Knowledge Combination and R&D: Assessing the performance of Japanese firms from an international perspective

This paper examines the R&D performance of Japanese firms from the perspective of knowledge combination. First, we empirically confirm that the ability to use external knowledge widely and early in R&D significantly enhances R&D performance. This relationship also holds for the firm-level analysis in which firm fixed effects are introduced. Next, we compared the evaluation of Japanese and U.S. twin patents from the same group of inventions and found that the U.S. market places a much higher value on the use of science in inventions, while the Japanese technology market places a higher value on early recognition and use of prior art (small lag from prior art in the technical literature, and use of inventions by foreign inventors). Third, the inventions covered by the Japanese Bayh-Dole patents have achieved a high standard in terms of knowledge combination, including the utilization of science, but have not yet achieved a high reputation in the US market. We also found no significant evidence that firms in Japan that increased the hiring of researchers with PhDs, spending for industry-academia collaborations, or government contract research increased their ability to leverage science. Implications for policy and research are discussed in the last section.