The purpose of this JTEC panel study of optoelectronics in Japan and the United States was to investigate and report on the current status of Japanese optoelectronic technology compared to that in the United States. In particular, the panel's mission was to determine the relative effectiveness of Japanese and U.S. government, industry, and academia in gaining a competitive edge in the many facets of optoelectronics. To meet this goal the panel researched the professional literature of both countries, visited numerous companies, government organizations, and academic institutions in both Japan and the United States, and then synthesized its findings by identifying underlying themes that transcend institutional boundaries.
The JTEC panel focused its investigations on five topical areas that are thought to be most economically strategic to both Japan and the United States:
In addition, the panel undertook to understand major economic factors that determine the relative success of Japanese and U.S. optoelectronic industries in moving from innovative concepts into profitable enterprises. To get the broadest perspective on the mechanisms used for moving new technologies from the laboratory to the factory, panelists examined the effects of company culture and management, and the effects of external forces such as the government and competition.
The organizations chosen for study have established a leadership role in some important aspect of photonics technology. The panel visited a few of the major photonics companies in Japan more than once, and at their different facilities (research, development, and manufacturing), in order to observe a detailed cross-section of the companies and their methods for bringing products to market. In all, the panelists visited 11 U.S. companies, 18 Japanese companies at 31 Japanese sites, and 3 Japanese universities with significant efforts in photonic science and technology.
Table ES.1 provides a summary of the JTEC panel's findings concerning the relative status of the five technologies investigated in Japan and the United States, along with two "interdisciplinary" technologies -- consumer optoelectronics and custom optoelectronics. These technologies are interdisciplinary in that they share some aspect of two or more of the major topical areas. For example, consumer optoelectronics has a strong emphasis on compact disc players, which involve both optical memories and photonic devices. Interpreting a summary such as that in Table ES.1 must be done with caution: obviously, the relative position of a particular product developed within one of the major subject areas may not be consistent with the overall assessment in that area. For example, while Japanese companies lead in consumer optoelectronics, Hewlett-Packard still remains the worldwide leader in the production of LEDs for the consumer market.
Summary of Findings
Status of Optoelectronics in Japan Compared to the United States (Endnote 1)
It is the panel's overall assessment, as reflected in Table ES.1, that Japan clearly leads in consumer optoelectronics, both countries are competitive in the areas of communications and networks, and the United States holds a clear lead in custom optoelectronics.
The largest area of new opportunity for growth in the U.S. optoelectronics industry appears to be optical sensor technology. As the table shows, the Japanese R&D posture in this field lags behind that of the United States and is expected to remain behind for some time. It also appears that the sensors field has tremendous (if not explosive) growth potential that U.S. industry is well-positioned to exploit.
One other area where the United States might succeed in capturing a significant market share is optical storage: at present the Japanese photonics industry is ahead in both manufacturing and R&D for optical storage, but several opportunities exist for major advances in read/write devices and in storage media technology. Thus, the United States has several realistic opportunities to gain market success on the basis of rapidly evolving technologies.
It is important to put these various markets into context with regard to scale. According to a recent OIDA analysis (1993) of optoelectronic equipment, consumer optoelectronics equipment (concentrated primarily in CD memories of various types) accounts for approximately 50% of the worldwide optoelectronics market, while communications equipment constitutes only 3% of that market. The other major market segment is optical data storage -- again, a market clearly dominated by Japan. By the same estimates, data storage currently constitutes about 40% of the optoelectronic industry market. These proportions are expected to be maintained into the early part of the 21st Century. Thus, Japan now dominates some 90% of the world's optoelectronics markets and can be expected to continue its dominance for a number of years. The current size of the Japanese optoelectronic industry is $40 billion; that of the United States is $6 billion. (Endnote 2) Obviously, Japan has had enormous success with its development strategies for optoelectronics.
Over the past few years, Japanese technological and business success in the field of optoelectronics clearly has been based on telecommunications and consumer products. While Japan's photonics industry has long played a leadership role in many aspects of photonic device and systems development in communications, it has emerged as the undisputed leader in optoelectronics components and products for the consumer marketplace. In particular, the strong, long-term commitment to large-scale, low-cost manufacturing has provided Japan with the means to dominate the fields of optoelectronic displays, fiber-optic gyros, and compact disc players. Current ground-breaking research indicates that Japanese industry will continue to play the dominant role in these technologies well into the future. For example, Nichia's announcement of the successful demonstration of blue laser light emission from GaN suggests that Japan will maintain leadership in optical storage for some time to come.
