National Academies Press: OpenBook

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

Chapter: Joint Initiatives in Manufacturing and Product Development

« Previous: Globalization of Innovation
Suggested Citation:"Joint Initiatives in Manufacturing and Product Development." 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 21
Suggested Citation:"Joint Initiatives in Manufacturing and Product Development." 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 22

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ARE THE U.S. AND JAPANESE INNOVATION SYSTEMS CONVERGING? EVIDENCE FOR AND AGAINST 21 Driven by exchange rate shifts as well as by globalizing markets, Japanese firms are diversifying. their manufacturing abroad and are becoming increasingly multinational in production as well as in sales. For example, Aiwa transferred 78 percent of its production to Singapore and other overseas units, mostly in Asia; and Sony plans to raise its overseas production ratio to 45 percent.21 Direct investment overseas by Japanese corporations rose 5.5 percent in fiscal 1993 to $36 billion due to the shift to offshore production. Also, in 1993, the number of Japanese cars made in the United States surpassed the number of Japanese cars shipped from Japan to the United States. 22 In a sample of eight consumer products, from color TVs and video decks to refrigerators and washing machines, the number of products in which overseas production exceeded production in Japan went from one in 1985 to three in 1990 and five in 1993.23 In the electronics industry, the overseas employment as a percentage of total industry employment rose from 29 percent in 1991 to 41 percent in 1995.24 Some studies show that although economic activity has been globalizing, the globalization of R&D activity has not progressed as much as have other corporate activities such as manufacturing. Corporate R&D activity is still primarily home based.25 This implies a need to look at the globalization of R&D activity in terms of "economy of scope" rather than economy of scale. Doing research overseas rather than in one central location may enable firms to achieve economies of scope by allowing R&D in more fields and by placing laboratories near customers and sources of technology for those customers. In this context, the trade metaphor which is based on economies of scale might not be appropriate. Major Japanese electronics, automotive and biotechnology companies have moved rapidly in the past ten years to globalize their research and development capabilities in concert with the globalization of their economic activities.26 According to one report, Japanese corporate R&D facilities in the United States increased from slightly over 20 in 1985 to approximately 225 in 1994.27 This trend in some ways resembles the globalization of R&D followed by U.S.-based companies such as IBM and Xerox. However, the data also indicate that whereas the number of Japanese R&D facilities abroad is high compared to the U.S. R&D facilities of companies based in other countries (Figure 3-1), Japan-based companies spend less on R&D in the United States than companies based in several other countries, implying lower spending per facility (Figure 3-2). What this means is unclear. Some have contended that Japan's foreign R&D facilities are primarily listening posts to grab technology and talent. Others, however, have pointed out that Japan's foreign R&D is primarily in industries such as electronics and automobiles in which Japan is a technological leader and that the net flow of technology is likely toward the host country.28 The disparity between the number of Japanese-owned U.S. R&D facilities and their spending levels compared with other foreign owners may be due to the relatively shorter history of the Japanese facilities or strategic differences in terms of a closer linkage to production of the non-Japanese foreign-owned R&D facilities. Indeed, one report indicates that Japanese-owned R&D is trending toward higher spending per facility.29 In addition, it should be noted that the question of how much foreign R&D has helped Japanese companies has not been studied extensively to date. Joint Initiatives in Manufacturing and Product Development Effects of the above-mentioned changes can be witnessed through the joint initiatives in manufacturing and product development that emerged in the mid-1990s. Driven by intense competition, globalization of markets, and the intensifying demands of innovation, hitherto unlikely alliances were formed by major electronics firms in Japan, the United States and

ARE THE U.S. AND JAPANESE INNOVATION SYSTEMS CONVERGING? EVIDENCE FOR AND AGAINST 22 Figure 3-1 Number of foreign-affiliated R&D facilities in the United States by country of origin. SOURCE: Richard Florida, International R&D Affiliate Database, Center for Economic Development, Carnegie Mellon University, April 1994. Figure 3-2 Foreign R&D expenditures in the United States by country, 1995. NOTE: Includes foreign direct investments of nonband U.S. affiliates with 10 percent or more foreign ownership. Excludes expenditures for R&D conducted for others under contract. SOURCE: National Science Board, Science and 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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