international
Foreign firms explore R&D prospects in Japan As Japan's R&D effort picks up speed, joint ventures and contract R&D allow U.S. companies to capitalize on low cost of manpower Japan's chemical production is based on naphtha and other people's technology. The Japanese chemical industry, along with the country's other technically based industries, has come far and fast since the 1950's on a simple strategy—catching up with the U.S. and Europe in product range and quality by licensing foreign know-how. But the catching-up phase is nearing its end, and Japan's own research and development effort is visibly gathering speed, observes Mike McAbee, C&EN's Tokyo bureau head. A government survey released earlier this year shows that technology not previously introduced into Japan accounted for only 28% of all technical licenses purchased abroad in 1969, compared with more than 60% in the early 1960's. Meanwhile, total Japanese R&D spending has risen by more than 20% per year since 1966, and last year probably reached $3 billion. More than 170,000 Japanese were employed in R&D in 1970, and their number is growing almost 10% per year. Moreover, licenses have begun flowing in the other direction. Sales of Japanese technology have roughly trebled in the past five years to about $50 million per year (about 13% of the annual value of imported technology). But licensing is simply buying the rights to today's developments. Is there any prospect that western industry might share directly in the Japanese R&D effort—and in the seeds of future technology it may produce? The short answer is: yes, with reservations. A number of foreign companies already engage in Japanese R&D through approaches ranging from contract R&D and cooperative research agreements or joint ventures to wholly foreign-owned facilities. To32
C&EN JUNE 2 1 , 1971
tal foreign outlay for these operations is not yet large. Viewed as trial runs of the practicality of Japanese-foreign R&D cooperation, though, results have been, on the whole, positive. Among the reservations looms the problem of building a Japanese research staff. Unlike the U.S., Japan has no pool of experienced R&D workers who will readily move into a new operation (see box). Choosing as partner a Japanese firm with experience in the same, or complementary, fields of research can solve the personnel problem. But it raises the pervasive—and elusive— question of communication between Japanese and non-Japanese partners, a problem that has also plagued many joint production ventures. Barriers. The language barrier is part of the problem, but differing systems of business practice also come into play. A contract, for example, may spell out goals and restrictions in detail. But the Japanese aren't strict constructionists in such matters. Managers often place prime importance on personal understandings among the negotiators, the documents themselves being, at best, secondary. Despite such drawbacks, cooperative research makes sense to a growing number of Japanese and western firms. By sharing costs, both firms can explore more topics on a given R&D budget. U.S. firms can take on segments of a program whose capital requirements are beyond the means of the Japanese partner; labor-intensive segments can be done more cheaply in Japan. The overhead for a professional research worker (including the cost of assistants) currently averages about $20,000 to $25,000 per year in J a p a n roughly half the U.S. level. This gap will gradually close, since professional salaries in Japan, like wages generally, are rising briskly. Japan's Science and Technology Agency estimates that wages and salaries accounted for 44% of total Japanese R&D spending in 1968, up from 36% in 1960. Ultimately, then, the main bond between cooperating firms is the matching of complementary areas of R&D competence.
