1. Innovation eco-system in Japan: a comparative perspective Sadao Nagaoka July 2015 Economic advisor to the JPO Professor, Tokyo Keizai University Program Director for Technology and Innovation, RIETI(Research Institute of Economy, Trade and Industry) 1

2. Outline I.Introduction II.Eco-systems 1.Human resources for innovation and mobility 2.Knowledge sources and collaborations 3.Absorptive capability and university-industry collaborative research 4.Appropriation strategy and patenting 5.R&D Finance III.Concluding remarks 2

3. I. Introduction: Innovation eco-system as seen from industry 3 Industry Education and labor market Capital market Demand (user ) Suppliers University And Pro. Org. Government

4. Porter’s diamond model 4 Porter (1990)

5. R&D in Japan as currently stands High level of R&D expenditure, relative to GDP or sales in Japan. Presences of Japanese high R&D performing firms in many sectors, following the US. Exceptions are software, medical equipment, and space/defense. 5

6. Top 1500 R&D performing firms, 2011 6

7. Number of Top R&D performs by sectors and countries (Source) made from The 2012 “EU Industrial R&D Scoreboard” 。 7

8. 1. HUMAN RESOURCES FOR INNOVATION AND MOBILITY 8

9. Human resources for innovation High researcher intensity in Japan - Engineering and science education - Learning after the entry into firms. A half of the PhD inventors are those who have got degrees after the entry into the firm Early start of inventive activities Low level of international co-inventions 9

10. Total researchers per 1000 employment 10 OECD: Main science and technology indicators, 2014

11. 11 Table 1 Basic profiles of the surveyed inventors and their organizational affiliations Source: RIETI Inventor Survey (2007) for Japan, Europe’s PatVal for EU (covering six countries: Germany, France, England, Italy, Spain, and the Netherlands). See Nagaoka and Walsh [2009a], Note: Self-employed individuals can be affiliated with organizations.

12. Figure 7. Age at first invention, US and Japan (NBER weight [note: Japan not weighted]) 12 (Source )Walsh and Nagaoka [2009b]

13. Incidence of co-inventions (Application year: 2001-2010) 13 Tsukada and Nagaoka(2014)

14. Evolution of international co-invention (Application year: 1981-2010) 14 Tsukada and Nagaoka(2014)

15. Co-inventions with foreign born and those with foreign residency (US, JP; DE, GB) 15 Tsukada and Nagaoka(2015)

16. Mobility Significantly lower mobility in Japan. - In Japan, very limited mobility for the reason of promotion or higher salary (In the US they are the most important) - Mobility due to job loss is also small in Japan. - Startup/Move for attractive research environment more frequent in the US. Disagreements as sources of startups. Mobility (inbound) is higher for smaller firms in both counties. Majority of movement in large Japanese firms is secondment. Higher mobility for PhD inventors 16

17. Figure 9 Inventor Inbound Mobility, US and Japan 17 (Source )Walsh and Nagaoka [2009b]

18. Reasons for the change of employer 18 Based on PATVAL-2 survey (Source)Nagaoka, Tsukada, Onishi and Nishimura (2012)

19. Figure 10. Inventor Mobility, PhD v. not, US and Japan (Source )Walsh and Nagaoka [2009b]

20. 2. KNOWLEDGE SOURCES AND COLLABORATION PARTNERS 20

21. Knowledge sources External knowledge sources are very important for suggesting R&D in both the US and Japan Literature patent > science and technical journals in Japan but the other way round in the US. Using internal sources as the base of a comparison, users, competitors and suppliers are more important in Japan. Significant variations across industries 21

22. Figure 1. Sources of knowledge for suggesting a R&D project (%, “very important”, US-JP common weight) ) 22 (Source) Walsh and Nagaoka [2009a]

23. 5 sectors where patent literature is most (least) frequently the very important source for suggesting the research project 23 (Source) prepared from RIETI and RIETI/GT inventor surveys

24. Co-inventions and the collaborations Research collaborations across organizations are substantial in both countries: - Co-inventions with external co-inventors are significant (around 12%) -The other collaborations 20 to 30%. Similar level and structure - Co-inventions with a researcher in the University or PROs (3% +) and the other collaborations ( around 6% )exist at similar level for the two countries. - Vertical co-inventions with a supplier or with a customer are also similarly important. 24

25. Figure 2. External Co-inventors by organization type, US and Japan (NBER weights) 25 (Source) Walsh and Nagaoka [2009a]

26. Figure 5. Formal or Informal Collaboration with Outside Organizations, by Organization Type, US and Japan (NBER weight) 26 (Source) Walsh and Nagaoka [2009a]

27. 3. ABSORPTIVE CAPABILITY AND UNIVERSITY-INDUSTRY COLLABORATIVE RESEARCH 27

28. Absorptive capability for science Exploitation of external technological opportunities, including science, depends on the absorptive capability of firms. -Difference of knowledge sources for inventions between US and Japanese inventors -Knowledge sources and educational backgrounds Making university and industry collaborations -university as a provider of a seed and as a lead user - choice by a university scientist 28

29. 29 Figure 5. Relative importance of science literature as the knowledge source of an R&D yielding the patent (base: the importance of patent) (Source )Walsh and Nagaoka [2009b]

30. Figure Science as knowledge sources for inventions, by the level of educations Source : Nagaoka, Tsukada, Onishi, Nishimura (2012) 30

31. Figure 3-1. Institutions providing seeds and needs for collaborative research between industry and university (consolidated sample) 31 (Source) Nagaoka, Hosono, Akaike and Nishimura (2013)

32. Figure 3-5 Criteria for selecting the partner by university scientists: the cases with very important own seeds (N=200) vs. those with own but not very important own seeds (N=358),% 32 % of the respondents who said that a channel was important for the initiation of the project (Source) Nagaoka, Hosono, Akaike and Nishimura (2013)

33. 4. APPROPRIATION STRATEGY AND PATENTING 33

34. 34 Appropriation strategy How important are the three basic sources of appropriation? -the first mover advantages in either R&D and commercialization -complementary capability in manufacturing and sales and -IPR protection (including trade secret)? How does patenting enhance appropriation? -Reasons for patenting can be classified into four broad categories: (1)exclusive use for commercialization (including blocking and prevention of inventing-around), (2)licensing, (3)pure defense and (4)reputation.

