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.

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