National Academies Press: OpenBook

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

Chapter: Greater Reliance on External Sources of Innovation.

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Suggested Citation:"Greater Reliance on External Sources 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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EXECUTIVE SUMMARY 4 Supplier Networks U.S. supplier networks are comparatively more accessible to newcomers than Japanese supplier networks, which are characterized by long-term business ties, often reinforced by ownership linkages. Japan's vertical keiretsu are adapting to new challenges, as described below, with indications that they will become more open, particularly as Japanese firms continue to globalize. Still, U.S.-Japan differences are likely to continue, especially with regard to innovation and production networks inside Japan. Component Sourcing Japanese subsidiaries abroad continue to be more dependent on imports from the home country than do American subsidiaries abroad. Financial Environment for Innovation In Japan, cross share-holding and traditional horizontal business groups (horizontal keiretsu) composed of major banks and manufacturers help ensure long-term financial stability. In the United States, venture capital is a driving force for innovation and competitiveness. EMERGING TRENDS Greater Reliance on External Sources of Innovation. In the view of the task force, external sourcing of technology and innovation—that is, the acquisition of technology and innovation from sources outside one's own firm—is the most important development in global technology management. External sourcing is taking place through what is traditionally referred to as the process of outsourcing—the practice by which OEMs solicit increasingly sophisticated technological components from suppliers—and through newly emerging forms of technological partnerships and alliances with other firms. American firms are becoming more like Japanese firms which have long sourced technology and innovation from outside. At the same time, the traditionally strong vertical alliances between Japanese OEMs and suppliers are gradually changing as suppliers develop diagonal relationships with firms outside the group. The burgeoning integration of U.S. and Japanese corporations is a major factor in innovation sourcing. As corporations adapt to the imperatives of global financial markets, the complexities of high technology products and processes, and the high costs of innovation, they are entering into many forms of alliances, consortia, and joint ventures in which technology sharing, based on complementary assets, is a major factor. Some recent U.S.-Japan alliances would have been unthinkable a few years ago. For example, in the semiconductor industry U.S. and Japanese companies have concluded agreements to engage in joint production in the United States.

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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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