This matching process is on the rise, particularly among pharmaceutical firms. Microbiology and fermentation chemistry are fields in which Japan is an acknowledged leader. But the discovery or synthesis of promising drugs is only the start. Abbott Laboratories, Chicago, 111., estimates that the development of a typical new drug, from discovery to marketing, currently requires about $5 million and seven years. These requirements limit the innovative capacity of Japanese drug makers working alone. (Annual sales of Takeda Chemical Industries, Japan's largest producer of pharmaceuticals, are around $480 million. The other firms are considerably smaller.) A splitting of the work—with Japanese firms isolating and synthesizing novel structures and U.S. firms performing the capital-intensive evaluation steps—is, in fact, happening. In 1969, for example, Abbott transferred its soils screening program from Chicago to Japan through a joint research contract with Kyowa Hakko Kogyo Co., a leading fermentation chemicals producer in Tokyo. Pfizer, Inc., New York City, is now
Weston: most R&D tor the dollar
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nearing a decision on shifting its soils screening to Japan also. Isolating and identifying biologically active compounds from soil samples is the first step in the search for new antibiotics. But the process is labor-intensive, and demands highly qualified workers. The chances of finding antibiotics that are both novel and medically useful have been much reduced by years of intensive screening. Some major U.S. pharmaceutical houses, in fact, have dropped soils screening entirely. Abbott also decided the work was tying up too many of its R&D staff. Prospecting. But the lure was still there. "It's like prospecting for gold," says Dr. Canada Ito, Abbott's medical director in Japan. "The chances aren't so good—but if you should find something, the returns can be very big." Offshore research was Abbott's way out. Kyowa Hakko agreed to carry out soils screening in Japan for both companies. Any likely compounds it uncovers are sent to the U.S., where Abbott takes on the next step—narrowing down the possible medical uses and beginning pharmacological studies. This stage involves a relatively high investment in instrumentation and in such equipment as animal facilities. Kyowa Hakko thus avoids this investment. Only those compounds Abbott finds promising for specific uses are routed to Kyowa Hakko's own pharmacology laboratory for the testing required for Japanese registration. The contract provides in detail for sharing patent rights to any antibiotics the joint program may produce. Abbott also turned over to Kyowa Hakko its soil-screening technology, including a library of compounds— an index of numerous, previously uncovered antibiotic materials that have either proved unusable or have been commercialized—built up through 25 years' work in Chicago. The Japanese firm has set up a streamlined screening program, operating with fewer workers and on a lower budget than did Abbott. It has turned up several compounds of interest, Abbott tells C&EN's Mike McAbee, and these are now in the evaluation stage in the U.S. Synthesis. Abbott made another link with Japanese research recently through an agreement with Toray Industries, Japans largest synthetic fiber maker. Torays laboratories synthesize large numbers of novel organic structures, some of which conceivably have pharmaceutical value. Abbott will evaluate some of these materials in the U.S. Again, the two firms will share the rights to any new
Japan's R&D saw fivefold increase in the sixties
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drugs that might result. A somewhat similar agreement is now being negotiated between Abbott and Takeda Chemical. Pattern. Meanwhile, Ajinomoto Co. has made a half dozen or more cooperative research agreements in the past four years with U.S. and European companies. Most agreements have followed the same pattern: synthesis in Japan, evaluation abroad. "We in Japan are strong in making new compounds," comments Dr. Toichi Yoshida, Ajinomoto's director of planning and development, "but rather weak in finding uses for them." This sentiment is echoed by Makio Matsusaka, director of Pfizer's sales subsidiary in Tokyo. "The typical U.S. approach," he says, "is to find a profitable market and then develop a product to fit it. Japanese firms tend to create many new materials first, then search for profitable uses." Pfizer also has a cooperative research agreement in Japan, whereby a Pfizer team in the U.S. evaluates materials supplied by a Japanese chemical company for possible use as food additives. This cross flow of information can be synergistic once promising materials are spotted. "We may see [a chemical] as a food additive," Mr. Matsusaka says, "but other uses—say, as an agricultural chemical—may occur to the other firm because of its different market experience." But Japanese expertise isn't confined to the research end of fine chemicals R&D. G. D. Searle & Co., for in-
