Innovation in Japan – Taking on the Economist
Innovation in Japan – Taking on the Economist

Innovation in Japan – Taking on the Economist

Innovation in Japan – Taking on the Economist

We just could not let This Article go un-challenged – hence see our ++ respond inline below.

The most important factor that led to America’s stunning success in information technology was not the free market but government regulation. Federal trustbusters made AT&T lease its lines to others and eventually broke up the giant telephone company.

++ The Japanese government made similar moves with NTT. Perhaps a more valid point passed over is how the respective governments historically manage and allocate the public wireless spectrum. Results clearly show a "Regulated" Japan approach enabled the mobile industry here to significantly trump the progress of a so-called "Free Market" USA (highest bid auctions) model.

Later they forced IBM to separate its hardware and software businesses. These actions opened the door to competition and lower prices. More important, they changed the industry’s structure, replacing monoliths with smaller, specialised companies which have to work with others with complementary skills. The result has been tremendous innovation. …**Counterintuitively, fragmenting these industries helped common standards to emerge, they say.

++ All of the major vendors have smaller spin-off suppliers here doing the piece work.. often the deepest source of innovation is coming from bottom up to the likes of NEC, Fujitsu and Panasonic et all. **Yet standards in Japan – especially for mobile as mentioned below – are somehow less relevant?

Taking this analysis a step further, countries that never experienced this great regulatory splintering are at a disadvantage. They are trapped in a mid-20th-century form, characterised by domineering, vertically integrated firms, which try to do everything in-house or at least keep it within their family of closely related companies. As a result, customers are beholden to suppliers, and innovations go under-exploited. This is how things are in Japan.

++ While the Japanese vendors are indeed fiercely competitive they also routinely co-op to a larger degree on developing innovative products that use ISO standards, the QR Code as one easy example. Whether the global standards are GSM or VHS, clearly this is not specific to Japan.

Of course, Japan is an electronics powerhouse. Toyota, Nintendo and Sony are among the most respected firms in the world. Japanese companies supply much of the innards of impressive electronic devices like the iPhone. In terms of the percentage of the population with internet access and the speeds of their connections, Japan is among the world’s leaders. It pioneered access to the internet on mobile devices with NTT DoCoMo’s iMode service, launched in 1999. Indeed, in 2007 the Economist Intelligence Unit, a sister company of The Economist, ranked Japan the world’s most innovative country, based on the number of patents and researchers per capita.

++ Indeed, we’d kindly suggest perhaps their Economist Intelligence sister unit is better qualified to determine actual results. It’s ‘interesting’ that this article did not link to review the contents of that 2007 Report, which noted those rankings would remain valid over next 4-years..?!? The comment related to ‘enabling electronics for the iPhone’ etc. (Nihon Inside!) is a point we’ll come back to below.

Yet despite its great technology, the country has had difficulties exploiting its full innovative potential. Akira Takeishi of Hitotsubashi University has noted that Japanese firms excel in areas in which the scale of firms’ internal resources and the closeness of their relations with regular business partners (eg, suppliers) are important, such as making cars and domestic appliances. But they perform poorly in areas in which collaboration with a broader range of organisations is critical, such as services and software.

++ And visa-versa, consider American challenges with making cars or handsets with GM and Motorola as the struggling counter-examples..?!?

Why should this be the case? Here the arguments of Messrs Cowhey and Aronson are buttressed by a new paper** by Robert Dujarric of Temple University, Japan and Andrei Hagiu of Harvard Business School. The reason, the authors conclude, is because of the corporate structure of Japanese companies—which they call “a mismatch between the country’s vertical and hierarchical industrial organisations and the horizontal, ecosystem-based structures” of modern IT industries.

++ We’d rather not get into a ‘theory discussion’ with academics, obviously business models and industry approach evolves. Change continues based on the merit of market results and "IT Industries" have demonstrated the strengths and weaknesses of key-players on both the hard and soft sides.

Take computing. In the 1960s Japan’s bureaucrats forced domestic electronics companies to ally themselves with American mainframe-computer firms, from IBM to Honeywell and Sperry Rand (the last two of which have since abandoned this business). This in effect ensured that economies of scale and common standards would not emerge—so nor would an independent software industry. Today, the result is that Japanese “systems integrators” like Fujitsu and NEC still hold their customers captive with customised software; and innovation suffers.

