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6. Japan

Five stages from "technology transfer" to "self-reliance"
Three stages to technological self-reliance
Degree of self-reliance of technology
Low estimation of imported technology
Historical perspectives on self-reliance
Japan's experience and Asian perspectives
Japanese multinational enterprises and their role in technological self-reliance in Asia
Performance of Japanese affiliates in Asia
Technological self-reliance in Asia: in search of a new international technology order


We conceive of the modernization and economic development of a nation as a continuous process involving the transformation of traditional institutions and technology by the application of modern scientific knowledge. Latecomers to this process have an advantage in being able to utilize a vast stock of scientific knowledge that has been accumulated by the early starters. The concept of self-reliance in science and technology (S&T) does not preclude making effective use of this advantage for the national attainment of these goals. A crucial issue in S&T self-reliance, in our view, is whether or not a nation can effectively adopt modern science and technology for the purposes of development without losing its identity.

Borrowing technology from abroad is one way of initiating this transformation, involving as it does the transfer of technology from the early starters. The transfer of technology, however, is a process of adoption adaptation, and indigenization of borrowed technology. A nation's readiness, in social terms, to undergo this process is decisive. What is essential for the late starters is the ability not to imitate borrowed technology, but to create innovative imitations.

We take a broad view of technology. As we see it, it is not merely a question of machinery and equipment. As the earlier UNU "Japanese Experiences" project pointed out, technology consists of five Ms: materials to be used for the production of a given product; machines to process the materials; manpower, which combines materials and machines in production processes; management, which organizes and guides the production and marketing; and, finally, markets for the products. We think that ways to combine these five Ms organically may well lead a nation toward the attainment of self-reliance in science and technology. We have designed our research, therefore, in terms of this concept of technology.

Five stages from "technology transfer" to "self-reliance"

Progress from technology transfer to "self-reliance in technology" involves the following five stages:

1. Acquisition of proper skill and know-how.
2. Maintenance.
3. Repair (including minor improvement).
4. Design.
5. Beginning of domestic production.

After the first four steps have been passed through, the way to domestic production is open. There is a big difference between this last stage and the previous four.

These five stages are necessary for technical self-reliance, and none of them can be omitted or skipped over, though latecomers can save on time and manpower. However, as much time and manpower will be used to build up a network of related techniques and services, latecomers should not be overambitious.

It is felt that for a country to be among the leaders in modern technology, the per capita annual income should be above $10,000 for a population of at least 100 million. A longer time is required to master modern technology, for example in "oil countries" where income is high, but there is no infrastructure of knowledge.

Among developing countries, India and China are ahead of the others in this regard. The size of their resources, the number of skilled workers, the infrastructures, and their existing technical skills guarantee them this position. However, their linkages between know-how and services are as yet inadequate.

Whether or not technology transfer is possible depends on the presence of know-how and services. It is difficult, therefore, though not impossible, to transfer technology in technical fields that lack these essential prerequisites. Although it would be courageous to attempt to acquire know-how in such a field from scratch, it would not be advisable - it is more efficient to start from a "copyable" position. For a technology to be "copyable" means that the five Ms -materials

(including energy), machines, manpower, management, and market (= needs) -are already in place.

Three stages to technological self-reliance

During its first stage of technological self-reliance, the level of Japan was no higher than that of developed countries in the nineteenth century. Until that time, modern machines had been made by combining various kinds of parts, for example, moulded gears and wooden or ceramic parts which were not necessarily metal-made. The collective techniques of stonemasons, ceramists, metal-workers, loom-makers and water-mill makers were utilized. A network linking national techniques ranging from the manufacture of iron and steel to that of machine tools was created, reaching down to the lowest level, and this accelerated the transfer of new techniques. Since the related techniques and services already existed, what was required was the import of simple and substantial technology at cheaper prices. This is what we call "primary technological self-reliance."

In Japan it took about 60 years to reach this stage of primary self-reliance, even though the initial conditions were favourable. In the subsequent 60 years, the present position was reached in two stages: one in which the mass-production technology of automobiles and home electric appliances was transferred and stabilized (secondary self-reliance), and the other (third stage) in which small-quantity production was diversified within the framework of mass production.

Secondary self-reliance consists in a high level of TQC (total quality control), where the culture of "Japanese-style management control" is important. The tertiary self-reliant stage symbolizes the age of automation and the unmanned factory, particularly with respect to electronics manufacture and the manufacture of production machines. Once this third stage is reached, technology development will be the main concern of management.

Degree of self-reliance of technology

The technology development of latecomers progresses from technology transfer to self-reliance. But the degree of self-reliance cannot be improved without the establishment of an overall technology capacity, especially in research and development (R&D).

