What Does Apple's Rumored Acquisition of Beats Electronics Say About Tim Cook & The State of Apple?
By James Santagata
Principal Consultant, SiliconEdge
With Apple's rumored acquisition of Beats Electronics for up to $3.2 billion USD it begs the multi-part question:
Is this something that Steve Jobs would have done during his tenure, is this good for Apple or does it suggest that Tim Cook is simply a corporate lackey?
Looking at the M&A transaction history for Apple, even when adjusted for inflation, we see that Apple has never made an acquisition approaching this size, not even the acquisition of Next Computer.
Why is this?
Well, for one, Steve Jobs had massive business acumen, he apparently understood that in these large acquisitions there are two main risks.
First, is the integration risk of corporate cultures.
Second is the fact that in many cases companies are just paying for goodwill that never existed or quickly evaporates once the acquisition is completed.
$500 million USD is a good chunk of change. $3.2 billion USD is even larger. With that kind of money, a stud like Steve Jobs could have built something from scratch and then owned the market.
Evidently, Tim Cook can't create or drive organic growth; he seemingly can only acquire and focus on accretive growth.
Nothing wrong with that, if it works and that's Apple's new "strategy" but it would be a massive departure from Apple under Steve Jobs since firms like Google and Microsoft are the ones who buy billion dollar businesses; Steve Jobs is the one who creates them.
And what exactly makes Beats Electronics so valuable to Apple? This reader comment found on the Register website didn't seem to think there was much there:
Innovation Denied With Billions Lost: What Brian Acton & WhatsApp Teach Us About Innovation, Leadership & Hiring Practices
By James Santagata
Principal Consultant, SiliconEdge
Well, if you haven't heard the news yet the Valley M&A buying spree continues unabated, this time with Facebook snapping up mobile messaging company WhatsApp for a hefty $16 to $19 Billion USD (depending on which news source you reference).
There are many lessons and takeaways from this acquisition but allow me to focus on just a few.
1. Ignore The Cheerleader Tech Press:
WhosWhat? WhatsWho? WhatsApp! Personally, I wasn't aware of WhatsApp before this acquisition as I don't use the app and I'm mostly a user of Viber and Skype so I can be forgiven. However, within the Silicon Valley Cheerleader Press, especially Tech "Apple-Twitter-Quora" Crunch and even Pando Monthly and VentureBeat, I'm sorry but even as frequent if not habitual reader, I just didn't see the coverage. How could this be, how could they miss it, a huge multibillion dollar company?
The answer is simple: Why would you expect the Cheerleader Tech Press to get it?
2. Companies Can't Pick Top Talent:
It turns out that before co-founding WhatsApp, Brian Acton formerly worked at Yahoo in a quite senior / important position. After over a decade at Yahoo, he left to take some time off and then applied for a new position landing interviews with at least a few major valley tech companies such as Facebook and Twitter. However, he was rejected at both. Perhaps these rejections were due to Action being incompetent. Or perhaps Action interviewed poorly and no communication skills? Or is it perhaps more likely that these companies or at least the hiring authorities at these companies either (a) don't know how to select top-shelf talent and/or (b) allow office politics and threats to an incumbent employee's ego or career path to dictate who gets hired and who doesn't? Examples are where a senior person with top skills scares a younger or less experienced manager from making the hire -- doubt that? It happens all the time. All the time. And it costs companies millions if not billions per year.
Oh and it makes you wonder, if Facebook had hired Acton, would they have gotten him to build WhatsApp for a lot less than the $19 Billion USD they paid for it? Or would WhatsApp never be built and fall into the "Innovation Lost" point below?
3. Leaderless Rather Than Leadership and Innovation Lost:
Perhaps the biggest lesson is why Yahoo, which had him onboard for over 10 years didn't extract this value, this innovation It's possible that Yahoo was simply so completely leaderless and rudderless that they didn't even know what to have him do. Or perhaps he tried to be innovative and got his hands slapped. Whatever the reason, it's clear that Acton had some innovative ideas inside of him and more importantly he had the confidence and motivate to start and execute. But it's clearly not just a shame but a multi-billion dollar tragedy that Yahoo had him on the payroll all those years, had him suited up and yet would let him get in the game and swing for the fences.
If you can create a company with the proper culture that has strong leadership, embraces innovation, empowers employees and hires top talent or solid talent, especially talent that either scares other firms (because it's too good) or is good inside but is a bit dinged on the outside, you're firm will do very, very well.
