Bringing More Innovation To Market: Merito’s Mission

As countries seek to capitalize on their university-led innovation, many are looking to shake up customary ways of funding science.Lately, focus has gone toward one ripe driver for growth: lowering the high walls around deep tech innovators. In Japan, where Merito was born, innovative products once propelled Japan to global technological leadership. After Japan has fallen behind in global tech blockbusters (from computers to rockets to pharma drugs), one wonders how Japan can generate more deep tech product breakthroughs.Fortunately, Japan still has great opportunities waiting to be tapped. This would come from better commercializing its renowned basic research at universities to spin off start-ups, just like Moderna, Google, Gingko Bioworks, or DeepMind did abroad by turning university research into marketable products.So much economic growth could result if university researchers boost their ties with global industry to convert their research seeds into market-relevant products. Who’s willing to step up to do this at scale?Currently, only ten companies dominate Japan’s research and development, accounting for nearly half of all business R&D. This concentration of innovative power, combined with a deeply ingrained “not-invented-here” syndrome and limited access to start-up capital, has created calls for stronger researcher-industry ties.By combining academic research prowess with industry and managerial talent, deep tech innovation can spark. By boosting these ties, innovators can emulate Northwestern University where chemistry Professor Silverman worked with Parke-Davis pharma company to develop an epilepsy drug and generate $52 billion in sales.Founded in Fukuoka, Japan in early 2024, Merito Network has emerged to bridge this innovation gap. Created at the suggestion of professors in Kyushu, Merito offers a platform where Japan’s world-class academic scientists can work directly with global companies’ R&D teams. By breaking down the traditional barriers of corporate and academic isolation, Merito enables the kind of open innovation between corporation and academic start-up that enabled Pfizer’s COVID-19 vaccine development. Through Merito, companies gain access to specialized expertise and product ideas without the burden of permanent hiring or dealing with messy mergers and acquisitions.Pouring over economic data and innovation trends in Japan, six trends stick out:

i. R&D Is Too Concentrated in Large Companies

In 2018, just 10 Japanese giant companies conducted almost half (43%) of all business R&D in the country (Oikawa 2019). Not surprisingly, 92% of all Japanese government subsidies and tax breaks for R&D go to large firms, the highest share among OECD countries. Moreover, In Japan, the share of patents held by medium-sized enterprises (20–250 employees) compared to all firms has been the lowest in the OECD: just 27% compared to 60% in a typical country (OECD, 2013).Furthermore, in 2015, only 7% of Japan’s business R&D was conducted by firms with less than 500 employees, compared to 17% in the United States and 33% in France and the United Kingdom. Only 8% of its government’s financial support for R&D has gone to companies with less than 250 employees, the lowest among rich countries (OECD 2014).

ii. Insufficient Inward Investment

Struggles to finance start-ups remains a reason so few start-ups emerge, according to analysis from economist Richard Katz’ in his recent book The Contest for Japan’s Economic Future. Young firms find it harder to get credit in Japan, despite being most likely to create innovative and ambitious firms. Start-ups lacking funds end up staying small or failing altogether, Katz observes. According to the a 2021 World Bank Report, Japan has one of lowest venture capital investment intensity (VC investment by GDP) levels — only 0.008% in compared to 0.23% in China and 0.64% in the United States.In a survey of 1,600 Japanese companies less than seven years old, 67% said fundraising was their biggest problem during the preparation stage. When measuring cumulative inward foreign direct investment as a share of GDP, Japan came in lowest at 196, just ahead of North Korea, which was getting investment from China (UNCTAD 2022).Notably, no researchers have received funding via emerging decentralized science (DeSci) funding channels while science teams in Germany, the UK, Spain, Denmark, and the United States have received over $2.1 billion since DeSci took off in 2022.

iii. Low International Research Teamwork

Among professors in 18 rich and middle-income countries, Japanese professors were ranked 17 out of 18 in both categories: the percentage who have taught abroad as well as in international research collaboration (Rostan 2014). Several university administrators told the author in October 2023 at the Research Manager and Administrator Network conference in Okinawa that Japan’s universities could benefit from more English-speaking research managers who can promote collaboration between departments, with the private sector, and with international partners.

iv. Companies Source Innovation From Within, Missing Opportunities from Outside

Some of Japanese large companies have missed two global trends: mobility among top researchers and to companies closely partnering with a web of smaller specialist firms, according to Katz’ analysis. These trends are especially true in electronics, biotech, and software. Instead, Japanese large vertically integrated firms often depend on broad product lines all generated from within.Open Innovation needs an accelerant, as Katz observes: “Open innovation — collaboration among unaffiliated companies, as seen in the invention of the Pfizer COVID vaccine — is one of the major institutional changes characterizing the digital era. While pharmaceuticals is the poster child, it applies in a host of industries, including mundane product areas like household cleaning goods.”As a shining example of Open Innovation’s promise, the COVID vaccine bearing Pfizer’s name was invented by a German-based startup, BioNTech, founded by immigrants from Turkey. Meanwhile, Japanese pharma companies took nearly two years longer than Pfizer to develop a COVID vaccine because their research was done mostly in-house, not using open innovation.

