A central focus of the January 21, 2022, virtual summit between President Joe Biden and Prime Minister Kishida Fumio was a mutual commitment to strengthening economic ties. They proposed a “two-plus-two” coordination framework for their top foreign and economic ministers, and pledged to enhance cooperation in areas such as technology, supply chains, and standards.
This growing focus on technology has been a notable theme for Washington and Tokyo over the past year. When Biden hosted former prime minister Suga Yoshihide at the White House last April, the two sides issued a joint statement that went well beyond prior vague commitments to collaborate. The two leaders zeroed in on the digital economy as a focus for trade cooperation and promised to deepen R&D in a vast array of emerging and foundational fields of technology: the life sciences and biotechnology, artificial intelligence, quantum information sciences, civil space, 5G telecommunications, and semiconductors.
But while government pledges represent a welcome step in moving technology collaboration front and center for the U.S.-Japan alliance, most R&D, financing partnerships, and technology interchanges will actually take place in the private sector. The next challenge, therefore, is to harness private sector innovation and public-private partnerships to make these ambitious goals possible.
The Silicon Valley Fulcrum: From Trade Competition to IT Collaboration
The good news is that Silicon Valley is already ground zero for much U.S.-Japan collaboration, but these efforts are taking place beyond the scope of intergovernmental negotiations and sometimes beyond the visibility of policymakers and bureaucrats in the two capitals.
So what, then, should technology cooperation entail in concrete terms?
Simply put, technology players in the United States and Japan need to harness several key components to further build a next-generation partnership.
First, most technology cooperation will occur at the company level as U.S. and Japanese firms work not just to innovate but also to create new value. University research often undergirds technology inventions, but while there is ample room for expanded U.S.-Japan collaboration in university-based research, the commercialization, diffusion, and transformation of inventions into innovative products, production processes, and large-scale deployments will need to take place in the private sector. The key dynamic, then, will be whether and to what extent U.S. and Japanese firms collaborate and compete to deliver new products and services to customers.
In many cases, there are opportunities for win-win collaboration by harnessing the contrasting strengths of firms in both countries. For example, large Japanese manufacturing firms with global operations can partner with Silicon Valley start-ups to create offerings that neither could achieve on their own. Here’s one illustration of this dynamic in action: Komatsu, a global Japanese construction equipment manufacturer, partnered with Skycatch, a U.S. Silicon Valley-based drone data company, to gain the ability to quickly create 3D maps of construction sites. Their partnership reduced the time needed for site surveying from approximately two weeks of several people’s labor to just a few hours of one person’s labor. Komatsu then went on to partner with Silicon Valley chipmaker NVIDIA, further reducing the surveying time to less than half an hour.
With the algorithms to remove trees or buildings from the 3D topological visualization and the ability to take frequent pictures of the site as construction progresses, this innovative U.S.-Japan partnership not only cut time but also enhanced the capabilities delivered. Komatsu gained the ability to offer value to site operators that it could never have achieved without Skycatch, and Skycatch gained the opportunity to rapidly scale up operations and enhance capabilities by partnering with the truly global Japanese company.
Second, the U.S. and Japanese governments can better adapt to IT-driven innovation and the dynamics of global competition, not least with China, if they understand how firms from the two countries collaborate rather than simply compete. China is rapidly achieving new capabilities in AI and various aspects of IT network infrastructure. But many other countries, including Japan, have benefited from U.S. technology giants such as Amazon, Google, and Microsoft that provide much of the computing infrastructure platforms that underlie local innovation.
Take cloud computing, for example. Entrepreneurs in Japan cite the advent of cloud computing platforms around 2010 as a transformative moment for Japan’s own start-up ecosystem. Thanks to U.S. tech providers, Japanese start-ups no longer need to raise funding to invest in building data centers and software solutions to handle rapid growth. Instead, they can simply use virtual servers provided by Amazon Web Services (AWS), scaling up easily as needed.
