The Japan Key Technology Center (JKTC) was established in 1985 by the Japanese government to promote research and development (R&D) in key technology areas in cooperation with the private sector. It is funded by the government's Special Account for Industrial Investment. Funds for JKTC are derived from the Japanese government's equity holdings and annual dividends in the privatized Nippon Telegraph and Telephone Corporation (NTT). The level of government funding for JKTC has been relatively constant since about 1990: no less than about 20 billion/year for direct investment and 6.0 billion/year for loans; or a total of 26.0 billion (approximately $235 million per year).

JKTC's primary role is to help established firms establish new R&D firms that will develop new technologies in the selected areas of materials, information technology, biotechnology, and related physical sciences. JKTC works with private companies: investing in joint ventures with some companies, and providing loans for R&D to other companies. Since its beginning, JKTC has supported over 360 R&D projects through investment and financing. JKTC also arranges joint research with national institutes, invites foreign researchers to work in Japan, and disseminates research data that is related to these key technologies.

In early 1998 the Defense Advanced Research Projects Agency (DARPA), the Department of Commerce (DOC) and the National Science Foundation (NSF) of the United States government asked the World Technology (WTEC) Division of the International Technology Research Institute (ITRI) to evaluate the JKTC program. The objectives of this WTEC panel were to compare JKTC to U.S. programs, assess the potential for initiating similar programs in the United States, and identify opportunities for enhanced collaboration between the United States and Japan. This report documents the findings of the WTEC panel.


This project reviewed Japan's Key Technology Center program from two perspectives:

  1. its relevance to U.S. science and technology policy as a model of government-industry partnerships to foster technological innovation
  2. the international status of research in information technology, biotechnology, and physical sciences being conducted in JKTC-supported firms

Although forming conclusions on the applicability of the JKTC model to the U.S. setting, the report comments on the strengths and weaknesses of the JKTC model. It is not presented as an evaluation of JKTC in the context of the Japan's science, technology, and economic objectives. Fundamental reconceptualization of roles and relationships between and among the government, industry and universities, and between the national and regional governments, is underway in Japan. This reconceptualization has the potential to considerably change the missions and activities of many Japanese science and technology programs, including those conducted by JKTC.


In an era dominated by global competition in high technology goods and services, widespread beliefs that scientific research can serve as the basis for "industry-creating" technologies and that first-mover advantages enable firms and nations to gain significant technological and economic advantages from being first (or of not falling further behind other leaders), the U.S. and Japan, as well as other industrialized nations, have engaged in systematic, large-scale support of commercially oriented technology. Beyond these generic considerations, the specific design of the JKTC program reflects specific historic events and policy objectives in Japan. Cited frequently by Japanese officials and industrial representatives as factors that influenced the design and operation of the JKTC program were the following:

Few of these specific factors hold in the United States. The U.S. national innovation system is significantly different that of Japan in several key respects. Federal funding in the United States of R&D in the key technology areas identified by JKTC (e.g., information technology, molecular and cell biology) has either increased sharply or is proposed to increase sizably in recent years. The U.S. remains the unquestioned leader in basic research in many, albeit not all, scientific areas including those targeted by JKTC. As a matter of long-standing and successful policies, federally funded basic research in the United States is primarily conducted in universities and government laboratories with relatively little channeled through private firms. The U.S. venture capital market is the largest in the world.

Several variants of the JKTC program also exist already in the United States to encourage private sector R&D in selected technologies. These include the Department of Commerce's Advanced Technology Program, NSF's Engineering Research Centers Program, and the Department of Defense's Advanced Research Projects program. SEMATECH is probably the closest U.S. program to JKTC, in that the U.S. government, through the Defense Advanced Research Projects Agency (DARPA), funded a private company with additional funding provided by the private sector. But unlike JKTC projects, SEMATECH was allowed to continue and in fact encouraged to sustain itself after the 5 year funding from DARPA ended. Moreover, several features of the JKTC model are inconsistent with U.S. economic and technology development policies. These include the potential for de facto cartelization of emerging technological areas through control by member firms of key patents and the tacit influence of government agencies on the composition of consortium members.

