Measuring innovation at the firm level

Innovation is measured by a composite set of data drawn from patents and R&D figures. Firms were ranked according to their innovative score, which is based upon patents (number and value-added level), value-added level of products and production, and the state of R&D operations. No measure of innovation is problem-free. For example, R&D and patent figures are measures of innovative capacity (a firm's ability to create innovative products). Innovative output (the successful sale of such products) is measured based on sales resulting from the development of new products. Not all patented products result in significant (or any) sales and subsequently profit for firms (OECD 1997). Firms also reported whether or not they were currently engaged in new product R&D and the state of these operations. The overall innovative score was lowered if the firm was struggling with any of the following: engaging in new product R&D, obtaining new clients, and/or problems obtaining skilled workers for the purpose of new product R&D. The extent of linkage to the production pyramid is measured by factors including keiretsu link: “KL” (stock, capital relationship), keiretsu relation “KR” (employee and/or technology transfers, frequency and nature of interactions, amakudari link), and sources of R&D funds (government, private financial institution, in-house).

Data gathering technique

I conducted survey and interview-based case studies of forty-three SMEs in three industrial areas: Tokyo's Ota Ward, the southern technology corridor of Kyoto, and Higashi Osaka.