Self-reliance varies according to how much R&D is invested and which technical field is focused on. A more important point is the efficiency of R&D expenditure. Although a large amount of such expenditure may bring about technological development, this cannot be regarded as useful unless it is applied for the purposes of economic development.

Figure 1 is a flow chart of the technology development of one country, showing the relation between R&D expenditure and economic development. The inputs for technology development are R&D expenditure and human resources such as scientists, researchers, and engineers.

However, as shown in the figure, R&D expenditure should be divided into three categories: (1) basic, (2) applied, and (3) commercial. A country that relies completely on imported technology at the outset will invest resources in technology development in proportion to economic development.

In an attempt to improve the degree of technological self-reliance, research on the commercialization of technology is usually conducted first. Once this is on the right track, the next steps will be taken, and R&D expenditure for applied work will be increased. At this point patents are purchased and know-how is acquired from foreign countries, but this is not enough to create a fully independent technology.

To develop technology suitable for one's own needs, much effort and financial input are required. In order to be able to produce locally what was invented abroad, one must aim at technological development that falls in the second category.

To invent things oneself and make new discoveries through basic research, a greater amount of R&D expenditure is required. To be a leader in a field, an increase in the expenditure for basic research is necessary.

Each one of the three aforementioned categories of R&D is important for total economic development. However, in the case of developing countries, the importance of expenditure should be arranged into a sequence of 3, 2 and 1, taking into account the greater efficiency of R&D expenditure. To achieve self-reliance in technology by starting from technology transfer, one needs to reverse the usual pattern of technology development shown in figure 1; that is, ones goes in the opposite direction to that shown in the flow chart. What latecomers do is to rely on imports at every stage, importing the scientific information, the patents, the know-how, the machines, and so on.

The results of research in a basic field are similar to the discovery of a scientific principle. But latecomers usually regard such results as mere information. The imported technology (patent, etc.) generally has a cost, such as a royalty and licence fee, and also requires additional R&D expenditure to apply and commercialize it. Furthermore, the accumulation of research on industrialization and the operation of a small and experimental scale plant gives rise to new products, which are then distributed in the market. In the meantime, a new process is arrived at, resulting in an increase in productivity.

Fig. 1. Flow chart of technology development (Source: Ryuzo Sato, Economics of Technology,

Tokyo, 1985)

Table 1. R&D expenditure in Japan (in billions of yen)


Category 1: basic field

Category 2: applied field

Category 3: experimental development

Amount % Amount % Amount %
1975 332 14.2 505 21.5 1,509 64.3
1980 659 14.5 1,153 25.4 2,725 60.0
1984 960 13.6 1,780 25.1 4,340 61.3
USA 1984   12.6   22.1   65.3

Source: Agency of Science and Technology, Indicators of Science and Technology, 1984.

More than 60 per cent of Japanese R&D expenditure was, until recently, spent in the field of experimental development (table 1). This indicates that basic R&D has not yet been developed seriously in Japan, although she has been making efforts to develop her own creative technology. International comparisons, however, show that R&D expenditure in other advanced countries breaks down into similar shares for the three categories.

The index normally used to indicate how much development one country has achieved in scientific technology by her own efforts is the "ratio of R&D expenditure per national income." Figure 2 shows the international comparisons in this field. The ratio of R&D expenditure per national income is almost the same among the advanced countries, except for the USSR. In Japan, the ratio of R&D expenditure per GNP has increased rapidly and reached 2.75 per cent in 1984, one of the highest levels in the world. Taking into consideration Japan's high-growth-rate economy, R&D expenditure has increased rapidly in the past three decades.

Another index for the degree of technological self-reliance is the "ratio of technology balance of payments." Table 2 compares advanced countries' balance of payments in technology in terms of the ratio of receipts to payments. There are big differences between advanced countries in their ability to export technology. Though Japan is a latecomer in this field, her ratio of the technology balance of payments has improved rapidly.

Fig. 2. Trends of R&D expenditure ratio to national income in major countries (Source: White Paper on Science and Technology in Japan, 1987)

Table 2. Ratio of technological payments and receipts in major countries

  Japan USA UK France Fed. Rep. of Germany
1970 0.133 9.48 1.07 0.339 0.389
1980 0.267 8.68 1.24 0.483 0.486
1984 0.306 16.31 1.32a 0.646a 0.529a

Source: AST, Indicators of Science and Technology. 1985.
a. UK figure is for 1982, France and the Federal Republic of Germany for 1983.

