Optimizing the Relationship between Regulation and Innovation in Dietary Supplements: A Case Study of Food with Function Claims in Japan

Regulation has long been a counterpart of innovation in the health care industry, and recent cases have demonstrated that appropriately designed regulations can both coexist with and promote innovation. This study is the first study to explore how the regulatory environment affected the innovation process during the transition of the regulations for functional foods in Japan by examining quantitatively the impact of the foods with function claims (FFC) system on industry, companies, and products. Based on a dataset of Japanese dietary supplement manufacturing companies (n = 169) and their products (n = 731) in 2019, we found that companies that have newly entered the FFC system are smaller in scale than existing companies (p < 0.01, Wilcoxon rank sum test). We also found that companies with FFC products have larger revenue growth (p = 0.01). A multiple regression analysis revealed that FFC product sales increased with in-house clinical testing (coefficient: 26.8, p < 0.0001), diverse active ingredients (coefficient: 7.6, p < 0.001), and the claim of new functions (coefficient: 10.2, p < 0.05). These results suggested that the FFC system facilitated the market entry of small and mid-size enterprises and promoted the creation of high-value products through innovative company efforts.