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The current situation of open innovation in Japan: The points that overseas companies should bear in mind

June 1 2021

In recent years, more and more Japanese companies have been actively promoting the idea of “open innovation.” With many Japanese companies operating beyond borders in search of new solutions, there are increasing opportunities for overseas companies as well. Conversely, it is necessary to have a deep understanding of Japan’s specific situations and social structure related to fostering innovation to achieve successful collaboration with Japanese companies.

Mr. Takeshi Yoshida, Director General of the Innovation Promotion Department at the New Energy and Industrial Technology Development Organization (NEDO), which serves as secretariat for the Japan Open Innovation Council (JOIC), talked about the current situation of open innovation in Japan, attractiveness for overseas startups of collaborating with Japanese companies. (Interview conducted on February 10, 2021)

Mr. Takeshi Yoshida, Director General of the Innovation Promotion Department (Photo provided by NEDO)

About the Japan Open Innovation Council (JOIC)

Q: What is the Japan Open Innovation Council (JOIC)?
Director Yoshida (hereinafter “Mr. Yoshida”): The New Energy and Industrial Technology Development Organization (NEDO) serves as the secretariat for the JOIC. NEDO is a national research and development (R&D) agency that creates innovation by promoting technological development necessary for the realization of a sustainable society.
To strengthen Japan’s competitiveness, it is necessary to use “open innovation utilizing technologies, ideas, resources and other assets of external organizations” to help develop new products and business models, as well as creating innovative technological seeds. In response to momentum for open innovation in the business community, the JOIC was established in March 2017.
The number of members has been increasing, and currently JOIC. has 1,727 members, including 1.051 companies plus entities and individuals (as of February 1, 2021).
On the basis of specific themes such as “safety, disaster prevention, and mitigation,” “plastic-free and petroleum-free technologies,” “smart cities,” “space,” and “new normal,” the JOIC implements various activities to encourage open innovation among Japanese companies, such as pitch events where startups introduce their unique technologies and business collaboration needs as well as workshops and seminars.
Because of the spread of the novel coronavirus, it was difficult to hold such events offline in 2020, but we continue to conduct these activities by shifting to virtual events.

JOIC workshop (Photo provided by NEDO)

What is “White Paper on Open Innovation”?

Q: The JOIC releases the “White Paper on Open Innovation,” which presents initiatives related to open innovation in Japan. Could you explain the purpose and background of the document?
Mr. Yoshida: The JOIC released the first edition of the “White Paper on Open Innovation” in July 2016, and the third edition is the most recent.
In Japan, quite a large of companies want to use examples of other companies as a reference when they embark on open innovation. The White Paper summarizes the current situation of open innovation such as the latest data on innovation, changes in each industry, and policies of respective countries, in addition to case studies of open innovation at domestic and overseas companies. By introducing case studies and best practices for collaboration, we hope to help Japanese companies promote open innovation.
Over the past 5 years, open innovation has become familiar to large Japanese companies. Particularly, major companies in the Tokyo metropolitan area are working on open innovation in some way or another. We would like to put more effort into expanding open innovation to SMEs, tier 2&3 companies, and companies outside large cities. The JOIC will make sure to share our know-how to companies with growth potential and increase the momentum toward open innovation throughout Japan.

White Paper on Open Innovation

The current situation of innovation in Japan

Q: The White Paper warns that Japan’s competitiveness has deteriorated compared with the past in the innovation ranking of countries based on the Global Innovation Index. How do you see the situation?
Mr. Yoshida: From the late 1980s to 1990s, the top five companies in the global market capitalization ranking were all Japanese companies, and they were called “Japan as No.1.” At that time, Japan had strength in innovation based on popularization and roll-out, which values the improvement and roll-out of products/services and operation processes. Among the typical examples are the production model to create values by increasing the efficiency of the entire supply chain like production, sales, and distribution of cars and the vertical integration model that integrates the supply chain to reduce costs and improve the quality of the overall supply chain. Since these mass production-based business models fit well with Japanese social system aspects such as the bulk hiring of new graduates and social security system, Japanese companies succeeded greatly.
However, since the 1990s, the Internet has become widespread and information and services have become more available. As availability progressed, various values naturally emerged, which undermined the model of success relying on the mass production-based business models. Japanese companies failed to adapt to the situation quickly, which I think is the cause for the deterioration of their competitiveness.
They may have failed to sort out issues that are unfit for today’s environment because of their over confidence stemming from successful experiences in the 1980s.
To break the current situation, Japanese companies are working to shift to the 21st-century innovation creation model that focuses on creating products and services oriented to the needs of users worldwide with a wider variety of values and rolling them out in a speedy manner.
Q: It seems that an increasing number of Japanese companies are becoming positive about creating innovation. What characteristics are common to such pro-innovation companies?
Mr. Yoshida: I think they are companies that define innovation creation as a “management strategy.” Such companies are seeking optimal strategies to achieve sustainable growth and seeing collaboration with external organizations and open innovation as part of the process.
True innovation should offer new values and services as it requires more resources than a single company has or time constraints, several companies are adopting “open innovation” that uses external resources flexibly.
Some Japanese companies are actively disclosing their measures for open innovation. For example, Komatsu Ltd. promotes smart constructionand Mitsui Chemicals Inc. states in its management strategy that it will actively collaborate with external organizations to create innovation*. Moreover, many companies clearly state their initiatives for open innovation in their medium and long-term management plans and annual reports. Additionaly I think it is common to find Japanese companies actively working on open innovation as a goal in their public documents as well.
* Komatsu website: SMARTCONSTRUCTIONExternal site: a new window will open
* Mitsui Chemicals website: VISION 2025External site: a new window will open