No Box Thinking™: How To Beat Silicon Valley's (and other) Fast-Moving Startups At Their Own Game
By James Santagata
Principal Consultant, SiliconEdge
“Core competencies are different for every organization. But every organization needs one core competence: innovation.”
- Peter Drucker
Secret Silicon Valley: Deconstructing Silicon Valley While Exploding The Myths & The Memes
By James Santagata
Principal Consultant, SiliconEdge
Business Is Simply Warfare Without The Pleasantries and Veneer of the Geneva Convention
Regulatory Capture In Action: Uber and LeCab To Wait +15 Minutes Says French Government
By James Santagata
Principal Consultant, SiliconEdge
One of the frequent topics we discuss besides the myth and meme that "Necessity Is the Mother of All Invention" is the fact many of Silicon Valley's most vaunted startups are all post-tech businesses.
Yes, you read that right. Post-tech.
They surely use technology in their day-to-day operations just as UPS does, the Hilton hotel chain or even Walmart. However, many of these startups may actually use even less tech than these brick and mortar firms. Examples of such startups and ventures include Airbnb, Uber and Zappos which is analogous to an online Nordstrom in terms of the customer service experience.
What does all this mean?
As we've discussed many times before, this means that what many of these startups will face (are facing) as their primary challenge is human in nature not technical.
Specifically, the markets that post-tech startups will want or tend to target or those which are massively inefficient (and have huge profit potential with tepid or ossified competition) due to the use of regulatory capture by rent-seeking incumbents.
The transportation industry is a perfect example of this as seen in the TechCrunch article below (although the writer seems oblivious to what this term or concept) whereby these rent seeking incumbents are using regulatory capture to have the French government force more efficient and consumer desired transportation services to artificially extend customer wait times by 15 minutes (apparently the average wait time for some of these alternative car services is only 7 minutes).
You can't make this up. But it is should be expected, not just in the tech world but especially the post-tech world.
Uber, LeCab And Others Now Have To Wait 15 Minutes Before Picking You Up In France
Posted by Romain Dillet (@romaindillet)
At first, it was just an idea, but this bill is now very real — urban transportation services like Uber and LeCab will now have to wait 15 minutes in France before letting a customer in the car. Back in October, the French government mentioned this piece of legislation as these new services would hurt traditional cab drivers. But nothing was set in stone until the AFP spotted the new bill today — and this news comes as a surprise.
In France, you have to pay a hefty price to get your taxi license. As a payback, the taxi industry is very regulated in this country, and drivers can expect to get a healthy influx of clients.
Yet, when the young and fearless startups appeared, many taxi drivers protested against LeCab, Chauffeur-privé, SnapCar, Allocab, Voitures Jaunes and Uber. While the French law calls these companies “VTC” services (car services), taxi drivers think that they are direct competitors — and smartphones certainly make Uber and others act like taxi services. That’s why the government sided with taxi drivers and talked about creating the 15-minute rule.
Shortly after that, Allocab, Chauffeur-privé, LeCab and SnapCar put together an online petition against the project. Then, nothing happened. It was like the government had forgotten about this idea.
In November, French heavyweight LeCab raised $6.8 million (€5 million) in Series B funding. At the time, I wrote that it was “a good time for it to raise” with the impending changes.
Last week, the Competition Authority (Autorité de la concurrence) even wrote that the 15-minute delay was a bad idea.
“This competitive imbalance is not necessary to protect the taxi monopoly on this market. Moreover, it potentially contradicts the objective to improve free traffic flow,” the report says.
By James Santagata
Principal Consultant, Silicon Edge
Recently Andy Serwer, managing editor of Fortune, sat down with Marc Andreesen to discuss The Future of Work, Cars and the Wisdom in Saying 'No' (full, unabridged version on Forbes Magazine here: Inside the mind of Marc Andreessen).
In this interview, I was particularly struck with Marc's views on the impact of the ever-accelerating and widening technological adoption on the job market, and the elimination of entire categories of jobs as well as his comments on education and the need for re-training.
Andy Serwer: We all understand that the Internet revolution is inevitable at this point, but it’s also kind of controversial. There are scads of new jobs at Facebook and Twitter and other places, but what about the ones that are destroyed by the inroads of technology into every industry? Are you actually creating more than you’re destroying?
Marc Andreessen: Jobs are critically important, but looking at economic change through the impact on jobs has always been a difficult way to think about economic progress. Let’s take a historical example. Once upon a time, 100 percent of the United States effectively was in agriculture, right? Now it’s down to 3 percent. Productivity in agriculture has exploded. Output has never been higher. The same thing happened in manufacturing 150 years ago or so. It would have been very easy to say, “Stop economic progress because what are all the farmers going to do if they can’t farm?” And of course, we didn’t stop the progress of mechanization and manufacturing, and our answer instead was the creation of new industries.
