Author: Tomohiko Inui, Faculty Fellow, RIETI
In order to maintain the growth of the Japanese economy despite an aging population, it will be necessary to generate “product innovation” that creates products and services with higher added value, as well as “process innovation” that produces existing products and services more efficiently. Efforts by Japanese companies to innovate, however, have been half-hearted. According to the Report on the Japanese National Innovation Survey 2018 implemented by the Ministry of Education, Culture, Sports, Science and Technology’s National Institute of Science and Technology Policy (NISTEP), in the three years from 2015 to 2017, while 34% of companies engaged in product innovation or business process innovation, 62% did not engage in any innovation efforts at all. The largest factor cited as hampering the achievement of innovation and the implementation of efforts towards it is “an insufficient number of capable personnel within the company,” whereas financial constraints such as insufficient internal capital or difficulty in procuring outside capital are not mentioned as significant factors. This implies that liquidity constraints are not impeding innovation efforts, but, rather, that innovation is not a priority for companies to begin with and that companies are inattentive to the allocation of corporate resources such as the acquisition of high-level personnel with the specialized expertise and knowledge required for serious innovation efforts.
If we consider that highly-skilled personnel with high-level knowledge are holders of doctorate degrees, we see that in the NISTEP survey the ratio of companies employing at least one person with a doctorate degree remains low among companies not engaged in innovation efforts: 2% of small businesses, 4% of medium-sized businesses, and 9% of large businesses. According to NISTEP’s 2012 Survey on Research Activities of Private Corporations, one reason why the utilization of holders of doctorate degrees at private companies is stagnant is the high reported rate of businesses claiming that “it is more effective to increase the abilities of personnel through company education and training” and that “such personnel may have expert knowledge in a particular field, but such knowledge cannot readily be applied at a company.”