Innovation Dynamics of Materials Technology: An Empirical Analysis and Recommendations

Innovation Dynamics of Materials Technology: An Empirical Analysis and Recommendations

Masahiro Nakagawa (Japan Science and Technology Agency, Japan) and Chihiro Watanabe (Tokyo Seitoku University, Japan)
DOI: 10.4018/978-1-61520-875-3.ch006
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Technological capital drives technological innovation if it is appropriately used; in reality, however, many kinds of management constraints hamper its effective use. This chapter elucidates changes in the use of technological capital from the technology spillover perspective. Tracking patent applications and analyzing the relationships among them have enabled us to conduct microscopic analyses of technology spillovers. The authors classify technology spillover structures by organization and technological field, forming a matrix of two-by-two arrays and applying it to Japan’s R&D in compound semiconductor materials. In the 1980s, technology management was affected by the characteristics of an industrial society and spillover was therefore limited to individual firms and technological fields. In the 1990s, technology spillover shrank, reflecting organizational inertia in technology management. In the early 2000s, technology spillover broadened across a wider range of industries and technological fields, reflecting changes in science and technology policy and technology management that was ripe for open innovation.
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In the first decade of the 21st century, with the ongoing rapid emergence of service innovation, technological innovation is becoming a matter of common interest to economists, business leaders, and even consumers. For example, society has eagerly embraced desirable services such as those offered by Google and YouTube. These new services are, needless to say, built on information technology (IT) infrastructure. As IT infrastructure is based on electronic device technology, service innovation can in turn deliver new functions for material technology, and especially technology related to nonferrous metal materials. On the other hand, Internet services have resulted in goals being set for cutting-edge materials innovation. In other words, materials innovation has supported service innovation, and service innovation has boosted materials innovation. This means that there has been a degree of interplay between service technology, information technology, and materials technology. Moreover, facing an unprecedented economic crisis, the economy is increasingly reliant on technological innovation. Therefore, now is an appropriate time to elucidate the dynamics of technological innovation.

The relationship between innovation and economic growth has been demonstrated from the intellectual capital perspective. Kennedy (1964) shows that innovation can not only act as a substitute for or save on capital and labor, but also that equilibrium between capital saving and labor saving innovations tends to be maintained in the long run. Griliches (1979) demonstrates that the stock of technological capital1 can be calculated by aggregating R&D investment, taking into account depreciation by obsolescence. Moreover, Jaffe (1986) quantifies the effects of technological opportunity and technology spillovers on R&D productivity. These studies demonstrate that innovation plays a significant role in economic growth; technology capital stock is now recognized as a key success factor for innovation.

Although the above mentioned studies focus on cross-industry analysis, we seek to highlight the details of a specific firm in a specific industry and elucidate microscopic phenomena in which innovation is actually created. From the economics and innovation perspective, the nonferrous metal industry is one of the best cases for empirical analysis for three reasons. First, because it has supplied a variety of materials to the IT industry, it has been a major technology spillover source for that industry, and has subsequently acted as a spillover source for the service industry. Second, because the nonferrous metal industry has been highly R&D-intensive in comparison with other materials industries, it represents a good industry to analyze in this context; and third, the nonferrous metal industry has a longer history than either the IT industry or the service industry. These features suggest that this industry meets the general requirements of a proxy.

We conduct an empirical analysis on the nonferrous metal industry in Japan over the past quarter of a century, elucidating changes in the relationship between technological capital, technology spillover and technology management. Changes in firm profits can largely be attributed to changes in technology spillover management. Moreover, we confirm that closed and open spillover structures induce each other on a recurrent basis and result in new innovations. The conclusions outlined above provide the basis for some useful recommendations for technological innovation leaders.

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