OPERATIONS AND MANAGEMENT

Project Selection and Oversight

JKTC issues program announcements once or twice a year announcing the availability of funds. Projects are based on private sector initiatives rather than on stated JKTC priorities or solicitations by JKTC for R&D efforts in specific technological areas. JKTC sees its role as conducting reviews of the technical and business merits of the proposals it receives. Final decisions on the technological areas to be supported are based on JKTC's enabling legislation.

JKTC's project selection criteria include technical quality, the impact of R&D, the breadth of technical solution (its cross-field effects), and whether there is adequate R&D support in the private sector. No ex-ante allocation of funds is made across technical fields.7

Companies decide whether to apply for a direct investment or a loan. If it is an investment, typically they need to bring in a consortium of other companies to form a joint venture.

JKTC conducts an evaluation of the initial proposal, an interim assessment (usually in the third year), and also receives a final project report.

In conducting the initial review and selection process, JKTC relies on a technology analysis committee made up of 82 professors.8 The committee is divided into eight technical subcommittees corresponding to the areas of major research; cross-category subcommittees are established for selected projects.

JKTC policy has been to keep the names of committee members confidential because professors reportedly have been reluctant to have their names published. This is because of the risk of possible contact of committee members by participating firms. JKTC has recently changed its policy on the confidentiality of names. It was planning to make public the names of the 1998 committee members beginning in April 1999, thus moving to a policy of making known the names of the previous year's panel.

JKTC has set up a business feasibility committee and also employs an accounting firm to do business reviews of the proposals. JKTC representatives acknowledged that procedures and methods for conducting evaluations needed attention.

No data were provided by JKTC officials on the acceptance rate of proposals; however it appears from the interviews that this number approaches 100% for applications that are formally submitted. This high success rate is the result of an effective screening process in which technically poor and non-responsive proposals are eliminated prior to the formal stage.9 This screening process is aided by MITI's basic industry bureaus. Companies contact these bureaus about the appropriateness of their proposals for MITI or JKTC funding. In this way, MITI's bureaus pre-screen proposals, at times acting as matchmaker in suggesting to a consortium of firms that additional firms be considered for partnership as a founding member of the new joint venture firm. Another informal mechanism affecting JKTC support involves meetings between MITI and firms that lead to the formation of a new joint stock limited partnership and the development of a proposal to be submitted for JKTC funding.10

JKTC describes itself as exerting little control over the management of funds once they are allocated to firms. Rather, it describes its role as that of a monitor of the performance of firms, employing a series of technical/business reviews.

Procedures for the third year review were described as follows: the R&D firm prepares a report, which it submits to the review panel. The committee holds hearings at which the firm's representatives respond to questions. The panel reports its findings on the technical progress of the project to JKTC. JKTC reviews the report, discusses internally how to present the findings to the firm and then provides feedback to the firm. No specific format for the assessment is reported. Once a project is funded, there is little likelihood that it will be terminated due to inadequate progress. JKTC reported no case of any project not passing its third year evaluation, although the third year evaluation was reported to have led to changes in the direction of a firm's R&D activities.

Performance Evaluation and Outcomes

MITI officials regard JKTC as a government "investment" program rather than as a subsidization of industrial R&D. MITI looks for returns on its investment in the form of dividends paid by the new firm from income received from its intellectual property rights. In aggregate financial terms, during its 13 years of operation (1985-1998), JKTC has "invested" 240 billion. As of 1998, revenue (income) returned by the firms was estimated at 2 billion (through the sale of licenses). MITI officials noted that "R&D always takes time;" suggesting expectations of increased license revenues over time. MITI officials also, however, noted that they are beginning to have doubts about the economic validity of this investment model.11

JKTC regards patents and published papers as the major outcome metrics and encourages firms to patent and publish results. JKTC officials noted that its projects have resulted in 4,226 patent applications (about 900 were granted) and over 16,000 technical papers and presentations over the past 13 years. This total was said to comparable to the number of patents originating in the approximately 15 other research institutes under the aegis of MITI's Agency for Industrial Science and Technology (AIST).

