Regionalization of Innovation Policy- Option and Experiences

June 2004 Berlin

Innovation Systems, University-Business Networks and

Regionalization of the Knowledge Economy in Japan

Fumi Kitagawa
INTRODUCTION
The 1990s witnessed the conspicuous growth of interrelated theoretical works on
knowledge, innovation and learning within the literature on regional development. This
reflects the emergence of new approaches within the organisational and business
economics literature epitomised by works on ‘national innovation systems’(e.g.
Lundvall, 1992; Nelson, 1994); ‘knowledge management’ (Nonaka and Takeuchi, 1995),
and works developed in the ‘new growth’ or ‘endogenous’ school of economics
focusing on different kinds of knowledge as factors of economic growth (Conceisao et
al., 1994) .Within economic geography and regional studies, these perspectives have
developed into a view of regional development as dependent on innovation and
institutional learning processes, notably found in the literature on ‘regional innovation
systems’ (e.g. Braczyk et.al, 1998; Cooke et. al, 2000), and the notion of ‘learning
region’ (Florida, 1995; Morgan, 1997).
This paper contributes to discussions on the geographical dimension of
innovation systems by shedding light on recent policy processes of ‘regionalising
innovation systems’ in one particular national setting, namely that of Japan. Among
other countries, Japan is aiming to increase national competitiveness in the global
knowledge economy by tapping into local innovative capability which may lead to new
‘industry-science relationships’ (ISRs) (OECD, 2002), triggering knowledge creation
and innovation.1 The importance of innovation as a stimulus to economic growth and
wealth creation is now widely accepted. Now in the second decade of an economic
downturn, a central focus of the Japanese national institutional reform effort concerns
university-industry links directed at national innovative capacity. There is growing
activity in the realm of commercialisation of university research results through
licensing of intellectual property and spin-off firms.
The ‘region’ is increasingly recognised as a strategic site of policy
implementation and knowledge creation, and regional economies rather than national
economies are now the salient foci of wealth creation and world trade (see Ohmae,
1995). The region can be seen as an organic system where physical and social
environments, relations, and trust interact. Some authors have referred to such a
space as ‘ba’ (Nonaka and Konno, 1998), or ‘knowledge ecosystem’ (Brown and
Duguild, 1998). For example, through the implementation of local production cluster
strategies, complex patterns of inter-firm and inter-organisational relationships are
promoted at the regional level. Nevertheless, precisely what ‘region’ means varies
politically depending on national and trans-national contexts. Some authors (e.g. Cooke,
2000, p.61) situate regions within the multi-level governance (MLG) structure of
innovation policies emerging within Europe. In this light, this paper examines the
Japanese current political context in an international comparative framework, and put

1
For more information on the notion of ‘Industry-Science Relationships’ see OECD (2002). Here,
comparative perspectives are drawn from national institutional and policy mechanisms in the UK with
which the author is familiar through her doctoral research.

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that in perspective in view of the growing significance of trans-national regional

economies elsewhere in the world.

The paper addresses the following principal issues:

• Whether or not the recent national industrial/science & technology policies
encouraging local innovative capability (e.g. local cluster strategies) foster the
development of regional innovation systems with new regional governance system
of knowledge production;
• Whether or not the national technology and industrial policies are getting obsolete in
a globalising knowledge economy; whether these policies encourage regional
innovation through links developing with international actors; and
• Whether or not European models/experiences of innovation systems apply to the
Japanese/East Asian context.

The paper consists of four parts. The first part comprises a brief literature background
regarding the concept of national and regional innovation systems within a multi-level
governance structure. In the second part, historical review of development of
national/regional innovation systems in Japan is provided. In the third part, based on the
historical context, the paper moves on to illustrate recent policy instruments that
encourage regionalizing innovation systems forging links between universities and
industry in Japan. Furthermore, recent Japanese cluster policies are examined and
questions are raised as to the evaluation methods of these political instruments, given
the scattered nature of provisions at varying geographical levels and across different
ministries. In the fourth part, the current economic structure of Japan is examined in
view of growing economic agglomeration in East Asian countries. The paper suggests
to locate these national-regional initiatives into a wider international and global political
economy of knowledge economies unfolding in East Asia, keeping in mind recent
trends such as foreign direct investment (FDI) and public inter-national/ regional
collaboration schemes. In this respect, some lessons can be drawn from European
experiences. Finally the paper concludes with the assertion that the current policy
environment in Japan fails to provide sufficient structure for holistic regional innovation
systems to grow. Universities are seen as potentially useful actors in building up the
knowledge economies of regions, but institutional mechanisms and human resources to
achieve this goal are still limited- a constraint which similarly faces local governments.
Entrepreneurial and innovative institutional strategies, combined with local and
international initiatives to support knowledge creation and exploitation are imperative.
With a comparative framework situating national institutional processes in
Japan from an international perspective, this paper may initiate a laboratory of sorts,
whereby regionalising innovation policy may lead to complex spatial processes of
re-articulation of the national/regional economies within the globalising knowledge
economy.

BACKGROUND LITERATURE
In the age of globalisation and the knowledge economy, production of knowledge,
particularly localised tacit knowledge, is viewed as a valuable regional asset (OECD,
2001 a). Consequently, there is an increasing emphasis on ‘regional level’ as a unit of
economic policy implementation underlined by theoretical focus on ‘innovative milieu’
(Keeble et al., 1998), ‘regional innovation system’ (Cooke, 1992; Braczyk et al., 1998)
and ‘learning regions’ (Florida, 1995; Morgan, 1997; Asheim, 1996). With the
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processes of devolution seen as ‘a process that requires multi-level partnership and