Selected aspects of the JKTC model would appear, however, to hold potential for the design of U.S. technology development programs. A notable feature of the JKTC model is the latitude allowed firms in the choice of research trajectories and project management activities once they have received a JKTC award. Except for the third year interim review, which, according to statements made to the WTEC panel, appears to have a limited impact on research priorities or activities, firms participating in JKTC are given a degree of latitude that probably extends beyond that found in similar programs in the United States. The impact of this latitude on the level of technological advance obtained for the government's investment in the program, however, is more difficult to determine.

Another appealing feature of the JKTC program is that all researchers work under one management chain and get paid from the new company.1 This is unique, since in most U.S. programs, industry and academic or laboratory personnel continue to be paid by their own organizations, thus keeping strong loyalty ties to the parent organizations. Linking staff together makes it easier for them to form teams and work together.

The panel finds little novelty in the procedures, criteria, or methodologies used by JKTC to evaluate proposals or to assess the impacts of JKTC-supported firms relative to U.S. program and project evaluation practices. The principal methods used by JKTC are publications, patents, and license and related income accruing to JKTC from these patents. Scientific publications are treated as a measure of the scientific merit of the research being undertaken by JKTC firms; patents are treated as a measure of the commercial potential of technologies developed by JKTC firms; licensing income is treated as the primary and seemingly exclusive measure of the economic impact of the research. (JKTC and MITI officials reported modest levels of license income from patents originating in JKTC-sponsored research. Concern about the level of license income appears to underline comments by some respondents that MITI was placing increased pressure on firms to increase the number of patents they generated.)

JKTC technical review panels are comprised of academic specialists who assist in evaluating proposals from firms for JKTC support. The impact of these panels on the selection of grantees is difficult to isolate. No data were provided to the WTEC panel on the ratio of successful to unsuccessful applications, although it was noted that the credit crunch in Japan has led a larger number of firms to turn to JKTC essentially as a source of low-cost credit. More importantly, ratios of successful to total applications have limited meaning in the larger government-industry context within which JKTC functions. As reported both by government agencies and firms, considerable prior consultation exists between firms seeking to apply to JKTC and MITI bureaus. This consultation includes not only the generic area of technology to be pursued by the new firm, but also in some cases, the composition of firms to be included as applicants. Thus, the likelihood of a fit between the consortium's objectives and JKTC's selection criteria is increased, as is the likelihood that a proposal will be funded.

The WTEC panel received different assessments of the importance of the third year reviews. The reviews were seen by some agency officials as important interim assessments of research activities, leading, as required, to changes in research trajectories and increases or decreases, as recommended, in JKTC funding. Other respondents, including some firms, reported limited impact from these third year reviews, with some suggestions that they were more symbolic than substantive.

A distinguishing feature in the JKTC third year review process is that it is bifurcated into a technical and a business review. Review of the firm's business plan is conducted separately, usually by a third-party "think tank" organization. The panelists did not meet with any reviewers of the business plans and so cannot comment on the procedures or criteria employed in this segment of the review. Responses by some of the JKTC firms indicated that they attached limited weight to this review, considering business plans to be an internal matter.

The emphasis on patents and license income by JKTC and other Japanese ministries as measures of the technological and economic outcomes of JKTC firms is not fully consistent with a building body of scholarly research in the United States and elsewhere that economically valuable knowledge from R&D is bundled and transferred in multiple channels other than patents. Studies, for example, of NSF and DOD cooperative R&D programs point to economic impacts in the form of personnel movements of and nonpatentable insights into new pathways or dead-ends. Indeed, in the panel's review, JKTC's existing criteria of publications and patents likely do not adequately record the benefits Japanese firms receive from the JKTC program. As reported in some site visits to firms, participation in a collaborative joint venture for a period of up to five years increases the knowledge of researchers who staff the JKTC-sponsored R&D firm. These researchers, for the most part, then return to their firms, where they may be conduits for new technologically relevant developments.

Published: September 1999; WTEC Hyper-Librarian
1 One host commented that personnel transferred from government laboratories get paid direct from the new company; those transferred from private companies may continue to receive salary from their home companies. The new company can then reimburse the home companies on a contractual basis. 4 Executive Summary 3 WTEC Panel on Japan's Key Technology Centers Program 1