Japan's Lost Art of Innovation
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Japan's Lost Art of Innovation

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Once known for its technological innovations, Japan’s competitive edge is being challenged in industries ranging from auto manufacturing to electronics. With entrepreneurship apparently no longer in fashion among a stay-at-home and conformist youth, how can the nation that produced companies such as Honda and Sony regain its mojo?

While current business leaders such as Gree’s Yoshikazu Tanaka, Uniqlo’s Tadashi Yanai and Softbank’s Masayoshi Son, show Japan’s entrepreneurial spirit is far from extinguished, the larger trends are not encouraging.

The latest statistics show that Japan’s neighbors have eclipsed Asia’s previous leading economy in the vital area of innovation. According to the INSEAD eLab and the World Intellectual Property Organization’s 2012 Global Innovation Index survey, Japan ranks just 25th in innovation, well behind Asian rivals like Singapore (third) and Hong Kong (eighth), as well as South Korea (21st).

And while Japan rated highly for infrastructure (seventh), it ranked a lowly 80th on ease of starting a business, 84th on ease of paying taxes and 69th on “creative outputs.”

Japanese companies have also slipped in global rankings, with Booz & Company’s latest annual “Global Innovation 1000” for 2011 including only three of them in its top 20, Toyota (6th), Panasonic (12th) and Honda (17th).

With innovation considered vital to both competitiveness and economic growth, the significance of Japan’s drop in the rankings cannot be dismissed lightly.

In recent times, traditional Japanese electronics powerhouses such as Sharp and Sony have incurred huge losses and shed thousands of jobs, while competitors Apple and Samsung have continued to increase their market shares.

The Diplomat asked Hitoshi Suga, special adviser to Tully’s Coffee Japan, entrepreneurship lecturer and one of Japan’s leading venture capitalists, what was necessary for a turnaround in Japan’s entrepreneurial and technological prowess.

“Most importantly, we need to train and educate young people to be willing to take more risks to achieve more than average results. High school and college curriculum will definitely have to be reformed substantially rather than still using an old-fashioned, uniform pile of useless information to be memorized for the entrance exams,” Suga said.

“Japanese students should be encouraged to divert from the conventional obsolete curriculum and in particular, have more experience outside Japan by means of studying overseas for more than one year or taking advantage of working holiday programs such as the one in Australia, in order to become more independent, responsible and mature.”

Japanese companies such as Nissan have blamed a strong exchange rate for hollowing out of Japanese industry, but Suga said there were more fundamental reasons for manufacturing’s decline.

“The [high] yen problem should not be used as an excuse for the decline of some major companies, in particular, home electronic appliances manufacturers and other companies. The more serious problems are a total lack of leadership, vision and the ability to implement the appropriate strategy among top management to take advantage of the tremendous resources they have in such big companies,” he said.

“Those companies’ top management do not seem fit to combat their pressing problems, as most were promoted from within [the companies] after the good luck of the ‘bubble economy’ years, and they do not seem to be committed or trained enough to face the challenges they have.”

He added, “Hiring capable top managers from overseas, whether they speak Japanese or not, should be one of the top priorities of these companies”.

The comment was particularly noteworthy given the current debate over employing foreign bosses in the wake of the Olympus scandal, in which British chief executive Michael Woodford was ousted for blowing the whistle on corporate fraud.

Growth industries

While Suga was mostly critical of the nation’s political leadership, he said there were still growth opportunities ahead should Japan prove capable of revitalizing and restructuring its economy.

“If properly done, with the huge amount of national assets and intellectual property, as well as still highly advanced science, technology, research and development and preserved manufacturing base, coupled with a highly educated and diligent workforce, I’m still reasonably optimistic for the growth and prosperity of Japan over the next 10 to 20 years,” he said.

Asked which industries in particular might see growth, he offered a number of possibilities, some traditional while others new.

“In addition to the traditional auto industry, industrial machinery or even the steel industry which are rapidly transforming themselves in order to meet global challenges, certain consumer products businesses especially are expanding their businesses overseas in the Asia-Pacific region, including convenience stores, some apparel chains and food and beverage businesses that can meet local needs,” Suga said.

“Also, the tourism industry, especially those who are working hard to attract more foreign tourists to Japan, as well as the cultural and entertainment industry attracting a substantial amount of young foreigners’ interest have good potential.”

In his 2012 autobiography, An Unprogrammed Life, Japanese-American entrepreneur William H. Saito argues that the key ingredient to business success is learning to fail, something which is discouraged in Japan.

