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INTRODUCTION 8 1 Introduction The U.S.-Japan Corporate Innovation Task Force had three objectives: (1) elucidate the evolving country- specific and common challenges facing companies in formulating and implementing innovation strategies, (2) explore how companies in Japan and the United States are responding to these challenges and possible areas for mutual learning, and (3) examine impacts on U.S.-Japan science and technology relations and the implications for policymakers in the two countries. American and Japanese firms are among the world's most innovative, and both nations recognize the importance of science and technology in innovation. Annually, the United States and Japan account for about one-half of world investment in R&D.1 They also support large contingents of scientists and engineers. An understanding of the similarities and differences in the U.S. and Japanese innovation systems and how U.S. and Japanese corporations are adapting to meet the challenges of changing global markets is necessary for informed policymaking and corporate strategy-building. The idea of forming a joint task force to study corporate innovation developments was initiated in a meeting in July 1991 between leaders of the National Academies of Sciences and Engineering with Japanese counterparts in the Committee on Advanced Technology and the International Environment under the Japan Society for the Promotion of Science. The actual formation of the U.S. and Japanese study teams occurred in 1994. Meeting separately in early 1994, the two groups began the process of identifying the most important issues and planning for a joint workshop in the fall. Previous collaboration by the cochairs which resulted in a jointly-authored report provided a valuable base for the current study.2 The cochairs met several times during the intervening months to discuss the progress of the two teams and to refine plans for the workshop. In September 1994, a two-day workshop was held in Japan at which the U.S. and Japanese teams reviewed key issues. In subsequent interaction, the task force developed this report, based on insights generated at the workshop. In undertaking this activity, the task force encountered the fact that much of the data and analysis needed to understand significant trends in corporate innovation practices are currently unavailable. However, the task force believes that a number of significant trends can be discerned and observations made to inform policy formation and corporate decision-making. The task force identified a set of issues whose further elucidation should be helpful in guiding public policy in both nations. These issues include the organization and performance of R&D, the role of external sourcing of innovation, transnational activity and globalization, and the role of research consortia, joint ventures and other joint activities. The task force also explored changes in 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 understanding the points on which the two systems are converging, and where there continue to be sustained national differences.