Industry-University Cooperation to Take On Herefrom

AOKI Masahiko
Senior Fellow, RIETI

Faculty Fellow, RIETI

With Japan shifting to a knowledge-based economy, the promotion of industry-university cooperation has become a key policy matter. Behind this lies hope and speculation that the creation of spin-off and start-up companies as well as new industries will finally defy the prolonged economic stagnation and create jobs. Universities have now been given a new mission to transfer technologies, in addition to their traditional mission of research and education. The idea of industry-university cooperation has thus gained social recognition. But there are, however, multiple interpretations of this concept and it remains controversial as to whether the government should take a lead in promoting such industry-university cooperation. Industry-university cooperation has been discussed by several relevant government advisory bodies, namely, the Council for Science and Technology Policy, Industrial Structure Council, and Council for Science and Technology. In this column, we would like to point out some basic points that need to be kept in mind when formulating a framework for industry-university cooperation.

Industry and Universities - "Own Identities" Distinctive from Each Other

To begin with, let us define industry-university cooperation as a "process in which industry and universities - actors belonging to different domains - enhance their respective potential by synergistic effects generated through their interactions.'' Today, much expectation is placed on this process as a means to overcome Japan's stagnation because it has the potential to bring about various macro-level effects such as upgrading the quality of human capital, increasing innovation capability, and improving economic productivity. In this process, it is imperative to facilitate an environment in which universities, as actors in the process, can make and exercise their own decisions. Transformation of state-run universities into independent administrative institutions, in which faculty members and administrative officials no longer function as public servants, will be the first step toward creating such an environment.

The basic idea sustaining the above definition of industry-university cooperation is the presence of "two different domains." Within an industrial domain, the ultimate goal of research activities is to develop products. Within a university domain, however, research that contributes to the "creation of knowledge" has an induced effect of strengthening the quality of education, and there are feedbacks between applied research and basic research. As both people and ideas move back and forth between these two complementary domains in quest of the most suitable research environment for their respective maturity levels, they will further increase in maturity and thereby enhance their host organizations in the forms of process innovation, product innovation, attractiveness of research funds and enhanced social reputation. This kind of industry-university cooperation, which would lead to the enhancement of society's innovation capability and productivity, cannot, however, be derived by blurring functional borders between industry and universities. Universities, by their very nature, do not have the know-how to create new businesses. Likewise, no innovative force will come out of universities should they become a subcontractor for industry. Both the Massachusetts Institute of Technology and Stanford University make it their basic philosophy to maintain their own "identities." It must be kept in mind that promoting industry-university cooperation aimed at the "corporatization" of universities connotes the risk of degrading the inherent functions of universities.

Increasing Importance of the Intermediary's Role

The flow of people and ideas acts as a means for universities-industry cooperation. Nevertheless it must be recognized that synergy effects increase when such flows are bi-directional, not simply one way from universities to industry. There is a tendency to perceive that industry-university cooperation is for industry to utilize universities as an outsourcing tool. But we also need to have a flow of people and ideas from industry to universities if the innovation capability of a society as a whole is to improve and generate positive external effects for industry. One such successful example is Stanford University's Center for Integrated Systems (CIS), which was created through collaboration between industry and the university to explore future technology paradigms.

Japanese companies have for years held continual give-and-take relationships with the research laboratories of specific universities by recruiting new graduates, collaborating in or sponsoring research at the laboratory, offering scholarships, and carrying out patent procedures on behalf of the laboratory. In the past, this type of industry-university cooperation, which is complementary to the policy of companies basically conducting all necessary research on their own, worked to some extent. However, this obviously places small and midsize companies as well as start-ups at a disadvantage, with blocked access to knowledge necessary for innovation. It is against this backdrop that Technology Licensing Organizations (TLO) have been introduced. Moreover, faculty members at national universities, through their status as civil servants, were restricted from starting up businesses on their own or serving as part-time board members to assist their graduated students in launching new businesses. Also, because universities found little incentive in obtaining patents that offered no returns, research results at universities failed to spread to industry. Law revisions to allow national university faculty members to hold posts in private-sector companies and give universities the ownership rights to inventions by their faculties will help solve these problems.

TLOs, incubators and venture capitals - which are quasi-autonomous organizations that provide specialized services - can serve as an interface linking the two different domains of industry and universities, just like we have intermediary organizations linking investors and companies. They help to bridge technology transfers between industry and universities, but their content of services differ depending on the degrees of technology maturity and on the distance to market. Such intermediary players include liaison offices that play a primary role in matching technology seeds and corporate needs; TLOs that manage the patenting and licensing of research achievement at universities; incubators that provide technological and business supports; science parks that provide physical space and business facilities for venture companies and other high-tech companies; venture capitalists who screen, invest in and nurture startup ventures for potential future returns; headhunters that foster human resources matching; and patent attorneys that provide legal services concerning contracts and intellectual property rights. With the assistance of various services provided by those intermediary players with special expertise in their respective fields, smooth technology transfer between universities and industry becomes possible.

