General Purpose Technology, Spin-Out, and Innovation: Technological Development of Laser Diodes in the United States and Japan

By Hiroshi Shimizu

This book focuses on exploring the relationship between spin-outs from incumbents and the patterns of innovation in general purpose technology. Do spin-outs really promote innovation? What happens if star scientists leave the incumbents and establish a startup to target untapped markets? Entrepreneurial spin-outs have been recognized as an engine of innovation. General purpose technology, such as the steam engine in the Industrial Revolution, has been considered an engine of growth. This book provides new perspectives on how entrepreneurial spin-outs shape the patterns of innovation in general purpose technology by integrating theoretical findings in industrial organizations and includes innovation studies and detailed evidence from a longitudinal case study. Concretely, by longitudinally exploring the technological development of laser diodes in the USA and Japan, this study examines how the existence or absence of an entrepreneurial strategic choice for spin-outs influences the patterns of subsequent technological development. The longitudinal analysis in this book shows that spin-outs could hinder the subsequent development of existing technology when that technology is still at a nascent level, because the cumulative effects of technological development could disappear if research and development personnel leave their parent firms in order to target different sub-markets. The findings of this book show that institutional settings designed to promote spin-outs do not necessarily promote innovation. The book offers novel theoretical insights into the relationship between institutions promoting spin-outs and the developments of general purpose technology.

• Language: English
• Publisher: Springer
• Release date: May 17, 2019
• ISBN: 9789811337147

Book preview

Part I

Big Tree with Thick Trunk and Its Fruits

Part I provides context to the topics and approaches utilized in this study. Chapter 1 clarifies the purpose of the research, the framework of the analysis, and overall focus of the study. Chapter 2 reviews previous literature on innovation of highly versatile technology. This chapter articulates the theoretical and empirical contributions intended by this study. Chapter 3 discusses ways to measure technological change and introduces the data used in this study. Chapter 4 introduces basic laser diode technology and the markets explored in this study. Expert knowledge in physics is not needed to read this study, as these introductory chapters provide all the necessary grounding in the topic.

© Springer Nature Singapore Pte Ltd. 2019

Hiroshi ShimizuGeneral Purpose Technology, Spin-Out, and InnovationAdvances in Japanese Business and Economics21https://doi.org/10.1007/978-981-13-3714-7_1

1. Aim and Framework

Hiroshi Shimizu¹  

(1)

Faculty of Commerce, Waseda University, Tokyo, Japan

Hiroshi Shimizu

Startups, financing for ventures, flexible labor markets, and well-developed networks have gained considerable attention as source of innovation since the late 1980s. But do they really promote innovation in all dimensions? This simple question underlies this study.

First, this chapter aims to articulate why it is important to explore this question after showing the purpose of this study. The chapter initially addresses the need to explore highly versatile technology, spin-outs, and innovation in general, followed by an explanation of the book’s method of analysis and selection of cases. Finally, the third section of this chapter discusses this study’s focus of analysis.

1.1 Research Aim and Its Importance

This study aims to explore the technological development of laser diodes in the U.S. and Japan and examine how the existence or absence of an entrepreneurial strategic choice for spin-outs influences patterns of technological development. In this exploration, this study identifies that a trade-off exists between the conditions to grow a big tree with solid trunk and the conditions to yield many fruits from the tree. More concretely, entrepreneurial strategic choices for spin-outs promotes innovation in submarkets on the one hand. On the other hand, it stunts subsequent technological development along with the existing technological trajectory. The following three points highlight the importance of discussing the relationship between spin-outs and innovation in highly versatile technology. These three points are interrelated.

First, highly versatile technology can have a considerable impact on society. Specific definitions of the terms highly versatile technology and general purpose technology will be discussed in detail in Chap. 2, but here, it can nonetheless be stated that such technology has a significant impact on society. During the industrial revolution, for example, steam engines were used as power sources for mines, waste water, power looms, ships, locomotives, and other machines, and greatly changed everyday life. Lasers, the technology examined in this study, are also used for various applications such as communications, light sources of optical disc players, sensors, medical applications, cutting, and so on. Highly versatile technology also has a significant impact on whole economies by increasing productivity in various areas in which the technology is utilized. However, high productivity growth is not necessarily achieved immediately after the emergence of the highly versatile technology; a certain amount of time is needed for the incremental technological developments to occur and for the development of complementary technology to substitute for existing technology. Such technologies have great impacts on firms as well. Highly versatile technology is, as the name suggests, potentially useful in a wide range of purposes. Lateral utilization of existing technology for new applications and exploitation of new submarkets are important for firms to maintain sustainable growth. With the development of highly versatile technology, the possibility that incumbent firms may be replaced by firms offering new applications of such technology does arise. For example, following development of laser diodes, the copper wire used in telecommunications was replaced by optical fibers. In this way, the impact of highly versatile technology on society, the economy, and firm is significant. One purpose of this study is to deepen understanding of how such technology is created and bred, and thus creates new markets.