Furthermore, announcements by Pioneer, TDK, and Idemitsu that they will be introducing the first organic light-emitting flat panel displays in early 1996 also indicate the ability of the Japanese R&D establishment to retain an innovative edge in high-volume, consumer-based products targeted by U.S. industry as having fundamental strategic and economic importance.
Japanese leadership in consumer products is leveraged against a culture of high-volume quality manufacturing and intensive forward planning. Japanese companies try to foresee which aspects of their expertise in device manufacture can be employed in a consumer system that is "on the horizon." Having identified the potential market at the systems level, they then work to improve their device technologies to meet the projected demands for volume, quality, and price. Once a need is identified and a technology is brought to a suitable stage of development, the Japanese companies invest the resources and infrastructure needed to bring cost and capacity within their projected requirements. This level of forward planning appears to be well developed in the Japanese photonics industry and largely absent in the U.S. With the exception of Hewlett-Packard, the U.S. photonics companies with whom the panel interacted do not appear to intend competing with the Japanese in the area of consumer photonics, due to the prohibitive scale of investment and technical development needed.
Japan's position in optical communication, networks, and data communications is not as strong as its position in consumer electronics products for mass markets. In the telecommunications and network markets, the United States sets and leads the pace; nevertheless, Japan's influence and success in optical communications makes it a formidable competitor into the indefinite future.
The U.S. domestic industrial base in optical communications remains strong, and both large-scale companies and smaller "spin-off" companies remain committed to and competitive in this strategic technology field. The U.S. telecommunications industry led in early commercial deployment of fiber optics in telephone trunking and cable TV, and hence it established and has maintained an early lead in deployment and development of fiber-optic technology.
Due to a significant erosion in U.S. fiber optic communications market share over the last ten years, the United States no longer enjoys a fully dominant position; nevertheless, domestic concentration in fiber optics appears to have resulted in a continuing innovative stance. For example, there is currently abundant work by both small and large U.S. photonics companies in pursuing and determining the next step in bringing fiber to the home (FTTH). Solutions involving fiber/twisted-pair, fiber/coax, fiber/wireless, and all-fiber systems are being developed in the United States. There was no evidence that the first three of these alternatives, some of which appeal to new service providers such as cable television or utilities, are being developed in Japan. The main focus there is on the all-fiber approach (fiber-to-the-home, or FTTH), which is the most desirable but also currently the most costly. However, Japanese companies with facilities in the United States are pursuing the other alternatives. With government encouragement, U.S. manufacturers are also investigating advanced transmission systems involving time-division multiple access (TDMA) and wavelength-division multiplexing (WDM), as well as advanced optical networks exploiting these technologies.
Data communications and local area networks constitute a rapidly emerging new segment of the communications market. The competition among suppliers is just now beginning to solidify, and the panel sees this as one of the most important business opportunities currently in optoelectronics. Both the Japanese and the U.S. industries are entering the field, neither with a clear lead at the present time.
Custom component manufacture is an area of particular strength in the U.S. photonic industry. Due to the vibrant entrepreneurial industry base that is an integral part of the U.S. economy and which is apparently nearly absent in Japan, numerous small companies have spun-off from their larger, parent photonics companies.(Endnote 3) These small businesses, which generally specialize in the manufacture of photonic components, are rarely positioned to compete head-to-head with the larger, systems-oriented companies; instead, they tend to specialize by filling narrow niches. As companies become established, the niches expand with the manufacture of additional specialized, unique devices produced to fill the needs of particular subsets of customers. This custom business appears capable of supporting the growth of small companies into midsize enterprises with annual revenues approaching $50 million. This type of custom technology, however, rarely produces rapid growth capable of moving these businesses beyond this middle scale.
Management in large U.S. publicly-owned companies is reluctant to take significant, long-term, and potentially costly risks in new technology ventures, because they must produce short-term profits for shareholders. Indeed, in the United States, revolutionary technologies are often developed by engineers involved in the initial technological development who leave large photonics companies to start the spin-off businesses described above. Many of the midsized U.S. photonic companies that the panel visited, such as Lasertron and Epitaxx (which has recently been bought by Nippon Sheet Glass, and hence can no longer be considered as an independent U.S. corporation), can trace their origins to spin-off enterprises. While this has led to a diversity of photonics companies, this trend has also resulted in a fragmented U.S. industrial base without the substantial, large-scale manufacturing capabilities to compete in volume consumer markets with the Japanese electronics giants.