networking’ (OECD 2001b, p. 11) rather than as a simple transfer of power from central
to the municipal to regional leves, the role of “knowledge institutions” (Lawton Smith,
2003) (e.g. universities and public research laboratories) and other local organisations
need to be re-examined in terms of institutional processes of ‘multi-level governance
(MLG) structure’ (Cooke et al. 2000, p.61) in the knowledge based economy.
Systems approaches to innovation vary in emphasis and level, but share the
common, core idea that: ‘the overall innovation performance of an economy depends
not so much on how specific formal institutions (firms, research institutions, universities,
etc.) perform, but on their interplay with social institutions such as values, norms, legal
frameworks, and so on” (Smith, 1995, p.72, my emphasis). This contrasts with the
linear model of innovation, which is a simple deterministic model that simply represents
the sequence from basic and applied research to product and process development. The
‘regional innovation system’ concept originates from discussions about national
innovation systems. However, this is not akin to translating the concept of national
innovation systems to the regional level. Although the nation-state provides the
overall organising framework, individual and often local institutional actors, operating
in conjunction with nationally determined initiatives and strategies, comprise the
framework of innovation systems operating at sub-national levels. The concept of
regional innovation systems has been empirically described and widely tested (e.g.
Braczyk et al. 1998; De la Mothe and Paquer, 1998), leading to the development of a
typology of systems to assist in understanding structural differences in the ‘systemness’
of the regions (Cooke, 1998).
Concepts such as ‘learning regions’ and ‘regional innovation systems’ have
developed in European policy contexts and the comparative analysis of ‘regional
innovation systems’ have provided some guidance for policy makers as ‘policy-oriented
innovation stimulation models’ (Hassink, 2001, p. 224). The ‘institutional thickness’
(Amin and Thrift, 1994, p.15) found in local systems such as Baden-Württemberg in
Germany and northern Italy has provided models of regional innovation systems for
other regions.2 The EU policy makers have adopted some elements of the ‘innovation
systems’ approach which is evident in the broader view of innovation policy expressed
in the 1995 Green Paper on Innovation (Edquist, 2001). However, question remains as
to whether or not models of successful regions can be transferred to other ‘regional
innovation systems’, particularly to those regarded as ‘less favourerd regions’. In
European literature, it is regional and local innovation systems rather than national or
corporate systems that stand out (Malecki, 2000). In Japan, literature on innovation
systems seems to have centred at national or corporate levels rather than regional and
local levels. This may reflect the fact that Japanese innovation systems have been
characterised by its ‘technonationalist policies’ (Fransman, 1999, p.169). There needs to
be more such policy-research interactions at regional and local levels in Japan and
elsewhere.
There are new trends in industrial strategies in most of the industrialised
countries, with universities being recognised as key players in generating the industrial
competitiveness of regions as well as nations in the knowledge economy. Increasingly,
co-operation among industry and universities is encouraged by many national
2
The example of areas such as Baden-Württemberg shows that “leading edge large engineering
companies (for example, Bosch) are said to rely on local subcontracting and supply networks for their
flexibility and innovative excellence” (Amin and Malmberg, 1994, pp. 230-1).

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governments to develop cutting edge technology and to promote technology transfer

and innovation. Universities are seen to play a crucial role in the development of hi-tech
districts, through the generation of knowledge, the training of labour, and the
spinning-off of new business ventures (Castells and Hall, 1994). Governments exhort
universities to be entrepreneurial and commercialise their knowledge. Estkowitz and
Leydesdorff (1997) termed this as ‘a triple helix model’ of
university-industry-government relations. The debate about the universities’ role in
‘systems of innovation’ since the late 1980s and 1990s has centred on the issues of
arrangements and settings of university-industry co-operation, and the factors enhancing
and facilitating this co-operation that would enhance innovation. The focus has been
primarily on the issues of the creation of high-technology firms, technology transfer,
technological changes and national competitiveness, with the university seen as
providing R&D (i.e., primarily scientific and technological knowledge) in a system of
innovation. Regional technology transfer has become a common policy objective,
following the example of Japan’s excellent Kohsetsushi centres (Shapira, 1996). It has
been widely recognised that national differences in technology transfer programmes
reflect differences in national innovation systems.
In light of the ‘regional governance’ of knowledge production in a multi-level
governance (MLG) structure, a number of context-dependent factors are found. These
include the geo-historical characteristics of regions, the knowledge infrastructure and
knowledge transfer systems as well as policies at national and local levels, strategies
adopted by individual institutions (firms, innovation support organisations, universities
and research laboratories). The power structures in which these institutions are
interacting affect how innovation systems operate at regional level in the globalising
knowledge-based economy. It is notable that although some powers and responsibilities
related to science and research policy are devolved to regional governments national
(and transnational) governments still tend to retain significant influence. The paper now
turns to look at those institutional mechanisms and their interaction with policies set
against the current national setting of Japan.

JAPAN: KNOWLEDGE GENERATION SYSTEMS AND REGIONAL

GOVERNANCE
Historical Background
Japan is known to have developed broad national technology strategies with long-term
scientific and technology goals. In terms of the role of science and technology policy in
the context of regional development, during the 1970s Tsukuba Science City was
established to decentralise government science and engineering research institutes. In
order to tackle regional disparities, several policy instruments such as industrial
relocation promotion law and factory location law were enacted during this decade.
Japan’s Technopolis programme led by Ministry of International Trade and
Industry (MITI) during the 1980s, is known as an example of utilising technology-led
development policies as a means of promoting the expansion of peripheral regions.
High-technology based local economic development was the key idea of this
programme. Local universities made notable contribution in terms of R&D and the
development of research infrastructure in these sites in conjunction with the
Technopolis Foundation, one of the co-ordination and support organisations (Masser,
1990). Linkages were developed between university and industry, and public research

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institute combined with improved social infrastructure. The conceptual, ‘triple-helix’

model, linking university-industry-government seems to have existed in the Technopolis
programme and other early initiatives, strategically impacting local economic
competitiveness. Incubator facilities were developed in most of the sites, and most of
the national universities opened ‘local collaborative research centres’, which supported
the combined efforts of local businesses and universities. 3
Despite these promising developments, however, the triple-helix model and
systems of local innovation which might have underlined the policy thinking behind the
Technopolis programme did not function well in practice, with the result that the
initiative did not adapt well enough to the changing needs of society throughout its 15
years’ existence. During the 1980s many science and technology parks were created, but
links with university research were not strong enough; and support mechanisms for
knowledge transfer to the local economy or the creation of venture firms from
university research were insufficient. It is argued that this insufficiency of
university-industry collaboration was due to the lack of co-ordination mechanisms
among universities, industry and the policy makers (Kubo, 2001). Many of the problems
were found in the ways which national universities had operated. Researchers at the
Japanese national universities were prevented by their legal status from engaging in any
formal co-operation with private firms. The university system was not open to society at
large, and the insufficient human resources of support organisations without enough
specialists equipped with co-ordination skills were the critical factors that explain the
limited development of ISRs based on the Technopolis Programme. Furthermore, the
globalisation of economy which was accelerating the growth in foreign direct
investment (FDI) led to the hollowing out of the Japanese economy (see below).4
Consequently, the implementation of local development policy based on the framework
of Technopolis Programmes was limited in order to revitalise Japanese industrial
structure as a whole.5
These problems and limits notwithstanding, the most interesting feature of the
Technopolis Programme is said to be found in the way it provided a stimulus for
‘bottom up efforts at the local level’ within the national framework. Although it was
limited in terms of enhancing the diversity of regional and local economies, the
Technopolis Programme was ‘not an invention of a central agency but rather its effort to
provide an organizational national framework for, and to reinforce different components
of trends already ongoing at regional level’ (Stohr, 1985, p.10 as cited in Masser,

