Journal of Robotics, Networking and Artificial Life, Vol. 3, No. 3 (December 2016), 188-192

Strategic Network Formation with Structural Hole in R&D Projects: The Case Study on
Japanese Cosmetic Industry
Iori Nakaoka

Dept. of Business Administration, National Institute of Technology, Ube College,
2-14-1 Tokiwadai, Ube City, Yamaguchi Pref., 755-8555, Japan
nakaoka@ube-k.ac.jp
Yousin Park

Dept. of Business Administration, Prefectural University of Hiroshima,
1-1-71 Ujina-Higashi, Minami-ku, Hiroshima City, Hiroshima Pref., 734-8558, Japanecventure@pu-hiroshima.ac.jp
Yunju Chen

Faculty of Economics, Shiga University,1-1-1, Banba, Hikone City, Shiga Pref.,522-8522, Japan
yun-chen@biwako.shiga-u.ac.jp

Abstract
The arrangement of R&D refers to the issue of the linkage between structural holes in a network. In order toexamine the linkages between multiple R&D projects in a company, we use the patent information as the index ofR&D capability and examine the change of R&D network structures by social network analysis and text mining.
In this paper we focus on top-shared companies in Japanese cosmetic industry, and suppose that these companies
keep their market shares due to their smoothly development of new products to cope with the threat of newentrants from other industries. The analysis in this paper include: 1) calculate the constraint index, and create heatmaps to visualize the change of the constraint index, changes of structural holes personnel and the changes ofR&D areas the structural holes personnel involved, 2) analyze the change of the structural hole. We found that
Shiseido has adopted the overconcentration organization which emphases on cooperation because the percentageof persons who belongs to the biggest sub network in patent networks of the years is high. Other companies haveadopted decentralized R&D projects which differentiated by each function. In addition, we disclosed thedifferences about structural hole on R&D organization in each company.
Keywords: Strategic Network Formation, Structural Hole, Patent Applicant Network, Japanese Cosmetic Industry

1. Introduction
The development of new products is needed for acompany to sustain its competitive advantage, while theresults of development process are affected by themanagement of R&D projects. The arrangement ofR&D refers to the issue of the linkage betweenstructural holes in a network [1]. Structural hole stands
in a position to control information between different
areas and benefits wide range of acquisition ofinformation.
In Japan, cosmetic industry is one of the industries
that face strong competitions due to numbers of newentries. Although new entries never stop, top-shared

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Iori Nakaoka, Yousin Park, Yunju Chencompanies keep their market shares in the industry. We
suppose that if there is any feature in these companies’
R&D management, and the features of R&D
management contribute these companies to keep theircompetitive advantage.
By using the patent data as the index of R&D
capability, the R&D network structures can bevisualized and analyzed by social network analysis. In
this paper, we focus on four top-shared companies inJapanese cosmetic industry to examine their strategic
R&D managements, especially the structural hole in theR&D network. We experimentally visualize the R&D
networks by social network analysis based on the patent
data.
The analysis include: 1) calculate the constraint index
in patent applicant network, and create heat-maps tovisualize the change of the constraint index, thestructural hole personnel and the R&D areas thatpersonnel involved. The constraint index indicates thecentrality of core member thus means the constraint of
freedom to be the structural hole, 2) examine thechange of the structural hole. The results of theseanalyses will be discussed to find out the reason why
these companies can cope with the new entries in theperspective of R&D management.
2. Background2.1. Structural hole and patent analysis
The motivation for focusing on determinants of
network formation comes from the large literature thathas found that links in networks are associated withcorrelations in outcomes [2]. For example, Uzzi andSprio find that certain network configurations arecorrelated with improved group performance [3].
Especially, we focus the structural hole. A structuralhole is a relationship of non-redundancy between twocontacts. The hole is a buffer, like an insulator in anelectric circuit. As a result of the hole between them,
the two contacts provide network benefits that are insome degree additive rather than overlapping.
Generally, opinion and behavior are morehomogeneous within same group than between groups,
so people connected across groups are more familiar
with alternative ways of thinking and behaving. In otherwords, structural hole has the benefit that brokerage