Industries positive about open innovation

Q: Which industries are especially positive about open innovation in Japan?
Mr. Yoshida: The telecommunications industry is conspicuous in this regard, and I think companies and industries having communication infrastructures and huge assets, such as NTT DOCOMO Inc. and Softbank Corp., are actively using open innovation. Speaking of infrastructure, transportation companies such as railways and airlines and electric companies have abundant company assets.
There is an industrial model where a company uses its own assets and makes up for lacking parts by collaborating with an external organization to combine the strengths of the two companies and create innovation. I feel open innovation is accelerating especially among infrastructure and telecom industries in Japan.
Q: Are there industries for which you expect open innovation in the future?
Mr. Yoshida: I place expectations on the automobile industry, especially tier 2&3 companies producing parts for automobiles and motorcycles. With more and more electric vehicles being rolled out, unconventional business models are needed and tier 2&3 companies are required to create new added values. I hope that the current situation will help speed up open innovation.

Advantages of collaborating with Japanese companies

Q: What advantages can overseas companies expect from collaborating with Japanese companies?
Mr. Yoshida: First of all, Japanese companies have comprehensive strengths such as global value chains and global production networks.
Toyota Motor Corporation, general trading companies with global operations, and several other Japanese companies have established vertically integrated value chains. They have their own value chain from producing raw materials and assembling products to selling them under the same line. If a startup can collaborate with a company that is part of the value chain, its technology could be used in various ways by the whole chain. This is the comprehensive strengths that Japanese companies have, which may be attractive to overseas companies.
Q: Are there any other possibilities for overseas startups to be successful in Japan?
Mr. Yoshida: Such possibilities lie in the fact that Japan’s aging population and birthrate decrease are progressing at a faster pace compared with other countries. Another challenge facing Japan is the lack of energy and resources. Overseas companies that can contribute to resolving these challenges might be able to refer to Japan as a model case when they are considering expanding business worldwide.
Moreover, Japan has abundant resources such as research capabilities, financial power, and researchers, which also makes it attractive. Japan is at the top level among major countries in terms of R&D expenditures and the number of R&D personnel while also being among the top countries in the numbers of academic papers and patent applications.
I expect that overseas startups will actively make proposals to Japanese companies and stimulate Japan because that might create interesting effects and new innovation.

Points that overseas startups should bear in mind when collaborating with Japanese companies

Q: Are there any points that overseas startups should bear in mind when they collaborate with Japanese companies?
Mr. Yoshida: One point is the differences in communication and culture. For example, in Japan even when the answer is “No,” people think it impolite to clearly reply negatively, so they tend to give vague answers. This sometimes creates differences in perception between Japanese companies and overseas startups. For that reason, the difference in communication should be noted.
Additionally, many overseas startups may feel a difference from Japanese companies that take time to make decisions. An increasing number of companies transfer authorities to their overseas branches so that they can conduct PoC and other operations quickly. However, there remain many companies that need time to make decisions because of complex decision-making procedures at headquarters in Japan.
Decisions made through various processes mean that once a green light is given based on the consensus of the whole company, you can establish deep relations with the company. This is a good aspect of Japanese companies.

Keys to create innovation in Japan

Q: Finally, please tell us about Japan’s attractiveness that constitutes Japan’s strength and offers growth opportunities for startups
Mr. Yoshida: When it comes to the innovation creation environment, there still is room for Japanese companies and research institutes to make progress. Given that Japan has just begun developing a startup ecosystem, there is a large growth potential.
The manufacturing capabilities and production resources, which are used to be the source of Japan’s competitiveness, are also attractive to startups. Global Japanese companies having abundant resources and experience can become promising partners for overseas startups.
Furthermore, Japan is said to be an “issue advanced country” as it faces various issues ahead of other countries worldwide, such as declining population, aging society with low birthrate and maintenance of infrastructure. Considering this, it seems to me that Japan is full of opportunities for overseas companies that have effective solutions for these issues that Japan faces. I hope many overseas companies, especially startups, will try to create innovation in Japan in cooperation with Japanese companies.

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