JKTC PROGRAMS

In order to promote R&D by the private sector in key technologies, the JKTC invests in joint R&D companies set up by private concerns and provides loans for R&D to private concerns. JKTC provides up to 70 percent of the needed R&D funds through loans and up to 70 percent through direct investment; the private sector firms provide the balance. From an economic perspective, JKTC support reduces the financial risks that firms face as they pursue technological advances. Since its establishment, JKTC has supported more then 400 investment, loan, and other projects.

JKTC also provides other services, such as coordinating joint research with national research institutes, inviting overseas researchers to Japan, disseminating valuable research data held by government affiliated bodies, and carrying out various surveys related to key technologies.

Firms seek JKTC funding to either help augment their own high risk research, or to pay for work not directly related to their mainstream products or services but of interest to some of their researchers. JKTC projects provide the freedom for researchers to pursue either higher academic degrees or unfettered (that is tied to the company's business line) research. Obtaining a PhD has become more fashionable for industrial researchers, and by joining a project, many researchers have this opportunity which they would not have if they stayed with the company. Some companies participate because of the prestige, and in some cases because of active encouragement from the Japanese government.

JKTC also provides an opportunity for corporate researchers to develop a network between companies. Lifetime employment being the norm in Japan, there is little sharing of ideas between companies. While this helps the companies keep "company secrets," it builds walls in Japan in a time when such walls are falling elsewhere due to globalization of industry. Due to this lack of personnel mobility in Japanese industry between companies, little interaction exists between the researchers. JKTC helps them develop relationships that continue beyond the projects. In the United States, this interaction occurs in part as a result of high turnover of personnel between companies.

Direct Investment Program

JKTC provides capital investment for two types of R&D projects, namely (a) fundamental research projects or comprehensive development projects (i.e., from applied research to practical applications) or (b) R&D projects targeted primarily at promoting the so-called "New Media Community" development programs. Typically, two or more companies jointly capitalize and establish a new company in the form of a joint stock limited partnership (kabushiki-kaisha) to implement the proposed R&D project.4 Since its inception, JKTC has funded 109 investment projects. Forty-seven projects have been completed; 82 are ongoing.

The new legal entity created by JKTC and private sector support is a joint stock limited partnership not an "R&D" company. Although as a private firm the company could presumably move into production, JKTC reports no case of this development.5

As indicated in Table 2.2 below, JKTC provides up to 50% for capital investment (which takes the form of acquisition of shares in the company) in key technologies. In addition, JKTC provides up to 70% of the capital required for projects aimed at fundamental or comprehensive R&D, particularly for the second type of project targeted at "Teletopia" or "New Media Community" development programs (Table 2.3).

In the case of direct investment, JKTC and the participating companies hold appropriate shares of stock in the new venture company. One of the shareholder firms is usually selected as the "lead" company of the new joint stock limited partnership at the time of the application. The senior staff of the new companies consists of personnel from the supporting companies. The research, though, can be carried out by a combination of research staff from the supporting companies or newly hired staff from other organizations such as universities or government laboratories. If, subsequent to the launching of the new firm, other firms wish to enter it, they must obtain the consent of the original firm. This event does occur; JKTC reports that firms both enter and leave the joint stock limited partnerships.

JKTC provides direct investment in the newly formed company for the expected life of the R&D project-typically a seven-year period. After that, the staff disperses (frequently returning to their home firms), leaving a small holding company that licenses the technologies it has developed. The income from such licenses and from sale of the project capital assets provides funding for the continuation of the holding company. Once a firm starts to earn net revenues, it pays dividends to the member firms and to JKTC. The firm also pays corporate taxes.

Table 2.2

JKTC Capital Investments

Object of investment

Non-public R&D company. After JKTC's investment, its ownership of any public corporation must be less than 50%.

Investment ratio

Up to a limit of 50% of the expenditure eligible for investment. After investment, the ownership of JKTC must be less than 50%.

Term of investment

No more than 5 years from the first investment in the experimental and research project concerned.

Form of investment

Acquisition of shares in the company at the time of its allocation of new shares to a third party.

Diffusion of research results

Intellectual property rights, including patents obtained through the experiments and research in which JKTC invested, will be held by the company.

However, since these companies receive government funding, the company must confer with any interested third party about granting licenses to the technologies it develops at an appropriate price.