The second area of importance relates to the relationship between employee spin-outs and innovation. Spin-outs, financing for venture, flexible labor markets, and knowledge hubs have attracted great attention as factors to promote innovation. Silicon Valley in the U.S. is widely seen as the exemplar case. There, successive innovations were created from spin-outs emerging in the field of electronics, such as semiconductors, information communications, and software. For this reason, university-originated ventures and establishment of stock markets for emerging firms have been promoted as avenues for innovation since the 2000s in many countries. Governments have also developed many policies to promote labor flexibility. For example, the importance of promoting labor flexibility for scientists was first identified in Japan’s initial science and technology basic plan in 1996. In the European Union, Marie Curie Actions, a funding scheme aiming to foster the career development of researchers, was established in 1996 to promote mobility of scientists not only in Europe but also across the globe. Promoting spin-outs, providing finance to ventures, and reforming institutional settings to promote labor mobility became seen as a policy recipe to create innovation in many countries and local regions.

But is it really possible to enhance innovation via spin-out-promoting institutional reform? Many policies aiming to promote venture businesses and spin-outs have been promulgated since the beginning of the 2000s. It is still too early to evaluate their outcomes. However, further in this study, we will see that spin-outs and highly flexible labor markets actually stifle subsequent technological development on a given technological trajectory.

When a certain innovation emerges, much attention is given to the benefits that the innovation can create. Therefore, opportunity costs incurred in creating an innovation are often forgotten or ignored when considering and evaluating that particular innovation. An opportunity cost is the value that could have been realized by choices that were not selected when a decision was made. In other words, in order to examine innovation, it is important to consider not only the results realized by the innovation but also the result that would have emerged if managerial resources were mobilized in other areas in lieu of creating that innovation. The existing literature on innovation has not clearly addressed such point. This is one of contribution that this study aims to offer.

By looking at differences in innovation patterns in highly versatile technology between the U.S. and Japan, this study examines both the benefits realized by promoting spin-outs and the opportunity costs incurred by these spin-outs. In doing so, this study assesses whether creating a system to promote a spin-out will actually lead to innovation. This will reveal important implications that should be considered when designing policies for institutionalizing a national innovation system.

The third importance is related to patterns of innovation themselves. When viewed individually, innovations may seem to occur randomly. However, when gathered longitudinally, some empirical regularity appears. As will be discussed in the following chapter, the fact that an empirical pattern in innovation exists can be said to be the biggest discovery of innovation studies so far. Of course, its regularity is only empirically discernible after the fact and is not a law-like regularity as assumed in natural science. Since people can learn and change behavior, there is also a good possibility that the regularity assumed by the actor making decisions in light of anticipating such regularity beforehand will change. However, even if this regularity only exists posteriori, it is important to understand what kind of empirical patterns have emerged in innovation so far. This study is intended to deepen understanding these general patterns of innovation.

This study illustrates that the existence of spin-outs changes the pattern of innovation. Specifically, it shows that the cumulative technological development level is likely to remain low due to spin-outs. If institutions promoting spin-outs are well-developed and if many submarkets in which the versatile technology can be utilized exist, competition among spin-outs occurs in search of more attractive submarkets. As a result, the trajectory of existing technology peaks at an early stage and cumulative technological development ends at a low level. This dynamic suggests that spin-outs are not necessarily an unconditional source of innovation.

Returning again to the metaphor of a big tree with a solid trunk and its fruit, a trade-off exists between the factors that grow a solid trunk and the factors that generate fruit. If you try to stimulate environments where the trunk grows, the fruits that emerge may be large, but few in number. On the other hand, in an environment where many fruits can be harvested, the number of fruits may be greater, but the trunk that supports it is likely to be thin or flimsy.

1.2 Analytical Framework and Case Selection

This section explains the analytical framework used to explore the patterns of innovation in highly versatile technology. First, it presents why this study takes a longitudinal industry-level comparative approach. The following section outlines the rationale for selecting the laser diode as this study’s case.