across it between groups provides a vision of options
otherwise unseen, which is the mechanism by whichbrokerage becomes social capital [4].
Patent documents are an ample source of technicaland commercial knowledge. The patent is one of theindicators of capacity for technological development.
There are some researches aim at visualizing andanalyzing patents, or proposing efficient text-mining
approaches for creating patent maps. However, there
are few researches focusing on management strategies
based on text-mining analysis of patents.
2.2. The overview of cosmetic industry
Although the expansion of market scale benefits theJapanese cosmetic companies to keep their growth, themature of cosmetic market and customer slow down
cosmetic companies’ speed of growth. The total sales of
the industry have kept flat since the beginning of 2000,
however, new comers from other industry entered one
after another after 2000. There are 12 large new comers
into cosmetic industry and their entries concentrated on
2006-2009. But the top 5 shared companies occupied
the 80% of the total sales of the cosmetic market. For
example, the shares of sales of top 5 companies in 2014
were: Shiseido 37.9%, Kao 28.4%, Pola Holdings
9.5%, Kose 9.5%, Mandom 3.4%. Figure 1 shows thesales of Shiseido and Pola from 2008-2014. We foundthat sales of each company kept growing even after
2009, which the new entries most intensively appeared.

(a) Shiseido(b) PolaFigure 1 The sales of each company

In order to answer the question that how Japanese
cosmetic companies manage their R&D networks, we
compare and identify their differences and patterns ofR&D strategies by visualization of patent analysis
though text-mining and social network analysis. Target
companies for analysis are Shiseido, Kao, Pola andKose.

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Strategic Network Formation with

3. Methodology and data
In the following sections, the trends of R&D project
management strategies of Japanese cosmetic companies
are analyzed. In order to examine target companies’
R&D strategies and the change of R&D network, wevisualize their patent data in 4 steps: 1) the number ofpatent publications in each company, 2) the constraintindex of R&D network (patent applicant network) as
structural hole by social network analysis, 3) the humanresource reallocation of personnel engaged in R&Dproject, 4) changes of R&D areas that structural holepersonnel involved. Diagrams are created by theseanalyses.
We define that patent applicants are key persons
attaining low scores calculated by constraint of socialnetwork analysis. As mention above, the constraintindex indicates the constraint of freedom to be thestructural hole. Since personnel who connect
organizations play the role as the structural hole serves
to relay the information, we use constraint index tovisualize the changes of structural holes connection
personnel in this paper.
In addition, patent applicants’ change does play acentral role in the R&D as a major variable of thestrategic network formation. Where core member withlow constraint index can be seen as the structural hole,
we examine the change of constraint index and define
the change as conditional probability. The index issummed up whether or not lower rank j% of person at iyear appears lower rank j% of person at i+1 year (lowerrank j% of person at i+1 year)/ (lower rank j% ofperson at i year). If the probability is high, it meansthat the rate of structural hole personnel remained in thenext year is high. Changes of R&D area are also
analyzed to see the relationship with the changes ofstructural holes. Heat-maps are created to visualize theresults.
In Japan, patent documents are archived in J-PlatPat,
and are browsed and retrieved ubiquitously. All patents
are classified according to each three classification
codes, IPC (International Patent Classification), FI (FileIndex) and F-term (File Forming Term). Both of FI andF-term are classification codes under IPC. Especially,
F-term is given to every patent from F-term list basedon the technical items indicated in patent documents.
Thus, almost every patent has multi-F-term codes.
Table 1 is most frequently used F-terms in cosmeticindustry. Based on these F-term related to cosmetic,patents related to cosmetic published by each company
are extracted and collected from the patent data.
4. Analysis
4.1 An approach based on the number of patentpublications

As our first approach, the numbers of patentpublications associated with cosmetics in each of thecompanies are shown in Figure 2.
Every company obtains related patents to a certain
extent and the number of patents held by all thecompanies kept on decreasing during the years.
Shiseido and Kao obtain more than 200 patents everyyear but the rates of R&D spending and net sales fell.
However, we can consider that R&D of Shiseido isefficient because the rate of R&D spending and net
sales of Shiseido is lower than Kao.
Table 1 F-term list of cosmetic patents

