2.2 Japan: Imitation, improvement, and innovation

Japan and the Republic of Korea are both countries that have achieved an economic take-off after World War II. The successful catch-up around technological innovation is an important reason for their stepping into the newly industrialized countries. So it will greatly enlighten us to investigate these two countries.

2.2.1 The experience of Japanese independent innovation

Japan was severely damaged in World War II, but it rose rapidly from the ruins and became one of the major developed countries dominating the world's economic scene. How was Japan able to rise so quickly? In the perspective of the path towards the Japanese S&T development, compared with that of America at that time, its basic research was relatively weak and the original innovation fell far behind developed Western countries. But looking back at the Japanese history, we can easily discover: First, Japan had a good accumulation of innovation; second, after World War II, Japan put forward the policy of “building the country through technology,” “building the country through patents,” “building the country through S&T,” and so on. Japan was oriented towards production development and comprehensive integration of products with commercial value. Thus, it promoted its process of industrialization and became a world power.

From the 1950s to the 1970s, Japan implemented the strategy of “introducing advanced technology from European countries and the United States and improving and innovating after imitating.”Between 1950 and 1978, Japan spent $9 billion on signing a wide range of various technical contracts with the US and obtained a lot of fundamental modern technology from the US. This saved time and money for Japan to catch up and find a suitable path towards technological development. However, this strategy also caused a series of issues; especially the purchasing of a large number of foreign patents from the 1950s to the 1960s resulted in the Japanese industry being controlled by foreign technology. Thus, they had to keep purchasing patents from Europe and the US. It is not only expensive, but also with the fierce competition of international technology and the strengthening of the protection of IPR in many countries, it was not possible for Japan to continue the large-scale introduction of technology as in the 1950s. This seriously hindered the sustainable development of industry. Especially, when the industrial structure dominated by the iron and steel, the auto, and the machinery and chemical industries was transferred to one dominated by the electronic information industry, the situation of lacking necessary technological support appeared. Based on this, Japan began to gradually emphasize basic research rather than application research, and turned from technological imitation to technological innovation. The building of the “Tsukuba Science City”was one of the most important plans. In order to meet the needs of “building the country through S&T,” the Japanese government moved more than 40 research institutes to Tsukuba Science City. This policy helped to form a concentration of academic research and education in national research institutes and universities, which promoted the research of major science projects.

In particular, a number of modern enterprises appeared in Japan in the 1950s. On the basis of introduction, implementation, and adoption, these enterprises transferred to improving and innovating in the 1960s. In the 1970s, Japan began to advocate a technology development organization of “cooperation among the government, industry, and university” in order to seize the opportunity of the new technological revolution. In the 1980s, Japan put forward the policy of “building the country through S&T,” which sped up the process of independent innovation and gradually realized the transformation from imitation to independent innovation. However, at the same time, Japan did not exclude the introduction of cutting-edge technology from Europe and the US. According to the statistics from the Japanese government, the introduction of advanced technology increased by 86% from 1982 to 1986 in Japan, with a 103% growth in software and 69% in hardware; from 1986 to 1990, these three indexes were 91%, 153%, and 16%; from 1990 to 1992, they were reduced to 9%, 7%, and 2%. This was attributed to the gradual strengthening of the Japanese ability for independent innovation.

2.2.2 Japanese policy and measures of innovation

The gradual transformation from introduction and imitation to independent innovation in Japan had a strong relationship with the forceful policy support and guidance from the government.

First, the concentration of scientific research resources on the research of application development had both advantages and disadvantages. After World War II, the US made a large-scale investment in basic research. Based on the catching-up strategy, Japan put most of its research resources into application development and invested mainly in the field of engineering. In the early 1990s, in the investment of global basic scientific research, the US and European countries accounted for about 50% and 40%, respectively, but Japan only accounted for about 10%. Such practice sped up the process from introduction and imitation to innovation, but it has also favored hidden dangers of recession for the Japanese economy in the late 1990s and early 2000s. Because of the earlier contempt for basic research, technological breakthroughs and accumulation needed in order to continue independent innovation are insufficient now.

Second, the government gave proper protection to the research achievements of enterprises. Japan had a unique superiority in the incremental innovation dominated by process innovation, so the supportive intervention of the government in the technological development of the auto and electronic industries were very concrete after World War II. In order to encourage enterprises to carry out research on application development, the government gave preferential policy to patent applications, so that a patent was very accessible for an enterprise. At the same time, the protection of patents was relatively limited, which made enterprises use their competitors' innovation at low cost and risk. This institutional arrangement was extremely favorable to Japanese incremental innovation at that time.