1.2.1 Longitudinal Industry-Level Analysis

This study uses a case study-based longitudinal industry-level analysis to explore the relationship between spin-outs and patterns of innovation in highly versatile technologies. The reasons behind this approach are twofold. First, technologies with high versatility are not often observed in society. Therefore, it is difficult to gather the number of samples of highly versatile technology as needed to undergo valid statistical empirical tests. Second, as clarified in detail in Chap. 2’s academic review, the relationship between spin-outs and innovation in highly versatile technology is not yet clear. This gap in knowledge and research is a core impetus for this study. It is necessary to carefully unravel the contexts in which interactions between spinouts and innovation emerge. Case-study analysis is an effective approach in that it enables us to unravel the contexts surrounding such phenomena and identify elements such as linkages among factors in that context.¹ Of course, it might be possible to analyze patterns of innovation generation theoretically by model analysis rather than case-study analysis. Indeed, when considering the impact of highly versatile technology on the economy, analyses using models have already been conducted mainly in the literature on endogenous growth theory in Economics. Models are useful in simplifying parts of complexly intertwined events and analyzing the underlying causal relationships. For this reason, this study conducts a simple model illustration in Chap. 12. However, such an exercise is undertaken to extract part of the reality discovered from the case-study analysis and identify the causal relations more clearly. Furthermore, this study uses a single case to sharpen existing theory by pointing to gaps and beginning to fill them, which will be discussed in detail in the next chapter.

This study analyzes the history of technological evolution of laser diodes as a case study, which will be described in detail in the following section. Here, history is not used in the sense of fact finding that has overlooked or re-interpreted the past from a modern perspective. Rather, this study longitudinally explores the process of technological development of laser diodes from the 1950s onwards in order to examine the mechanisms by which certain patterns of innovation emerged in different national settings. Assuming human learning and strategic behavior, it is difficult for management studies to establish a theory that functions like a law in natural sciences. However, in time-series descriptions, focusing on the context of a series of events, even if we describe individual events in detail, mere chronological description is not sufficient to be considered social science. Following John Elster ’s perspectives on social science, rather than formalizing human behavior as a universal law with underlying regularity or chronologically describing events in detail, this study explores the mechanisms that give rise to frequently observed events. Specifically, this study aims to elucidate these mechanisms by analyzing (1) how the pattern was created and (2) why the pattern persists (even if only for a certain period of time) by unravelling the underlying dynamics between spin-outs and technological innovation that play out over time.

1.2.2 Case Selection

Having outlined the research aims, the question then arises of what kind of case is suitable for the purposes of this study. It is important to take the following three points into account when discussing the case study’s selection.

The first point is related to the amount of time available for observation. As will be discussed in Chap. 2, previous literature indicates that highly versatile technology takes a long time to accrue its cumulative technological developments and develop complimentary technology and new applications. For this reason, a newly developed technology, even if expected to be highly versatile, is not suitable as a case study because an insufficient amount of time has passed. For example, previous literature cites biotechnology and nanotechnology as examples of General Purpose Technology.² One might suppose that artificial intelligence can certainly be considered a General Purpose Technology because it can be utilized in many different applications and can possibly increase productivity across the entire economy. However, these technologies have not yet been fully developed, and proliferation of their uses has only just begun. For the purpose of this study, it is necessary to analyze a highly versatile technology from its birth through to its maturation.

Second, the purpose of this study renders it necessary to analyze a case where spin-outs can be observed. It is preferable for a comparative analysis to explore the relationship between spin-outs and an innovation to observe both a case where spin-outs occurred and a case where spin-outs did not occur. Additionally, it is preferable that no significant differences exist either in timings when technological development started in the former and latter or in the level of initial technological development in the former and latter. In other words, cases where R&D and commercialization started in the same time period in two countries and where institutions existed that promoted spin-outs versus where they did not exist are the most suitable. The comparative approach of this study can be regarded as natural experiment, which compares different systems that are similar in many respects but that differ with respect to the factors whose influence one wishes to study.³ By comparing technological development in the U.S. and Japan, this study attempts to minimize the effects of individual variables other than those of interests, which is spin-outs.

Third, it is necessary for the purpose of this study to analyze a case in which innovation can be observed. Innovation is not necessarily easily observable. For example, a factory system using compatible parts is considered to be a versatile technology. However, it is not necessarily easy to detect individual cumulative innovations in factory systems that use compatible parts. Incremental changes in factories (as general purpose technologies) are difficult to witness precisely because of the various and differentiated means by which they can incrementally improve. That is, depending on the technology, varieties of applications, and specific contexts therein, details for a given innovation are not always easy to observe from the outside.

