International Approaches toIndustrial-Innovation Policy:

A Focus on UK and Japan
Dr. Carlos López-Gómez, cel44@cam.ac.uk- with thanks to Dr. Eoin O’Sullivan

Centre for Science, Technology & Innovation Policy (CSTI), University of Cambridge
Visiting Researcher
Center for Research and Development Strategy (CRDS), Japan Science and Technology Agency (JST); andGraduate School of Public Policy (GraSPP), University of Tokyo
The 40th Policy Platform (PoP) Seminar; Science, Technology, and Innovation Governance (STIG) Program;
University of Tokyo
Tokyo, Japan, 17 December 2015

Overview
This presentation will draw from the work of the Centre for Science,Technology & Innovation Policy (CSTI), University of Cambridge, as well
as from recent fieldwork conducted in Japan.
The presentation will argue that:
1. Manufacturing-based growth is a key target in the innovation
policy agenda around the world
2. Emerging trends such as the ‘digitisation of manufacturing’ arechanging manufacturing as we know it
3. ‘Technology & Innovation Centres’ are considered a key
mechanism for supporting industrial innovation in UK and Japan

2Agenda
Introduction to CSTI
Background – Why Industrial-Innovation Policy?
‘Digitisation of Manufacturing’ – New Drivers of Value in Manufacturing
Recent Policy Responses in UK and Japan
Conclusions
Comments / Feedback3

Introduction to CSTI

4

Institute for Manufacturing
University of Cambridge

5Manufacturing
The full cycle from understanding markets
and technologies through product andprocess design to operations, distribution
and related services

6Institute for Manufacturing
RESEARCH

Technology

Management

PolicyEDUCATION

Undergraduate

Postgraduate

PhD

PRACTICE

7Open courses

Executive education

Research“Brings together expertise in management, economics and technology
to address the full spectrum of manufacturing issues”

InkjetResearch

Industrial
Photonics

NanoTechnologyFluids inAdvanced
Manufacturing

Distributed Information& Automation Laboratory

TechnologyManagementTechnology
Enterprise

DesignManagement

Cambridge ServiceAllianceBusiness Model
Innovation

Manufacturing
Industry Education
ResearchIndustrial
Sustainability

Strategy andPerformance

International
Manufacturing

Babbage Industrial
Policy NetworkScience,
Technology &Innovation Policy

8Centre for Science, Technology & Innovation Policy
An engineering contribution to STI policy
CSTI is an applied policy research unit exploring whatmakes national innovation systems effective at translating
new science and engineering ideas into novel technologies
and emerging industries.

9Centre for Science, Technology & Innovation Policy
Engagement with ‘implementation agencies’Studies &reports

Researchprojects

Support forprogramme
strategydevelopment
10

UK-Japan Workshop
Manufacturing & Industrial Policy (2014)
Workshop aims:• Gain mutual understanding of national
manufacturing policy landscapes• Share processes and findings concerning
manufacturing futures• Discuss frameworks to enable continuing
dialogue between UK and Japan11

UK-US Workshop

Manufacturing & Innovation Policy (March 2015)
Focused on advanced manufacturing
innovation institutes, in particular, therecently formed:• UK High Value Manufacturing ‘Catapult’• US National Network for Manufacturing
Innovation

12

UK-Germany Workshop

Manufacturing & Innovation Policy (January 2016)‘Paired’ national institutions:• BMWi – BIS• Fraunhofers – Catapults• DIN – BSI
Case study: ‘Digitisation ofManufacturing’
Berlin, 20 January 2016

Background
Why Industrial-Innovation Policy?

14

Re-evaluation of the importance of manufacturing
in national economies

15Why Manufacturing Matters
A key policy theme in all countries“Advanced Manufacturing isof fundamental importance tothe economic strength andnational security of theUnited States.
Advanced manufacturingprovides high-quality jobs.
It is an important source ofexports.
It is a key source of technologicalinnovation.