Radically lower capital investment requirements have enabled Japan’s start-up ecosystem to grow quickly, and in ways that would not have been possible given the unwillingness of investors to finance start-ups at the large amounts required to build their own data centers.
And there is another layer to cloud cooperation, too: global-scale cloud computing platforms can provide seemingly limitless processing power, storage, and networking services for large companies to conduct experimentation—and do so as needed, almost instantly, and for exponentially lower prices than each firm building their own data centers. While regulations around consumer data privacy have enabled some Japanese IT firms to continue supporting large companies, major portions of corporate computing infrastructure have been built on top of computing infrastructure offered by U.S. cloud platform providers.
Although various antimonopoly concerns have been raised around the world, the reality is that U.S. giant platform providers are empowering and driving new possibilities for Japan’s start-up ecosystem, large corporate experimentation, and operational efficiency.
To enhance U.S.-Japan collaboration, policymakers need to see the two countries’ IT industries as layers of physical and computing infrastructure with software applications sitting on top. This way, competition and cooperation will occur hand in hand. Japanese AI start-ups can offer large companies or industries specialized tools that AWS or Google may not be interested in developing due to the limited scale of their use. For example, Japanese companies currently providing innovative applications of AI in Japan include fintech firms that support the accounting needs of large numbers of the country’s small-and-medium-sized enterprises, robotics AI start-ups that enhance major Japanese industrial robotics operations, and start-ups specializing in user authentication applications that fulfill Japanese public sector requirements. Some specialized AI start-ups are moving beyond Japan into other parts of Asia, but those markets may not grow large enough to entice U.S. global tech giants to enter them. So, both the Japanese AI start-ups and U.S. tech giants could benefit from an AI start-up ecosystem that grows on top of the large and sophisticated infrastructure that only the biggest IT firms can offer.
Spotlighting a Wide Range of Technology Collaboration
There are a wide range of mechanisms that can fuel technology collaboration, some of which are not so obvious and deserve a spotlight. In Silicon Valley, Japanese companies are already pouring money into venture capital funds and setting up corporate venture capital firms. These companies seek to invest in promising Silicon Valley–based start-ups, but often not simply for financial returns. They desire strategic benefits as well, such as the ability to build early partnerships that will enhance their global competitive offerings.
In addition, these Japanese companies seek to understand how new AI and other IT tools may disrupt industries. By becoming part of the start-up ecosystem in Silicon Valley and elsewhere, they have an opportunity to adjust and adapt early to potential disruptions.
Other Japanese corporate investments aim to bring Silicon Valley services to the Japanese market. For example, the major Japanese insurer Tokio Marine invested in the U.S. insurer Metromile, which differentiated itself by pioneering a new model of automobile insurance in which users pay premiums on a per-mile basis (the distance driven by the car).
Research and labs and acquisitions are also active mechanisms for collaboration. For instance, Toyota set up a major research institute in Palo Alto, California, drawing over 300 engineers from Google and other Silicon Valley companies to make advances in robotics and AI. Toyota also purchased an autonomous vehicle company that was a spin-off of the ridesharing company Lyft. The autonomous vehicle company is located just a few minutes from Tesla’s main office in the heart of Silicon Valley and will enable Toyota to deeply embed itself into the frontier of autonomous driving technology.
Japan has also long been a dynamic market for Silicon Valley and other technology companies. Examples date back to the explosion of the personal computer industry in the early 1990s, but more recent business software platform examples abound. As the enterprise software company Salesforce grew rapidly in the 2000s, Japan quickly became its most profitable overseas market. Similarly, as Asana and other start-ups offering business tools grew rapidly, they set up operations in Japan and are now experiencing further significant growth. As the iPhone caught on, Apple also found Japan to be one of its most successful markets outside the United States and set up its biggest overseas R&D center near Tokyo.
U.S. technology giants are also contributing to Japan’s labor market dynamism. For instance, Google Japan is now a well-known source of human capital. Young engineers and professionals gain experience and fan out across various industries to offer new insights and expertise to traditional companies, fueling Japan’s start-up ecosystem by providing capable talent.
