Japan: A Tiny Leap Forward

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Armed with a powerful microscope, Sumio Iijima aims to build a new world. He's a leading researcher in nanotechnology, the burgeoning field of creating new materials and devices by using atoms and molecules as building blocks.

......represent Japan's best hope of building a new engineering and manufacturing infrastructure based on a near-perfect mastery of molecular assembly. Because the underlying science is so complex, Japanese companies hope they can stay ahead of global rivals. "Japan fell behind in info tech and biotech, but this is one field where we're determined to lead," declares Hisanori Shinohara, a Nagoya University nanomaterials expert.

Japanese scientists don't expect a slam dunk. Already, they note, South Korea's Samsung Electronics Co. is building nanotubes into newfangled flat-panel TVs. And major research initiatives are under way in Europe and the U.S. Indeed, around the world, experts are counting on nanotech to transform a host of industries -- computers, drugs, and plastics, to name a few. The Pentagon foresees featherweight bulletproof uniforms made with nanotube fibers. The aeronautics industry envisions supertough coatings for planes.

Yet, proportionate to its population and gross domestic product, Japan is outspending other countries. In 2002, Tokyo budgeted $1 billion for nano R&D, up from $120 million five years earlier. Over the next five years, government funding could jump to $50 billion or more. Analysts estimate that major corporations, including Hitachi, Mitsubishi, and Toray Industries, pumped $1 billion of their own money into nano-related projects last year and will cough up still more this year.

With some wild-eyed forecasts of nanotech's market potential topping $200 billion by 2010, Washington has turned on the faucet, too -- allocating more than $1 billion in R&D funding since 2000. But the two national thrusts are not identical. While the U.S. leads in nanobiology and electronics, Japan excels in complex materials. When it comes to applications, Japan is coming on "very strong and driving more products to market faster," says F. Mark Modzelewski, executive director of trade group NanoBusiness Alliance in New York.

......Now come the nano startups. Shunichi Osawa, a Daiwa Research Institute analyst, estimates that Japan already has about 100 nanotech ventures. That pales in comparison to the U.S., which launched 1,000 nano-related startups last year alone. To compensate for the lack of a venture-capital culture at home, Japanese companies are also investing in promising U.S. and European ventures, funding research at overseas universities, and even forging links with Asian companies that could turn into future rivals. "Japanese companies need all kinds of collaboration if they hope to survive," explains Naoki Yokoyama, head of Fujitsu Ltd.'s Nanotechnology Research Center.

On the home front, nanotech venture capitalists have raised $250 million in the past two years from such backers as Hitachi, Mitsubishi, and Marubeni Corp. Next, the VCs hope to enlarge their pool of funds substantially, then nourish a vibrant entrepreneurial climate in nanotech. Japan's drive to become a nano powerhouse could be just the start of a cultural transformation as well.