Why Japan Is Lagging

STIFLED INNOVATION
Japan is behind in breakthrough research that spurs growth in the information-technology sector, because 80% of R&D is centered in private labs that emphasize near-term, application-oriented work.

LOW-TECH SPENDING
Japanese companies invest about 4.5% of their revenue in information technology, 50% less than U.S. companies. And only 17% of Japanese households have computers, compared with 50% in the U.S.

CREATIVITY JAM
Talented engineers and managers mostly are locked into jobs at big companies where their creativity and ideas rarely surface.

FUNDING SQUEEZE
The banking sector regards Internet and information-technology ventures as too risky, while large companies continue to shun small ventures for fear of competition.

BLOCKED MARKETS
Suffocating regulations make it very difficult for startups to be listed on the Tokyo stock exchange or over-the-counter markets. One example: A firm must be profitable for at least a year before an IPO.

DATA: BUSINESS WEEK