Over the past 14 years, business and social conditions in Japan have displayed significant unpredictability due to the global financial crisis, the energy crisis linked to the Fukushima disaster and the shutdown of all 53 nuclear reactors in the country and, more recently, the COVID-19 pandemic.

In Part 1 of a two-part series, Chartered Engineer and Fellow of Engineers Ireland Kevin Delaney writes how the Japanese approach to product development has evolved since 2006.

Introduction

In an article published in the Engineers Journal in October 2006 I described my experience as a development engineer in Japan. It set out my observations on the approach to product development in the Japanese context and, based on that experience, highlighted potential long-term risks of Irish manufacturing activities losing out to countries with a lower cost base.

I continue to believe that an intimate knowledge and experience of manufacturing is a pre-requisite for engineers to engage in successful product development.

My original article highlighted the fact that knowledge has an ever-decreasing half-life and that companies must strive to adapt their knowledge base in response to changing (business) conditions.

Business and social conditions in Japan over the past 14 years have displayed significant unpredictability due to events such as the global financial crisis, the energy crisis linked to the Fukushima nuclear disaster and the shutdown of all 53 nuclear reactors in the country and, more recently, the COVID-19 pandemic. For this reason it should be of interest to the reader to learn how the Japanese approach to product development has evolved since 2006.

Changes in product development process

This updated article describes recent trends and changes in the product development process and the management of the associated intellectual property within a cross-section of Japanese companies. It is based upon my reflections of a series of discussions with Japanese engineers and academics over the course of the past three years.

Since 2006 Japan, in line with several other countries such as Ireland (with its 'Building Ireland’s Smart Economy – A Framework for Sustainable Economic Renewal') and China (with its 'National Medium- and Long-Term Plan for the Development of Science and Technology' (2006-2020)), have published, or at least restated, ambitious plans to become knowledge economies.

In 2006 the primary focus of Japanese companies was to create, protect and profit from their Intellectual Property (IP) by integrating it into innovative products, and almost 25,000 global (PCT) patent applications were received by the World Intellectual Property Organisation from Japan in 2005 with more than 300 applications having been received from Ireland.

These figures have increased significantly since then as summarised in Table 1. The corresponding figures for the United States and China are also presented for comparison.

Table 1: Patent Co-operation Treaty (PCT) Applications for Selected Countries (1995-2019)

As can be seen from Table 1 there has been a significant increase in the number of patent applications over the past 20 years or so. Similar increases can be seen for the number of patent applications to the European Patent Office and the US Patent and Trademark Office.

The overall number of patent applications is still deemed to be a strong indicator of innovation and business activity globally, even though definitive evidence regarding patent utilisation is difficult to ascertain.

Companies in Japan face the same challenges as any companies operating globally: product development time frames are getting shorter, the level of customisation that customers can request and expect has expanded and companies are operating on an increasingly global basis resulting in more intense competition.

Over the past 14 years many Japanese companies have changed how they approach their product development and IP management. A number of the key emerging trends influencing them are considered below.

1.) Open innovation

Japanese companies have traditionally developed new technology and know-how internally or sourced it from other companies in the keiritsu – conglomerate – that they are part of.

Today these companies are much more open to purchasing or licensing the technology and know-how they require from third-party companies regardless of where such companies are based.

This accelerates the development of new products and enables companies to choose the optimum technologies for their products. This process, where firms use external as well as internal ideas as they develop new products, is known as open innovation and was adopted by foreigner competitors well before it became common-place in Japan.

As part of this open innovation paradigm companies are also more likely to create spin-out firms and to license their technology to other companies.

Finding alternative uses for their under-utilised IP benefits these companies since the Japan Patent Office estimates that roughly half of Japanese corporations' 1.46 million patents are dormant.

This means companies are paying to keep the patents maintained but the actual technology is not being used in products. A number of government initiatives have been implemented to encourage and facilitate open innovation in Japan.

In July 2009 the government established the Innovation Network Corporation of Japan (INCJ), with the specific focus of promoting innovation and enhancing the value of businesses in the country.

INCJ created a subsidiary, IP Bridge, in 2013 with the intention of acquiring dormant or under-utilised patents from major electronics companies and others, and making them available to companies trying to find appropriate technology for their products through open innovation in order to increase their competitiveness.

As part of this initiative in December 2014 Japanese IT giant NEC transferred roughly 200 patents for semiconductor technology to IP Bridge. In the intervening years IP Bridge acquired patents across a wide range of sectors from both industry, academia and other research centres.

Over the last decade several other countries in Asia established similar types of sovereign funds with the idea of patent aggregation, such as Intellectual Discovery and IP Cube Partners in South Korea; Medtech and IP Bank in Taiwan; and the Ruichuan IPR Funds and the Sichuan IP Operations Fund, among others, in China.

This can be viewed as facilitating open innovation but it has also been described as a defensive manoeuvre to prevent so-called patent trolls from purchasing patents and using them aggressively as leverage to force local companies to license their IP.

In April 2020 it was announced that a holding company formed by IP Bridge management bought out the fund’s shares. 