After taking these factors into consideration, lasers were selected as a suitable case. The reasons correspond to the above three points. First, lasers offer the requisite high versatility and time span length. Lasers have been deemed one of the greatest inventions of the twentieth century and a highly versatile technology. A laser is a light with high coherence, and its properties differ greatly from those of natural light such as sunlight and firelight. The theoretical background for lasers was developed in the early twentieth century. Specifically, the fundamental theory underlying the development of lasers is quantum mechanics, which was developed by Niels Henrik David Bohr , Luis Victor de Broglie , and Albert Einstein in the early twentieth century. Laser-related research began in the 1950s. The foundation of the laser itself was a theoretical proposal published by Charles Townes in the U.S. in 1954. Then, in 1957, a graduate student at Columbia University proposed the theory of lasers, and named this form of light Amplification by Stimulated Emission of Radiation (LASER) . In 1960, the first laser was used to create light. Since this first laser oscillation in 1960, various kinds of lasers have been developed, such as carbon dioxide gas (CO2) lasers , helium ion (He–Ne) lasers, ruby lasers, and free-electron lasers, depending on the medium used. Laser applications began to emerge in the 1980s. The development of practical applications for lasers has greatly changed modern lives by allowing advances in communications, measurement, medical treatments, processing, printing, sound and visual recording, and image display.

Out of these different types of lasers, this study takes laser diodes as its case. Laser diodes were first created in 1962 and are currently the most widely used type of laser. Laser diodes have been applied to long-distance optical communications such as submarine cables, short distance communications between computer chips, optical information recording such as optical discs and players such as CDs and DVDs, bar-code readers, printers, sensors, medical equipment, and material processing. The initial conception of laser diodes emerged 60 years ago, in 1957. The oscillation of the first laser diode took place in 1962. Since then, cumulative R&D has been carried out by many parties. Furthermore, as Chap. 4 discusses, R&D activities are peaking out, as determined by the number of patents and papers on laser diodes. Therefore, it is reasonable to assume that sufficient time has passed to allow for a valid longitudinal analysis to explore the patterns of innovation.

The second point is related to the fact that, as a technology, laser diodes have been shaped and industrialized directly by U.S. and Japan R&D. As Chap. 5 and later chapters point out, U.S. and Japanese organizations started R&D in laser diodes almost simultaneously, which have produced many innovative and useful outcomes. Furthermore, since the 1980s, the patterns of innovation in U.S. and Japanese organization began to diverge. Successive spin-outs emerged in the U.S. but were rarely seen in Japan. Therefore, laser diodes are a suitable case for analyzing how the existence or absence of spin-outs influences patterns of innovation.

It must be noted that this study does not aim to judge which national setting is better for technological development. As Brian Arthur points out, the development of technology and evolution of technology are conceptually different processes.⁴ The development of technology means that technology progresses into something better or more advanced, while the evolution of technology means that technology gradually changes and transforms into a different form over time. This study does not aim to gauge which national institutional setting was better for laser diode technology development because the areas where technological change occurred were divergent in the U.S. and Japan. Rather, it aims to analyze how the technology evolved differently and diverged to follow different technological trajectories over time in the U.S. and Japan.

The third reason relates to data availability. Laser diodes are a highly knowledge-intensive and science-based technology, drawing from both physics and optics. Scientists and engineers in both firms and research organizations, such as universities and research institutions, competed to publish cutting edge data gleaned from their R&D results in academic journals and to apply for patents. As a result, much of the R&D results are easy to observe from the outside in the form of papers and patents. Of course, as we will see in detail regarding the data in Chap. 3, not all R&D outcomes are revealed in papers and patents. However, compared to research areas where papers or patents are not of high importance, data constraints for analyzing R&D are relatively smaller in laser diodes. Furthermore, this study contains the results of extensive interviews, which will be presented in detail in Chap. 3. Since the size of the laser diode research community was not extremely large compared to that of, for example, semiconductors, the majority of scientists and engineers are able to recognize each other. This modest size of the research community enabled us to carry out a substantial interviewing program covering most significant R&D activities.

1.3 Analytical Focus

This study longitudinally analyzes laser diode R&D and resultant industrialization in the U.S. and Japan. The focus of the analysis is the relationship between spin-outs and innovation in these countries. It addresses specific research questions based on the findings reported by industrial research institutions investigating laser diodes both in the U.S. and Japan.

