Japan’s technological know-how and skilled labour force are no secret, but so far have not translated into much of a catalyst for foreign investment into R&D. The government is committed to change this and connect the country’s broad base of researchers and cutting-edge technologies with foreign companies willing to establish local R&D operations.

Major foreign investors such as Johnson & Johnson, BASF and 3M have already established local research centres, and other heavyweights such as Apple and Air Liquide are following suit. A subsidy programme handled by the Japan External Trade Organization (Jetro) is expected to further boost inflows of investment at the higher end of R&D activities.

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Investment in R&D is a key component in prime minister Shinzo Abe’s plan to revitalise and upgrade the Japanese economy. The government aims to increase investment in R&D to 4% of GDP, with public investment accounting for 1% of this and the remainder coming from the private sector. Japan is already towards the top of the global ranking for R&D spending with 3.47% of GDP in 2013, behind only South Korea (4.15%) and Israel (4.09%), according to World Bank figures. This translates into levels of patent applications and number of researchers that constantly feature at the top end of the global R&D indicator rankings.

Moving in

Nonetheless, foreign investors have barely registered the country’s R&D potential. Over the past 10 years, Japan has attracted 32 greenfield R&D projects from foreign investors, worth a total of $1.1bn, which represents just a fraction of the FDI that flowed into R&D operations in other Asian heavyweights such as China (249 projects for $15.8bn) and India (190 projects for $9.3bn), according to greenfield investment monitor fDi Markets.

Mr Abe’s strategy to open up to foreign investment, including in R&D operations, has already borne some fruit. Apple took over a 25,000-square-metre facility previously owned by Panasonic in the outskirts of Yokohama and is transforming it into a technical development centre slated to open doors in 2017. French global industrial gas supplier Air Liquide is in the process of setting up an R&D centre in the country too.

“Today Japan is a technology powerhouse, innovation is very strong in the country, people are very skilled, and we want to be in this ecosystem,” says Air Liquide vice-president for the north-east Asia cluster Alain Combier. “In this way we can develop and co-develop innovation with academies and other companies to bring forward the technologies of the future in fields such as hydrogen mobility or new gases and advanced material to manufacture more powerful chips.”

Subsidies available

The government’s efforts to maximise foreign investment in the sector have also created a subsidy programme managed by Jetro, which the organisation’s website says is offering subsidies for “innovation centres, experimental studies and feasibility studies with respect to regenerative medicine or the Internet of Things, in collaboration with Japanese companies and other organisations in Japan, with the aim of drawing investments and excellent management resources from overseas by promoting the location of high value-added sections of overseas companies such as R&D facilities, and making Japan a high value-added hub and innovation base for global value chains”.

The programme covers up to one-third of the costs related to the establishment of global innovation centres, up to two-thirds of the costs for experimental studies and up to Y10m ($89,000) for feasibility studies. Global powerhouses such as Philips Electronics, Siemens Healthcare, GE Healthcare and Pfizer are among the first beneficiaries of the programme.