2.) IP resources and defending their IP 

Larger companies in Japan have traditionally employed specialist lawyers to advise and guide the companies in protecting and exploiting their IP.

However, smaller companies have not had the resources necessary to make such advice available in-house. An important change from when the first article was written is that the Japanese government, through the patent office and other government organisations, have made formalised guides and training materials, together with advisers, available particularly for SMEs.

In addition to advising companies on how to optimise their IP strategies this helps the companies to develop more formalised technology roadmaps and also provides access to data-mining techniques through which they can organise and access IP databases.

Due to perceived delays in the legal system many companies have been reluctant to legally defend their IP from infringement in Japan.

For example, in 2012 there were 187 IP related court cases in Japan (for comparison there were 5,189 cases in the US and 9,680 cases in China).

Recent 'winning rates' of the party trying to protect their IP was 23% in Japan, 36% in the US and 63% in China. This very low number of court cases and winning rates is, according to the Institute of Intellectual Property (IIP) in Japan, due to the outcome of the Kilby supreme course case and amendment of the patent laws.

As previously mentioned the establishment of IP Bridge by the Japanese government in 2013 has been described as being defensive to prevent small Japanese companies from being forced to license IP from so-called patent trolls. Such patent aggregators are active in Japan since 2009/10 and their aggressive behaviour has been criticised.

In recent years many Japanese small and medium-sized enterprises (SMEs), particularly those with niche technologies, have become important suppliers to foreign companies shipping products and/or providing their services globally.

As part of the process of winning this business they have had to share increasing levels of IP with their customers. Some of these customers have subsequently presented price reduction ultimatums to the Japanese companies and some have actually moved production from the Japanese companies' factories to cheaper locations in Asia.

Companies have to fight to prevent their IP being stolen and transferred to other companies in such situations. An example of such a company is Shimano Manufacturing Co Ltd., which filed a lawsuit against Apple Inc. on August 1, 2014, claiming that Apple had infringed on its IP.

To date courts have issued an interlocutory judgment that jurisdiction for the court case can be in Japan, contrary to what was stated in supplier contracts entered into by Shimano Manufacturing. 

3.) Digitisation 

Digitisation is the process of turning the analogue into digital format. An example would be storing medical patient records on computers instead of in a paper folder. Digitalisation refers to how digitisation will impact people and how they work.

In contrast to the general impression of Japan as being a high-tech metropolis it has a very poor record in this regard despite certain highly publicised exceptions.

Physical hanko stamps are widely used across Japan by government agencies, businesses and individuals instead of signatures. Their use has prevented the introduction of digital forms and complicated teleworking, an issue that was only highlighted during the COVID-19 pandemic.

In late September 2020 the new minister for administrative reform has ordered all national government office to stop requiring the use of hanko stamps on official documents. 

From discussions with certain companies the use of IT tools to track and manage innovation is significantly less than in many other countries.

Exceptions to this, and particularly global manufacturing companies, use the latest technology to gain insights that can be used to make their operations faster, more efficient, and more flexible.

Japan has been a world-class manufacturer for many years and it has driven companies globally to reduce waste from all areas of their business.

Digitisation and digitalisation also show the benefits of AI tools, which can automatically review part designs and recommend potential issues with their manufacturing at an early stage of the design process.

The adoption of digitised additive manufacturing is predicted to dramatically increase in the future, however the adoption to date has been much lower than in other countries.

This is somewhat counterintuitive since Japanese companies did participate in the development of additive manufacturing processes, but they have not been as dominant as they have been, for example, in the manufacturing of machines for more traditional subtractive processing.

On the other hand, they are doing very well in the area of robotics and cobots and with their global deployment.

The uptake of virtual meetings and real-time collaboration tools is much lower in Japan than in Ireland, or indeed many other countries.

The COVID-19 pandemic and associated lockdowns really highlighted these problems and show how Japan will need to make significant moves to reverse this trend. Japan had a relatively short, and regionally different, lockdown of schools in response to the coronavirus.

Schools in some areas shut for two weeks while the average was a little more than a month. Schools in some areas reopened for traditional entrance ceremonies in April and then shut again the following day.

Many schools reported that their students could not engage fully in online learning since their only access to the internet was through a smartphone.

This tallies with the OECD reports which ranks Japan lowest when it comes to using information and communication technology outside of school for schoolwork. Japan is below the OECD average both for access to computers for school work and quiet places to study.

On the other hand, Japan consistently ranks highly in the OECD’s international student assessments. These are conducted every three years and Japan is maintaining its position alongside countries that devote a higher percentage of GDP spending on education.

(In Part 2, to be published on November 17, 2020, the author will examine the changing economy, increasing job uncertainty, and reducing the supply risk.)

Author: Dr Kevin D Delaney lectures and researches in the areas of design, innovation, knowledge management and engineering education within Technological University Dublin, Ireland. He previously spent 10 years in advanced development and design roles in global companies in the automotive and connector industries. He is a Chartered Engineer and Fellow of Engineers Ireland.