Large-Scale Public-private Partnerships in Japan and the U.S. Mariko Sakakibara Associate Professor Anderson Graduate School of Management University of California, Los Angeles

Overview Government-Sponsored R&D consortia Potential benefits When do we need them Summary of the past studies –Formation –Performance evaluation –Project execution Lessons

Government-Sponsored R&D Consortia Japanese R&D consortia - imitated and emulated –SEMATECH –Alvey, ESPRIT, EURECA in Europe Current policy issue –National Cooperative Research and Production Act of 1993 –Advanced Technology Program by Commerce Dept. since 1990 Public policy concern –OECD, ATP

What stimulates innovation? (Firm, Industry) Technological opportunity Expected demand size Appropriability conditions

Potential Benefits of R&D Consortia Cost sharing –Economies of scale Skill sharing –Learning Cooperation -- Correct market failure and underinvestment in R&D –Spence (1984) as a means to internalize externalities –Katz (1986) examined relationship between R&D cooperation and product market competition

R&D Consortia in Japan: Why Important? Limited researcher mobility –R&D consortia as a means of information exchange M&As are rare –Limits quick acquisitions of research capabilities Weak university research Internal diversification

Formation of R&D Consortia (Japan) Skill-sharing motive dominates cost- sharing motive (Sakakibara, SMJ 1997) Relationship between origin industries and destination industries (Sakakibara, RP 2001) –Analogous to the motives for diversification

Effect on R&D Spending (Japan) Key concept: diversity (Sakakibara SMJ 1997, JIE 2001) Skill-sharing R&D consortia are associated with the increase of R&D spending by participants Cost-sharing R&D consortia are associated with the decrease of R&D spending by participants

Problem of Performance Evaluation Sample selection problem –Certain consortia perform better, or –Only good firms participate in certain consortia Common problem of past research to measure the impact of public technology programs (Klette, Moen and Griliches, 2000)

How to Deal with the Selection Problem Need to utilize multiple dimensions of the data –Firm –Consortium –Time Participants and non-participants Same firm, before and after participation Same firm participate in different consortia

Performance Evaluation (Japan) Impact on research productivity of participating firms Note many levels to evaluate performance (project, participants) Overall impact is positive but small –From econometric analysis (Branstetter and Sakakibara, JIE 1998) –From survey results (Sakakibara, RP 1997)

Performance Evaluation (Japan) Branstetter and Sakakibara (AER 2002) find: Spillover potential, measured as technological proximity among member firms, has a positive effect Product market competition, measured as product market proximity of member firms, has a negative effect Basic technology -- positive effect

R&D Consortia in the U.S. Sakakibara and Branstetter (MDE 2003) find: Consortia have a positive and persistent impact on the ex-post research productivity of participating firms Consortia outcomes and their characteristics –Positive: potential knowledge spillovers Larger firms with higher R&D budgets tend to benefit more from participation These findings are consistent with that obtained from the Japanese consortia

R&D Consortia in the U.S. (cont.) Dyer, Powell, Sakakibara and Wang (2007) compares alliance formation factors and alliance execution factors Performance measured as –patent generation –financial contribution –qualitative success Alliance execution factors explain performance better than alliance formation factors

Lessons Large-scale PPP is only one of many means to promote innovation Need to consider available alternatives Skill-sharing, knowledge spillover potential important R&D consortia with close competitors or cost-sharing motive are not effective Good execution is important to facilitate knowledge transfer