stance, last year granted Ajinomoto an exclusive patent license covering L-aspartyl-L-phenylalanine methyl ester—a dipeptide sweetener whose use appears promising in the wake of Japan's ban on the use of cyclamates and a possible clampdown on the use of saccharin. But it was Ajinomoto, the world's largest producer of amino acids, that devised a practical massproduction route to such peptides, for which Searle got a nonexclusive license. Joint ventures. Another important area of cooperation between U.S. and Japanese companies is joint production ventures. Since World War II, foreign companies have built up equity investments of more than $100 million in the Japanese chemical industry (including pharmaceuticals), and have extended more than $600 million in loan credits. Production ventures owned jointly with Japanese partner firms account for much of this total. Du Pont and Union Carbide have four such ventures apiece, Monsanto and Dow have one each, and there is a long list of other U.S. chemical firms that hold part interests in one or more Japanese joint ventures. Product development undertaken by these ventures sometimes gives the foreign partner a bonus. One company, for example, working recently with an established product introduced from the U.S. parent, devised a novel postreaction treatment that extends the product's usefulness into wider markets. The joint venture plans a semiworks unit in Japan to JUNE 2 1 , 1971 C&EN
35
prove out its technique, which the U.S. parent will then be entitled to use at home. In another field, the production of drugs via fermentation, Pfizer-Taito Co., a production venture of Pfizer, Inc., and Taito Co., Ltd., a large Japanese sugar producer, has turned up improved microbial strains and more efficient nutrients—results usable by Pfizer worldwide. On the whole, though, Japaneseforeign production ventures haven't been prolific sources of R&D, other than product adaptations for Japan or other Asian markets. The typical joint chemical firm is little more than an extra plant of the Japanese parent firm, the foreign presence consisting largely of equity shares and technical licenses. Operation under these licenses, rather than creation of new technology, is its prime function. A Japanese government survey made earlier this year shows that average research outlays by foreign-affiliated firms in Ja-
pan amounted to 0.7% of sales in 1970 —less than half the 1.5% average for major Japanese companies. (Food processors and pharmaceutical firms were not included in the survey.) San-Abbott, Ltd., Abbott's 50-50 venture with Sanyo Chemical Industries, is different. It was set up in 1966 as a separate R&D group in Sanyo's Kyoto laboratories with the aim of developing new catalysts for producing urethane foam and, later, other industrial fine chemicals. Abbott has R&D experience in plastics additives and catalysts, and Sanyo is a leading Japanese producer of polyethers (but not catalysts) for urethane foams. A staff of 13, including seven chemists, is on loan to San-Abbott from the Japanese parent firm. (There have been no staff changes since the joint firm was established.) The group works at both research and development levels, Abbott explains, using relevant research data from both parent firms and generating some of its own.
A novel amine found by this group has been developed into a series of urethane foam catalysts already commercialized in Japan by Sanyo. SanAbbott's program has since been expanded to include rust-inhibiting agents as well. The original aim of the two companies was to launch the joint venture as an R&D firm, then gradually to extend its functions to sales and finally to production of materials developed in the initial stage. That is still the aim, though the evolution has gone more slowly than at first expected. Still, proceeds from its first commercialized product have already made San-Abbott self-supporting. Value. "The real point in setting up cooperative research arrangements," says Dr. Arthur Weston, Abbott's vice president for scientific affairs, "is to get the most R&D for the dollar." As research budgets tighten and overhead rises, the range of leads a firm's laboratories can follow up necessarily
RCA finds building a staff is major hurdle for foreign company in Japan For western companies, cooperative research agreements and joint ventures for R&D in Japan can mean lower research costs, more topics of investigation on a given budget, and a share in Japan's areas of scientific strength. Going one step further, what are the prospects when a foreign firm sets up an independent, wholly owned research center in Japan? RCA Corp. did just that in 1960, establishing RCA Research Laboratories, Inc., in a downtown Tokyo office building to do basic research in solid-state plasmas. In 1967 the group moved into its own newly built research cen-
Baltzet:
We can choose better people
36 C&EN JUNE 21, 1971
ter in Machida City, a semirural area on the western edge of Tokyo. Today a professional staff of 15—a third of them chemists—backed by about the same number of technicians, is investigating magnetic semiconductors and surface-wave acoustics. Except for Dr. Philip K. Baltzer, its director, the staff is Japanese. Building a staff is a major hurdle for any purely foreign operation in Japan. It is almost axiomatic that Japanese science graduates gravitate to large Japanese companies or government research institutes and stay there, offers from prestigious foreign firms notwithstanding. "One of our greatest problems in Japan," a Tokyo representative of one of Europe's best-known technical companies emphasizes, "is simply that the Japanese don't want to work for us." RCA began with one advantage— flexibility in choosing the topics to be researched in Japan. "At the start, our purpose was to present a good technical face to Japan," Dr. Baltzer points out. "The main point was just to set up a laboratory." The lab's operation was financed from the substantial royalties being paid by RCA's Japanese licensees. By improving the Japanese technical community's acquaintance with RCA's basic research, the Tokyo laboratory was thought to aid the company's licensing activities in Japan. (Currently RCA Research is a responsibility of RCA's David Sarnoff Research Center in Princeton, N.J.)
