The Influence of Socio-Economic Institutions on the Risk Recognition of Entre- and Intra-preneurs : Cases of Japan's High Technology Industries

2007 Fiscal Year Final Research Report Summary

• Project/Area Number: 17330068
• Research Category: Grant-in-Aid for Scientific Research (B)
• Allocation Type: Single-year Grants
• Section: 一般
• Research Field: Economic policy
• Research Institution: Sophia University
• Principal Investigator: OKADA Yoshitaka Sophia University, Faculty of Liberal Arts, Professor (50158812)
• Co-Investigator(Kenkyū-buntansha): METHE David T. Kwansei Gakuin University, Institute of Business and Accounting, Professor (50294244)
• Project Period (FY): 2005 – 2007
• Keywords: risk recognition / entrepreneurs / intra-preneurs / socio-economic institutions / institutional mechanisms / nano / bio / semiconductor

Research Abstract

Although Japanese are often said to be risk averse, an increasing number of companies successfully engaging in high technology innovation have been reported. Why? Institutions, which become the base of human value orientation, restrict human behavior path-dependently, but other institutions often develop complementary mechanisms to reduce a sense of risk and encourage risk-taking behavior. This research tries to find complementary mechanisms among risk attitudes, institutions, and inter-firm relations by interviewing entrepreneurs, intrapreneurs, and managers in high-risk projects in the nano, bio, and semiconductor industries, and to identify a risk governance structure for managing technology innovation.
By analyzing interviewees' risk attitudes and companies' organizational characteristics, this research statistically identified four complementary models. (1) The Internal Business Control Model has two opposite examples:(1a) companies increase family ownership and a proportion of low -risk business sales, stabilize their operations first, and then allocate surplus resources to high technology innovations; or (1b) parent companies increase their ownership, control and financial support to allow their outside ventures to focus on high-risk businesses. These cases, given their risk hedging mechanisms, do not increase interviewees' sense of risk. (2) The R&D Risk Model pushes companies to increase a proportion of their R&D expenditure in their sales and face a higher level of risk. But it results in either speeding up their reach to the market or making them aware of the stage of technology development. Consequently, they become less over self-confident and successfully reduce a sense of high risk. (3) The Venture Capital (VC) Firm Risk Model allows VC firms to reduce the financial risk of companies, while their pressure for short-term gains increases a sense of risk on the part of interviewees. (4) The IPO Model uses the stock market for companies to raise necessary fund. This practice strengthens the interviewees' self control over risky behavior. But in reality, companies which successfully achieved IPOs rather face performance difficulties, requiring them also to rely on VC firms. Hence, IPO companies end up facing a similar condition as the VC Firm Model. These findings seem to suggest that the first two models are effective and efficient, but in reality such situations are rather rare to find, forcing companies to depend on VC firms. Consequently, even IPO companies end up increasing a sense of risk without increasing due self control over management. Though still under investigation, the first two models seem to involve many types of traditional inter-firm relations which facilitate technology innovation. These findings suggest the sources of dynamics and efficiency in the Japanese type of technology innovation and provide some important insights to entrepreneurs, intrapreneurs, managers in high-risk projects, scholars and policy makers.