v. Innovation Is Worse from Inside Corporate Networks

Japan’s keiretsu (affiliated corporate network) companies have long practiced a kind of open innovation among themselves, yet many parent companies cannot comprehend how to pull innovation from outside. Katz study highlights that within the keiretsu, a hierarchical relationship happens where curiosity-driven innovation does not happen and instead conventional manufacturing approaches continue.In genuine open innovation that works, corporate managers do not come up with better solutions because they are smarter or work harder. Instead, they generate better solutions when it’s the only choice for survival.For decades, Japanese R&D managers have refused to source innovation from outside — like universities — because of the sunk costs they’ve put into research at corporate in-house labs. Lock-in behavior has resulted because companies have invested in internal R&D equipment and staff salaries.Switching costs — to fresh R&D from outside — have remained too high for Japanese companies, and the benefits of external R&D methods too uncertain, that Japanese company R&D managers have underestimated the need for change.As a result, corporate R&D managers have clung onto outdated innovation methods, hurting overall economic competitiveness.

vi. Not-Invented-Here Syndrome Limits Flow of Ideas

Even when CEOs try to shake up their firm, they often face internal resistance. A CEO “constantly finds that, when he proposes a collaborative project, someone in the R&D department or a business unit will say: “Why are you going outside the company? We can do that job.” They are afraid of no longer being indispensable and resist even when the CEO wants more open innovation.” (Katz, 2023)Known as “not invented here” syndrome, innovation remains limited when companies themselves — or when teaming up with keiretsu suppliers — produce all the components in their products, while rejecting those sourced from outside.

How Can Merito Enable More Start-ups to Hatch in Japan?

Merito is a digital platform giving visibility and R&D partnership opportunities between industry R&D teams and Japan’s top-tier universities/research institutes. Merito is enabling Open Innovation so industry and science can carry out joint R&D.What makes Merito valuable is its unprecedented access it gives to industry to early-stage research from Japan’s institutions. Merito is onboarding biopharma researchers at the University of Tokyo, Keio University, Tsukuba University, Nihon University, and others. R&D teams can window shop the research projects underway at these universities–in English–on Merito’s website. Once members identify a promising project, via Merito, R&D teams can get in touch with the researchers. After negotiating joint research terms, both parties execute a Sponsored Research Agreement and funding payments on Merito’s platform. It’s Open Innovation made easy.

Merito’s 10 Benefits:

1) Assisting Open Innovation…

Pharmaceutical companies practicing open innovation consistently outperform those doing less of it, according to Katz’ research s. Japanese life science companies are picking up on this trend. Currently, over 70% of large Japanese firms still do innovation entirely in-house, with only 0.7% working with startups, yet firms like Takeda and Astellas have made impressive efforts to expand their teamwork with start-ups.Merito’s open innovation platform can address this by creating a structured marketplace where scientists and R&D units can find each other, evaluate potential partnerships, and carry out joint research efficiently. This helps overcome the traditional reluctance to work with new firms by providing verified credentials, track records, and a trusted framework for joint innovation projects. Like P&G’s successful “Connect and Develop” program that brought in 4,000+ viable ideas annually through partnerships, Merito enables Japanese companies tap into external expertise while giving startups and scientists access to larger firms’ resources and market reach.

2) Making Innovation More Accessible to Companies…

Recognizing the above, Merito serves to catalyze open innovation — external R&D on demand. Outsized economic and institutional benefits will come from Merito’s platform that allows universities to incubate spinoffs with coaching from industry’s R&D teams.At its core, Merito is diffusing technology throughout Japan. This would assist the Japanese companies that excelled in the analog era yet have not done as well in the digital era. As Katz writes, “among 64 countries, Japan ranks last in the ability of its companies to use digital technology well. It’s not easy for [major corporations] to change their ways of thinking and operating anywhere.”

3) More external funding…

Aspiring entrepreneurs have had trouble getting outside funding, Angel investors are scarce in Japan — especially for angel investments in university spinoffs. During 2015–2019, Japanese universities launched about 180 spinoffs per year, about a fifth of the U.S. rate. Banks rarely make up the difference.Merito thus is making it easier for deep tech researchers to receive outside funding to commercialize their research — and often translate that into spinoff deep tech companies. This will overcome the dearth of funding for aspiring entrepreneurs, who too often have to rely on their personal savings, credit cards, or loans from friends. Among 5,000 startups, just 4.4% of startup funding came from VCs and just 5.8% from angels (Morelix 2013).Scientists can take advantage of Merito to get access to DeSci funding opportunities.

4) Better Intellectual Property at Non-Giant Companies…

Small and medium enterprises (SMEs) have not funded as much R&D as their large company peers in Japan, as evident in how the top ten firms spend 43% of all R&D in Japan. This has kept them from modernizing and stalled tech diffusion. Katz writes, “In the first several decades of the postwar era, investment in expensive physical capital was the name of the game. Today, intangible assets — for example, software, R&D, training of staff, marketing, and organizational improvements — are the linchpin.” So through Merito, small and medium sized companies can source more R&D at affordable rates without needing to hire many PhDs. With more access to R&D, more SMEs can emerge. Only 25% of Japanese SMEs are under 10 years old, the lowest share in the OECD.

