Product-developing SMEs Supporting Japan's Innovation
Senior Fellow, RIETI
Japan has a large number of small and medium-sized enterprises (SMEs) with the capability to develop their own products in the electronic machinery and equipment, and precision instrument industries. The increasingly important role of these firms, many of which are located in the Tokyo metropolitan area, is support for the development of new products in the major industries, including next-generation products. The growth of these product-developing SMEs, not just the accumulation of traditional SMEs that cover a wide range of industries handling subcontracted processing, must be considered a foundation of Japan's industrial competitiveness.
"Product-developing SMEs" refers to SMEs in manufacturing industries that have their own designing functions and have their own products (ie products planned and designed in-house, including parts and semi-products, and products produced to be sold under other manufacturer's brands) in their sales (note 1). The activities of such enterprises can be confirmed using the results of a questionnaire survey and interviews that we conducted in 2003 among firms in TAMA (note 2), which spreads across the western part of the Tokyo metropolitan area (note 3). Let us take a look at several examples.
Examples of product-developing SMEs supporting innovation
Development of nanotechnology processing equipment
Elionix Co., Ltd. (66 people), located in Hachioji, Tokyo, mainly produces High Precision Electron Beam Lithography Systems and Electron Probe Surface Roughness Analyzers. The Elionix e-beam lithography systems feature technology that enables them to draw figures in lines with widths one-tenth of those used in semiconductor circuit manufacturing at that time. At present, while the semiconductor industry has begun using 90-nanometer widths, Elionix's systems can stably draw lines of 8 nanometers in width. Crestec Corporation (23 people), also located in Hachioji, develops and manufactures High Resolution Electron Beam Lithography Systems that enable the control of line pitch in less than the atomic order (note 4). These e-beam lithography systems are nanotechnology processing apparatuses capable of world-leading ultra-fine processing in their respective characteristics. They are used in research and development (R&D) activities, such as those for optical and quantum devices. For example, major materials manufacturers and general electronic equipment manufacturers have used these e-beam lithography systems to develop key devices, such as wavelength selection devices and multi-wavelength semiconductor laser diodes, required for wavelength division multiplexing (WDM) optical communication systems, which enables a large number of transmissions over a single fiber-optic cable.
Development of measuring equipment supporting development and manufacture of electronic equipment
In the manufacturing process for electronic equipment and precision instruments, various measuring equipment are vital for the manufacturing of high-precision final products. Much of this measuring equipment is developed and manufactured by product-developing SMEs. Elionix's Electron Probe Surface Roughness Analyzers described above are one example of such equipment. The Elionix analyzers can measure the unevenness in the surface of an object in units of one nanometer. There are many other examples of such measuring equipment. ECG Kokusai Co., Ltd. (27 people), located in Tokyo's Hamura, manufactures Impulse Winding Testers, which carry out quality testing by digital means of the coils used in home electronic appliances, automobile electronic parts, hard disks, printers, liquid-crystal display (LCD) units, and other equipment and devices. Using ECG Kokusai's products for testing has become the de facto standard among coil manufacturers and users; accordingly the company's product has a 40% share of the world market. In addition, Faber Co., Ltd. of Hachioji (9 people) was the first in the world to develop a High-frequency Magnetic Material Measurement System for measuring the magnetic characteristics of magnetic materials used in products such as hard disks, DVDs, and LCD panels. The company has an almost 100% share of the world market in this field. Demand for these kinds of measuring equipment is further increasing due to factors such as the continuing density growth of magnetic media and optical disks, and the rising demand for coils, in line with the growth of digital home appliances in recent years.
Providing tools for development of semiconductors and electronic devices
Shinwa Co., Ltd. (48 people), located inland of Kawasaki, Kanagawa Prefecture, uses its electronic circuit-designing technology to design and manufacture photo masks used for laying circuitry in the manufacturing processes of integrated circuit and printed circuit boards. In addition, Process Lab. Micron Co., Ltd. of Kawagoe, Saitama Prefecture (165 people) designs and manufactures metal masks used to attach electronic devices to printed circuit boards. These types of masks may be considered tools for the development of semiconductors and other electronic devices. They are in high demand for use in the prototype-development stage of electronic machinery and equipment. Although each company has taken a leading position as a specialized manufacturer of photo masks and metal masks respectively, as the market for its existing field has matured, each has begun to develop new fields of business. Shinwa has advanced into the business of R&D contracting for its customers' next-generation products. For example, it is taking part in the development of a new type of display known as "electronic paper," thus becoming an engineer group that supports the development of next-generation products for large enterprises. Process Lab. Micron has advanced into design and manufacture of metal masks for bump electrodes. They are used in attaching IC chips to IC packages, which requires ten times the level of dimensional precision compared to that which is needed for printed circuit boards.
Contributions to new products and systems
There are more than just a few examples of product-developing SMEs contributing to the development of new products and systems that have a major impact on the economy as a whole. Such examples include the fact that the e-beam lithography systems of Elionix and Crestec described above have made possible key devices necessary for the spread of multiplexing optical communication and the fact that Shinwa, also mentioned above, is contributing to the development of "electronic paper." One more example is Stack Electronics Co., Ltd. of Tokyo's Akishima. This company develops and manufactures transmission components and equipment for radio frequency, microwave and optical signals, used in telecommunications and broadcasting. The company's products are also used in third-generation mobile telephone service relay facilities and in relay facilities for terrestrial digital broadcasting. For example, the company has developed lightweight miniaturized wave filters that can be installed together with amplifiers within the weight restrictions of existing steel towers, using only the required narrow bandwidth, with phase shifters for antennas that automatically transform the broadcast angles of waves so they efficiently correspond to mobile phone usage density. This is one of the technologies that make up Japan's third-generation mobile phone system. In September 2003 this company was honored with a visit by His Imperial Majesty.
