Sunday, May 28, 2017

Japan Promotes Investment in Intangible Assets

Investment in intangible assets such as patents, know-how, data etc. is becoming important to support corporate innovation.

However, in Japan, investment in tangible assets such as factory equipment is still larger than investment in intangible assets, as shown in the figure below prepared by the government, while, in the US, investment in intangible assets is larger than investment in tangible assets.
Therefore, the government is considering measures to promote investment in intangible assets. Here are the examples:
• Develop guidelines for assessment of investment in intangible assets in companies.
• Prepare incentives, assistance measures and environmental improvement to promote the investment in intangible assets.
• Develop guidelines for information disclosure for investors to assess the value of companies.

However, a reason for the smaller investment in intangible assets in Japan may be just because the expense which should be considered as the investment in intangible assets by the nature of things is not calculated. In fact, the calculation methods of GDP was revised last year to include research and development expenditure in "investment", and then nominal GDP increased nearly JPY20 trillion (approximately $177 billion). It is also reported that the government will conduct study to include intellectual property investment and sharing economy in the calculation of GDP. Patent acquisition may be officially considered as "investment" in the future.

It is no doubt that investing in intangible assets is important for corporate innovation. Japanese companies, at least large companies, have made substantial investment in R&D expenditure and generation of intellectual properties. For example, the ratio of R&D expenditures to GDP in Japan has remained at the 3% level since 2000, that is higher than the US and Germany at the high 2% level. Also, Japan is still a major country in the number of PCT filing, as shown in the below figure prepared by the JPO.

What we should know is that, for intangible assets, it is more important how to use (or monetize) them. They would make a big difference in the return on the investment depending on their utilization.

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