Third, more attention was paid to the R&D of enterprises and the establishment of a cooperative innovation mechanism among enterprises was encouraged. The Japanese government paid more attention to promoting the establishment of an engineer's resource pool in large enterprises and put the emphasis on the development of knowledge, which is related to production, in large companies, so as to support R&D and innovation in enterprises. At the same time, when the enterprises promoted the development of products, the first step was to encourage the researchers to choose the research topic independently (47% of all research topics). Based on the emphasis given to the cooperation from the government, industry, and universities, the Japanese government actively promoted the establishment of an inter-firm cooperation mechanism in order to improve cooperative innovation together. The production process innovation called the “Toyota model of production” is an example of cost saving. The nucleus of the Toyota model is a demand-oriented dashboard manufacturing plan. Its advantages are low cost, high quality, and differentiation of production. In order to realize such an innovation, the government brought relevant enterprises together in positive collaboration.

Fourth, the Japanese government implemented the incorporation of national research institutes and national universities. Japan implemented the second phase of the “basic plan of science and technology” in 2001 and began the reform of national research institutes. The first was changing national research institutes into independent administrative corporations in order to enhance the flexibility of each institute in personnel and financial management; canceling the status of research institute employees as civil servants, therefore allowing research institutes to sign a contract of employment according to their own needs; and allowing research institutes to accept private funding (previously prohibited). The second was changing the way of making the working plan and financial budget program of the research institutes annually. The ministries and agencies in charge made regular assessments for the independent administrative institutions（IAI）, and determined the resource allocation of the government according to the results. In April of 2004, Japan began to implement the reform of the IAI of national universities. The first was changing national universities into IAIs, which were no longer a part of the Ministry of Education, Culture, Sports, Science and Technology (MEXT). But the quantity of the funding for national universities from the government had no significant change; the second was gradually reducing the number of national universities and merging some of them.

Fifth, the Japanese government improved relevant laws constantly and implemented the national S&T plan. For example, Japan officially announced their new Science and Technology Basic Law in 1995 and the “basic plan of science and technology” for a cycle of five years. The latter called for greater cooperation among industries, universities, and research institutes, which was to promote the establishment of new enterprises based on the “seed of technology”or on the originality of universities and research institutes. The Japanese government increased the number of postdoctoral scholarships, strengthened the support for young researchers, improved the mobility of researchers and allowed them to apply for research grants. Besides, there was an increase in competitive research funding so as to use it intensively, and an increase in the government's research resources. The second phase of “basic plan of science and technology” provided that competitive governmental research funding will double within 5 years.

Sixth, there was a push for the establishment of an organization system dominated by a horizontal flow of in-formation, which is beneficial to innovation. In contrast to the vertical information flow of large companies in the US, Japanese enterprises preferred the horizontal flow of information, which improved the efficiency of internal information flow and decision making. This model was quite typical in manufacturing enterprises that had mass production. Japanese companies required employees to have more holistic knowledge and therefore they used the “job rotation system.” They ensured the quality of products by lateral organization, where the quality management team absorbed various kinds of staff from different links. So in the comparative study of Japanese and US electronic enterprises, the management expert Baba gave the name “the whole factory is a laboratory” to the Japanese organizational structure with a horizontal information flow.

2.2.3 Typical cases of Japanese independent innovation

(1) Independent innovation of the Japanese auto industry

First, the history of the Japanese auto industry. The development of the Japanese auto industry has gone through four stages. The first stage was in the 1950s. At that time, the Japanese economy was in recovery. The auto industry was weak, with technology mainly imported, and its main production was trucks. The second stage was in the 1960s. This was the stage of scale development of the Japanese auto industry. After many years of borrowing foreign technology and equipment, the capability for independent innovation had improved, and they began to design independently and produce new models. Toyota, Nissan, and other enterprises began to produce at that time. The third stage was from the 1970s to the 1980s, a period of rapid development for the Japanese auto industry. Development speed, production efficiency, and export growth accelerated significantly, and exceeded that of the European and American auto industries. The fourth stage started in the 1990s and continues till now when the Japanese economy has been experiencing recession. Japan has begun to compete with other countries in the production of automobiles and in new product development. In particular, occupying a leading position in the technological development of new environment-friendly cars has laid the foundation for the sustainable development of the Japanese auto industry.

Second, the Japanese government's support for the independent development of the auto industry. After World War II, the Japanese government implemented the protection policy for the auto industry according to the “infant industry theory.” The government officially announced a series of supportive regulations and policies. Only national capital could be invested in the auto industry, which cut off the competition between domestic and foreign enterprises, and promoted the rapid development of the Japanese auto industry. The government provided the enterprises with “support rather than intervention,” which means there was no direct intervention in the enterprise production and operating activities, but support for the enterprises through relevant policies and regulations. Among the supportive policies, the first was the legislation protecting the development of domestic auto enterprises and resisting the input of foreign capital into the domestic market. The second was providing the enterprises with loans and preferential tax policies, so as to ensure independent innovation. The third was putting restrictions on auto importation by imposing high tariffs, and the incubation of independent auto brands. The fourth was encouraging enterprises to export in order to earn foreign exchanges, explore international markets, and become part of the international competition.

