanufacturing industries." As a result, statistics for "Other manufacturing industries" and "Nonmanufacturing industries" for 1996 are not comparable with statistics for prior years. NOTES: Data are reported in current U.S. dollars. As a result of a new sample design, statistics for 1988-1991 have been revised since originally published. These statistics now better reflect R&D performance among firms in the nonmanufacturing industries and small firms in all industries. As a result of the new sample design, statistics for 1991 and later years are not directly comparable with statistics for 1990 and earlier years. SOURCE: National Science Foundation, Division of Science Resources Studies, Survey of Industrial Research and Development: 1996.

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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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