From my vantage point, this is completely off track for one main reason -- in the earlier stages of mechanization and automation we had far, far, far fewer people on this planet so that these productivity increases could support and sustain larger and larger populations. In addition, the rate of change was far lower and more localized. It was the difference of seeing single family home burn, to the firebombing off an entire city with no where to run to the simultaneous firebombing of an entire country if not world.
The logical implication of the initial waves of mechanization and automation was that an individual had to gain more or better skills perhaps in either designing, manufacturing, managing or servicing the production and automation manufacturing tools (such as injection molding machines, machine vision, semiconductor fabrication tools like a CVD tool or a stepper, etc.), the automation or productivity tools to design or support the development of these tools (such as CAD/CAM software, testing software, etc.) or in some other area supporting it such as marketing, sales and so forth.
There was still great pain associated with this in parts of the US and other markets, but by and large it worked.
The new wrinkle, though, is that this automation is not only happening everywhere at once but across wide swaths of both industries and functional areas. If you look at what is on the near horizon, autonomous vehicles, drones, 3D printers, even greater factory automation, visual inspection, automation for agriculture and so on, we saw that especially in labor intensive or high wage (on a relative basis) jobs, much of this work was first offshored or moved internally/domestically to the low cost provider or region.
For the next phase, many of these jobs that have already been offshored (such as call centers or assembly jobs),may be completely eliminated through more efficient troubleshooting algorithms and well as expert systems to handle the service call rather than people.
This is happening now in both China where Foxconn has increased its purchase of factory automation (FA) systems and robotics and in the US where higher value manufacturing is moving back on shore -- but it's highly automated, not employing large amounts of people but a few select technicians and managers who, of course, are highly trained (on a relative basis).
All and all, this wouldn't be a problem as people could and I feel should move up stream educationally and into more and more cerebral work.
Many people then blindly shoot out that these displaced workers as well as everyone will need an "an education" or more of an "education".
But this is completely off base. An education by itself is irrelevant unless it is the proper education. And that often means obtains some tools or skills that allow you to keep learning or give you some longer-term competitive advantage and/or are monetizable.
Your skills need to bring value to the market place in a way that you can monetize them directly or through an employer.
But wait, there are two more wrinkles: First, most of the education that is being offered now is sorely lacking in transferring the key skills that people may need to not only be able to do the job, but to keep the job and then keep moving on to the next job again and again while trying to their maintain value in the marketplace until they "retire".
Marc seems extremely optimistic on this point:
Marc Andreessen: And then for all this to work, a lot of people will have to get retrained, they’ll have to develop new skills. Education is going to become even more important. People are going to have to be much more adaptable in this economy. This has been a trend for a long time; the days of lifetime employment are long since over. And the whole system of how everything works – from education to health care and housing – has to adapt to an era in which people are going to have a lot more jobs over the course of their career.
The problem is if it were that easy for people to skill up, they already would have. But they haven't. Why didn't all of the autoworkers and steel factory workers do this and simply skill up in the 1970's and 1980's when their ranks were decimated?
There are many reasons but the fact is they didn't. And that was easy back then. The jump from skill level A to C was a cakewalk compared to the requirement many times to jump from skill level A to M...
In the coming years, perhaps by 2020 at the lastest, we will have almost complete elimination of truck drivers, cab drivers, many medical personnel, book keepers and yes, software developers and so on where will they all go? Who will retrain them? And most importantly what will they retrain to do?
This is especially going to be an issue for manual laborers (ironically, excluding plumbers and perhaps auto mechanics for the foreseeable future), factory workers and transportation drivers. Again how will the retrain? Do they have the ability to do so? After all, if they had the ability or resources to skill up beyond their current job, and on a relative basis it's a simple and cheap task to accomplish compared to what it's going to be, why haven't they done it?
And again, if they haven't been able now to make the small jump from skill level A to C, how does Marc expect these same folk to make the massive leap from skill level A to M in the near future?
This leads me to believe that we are at not Peak Oil (we're pumping more than ever with Mexico, as just one more example, about to float us away in crude) but Peak Jobs. As more and more automation eats away the lower and lower levels of jobs as well as the easily automated jobs albeit higher value jobs, starting with the middle class (book keeping, accounting, call centers, etc.), they'll be more and more displaced people.