3
In the 1980s, whilst these initiatives encouraged local small and medium sized enterprises (SMEs) to
interact with university research, their effects were rather limited. Most larger firms tended to conduct
R&D in house, or work with universities overseas rather than with Japanese ones.
4
Japanese and other foreign companies are moving into East Asian countries deepening ties between
Japanese and East Asian economic structures. These activities create horizontal specialisation among
economic agglomerations in East Asian countries, which are getting increasingly specialised (METI,
2004).
5
In Japan, in terms of regional development policies, the extent to which R&D related activities have
been heavily concentrated in the metropolitan Tokyo area has induced scepticism that technology transfer
to peripheral regions is likely to be limited to activities such as simple parts production and assembly,
rather than basic research. Although it is widely accepted that the links between high technology and
regional development has been successfully accomplished through the Technopolis programme during the
1980s, spin-off effects of new technology on local economy proved limited (Masser, 1990). Some
observers have expressed reservations as to the extent to which major technological universities would be
created in peripheral areas given the high concentration of existing R&D efforts in core academic
institutions. Problems were foreseen with regard to skill shortages in peripheral regions resulting from the
existence of greater job opportunities in the national industrial heartland.

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1990, p.51). Despite not having been implemented to its full extent, 6 this endeavour
is nevertheless worth noting as one model of multi-level governance (MLG) structure
for regional development.

Current Policy Changes

In 1995, with passing of the Science and Technology Basic Law by the Japanese
parliament, the first Science and Technology Basic Plan (1996-2000) was formed. In
December 1998, the legal framework which underlined the Technopolis Programme
was abolished and in 1999 was taken over by a new law for promoting the creation of
new enterprise, which provided local municipal and prefectural governments with far
more autonomy and responsibilities. A new model, called the ‘local platform’ was
created in order to respond to new demands in society stemming from globalisation of
the economy and a perceived need to implement new regional development policies
which were more oriented towards entrepreneurship and indigenous models of
economic development. The geographical limitation which was applied to the
Technopolis Programme was no longer valid, which means that every local government
has an opportunity to develop a ‘local platform’ whereby local resources and
characteristics can be utilised. This new law for promoting enterprise creation, combined
with the model of local platform prepared the context to develop new cluster policies to
revitalise the long suffering Japanese economy in the 21st century. One aim of the current
Science and Technology Basic Plan (2001-5) is to promote science and technology in
each geographic region. Furthermore, to encourage the development of
university-linked incubators, the Ministry of Economy, Trade and Industry (METI)
(reorganised in 2001 from MITI) provides support through the Japan Regional
Development Corporation (JRDC), and the Ministry of Education, Culture, Sports,
Science and Technology (MEXT) provides supplementary budgetary support. In 2001,
Hiranuma Plan, aimed at increasing ‘venture businesses born in universities’ was
launched, targeting to ‘create 1000 within 3 years’.
These new trends in industrial and science & technology policies have been
accompanied by new sets of policy instruments aiming to forge new links between
universities and industry. After the 1995 Basic Law, recent university reforms were
accelerated to encourage further development of university-industry links which was
hitherto legally and structurally constrained in Japan. A legal framework to promote
university-industry technology transfer was enacted in 1998, and 27 Technology
Licensing Organisations (TLOs) have been established as of April 2002. The number of
filed patent application, patent grants, and licensing and option contracts all grew as a
result of these government efforts. 7 MEXT has created a budgeting scheme whereby

6
There are notable successful cases growing from the Technopolis programme: for example, Kitakyushu
Techno Centre is known for its entrepreneurial activities combining universities, private sector and local
authorities. They are making networks with Korean companies and science parks (Kubo, 2001)
http://www.pref.fukuoka.jp/shoko/fukuokas_potential/incubate.html 03/04/04 Hamamatsu Area is another
Technopolis programme which has experienced success with inter-organisational networks developed
between firms, intermediary organisations and their links with the engineering department of Shizuoka
University. While Yamaha, Honda and SUZUKI are well known international firms based in this area,
new high-tech firms in the field of photonics constitute noteworthy additions to the area. The economic
growth of Hamamatsu Area is characterised by its ‘indigenous’ development, rather than attracting large
firms outside (Nishiguchi et al., 2003).
7
Some TLOs form private companies limited and some form incorporated foundations. The TLOs are
separate organisations from the national universities in the legal term. Although there has been public
funding for TLO activities, the public money is in decline. University staff have voluntarily made financial

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national universities promoting university-industry co-operation and patenting can be

allocated additional funds (OECD, 2002).8 To make the university system more open to
society, a law prohibiting the exchange of personnel between universities and industry
was amended, which facilitated national university faculty to conduct research or work
as consultants with private companies.