UK Focus: ‘Rebalancing the Economy’economy has become“ Our
more and more unbalanced,
with our fortunes hitched toa few industries in one
corner of the country, while
we let other sectors likemanufacturing slide.

David Cameron, May 2010”

“I do not accept the proposition thatIndia can skip the manufacturing
stage and go from being an agrariansociety directly to becoming aservices & knowledge-based society.
This is a mistaken view.
A substantial manufacturing base isessential to absorb the workforce &ensure sustainable growth of theeconomy.

”- Manmohan Singh
India's former Prime Minister

Why Manufacturing Matters
Today

IMPORTANCE OF
MANUFACTURINGTomorrow

JOBS

INNOVATION“Jobs in manufacturing can provide acareer path to the middle class” [1]“Responsible for 70% of all R&D
spending performed by industry” [3]

MULTIPLIER EFFECT‘REBALANCING’“For every job in manufacturing afurther complementary job is neededin related business services” [2]“Key role in the U.S. trade balance” [4]“Well-paid jobs in a number of UK’sless prosperous regions” [5][1] White House. (2009). A Framework for Revitalizing American Manufacturing. Washington D.C.: Executive Office of the President.
[2] European Commission. (2012). A Stronger European Industry for Growth and Economic Recovery (No. COM(2012) 582 final). Brussels[3] White House. (2009). A Framework for Revitalizing American Manufacturing. Washington D.C.: Executive Office of the President.
[4] Ezell, S. J., & Atkinson, R. D. (2011). The Case for a National Manufacturing Strategy. ITIF.
[5] DTI. (2002). The Government’s Manufacturing Strategy‘Digitisation of Manufacturing’
New Drivers of Value in Manufacturing

20Advanced manufacturing

Where will value come from and who will capture it?

“Advanced manufacturing is a family of activities that:a)b)

depend on the use and coordination of
information, automation, computation,
software, sensing, and networking, and/or
make use of cutting-edge materials andemerging capabilities enabled by the physicaland biological sciences, e.g. nanotechnology,
chemistry, and biology.

”

21

PCAST (2011), Report to thePresident on Ensuring
American Leadership in
Advanced Manufacturing.

Advanced manufacturing

Where will value come from and who will capture it?

“This involves both new ways to manufacture existingproducts, and especially the manufacture of new products
emerging from new advanced technologies.

”

Emerging Technologies &Tomorrow’s Quality Jobs

Process Innovation &Today’s Quality Jobs

Regenerative medicine
scale-up

Hybrid machine toolsystems

22”German perspective on advanced manufacturing“Industrie 4.0”

“The four stages of the Industrial Revolution”

Industrie 4.0:

Industrial revolution based on Cyber Physical Systems

24Advanced manufacturing

Where will value come from and who will capture it?
Embedded systems in electronics, automotive
IT-related development
costs in a car
Number of software lines
15%
Combustion
engine car

47%
Hybrid car

Source: METI(2012) Industrial Structure Vision. Industrial Structure Council.

25

Advanced manufacturing
Where will value come from?
Who will capture value from in-car connectivity by 2025?

Source: KPMG’s Global Automotive Executive Survey 201226

Greatest Challenge:“Engineering’sKeeping our manufacturing systems capableof competing in the global marketplace”
These are linked
Manufacturing
Jobs
Innovation

In summary:•••‘Digitisation’ is a game changer in manufacturing industries
Advances in digital technology expected to change sources of value inmanufacturing:o Increasing efficiency and productivity
o Shortening time to market
o Enhancing flexibilityo Enabling new levels of human-machine communicationo Defining securityo Enabling new business models
o Etc.
Policy challenge: How to support industrial innovation in such achanging manufacturing environment?