“Japanese are taught to abhor failure and to shun those who fail at almost anything. The consequences for the nation’s entrepreneurial spirit are predictable,” he writes.

“There is an old Japanese saying, ‘Fall down seven times, get up eight,’ which should be inscribed on every entrepreneur’s forehead. Unfortunately, both the social and financial systems in Japan think differently, and those who stumble even once seldom get a second chance.”

Japan’s “second chance” may come from fostering more global corporations such as e-commerce company Rakuten and clothing chain Uniqlo, rather than relying upon lost innovators of the past.

Comments
3
Matthew Cowan
October 28, 2012 at 22:33

Very interesting article indeed. Having come back from a week long trip in Osaka after 10 years away from Japan, I noticed that a lot of things, on the surface at least, hadn’t changed. While the customer service the Japanese provide is second to none, particularly in Asia, the thing I found most confounding was the poor Internet connectivity, particularly with mobile devices about town. I own a Samsung Galaxy S3 (yes Korean!) and was unable to purchase a sim card in order to use it while there. At KIX they suggested I rent an outdated iPhone with 3G connection starting at around $20 p/day. Instead I just had to accept the situation and use the free (slow & cumbersome) wifi at my hotel. The thing that struck me about this was an apparent inflexibility in this sector of customer service in Japan. I don’t know the reasons behind all this but there appears to be this fixation on Apple products – just about every person I came in contact with had an iPhone. If, like me, you have a Samsung, you are basically stuck without connectivity, which is tough if you’re trying to conduct day-to-day business transactions, or even simply wanting to access your gmail account.

Another that hasn’t appeared to have changed too much include banking services. Accessing cash from ATMs is unreliable as many banks and convenience store ATMs only accept Japanese issued cards. And, you can’t expect all businesses to have EFTPOS services, particularly bars/clubs/restaurants. Apparently there is some change afoot in the banking sector for foreigners living in Japan finally gaining the right to have a credit card, but not in the usual sense. It functions more like a debit card where you spend the money you’ve deposited previously into the account.

Finally, among other noticeable things that hadn’t changed much, it appears that the same old tired dialogue about Japan’s antiquated education system is still going round and round after all these years. As the article above states, it looks like the reliance on high stakes university entrance tests remains, which has long been proven useless in identifying true talent and fostering the skills needed to be innovative. From where I stand living in Vietnam, all the talk among Vietnamese youth is Korean technology and pop culture. Japan is rarely mentioned, and as a returnee to Japan after all these years and with a reasonable idea of what’s transpiring in the Southeast Asian region, it appears that Japan has lost a lot of ground to it’s Asian neighbors, in particular South Korea which has now become the true innovator, at least in electronics and pop culture anyway.

Theo Prinse
October 28, 2012 at 22:19

 
I don’t know of the Japanese after 1945. In the seventies you heard often that they copied everything Europeans had invented. Before 1945 the had torpedo's without a bubble trace. Just 2 hours ago once again I watched a documentary on the fabulous Bletchely Park project of the British during WOII. Turing and his team of dream code breakers, designers inventors built among many triumphs the first electronic computer Collosus … not Eniac. Anyway. 
 
Indeed Innovation is the only source of wealth and opposes re-distribution. Innovation is produced by innovative entrepreneurs and venture capitalists. Their opposition is crony capitalists who once had innovative inventions like the steam engine and created coal capitalists who speculated their coal industry would be forever. With the railroads they erected Trade Unions to secure labor peace or social stability and steady growth. 
 
These crony capitalists also created syndicalism in that they lobbied their governments to grant them the finance for huge railroads etc. The crony capitalists and their Trade Union agent provocateur communists fear and or oppose innovation because new products, new production methods and lower product prices means short term lay offs and or lower wages. 
 
It is certain that crony capitalists create a different society with different products and different morals than innovative entrepreneurs and their venture capitalists in that the latter thrives in a republican nation state whereas crony capitalists tend towards state monopoly capitalism or even central committee communism. 
 
The British Broadcasting Corporation still swarms with communists. . 

Shasha
October 18, 2012 at 12:07

Dear Anthony, 
This is Shasha from the Open University Business School. I think the article is really interesting. The theme innovation ties in perfectly with our current quarterly event on Innovation in Business. We have a blog called 'Business Perspectives' where we host high quality articles on the theme. We would like to ask for your permission to republish this article on our blog, attributing to you as the author and linking back to the site. 
If you could let me know if this is possible, that would be great! 
Look forward to hearing from you!
Shasha
Digital Development Manager
The Open University Business School

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