Research Systems
The Japanese research system has been clearly identified in its Science and Technology
Basic Plan. Between FY 2001-5, 24 trillion yen are to be spent on science and
technology, assuming 1 % of GDP and 3.5 % of nominal GDP rate. (See Annex 1 which
compares Japanese R&D with other nations). About 80% of Japanese R&D is
performed in industry. Of the 20 % of R&D performed by the public sector, universities
play the primary role. MEXT is responsible for 64% of government R&D expenditure
for 2002.9 METI is responsible for the second largest research budge (16.9%). New
types of budgetary funds and research funds established during the 1990s strengthened
the competition among national universities (Asonuma, 2002).10 Budgeting related to
research activities continued to increase giving advantage to older research-oriented
universities. In 2001, MEXT introduced the idea of “Top 30 universities towards global
top standards”, which proved rather controversial and was later to be renamed as
“Center of Excellence in the 21 century” (COE 21) scheme. The COE21 scheme can be
seen as a ‘trial in performance funding’ (Yonezawa, 2003, p.19).11 This may indicate a
gradual polarisation between ‘research intensive’ versus ‘less research intensive’
universities in the Japanese higher education system. 12

investment in TLOs , but after April 2004, universities are allowed to invest in TLOs directly as
organisations.
8
In relation to this, organisations such as the Japan Science and Technology Corporation (JST) have
started sponsoring programmes aimed at national universities and national laboratories to encourage the
development of research into marketable products, with university administrators acting as liaison
between the faculty members and JST. Pechter describe this as a ‘remarkable sweep of agreement’ (2001,
p.7).
9
MEXT provides the institutional funding for universities, supports varied research funding programmes
open to researchers in universities, government institutes and industry, supports a range of its own
research institutes which are at different stages of transition to becoming Independent Administrative
Institutions (IAIs). Government spending on Japanese higher education is often said to be the lowest
among advanced nations. The government’s contribution covers 38.1 % whilst students cover 26.2 % of
the cost. The degree of financial burden on students and families in higher education in Japan is higher
than in US and Europe. It is also interesting to note that the Japanese government intensively supports
significantly smaller proportion of higher education institutions (HEIs) than the US government does for
its public institutions (Asonuma, 2002).
10
During the 1980s, universities faced severe financial tightening with no increases in budgets. In terms
of finance structure, ‘outside funds’ such as donations from private businesses and research contract
revenues began to increase in the early 1980s induced by the national universities’ need to counteract the
government’s lagging contributions, and due to government policies promoting industry-university
collaboration (Asonuma, 2002).
11
MEXT has promoted assessment and evaluation in universities. National Institute of Academic Degrees
and University Evaluation (NIAD-UE) was reorganised in 1999, and in addition to accrediting academic
degree programmes of HEIs, NIAD is now also responsible for evaluating the education, research and
other activities of Japanese incorporate universities. Universities are obliged to formulate 6 year plans and
objectives, the implementation of which is assessed every year. The overall budget allocated from MEXT
will be based on the results of these assessments.
12
In other national contexts, for example, in the UK, classification and terminology such as “research
intensive universities” and “less research intensive universities” are expressed, strengthening the
recognition that there is a hierarchy, both explicit and implicit in the higher education system (see DfES,
2003).
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The 2004 Higher Education Reforms

The wave of current structural changes sweeping over the higher education system in
Japan is unprecedented. As of April 2004, all national Japanese universities were
transformed to ‘incorporate status’. Now there are 89 ‘incorporate’ (former national)
universities, about 70 public (prefectural and municipal governments) and about 480
private universities. For the purpose of this discussion, most national universities can
be considered as ‘research universities’.13 It is assumed that universities will find
themselves in a more competitive environment with prospective cuts in public funding
in general; there will hence be a growing need to find external sources of funding,
combined with more efficient management approaches. The efforts of individual
universities to strengthen university-industry links are very much in line with this new
‘corporate culture’ emerging within the Japanese higher education system, which is
broadly influenced by the ‘new public management’ thinking.
Another legal change which may affect the geographical dimension of the
university-based ISRs is that incorporate status universities can now receive financial
support from local authorities, which was prohibited in the past when they were national
institutions. This may trigger new relationships between universities and their localities,
as there will be more financial incentives for universities to work closely with their
surrounding regions. However, it has been pointed out that under the current financial
constraints of the local public sector, most of the local budget will still flow into the
public universities as before, rather than resources being diverting to former national
universities. In other words, there may be growing competition between former national,
public and even private universities for the scarce resource in their respective locality.

National, Regional and Sub-Regional Governance of Knowledge

The introduction of new local ‘platform’ was a significant turn in Japan’s regional
policy from the ‘exogenous model’ assisting lagging regions by attracting firms and
creating jobs to the ‘endogenous growth model’ aimed at inducing competition between
localities. In 2000, the Local Devolution Law was enacted whereby responsibilities
given to local authorities were substantially strengthened.
The responsibilities of national and local governments are as follows: the
national government is responsible for formulating and implementing comprehensive
policies for promoting science and technology; the local government is responsible for
formulating and implementing policies for promoting science and technology
corresponding to national policies and in accordance with the local characteristics.
There is no institutional mechanism operating at regional level as such in research
policy and funding terms. The only exception to this structure is the existence of nine
METI regional economic bureaus which oversee economic and industrial policies at the
‘regional’ level across prefectures (see below). The nine bureaus are expected to
develop plans, become nodes to co-ordinate local networking and alliances. In light of
the growing economic activities which encompass narrow ‘local’ areas, this can be
regarded as ‘regionalisation’ of innovation policies in Japan. Significant initiatives are
currently being undertaken jointly by some prefectural governments, and the central
government’s policy of developing regional research strength encompasses this level of
government (OECD, 2002 b).
Local government operates at sub-regional level, including prefecture and
municipal levels. The fifth National Institute of Science and Technology Policy

13
80 % of Grants-in-Aid for Scientific Research was distributed to national universities in FY 1999
(Asonuma, 2002).
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(NISTEP) review of regional science and technology promotion policies shows that
over 90 % of prefecture governments adopted at least one key action programme for
science and technology: e.g. regional council boards for the promotion of science and
technology; basic plans for the promotion of science technology (OECD, 2002b).