The third index of technological self-reliance is the ratio of reliance on imported technology, which is indicated by the ratio of the payments for imported technology divided by the total cost of technological knowledge (R&D expenditure + payment for imported technology).

According to an analysis made by the Institute of Investment Economics, the Development Bank of Japan, Japanese industries have rapidly increased their technological self-reliance since 1970. The degree of self-reliance is calculated by dividing the technological knowledge that is accumulated through R&D by the total domestic and imported stock of technological knowledge. In this case, the Institute calculates the value of imported technology that is comparable to the domestic investment of R&D by capitalizing the payments for imported technology into their present values. The degree of dependence on imported technology was 16.7 per cent in 1970, but by 1983 it had dropped to 10.9 per cent.

A similar calculation was made by the Economic Planning Agency (EPA) in 1985.2 Figure 3 shows the estimate for the stock of technological knowledge. In 1982, the total stock reached 17.75 trillion yen (at 1975 constant prices), which includes only 2.43 trillion yen (13.7 per cent of the total stock) of imported technology.

Low estimation of imported technology

In calculating the degree of technology self-reliance, we cannot escape from a low evaluation of imported technology. The degree of self-reliance in Japan is generally highly evaluated (fig. 3 and table 3). For example, according to a calculation made by the EPA, a simple comparison of the Japanese and US technological knowledge stock indicates that, as of 1982, Japan's annual spending reached 17.75 billion yen (R&D expenditure spent by Japan + payments for imported technology), which is less than the one-fifth of the 86 billion yen spent by the US.

Fig. 3. Trends of stock of technological knowledge in Japan (Source: EPA, Current Economy in Japan, 1985)

By 1982, there was no longer a technological gap between Japan and the US, especially in the manufacturing industry. For example, according to an investigation by the Industrial Science and Technology Agency, Japan was at about the same level as the US in material industries and in processing and assembling industries (table 4). Japan was slightly inferior to the US only in the fields of software and product design. As engineers' opinions were included in the investigation, the latter can be considered objective.

Table 3. Degree of technological self-reliance (percentages)

Year Flow-based (A) Year Stock-based (B)
1950 68 1965 -
1960 81 1970 77
1970 91 1975 80
1980 93 1982 86

A = R&D / (R&D+ M)

B = R&D stock / (R&D stock + M (converted to stock))

Table 4. A comparison of the levels of key technologies (numbers of items)


Compared with United States

Compared with Europe

Higher Same Lower Higher Same Lower
Raw materials
Development of new materials 6 2 8 7 5 2
Processing of materials 4 1 0 2 3 0
Processing and assembly
Larger content or size 2 1 4 1 2 1
Automative and consecutive 6 6 l 7 6 2
Highly efficient production 12 18 7 18 16 2
Testing and inspection 1 2 2 0 3 2
Production control 6 3 1 5 3 0
Higher performance 13 23 22 13 28 11
Software 2 2 4 1 2 0
Design 2 2 20 6 4 10
Total 54 60 72 63 72 30

Source: Based on Industrial Science and Technology Agency, Survey Section, An International Comparison of Japan's Industrial Technology - A Quantitative Appraisal of Principal 43 Manufacturing Sectors, 1982.

For the technological gap to be reflected as an industrial productivity gap, other factors such as the efficiency of capital and work practices must be considered. But the comparison reveals that the labour productivity of Japan and the US are almost at the same level.

According to an analysis by the Japan Productivity Centre, Japan's productivity in manufacturing had by 1979 already reached 83 per cent that of the US. Taking into account the difference in the growth of labour incentives in Japan and the US, it is quite possible that by 1985 Japan's labour productivity was a little higher than that of the US. It should also be noted that, in 1979, Japan's productivity was already higher than that of the US in such key areas as steel, general machinery, precision machinery, and equipment.

The technology gap between the US and Japan is, therefore, not as big as the estimated technology knowledge stock indicates. The reasons why the gap between the actual level of technology and the estimate of the technology stock is so large are as follows.

  1. The US stock of technological knowledge is for military purposes, and therefore is not reflected in labour productivity. According to an investigation by the National Science Foundation, nearly 50 per cent of the total US R&D expenditure was spent on military technology (NASA included) in 1976, whereas Japan's R&D military expenditure was only 2.4 per cent of the total.
  2. As Japan's investment in technology development was in applied technology and in private industries, it was effective enough to increase productivity.
  3. The role of imported technology is underestimated.

Since imported technology is ready-made, products can be manufactured at low cost if manufacturing process know-how is imported with it. Many countries rely on imported technology, even in terms of paying for a licence fee, because its cost is less than that of indigenous development. In other words, importing technology is something like buying the fruits of investment that has already been made by advanced countries.

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