Third, the introduction of technology and independent innovation of Japanese auto enterprises. In the early postwar period, compared to European and American auto producers, the Japanese production technology was quite backward. To eliminate the gap in a short time and to reach the advanced level worldwide, the introduction of advanced technology from abroad seemed to be a shortcut. Therefore, from 1951 to 1969, Japan introduced 405 advanced technologies from the US, UK, Italy, and other countries. This exerted important effects on accelerating the development of the Japanese auto industry and promoting the study of auto technology. However, the introduction of advanced technology alone was not enough. Therefore, Japanese enterprises combined the advanced technology from European countries and the US with its technical innovations, which resulted in a rapid development of production and performance of the vehicle and the strengthening of international competitiveness. For example, Toyo bought the patent of the rotary engine from Wankel company of Germany in 1961, then researched and tested it first. After 200 hours of continuous experimentation, they found that the contact of the piston with the cylinder caused a problem of vibration. In order to solve this problem, Toyo spent $140 million on developing new materials. The problem was fixed successfully in 1964. The Japanese production and the quality of the rotary engine exceeded that of the German model. There are many similar examples in Japan. On this basis, Japan became the automobile producing country whose products are famous worldwide for their light weight, fuel-saving, and environment-friendly qualities.

(2) Independent innovation of the Japanese semiconductor industry

As an industry with cutting-edge technology and high added value, the semiconductor industry has an important strategic significance in the economy of any country; therefore, the developed countries regard it as the backbone industry. In the 1980s, Japan had become the center of the world's semiconductor industry. In Japan, the semiconductor industry policy is focused on promoting the application of the semiconductor in the field of industry and consumer products. In the early development of the semiconductor industry, in order to reverse the situation of over dependence on European countries and the United States, the Japanese government played an important guiding role in constructing a reasonable framework for orderly competition in the semiconductor industry.

First, in order to guide and promote the development of the semiconductor industry, Japan formulated the Law on Temporary Measures for the Promotion of Electronics Industry in 1957. The implementation of this law promoted the development of Japanese enterprises in the semiconductor industry on the basis of learning the advanced technology from the United States. Second, Japan formulated the Law on Temporary Measures for the Promotion of Specified Electronics Industries and Specified Machinery Industries in 1971. This law strengthened the development of the electronics industries dominated by the semiconductor. The implementation of this law helped Japanese enterprises to strengthen their own R&D and production capacity and to resist the impact from the European and American semiconductors effectively; this brought the Japanese semiconductor products onto the world market. Third, Japan formulated the Law on Temporary Measures for the Promotion of Specified Machinery and Information Industries in 1978. Its implementation strengthened the development of the information industry with the semiconductor as the core. Since then, Japan has not issued any further special regulations on the electronic information industry based on the semiconductor, but it has promoted comprehensive regulations with the purpose of promoting the development of the high-tech industry including semiconductors. representative of these was the legislation of the Science and Technology Basic Law in 1995.

The Japanese government also restricted foreign investment in the Japanese semiconductor industry and required it to purchase technology directly with the purpose of avoiding the control over the technology of the semiconductor industry by other countries. Until the 1970s, the Japanese government had always had a strict policy of industrial protection with tight control over imports. Regarding foreign investments in semiconductors in Japan, the Japanese government has always had a severe examination and approval system, including prohibiting the establishment of individual foreign proprietorship and requiring foreign enterprises to open all the patent technology to the joint venture. After 1975, these policies were relaxed, but the Japanese were still burning with ambitions in the field of micro-electronics. A typical example was the implementation of the very large-scale integrated projects (VLSI) put forward by the Minister of Economy, Trade and Industry (METI). The project was 40% financed by the Japanese government. Thus, the five largest semiconductor companies could carry out cooperative R&D of a new-generation product. At the same time, the Japan External Trade Organization (JETRO) provided Japanese semiconductor companies with the latest information through its branches in 55 countries around the world. Moreover, the Japanese government provided low-interest loans to semiconductor enterprises through the National Development Bank. The interest rate of the loan was close to zero, while on the US market, it was 4%-5%.

Over the years, Japanese semiconductor enterprises have always insisted on the principle of “self-design and self-production” and on establishing a coordinated process of the industrial system of design and production. In recent years, Japanese semiconductor enterprises have developed a new generation of semiconductor production technology by working with relevant manufacturers. The government occupies the dominant position in this process. The enterprises unify standards of equipment and technology, and concentrate on the development of system integration technology with high performance and low power consumption to meet the needs of high-performance components of small consumer electronics products. Major Japanese semiconductor companies hope to become the leading enterprises again in the global semiconductor industry through joint investment, cooperation, and alliance.