JAPANESE CLUSTER POLICIES, UNIVERSITY-BUSINESS LINKS IN THE

21ST CENTURY
Two Cluster Programmes
National government’s initiatives since 2001, such as the ‘industrial cluster plan’ led by
METI and the ‘intellectual cluster scheme’ led by MEXT rest on the conceptual cluster
models developed by Michael Porter (1998), and are also based on models of successful
local economic development in other countries, mostly those of the United States
(Silicon Valley in particular), and Europe. These initiatives emphasise strengthening
university-business linkages in a local context, which will arguably lead to the creation
of high-technology venture business spin-off from universities’ research. This section
reviews recent cluster policies in Japan including 19 industrial clusters, 13 intellectual
clusters, and the more recent, integrated ‘Regional Cluster model’. Furthermore, it
examines whether or not national industrial policies are encouraging the emergence of
regional innovation systems. (See Annex 2 for a list and map of cluster projects in
Japan).
The industrial cluster plan 14 implemented by METI aims at revitalising
regional economies and promoting industrial accumulation through promoting networks
between industry, university and public research institutes (e.g., Regional R&D
Consortium), and through supporting the creation of new businesses and new industries.
Nine regional economic departments of METI oversee the development of clusters in
each region with the support of the central bureau. The role played by the METI
regional economic bureau in fostering the collaboration and networks is acknowledged
in the successful development of locally based cluster (Nagayama, 2002).15 Targeted
industry includes biotechnology, ICT, electronics, neo-manufacturing, new energy,
ecology and recycling. Each cluster project promotes technology licensing, university
spin-outs, incubation activities, and venture investments. It is expected that in
implementing these activities, variety of governmental subsidiaries and grants will be
utilised (Mitsui, 2003).

14
The budget for the industrial cluster plans amounts to 41.9 million yen for the FYs 2001 and 2002.The
ultimate objective of the industrial cluster plan is to promote new business creation combined with
existing local industrial strengths. It aims at preventing the ‘hollowing out’ of the economy, without
depending too much on public and private inward investment. There are 19 industrial clusters across the
nation: 3 Bio clusters, 5 IT clusters, 4 Nano-tech/manufacturing clusters, 3 environment technology
clusters and 4 others (Nagayama, 2002). See also, Inoue, 2003.
15
In terms of local economic development, there is a division of labour between prefectural government
and METI regional economic bureau. The prefectural government oversees ‘local platform’ schemes
whereas METI regional bureau administers wider cross-prefectural ‘cluster’ development. The METI
industrial ‘clusters’ were chosen in light of this geographical administrative criteria, which don’t
necessarily represent the most successful local industrial agglomeration in Japan.

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The intellectual clusters plan 16 supported by MEXT, and developed from the
existing policies for the promotion of science and technology in regions, aims at the
construction of ‘regional system of technological innovations’, based on triple helix
industry-university-government collaboration by forming networks of Centre of
Excellences (COEs) in regions. The plan assumes a bottom up approach, with action
plans proposed by the local government rather than those from the central government
imposed from above.
Questions may arise as to the relationship between these two cluster policies
planned, implemented and evaluated by separate ministries. According to Harayama
(2002), fostering the university-industry linkage made a ‘point of convergence’ for
MEXT with its remit in university issues, and METI which is responsible for industry
agenda. In order to co-ordinate science and technology agenda from a wider
inter-ministrial point of view, General Science and Technology Council was established
in 2001 directly attached to the Cabinet Office to function as a co-ordinator among
ministries. The Council drew a ‘Regional Cluster Plan’ combining the two cluster
policies, with the expectation that a greater collaboration between the industry and
intellectual cluster plans leads to further innovation.
Arguably, the development of Japanese university-industry collaboration since
the late 1990s is characterised by a growing co-operaion between the two ministries,
namely, METI and MEXT. The law for promoting a university-industry technology
transfer (1998) was jointly prepared by MITI and MEXT in order to provide a legal
basis to facilitate the technology transfer from universities to industries, which will lead
to a ‘virtuous cycle of technology transfer’: faculty-owned inventions leading to
patenting and licensing, which brings a financial return and induces reinvestment in
research activities (Harayama, 2002). 17 However, the evaluation of each cluster
program is conducted separately by the two ministries, and this may cause unnecessarily
‘accountability burden’ on the local authorities and agencies which are already under
severe financial and time pressure. The evaluation of the policy mechanisms is
obviously influenced by the policy models undrelying each policy. More collaborative
approach should be taken from the planning, throughout implementation and the
evaluation of the two cluster programs.

University Spin-Off Firms

The government has been supporting new spin-off company creation from
national/incorporate universities by de-regulation and by providing subsidies to R&D
activities. In the data provided by MEXT, as of 2000, there were 127 new enterprises
spun-off from universities, which compares to 368 in the US in 2000 and approximately
200 in UK.18 In 2001, 251 and in 2002 424 small business companies were created
from universities in Japan (Nakagawa, 2003). Japan has taken the ‘US model’ with
emphasis on licensing and start-ups from universities for economic growth while,

16
There are 13 “Cooperative Link of Unique Science and Technology for Economy Revitalization
(CLUSTER) program encompassing 15 regions in Japan. The budget for CLUSTER program is
£500million p/a. per region lasting for 5 years. Apart from CLUSTER, there are 19 areas designated as
“CITY AREA” program (Cooperation of Innovative Technology and Advanced Research in Evolutional
Area) focusing on smaller areas. See Nakagawa, 2003.
17
Presentation slides, December 2002. This section is based on the information from the presentation
slides.
18
AUTM Licensing Survey FY 2000,
http://www.mext.go.jp/a_menu/shinkoku/sangaku/sangakub/sangakub6.htm access date 01/01/03
HEFCE(2001) Higher education-business interaction survey. A report to UK HE funding bodies and the
Office of Science and Technology. Bristol: HEFCE.

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especially in local contexts, it has tended to underestimate the role of existing informal
links between universities and business.
The existing informal links that university researchers have nurtured with
industry warrants more attention. It is important to recognise that institutional
differences between countries require different generic models (Cooke et al. 2000:247),
and that spin-offs and science parks are only one aspect of academic entrepreneurial
activities. Intellectual property (IP) commercialisation is only one aspect of the wider
institutional picture; sometimes fundamental differences in institutional arrangements
are underestimated. For example, the conventional wisdom based on the US/Japan
comparison is rather questionable if the informal relationships at the level of faculty
members are taken into consideration, rather than the more formal links at the
institutional level. Pechter (2001) argues that ‘the particular direction of reform is
perhaps unjustifiably towards the American university-industry policy framework’ (p.4).
He suggests that for Japanese policy makers, rather than making mostly bilateral
comparison with the US, multilateral national comparison may be equally important and
perhaps even more relevant to Japan’s policy formulation. A longer-term perspective
should be taken, following the stages of development of these firms in order to make a
reasonable sense of the statistics.