(Endnote 4) The JTEC panel made some attempts during the course of this study to assess the relative importance of government intervention and incentives to the growth of the optoelectronics industries of Japan and the United States. This topic is subject to a great degree of interpretation, since ferreting out the specific details in both countries with which to make a meaningful comparison is extremely difficult, if not impossible. For example, funding levels reported from government sources provided at the time of this study (DOC 1994) indicate that U.S. government funding of the U.S. optoelectronics industry appears to far outstrip Japan's government funding of the Japanese optoelectronics industry. This simple comparison, however, neglects the fact that a significant amount of U.S. government funding is earmarked for development of specialized products that meet niche government needs, such as the infrared (IR) imaging arrays used by NASA or by the Department of Defense. Another problem in comparing the figures is that a considerable amount of Japan's government funding to improve competitiveness is via tax incentives and low-interest loans and is channeled through funding agencies other than the Ministry of International Trade and Industry (MITI) and the Ministry of Posts and Telecommunications (MPT), whose budgets are the most accessible to U.S. observers. Alternate funding sources are extremely difficult to track and to assess accurately.
To fully appreciate the role that the Japanese government has played in the development of Japan's domestic optoelectronics industry, one must examine its historical involvement in the technology. Ten years ago, Japan's government (via MITI) and industry (via the Optoelectronics Industry and Technology Development Association, OITDA) joined forces in a large-scale program that catalyzed industrial activity in photonics. Jointly funded projects, which at the time appeared to be quite speculative (such as the funding of a large-scale program in optoelectronic integration), nevertheless provided incentives to companies by constructing a common vision of the anticipated role for optoelectronics in future technology. In addition, OITDA has since 1987 carried out a large range of feasibility studies of optoelectronic equipment at numerous sites worldwide as a means of setting standards and of gaining acceptance of this equipment in systems applications.
No such momentum toward technology development was encouraged on a similar scale in the United States at that time. Indeed, no U.S. counterpart to OITDA existed until the very recent establishment of the Optoelectronics Industry Development Association (OIDA). Furthermore, in 1985, virtually all of the U.S. optoelectronic technology developments were privately funded by the telecommunications industry, or through the consumer industry, with government funding primarily channeled toward R&D for specific (noncommercial) defense-related and space-related projects.
The panel's observation that current Japanese government support of optoelectronics appears to be small relative to its "long-range" or "blue sky" projects such as the Real World Computing Program must also be placed in context. The long-range programs are designed to provide future markets and applications for technologies being developed today. "Blue sky" funding must, therefore, be considered as part of the overall Japanese strategy for supporting optoelectronics. Furthermore, the MITI initiatives in optoelectronic integrated circuit developments put forth a decade ago were also considered "blue sky" initiatives at that time. Hence, Japanese government funding of optoelectronic research has long followed a pattern of investing in highly speculative, forward-looking projects, a few of which eventually take root and develop large payoffs. Indeed, this long-range research profile for commercial applications has more recently also been implemented with great effectiveness in the Japanese industrial sector, while at the same time, such initiatives are fading in the United States. This may be indicative of a trend of long-term erosion of the photonic and electronic technological leadership held by the United States since the end of World War II.
Optoelectronics is one of the most important technology fields currently being supported by the Japanese government, by Japan's industrial sector, and by Japanese society in general. Indeed, in light of the panel's conversations with Japanese hosts, it appears that optoelectronics is regarded as a major vehicle to propel Japanese electronic product dominance into the next century. In contrast, in the United States, optoelectronics is by no means held to be so crucial a technology. This is due in part to the greater diversity of the U.S. economy, which leads to a very heterogeneous array of interests and opportunities. While optoelectronics is regarded as important in the United States, this field has not achieved anywhere near the visibility and significance that it has in Japan. The panel regards this as a significant long-term problem for the United States as it struggles to maintain its worldwide leadership in electronics technologies in the future. The panel concludes that in this respect, the Japanese have a much clearer understanding of the crucial role that optoelectronics technology plays in the development of future electronic and communication systems.