New Cluster Of Industrial Sectors Toward A Service-Oriented Economy-R&D Profitability Criteria Substitutes For Labor Productivity Criteria | Koji Moriyama & Chihiro Watanabe

When confronting the paradigm shift from an industrial society to an information society and to a service-oriented economy, traditional Japanese firms (J firms) have demonstrated a notable shift to tripolarization as hybrid firms, semi-hybrid firms and traditional J firms. Notwithstanding such a notable structural change, the classification of industrial sectors still remains a traditional classification by means of labor productivity based homogeneity. Consequently, firm priority strategies, primarily those related to sector-wide strategies, result in non-correspondence to timely demand in a new paradigm.In light of the foregoing discrepancy, this paper attempts to develop a new approach for identifying the correlation between a firm’s R&D and its profitability. Based on this approach, traditional J firms are classified into four clusters depending on the elasticity of R&D to operating income to sales (OIS) as (i) hybrid firms, (ii) semi-hybrid firms, (iii) traditional J firms (assembly oriented), and (iv) traditional J firms (materials oriented). Empirical analysis demonstrated that while hybrid firms (primarily IT firms and new ventures) demonstrated a high R&D elasticity to OIS, semi-hybrid firms (primarily high-technology electric machinery and transport equipment firms) demonstrated a low R&D elasticity to OIS. This contradictory finding suggests the significance of a new cluster of industrial sectors and also the significance of effective utilization of external R&D for increasing the OIS of semi-hybrid firms, while there remains a strong myth that an increase in indigenous R&D is a key for increasing OIS in all high-technology firms. In addition, it was identified that profitable semi- hybrid firms can be attributed to self-propagating assimilation capacity based on effective learning leading to sustainable functionality development.