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

Chapter: Impact of External Sourcing of Innovation

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Suggested Citation:"Impact of External Sourcing 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.
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Page 33

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EXTERNAL RELATIONSHIPS IN CORPORATE TECHNOLOGY POLICY AND INNOVATION STRATEGY 33 core businesses through acquisitions or internal R&D programs. Indeed, the current climate has encouraged some large companies to consolidate to achieve critical mass in fields as diverse as defense and entertainment. Similar pressures have encouraged other U.S. firms to divest or spinoff noncore businesses (successful or not), a phenomenon which is very rare in Japan. Several Japanese members observed that in some acquisitions talented individuals in the acquired company do not fit into the new corporate environment, and are thus lost in the acquisition process. New firm creation is another vehicle to commercialize new technologies. Clearly, this mechanism has been and continues to be very important in the United States. In the post World War II period, a number of strong Japanese companies were founded and achieved rapid growth, although in recent years examples of Japanese high technology start-ups that have achieved outstanding success are relatively rare. Recent Japanese policy changes and pronouncements have been aimed at encouraging new firm creation in high technology industries. Nevertheless, it appears that the Japanese innovation system's relative strength in new technology commercialization by existing firms and the relative strength of new firms in the U.S. system is one continuing difference between the two countries that is likely to persist for the foreseeable future. Lack of Data to Measure the Extent of Foreign Sourcing of Innovation Although a number of studies have provided substantial insights into foreign sourcing of innovation, lack of data in this area is perhaps the most serious impediment to understanding trends and emerging issues.8 Table 4-1 shows R&D outsourcing by U.S. firms, and figures on off-shore R&D performed by U.S.-based companies is provided in Chapter 3. However, statistics on outsourcing to organizations based outside the United States are not broken out of the total outsourcing figures at this point. Business surveys, such as the Bureau of the Census' survey of manufacturers and the National Science Foundation's survey of industrial R&D, contain valuable aggregate data on U.S. industrial sectors. However, more is needed not only to make it possible to quantify the extent to which outsourcing relationships are being created across national boundaries, but also to determine whether the relationships are in the form of off-shore laboratories, joint ventures, alliances, or agreements with suppliers and subcontractors. Some of these data has been collected by NSF in a pilot study of 1,000 U.S. companies, but even less is known about non-U.S. companies.9 In addition, some of these data are being collected in a new collaborative U.S.-Germany-Japan global benchmarking study aimed at updating the 1992 MIT work.10 Impact of External Sourcing of Innovation Several questions are raised by this trend toward increased outsourcing of R&D. What are the barriers on each side to successful use of outsourcing? For example, can the needed relationships of trust be consistent with diagonal business relationships in Japan? Will concern about changes in U.S. firm management, personnel turnover, and the frequency of mergers and acquisitions inhibit these relationships in the United States? One idea that was discussed by the Joint Task Force is the possibility that U.S. and Japanese OEMs might work together to raise the innovative capabilities of suppliers in developing and rapidly industrializing countries.11 This sort of "mutual outsourcing" would probably be more straightforward to implement in cases

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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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