The good news is this. It won't be an unmitigated disaster for everyone. No. Only the unprepared. So instead, prepare for a hyper competitive forms of global musical chairs where you competitors are humans from all around the world as well as robots, drones, bots, algorithms and expert systems.
The ability to take a seat, fortunately, won't be predicated on your reaction time when the music stops playing. Nope. It'll be predicated on both the value you can add as well as your ability to package, present and communicate that value to the employer or customer.
For those that are already skilled or who can skill up in the proper areas with the proper curriculum (going back to the traditional academic environment offering the same tired, numb curriculum not only isn't going to help but it will hurt you as you layout hard earned cash and waste time, energy and suffer forgone wages while you are out of the labor market) by redirecting their current outlay of time and energy, the future may be brighter than ever. That means more and more people will need to ask themselves:
It becomes a decision of where people put their time. Now, this bar is going to be raised even higher in the US and other developed countries versus the developing world, although the developed world will most likely be able to respond, though it is doubtful about England and France. Others developed countries like Germany and the Scandinavian countries are much better positioned for this.
But where does this leave the developing countries?
We can expect this compounding rapidly. I think what Marc misses is that we are now at "peak jobs" -- I'm no Luddite, just a realist. You add in all of the new automation now and in development from autonomous vehicles, drones, factory automation, 3D printing, expert systems + AI, and you'll see huge numbers of jobs being irrelevant, including soldiers, and this will become even more apparent and widespread as more and more of the cartels are broken and the enabling regulatory capture is done away with -- or as a reaction to this, regulatory capture by special interest groups and incumbents may increase or accelerate. In the face of global competition, that will be tough though.
At the same time, the easy access to labor, technology, markets, etc.no longer assures that "average" or "below average" people are employable just by virtue of their geographic location. Forty or fifty years ago, if you were a small bar near an auto plant in Detroit, you could have subpar service or drinks but make money because you were local, Detroit was flush with cash, and people obviously drank local. Same with book shops, shoes shops, dvd shops and record shops. Not any more. You can get what you need from Amazon, Zappos, Javari, Gilt Groupe, NetFlix and iTunes among many others.
We also see this playing out in Silicon Valley, where there are many great paying jobs, but it is not the proximity to the valley or the jobs that matter but the skills you have.
So a local resident from say, Bayview-Hunters Point, doesn't have an automatic advantage over an applicant who is applying from Massachusetts, India or China (although the Indian or Chinese applicant has some barrier due to acquiring the proper work visa). In fact, if the BHP applicant has no relevant tech skills while the Massachusetts applicant is a switched on computer science graduate, guess who's getting the $150,000 software development job?
Being local is irrelevant.
On a national basis, the countries that succeed in the future in the face of this accelerated automation and mechanization will be those that empower their citizens while maintaining (on a relative basis) a small, highly-educated and tightly knit, socially-cemented population.
Examples would include obviously Japan, perhaps Switzerland and Denmark. Other nations like the US will be a split case (have's and have not's due to the huge continuing immigration waves + the heterogeneous cultures operating within the US (see: Two Cultures In America Separated By I Do - New York Times).
And still other countries with huge and growing populations (Indonesia, China, India, Mexico) will be hard hit by virtue of having too many people, especially too many people in low wage, low value jobs, especially in assembly or agrarian roles. These populations will then shrink from this economic pressure or it will lead to massive unrest and/or forced redistribution of assets to support those that are having too many dependents and/or non-marketable skills based on the market needs at the time.
The next 10 to 20 years are going to be amazing, though not necessarily for those outside the system and without skills.
Action Items: To position yourself (or your children) now and in the future for these tectonic labor market shifts I would suggest:
1. Understand the skills you acquire should help you do a job and future proof yourself. These skills must be monetizable.
2. Understand that acquiring these monetizable skills aren't enough. You need to understand how to discover a job.
3. Understand that after discovering a job (or creating one) you must be able to package and present yourself and then close the job.
4. Understand that once you have the job you need to maintain it/keep and work to produce deliverables and takeaways for when you leave or are asked to leave your current job.
5. Understand that you still then need to know how to move to the next job (which one? when and how?) and somehow stay on track to leverage each previous skill and job and continue to build a career as you monetize your skills.
The skills you should acquire:
Start with hard skills in the sciences, computers, math, critical thinking & analysis and foreign language acquistion (even if they are basic or rudimentary). From there:
1. Communication Skills
2. Negotiating Skills
3. Influencing Skills
4. Persuasion Skills
5. Assertiveness Skills
6. Leadership Skills
By James Santagata
Principal Consultant, SiliconEdge
As previously discussed, we focus on both the human and the strategic elements of personal and business success.