The most representative industrial report was provided by an American research organization named Japan Technology Evaluation Center (JTEC) . It surveyed the optoelectronics industry in the U.S. and Japan, and the report published in 1996 shows the competition in the laser diode industry in both countries. The JTEC report analyzes the entire optoelectronics industry in which laser diodes is one of the components. However, since laser diodes are an important key component of the optoelectronics industry, this report also analyzed laser diode technology and incumbent firms and start-ups focused on this technology. The JTEC report pointed out the difference in competitiveness between the U.S. and Japanese optoelectronics industries as follows:

Japan clearly leads in consumer optoelectronics, both countries are competitive in the areas of communications and networks, and the United States holds a clear lead in custom optoelectronics.

Japan now dominates some 90% of the world’s optoelectronics markets and can be expected to continue its dominance for a number of years. The current size of the Japanese optoelectronic industry is $40 billion; that of the United States is $6 billion (Forrest et al. 1996), p.x.v.

JTEC’s report showed that Japan gained a large share of the optoelectronics industry. It also highlighted differences between American and Japanese industrial organizations as follows:

Due to the vibrant entrepreneurial industry base that is an integral part of the U.S. economy and which is apparently nearly absent in Japan, numerous small companies [exist]. These small businesses, which generally specialize in the manufacture of photonic components, are rarely positioned to compete head-to-head with the larger, systems-oriented companies; instead, they tend to specialize by filling narrow niches . As companies become established, the niches expand with the manufacture of additional specialized, unique devices produced to fill the needs of particular subsets of customers. This custom business appears capable of supporting the growth of small companies into midsize enterprises with annual revenues approaching $50 million. This type of custom technology, however, rarely produces rapid growth capable of moving these businesses beyond this middle scale. (Forrest et al. 1996), p.xvii.

This JTEC report introduced two important points this study further explores. First, while Japanese firms took a large share internationally, U.S. firms had the competitive edge in customized markets. The second point is that start-ups played a central role in the U.S. This difference in industrial organization between the U.S. and Japan, especially the role of start-ups in the U.S., has also been pointed out in other industrial reports analyzing laser diodes. For example, Tetsuhiko Ikegami , who led the laser diode R&D at Nippon Telegraph and Telephone (NTT) , pointed out that start-ups were active in the U.S. and suggested that such start-ups were virtually absent in Japan.⁵ The industrial report provided by the Bank of Industry of Japan also indicated that,

As in the process of development of optoelectronics industry in the U.S., except for a few telecommunication firms and optical fiber firms, startups and medium sized firms that started from relatively small startups played an important role. (Industrial Bank of Japan 1990), p. 77.

As described in the industrial reports above, start-ups have played a central role in the technological evolution of laser diodes in the U.S. However, as described in Part II, start-ups only came to occupy this key role in the U.S. from the 1980s.

From the 1960s to the 1970s, so-called large enterprises with high degrees of vertical integration such as Radio Corporation of America (RCA) , General Electric (GE) , International Business Machines (IBM) , Western Electric , Xerox , Hewlett-Packard (HP) , and Bell Laboratories were dominant players. However, numerous spin-outs emerged from the 1980s in the U.S. On the other hand, such spin-outs never really emerged in Japan, where large incumbent firms, such as NTT and Kokusai Denshin Denwa (KDD) , Nippon Electric Corporation (NEC) , Fujitsu , Hitachi , Mitsubishi Electric , Sony , Sharp , and Panasonic (then Matsushita Electric Industrial and Matsushita Electronics ), were always dominant. Therefore, the focus of the case analysis is to delineate how changes in industrial organization in the U.S., where spin-outs emerged from dominant firms, and how the unchanged industrial organization in Japan influenced patterns of innovation. Concrete research questions related to the case study are:

1.

Why did U.S. firms gain competitive advantages in customized markets?

2.

Why did Japanese firms gain competitive advantages in the mass market?

3.

How did spin-outs emerge in the U.S?

4.

Why did spin-outs not occur in Japan?

5.

How did spin-outs influence the pattern of innovation in the U.S?

6.

How did the absence of spin-out influence the pattern of innovation in Japan?

These questions are closely related, and thus their answers are also likely to shed light on others’ answers. In addition, when examining these individual research questions, further refined questions will be introduced in each chapter. However, the basic questions of this study remain those mentioned here.

