White Paper on International Trade 2004 (Part 2).

(From Journal of Japanese Trade & Industry (JJTI))

Byline: Nishiyama Keita

Chapter 2: The "New Value Creation Economy" and Evolution toward a New Mode of Competition In Chapter 1, we discussed how changing macroeconomic trends have contributed to economic globalization, and argue that these phenomena are affected at least in part by corporate activity and other microeconomic factors. Under such circumstances, in order for corporations to recover their ability to set prices and post profits, they need to distinguish themselves from their competitors by developing unique products and services. In order to reap competitive advantage from the unique character thus developed, corporations need to make use of "intellectual assets"; intellectual property, human resources, organizational processes and a broad range of other such assets. This chapter describes how value creation, achieved through the utilization of intellectual assets (in the broad sense of the term), is spreading as a new mode of competition, and how international debate is now underway regarding systemic reform tailored to this trend.

Section 1: Determinant of Success in Corporate Competition: Value Creation through the Utilization of Intellectual Assets 1. Increasing Importance of Intellectual Assets as the Source of Competitiveness In both Japan and the United States, the ratio of intangible to tangible assets has risen in recent years, and the foundation of corporate management has undergone a marked shift from tangible assets to intellectual assets. (Figs. 4 and 5) And in industries formerly structured such that those holding tangible assets were the only players capable of going into business, industrial structure has changed in recent years to the point where it has become possible to go into business as long as one has intellectual assets such as ideas and know-how.

We can understand, then, that the foundation of corporate management has shifted away from tangible assets toward intellectual assets. It is thought that this change has come about as the result of intensified global competition; corporations need to continually introduce distinctive products and services, and to do that they must rely on knowledge, which is the source of distinctive products and services.

2. The Range of Views on Intellectual Assets The shift to an emphasis on intellectual assets is not occurring strictly at the corporate management level. In the Organization for Economic Cooperation and Development (OECD) and the European Union (EU), discussion of the shift to a knowledge economy is ongoing, and efforts to develop a policy response are underway. Amidst the shift from tangible assets to intellectual assets as the source of value, a growing consensus has arisen that there is a need for the proper valuation and disclosure of intellectual assets.

There are two basic approaches regarding how to value and disclose intellectual assets. One holds that intellectual assets should be established as an individual asset category, quantified and listed in financial statements, i.e., the "assetization approach." The other holds that intellectual assets are not stand-alone "assets" or "inputs," or even if they are, quantification is prohibitively difficult, therefore a qualitative approach to their valuation and disclosure should be employed. This is called the "qualitative approach."