By James Santagata
Principal Consultant, SiliconEdge
Richard Solomon of Beacon Reports recently wrote a very thoughtful piece first questioning and then analyzing the ability of Japanese firms to complete globally (see: Can Japanese Firms Compete In Global Markets?)
I. Myths & Memes
As so often happens with this and many other topics, ranging from war to innovation to relationships and dating, the question itself is beset if not hobbled with a series of Myths and Memes which we'll explore and unravel together in a series of future articles. However, in case you're curious or just can't wait, here are just a few of the Myths and Memes we'll be considering:
1. The Myth of a Failing Japan
2. The Myth of Japan's Lost Decade
3. The Myth of Japan's Deflationary Economy
4. The Myth of a Non-innovative & Non-creative Japan
5. China Hype
6. The Myth that Falling Populations are Disastrous for Countries
7. The Myth of the Uncontested Benefits of Immigration
8. The Myth of the Uncontested Benefits of Diversity (what is diversity, actually?)
9. The Myth of the Monolithic VC
10. The Myth of the Monolithic Japanese
11.The Myth of Japan, Inc.
12. The Myth of Innovation as a panacea for a lack of business acumen or the inability to operationally execute
...and many, many others...
II. Are Japanese Baseball Players Good Enough For Major League Baseball?
My first thought upon reading this article was simply how it parallels this modern reality: Are Japanese baseball players good enough for major league baseball?
Think about it.
We used to ask this very same question about Japanese baseball players. Could Japanese baseball players really make it in the major leagues? Sure, we all knew that the Japanese players were solid players, they were good no one disputed that, but we wanted to know could the Japanese baseball players really make it in the major leagues? (see: The New Age Of Japanese Baseball-Player Media Coverage Sam Robinson May 9, 2008)
Well, I think both the number and performance of Japanese players in the major leagues over the last 10 years has finally put that "question" to bed once and for all. In fact, there has been such an exodus of talented Japanese baseball players headed for the major leagues in recent years that many Japanese who, on the one hand, are proud of the accomplishments of their fellow countrymen in this regard, are on the other hand, bemoaning the loss of such players and worrying about how it may not only negatively impact the domestic (Japanese) baseball league but actually kill it. (see: MLB's Effect on Japan: Is the MLB destroying Japan's national pastime? by Robert Whiting, April 11, 2007)
From my vantage point there are two answers to the "Can Japan compete globally?" question and these answers address that question from both an historical and present day perspective.
III. Can Japan Compete Globally On A Military Basis?
From historical records we know that the Japanese can compete globally, industrially, culturally and, yes, even militarily. So let's start with the military perspective. Militarily, the fierce fighting tactics and spirits of Japanese soldiers during WWII lead to horrific allied battle casualties, both physical and psychological (see: Thousand Yard Stare), that in many cases easily outstripped what was encountered in the European theater (although there are obviously some exceptions). And, of course, some of the fiercest battles of WWII were held in the Pacific theater: Tarawa. Saipan. Midway. Coral Sea. Marshall Islands, Eniwetok. Guadalcanal. Iwo Jima, and, of course, Okinawa all come to mind along with the horrific casualties and often senseless loss of life among both soldier and civilian.
IV. Can Japan Compete Globally Today On A Business Basis?
Okay, so we've talked about sports, big deal.
And we've talked about the military aspect, which is a done deal.
But what about the business front? Can Japan compete globally today? In fact, we may even be questioning if Japan has ever been able to compete globally.
Well, to answer this, historically Japanese companies have fiercely competed on a global basis for over 45 years, which is one of the primary reasons why Detroit is now bankrupt, why the US automotive industry was ravaged beyond recognition, why the US steel industry was decimated and why the US found the need to enact both the Trade Act of 1974 / Section 301 and later Super 301 (see: Super 301: A Trade 'Monster' It Isn't by Reginald Dale, April 9, 1993 and Super 301: The Yugo of U.S. Trade Policy by Bryan Riley, Heartland Institute).
The Japanese were also extremely competitive and disruptive (think game changers) in audio systems (Sony Walkman, anyone?), televisions (Sony Trinitron tubes, anyone?), video cassette records (Sony, JVC and others), fax machines and video games (think the Magnavox Odyssey which predated Atari's Pong by almost three years and Nintendo after the implosion of Atari and Mattel's Intellivision when pundits declared video games as dead and "just a passing fad")..
More shockingly to many Americans, and especially to the technologists in Silicon Valley, was that this Japanese competitiveness also extended deep into the heart of the vaunted US high-tech industry including the design of semiconductors as well as the development and sales of capital equipment used to fabricate them.
Few outside of Silicon Valley (or the semiconductor industry) may remember, but firms like Intel (which was deeply invested in the DRAM business at the time) were under heavy Japanese price competition and were along with semiconductor processing-equipment industry leader Applied Materials perilously close to bankruptcy.
