Empirical Analysis of the Relationship between Upgrading and Innovation of Japanese SMEs and Industrial Clustering

Abstract

The Japanese economy has been suffering from a long recession since the early 1990s. Since then, countless measures to revitalize the industrial sector have been implemented by all levels of government, from central to local, and a significant amount of public funding has been poured into various projects, such as promoting venture businesses or supporting academia/industry/government collaboration. The reality of the Japanese economy, however, shows that revitalization has not occurred. Thus far, such policy measures have not been successful in promoting Japan’s revitalization; moreover, the gap in economic circumstances between metropolitan and rural areas, and between large companies and SMEs (small and medium-sized enterprises) has been enlarging. It is recognized that the revitalization of regional industries is one way to cope with these issues. In so doing, focus has been placed on upgrading regional industries and SMEs to equip them with higher technology and management. One means to achieving this is the industrial cluster policy, which aims to revitalize regional industries and SMEs by agglomerating firms which are large or new start-ups, research institutions related to high or low technologies, and universities with research of cutting-edge technology. The rationale is provided by Fujita et al. (1999), Krugman (1991), Porter (1980) and Saxenian (1994), for instance. The essence of these theories, in the present context, lies in the flow of information generated by agglomeration; that is, in regions where firms and research institutions cluster, collaboration and competition among those parties and organizations create not chaos, but rather the ‘coherent power’ of vitalization.