Innovation Crisis

Successes, Pitfalls, and Solutions in Japan

Eiichi Yamaguchi

• Publisher: Jenny Stanford Publishing
• Year: 2019
• ISBN:
  9780429828256
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

What has gone wrong in Japan that has led to innovation crisis? Prof. Eiichi Yamaguchi has been committed to answer this question, and his quest has spanned several years and academic disciplines. Initially it appeared as if it had no context, but when he put the pieces together, he realized that it was actually one story. This book is a summary of his research over the last 20 years, especially after he moved out of the field of physics, to which he had devoted 21 years. He felt that it was essential for him to do his bit to save this sinking ship, or it would be disrespectful to the future generation.
The book integrates his research on innovation policy, innovation theory, and trans-science. It begins with a detailed story of the innovation of blue LEDs, for which three Japanese scientists received the Nobel Prize in Physics in 2014. It describes the current innovation and science crises in Japan and presents evidence that the strong international competitiveness of science-based industries in the United States is a result of the invention of the Small Business Innovation Research (SBIR) system. It discusses a new theory of innovation structures, showing the error in Clayton M. Christensen's argument of "disruptive innovation." It also proposes a new concept for "paradigm disruptive innovation, " emphasizing that abduction and transilience are essential factors for accomplishing it and that their decline has led to the innovation crisis in Japan. Finally, it analyzes the future vision of the innovation ecosystem, which promotes abduction and transilience, for scientists to develop new science-based industries.

Chapter 1

Introduction

1.1 Japanese Corporates Are No Longer Innovating

1.1.1 The Science-Based Industry of Japan Faces a Crisis

The future of scientific activities in Japan hangs in the balance.

Since the beginning of this century, Japan has begun to see a decline in activities in the fields of physics and molecular biology, which form the core of science. This is most likely due to the decrease in the number of researchers who can spearhead research.

There may be a few who would question this, wondering why then in recent years, the Japanese have won the Nobel Prize almost every year. Isn’t Japan second to only the United States in the field of natural sciences since we entered the 21st century? But barring very few exceptions, these awards relate to research results from more than twenty years ago.

The 2016 Nobel Prize recipient for physiology or medicine, Yoshinori Osumi, also mentioned the lack of funding for basic sciences in Japan at the awards conference and expressed that he felt “A strong sense of impending doom for the state of science in Japan.”

Science-based industries are also on the decline. Japan, which was formerly known as a “scientific nation” as well as a “technology nation” and was leading the world in these spheres, has now begun www.panstanford.com to rapidly lose its distinction as the science and technology capital of the world.

Among other things, since the turn of this century, the international competitiveness in the electronics industry, including semiconductor devices and mobile phones that was Japan’s forte, has plummeted. In addition, its production has halved since reaching its peak in the year 2000. The Japanese pharmaceutical industry that was ranked at the top of the science-based industries of the 21st century, also lost out to international competition in early 2000.

This means that there are no more innovations emerging from the high-tech corporations of Japan.

Amid progressive globalization, Japanese society has stuck to traditional industrial models, without pursuing innovations and models that are more in tune with the times, thus leaving the country far behind the rest of the world. Japan has lost its ability to take risks and has failed to convert many new technologies resulting from research and development into economic value.

The crisis of science is not limited to the decline in Japan’s industrial competitiveness. The severe accident that happened in TEPCO’s Fukushima Daiichi Nuclear Power Plant in March 2011 at once exposed the lack of scientific consideration in the management of technological enterprises. If we probe further into what caused the accident, it points us directly toward the lack of innovation in monopolistic or oligopolistic corporations.

There are many voices saying that the reason innovation has come to a standstill in this country is because “Talented entrepreneurs are no longer around” and “Japanese lack entrepreneurial spirit as they are mostly enterprise-oriented.” However, it is evident that institutional and structural factors are the root causes of this problem.

The purpose of this book is not only to explore the structural factors but also explain the process of innovation from scientific discovery, with a view to providing a practical breakthrough solution to revive this scientific powerhouse. This solution will also be a prescription for corporates and provide measures to prevent accidents where science can damage society like in the nuclear power plant mishap.

Before going into specific considerations, I would like to point out why I came to pursue the theme of “science and innovation” despite being involved in physics research. I believe that sharing experiences will provide a better context on the issues being discussed in this book.