This fact was the driving force for the subsequent establishment of SEMATECH (Semiconductor Manufacturing Technology) which began operating in 1988 as a partnership between the United States government and 14 U.S.-based semiconductor manufacturers.
And it should be duly noted that this was in direct response to the power and impact of the Japanese semiconductor industry's massive success in the early and mid-1980's. Japanese competitiveness in this arena was soon seen as a threat to US national security which lead the U.S. Department of Defense's DARPA (Defense Advanced Research Projects Agency) to kick in approximately $500 million USD (see: Lessons from Sematech by Robert D. Hof, July 25, 2011).
At the same time, under President Ronald Reagan, the Japanese automotive industry which running circles around the likes of General Motors, AMC, Ford and Chrysler was "persuaded" (read: threatened at knife point) to agree to and to accept "voluntary export restraints" or VER for short which initially limited the Japanese automakers to exporting 1.68 million cars to the U.S. annually (see 1981 Automobile VER) .
This "voluntary agreement" was pushed for by the decidedly non-competitive US automotive industry which effectively told consumers, "we're getting our butts whipped here, in our own marketplace and w can't compete, so we're going to force you to buy a product you don't want to buy (our domestic automobiles) or likewise if you won't buy our domestic cars we'll make sure you pay much more and far above the market price for any product that we don't want you to have!"
Predictably, the loser in all of this was the US auto consumer. According to Daniel K. Benjamin (see: Voluntary Export Restraints On Automobiles, PERC Report: Volume 17, No.3, Fall 1999):
The big losers were American car buyers, particularly those who (like me) opted to purchase Japanese vehicles even in the face of their higher prices. Overall, American consumers suffered a loss of some $13 billion, measured in 1983 dollars. After accounting for the higher profits of American automakers, the U.S. economy as a whole thus suffered welfare losses totaling some $3 billion due to the restraints on Japanese car exports.
Meanwhile, the Japanese automotive industry responded like clockwork as any economist worth their salt had predicted. They switched their lower priced, value-based automotive offerings to a higher price point and began to offer a premium priced product mix which ultimately kicked off the luxury lines we know today as Toyota's Lexus, Honda's Acura and Nissan's Infiniti. At the time, there was much talk, most of it negative if not derisive, about the seemingly disastrous decision of the Japanese automakers to try and "make up" the losses incurred by the "voluntary export restraint" by moving up market with a higher price point for the limited quantity of cars that the US government allowed the Japanese to sell into the US market. The Japanese success in this move upward to the premium market segment is now legendary (see: A Short History of Japanese Luxury Cars, by Michelle Krebs, May 22, 2006 Business Week).
Beyond this, Japanese automakers began to set up assembly facilities in the US (the so-called auto transplants) but to the frustration and consternation of both the US automotive labor unions and the US domestic automakers themselves, the Japanese automakers wisely sidestepped Detroit and other bastions of high-cost, low-quality labor production and instead set up shop in business friendly states that offered an eager and ready-to-work non-union labor workforce along with often mouth-watering tax incentives to setup shop (see: These are America's 15 busiest auto plants by Chris Tutor, July 6, 2012; 70% of Japanese Cars Sold in U.S. Now Built in North American Plants by Paul A. Eisenstein, January 2, 2012; Japanese car makers in America: Twenty years down the road by The Economist, September 12, 2002).
V. Yeah But Today Is Different And Japanese Firms Can't Complete Globally Because They Lack Innovation And Creativity
Okay, I can hear what you're thinking -- "Sure we all know that Japan used to be competitive globally, but that was then, this is now."
Well, hold on a moment.
Have you considered that for decades Japan has been the second largest economy in the world, while residing on a tiny island, devoid of almost any natural resources save for the skills of her people and further possessing only half the population of the US?
You probably haven't considered that as the US press, if not the world press, has been obsessed with their China Hype stories. The fact is, the US press has been carrying the water for the Chinese "economic miracle" for the last 25 years.
This Japanese success story becomes even more amazing when you consider that were it not for the intervention of the US government using their full power along with some heavy implied threats, the Japanese steel and automakers would have completely crushed the US auto industry in its entirety and not through chicanery or deception mind you but simply through their efforts to provide a better product offering that consumers would willingly and more than gladly cast their dollar votes for -- pure economic democracy in action.
But this economic democracy wasn't good enough for US industry or the US trade unions -- the folks wanted a "recount".
By the same token, the semiconductor industry would most likely have suffered even deeper damage than it did had not SEMATECH and the US DOD along with DARPA stepped into the breech.