Industrial clusters as a foundation for innovation
SMEs are not necessarily the "rear wheels" of an airplane
Currently, as talk turns to economic recovery, Japan's economy is sometimes likened to a jumbo jet, with the front wheels in the air but the rear wheels still on the ground. The jet's front wheels are said to be export-based large enterprises, its rear wheels are SMEs and regional economies. However, it is a mistake to lump SMEs together as the rear wheels of the jet. The SMEs cited in this paper have already improved their business performance, as of fiscal 2002 or before. They provide the leading force for Japan's economy.
Rise of product-developing SMEs in the innovation system
More important is the fact that the role of these product-developing SMEs, as represented by the example-firms cited in this paper, is growing more and more important in Japan's innovation system over the mid- to long term. Our questionnaire survey of firms in the TAMA region collected responses from 103 product-developing SMEs in the area (in machine- and metal-related manufacturing industries only), including the examples cited here. The results of this survey showed that these firms have high levels of R&D aptitude, as well as a strong capability to turn such R&D into products. In addition, such firms were engaged in university-industry collaboration activities (Toshihiro Kodama (2003)).
Furthermore, using RIETI's Survey on University-Industry Collaboration (RIETI (2003)), which obtained valid responses from 802 firms nationwide that conducted R&D activities, RIETI Senior Fellow Kazuyuki Motohashi says that, in Japan as a whole, new technology based SMEs are becoming new drivers of innovation while engaged in university-industry collaboration (Kazuyuki Motohashi (2004)).
Toward displaying Japan's advantage as a base for innovation
In the past, Japan's SMEs, in particular its machine- and metal-manufacturing industry SMEs, have assumed the role of SMEs for subcontracted processing, and have been evaluated highly for the precision and short lead times of their processing technologies, as well as for the accumulation of such firms over a wide range of fields. As is well known, despite the presence of a concentration of such SMEs specializing in subcontractor processing, manufacturing facilities have continued to shift overseas, led by large manufacturing enterprises. As a result, the hollowing out of domestic industry has continued.
However, Japan has more than just a concentration of these kinds of subcontractor SMEs. We must also look at the growth of product-developing SMEs such as the examples given in this paper. These product-developing SMEs are also able to utilize university-industry collaboration, for which a system has been developed over the last several years.
In general, product-developing SMEs supply manufacturing equipment and functional components to large enterprises. The growth of such SMEs is vital to the large manufacturers that mass-produce the final products. Although it appears that large enterprises do not clearly recognize the fact that a relatively large number of product-developing SMEs have grown in Japan, as movements proceed toward selection and concentration of business resources, outsourcing of businesses, and modularization of development and production, strategic utilization of this type of product-developing SME has become vital for strengthening the innovation capability of large enterprises.
I hope the large enterprises that are globally deploying their manufacturing and R&D bases do clearly recognize that product-developing SMEs have grown in Japan, that Japan's industrial clusters are able to function as a foundation for innovation based on the growth of these product-developing SMEs together with the development of university-industry collaboration, and that these facts are of enormous benefit to the firms located in Japan.
I believe that the Industrial Cluster Plan and the Intellectual Cluster Plan, jointly promoted throughout Japan by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Education, Culture, Sports, Science and Technology (MEXT) will play significant roles in utilizing SMEs such as these product-developing SMEs, rising as new leaders in innovation, by connecting them to universities and other centers of knowledge, and encouraging participation by large enterprises as well, thereby making Japan's industrial clusters function as foundations for innovation.
- Although "R&D-intensive SMEs" is a commonly used term in Japan, it does not necessarily imply that those firms, despite their R&D capabilities, have the ability to ascertain market needs and turn the R&D capabilities into products and market success. Since the firms I observed are developing their own products backed by the needs of the market, I have used the term "product-developing SMEs."
- "TAMA" stands for "Technology Advanced Metropolitan Area," which spreads across the southwest area of Saitama Prefecture, the Tama area of Tokyo, and central Kanagawa Prefecture. Under the support of the Kanto Regional Bureau of Economy, Trade and Industry, TAMA Industrial Vitalization Association Inc. was established by a number of private firms - largely product-developing SMEs - together with universities, local municipalities and industry organizations and has been engaged in promoting university-industry collaborations and supporting the creation of new businesses.
- Refer to Kodama (2003) for results of the questionnaire survey.
- As the resolution address size, these systems enable control in units as precise as 1.2 picometers (a picometer is 1/1000 of a nanometer). The diameter of an atom is roughly 0.2 nanometers.
Toshihiro Kodama (2003), "Innovation Capacity of TAMA Firms and their Cluster Formation - Based on a Questionnaire Survey -," (Japanese Only) RIETI Policy Discussion Paper Series 03-P-004.
Kazuyuki Motohashi (2004), "Economic Analysis of University-Industry Collaborations: The Role of New Technology Based Firms in Japanese National Innovation Reform," RIETI Discussion Paper Series 04-E-001.
RIETI (2003), "Survey Report on University-Industry Collaboration Regarding Japanese Innovation System FY2002" (Japanese Only).
December 2, 2003
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