Two points should be reiterated regarding the scope of analysis for the case study in this study. First, as Part II considers in detail, the first laser diode oscillation was achieved in the U.S., although Japanese organizations started R&D in laser diodes at nearly the same time. Of course, firms in European countries such as Germany, the UK, France, and the Netherlands, as well as Korean organizations were also involved in R&D in laser diodes. However, as Chap. 4 mentions, U.S. and Japanese firms, universities, and research institutions always led R&D in laser diodes. Predictably, research activities in U.S. and Japanese organizations could be affected by R&D trends in other countries. In such situations, this study addresses innovations generated outside the U.S. and Japan. However, although organizations in other countries are also subject to analysis, the main focus remains the innovations produced in the U.S. and Japan.

Regarding the comparison between the U.S. and Japan, one might suppose that this is an international comparative study since it explores two countries. Case comparison allows for the control of some variables to identify causal relationships. And, indeed, this study’s research approach can be considered a comparative study. However, technically speaking, this study is not a comparative study in a strict sense, because interactions occurred between subjects of analysis. If units of analysis or cases are not independent and some relationship exists between them, a controlled comparison of the conditions cannot exist. Of course, some sort of interrelationship often exists among subjects of comparison in social science. In this study, since the U.S. and Japanese organizations were competing in R&D and industrialization of laser diodes, they cannot be called independent. Individual firms and research institutions developed their own R&D goals and strategies, competing not only with their domestic rivals but also their foreign rivals. If organizations compete in a market, it is hardly assumed that they are independent relationship among them. Even though subjects of comparison are not independent, some previous studies claim to be comparative analyses in management studies. However, as described above, technically speaking, exploring innovations produced by U.S. and Japanese organizations is not a comparative study in a rigid sense.

This study takes a longitudinal approach to the dynamics observed between the two countries in terms of R&D and industrialization processes in laser diodes in the U.S. and Japan, rather than a comparative study of innovation in both countries. Firms, universities, and research institutions in the both countries initially competed along the same technological trajectory. However, their trajectories gradually diverged. These are the phenomena that this study aims to explore.

The second point related to this study’s research scope is the subject of analysis. This study focuses on the laser diode, a device that oscillates laser light and a key device supporting great progress in information and communication technologies in the twentieth century. Previous literature has explored the development of the information and communication technology, or ICT, industry and its impact on society. For example, Chandler et al., describe the history of the establishment of the computer and consumer electronics industry in the U.S.⁶ The history of telecommunications and how it shaped the industry have been documented in detail.⁷ Regarding Japan’s information and communications industry, the process of integration of the telecommunications and computer industries from the 1960s have been well-documented.⁸

Significant research has been conducted in the ICT industry. However, although the industry has offered important applications for laser diodes, their uses are not limited to information communications and have spread to a very wide range of outlets. Rather than analyzing laser diodes from specific industries, this study focuses on laser diodes more generally and observed their utilization across myriad industries.

However, it bears repeating that the laser diode is one item of technology, and it does not necessarily perform any function by itself. Complementary technologies are required. For example, in combination with an optical fiber, a laser diode functions as a backbone device for optical communications. For optical disc players, complementary technologies such as optical discs and optical pickups are also required. In addition, the value that optical communications and optical information recording can produce depends on their associated competing technologies. As optical communication becomes faster and it becomes possible to exchange large amounts of information on the Internet, the necessity of mounting an optical disc player on a personal computer has reduced significantly. Many software installations can be carried out by being downloaded from the Internet. Movies and music can be downloaded from Internet as well. This wide accessibility and avenue of distribution reduced the value of laser diodes for optical information recording devices such as CD and DVD players. In this way, the value of the device is not determined in isolation, but rather depends greatly on the development of complementary and competing technologies. Therefore, in exploring the technological evolution of laser diodes, this study also takes into account the development of complementary and competing technologies.

Although this study explores the development of complementary and competing technologies, laser diodes are nevertheless the focal point of its analysis. One might suppose that the focus of analysis is too narrowly focused. However, interest in this study lies in innovations in technology with high versatility. If a technology’s versatility is high, it will be used for various purposes. Laser diodes have been used in numerous industries, such as the consumer electronics industry, the machine tool industry, the medical equipment industry, the automobile industry, and the space aerospace industry, as well as the information communications industry. In this way, the purpose of this study is to explore innovation of technologies available across these various industries.

In business management research, studies analyzing individual products/services, specific firms, and management of specific industries are widespread. On the other hand, analyses of specific technologies tend to the be the purview of history of science, history of technology and economic history of innovation. As Chap. 2 discusses in detail, knowledge on how scientific knowledge and technology changes over time has been well documented in those history studies. By merging these two approaches, this study scrutinizes patterns of evolutionary technological changes as embodied in a single device, and thus is able to identify how the patterns of innovation diverged.

