This paper analyses characteristics of the numerical controller industry in market formation and the flow of information between users and producers and the characteristic of knowledge base of the industry and discuses the difficulties derived, from the characteristics, in accumulation of technological capability. In market formation between users and producers, the multi-layered market is not favorable to domestic producers in that lower end market is not large enough to provide cradle market to them which produce inferior quality and lower price than imported products. The credibility of the performance of a product is different to prove until a critical mass of products are sold. Therefore gaining market share is deterred by unproven credibility of the performance of the product. The flow of information between users and producers is limited. The flow of information on users environment through mass market to producers is essential for improving credibility of a product. The nature of knowledge base is tacit and the means of knowledge transmission is limited. Technological licensing and reverse engineering, which have been conventional means of knowledge transmission, are not useful in the numerical controller industry. These characteristics provide conditions of vicious circle in accumulation of technological capability of the numerical controller industry. This paper argues that these characteristics of the industry challenge existing approach to R&D management and framework of science and technology policy.