Site: Japan Key Technology Center (JKTC)
Ark Mori Building, 16F, Akasaka 1-12-32
Minatoku, Tokyo 107-6016, Japan

Date Visited: 12 October 1998

WTEC Attendees: I. Feller, G. Gamota, R. Harris, P. Herer, P. O'Neill-Brown, O.R. Zaborsky



The Japan Key Technology Center (JKTC) was established under a special law in 1985. It is financed jointly by the government and private industry for the purpose of promoting research and development on "fundamental key technologies of private industries." JKTC's main activity is to provide loans for R&D by private concerns and investment capital to joint R&D companies set up by private concerns. From an economic perspective, JKTC support reduces the financial risks that firms face as they pursue technological advances.

The center also provides other services such as coordinating arrangements for joint research with national research institutes, inviting overseas researchers, disseminating research data held by national research institutes, government-affiliated bodies, and carrying out various surveys related to key technologies. Since its establishment, the center has assisted more than 360 research and development projects.

JKTC has a staff of 54. Its annual budget for capital investment and loan services is roughly 28 billion, largely derived from the Japanese government's holdings of shares in Nippon Telegraph and Telephone Corporation (NTT). Dividend income from these shares provides JKTC's core annual revenues (of about 26 billion).

JKTC funds are used provide direct investments and loans to the private sector and to finance its own operations. JKTC provides up to 70 percent of the R&D funds through loans and up to 70 percent through direct investment; the private sector firms provide the balance. JKTC provided no statistics on the distribution of investments or loans by size of firm.

JKTC is analogous to a government-operated venture capital fund. (JKTC representatives 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 such as improving manufacturing capacity).


JKTC provides loans for funds needed to obtain intellectual property rights to the results of the R&D and for R&D projects carried out by companies, mainly from the applied research phase. Two types of loans were described to the visiting WTEC delegation: "A" loans, which are made to firms of all sizes; and "B" loans, which are directed at firms within a capital of less than 10 billion. In the case of loans, if the project is not going well, JKTC will reduce the interest rate it charges. In the case of B loans, JKTC will reduce both the interest rate and the loan's principal. Typically, loans are required to be repaid within 10 years from the completion of the deferment period (R&D period).

JKTC officials stated that because of the economic downturn, many more small businesses have been applying to JKTC for loans.


In the case of direct investment, JKTC and the participating companies hold appropriate shares of stock in the new venture company. JKTC reports that one of the shareholder firms is usually selected as the "lead" company. Note that investment support typically involves a number of firms (although the number can be as low as one). At the time of application, the firms effectively set up a new joint venture. If other firms want to enter subsequent to the launching of the new firm, they must enter into agreement with the original firm. JKTC reports that no new entries have been refused: firms both enter and leave the joint venture.

Direct investment financing is provided for the expected life of the R&D project (typically 7 years). At the end of the R&D term, the R&D firm completes its activities and becomes instead the company (or corporate shell) to manage the intellectual property holdings (if any) flowing from its research findings. Once a firm starts to earn net revenues, it pays dividends to the member firms and to JKTC. The firm also pays corporate taxes.

Since its inception, JKTC has funded 74 investment projects. Forty-seven projects have been completed; 27 were ongoing at the time of this visit. Although as a private firm, the R&D venture could presumably move into production, JKTC reports no case of this development.

JKTC describes its objective as improving the level of Japan's key technologies. Management representatives stated that JKTC does not exist to make a profit, although they also report pressure from the Ministry of Finance to increase the number of patents from the firms JKTC helps create (and presumably, therefore, the license income stream).

Projects are based on private sector initiatives, not on JKTC priorities or solicitations by JKTC for R&D efforts in a specific technological area. JKTC's role is to conduct an assessment 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, which emphasizes the major areas of telecommunications, electronics and biotechnology (JKTC brochure).

JKTC issues program announcements once or twice a year announcing the availability of funds. Project selection criteria, which are listed on JKTC's homepage, include technical quality, the impact of R&D, the breadth of the technical solution (its cross-disciplinary effects), and whether the R&D system is appropriate. No ex-ante allocation of funds is made across technical fields.

