Japan has few people who can select promising technologies for new businesses or industries while figuring out market needs. Japanese are weak in developing new technologies into new businesses or industries.

## (4) Lagging behind in developing intellectual property strategies

Japanese enterprises’ measures to secure patents and other intellectual properties have been centered on defensive ones including those to allow their products to be provided to others. They have been less ambitious to take advantage of intellectual properties as business resources. As a result, they have not sufficiently utilized intellectual properties.

Costly, time-consuming international patent applications have remained slack. Such applications by Japanese, if any, are relatively slower than global R&D moves.

## (5) Structural social obstacles

### a. Venture business development infrastructure shortages

While ventures and other new organizations can make effective efforts to produce disruptive innovations, it has been difficult to find ventures in Japan due to high business startup risks, shortages of risk money including venture capital funds, and limited opportunities for entrepreneurs to meet their supporters.

### 2. Steps for innovation creation in Japan

## (1) Direction of solutions to challenges

The Innovation Creation Subcommittee has drafted an interim report on solutions to the abovementioned challenges for realizing the creation of disruptive innovations originating from Japan, calling for the entire nation to (1) create new technologies and services, (2) utilize technologies from the viewpoint of potential needs, (3) shift away from independence-oriented or self-contained approaches, and (4) develop the environment for promoting the creation of innovations.

## (2) Specific government initiatives

The direction of solutions to challenges indicates that in order to realize the creation of disruptive innovations originating from Japan, the government will have to consider five initiatives – (1) to support efforts to create new technologies and services, (2) to support eco-system formation, (3) to promote preemptive projects to absorb social needs, (4) to build a remarkably excellent environment for inducing innovations, and (5) to guide the private sector to vitalize risk money investment.

## (3) Technology areas for future initiatives

Although the above focused on how best to pursue disruptive innovations, sustainable innovations also remain important. Since peripheral supportive technologies as well as unique technologies are required for realizing disruptive innovations, Japan will have to develop a wide range of technologies.

Ventures for their part lack new market exploration efforts. Many of them tend not to fully consider their business concepts or competitive advantages before their startup. Japan also lacks infrastructure for large enterprises to take advantage of ventures' achievements through alliances or M&As. Ventures depend heavily on initial public offerings as an exit to growth. As a result, many ventures disappear before becoming able to go public.

### b. Cultural and institutional obstacles to innovations

As Japan’s present business culture gives priority to periodic profit or loss, enterprises have difficulties in initiating unproven business models. Specific products or services are required in the screening process for commercializing technologies. Commercialization is difficult unless legal problems are solved. It is thus difficult to pursue disruptive innovations in Japan.

As the mark-to-market accounting system has been globally introduced over recent years, the entire society has tended to pursue short-term achievements. Under such circumstances, long-term business efforts might have declined in the absence of fund providers for long-term R&D projects in the private sector in Japan. This could be a background factor behind lack of disruptive innovations.

The Innovation Creation Subcommittee, based on its discussions, has divided present and future priority technology areas into two groups – application technologies for solving challenges and ICT-supporting infrastructure technologies for realizing applications.