Solid-state plasma studies were chosen because they are a topic of interest in Japan, but are not one of Japan's areas of strength in physics. Dr. Martin Steele, RCA Research's first director, tied his search for staff to the gradual approach of building up personal contact in the Japanese universities. Repeated visits with faculty members and discussions of advances in solid-state plasma research with students finally paid off. "One by one," Dr. Baltzer says, "good people came to us by professorial reference." With a single exception, all who joined the professional staff have stayed with RCA. Japanese scientists who had completed their graduate training abroad rounded out the staff: Six of the eight Ph.D.'s at RCA Research are Japanese nationals with advanced degrees from U.S. universities. Such scientists often face a dilemma. They may prefer to live and.work in Japan, but they are likely to be rejected by the tightly knit Japanese selection system—in which a career is an orderly advance in welldefined channels through chosen universities and into chosen Japanese companies or faculties. A transplanted U.S. research operation can solve their problem. RCA Research is in Tokyo, but except for an unused rice paddy next door, the facilities and program could as well be located somewhere in Boston's Route 128 R&D cluster. In recent years, RCA hasn't found active recruiting of additional scientists necessary—Japanese
narrows. Cooperative programs are a way of sharing the costs and being able thereby to back more possible winners. Splitting the risk, of course, also means splitting any profits that result. But a major find alters things. Because two companies are marketing the product and increasing its total sales, Dr. Weston says, "it's almost like halving the cost and sharing the returns 2 / 3 and 2 / 3 ." Abbott took the initiative in organizing a urethane foam catalyst project in Japan. Talks with several prospective partners narrowed the field to Sanyo—a firm with production experience in related chemicals and a logical interest in moving into catalyst development. Sanyo, moreover, is research-oriented: 20% of its employees work in R&D (including product development), and R&D spending exceeds 4% of corporate sales. Both figures are well above the average for the Japanese chemical industry.
applicants now are taking the initiative themselves. RCA Research has a higher technician-to-scientist ratio than is common in the U.S. "Technicians are more plentiful in Japan," Dr. Baltzer explains, "and we can choose more highly qualified people." Almost half of his technicians hold bachelor's degrees. The Tokyo staff maintains contact with RCA's U.S. research by periodic visits—almost every year one scientist visits Princeton for a few months. At the same time, the need for clear communication with U.S. headquarters is a leading reason for having an American as director in Tokyo. Communication also raises a problem in adding U.S. scientists to the staff. (RCA has had several applications.) Dr. Baltzer has had three sessions a week with a Japanese language instructor during most of his four years in Tokyo. He feels that the language barrier between him and his staff is now about the same for those who have lived abroad and for those who haven't. The absence of a similar barrier for another American scientist could lead to personnel problems. The absence of a readily available pool of seasoned scientific manpower in Japan has meant that the level of experience at RCA Research was lower than that at the Princeton laboratories. But after 10 years of staff-building and research, Dr. Baltzer concludes, "we're at the point now where we can start approaching Princeton's maturity."
Sanyo's Kyoto research laboratory houses all operations of San-Abbott
Beyond joint laboratories lies the prospect of a wholly owned research center—a U.S. laboratory transplanted to Japan and staffed with Japanese scientists. So far, only one wholly foreign-owned basic research facility has opened in Japan. RCA Research Laboratories, Inc., was established in 1960 to pursue solid-state plasma studies (see box). About five years later its work was broadened to include magnetic semiconductors. This move brought in an influx of chemists, whose goal is to synthesize new crystalline materials and to devise improved crystal-growing techniques. More recently, about half the staff has turned to surface-wave acoustics, a field in which other RCA laboratories had done little work and which had logical links with Tokyo's first work in solid-state plasmas. The surfacewave work has a somewhat more practical bent, director Philip Baltzer points out. One of RCA's applications groups in the U.S. is geared to use information developed in the acousticwave research, he