Patient, ready, and daring would-be shogun-spirits: a secret of Japan's silicon valley, ‘hamamatsu’

Abstract

Hamamatsu region can be regarded as a sort of ‘Silicon Valley’ in Japan. Why have some world-renowned companies as Toyota, Honda, Yamaha, and Suzuki still emerged from this narrow region? Why do even small and medium-sized enterprises (SMEs) there tend to invest in long-term research and development (R&D)? And what is the Japanese SMEs’ solution to the puzzling mismatch between consistency and flexibility? As keywords for above research questions, start-up as an innovative SME is defined as a portfolio of real options, by regarding entrepreneur's ideas as investment opportunities. And long-term R&D investment means a call option as the flexible decision right to make the commercialisation investment if future business condition becomes favorable. As a research tool for conceptual perspective, real options approach is a methodology for evaluating and designing the flexibility of irreversible investment in real assets as R&D projects under uncertainty. This paper's objective is firstly to explain R&D investment as a call option of real options, secondly to find a missing ring between consistency and flexibility in Hamamatsu as a sustainable innovation center, and thirdly to examine viability of long-term R&D strategy of a Japanese SME, Hamamatsu Photonics KK.