Innovation Subcommittee Compiles Interim Report

1. Background

Growth of R&D in Japan has been sluggish in terms of both quantity and quality. Specifically, looking at the total amount of public and private R&D expenditures in some countries from 2007 to 2021, the figures of the United States, Germany and other EU countries, and the Republic of Korea increased by 1.5 to 2.5 times, while those of Japan remained almost unchanged. In addition, the R&D efficiency (added value when five years pass after the investment in R&D) of Japanese companies is significantly lower than that of companies in other countries.

Moreover, although investment in Japan shows signs of expansion, as seen in the fact that the total amount of private business investment in FY2023 exceeded 100 trillion yen for the first time in about 30 years since FY1991, this sign of a sea change may be occurring against a backdrop in which the Japanese economy is falling into a state of insufficient supply relative to demand because of such factors as the emerging of geopolitical risks and labor shortages. Therefore, METI considers that if companies try to escape this situation going forward, this may lead to excess supply capacity in the existing business fields, causing a deflationary trend and a subsequent slowdown in consumption.

To address this, it is important for companies to comprehensively propel the generation of innovation that contributes to creating demand in new fields. The materials published here are compilations of ideal approaches to specific policies and future directions together with suggestions and study by the subcommittee during the discussions.

2. Composition of the report

The subcommittee focused on the following three issues as future policy directions to achieve innovation.

[i] Promotion of R&D investment by taking advantage of strong points of startups and large companies

R&D investment is the source of future growth. Nevertheless, companies need a longer period before gaining outcomes from investment and cannot forecast clear profitability. Because of this, some companies may find it difficult to embark on a proactive increase in R&D investment, coupled with their management policies that focus on cost cutting.

Against this backdrop, METI will develop an environment in which large companies, which account for the majority of R&D investment in Japan, can increase their R&D investment, while startups, which easily take on the cultivation of new business, can smoothly advance R&D in new fields. METI will achieve this initiative by formulating indicators that help companies to evaluate the efficiency of R&D investment and setting a budget framework for encouraging startups, which will be allocated from the METI Budget for R&D, to provide preferential support to startups.

[ii] Promotion of commercialization and added-value creation by mobilizing innovation resources (human resources, technologies, and facilities)

Large companies, which often focus on improving their competitiveness in their existing business, may find it difficult to play a leading role in R&D investment and commercialization in new, riskier fields. Meanwhile, startups, which often play a leading role in the cultivation of new business, are extremely important as drivers of innovation. However, even while they may be successful in the early stages, some startups become constrained in growth in the business expansion stage due to the limitations of their innovation resources, including human resources, technologies, and facilities.

To address this, METI will strive to build an innovation ecosystem that promotes the mobilization of innovation resources and leverages the individual strong points of large companies and startups. It will achieve this initiative by formulating guidelines and a collection of case examples concerning inter-company learning, an effort to provide workers with an opportunity to gain new knowledge while belonging to an environment extending beyond their own companies, and by conducting a demonstration project for disseminating guidance for putting company-led carve-outs into practice.

[iii] Identification of frontier fields and provision of priority support to the fields in which the government should raise new momentum for industrialization of innovation, bearing in mind the creation of demand

METI considers that there are some fields with great future potential in Japan. While the government would like to invest in these fields by priority, individual companies face difficulties in advancing investment in these fields because of the high level of risk, including the development of technology and market uncertainty, and the need for large-scale investment in R&D facilities.

Aiming to identify these fields, METI will strive to strengthen technological intelligence by making use of a wide network of national R&D institutes, including the New Energy and Industrial Technology Development Organization (NEDO) and the National Institute of Advanced Industrial Science and Technology (AIST), other ministries and agencies, and academic associations. In addition, assuming quantum and nuclear fusion as the fields to be tackled first, it will prepare a roadmap that covers required measures for budgets, tax systems, laws, and standardization, thereby depicting a pathway to the social implementation of innovation.

For details, see the following materials.

3. Announcement of materials

• Innovation Subcommittee: Interim report (summary) (in Japanese )(PDF:2,729KB)
• Innovation Subcommittee: Interim report (main text) (in Japanese )(PDF:596KB)

Division in Charge

Policy Planning and Coordination Division, Industrial Science, Technology and Environment Policy Bureau