adds. Contracts. As a means of plugging into Japanese research, the inverse of a wholly owned laboratory is straight contract R&D. This approach has been little used by foreign industry— although the U.S. Department of Defense created a furor in Japan several years ago by placing militaryrelated research contracts with Japanese universities. Most of the private research institutes in Japan conduct R&D principally for the companies that sponsor the institutes. An exception is Nomura Research Institute, a contract research organization whose laboratories were opened near Kamakura in 1966. NRI was launched by Nomura Securities Co., Japan's leading securities firm, in consultation with Stanford Research Institute, with which NRI continues to work closely. NRI's techno-economic division is concerned mainly with market forecasts and management studies for
government and industry—including some foreign corporations. But NRI also includes a full-fledged life sciences laboratory. Research conducted by NRI for its clients has included work on the development of new screening methods for drugs, drug metabolism, biomedical instrumentation design, biochemical analysis, and enzyme and protein chemistry. So far, the life sciences laboratory has taken on one project for an overseas client—a microbial genetics project subcontracted by SRI, and now in its third year. Except for Dr. Hiroyuki Matsumiya, its director, the life sciences laboratory's staff of 24 professionals (including seven Ph.D.'s) all received their training in Japan. Dr. Matsumiya received his doctorate from the University of Minnesota. HRC. U.K.-based Huntingdon Research Centre, meanwhile, expects to open its own Japanese laboratory within a year, if its plans are approved by the Japanese government. HRC's main activity in Japan will be sponsored toxicological and pharmacological testing, related mostly to pesticides, drugs, and food additives intended for use in Japan. HRC expects to take on some work now being done in universities, as well as projects for Japanese clients now undertaken by other HRC laboratories. (Aside from its Huntingdon, England, facilities, HRC operates laboratories in Baltimore, Md., and Singapore.) Presumably it will also carry out required testing of foreign products for which Japanese marketing is planned. HRC will assemble a staff of about 35 in Japan. Its professional workers will be mostly Japanese, but will include a few British scientists as well. Doubts abroad about Japanese inventiveness, however, are a brake on any of these approaches to sharing in Japan's R&D. "We still have a very strong NIH [not invented here] syndrome," admits a technical representative in Japan of one major JUNE 21, 1971 C&EN 37
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U.S. chemical company, "and awareness of the level of Japanese technology varies widely from department to department." "Mention joint R&D with the Jap1,9-Decadiene anese," says another company's techAnother new member of the Phillips line nical man in Tokyo, "and our fibers of hydrocarbon products listed below. group would turn purple." As cross licensing continues to grow, however, Tech. Pure Pure Tech. Research Research such mental barriers may well come 95% 99% 99% 95% PARAFFINS MS down. Trend-reversing contracts Methane Pentene-2 m m such as Teijin, Ltd.'s sale last year Ethane 4-Methylpentene-l M §§i H H SHI Propane cis-4-Methylpentene-2 polyester catalyst technology to Wi H m ffli m of ms Isobutane trans-4-Methylpentene-2 Britain's Imperial Chemical IndusH n Normal Butane 4-Methylpentene-2 m m M tries (CE&N, June 22, 1970, page 47) 2,2-Dimethylpropane 2-Methylpentene-l Wi m HI and Sanyo Chemical's licensing of m &H Isopentane 2-Methylpentene-2 some 200 textile surfactants to Unin m n Normal Pentane Hexene-1 H m n m m lever, Ltd., in 1969 should aid the §§ 2,2-Dimethylbutane* cis-Hexene-2 ii M n process. 2 3-Dimethylbutane* Hexene-2 M H M w m Ambivalent. An unknown factor at f88i 2-Methylpentane* mixed Hexenes-2 and 3 m Hi H this point is the Japanese govern3-Methylpentane Heptene-1 111 SSI H 18$ Normal Hexane* cis-Heptene-2 ment's somewhat ambivalent attim H H m 2,4-Dimethylpentane Heptene-2 m M tude toward cooperative research W H m Normal Heptane* Heptene-3 ffl with foreign firms. Though there m 3-Methylhexane 2,4 4-Trimethylpentene-l $$ $$ m H has been no formal objection to the mi 2,2,4-Trimethylpentane* 2,4,4-Trimethylpentene-2 M D activities already under way, the mt 2,3,4-Trimethylpentane Octene-1 W m Wk m M government has long called for more Trimethylpentanes cis-0ctene-2 W n effort in Japanese R&D to lessen the m Dimethylhexanes Octene-2 H M country's dependence on imported Normal Octane mixed Normal Octenes M M n m 2,2,5-Trimethylhexane Nonene-1 H
