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Emerging Technology Report #4: April 26, 2002

Venturing into the Known: Supporting University Ventures in Japan

Louis Ross (Director, Global Emerging Technology Institute, New York)

The development of Japanese university talent is an important goal for the Japanese Government. In three years, it plans to create 1,000 venture business which originate from universities. It is increasing 'entrepreneurial education' and providing venture funds. METI officials certainly have the right idea. New technologies create new industries and new jobs. The Development Bank of Japan will allocate funds in partnership with venture capital firms, a number of which are committed to investing in university-oriented venture businesses. Needless to say, these initiatives are important in terms of the necessary restructuring of Japan`s valuable high-technology sectors.

Though these efforts are noble and most likely will eventually lead to measurable results, some things cannot be `implemented` and need to be nurtured instead. The current reality is that there are many people in the private sector in Japan that actively invest in overseas venture funds or directly into venture firms, especially in the U.S., and feel that Japanese universities are lacking if not in their ability to innovate, in their ability to permit such innovation. These companies are aware that the support is currently not there, especially in the key area of developing an idea around a technology and then creating the appropriate business for it. The U.S. is arguably not really that much more advanced, since most of the successful university TLO programs have not been relevant for more than 10 years. However, cultural norms in the U.S. led to the quick adoption and expansion of such programs, which attracted quality people from all over the world. Japan needs to provide loose coordination policies coupled with ample financial support and choose to let the developers of technology, managers and financiers find their own direction. More importantly, they need to accept that the development of a vibrant entrepreneurial class and venture companies is a bigger cultural issue, and cannot be addressed piece-meal.

It will be critical to provide state university professors, from wherever they are from, with the freedoms that their American counterparts have. Universities must move out of the stone age and realize that encouraging the free exchange of foreign professors and students is very important to creating what may be an important source of revenues for the school. That is what a successful TLO program would do. It makes sense considering that continuing government budget deficits can only lead to more cutbacks at the universities. The private sector must be convinced that university research is worth its time and money, otherwise, they will continue to look overseas as opposed to making substantive contributions at home. It is possible to derive value out of Japanese universities under the right circumstances. The origins of the successful and until recently secret `Ginger` vertical scooter introduced a few months ago in the U.S. is testament to Japanese university know-how, as it turned out that Ginger was nothing more than an advanced version of an idea that was developed nearly 10 years ago by a University of Tokyo professor.

The Japanese are following the pattern of development of a number of U.S. regions their quest to nurture next-generation industries and extract some value out of their university system. The U.S. may serve as a model in some ways and may be ahead in this area but still is clearly in the growth stage, absent a small handful of universities which include MIT and Stanford. In some smaller regions in the U.S., the process of nurturing university-oriented technology development and venture companies is still under construction.

I found a recent visit to attend the first annual venture capital conference in Pittsburgh, Pennsylvania enlightening and relevant to the above. Pittsburgh and the surrounding region was for nearly a century the main producer of the world`s steel. By 1985, most of the steel making facilities shut down due to their inability to incorporate advanced technologies and bad strategic decisions by management. This led to a decades long re-tooling of the region. The government began actively plowing state money into a number of initiatives, which was coupled with substantial federal R&D monies. Pennsylvania ranks in the top 5 in terms of states receiving federal R&D money. State officials realized they must tap the assets of their university system. The University of Pittsburgh created a very strong base for biotechnology and advanced medical device development and that was paired with Carnegie Mellon`s expertise in IT, software and robotics. University technology licensing offices (TLOs) where established in order to attempt to capitalize on the potential of the universities in the region and the public/private initiatives were made a top priority by state politicians. A number of education initiatives also were implemented in an attempt to grow a high-skilled work force locally to man the new industries to be eventually created. Attention then turned to the lack of a venture capital community, experienced entrepreneurial and managerial talent, and the ability to develop a business around what intellectual property was being created. There was also a lack of large technology companies operating in the region, with many small firms scattered about with little connecting them in terms of technology or business relationships. Interestingly enough, two Japanese firms played a very important role in the development of one of the first public/private venture incubation facilities in Pittsburgh, being two of the four founding firms of the of the Pittsburgh Digital Greenhouse.

Japan sounds very similar to Pittsburgh in terms of its state of development when it comes to commercialization of advanced technologies from the university system and supporting the transfer of intellectual property from the university lab to the start-up, especially in the venture capital and professional support areas. Both places have a traditional `production` mentality, both are conservative and both have a relatively strong supply of engineering talent. However, both are making important strides to correct their short-comings. One has what the other needs, and that is large technology firms to act as anchors of development. Anchors provide a sense of community and help to stimulate strategic or business relationships. Large organizations become active in supporting cutting edge technology development, especially when they support public/private initiatives in some way, which includes actively supporting university led research efforts. They help to leverage the research base by attracting more corporate R&D.

One point to be made about the U.S. experience is the importance of foreign participation. The U.S. would have found it impossible to maintain its status as a leading source for innovation if its universities and venture capital community were looking for `American` entrepreneurs. Many university start-up companies look like miniature versions of the United Nations. Public/private support is largely blind when it comes to the origins of leading technologists, and so are the angels and venture capitalists who invest in these companies. The true internationalists were these foreigners, which increased links to their home countries and help to build real global businesses. Japanese policy makers who are serious about developing Japan`s potential in university-oriented technology innovation and who seek to promote entrepreneurialism in Japan should keep this in mind.

(Any comment or question should be sent

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