The Challenge for Governments
To enhance these private sector–led technology efforts, Washington and Tokyo could take several obvious steps.
First, the two countries’ presidents and their economic teams should spotlight these kinds of Silicon Valley–based collaborations. Too often, government and private sector conversations between the United States and Japan are taking place on parallel and largely disconnected tracks.
Second, Washington needs to ditch the tariff and industrial policy–centric view of trade adopted by former president Donald Trump’s administration, which raised tariffs on Japan and other close partners while overly focusing on trade balances in goods. Traditional trade negotiations can continue, but actively looking for areas of mutual benefit as a new thrust is also critical. Effective means to incentivize collaboration are well worth exploring.
Third, start-up ecosystems should be supported to provide real dynamism through the creation of high-growth firms that commercialize or diffuse new technology and to provide direction for large incumbent firms and industries. This effort should be at the core of animating a next-generation U.S.-Japan technology partnership. In Washington, Silicon Valley firms are under-represented until they become large enough to hire public affairs teams based in the city, thereby giving louder voices to incumbent industries that may be resistant to change. In Japan, too, specific measures to accelerate its rapidly maturing start-up ecosystem could increase the ability of large firms to more successfully adopt new technologies from Silicon Valley start-ups.
The time is also ripe to look at other new opportunities for public-private partnerships.
Japanese political leaders en route to Washington would be well served to stop over in Silicon Valley. Then prime minister Abe Shinzo’s 2015 visit, the first for a sitting prime minister, had a strong legitimizing effect on large Japanese firms’ efforts to harness Silicon Valley innovation. Other top Japanese politicians occasionally visit Silicon Valley, and several industry associations—such as the Japanese business federation Keidanren, comprising Japan’s major industrial firms, and the Japan Association of New Economy, comprising largely newer IT firms—have taken tours of Silicon Valley. Of course, political trips that lack a commercial focus would not be helpful, but if planned well, they could spur relationships that highlight real collaborations and forge new paths for effective regulatory frameworks, standardization schemes, and government support in a post-pandemic world.
Frank bilateral discussions on standard-setting are also needed. And they should leverage the roles and voices of industry actors already in cooperation, not just those of government officials. U.S. and Japanese governments have expressed unease about China’s growing presence and influence in various intergovernmental and corporate-led standard-setting bodies, but the real question is which of these standards will actually matter most for business efforts to create value. Many standards do not confer value to one or another company, since commercial activities occur outside or alongside such standards. For example, some standards are easy and cheap to adjust to—for example, using a $0.25 semiconductor chip or using a cheap plastic and metal part for certain electric vehicle charging plugs. These types of standards may not confer real value to the bodies setting them or the firms whose technology enables them.
While making public investments in infrastructure, the U.S. and Japanese governments should take cues from the private sector, with an eye toward easy interoperability across the country. For example, Tesla’s electric vehicle charging infrastructure reportedly makes use of data from its vehicles to assess locations to build new chargers. But decisions on where to locate taxpayer-funded electric vehicle charging infrastructure in either the United States or Japan may be based on price and convenience from the perspective of firms building the infrastructure rather than on users’ needs. From the driver’s perspective, the convenience of charging is a function of location, price, ease of use, and the ability to find available spots easily and quickly. Charging infrastructure is local, but the automobile industry is global, so U.S.-Japan cooperation on algorithms to optimize charger locations, on interfaces with software, and on the ability to combine multiple businesses—such as 5G wireless or even low orbit satellites to provide broadband—could bring down development costs, reduce the risk of wasted investment, and enable functionality. This cooperation could accelerate joint or complementary technology deployment in not just electric vehicles but also solar microgrids and other climate change–mitigating technologies.
Ultimately, technology collaboration between the United States and Japan will accelerate once pandemic concerns subside and country entry requirements are eased. This will allow greater international travel between the two countries. The key then will be to build on new and exciting private sector developments in the Silicon Valley and beyond to help shape a new narrative of collaboration and cooperation for innovation and technology.