Redesigning Industrial Policy and "Integration of Knowledge"
Faculty Fellow, RIETI
From the tight coordination of parts and modules to the fine coordination of knowledge
On February 14, a policy symposium entitled "Japan's Innovation System: Its Strengths and Weaknesses" was held under the auspices of the Research Institute of Economy, Trade and Industry. I found the presentation by RIETI Faculty Fellow Hiroyuki Chuma particularly interesting. This column was inspired by his presentation.
In his presentation, Professor Chuma first raised and then tried to answer the question of why the Japanese microlithography industry has lost competitiveness in the global market.
"Japanese manufacturers are said to be very good at products with an integral architecture. But then why, after holding a seemingly insurmountable lead in global competitiveness for many years, have two major Japanese manufacturers of microlithography equipment, the quintessential precision tool with integral architecture, lost competitiveness vis-a-vis ASML of the Netherlands?" he asked. As one of major factors behind the reversal of position between the Japanese manufacturers and AMSL, Chuma points to ASML's effective utilization of national research institutes, whereby the Dutch company collaborates with and absorbs scientific and technological knowledge from these institutions. Indeed, for industries requiring very high-level scientific knowledge, it is indispensable to effectively utilize the knowledge held by external organizations.
I made a similar argument in a book entitled Saiensu-gata sangyo ("Science-based industries") (NTT Publishing Co., 2003). Through a series of studies, Professor Ikujiro Nonaka has made it known internationally that Japanese companies are good at gathering bits and pieces of knowledge dispersed within their respective organizations, compiling them into a single context of knowledge, and using that knowledge effectively. However, the characteristics of Japanese companies may also make it difficult for them to utilize or "integrate" knowledge beyond organizational boundaries. As technology becomes more dependent on scientific knowledge, companies will likely have to shift their emphasis from simply integrating parts and modules to integrating various disciplines (i.e., "integrating knowledge" in different phases).
National champions and globalization
Somewhat ironically, the old-fashioned industrial policy of creating "national champions" seems to explain why the foundation of knowledge integration has been created in Continental Europe. The so-called national champion policy, exemplified by the French government's failed attempt to nurture the Bull computer company, and a series of similar failures that ensued, is perceived to be a typical example of a bad idea. The globalization of competition, however, has forced companies to compete in a worldwide market. Even if a company becomes a champion in its home country, it is still exposed to global competition. Continental European countries are generally pursing policies to support leading companies in their respective countries in line with the rules of the World Trade Organization (WTO) and based on the premise that these top companies are subject to global competition. In recent years I have had the opportunity to visit national research institutes in various countries. In countries such as Germany, the Netherlands, Belgium and Finland, it is an important mission of national research institutes to support national champions or companies perceived to be top competitors in each country. Likewise, universities play a significant role. In these countries, research institutes affiliated with leading companies such as Siemens, Philips or Nokia are located side by side with national research institutes and universities. In many cases, a university professor serves as the head of a national research institute. National research institutes typically conduct research and development commissioned by the leading companies, with actual research work undertaken by graduate school students. The graduate school students are paid and awarded Ph.D.s for the research. Many of these students choose to work for either the commissioning company or the national research institute after completing their degrees. Those who elect to work for one of the leading companies eventually become clients of the national research institute. Through this flow of human resources, knowledge is integrated smoothly, individual skills are nurtured, and the circulation of knowledge is ensured. National governments need not worry about overprotecting champion companies because they are competing in the global market in accordance with WTO rules (although government procurement of research and development services may arise as a new issue).
Redesigning industrial policy
In light of such developments in Continental Europe, how do we interpret the situation in Japan? In the case of Japan, each industry has several major companies that are in fierce competition with one another, which has served as a source of Japan's competitiveness in the global market. Maintaining this competitive environment will continue to be important, but it is also true that the current situation makes it difficult for policymakers to formulate a methodology for implementing support measures. In order to implement effective industrial policy measures in a situation where multiple major companies exist, it is important, for instance, to study theoretically the organizational logic of consortiums. To break away from the policy chaos over Japan-U.S. economic friction and the philosophical discussions on the roles of the government and the market, it is necessary to reconstruct industrial policy from such a theoretical standpoint.
As mentioned above, national research institutions are located side by side with leading companies and universities in Continental Europe. Lately there has been a growing awareness of the need for national research institutions to play a pivotal role in innovation. Indeed, Frunhofer of Germany, TNO and VTT of the Netherlands, and IMEC of Flanders, Belgium are all playing such a role. Recent theories on clusters and economic geography are also focusing on the importance of geographical proximity, which is a prerequisite for knowledge integration. It is hoped that Japan's national research institutions, which have impressive research facilities in Tsukuba, Ibaraki prefecture, will consider setting up research centers within or next to university campuses and company premises, and proactively utilize their excellent research capabilities as part of the Japanese innovation system.
March 8, 2005
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