TOWARD TRANS-NATIONAL REGIONAL INNOVATION SYSTEMS IN EAST

ASIA
As already mentioned, the offshore shift of Japanese firms prompted change in Japan’s
local economic structure which has been characterised as the ‘hollowing out’ of
Japanese economy. In recent years, a number of East Asian countries, and China, in
particular, have emerged as the ‘world’s factory’ seizing top world production share for
many products. Chinese development to date has centred on those industries located in
local Japanese cities, imposing challenges to the development of Japanese local
innovation systems. The transformation of Japan’s innovation systems depicted earlier
needs to be investigated in relation to emerging trans-national innovation systems in
East Asia, with growing inter-cluster competition and partnerships.
Competition to establish and maintain information and knowledge activities is
becoming fierce in cities and regions in South Korea, China, Taiwan and Japan.
Singapore, referred to as a business hub, is facing intense competition with other nations.
Whilst competition is intensifying among East Asia’s economic agglomerations,
inter-linkages between these regions are also growing. One factor encouraging
inter-agglomerative linkages within East Asian regions has been the movement of
multinational corporations into East Asia, including those of Japan. As far as Japanese
firms are concerned, manufacturing and sales clearly comprise the bulk of offshore
operations while in the R&D sector, companies have just started to shift their operations
abroad (METI, 2002). However, this landscape may change as the Chinese strategy for
translocation of global ICT production and R&D into the Beijing, Huamgdong
(Shanghai) and Guangzhou (Shenzen-Guangdond) regions has borne fruit, significantly
on the back of an investment in engineering talent (Cooke, 2003).
Japan is a late ‘globaliser’ as a nation. However, as globalisation of economy
continues, the Japanese innovation system with its technology and science has been
leaking same as those of other industrialised countries (Fransman, 1999). Having been
the most advanced economic nation in East Asia, Japan may find itself in an strategic
position to develop ties, especially in terms of creating further ‘knowledge value chain’
(Cooke, 2002) with East Asian economic agglomerations in terms not only of

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geographical location but also of various stages of development (see METI, 2002).
Constructing knowledge hubs set within a wider framework of trans-national regional
innovation systems may be key. The development of university-based ISRs (discussed
above) also needs to be situated within such a wider geographical and intellectual
paradigm, beyond the national framework. Recognising the importance of the
commercialisation of innovation through an intermediary entity, Taiwan has developed
a mechanism called Industrial Technology Research Institute (ITRI) since 1973 (Cooke,
2003). Taiwan has, furthermore, developed a ‘public-private consortia’ in managing
international knowledge flows; it has been less dependent on basic research from
indigenous higher education institutions than on forging alliances with multinational
enterprises such as IBM and Motorola, then transferring technological knowledge to
SMEs for commercialisation.
For the Japanese central government, local government, firms, universities and
other support organisations, those varieties of technology and knowledge flows and
international links pose new challenges as well as opportunities. National borders mean
much less than they used to do regarding the flow of technology. Technonationalist
policies are unlikely to succeed in a globalised world (Nelson and Wright, 1992). The
Japanese government, MITI/METI in particular, has responded to the opening of the
Japanese innovation system by internationalising its R&D programme (e.g. as to the
biotechnology sector, see Fransman, 1999). In Japanese national innovation system,
companies have been the ‘motor’ whilst the government has played a major supportive
role. Now there are wider range of actors, including venture capital firms, various
innovation support organisations, and ‘boundary crossing’ institutions at the local and
regional levels. Developing partnership schemes for R&D collaboration and human
resource development with universities, research institutes and those intermediary
organisations not only within Japan but also within East Asian regions (e.g. ITRI in
Taiwan; Regional Research Centers (RRC) in Korea; Information Technology Institute
in Singapore) may be a way forward to construct new advantages in trans-regional
innovation systems.

BARRIERS AND OPPORTUNITIES TO THE DEVELOPMENT OF REGIONAL

INNOVATION SYSTEMS BASED ON UNIVERSITY-BUSINESS LINKS
In regard to constructing regional innovation systems, many problems of Japanese
cluster strategies consisting of university-based ISRs have been revealed throughout the
investigation.
First, while devolution of power to local authorities has been encouraged in
terms of legal arrangements, in practice, there are varying levels of financial and human
resource constraints at the local level. Japan benefited form highly centralised model of
national innovation system through its economic development after the Second World
War, but it is unlikely that this mechanism will work in the 21st century. In general,
many local authorities will face severe problems, as the lack of professionals to be
engaged in regional strategic policy formulation and implementation may hinder the
organic development of regional networks. This is partly due to conventional Japanese
employment practice within the public sector, which has encouraged the career path as
‘generalists’ with wider but unspecialised experiences, rather than acknowledging
specialists with focussed expertise. There is already a widening gap between innovative
local authorities and others in terms of the long- term human resource strategies in the

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areas of industrial policies, and university-business links. 19 A multi-level governance

structure has not been well developed in Japan. There exists no patter of governance at
the regional level. The economic bureaus are rather minor actors and the extent of their
systematic engagement varies between regions. Clear division of labour and
responsibility as well as the existence of collaborative relationships between local
authorities and the METI regional economic bureaus, are other issues in constructing
regional architectures of the knowledge economy.
Second, policy makers need to recognise that the danger of a cluster-based
approach to policy is that it detracts from the need to take a more holistic view of
regional development (Martin and Sunley, 2003). One issue concerns impact and
sustainability of the policy; the central government has been promoting ‘endogenous
model’ of local economic development through cluster policies with various financial
support mechanisms, but the impacts of this policy direction warrants close
investigation. The set of public funds encouraging local cluster development will
come to halt after 3 to five years’ time, and the local authorities need to make the
development sustainable. The other issue is remaining problems stemming from
remaining regional disparities. Local economic development policy centring on cluster
development has to be seen within a wider process of regional development, combined
with provisions aimed at fostering skills appropriate to the future as well as existing
local labour market and industrial structure. Policy makers, especially those at the local
and regional levels, need to identify the real needs and strengths of each locality, rather
than just following the ‘cluster brand’ (Martin and Sunley, 2003).
Thirdly, a fundamental point made by the example of the United States is that
university-business links are only partly responsible for spurring an acceleration of
innovation; benefits that can be expected from university-business cooperation are
rather small and of varying effects, depending on the sector in question. Furthermore,
only a small fraction of the flow of knowledge from universities to industry is mediated
by formal licensing agreements involving university-generated patents. The widely
observed, recent enthusiasm for promotion of these links by setting up TLOs and other
formal mechanisms in Japan may need to be tempered with more realistic expectations.
(Branstertter, 2004). The notion of university-industry links need to be considered with
a broader vision than at present. Current emphasis of university-industry collaboration,
however, rests principally upon promoting formal IP commercialising mechanisms. One
of the most important functions played by universities in the innovation system is to
provide graduates. Universities have traditionally produced graduates for a national
labour market dominated by large employers with little concern for SMEs or graduate
retention in local labour markets. This model has begun to break down in response to
changing patterns of employer demands, such as the decentralisation of large
corporations into clusters of smaller business units and the greater role of smaller
businesses as sub-contractors, suppliers, franchisees (Charles, 2003, p.11). Such a trend
has only started in Japan.20 A shift in the university system with more emphasis on