References

⁹

Forrest, S. R., Coldren, L. A., Esener, S. C., Keck, D. B., Leonberger, F. J., Saxonhouse, G. R., & Whumate, P. W. (1996). JTEC panel on optoelectronics in Japan and the United States final report. Baltimore: Japanese Technology Evaluation Center/International Technology Research Institute.

Industrial Bank of Japan. (1990). The prospects for the optoelectronics industry (Hikari Sangyo no Shorai Tenbo). Kogin Chosa, 250, 2–120.

Footnotes

1

Eisenhardt, K. M., and M. E. Graebner (2007): Theory Building from Cases: Opportunities and Challenges, Academy of Management Journal, 50, 25–32, Siggelkow, N. (ibid.Persuasion with Case Studies, 20–24, Yin, R. K. (1984): Case Study Research: Design and Methods. Beverly Hills, California: Sage Publications.

2

Lipsey, R. G., K. Carlaw, and C. Bekar (2005): Economic Transformations: General Purpose Technologies and Long-Term Economic Growth. Oxford; New York: Oxford University Press, ibid., ibid.

3

Regarding the natural experiment approach in longitudinal analysis, see Diamond, J. M., and J. A. Robinson (2010): Natural Experiments of History. Cambridge, Mass.: Belknap Press of Harvard University Press.

4

Arthur, W. B. (2009): The Nature of Technology: What It Is and How It Evolves. New York: Free Press.

5

Ikegami, T., and K. Matsukura (2000): Optoelectronics and Its Industry (Hikari Electronics to Sangyo). Tokyo: Kyoritsu Shuppan.

6

Chandler, A. D., T. Hikino, and A. Von Nordenflycht (2001): Inventing the Electronic Century: The Epic Story of the Consumer Electronics and Computer Industries. New York: Free Press.

7

McKenney, J. L., D. G. Copeland, and R. O. Mason (1995): Waves of Change: Business Evolution through Information Technology. Boston, Mass.: Harvard Business School Press, Sterling, C. H., P. Bernt, and M. B. H. Weiss (2006): Shaping American Telecommunications: A History of Technology, Policy, and Economics. Mahwah, New Jersey: Lawrence Erlbaum Associates.

8

Anchordoguy, M. (1989): Computers Inc.: Japan’s Challenge to IBM. Cambridge, Mass.: Published by Council on East Asian Studies Distributed by Harvard University Press.

9

If a journal/book does not provide a title in English, the title is translated into English and the original title in Japanese is in the bracket.

© Springer Nature Singapore Pte Ltd. 2019

Hiroshi ShimizuGeneral Purpose Technology, Spin-Out, and InnovationAdvances in Japanese Business and Economics21https://doi.org/10.1007/978-981-13-3714-7_2

2. Theoretical Background: General Purpose Technology, Pattern of Innovation, and Spin-Out

Hiroshi Shimizu¹  

(1)

Faculty of Commerce, Waseda University, Tokyo, Japan

Hiroshi Shimizu

By reviewing previous research, this chapter aims to clarify the positioning of this study and the academic contributions of this study. This chapter is roughly divided into three parts. First, it outlines previous studies on innovation of highly versatile technology. Then, it looks at studies on patterns of innovation. Next, it analyzes discussions on the relationship between spin-outs, labor mobility, and innovation. Lastly, it positions this study’s own the academic contributions in the context of this previous literature.

2.1 Highly Versatile Technology and Incremental Development

Extremely highly versatile technologies are referred to as General Purpose Technologies. These are technologies that can be used for various products and processes. A general purpose technology is defined by the following four points.¹ (1) It can be recognized as a single piece of technology; (2) it has a lot of room for improvement and refinement at the time of its creation; (3) it is used for various products and processes; and (4) there is a strong technical complementarity with other technologies. As can be seen from this definition, a general purpose technology is a matter of degree. For that reason, there is not much value in finely discussing which technologies are considered general purpose technologies and which ones are not.²

One of the reasons that general purpose technology is attracting attention is its impact. The frequency by which general purpose technology is generated by society is fairly low. However, its impact on the economy and society is quite large.³ By utilizing highly versatile technology in downstream processes, productivity in those processes is enhanced. Therefore, the creation of a superior, highly versatile technology has a noticeable ripple effect.⁴ For example, productivity greatly improved following the invention of steam engine. Steam engines became the powerhouse for various applications. Many horses that had been the main source of power until then became unemployed.⁵ With the advent of steam locomotives and steamships, markets, which had been divided until then, became integrated, birthing a huge, unified market. The factory became mechanized and productivity improved greatly. As a result, mass production and mass distribution systems expanded widely in the United States and elsewhere.⁶ It has also been argued that the spread of general purpose technology also expands wage disparity.⁷ The impact of general purpose technologies on the economy and society is not only significant but quite large.