1.1.2 The Collapse of Central Research Laboratories Triggered This Crisis

Coincidentally, when I was engaged in condensed matter physics research at the Basic Research Laboratory of NTT (Nippon Telegraph and Telephone Corporation), focusing on the development of next generation semiconductors and transistors, I happened to discover that hydrogen trapped in palladium metal exhibits an unknown exothermic reaction. This gave me the chance to continue this research at the Cote d’Azur as an invited research scientist of a research institute in France for five years beginning from the year 1993.

When I returned to Japan in 1998, I was shocked. Not only the electronics industry but even large corporations in the pharmaceutical industry were shutting down or downsizing their central research laboratories one after the other, and distinguished scientists and engineers working in these labs were being forced to relocate to factories and even to sales and administrations.

This is the so-called “end of the era of central research laboratories of large corporations.” “Central research laboratory” may have different names in different organizations, but it is a major division of a corporation that is primarily engaged in scientific (pure basic) research.

The central research laboratories of Japanese companies came out with several technological innovations based on cutting-edge research in the 1980s. At that time, eighty percent of the national research expenditure came from private enterprises, and university research hardly contributed toward innovations. So, research by corporations primarily drove innovation.

However, in the latter half of the 1990s, after what happened to the private research laboratories of AT&T and IBM in the United States, Japanese corporations followed suit and decided to almost completely withdraw from research. First, Hitachi shut down its basic research laboratory for all practical purposes, and the central research laboratories of NTT, NEC, and Sony were also impacted internally.

If this situation continues, there will be no more minds to spearhead technology innovations that have been supporting Japan’s industry and economy. Ten to twenty years later, there will be a tangible deterioration in Japan’s science and science-based industries, and Japan will definitely be left stranded.

With this conviction, I left NTT Basic Research Laboratory and took a temporary break from my physics research, and from the year 1999 I began research and policy advice on innovation strategies as part of the 21st Century Public Policy Institute, the think-tank of the Japan Business Federation. At that time, the Chairman of the Board was Naoki Tanaka, an economic critic, and the Director was Shoichiro Toyoda, Honorary Chairman of Toyota Motor Corporation.

All the researchers were economists, and in the science department the only physicist was myself. For physicists, the field of social science is a treasure house of research materials. Why did the unique technological innovation framework developed by Japan collapse? At this point, for the first time I got to learn the method of “transcending the borders of knowledge (knowledge cross-border)” between natural science and social science.

1.2 What Can Be Done to Revive Innovation?

1.2.1 Leverage Dormant Talent

How can we save the pool of world-class scientists in large corporations who are being sidelined as being “unprofitable?”

First, in order to learn how to set up a company, I decided to challenge social convention by having my wife assume the role of chief executive officer. Most women are busy raising their children until they are past forty. However, once they have raised their children and wish to get back to their jobs, the pension system poses a challenge, due to which there are hardly any corporate willing to hire women over the age of forty-five. The only jobs that they can find are those where they cannot fully utilize their expertise and creativity.

Fortunately, since my wife is a qualified pharmacist, she was able to work part-time at a pharmacy even while raising our children. I suggested to her to take the plunge and start her own pharmacy. It is a one-of-a-kind pharmacy which people in the community consider as a family pharmacy, where recommendations on the doctor’s treatment can be given appropriately.

I made full use of the data available on maps to locate the medical doctors’ clinics and the population distribution data to identify the area in need of a dispensary. Then I took the decision on where to open the pharmacy and rented out a small store at that location. I then invested half of my retirement money on my wife’s venture. My wife, who was initially hesitant over the pharmacy venture, went on to wear the proprietor’s hat, and two years later, she took a financing loan and set up a second store.

The next step was to eventually set up a high-tech start-up company.

I interviewed more than a hundred leading world-class scientists and engineers and continuously observed scientists who had left large corporations in Japan and the United States. Then, I began to explore the process through which innovation is born.

There is, in short, only one definitive treatment to free Japan from the current crisis in science and innovation. That is to encourage all the eminent scientists and engineers who have been laid off to become innovators by setting up their own start-up companies.

There is a large group of scientists in Japan, a silent majority who will be the champions of innovation.

For example, the blue light emitting diode (LED) that was in the running for the Nobel Prize in physics in the year 2014 was a culmination of research done by three physicists, namely Isamu Akasaki, Hiroshi Amano, and Shuji Nakamura from the mid-1980s to the early 1990s. In addition, the discovery of GaN crystal growth method to the invention of the quantum mechanical device structure and the development of production technology and commercialization, are the innovations of all occurred in Japan.