Against this Japan success story, let's now consider China for if Japan is the western media's favorite whipping boy, China is its golden boy. And yet for all the spilled ink, for all of the western media's hype, blatant cheer leading and water even carrying for Team China, China has, in fact, just recently and only barely eclipsed Japan as the world's second biggest economy.
That's right. Japan is now the world's third largest economy and China is number two.
To put this in perspective, we need to understand that China is a huge nation which occupies a land mass larger than the US and it has ten times the population of Japan. On top of that, I would be remiss not to mention that China also claims to be one of the oldest cultures in the history of the world and the center of civilization (I'll address that myth and its true meaning and implications in a future article).
It is true, however, that Japanese firms currently have some very heavy sticking points and difficult if not dire issues to contend with, but it would be a fatal mistake for any company or country to assume that the Japanese are "down and out" just as it for fatal for both the French and the US military to assume that the Viet Cong were really a bunch of down and out uneducated peasants (and we'll explore this, the lessons learned from Vietnam, the metrics used as well as the Cu Chi tunnel network in future articles).
Japanese workers are smart, diligent and contrary to popular Western opinion, they are extremely creative and innovative. Now, to our Western sensitivities and according to our own cultural biases along with our myths and memes which we project onto Japan and the Japanese, my statement may sound ridiculous if not blasphemous.
However it's true and I've addressed this mythical lack of innovation and creativity on the part of the Japanese in detail before and its supposed deleterious affect on the Japanese economy (see: Japan's Problem: Severe Lack Of Leadership Not A Lack Of Innovation Or Creativity, Stuart Braun, July 11, 2013 The Globe & Mail ).
But wait, if Japanese doesn't lack innovation or creativity what does it lack?
What Japan lacks is leadership, pure and simple.
This lack of leadership isn't new for Japan. We've seen this many times in the past, including militarily during the Battle of Midway where Japanese military leadership agonized indecisively over the arming of carrier planes with bombs or torpedoes.
At the same time as Japan has been labelled as "failing" (imagine how laughable that is, that the world's third largest economy can somehow be labelled with a straight face as "failing" and more importantly what does that say about the rest of the world's economies?), countries like China, are given a free ride as something "special and unique" when they have competed primarily only as a low wage producer.
(continued below the recent video showing the dangerous levels of Chinese air pollution)
Recent example of Chinese air pollution (10/22/2013)
Worse, China's lower wage has been primarily enabled through the generation of massive negative economic externalities including the polluting and poisoning of the Chinese air, land and waterways to the point that Chinese children can't play safely outside (see: Air pollution takes toll on China's tourism by Louise Watt, August 13, 2013), there are worries of environmental poisoning including cadmium, and food is increasingly being imported by the Chinese to avoid the chance of being poisoned by domestic foodstuffs.
This poisonous air, by the way, has even greatly affected Japan's air quality (see: Scientist Says Pollution From China Is Killing a Japanese Island’s Trees by Martin Fackler, April 24, 2013) and its even been detected as causing some smog in Los Angeles! (see: Smog in the Western U.S.: Blame China? by Margot Roosevelt, January 20, 2010)
Now what about Japan's supposed lack of innovation? Japan has often been derided for its supposed lack of innovation and creativity, but where exactly, pray tell, is China's innovation and creativity? Is it found in the sweatshop-like conditions of mega-manual assembly cities run by firms like Foxconn -- and let's be honest, Foxconn is a Taiwanese firm not Chinese anyway.
Or is this Chinese innovation found in China's riding Russia's coattails to "leap" into outerspace, under the guidance of Russian scientists and technicians as well as using the Russian cosmonaut training protocols and facilities?
Yes, Japan can compete. In fact, it's restructuring and it's retooling itself now to not just compete but to up its game.
The real question to me then and, in fact, the biggest question in all of this is simply why are Westerners, on the whole, not able to clearly see this?
And more importantly why is Japan almost always categorized as occupying one of two extremes, either the monolithic, robotic, heartless and lobotimized "Japan, Inc." (a modernized if not somewhat sanitized version of the Yellow Peril meme) or as a perennial basket case, the so-called Sick Man of Asia?
In the early 1880's the US Navy sent Admiral Matthew C. Perry and his Black Ships to Japan to force Japan to open up to international trade against her will. And on March 31, 1854, the US Navy brought enough firepower that the Convention of Kanagawa was "successfully" concluded.
By 1983, and almost exactly 150 years to the day that Admiral Perry forcibly opened Japan, Japan was seen to have fully rebuilt itself from the ashes and wanton wholesale destruction of WWII into a veritable economic powerhouse and Japan was all too happy to play the international trade game.
How ironic, then to see that the very progeny of the men who forced open the gates of economic trade with Japan, were not beneath hiding behind their skirts while crying out loud like little school girls in a B-rated horror flick that the US government should immediately slam shut the trade door with Japan because these business "men" realized that they just couldn't compete.
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