F-term
4C083AA
4C083AB
4C083AC
4C083AD
4C083BB
4C083CC
4C083DD
4C083EE
4C083FF

Contents
NATURAL INGREDIENTS AND INGREDIENTSWITHUNKNOWNSTRUCTURESANDCOMPOSITIONSINORGANIC INGREDIENTSORGANIC INGREDIENTS CHARACTERIZEDBY ELEMENTS
ORGANIC INGREDIENTS CHARACTERIZEDBY STRUCTURESFUNCTION SPECIFIC INGREDIENTSKINDS OF PRODUCTSFORMS OF PRODUCTS
EFFECTSMETHODS, DEVICES FOR MANUFACTURE

Figure 2 The number of patents of each company

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Iori Nakaoka, Yousin Park, Yunju Chen

4.2 R&D network (patent applicant network)
We disclose the R&D organizational structures of thetarget companies by the social network analysis in thissection. Figure 3 shows the R&D networks of eachcompany in 2010. These figures are constructed bynodes that personnel engaged in R&D and edges ofjoint patent applicants.
We can consider that Shiseido has adopted theoverconcentration organization which emphases oncooperation because the percentage of persons whobelongs to the biggest network in all of the years ishigh. On the other hand, other companies such as Polaand so on have adopted decentralized organizations
which differentiated by each function. And also, thetrend can be seen in almost all of the year.

The changes of structural holes personnel and thechanges of R&D areas the structural holes personnel
involved in each company are shown in Figure 4 and 5.
There is no significant change both in Shiseido’s
structural holes personnel and R&D research areas thatstructural holes personnel treat. Since 30% of structural
holes personnel left to the next year in every year inShiseido, we can consider that Shiseido has been taken
in a planned and consistent way in the R&Dmanagement.
On the other hand, other companies have worked ona new technology in the periodic switching of thehuman resources, because both light and dark colors arecombined in the figures and changes of shade in othercompanies are greater than Shiseido in each year.
Compare to Shiseido, other companies respond tomarket changes.

(a) Shiseido(b) Pola(c) Kose(d) Kao
Figure 4 The changes of structural hole personnel of eachcompany
Figure 3 R&D networks of each company in 2010

4.3 The strategic network formation
We focus on the change of R&D areas that structural
holes connection core personnel involved in to express
how the structural holes personnel develop newtechnologies.
We visualize the human resource reallocation ofpersonnel engaged in R&D project by heat-map. Where
the color is dark in heat-map, it indicates an unexecuted reallocation of a core engineer; otherwise, thecolor is light, it means a radical change of core memberin that year.

(a) Shiseido(b) Pola(c) Kose(d) Kao
Figure 5 The change of R&D areas that core structural holepersonnel involved in

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Strategic Network Formation with

5. Conclusions
In this paper, we visualized R&D organization
network of Japanese cosmetic companies using thesocial network analysis. We revealed the differences
between Shiseido and other companies. We found thatShiseido
hasadoptedtheoverconcentration
organization which emphases on cooperation because
the percentage of the person who belongs to the biggest
sub network in patent networks of the years is high.
Other companies have adopted decentralized R&D
project which differentiated by each function. Inaddition, we disclosed the differences about structuralhole on R&D organization in each company. From theresults, we can consider that Shiseido as the leader ofthe industry has been taken in a planned and consistent
way and other companies respond to market changes.

As further works, the patent data of the other country
and the other companies should be carefully examined.
We would like to modify our approach into moresophisticated one and to build up a more reliable
theoretical background.
References

1. Burt, R. S. (2004). Structural Holes and Good Ideas
American Journal of Sociology, Vol. 110, pp. 349-399
2. Christakis, N., Fowler, J., Imbens, G., and Kalyanaraman(2010), “An Empirical Strategic Network Formation”
NBER Working Paper
3. Uzzi, B. and J. Spiro, (2005), “Collaboration andCreativity: The Small World Problem,” American
Journal of Sociology, Vol. 111, pp. 447-504.
4. Burt, R. S. (1992). Structural holes: The social structureof competition”. Cambridge, MA: Harvard UniversityPress.

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