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Who Says There Is No Future for Japan

It was a freezing Friday evening last winter. I received a visit from my friend who had just arrived from Hong Kong. My friend was almost frozen making his way to the restaurant where we met. I decided to change my usual casualness of treating guests with a mug of beer and follow his preference of ordering hot soup. Then, we changed to warm "sake" - the popular rice-based beverage in Japan.
As he warmed up, my friend recovered his talkativeness. Starting with his impression of his visit to Tokyo after a several years' interval, he went on to describe how different the reality of Tokyo was from that which had been reported in the Hong Kong media. He saw vitality in the crowds of Tokyoites, the flashes of city illuminations and a lot of new construction going on. He was unable to see anything that indicated a depressed, gloomy future of Japan as often portrayed.

Japan's Challenges and Trends in Licensing

It is not surprising to see press articles focusing on the lingering slump of the Japanese economy and how Japanese companies are viewed to be losing their competitiveness. Dennis Unkovic ' report in the recent edition of the "LESI Guide to Licensing Practices" (John Wiley & Sons, 2002) can be classified as yet another example in this category. His report entitled "Is there a future for Japan?" analyzes the economic slump of Japan and its impact on licensing. He sees four major challenges facing Japan: Fixation of the banking system; New political leadership; Deregulation of government on the economy; and Restructuring of corporations. Then, he analyzes the impact of the economic slump on licensing. He sees five basic trends related to licensing as follows.
1) Over time, the licensing prospects within Japan should decline rather than rise.

2) There are insufficient new technologies being developed in Japan at this time due to a perceived missing entrepreneurial class.

3) The continued deflation in Japan makes foreign investments into selected industries much more attractive now than the past. This trend suggests that over the long run this will be a top priority for foreigners, while licensing into Japan will hold a lower priority.

4) Most Japanese corporations are less powerful and influential in the 21st century than they were just a few years ago, reducing the desirability for foreign companies to partner with a Japanese corporation in the Asian market.

5) When foreign companies seek to do business in Asia, they no longer go to Japan first.

Based on these observations, Unkovic concludes that without aggressive steps to reverse these perceived trends, Japan in the 21st century will indeed find itself in permanent and irreversible economic decline.
In reading his report, however, I could not keep two basic questions from arising. One, was this article really intended for the LESI Guide book? Next, if so, why didn't the author attempt to include specific examples of contemporary realities ?

Ongoing Reforms

The author, Dennis Unkovic, is a business lawyer who is said to be familiar with the economy and business in Japan. I have no intention to raise arguments or question about his familiarity with Japan. If his article were in the Asian Wall Street Journal, rather than the LESI Guide, investors and economists overseas may find it of some informative value. However, the interest of the LESI Guide's readers may arguably differ from that of financial people. I have some reservations as to whether his article would be informative for the LES Guide's readers for several reasons.

First, this article is the sole section in the LESI Guide that discusses Japan. Readers have no opportunities to compare the author's view with others. Second, the author places more importance on a corporations' present financial status than the strength of components of Japanese businesses and their potentials. Third, and perhaps most importantly, the author's prospects appear to be drawn by inference, without seemingly mentioning any of the latest reform developments that are now under way in Japan.

The LESI Guide denotes in its subtitle "strategic issues and contemporary realities." Readers of the book would naturally expect something new and up to date relating to the current licensing environment, as many readers are in fact aware of the significant changes that have been taking place in Japan. However, such new changes and their impact on technology transfer are unfortunately not mentioned in the LESI Guide. Below are some examples.

During this past decade of the economic decline, many Japanese companies have been obliged to reduce their budgets. Naturally then, the reduced budgets for research and development are not exceptional in this sense. Reductions in the R&D budgets inevitably necessitate companies to concentrate on specific focused technologies and operations, and to outsource technologies for less-focused operations. Outsourcing technologies, most likely from universities, will foster the market of technology transfer and licensing business in Japan. It is evident from the history of the United States that accelerated technology transfer drives a nation's economy. Accordingly, the lingering economic decline currently observed in Japan cannot be automatically regarded as evidence of heralding a pessimistic future of its licensing business.

Efforts in this same direction are being made by the central government. In July 2002, for instance, the government announced the Intellectual Property Policy Outline, which calls for fifty-five action plans involving reforms of universities and the court system within 3 years. The IP Policy Outline regards technology transfer as an important vehicle to drive the Japanese economy and sets forth specific arrangements for university-industry collaboration. The government created the Office of Intellectual Property Strategy Headquarters in March this year. With major cabinet members and leading business and academic leaders as members, this new Office is to play the role of the supervisor and coordinator for various ministerial agencies so as to direct them to the speedy accomplishment of scheduled actions.

The most notable thing in the context of technology transfer and licensing is the deregulation by the government on universities. In and after April 2004, universities in Japan will be free from governmental restraints and will enjoy the right and power to commercialize their own inventions.

Wait and See

The mere description of the items of scheduled reforms and renovations mentioned above may not sound persuasive. Nonetheless, just take a look at the national budget for universities. For FY 2003, the Ministry of Education plans a spending of US$50 million to support university licensing offices (TLOs) and US$60 million for fostering knowledge cluster projects. Separately, the Ministry of Economy, Trade and Industry (METI) is preparing public funds in the amount of US$170 million to help to nurture new technologies in selected strategic fields by regional research laboratories.
The Japanese government firmly believes that a package of legislation and public spending as well as the overhauling of the IP-related judicial systems will be effective to drive the economy. The government has set the goal of these major changes to be completed in three years. Only when these goals and investments are not been implemented, then the Guide author's assertion that Japan is investing in impressive buildings and not people would be proven correct.

Readers of this newsletter may recall the LESI annual conference in Osaka last year. Almost seven hundred people from all corners of the world took part in the conference. They were licensing experts and practitioners who were interested in technology transfer to and from Japan. Roughly, two thirds of those in attendance came from outside Japan, and close to half from Europe and America. Why did they want to attend a conference so far away from their homes? It is because they firmly believe that there are still much licensing opportunities available in Japan and that the reforms now taking place will only increase those opportunities.
It is too premature to draw any conclusion that there is no or very limited future for Japan, as suggested by the article in the LESI Guide.

(By Jinzo Fujino, Published in the LES Japan's Newsletter "WINDS from Japan" June 2003)

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