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#003_How can Manufacturing Companies Implement “Open Innovation”?
I am Makino, CEO of Monozukuri Ventures (MZV). Since I started writing these blog posts in August, the topics have been mainly for hardware startups. This time, I want to share my thoughts with the people in manufacturing companies about "open innovation." Many companies are aware of the concept. And they know they need to implement it, considering today's rapidly changing business environment. But many of them don't know how. So, I want to show you how you can do that with startups via our years of experience working with startups and large manufacturing companies.
What is open innovation?
Open innovation was first proposed by Dr. Chesbrough of the University of California, Berkeley, in 2003 as a concept to drive innovation within organizations. OPEN INNOVATION COMMUNITY (Original Japanese post quotes ITmediaNEWS)
According to Chesbrough, "Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology." *1 *1 Source:How do 100-year-old companies innovate?
Even before the concept became widespread, some large companies had already intentionally and proactively promoted collaboration with external parties.
Source: BOSTON CONSULTING GROUP, THE MOST INNOVATIVE COMPANIES 2020
Although the top companies are young startups (11 of them are less than 30 years old), there are also ten well-established companies on the list that have been around for more than 100 years, indicating that innovation is not exclusive to startups.
So how is that possible?
Well, "open innovation" is the key to the answer.
Let's look at open innovation case studies.
Philips
Philips, founded in 1891 in the Netherlands, produces electrical devices such as healthcare products and medical equipment. Until the 2000s, its main business was semiconductors, but the company almost went under due to the bursting of the IT bubble.
As a result of management reforms and layoffs, the company saved the day. But in 2001-2002, it again went into the enormous red, plunging the company into the risk of bankruptcy. In 2004, Philips realized the limitations of in-house development and turned to open innovation. They set a clear goal of "incorporating external technology for 50% of the products" from 2010 onward. This initiative yielded "AirFlyer," which has sold millions of units in more than 100 countries worldwide. Phillips successfully implemented the technology to control the circulation of hot air invented by a Dutch startup, "APDS," and managed to commercialize it within a year. The reason for their success was the solid top-down decision and changing the mindset of the whole employees. They had been focused on in-house development. So, instead of just vaguely stating, "We want to do open innovation," the company leaders set a clear qualitative goal of 50% and made a structural change to implement it properly.Stanley Black and Decker
Let me introduce you to another example, Stanley Black and Decker (SBD), a global tool manufacturer formed through the merger of Stanley Works and Black & Decker in 2010.
SBD and Techstars, an American accelerator that has produced numerous unicorn companies, work together to run an accelerator focused on electronics. The "STANLEY+Techstars Class of 2022" accelerator program focused on next-generation batteries, electronic products, and manufacturing automation solutions. Through the program, they acquired PilloHealth, an interactive healthcare speech robot that reminds people to take their medications. They also acquired 3xLOGIC, a security company. They constantly seek new ideas by investing in various startups through a CVC, Stanley Ventures.Case Studies of MZV Startups
Next, here are some examples of startups that we invest in. Those startups and large companies complement each other, driving innovations.
1.Veldt x Citizen Watch

Veldt is a Japanese startup that develops luxury smartwatches. They are currently developing a dedicated conditioning AI app, "you'd™." As consumer tastes are becoming increasingly diverse, Citizen was seeking to develop a new smartwatch that users can customize. Then, Citizen came across Veldt, which has been developing smartwatches since 2012. Veldt's expertise in IoT and Citizen's long experience in watch design/manufacturing and organizational capabilities complemented each other, leading to a business and capital alliance in January 2019 and the launch of the Eco-DriveRiiiver smartwatch in March 2019. Eco-Drive Riiiver" smartwatch, to continue to be loved by citizens. [JP] Source: https://fabcross.jp/
2.ORPHE x ASICS

ORPHE is a startup that develops and sells smart shoes for sports and healthcare. ASICS has been aiming to create new businesses through collaboration with startups since around 2015, establishing ASICS Ventures and implementing the ASICS Accelerator Program, a program to promote business collaboration with startups. While ORPHE was accumulating technology to analyze foot movement, it was facing challenges in procuring shoes, which are crucial in developing smart shoes. That is where ASICS came in, and they agreed to provide shoes for them, accelerating the collaboration between the two companies. In January 2020, they entered into a capital alliance, and in July 2020, they launched the smart shoes. In 2021, these shoes won the grand prize in the INNOVATION LEAGUE Contest held by the Japan Sports Agency, leading to other significant achievements. In 2022, the company also announced smart shoes for business use and has been exploring healthcare use as well.
3.Arieca x Nissan Chemical
Arieca is a startup in Pittsburgh, USA, developing semiconductor materials. Based on the technological asset from Carnegie Mellon University, they have succeeded in generating semiconductor materials with excellent heat dissipation properties. However, mass production requires completely different knowledge and technology, so they sought collaboration with a major material manufacturer. That was where they connected with Nissan Chemical, which excelled in mass production and quality control. Nissan Chemical constantly searches for new materials and showed interest in Arieca's heat-dissipating materials. ROHM, a semiconductor manufacturer, also saw Arieca's work and participated in Arieca's $6.5M Series A round in April 2022. We have seen many startups collaborate with large companies, and while there is great potential for collaboration with startups, we have also seen some challenges. VC firms like ours can be one of the keys to success in this type of collaboration. So how exactly should we promote open innovation with startups?
Challenges of open innovation & VC's role in it
We found the following challenges for manufacturing companies collaborating with startups to achieve open innovation.
●Communicating with startups ●Time frame ●Lack of experience/system to collaborate with startupsFirstly, both parties struggle to communicate, coming from different backgrounds and business sizes.
Recently, the Japanese government announced an open innovation tax deduction, and in October 2022, an M&A tax deduction.
Large companies are likely to increase their investments in startups and M&A. For Japanese manufacturing companies to accelerate open innovation, bridging the gaps in those differences is essential.
As one of the entities to fill such gaps, we recommend taking advantage of LP investment in VC.
Helpful Resources about Open Innovation
Template Contract to use in Open Innovation for University, New Materials, and AI(ver2.0 made by JPO and METI)Research Report on M&A between Large Corporations and Startups by METI about Valuation and IR
Working with startups is "easier said than done." We believe it is necessary to bring "interpreters(VC)" to communicate with each other, establish a portfolio with several projects as they won't yield profit in the short term, and for managers to commit to establishing a system to accommodate startups.
Feel free to contact us if you are interested in working with startups or manufacturing companies.
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CEO of Monozukuri Ventures, born in Aichi, Japan. I have been living in Kyoto and working with startups in the Kansai area for 17 years now. I am also working to make Kyoto city full of startups, artists, and creators. In addition, I am a father of a baby and doing my best to raise my child as well!