There have been few new business start-ups (focused on downstream production) resulting from JKTC-sponsored firms. However, MITI officials provided some specific examples of what they considered successful JKTC investment projects: 12

All JKTC projects are time-limited and are automatically finished after the agreed-upon term. This policy prevents funded projects from becoming "entrenched bureaucracies." JKTC has no method for tracking the flow (and impact) of knowledge after the R&D phase of the project has been completed.

JKTC recognizes the importance of the flow of knowledge from human capital as a mode of technology transfer. New venture companies may hire new people or transfer staff from the parent companies. JKTC officials noted that these joint ventures are useful as a technological training ground. However, JKTC does not attempt to track the careers of people who work on its projects.

Program Management/Evaluation

Compared to U.S. practices for evaluating government supported technological development programs, little novelty exists in the procedures, criteria, or methodologies used by JKTC to evaluate proposals or to assess the outcomes of JKTC-supported firms. No formal procedures for benchmarking the performance of centers were reported.

Future Program Evolution

Little variation during its 13 years of operations was reported in JKTC's formal policies. The changes that have occurred have flowed mainly from the practices of firms and the third year reviews. MPT officials said that there were no plans to review the Basic Law that established JKTC. The legislation that established JKTC set out basic principles and was not very detailed. JKTC changes its management procedures and policies through the screening procedures of related agencies. It believes that regulating details such as management procedures and policies by law will impede the flexible supply of efficient services.

  1. Interestingly, JKTC came into being about one year after the breakup of the Bell System by the U.S. government. Though there was debate in the United States about the future of Bell Laboratories and its research (viewed by many as the premier U.S. research laboratory), no provision was made to prevent the inevitable decrease of support for research by the new, and much smaller company, AT&T, and its new research arm, AT&T Bell Laboratories.
  2. In discussions with JKTC representatives it was noted that there was little venture capital in Japan for "upstream activities," such as R&D start-ups. Venture capital is, however, said to be available for "downstream" activities to improve manufacturing capacity.
  3. To provide a stable funding base for funding JKTC, interest from one-third of the shares held back by the government in the sale of NTT was used. Dividend income from these shares provides JKTC's core annual revenues (of 26 billion).
  4. In 1995, JKTC changed its procedures to allow itself to make investments in projects having only one company. The first such example was a project with Canon Corporation.
  5. There is no direct investment by U.S. firms in JKTC firms, but the Japanese subsidiaries of U.S. firms invest in several JKTC R&D firms. Non-Japanese firms are reported as able to license the technologies following the same patent arrangements as they would for any other non-JKTC patent. JKTC hosts cited one such actual case.
  6. JKTC officials stated that because of Japan's protracted economic downturn, many more small businesses have been applying to JKTC for loans.
  7. Interviews with MITI and selected firms indicate that considerable prior discussion occurs between firms and MITI concerning which types of projects are to be submitted to JKTC.
  8. Faculty members are appointed to the technology analysis committee for one-year terms. JKTC's chairman makes formal appointments to the technology analysis committee, but effectively appointment is based on recommendations of existing members of the committee. No industrial representatives are on the technology analysis committee.
  9. Officials noted that Japan's recession had led to a credit squeeze on both large and small firms, particularly the latter, and that as a result JKTC was receiving a larger number of technically poor proposals that essentially seemed to be attempts to acquire low-cost credit.
  10. Interviews with JKTC-supported firms support these accounts. Firms report that they frequently consult with MITI about the suitability of a project for JKTC funding and that MITI essentially pre-screens applications, effectively endorsing proposals to JKTC.
  11. "Strong encouragement" for JKTC firms to generate patentable findings is reported from both MITI and the Ministry of Finance. JKTC officials also report encouragement from the Ministry of Finance to show more income from licenses. Accordingly, JKTC officials note that they might have to modify the system to take into consideration exclusive licenses.
  12. These and other success stories are described in the JKTC brochure entitled Research Results of JKTC Investment Projects.

Published: September 1999; WTEC Hyper-Librarian