Japan Inc. hungers to acquire innovative startups but is fearful of the forbidden fruit. While large U.S. companies enthusiastically buy startups, big Japanese firms struggle to find, acquire and integrate innovative new firms into their wider businesses. They must acquire a taste for startup mergers and acquisitions, if the nation is to regain its global competitive advantage.

In the 1950s and 1960s, big firms everywhere relied on in-house research teams to develop new products. Since then, product life cycles have dramatically shortened. No one company, regardless of size, can innovate fast enough to keep up with the global pace of change. Western companies, especially those in high-tech industries, began acquiring innovative startups to stay one step ahead of the competition. While Apple, Google and Facebook "openly innovate," traditional Japanese firms still conduct research and development behind closed doors.

According to Akira Kurabayashi, managing director of Draper Nexus Ventures (an early stage venture capital company whose limited partners are big Japanese firms), “open innovation” is best achieved one step at a time, first through alliances, then investments and finally acquisitions — the final goal. The first two steps are easy, he says. The third, buying startups, is hard for Japan Inc. to swallow.