JKTC Capital Investments Object of investment Non-public R&D company. After JKTC's investment, its ownership of any public corporation must be less than 50%. Investment ratio Up to a limit of 50% of the expenditure eligible for investment. After investment, the ownership of JKTC must be less than 50%. Term of investment No more than 5 years from the first investment in the experimental and research project concerned. Form of investment Acquisition of shares in the company at the time of its allocation of new shares to a third party. Diffusion of research results Intellectual property rights, including patents obtained through the experiments and research in which JKTC invested, will be held by the company. However, since these companies receive government funding, the company must confer with any interested third party about granting licenses to the technologies it develops at an appropriate price.

Table 2.3

JKTC Investments for Fundamental or Comprehensive R&D

Object of Investment

Investment Ratio

Term of Investment

Corporations set up with capital from two or more companies with the object of carrying out research in key technologies executed from the basic or applied phase.

Up to a limit of 70% of the funds needed for research (excluding land costs).

No more than 7 years in principle (can be extended to 10 years for cases recognized as being of particular need).




JKTC Investments for Fundamental or Comprehensive R&DObject of Investment Investment Ratio Term of Investment Corporations set up with capital from two or more companies with the object of carrying out research in key technologies executed from the basic or applied phase. Up to a limit of 70% of the funds needed for research (excluding land costs). No more than 7 years in principle (can be extended to 10 years for cases recognized as being of particular need).

Loan Services Program

The other mission of JKTC is to provide direct loans to individual companies for funds needed to obtain intellectual property rights to technologies, and for R&D projects carried out by companies, mainly for applied research. The loans reduce the risks and capital burden of R&D by subsidizing interest rate costs. Table 2.4 summarizes JKTC's loan conditions.

JKTC provides two types of loans: "A" loans, which are made to firms of all sizes; "B" loans, which are directed at firms with a capital of less than 10 billion.6 The upper limit of the loan is 70% of the expenditure. Typically, loans are required to be repaid within 10 years after the end of the deferment period (R&D period). If a project is not going well, JKTC will reduce its interest rate on the loan. In the case of B loans, JKTC will reduce both the interest rate and the loan's principal.

The deferment period is the period up to the completion of the R&D (but in principle no more than 5 years). Collateral and guarantors are required for all loans. Upon completion of the R&D phase, the degree of success is appraised, and levels of loan interest and payment of part of the sales are decided as shown in rows (6) and (7) of Table 2.4.

Table 2.4

Loan Conditions

  1. Expenditure eligible for loan

Expenditure on equipment & facilities, materials, commodities, labor, subcontracted work, and expenses.

  • Upper limit of loan

70% of the expenditure eligible for loan.

  • Repayment term

Within 10 years from the completion of the deferment period.

  • Method of repayment

In principle, split repayment twice a year.

  • Deferment period

The period up to the completion of the R&D (but in principle no more than 5 years).

  • Loan interest

No interest is payable during the deferment period. For the duration of the loan after the deferment period, the interest rate will be calculated taking the rate set at the time of the loan (Trust Fund Bureau Long-term Loan rate at the time of the loan) and, depending on the degree of success of the research, multiply it by either 1.0, 0.75, 0.5, 0.25, or 0. The degree of success is evaluated upon completion of the research.

  • Success remuneration

On the basis of the interest rate calculated as in (6) according to the degree of success, an amount equivalent to the interest calculated as simple yearly interest during the deferment period is remunerated at the time of repayment of the principle.

  • Collateral & guarantors

Required, in principle.



Loan Conditions 1. Expenditure eligible for loan Expenditure on equipment & facilities, materials, commodities, labor, subcontracted work, and expenses. 2. Upper limit of loan 70% of the expenditure eligible for loan. 3. Repayment term Within 10 years from the completion of the deferment period. 4. Method of repayment In principle, split repayment twice a year. 5. Deferment period The period up to the completion of the R&D (but in principle no more than 5 years). 6. Loan interest No interest is payable during the deferment period. For the duration of the loan after the deferment period, the interest rate will be calculated taking the rate set at the time of the loan (Trust Fund Bureau Long-term Loan rate at the time of the loan) and, depending on the degree of success of the research, multiply it by either 1.0, 0.75, 0.5, 0.25, or 0. The degree of success is evaluated upon completion of the research. 7. Success remuneration On the basis of the interest rate calculated as in (6) according to the degree of success, an amount equivalent to the interest calculated as simple yearly interest during the deferment period is remunerated at the time of repayment of the principle. 8. Collateral & guarantors Required, in principle.

Based on the Japanese government's past experience of mixed success in funding private sector ventures, increased attention to financial standards, such as collateral for loans, is reported. JKTC representatives indicated that, in the future, they may be become more flexible on collateral requirements for venture business (apparently in response to Japan's current credit crunch).


Published: September 1999; WTEC Hyper-Librarian