This article surveys the transformation in Japanese technological capabilities since 1960 and assesses the implications of this transformation for the business strategies of U.S. and foreign firms and for U.S. public policy. Much of the R&D activity by foreign firms in Japan appears to aim at modifying products and processes for the Japanese market, rather than tapping into the science and technology infrastructure to create new products and processes for the global market. Japanese electronic companies, on the other hand, appear to be active investors in R&D in the United States, and active alliance partners as well. In some industries, many U.S. firms are responding to the opportunity to access the Japanese research system. However, important public policy issues remain over questions of structure, access, and contributions of Japanese and American firms to global scientific and technological research.