Moreover, we cannot overlook the fact that this achievement can be attributed not so much to the fact that Mr. Akasaki and Mr. Amano held positions in Nagoya University as the intrinsic role played by the research laboratories of corporates such as Tokyo Research Laboratory of Panasonic, Semiconductor Research Laboratory of Oki Electric, and NTT Basic Research Laboratory, as explained in Prologue.

However, many innovators like them are being neglected in the companies, and they are almost losing the avenues to innovate. If we can tap their talent and set up a company, we would be able to bring out some remarkable innovations.

Unable to contain myself, I visited the research laboratories of corporates that were about to shut down and approached these distinguished scientists, who had been asked to stop their research by the management, with my proposal of establishing a start-up company.

Among the many high-tech start-up companies that I have founded so far, I set up one such company that primarily dealt with GaN.

In order to make power transistors that can switch high voltage and high current, in conventional silicon semiconductors, the bonds of atoms forming the crystal are weak due to which they cannot withstand high voltage. Though GaN crystals help to overcome this problem, no one in the world could make them at that point, but eventually a crystal growth method was discovered and the blue LED with GaN was invented.

In the latter half of the 1990s, Hiroji Kawai of Sony Frontier Science Laboratories, appeared in Prologue, made the transistors by GaN and succeeded in bringing out a commercial design for the first time. If this design is introduced to society and converted into a product of value, it could eliminate energy loss by eight percent or more through voltage conversion at the time of distribution. This could address more than twenty nuclear power plant bases.

However, the Sony management was only interested in computers and entertainment at that time and showed absolutely no interest in Kawai’s research, saying “It is enough if you can just buy us the parts” or “all basic technology is sold at the greengrocer.” In other words, the management at that time was of the opinion that all basic technology such as materials or parts should be procured externally and did not seem to think that breakthrough technology was born out of science.

I exhorted him, “Your innovation will be shot down in Sony. So, please quit Sony. It is your innovation that can save sinking Japan. Let us set up a start-up company right away.”

Having thus persuaded him to leave Sony, we set up a start-up company using the remaining half of my retirement amount and his entire retirement allowance in the year 2001. This start-up company endured several ups and downs, but in the year 2014, we finally succeeded in developing the world’s best GaN power transistor as a quantum–mechanical device. It was still extremely difficult to raise funds. The situation in which Kawai has had to “hold onto a tightrope and wait patiently,” in his own words, has been continuing for many years.

1.2.2 Developing “a Good Eye” for Innovation

Another energy start-up company, which I participated in setting up involved developing a completely new concept in storage batteries.

Hisashi Tsukamoto, who has been researching lithium ion batteries from an early stage at a Japanese battery manufacturer’s laboratory, moved to the west coast of the United States and successfully set up his start-up company because he felt that it was “not possible to take on new challenges in Japan.”

It was in the early summer after the TEPCO Fukushima Daiichi nuclear accident in 2011 that Tsukamoto got in touch with me. We met again the first time after many years spent together at the dark, scorching Kyoto station that was conducting high power conservation initiatives in favor of TEPCO. He told me, “I never thought that Japan was such a vulnerable country. It is a pity that there are absolutely no innovations in the power industry.” He added, “Would you be willing to help me set up an energy company in Japan?”

We then launched a start-up company in a month’s time. While conventional lead batteries are safe, they have a short lifespan, and though lithium ion batteries are much more efficient, the drawback in them is that they can ignite if overcharged. Our company introduced a pack containing two batteries and created a revolutionary electricity storage system called the “bind battery” in which the batteries compensate for each other’s drawbacks, and not only increase the lead battery life by four times, but also act as safety valves to ensure that the lithium ion batteries never ignite. There was also the unexpected discovery that it worked perfectly well when the temperature is under forty degrees of Celsius below zero.

Also, the company succeeded in developing the “shuttle battery” that supplies hydrogen using iron powder in the fuel cell. This battery can run a car for more than two hundred kilometers using iron powder corresponding in amount to just around a dozen cola cans even in the absence of an external supply of hydrogen. Also, if iron oxide can be reduced to iron using midnight power, the iron powder can be recycled. The company treaded on thin ice while raising funds and managed to continue its development without falling from the tightrope.

As you can see from the case I was involved in, even in industries that are considere...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Prologue
• 1. Introduction
• 2. Why Has Japan Failed While America Succeeded?
• 3. How Is Innovation Born?
• 4. Science Resonating with Society
• 5. Social System That Produces Innovation
• Epilogue
• References
• Index