19
Hamamatsu, which is often referred to as an exemplar of a successful local innovative system, has
adapted its economic structure and been able to construct support mechanisms for local innovation
utilising different government programmes such as Technopolis and more recent funding for developing
university-business links. These support mechanisms are embedded as part of the historical and social
networks of the locality.
20
In general, the broader significance of labour-market processes for the technological and organisational
dynamism including that of higher education has yet to be examined. The significance of local
labour-market processes goes beyond transactional efficiencies in the matching of labour supply and

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‘quality and research at the graduate level’ (Kodama and Branscomb, 1999, p.13) will
be needed.
Fourthly, structural and cultural issues are brought to bear in relation to current
university reforms, which allegedly will give more autonomy to universities and have
opened up opportunities for some universities to engage in entrepreneurial activities.
Having relied upon national research budgets for so many years, however, most of the
former national universities have nurtured neither entrepreneurial culture nor
organisational mechanisms to achieve this end. Some universities have created new
incentive mechanisms for university researchers to conduct business oriented research,
but an emphasis on commercial orientation with a short timescale may serve to hamper
the overall research capability of a university if it is not integrated as part of the long-
term strategic mechanisms of the whole institution. Strategic institutional support for
entrepreneurial activities would be imperative, rather than seeing these as short-term,
income generating activities.
Finally, regarding the construction of regional advantage, the transformation of
ISRs in Japan needs to be situated within a wider geopolitical context in East Asia. The
change in Japan’s national industrial structure parallels that in local economic structure,
which is connected to the transformation of economic structure in East Asian countries.
Attention should be drawn to economic structural change within the trans-national area,
and issues for public policies within a wider geographical scope need to be identified.
Turning an eye to the EU policy provisions, there are several lessons to be
learnt in regard to public policy provisions in promoting trans-regional innovation and
learning while forging knowledge value chains outside the regions. One of the priorities
for the new generation of regional development programmes in the European Union is
the promotion of innovation whereby the key challenges for policies involve assisting
firms and localities to change by enhancing their learning capabilities. In the European
Union, various innovation networking programmes at the regional level have grown,
and more regional authorities seem to have greater competence and confidence to
implement the relevant learning processes at regional level (Cooke, 2002, p.11). The
European Commission is increasingly building a regional dimension into its support for
innovation systems since 1994 through several programmes. One is from the Innovation
Directorate DG 13, in the form of the Regional Innovation and Technology Transfer
Strategies (RITTS) Programme. The other is through joint action between DG 13 and
the Regional Policy Directorate DG 16 under the Regional Innovation Strategies (RIS)
programme. These innovative actions rely on ‘the principle of helping regions to help
themselves through initiatives to mobilise local knowledge in a process of collective
social learning’ (Henderson and Morgan 1999 cited in Lanbasado et al. 1999, p.10).21
At the regional level, there are a number of examples in the EU countries
which show practical application of industrial cluster model and policy measures to
promote science based industry growth. For instance, recent experiences of Scotland
warrants close attention in view of the emerging MLG structure of knowledge

demand. The movement of workers and students is a central pathway for the transfer of knowledge and
experience (Angel, 2000, P.127-8).
21
The emergence of RIS signified the first step towards building ‘soft’ or intangible, network-form,
infrastructures in less favoured regions to complement more typical past investments in transport and
energy infrastructures (Cooke, 2002, p.60). The main objective of innovative actions under the ERDF is
to ‘influence and improve European regional policy in order to make it more efficient in terms of its
content and policy action’ (Landabaso, Oughton, Morgan, 1999, p.10).

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June 2004 Berlin

economies. Hitherto, Scotland has benefited from its capability in attracting the
production end of global value chins in ICT, known as ‘Silicon Glen’. However, with
current trend of globalisation in the knowledge economy and with the disappointment
with current FDI trends, Scotland has embarked on new strategies consisting of:
“Global Connections”; “Growing Business” and; “Learning and Skills”. Cooke
(2003) argues that a ‘regional innovation system’ which Scottish Enterprise is
constructing consists of two sub-systems, namely, Knowledge Generation and
Knowledge Exploitation sub-systems. In order to promote science-based industry,
Intermediary Technology Institute (ITI) is now planned for Bioscience, ICT and Energy
exploitation and commercialisation. 22 This may provide an example of regional
initiative to become ‘knowledge exemplar’ (Cooke, 2003) with an attempt to bridge
earlier cluster approach and the creation of innovation systems in the globalising
knowledge economy.

CONCLUSION
The Japanese government has embarked to construct regional innovation systems in the
knowledge economy which centre on the creation of university spin-off firms and
licensing activities in relation to national higher education reforms. However, this is
only part of the total of mechanisms to promote innovation systems, and there are
inherent constraints at both local governments and agencies and knowledge institutions
such as universities.
Universities are seen as potentially useful actors in building up the knowledge
economies of the regions, but their institutional mechanisms and human resources to
achieve this goal are still limited. Constraints are found at local governments in terms of
limited devolution of power and human resource strategies. Lack of governance at the
regional level seems to have had major impact on the development of ISRs in Japan.
The structure of multi-level governance (MLG) structure does not exist explicitly in the
current Japanese political environment. It is up to individual local governments’
initiatives, but some of them are disempowered under the highly centralised innovation
systems. Systemic process of devolution of power to local governance is needed with
consideration of prospective regional governance system. For universities, new
institutional mechanisms such as TLOs and IP strategy offices will have to be
strategically positioned within the overall structure, strategies and budgeting of each
university. The remit of the TLO is exclusively concerned with the management of IPs,
and the need for the extension of service coverage to such activities as a liaison function
and supporting incubator facilities is seen as essential.
For policy makers and those agencies concerned with policy evaluation, there
is a huge task lying ahead given the complexity of the whole process of creating
regional innovation systems linked through over-arching national industrial, science and
technology policies within the globalising economy. Entrepreneurial and innovative
institutional strategies combined with public initiatives enabling global and local
knowledge flows, and establishing knowledge creation and exploitation sub-systems
within trans-national regional innovation systems are imperative. The process of
economic restructuring in Japan needs to be investigated in relation to trans-national
regions in East Asia. Regionalisation of innovation policy needs to be strategically
linked to the international geo-politics where the nations and regions are situated.