Recent Policy Responses in UK29

UK Policy Context

Industrial [Sector] Strategies & ‘Great Technologies’Recent UK Research & Innovation
Support for Advanced Manufacturing• 2011: High Value Manufacturing Catapult• 2011: Advanced Manufacturing Supply Chain Initiative:
R&D, skills training and capital investment to help UK
supply chains achieve world-class standards andencourage major new suppliers to locate in UK• 2011-2013: 16 new Centres for Innovative
Manufacturing (~£5M each over 5 years)• 2012: Manufacturing Advisory Service reformed• 2013: March announcement of 13 further successful
bids to open University Technical Colleges, bringing total
number of UTCs to 45• 2013: Foresight Manufacturing report published 2 year
project investigating future of manufacturing to 2050,
reporting Autumn 2013.

Centres for Innovative ManufacturingRe-evaluation of technology & innovation centres
Example: UK
Technology entrepreneur Hermann Hauser
2010 report:“I propose that the UK develops[capability that bridges research &technology commercialisation]…
attention should be focused on providing
sustained and substantive support for anelite group of Technology andInnovation Centres...”32

2010 Hauser ReportRe-evaluation of technology & innovation centres
Example: UK
Market Failure – The Valley of Death
Basic ResearchTRL
R 11

TRL 2

TRL 3

Many innovations
fail here
TRL 4

TRL 5Commercialisation
TRL 7

TRL 8

TRL 9

TRL 6Universities, researchorganisations

Industry and companies

Catapult Focus
33

Slide from Innovate UKRe-evaluation of technology & innovation centres
Example: UK

Catapult Centres

Source: Innovate UK34

Re-evaluation of technology & innovation centres
Example: UK

High Value Manufacturing Catapult

Source: Innovate UK35

Re-evaluation of technology & innovation centres
Example: UK2014 Hauser Review:– “I urge the Government tocommit to expand the network
in a measured way adding up
to one or two centres a year.”2014 Hauser Review36Recent Policy Responses in Japan37

BackgroundSome issues in Japan• Significant manufacturing strengths– Large global market share in key industries– Leaders in technological niches– Unique global manufacturing brand– ...
• But also big challenges– “Win in technology, lose in business”– “One-legged industrial structure” based on automotive and electronics– Ageing population and barriers to ‘succession’– Energy shortages– Potential “hollowing out” of industrial capabilities– …
Source: METI, Monodzukuri White Papers, various years, and personal interviews.

38

Background
SMEs in Japan• SMEs represent the “hidden strength of SMEs that underpins
trust in Japanese products”.
– 99.7% of Japan’s 4.2 million firms– ~60% of total employment– > 50% of manufacturing value added– Vital role in provincial development

Source: METI (2013). Japan’s Policy on Small and Medium Enterprises (SMEs) and Micro Enterprises. Small and Medium Enterprise Agency.

39

International Approaches to Industrial Policy

JapanRecent national government policy
agenda has involved a range of measures
focused, in particular, on:• Japan as manufacturing hub: Improving
Japan’s overall attractiveness as amanufacturing hub• Accessing world markets: Supporting thedeployment of Japan’s technologies,products, engineering services to world
market (in particular SMEs)• Addressing energy supply shortages

40

THE INDUSTRIAL
STRUCTURE VISIONJAPAN’S NEWGROWTH STRATEGYCalls for AIST ‘Bridge’ Reform
Challenges to networking of institutions• Recent calls for a ‘reform’ in Japan’sinnovation system to build ‘a system thatallows the realization of innovation’• Focus on building ‘bridges’ from‘technology seeds’ to commercialisation• It calls AIST to play a ‘bridging’ role,through ‘municipal networking between
companies and between universities andother related institutions’• References the German Fraunhofer Society41

Industrial Structure Council (2014)

Technology & Innovation Centres in Japan
A range of national and regional institutions• Significant private activity• National research institutes (e.g. AIST, JAXA, RIKEN) and their regional
research bases• Non-profit industrial organisations (NPOs)• ‘SME Universities’• Kohsetsushi prefectural centres
Interesting contrast• …

to UK experience

RESEARCH STAY IN JAPANTuning a high-performance engine: Investigating the role of technology &innovation centres in the competitiveness of manufacturing SMEs in Japan42