Nevertheless, it is never the case that general purpose technologies produce such a large ripple effect right from their inception. The impact on productivity and society of general purpose technologies right after inception is extremely small. The steam engine barely made any contribution to the economic growth before 1830, and its contribution only started after about 100 years later through the famous invention of Watt.⁸ Steam engines started contributing to the economic growth after 1850 when the high pressure steam engine was born. As in the case of steam power, workers that employed old, low productivity processes compared to the high productivity new technology were likely to lose their jobs.⁹ As a result, intense resistance, like that seen in the Luddite Movement in the U.K. Industrial Revolution , may emerge in response.

It takes a long time for general purpose technologies to significantly impact economies and society.¹⁰ There must be incremental improvements on said technologies for them to have an impact.¹¹ Additionally, complementary technologies and systems must also be developed. This is by no means limited to general purpose technology. Whether a technology can realize its potential in a society depends greatly on the incremental improvements that are made on the technology and on the development of complementary technologies and systems.¹² As general purpose technologies leave much room for further improvement, these incremental improvements are of great importance in leveraging their versatility and applicability.

2.2 Patterns of Innovation

Entrepreneurs are the entities that bring about innovation. When entrepreneurs find new opportunities, they must allocate managerial resources to pursue said opportunities. Because corporate managerial resources are limited, entrepreneurs leverage legitimacy to secure resource allocation. Charismatic entrepreneurs who are not bound by constraints of vested interests’ decision-making processes in the organization to ensure legitimacy often gain significant attention in innovation. Research in the history of entrepreneurs focuses on these individuals and their roles in innovation processes. This literature usually pays attention to how entrepreneurs broke free from the constraints of path dependency in their decision-making and describes their decisions and related contexts.

However, if one pays attention only to characteristics of individual entrepreneur, it becomes difficult to explore patterns of innovation. For example, the British industrial revolution from the mid-eighteenth century saw the emergence of several labor-saving innovations. There, many entrepreneurs such as James Watt and Richard Arkwright played an active part. Indeed, such entrepreneurs were central figures in the innovation process, accredited with inventing, discovering, or monopolizing on these new technologies. However, if one ignores the environment surrounding these entrepreneurial actors, an important question arises: did heroic entrepreneurs suddenly appear one after another in England in the eighteenth century and disappear?

From the studies on innovation so far that will be discussed in the later sections, several statistical regularities have been empirically observed in the occurrence of innovation.¹³ If the most important factor that generates innovation is the process of some genius or charismatic entrepreneur finding and pursuing a business opportunity, then the occurrence probability of innovation should be random. In fact, however, innovation is never randomly generated. It has been revealed that similar patterns of innovation frequently occur, as we will see below. This is one of the important findings revealed by studies on innovation thus far.

2.2.1 Paradigm and Innovation

First, let us look at the discussion of Thomas Kuhn , who gave great insight in the study on innovation patterns. Kuhn analyzed the kinds of processes surrounding scientific progress, and, in 1962, published The Structure of Scientific Revolutions.¹⁴ The Structure of Scientific Revolutions is a study on history of science, and mainly analyzes in particular the discipline of Physics. Nonetheless, the concept of paradigm and the pattern of scientific studies presented therein have greatly influenced the study of innovation. These became a significant foundation for placing emphasis on processes—such as focusing on management resources—and expectations of actors and agents in a particular field, which we will explore in later sections. Let us now examine the concepts articulated by Kuhn and the subsequent studies that applied Kuhn’s work.

2.2.1.1 Paradigm in the Structure of Scientific Revolution

Kuhn’s great concern was the question of how science evolves. The main reason why Kuhn’s The Structure of Scientific Revolutions garnered so much attention was due to the concept of paradigm that was Kuhn posed.

So then what exactly is a paradigm? Kuhn called the phase in which scientists share the same rules, standards, and premises for a certain period of time to advance their research as normal science . There, the scientists advance their research gracefully, which increases its precision. In normal science, scientific knowledge accumulates incrementally. A paradigm refers to the typical way to conduct and advance science, such as rules, standards, and study premises, which is shared among researchers.¹⁵ In the normal science phase, studies deviating from the pre-established paradigm are regarded as non-scientific from scientists who share that paradigm.

When scientists advance day-to-day research under normal science,