Among the intermediary organizations, there are cases in which they become specialized in one particular function as well as cases in which their functions expand and branch out. One example of the later case is the Swiss Federal Institute of Technology in Lausanne. In the 1980s, the Institute set up a liaison office as an interface to and from industry. Then, as the number of technology transfers and their accompanying work volume increased, it established a TLO as an independent entity. In the early 1990s, following the initiation of an idea by the then-president of the Institute, the PSE (Parc Scientifique) Foundation was established as an external organ to promote industry-university cooperation. The Foundation leased a piece of federal-owned land and constructed a science park inside the campus. With the improvement of infrastructure, the scope of its operations expanded to offer coaching and incubation services for spin-offs on top of basic operational services. A technology innovation fund, which provides loans to startups, was also established. Such development of an intermediary organization had not been originally planned, but was worked out in response to the evolving needs of the worksite. It should be noted that the Institute and the Foundation have clearly defined separate roles.

Greater Focus on Human Resources Mobility

In Japan, the importance of such intermediary organizations is now becoming recognized. This is apparent in not only the need of TLOs to support the commercialization of technology but also the necessity of incubators and technology management is being advocated. Some national universities have set up TLOs off- campus as independent entities, recruiting specialists from outside. Some forerunners have gone as far as to establish companies to provide incubation services. In reality, however, the majority of the 27 government-approved TLOs are very much loaded down with basic operations, although they acknowledge the necessity of focusing on matching between universities and private-sector companies. Thus, only a few are left with the capacity to expand their functions to provide technology management services that include incubation services. Also, there is no guarantee that economies of the scope will work simply by concentrating all those functions to a TLO, knowing that most TLOs have been implemented exogenously. Thus, TLOs should concentrate on their original role of patenting, licensing and marketing technologies and providing a platform to universities and private-sector companies, and leave technological and business supports - the need for which arises following a successful matching - to other organizations specialized in incubation. Turning a TLO into a department store-like organization that can offer everything goes against the idea of "modularity," an evolving organization design to solve the growing complexity of today's world.

Finally, let us take a look at those intermediary organizations focusing on the aspect of human resources. In the case of the United States, those intermediary organizations have attracted a number of experts in various fields from both industry and universities, structuring a highly specialized open architecture. Many of venture capitalists, consultants and successful entrepreneurs who are currently active in Silicon Valley are former engineers of IBM Corp. If venture capitals and other intermediary organizations are to grow in clusters around Japanese universities and enhance their abilities through competition, they need to have human resources from both industry and universities. Indeed, allowing national university faculties to hold positions in private sector companies is a positive policy step in line with such needs. The government's decision to turn national universities into independent administrative institutions and make their teaching staffs and administrative officials non-public servants also deserves appreciation as a means to increase mobility of specialized human resources. On the other hand, however, self-imposed restrictions over dual employment at many Japanese companies have been hampering the mobility of human resources in the forms of work sharing and holding a second job. A 1999 revision to the Labor Standards Law has enabled the extension by more than one year of a definite term employment contract for those with expertise. Still, the maximum limit is set at three years. What is most important in knowledge transfer from universities to industry is the ability to evaluate and draw a map for the evolution of an innovation system in the future. Then, it is of utmost importance to create a framework to facilitate the mobility of talented human resources from companies - where they are hitherto kept and remain underused - to intermediary organizations or universities. Toward that end, further legal changes, including revisions to the Labor Standards Law, must take place to further ease restrictions on the period of employment contracts. Deregulation to nurture venture capitals and other intermediary organizations has been carried out to some extent as a way to provide more risk capital. Today, however, we still find ourselves in a situation where we plow the field but forget to add the seed. This is because we have hitherto lacked a viewpoint of facilitating human resources inflow into an interface linking industry and universities.

June 11, 2002

AOKI Masahiko. 2002. "Utsuriyuku Kono Junen Kawaranu Shiten" ("The Decade in Transition and Unchanged Viewpoint"). Nihon Keizai Shimbun.

AOKI Masahiko and ANDO Haruhiko. Mojuruka: Atarashii Sangyo Akitekucha no Honshitsu (Modularity: Nature of New Industrial Architecture. Toyo Keizai Shinpo.

HARAYAMA Yuko. 2001. "Sirikon Bare no Sangyo Hatten to Sutanfodo Daigaku no Karikyuramu Hensen" ("Industrial Development in Silicon Valley and Changes in Stanford University Curriculum"). In Daigaku Kaikaku: Kadai to Soten (University Reform: Challenges and Contention). Edited by AOKI Masahiko et al. Toyo Keizai Shinpo.

June 11, 2002

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