35. 35 Difference of appropriation strategies between the US and Japan FMAs vs. complementary capability US inventors appreciate FMAs more than Japanese inventors. IPRs protection vs. complementary capability in most sectors. US inventors appreciate secrecy and patent enforcement more than Japanese inventors.

36. 36 Figure11. Appropriation Strategies (% high) Note: Based on the sample of the inventions already commercialized internally and on common technology class weight (Source)Nagaoka and Walsh (2009b)

37. 37 Why patenting ? Exclusive commercial exploitation is most important in both countries. It is by far the most important reason for patenting by the US inventors. Pure defense is as important as blocking and more important than unilateral or cross- licensing. In addition, US inventors regard reputation reasons (for an individual and for a firm) more important.

38. 38 Figure13. Reasons for patenting (%high) Note: Based on common technology class weight (Source)Nagaoka and Walsh (2009b)

39. 5. R&D FINANCE 39

40. Financing R&D Characteristics of Japan - mostly private finance (more than the US) Supported by - R&D as essential competitive tool for a private firm - IPR protection - well developed equity markets Low level of angel/venture capital finance - relatively low level of startup activities in Japan - underdeveloped VC industry 40

41. R&D intensity GERD= Gross domestic expenditure on R&D OECD: Main science and technology indicators, 2014 41

42. Level of industry financed R&D 42 OECD: Main science and technology indicators, 2014

43. 43 Table 3 Funding sources: share (%) of funding for the research by organization type Note. Large firm has 501 or more employees, Medium-sized firm has 251- 500 (250-500 in the US) employees, Small firm has 101-250 (100-249) employees, Smallest firm has 100 (99) or less employees (Source) Walsh and Nagaoka [2009a]

44. Share of publicly listed firms in each type of firms 44 – Listed firms account for 80 % of R&D and of the Japanese patents issued for the firms in the sample. – This share is larger than that of the US listed firm (62 %) and that of the European listed firms (45%) in terms of the number of patents (Belenzon, Berkovitz, and Bolton(2009) ） Source: Nagaoka and Kim (2013)

45. III. Concluding remarks Final remarks Industry as the central element in innovation ecosystem It invests in innovation, thereby creating demand for - human resources and their development - science - risk capital - new components and materials. At the same time, it takes some time for firms to develop innovative capability. 45

46. Government in the eco-system The basic principle for government policy for innovation seems to be robust across different eco-systems: - Support to the activities generating high-externality - Development of innovation infrastructure for human resources, IPR system, competitive university, capital market,…, although the effects would be influenced by the nature of econ-system. IPR system seems to be flexible and supports a variety of eco-systems, including those of the US and Japan: - exclusion vs. license - reputation for mobility vs. reputation for internal promotion 46

47. References Nagaoka Sadao and John P. Walsh. 2009b, "Commercialization and other uses of patents in Japan and the US: Major findings from the RIETI-Georgia Tech inventor survey," RIETI Discussion Papers, 09-E-011 Nagaoka Sadao and John P. Walsh [2009a], “The R&D process in the US and Japan: Major findings from the RIETI-Georgia Tech inventor survey,” RIETI Discussion Papers, 09-E-010. Walsh John and Sadao Nagaoka [2009a], “How “open” is innovation in the US and Japan? :evidence from the RIETI-Georgia Tech inventor survey,” RIETI Discussion Papers, 09-E-022. Walsh P. John and Sadao Nagaoka [2009b], “Who Invents?: Findings from the US- Japan Inventor Survey,” RIETI Discussion Papers Series, 09-E-034. Nagaoka Sadao, Naotoshi Tsukada, Koichiro Onishi and Yoichiro Nishimura, 2012, “Innovation process in Japan during 2000s as seen from inventors, “ RIETI Disucssion paper, Nagaoka Sadao, Mituaki Hosono, Shinichi Akaike and Junichi Nishimura, 2013, “Knowledge creation and innovation through university industry collaborations: basic findings from the survey,” Institute of Innovation Research, Hitotsubashi University, WP#13-14 Nagaoka S., YoungGak Kim, 2013, “Governance Structure of Group-affiliated Firms and Innovation Performance” 40th European Association for Research in Industrial Economics (EARIE) at Evora, August Porter, M.E. The competitive advantage of nations. New York: Free Press. (1990) Tsukada Naotoshi and Sadao Nagaoka, “Determinants of International Research Collaboration: Evidence from International Co-inventions in Asia and Major OECD countries, “Asian Economic Policy Review, 2015 Jan, Vol 10, Issue 1, 96-119 Tsukada Naotoshi and Sadao Nagaoka, “Combining knowledge and capabilities across borders and nationalities : Evidence from the inventions applied through PCT”, forthcoming as a RIETI discussion paper 47