The Internationalization of Corporate R&D

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THE INTERNATIONALIZATION OF CORPORATE R&DHistorically Japan has been successful in attracting foreign direct investments. The totalnumber of newly-established foreign companies increased from 237 (between 1976 and1980) to 565 cases (1986–1990) (JETRO 2004b). However, between 1991 and 1995,Japan entered an economic recession and foreign investment plunged to 406 new companies.Then, between 1993 and 2003, numbers rose again to 897 new companies.According to the METI survey, 42 percent (861) of foreign companies established inJapan between 1999–2003, were European. U.S. companies accounted for 38 percent(744) (METI 2004).Foreign Companies Establishing R&D in JapanThe main type of activity performed by foreign companies established in Japan is sales.R&D activities remain minor with these companies (METI 2004).The total R&D investment by foreign affiliates reached 7.2 billion dollars in fiscal year2003, up by 16 percent from the previous year. R&D expenditures by the manufacturingindustry were 7 billion dollars, which accounted for 97 percent of the total expenditure(METI 2004). The transport machinery industry accounted for 72 percent of the total expenditure.According to a study by the Cabinet Office, 51 percent of the 126 American- andEuropean-affiliated companies in Japan in 2002 considered Japan to be a very attractivecountry for innovative R&D and technology monitoring.Very few Swedish companies have established R&D activities in Japan. For this study weinterviewed a large, well-established Swedish high-tech company in Japan. The companyhas an R&D group of ten researchers, eight of whom are Japanese; they plan to doublestaff in the coming years. The Swedish company’s main reason for establishing R&D inJapan is to access advanced Japanese technology. Japan is believed to be five years aheadof other countries in this company’s particular business area. The main goal of the groupis to conduct innovative R&D to create new products, based on global standards, for theglobal market. In addition, the company expects that having R&D in Japan will help thempenetrate the Japanese domestic market. As they phrase it, “selling from Japan to Japan ismuch easier than selling from outside Japan.”Generally, the main barriers to doing business in Japan are differences in businessculture and low levels of English proficiency in the Japanese workforce. For thisSwedish company, the future of R&D investments in Japan will depend heavily on thecompany’s revenues in the near future. Surprisingly, they seem not to have encounteredany issues with the internal mix of cultures (Western and Japanese). The company hasits own global corporate culture and Japanese employees are expected to adapt.216
THE INTERNATIONALIZATION OF CORPORATE R&D9.3 Driving Forces and Barriers9.3.1 Reasons for Internationalization of R&DAccording to the MEXT survey on forces driving the establishment of overseas R&Dsites, 54 percent of companies replied that they opened foreign R&D sites to conductproduct development in response to the needs of local consumers (MEXT 2004a). Thesecond most important driver was to secure access to excellent researchers; third wascost-effectiveness. The survey also indicated that companies with smaller capital (between9.3 million and 46 million dollars) consider cost-effectiveness to be a strongerdriver than do companies with larger capital. Also, according to the same survey, mostof R&D was devoted to production technology followed by products specific to thelocal market.In general there are several explanations for the increasing internationalization of corporateR&D in the world (UNCTAD 2005):• Competitive pressure drives companies to innovate more in order to compete inhigh-tech areas (e.g. automobiles, electronics and pharmaceutics).• There is need for greater flexibility in R&D activities, when rapid technologychanges require quick access to existing expertise in other countries.• Aging populations create insufficient pools of skilled, local workers to conductrequired R&D.• Developing countries, especially China and India, are increasing their own R&Dcapabilities and consequently supplanting some international R&D activities.• A high level of foreign direct investment (FDI) can be an important indicator offuture R&D activities abroad when initially-outsourced basic production, with time,takes on more complicated products and the accompanying adaptation requirements.The level of internationalization of corporate R&D in Japan is much lower than inother developed countries. As mentioned in the introduction, the strength of Japanesemanufacturing companies historically has been based on a close interaction betweenR&D and manufacturing divisions, including suppliers. To maintain this interaction,these companies’ internationalization was part of an export-led strategy that causeddelay of full-fledged, overseas production. The internationalization of R&D activitiesalso started relatively late compared to other developed countries.The following sections of this chapter discuss barriers to the process of R&D internationalizationin Japan, along with new forces and conditions that might drive theprocess in the near future.217
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ITPS, Swedish Institute For Growth
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The Swedish Institute for Growth Po
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