++ Hmm.. a forced merger should have actually ensured economies of scale and common standards? Strange how Honeywell and Rand have ‘abandoned the business’, while Fujitsu and NEC are still making a go of it, must be something to that. As IBM and HP also “hold their customers captive with customized software" (and/or services), we’re left wondering why the Japanese are singled out as somehow less innovative in comparison?

Messrs Dujarric and Hagiu tell similarly depressing tales in the areas of anime (Japan’s famous animated cartoons) and mobile telephony. In anime, productions are financed by committees that include distributors (such as television stations) which insist on retaining almost all the intellectual-property rights. This leaves the animation studios financially stunted and unable to develop into international-scale firms.

++ Business is business, whether anime or music, studios create product with a finance and IP rights model of their choice, or at least agreement. We are gradually seeing manga content re-sold into other markets and while PacMan is pretty straight forward port, getting certain contents localized into other languages – let alone revenue share details and potential of market success – is a universal challenge.

Likewise, in mobile phones, Japan’s wireless carriers demand highly customised handsets from the firms that make them. This makes it hard for the handset-makers to transfer a successful innovation to products for other customers or geographical markets, say Messrs Dujarric and Hagiu. Where there are Japan-wide common standards, introduced in part to protect the local market from foreign entrants, they end up thwarting the Japanese manufacturers’ ability to export their technology, according to Messrs Cowhey and Aronson.

++ Counter-point to the assertion made above that "Japanese companies supply much of the innards of impressive electronic devices like the iPhone?" Handset makers in this ecosystem have developed countless innovative products because of the intimate B2B relationship with the operators. It might also be worth considering the aforementioned wealth of patents that Japan has created in the mobile space as a direct result of pushing the envelope in the domestic market. On the assertion of “thwarting the Japanese manufacturers’ ability to export their technology”, maybe somebody there should have done a quick fact-check regarding global market share of Li-On batteries, another easy example, designed and produced by Japanese companies?

The story that emerges is that the very factors that account for the success of Japanese businesses at home—the superlative use of internal research and development, and a family-like network of suppliers—undermine their ability to become stronger companies on the global stage. The technology business increasingly relies on firms commingling innovations, but Japanese companies’ insular structures leave them largely outside this process of creative fermentation. They excel at perfecting what they invented, but are less adept at devising radically new things or interacting as part of a technical community.

++ To quote one of the comments posted online below this article — Bullocks.

So Japan’s mobile-phone makers have almost zero market share overseas except for Sony Ericsson (which is a joint venture with a Swedish firm). Its anime studios are underfunded and have meagre recognition abroad, even if the art form itself is increasingly popular. There is virtually no Japanese software industry. Japanese carmakers and consumer-electronics firms are world-class. But they are based on manufacturing and depend on corporate structures that are suited for those industries; try to go beyond them, and Japan’s innovation model looks vulnerable.

++ The various R&D labs at Yokoska have developed vast IP for advanced mobile computing which enable a significant percentage of handsets worldwide, perhaps they are a combination of less vain and more shrewd to have taken that approach. At any rate, it’s precisely because of tight focus and corporate structure that this domination by stealth was made possible. It’s reasonable to expect an increased presence of Japanese vendor branded devices moving into global markets as operators and networks overseas begin to catch-up to what we have seen on the ground here many years earlier.

Japan’s corporate insularity is a deep-seated trait—and one celebrated by its most successful firms. “I learned very early”, wrote Sony’s co-founder, Akio Morita, in his 1986 autobiography, “never to listen to ideas from outsiders.” Unfortunately, for all Japan’s strengths, such self-obsession stops it making the most of its considerable potential to create world-beating Sonys in a wider range of industries.

++ While this article may deliver a western world feel-good, sell magazines, angle.. it’s simply not accurate. Aside from the fact that Morita fought to name the company with English letters, and only managed to convince his funders based on the pre-existing example set by Canon, we have seen Toyota, Nissan and Honda along with Sharp, Panasonic, NEC, Fujistu, Casio, Toshiba, Hitachi and Nintendo create global brands over the following generations. Of course the potential always exists to improve, it’s called Kaizan, and based on the demonstrated results to-date we would suggest that Japan will continue in a measured and sustainable path going forward in this regard.

Then again, maybe it all has something to do with the "Work Ethic" here.. 😎

— WWJ Editors