Kohsetsushi centres
A national network of regional technology &innovation centres

Sapporo Ag. College students, 1881 [1]Agricultural colleges,
1899 law, “forcedextension”

Around the turn of
20th century, extension
concept extended tomanufacturing

After WWII, operationof testing centres
spread to all 47
prefectures

Source: Izushi, H. (2005). Creation of relational assets through the ‘library of equipment’ model: An industrial modernization approach of Japan’s local technology centres.
Entrepreneurship & Regional Development, 17(3), 183–204; Jones, G. and Garforth, C. (1997). The history, development, and future of agricultural extension. FAO.
Illustrations from http://scua.library.umass.edu/umarmot/category/asia/japan/ and http://www.jcwa.or.jp/en/etc/history01.html

43

Kohsetsushi centres
A national network of regional technology &innovation centres
••
•
•
•

Over 600 public local technology centres~ 100 manufacturing-related, at least one in each prefecture
Number of employees range from less than 10 to over 200
Around ¼ of staff with doctoral degree
Around $1.62 bn in funding in FY 2009

公設試験研究機関 - Kousetsushikenkenkyukikan

Kohsetsushi‘public testing and research institutes’
Sources: Shapira, 1996; Small and Medium Enterprise Agency, METI; ITIF (2011)44

Fieldwork Summary

Key
Kohsetsushi centres• 2 AIST Regional Bases• 7 Kohsetsushi centres• NPOs• Key government
agencies: JST, METI, SMRJ
• Representative firms• Researchers

AIST regional bases

Miyagi

Fukui
Kyoto

Osakav

Fukushima
Tokyo
Kanagawa

45

46

OVERVIEW OF JAPAN’S KOHSETSUSHI CENTRES
A national network of regional technology & innovation centres
Main Missions
Quality assurance

Promotion of R&D in SMEs Industrial diversification

Productivity improvement

Regional development

Investment attraction

Key Services
Equipment
leasing

Sources oflegitimacy

Technicaladvice

Analysis &testing

Workforcetraining

Commissioned
researchPresence in all 47 prefectures (geographical proximity)
Knowledge of and focus on needs of local industries
Knowledge of production processes
Knowledge of sources of technical know-how/expertise
Knowledge of sources of funding
47

Interfaces with AISTUse of kohsetsushi as AIST’s middleman
AIST RegionalResearch Base
Knowledge of latesttechnology

Knowledge of SMEs andtechnical services

Kohsetsushi

SMESSource: AIST Osaka, personal interview

48

How kohsetsushi engaged SMEs in innovation
From low to high ‘information gap’ services
Low
information
gap

Value oftechnology provenHigh
information
gap

From Simpler activities:
Equipment leasing,technical advice

To more advanced activities:
New product development,
R&D

Typically free oralmost free

Typically involves
company investment

Strategy to overcome “innovation fear”
49

Kohsetsushi – Open Questions & Standing Challenges• Ensure “pathways to impact” to “win in business”– Technology-business-market synergies– Advisory role on market opportunities through alternativetechnology applications (cf. Fraunhofer)?
• Capitalise legitimacy in, and knowledge of, industry– Coordination with national and regional institutions for effective
programme delivery– Role of kohsetsushi in reform promoted by Industrial StructureCouncil• Incentivise innovation investment and reduce financial
dependency– Business-minded approach while ensuring industry engagement– “if you don’t value yourself”– Incentive to prove “value for money”
50Conclusions

51

Conclusions•

Manufacturing-based growth is a key target in the innovation policy
agenda around the world- efforts to enhance policy making and implementation capabilities•

Emerging trends such as the ‘digitisation of manufacturing’ arechanging manufacturing as we know it- still unclear who the winners (and losers) will be•‘Technology & Innovation Centres’ are considered a key mechanism
for supporting industrial innovation in UK and Japan- critical roles in supporting technology diffusion to small firms

52Comments / Feedback

ありがとうございます
Dr. Carlos López-Gómez, cel44@cam.ac.uk
53