22
The ITI approach, developed from the economic successes of Asian ‘Tiger’ economies, such as
Taiwan’s ITRI.
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The importance of cross-regional perspective within multi-level governance

structure of innovation systems in the globalising knowledge economies should be
highlighted. The concept of multi-level governance (MLG) structure, and the
industry-science relationships (ISRs) have proved to be useful in explaining the
dynamic processes of constructing regional innovation systems as encompassing
different geographical scales. Regional innovation systems are predominantly
influenced by national policy initiatives, but as the European experiences might show,
there are increasing number of trans-regional collaborative learning and innovation
processes taking place. The paper has discussed some noteworthy, trans-regional
collaborative endeavours emerging in East Asia, and suggested a new way of linking
local industrial structures with wider global political economy.

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June 2004 Berlin

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Annex 1
Comparing R&D: UK, Japan, US and the OECD average
UK Japan US OECD
average
Investment in 3.9 4.7 6.0 4.7
knowledge1998 (R&D 1.8; Software (R&D 3.0; Software (R&D 2.6; (R&D 2.2;
As a percentage of 1.3; 1.1; Software Software 1.2;
GDP HE 0.8) HE 0.6) 1.5; HE 1.2)
HE 1.9)
Average annual 3.6% of GDP 2.6% of GDP 3.9% of 3.4% of
growth rate of GDP GDP
Investment in
knowledge1998
The government 0.7 % 0.5% 1.1 %
spending on
higher education
of GDP 1997
R&D HE 0.37 0.45 0.37 0.38
expenditures as Business 1.27 2.15 2.00 1.54
a percentage of Government 0.20 0.30 0.19 0.23
GDP 1999
R&D Business 72.2% 66.8 63.2
expenditures 49.4% 19.5 29.2 29.8
by source of Government 27.9%
funds Other national 7.9 4.0 4.3
source 5.1 0.4 ---- ---
Abroad 17.6
R&D HE 20.0% 14.8% 14.1 17.0%
expenditures Business 67.8% 70.7% 75.7 69.9
by main sectors Government10.7% 9.9% 7.2 10.6
of performance Private non-profit1.4 4.6% 2.9 2.5
1999
University 1999 source of funds 1990 Revenue
funding DTI-OST 24% Government’s
HEFCs-35% allocation 62.3%
Gov deps 10% Income generated by
UK university hospitals
industr 19.3%
External funding 2.5%
y 7%
Foreign 9%
UK charities 14 %
Other 1%
The 1.25 billion 1% of GDP
Government pounds additional 24 trillion yen
Science and investment by 2001-5
Technology 2005-6; average
Budget 10% increase in
real terms for the
Science Budget

Source: OECD (2001)

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Annex 2

Cluster development in Japan

Industrial Clusters
See http://www.rieti.go.jp/users/cluster-seminar/pdf/005_p.pdf

METI Regional Bureau Cluster Project Industry Area/ number of

firms and universities
Hokkaido Bureau 1)Hokkaido Super Cluster Biotechnology/IT
Promotion Project About 280 companies; 15
universities
Tohoku 2) Promoting Industries in Health and welfare
response to Aging Society About 180 companies; 19
universities
3) Promoting Recycling Environmental technology
Oriented Society About 200 companies; 17
universities
Kanto 4) Regional Industry Manufacturing
Revitalization Project About 260 companies;
TAMA 28 universities
5) Fostering Bio Ventures Biotechnology
About 170 companies and
9 universities
6) IT Venture Forum IT
About 170 companies
Chubu 7) Creating Manufacturing Manufacturing
Industry in Tokai Region About 480 companies; 28
universities
8) Creating Manufacturing Manufacturing
Industry in Hokuriku About 120 companies; 11
Region universities
9) Creating Digital Bit IT
Industry About 90 companies; 10
universities
Kinki 10) Bio Five-Star Company Bio
& Tissue Engineering About 220 companies;
Project 36 universities
11) Active Manufacturing Manufacturing
Industry Support Project About 360 companies;
25 universities
12)Information Technology IT
Business Promotion Project About 260 companies;
4 universities
13) Energy & Environment Energy
Cluster Promotion Project About 120 companies;
20 universities
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Chugoku 14) Machinery Industry Manufacturing

About 100 companies;
10 universities
15) Circulative Industry Environment
About 80 companies;
9 universities
Shikoku 16)Shikoku Techno Bridge Health and welfare;
Plan Environment
About 260 companies;
5 universities
Kyushu 17)Kyushu Recycle and Environment
Environmental Industry About 190 companies;
Plaza (K-RIP) 18 universities
18) Kyushu Silicon Cluster Semiconductor
Plan About 150 companies;
23 universities
Okinawa 19) Okinawa Industry Information, environment,
Promotion Project health, processing trade
About 110 companies;
1 university

Intellectual Clusters
See http://www.rieti.go.jp/users/cluster-seminar/pdf/003_p_en.pdf
See also the map below

Bio Cluster Plan (Including both Industrial and Intellectual Clusters)

METI Hokkaido Super Cluster

Industrial Bureau
Cluster Kanto Fostering Bio
Bureau Venture
Kinki Bio Industry
Bureau Cluster
MEXT Kansai Bio medical
Intellectual wide-area Cluster
Cluster Kobe medical
Cluster
Hiroshima Bio Cluster
area
Takamatsu Sugar Bio
Area Cluster

See the map below

21
Boundaries of 9 METI Regional Bureaus and
MEXT Intellectual Cluster Projects

Intellectual
Cluster
Project
Bio Cluster