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 performance, employing a series of technical/business reviews.

JKTC's review procedures were described as follows: it conducts an evaluation of the initial proposal, an interim, third-year assessment, and receives a final report. Japan's recession has led to a credit squeeze on both large and small firms, particularly the latter; as a result, JKTC has received a large number of proposals from small- and medium-sized companies. JKTC is not planning to change its review procedures to accommodate these proposals.

Once a project is funded, there is little likelihood that it will be terminated for inadequate progress. JKTC reported no case of any project not passing its third year evaluation. The third-year evaluation was reported to have led to changes in the direction of a firm's R&D activities and to both increases and decreases in JKTC funding levels.

Procedures for the third year review were described as follows: the R&D venture firm prepares a report, which is submitted to the technology analysis committee. The committee holds hearings at which the firm's representatives respond to questions. The committee reports its findings on the technical progress of the project to JKTC. The review is said to include an assessment of what has been accomplished. 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.

JKTC describes itself as lacking the staff to conduct its own evaluations of the technical and business progress of projects. Instead, project evaluation relies on a technology analysis committee made up of 82 professors. The technology analysis committee is divided into eight technical subcommittees corresponding to the major categories of research, and some cross-category subcommittees are established for selected projects.

JKTC officials declined to disclose the review criteria form or the names of the 82 faculty members of the technology analysis committee. JKTC policy has been to keep these names confidential because professors reportedly are reluctant to have their names published. This is because of the risk of possible contact of assessment committee members by participating firms. JKTC has recently changed its policy on the confidentiality of names. Beginning in April 1999, it was scheduled to make public the names of the 1998 committee members, thus moving to a policy of making known the names of the previous year's panel.

Faculty members are appointed to the review panel for a one-year term. Formal appointment to the technology analysis committee is made by Mr. Toyoda, JKTC's chairman. However, effective appointment is based on recommendations of existing members. No industrial representatives are on the technology analysis committee.

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

No data were provided on the acceptance rate of proposals, although it appears from the interview that this rate is very high.

The interim evaluations can lead to changes in the project and to budget changes including both increases and decreases.

There is no direct investment by U.S. firms in JKTC firms, but the Japanese subsidiaries of U.S. firms have invested in several JKTC R&D firms. Non-Japanese firms are reported as able to license the technologies following the same patent arrangements that would be used for any other non-JKTC patent. One such actual case was cited.

There are no explicit criteria related to local or regional economic development. MITI has its own programs to support regional economic development.

The metrics on impact evaluation do not take into account the quality of the research. No formal procedures for benchmarking the performance of centers were reported.

JKTC officials strongly encourage firms to patent and publish results and refer to patents and papers as the major outcome metrics. It was noted that over the past 13 years JKTC projects have resulted in 4,226 patent applications and over 16,000 technical papers and presentations. There have been a few new business start-ups (focused on downstream production).

As of 1998, revenue from the licenses to JKTC has been modest-only 2 billion has resulted from investments totaling 240 billion. JKTC officials report encouragement from the Ministry of Finance to show more income from licenses. Also, they see the need to take into consideration exclusive licenses.

JKTC officials noted that it was very difficult to judge projects. Again, they referred back to the flow of knowledge to the firms, but they have no way of tracking the flow (and impact) of knowledge after the R&D phase of the project has been completed.

JKTC officials recognize the importance of the flow of knowledge from human mobility as a mode of technology transfer. (New venture companies may hire new people and/or transfer staff from the parent companies.) They also note that joint ventures are useful as technological training grounds.

WTEC's JKTC hosts noted that they are thinking about a more general evaluation of R&D cooperation in Japan. This project presumably will be undertaken by MITI's Agency for Science and Technology, which has responsibility for several government-industry cooperative R&D programs.


Capital investment for R&D companies (one page description).

Special loan services for R&D companies (one page description) and image figure of special loan services.

Descriptions of investment projects, 1995-97.

Japan Key Technology Center (brochure).

Law for the facilitation of research in fundamental technologies.

Published: September 1999; WTEC Hyper-Librarian