5) More equitable capital access…

Meanwhile, systematic gender differences in funding access remain as women founders receiving 40% less in private bank loans compared to their male counterparts in Japan. This disparity has been worse for government loans as women founders received 16% the amount men received. Only 12% of female-owned startups got bank loans versus 26% for men (Katz, 2023).Merito nullifies barriers that have disadvantaged researchers because of gender, geographic location, academic affiliation, age, social connections, or national origin. By not depending on traditional in-person relationships that allow bias to persist, Merito democratizes funding so science can compete on its merits — a true meritocracy.

6) Enabling Japan keep up with global tech changes…

Given technology has been changing so fast that there is an even greater need to source innovation from start-up companies, Open Innovation is essential in many verticals. In the United States, for example, Katz’s presents research that about half of all innovative new drugs are developed by smaller-sized biotech firms, or by a partnership between universities and biotech firms. Correspondingly, giant companies, like failed analog film company Kodak, often miss potential new products because they do not fit in with their organizational paradigms. Overcoming these common pitfalls requires sourcing ideas from outside. It often takes a new firm to see the potential in a radical but unproven idea.Merito empowers what’s necessary — tinkering and experimentation in R&D by sourcing assorted scientific ideas.

7) More competitive firms from more startup growth…

More competitive firms emerge when they partner with deep tech startups — those offering tech solutions based on substantial scientific or engineering efforts. This introduces healthy competition that drives better performance while allowing companies to extract value from patents through partnerships when they lack the internal capabilities to fully exploit them themselves. As Chesbrough’s 2006 research demonstrated, this teamwork approach enables firms to maximize the value of their intellectual property by finding partners better positioned to commercialize certain patents, rather than letting potentially valuable innovations sit unused. Merito fosters this open innovation.

8) Immediate Financial Returns from University Partnerships…

Northwestern University’s collaboration with Parke-Davis on a single epilepsy drug generated $1.4 billion for the university and $52 billion in sales for the U.S. company Pfizer, which ultimately acquired Parke-Davis’ license. Japanese universities currently launch only 180 spinoffs annually — one-fifth of the U.S. rate. Merito bridges this gap by connecting university researchers directly with industry partners, enabling more successful commercialization of breakthrough research.

9) Bringing in foreign ideas since they’re not coming from immigration…

While Silicon Valley thrives on global talent with 70% of its technicians coming from abroad, only 0.7% of Japan’s workforce is comprised of foreign permanent residents. To cross-pollinate with new ideas, Merito can connect Japanese firms with global scientific talent and R&D expertise through its digital platform, enabling companies to access international innovation capabilities without requiring physical relocation of foreign workers.

10) Changing the Mindset — that it’s ok to source R&D from outside the company…

Merito overcomes the Not-Invented-Here syndrome described above, where internal R&D managers block ideas from outside. Merito enables more companies to mimic what’s being done at some large Japanese companies in open innovation. One, Japan’s biggest spender on R&D, Toyota, now gives 40% of its R&D budget to CASE technologies (i.e., connected, autonomous, shared, and electrified) that often come from outside its keiretsu. Thus, Toyota embraces Open Innovation, forming alliances for joint development and creating the Woven by Toyota software group, hiring many foreigners and seeking from outside the company for innovation. “It is important to make partners,” President Akio Toyoda said. Two, telecom company KDDI partners with the app developers rather than acquiring them, having recognized traditional corporate culture can crush innovative qualities that start-ups have anyways.Outstanding scientists usually work for very big firms, rarely leaving their employer to create a start-up or to join one. Labor markets are rigid, especially for scientists. Katz’ analysis claims this labor immobility leads to less deep tech start-ups compared to other countries since brilliant scientists do not exit their lifetime employers to found start-ups. If more scientists founded start-ups, having the professional freedom to follow their curiosity, they could create new products their original employers could then source on Merito.

Can We Seize the moment?

Japan stands at a pivotal moment in its innovation journey. By embracing creative accumulation — where companies enhance their capabilities with Japan’s world-class research community — the nation can build on its considerable technological strengths. Platforms like Merito offer a way to bridge traditional institutional divides, enabling companies and researchers to collaborate in ways that weren’t previously possible.The opportunity is clear: By combining Japan’s deep research expertise with modern open innovation practices, the country can accelerate its transition into the digital era. The examples of Toyota and KDDI show that when major Japanese corporations embrace external partnerships and global talent, they can successfully adapt to rapidly changing tech landscapes.The future of Japanese innovation won’t be defined by a simple choice between closed or open models, but rather by how effectively the business world and academia can work together. Through platforms like Merito, Japan has the tools for both sides to come together.Dynamic deep tech results can come with the right platform for teamwork.