We'll dig down deep and explore and unpack the official narratives as well as the myths and memes as to why particular companies, products, people and technologies have succeeded or "failed" and we'll often end up with far different conclusions than are commonly published or discussed within the business and tech communities.
We'll also draw heavily upon some of the following subject matter to help make our points:
1. Evolutionary Psychology
2. Cognitive Science
3. Influence and Persuasion
4. Military History, Tactics and Strategy
5. Economics (primarily regulatory capture by rent-seeking incumbents)
6. Linguistics & Languages
7. Foreign Cultures
8. Seduction and Dating
And a whole lot more... stay tuned!
By James Santagata
Principal Consultant, SiliconEdge
Outside of questions pertaining to SiliconEdge's training and coaching services, two of the most common questions people ask us have to do with our company name.
Is there a particular meaning attached to the name? And if so, what is the philosophy behind it?
Simply stated SiliconEdge represents two concepts.
First, it represents the physical edge of Silicon Valley -- the millions and millions of miles of inhabited space where entrepreneurial and intrapreneurial skills and knowledge have been rapidly diffusing or have already diffused and the exciting innovation and creativity that have been taking place or are about to take place outside of the Valley as well as outside of the United States.
Second, and mostly importantly, if we accept Silicon Valley to be the mecca of technology, creativity, innovation and risk taking, then this "edge" is the next step, the next evolution of this mecca; not a physical edge but a philosophical edge.
To me, it's been very clear that this next evolutionary step is a philosophical shift in recognizing and optimizing the human element and the strategic element and nowhere will this become more true and more important than in the Valley which is increasing becoming a "post-tech" world although very few seem aware of this fact. This shift means that business and people will soon need to recognize that most of the problems they face are not technical or financial in nature but human (we address this in great detail).
To be sure, the intrinsic importance and value of the human element is not new and it has always been of critical importance even when it has gone unrecognized. And due to a number of factors the actual importance of the human element has often been masked, misinterpreted and even when it's been recognized the response has often been to simply address it with platitudes.
A common example of this is found in the expression, "Necessity is the mother of all invention".
Is this really the case? We think not.
To us, this human element relates to being able to most effectively and efficiently select, acquire, develop, deploy, motivate, manage and retain the right people necessary for your business to reach or exceed its objectives and goals as well as ensuring your continued competitiveness and viability in the fast moving, global business environment that is today's reality.
More specifically, the concrete skill sets that now provide the largest ROI and ROL for companies (and individuals) include:
Beyond this human element, the essence and philosophy of SiliconEdge is to always question the official narrative as to why a particular person, company, product or strategy was "successful" or "failed" and to identify and unpack the most powerful myths and memes to find the real lessons to be learned.
By James Santagata
Principal Consultant, SiliconEdge
Over the years there's been much discussion in both the business press and the general press regarding the state of Japan's economy with many, including technology, economic and Japan-focused pundits, having concluded that Japan has become nothing short of a complete and utter "economic basket case".
Far worse, it's said that in the very near future Japan risks becoming completely irrelevant if it doesn't immediately act according to a particular set of "politically-correct prescriptions" which we'll discuss in more detail later. We are told that the situation Japan faces is dire even though Japan still retains the world's third largest GDP and was only just recently eclipsed by China -- The same China which has ten times the population as well as a supposedly long, advanced and storied civilization according to the pundits.
And yet, through all this doom and gloom, here we find little, lowly, Japan smack dab in the number three slot.
I. What Exactly Do The Pundits & Japan Watchers Say Is Wrong With Japan?
Specifically, technology and economic pundits as well as Japan watchers have come to the conclusion that Japan is ailed by the following:
1. Lack of innovation.
2. Lack of creativity.
3. Lack of Business-level English speakers (determined as a percentage of the adult working population).
4. Lack of inflation (we are told that Japan is in a devastating deflationary spiral).
5. Lack of diversity.
6. Lack of immigrants.
7. Lack of a globalized workforce (besides sufficient English skills it's said that the Japan workforce lacks a variety of soft & hard skills).
8. Lack of startups.
9. Lack of entrepreneurs.
10. Lack of babies / A falling fertility rate.
Whether one agrees with these pundits and the press or not, the very frequency and pervasiveness of such articles, comments, and themes clearly show how far Japan has fallen from its once rapid and presumed continuous economic ascendancy in the the mid-1960's. This kicked off with the 1964 Tokyo Summer Olympics and along with the debut of the Shinkansen / Bullet train service heralded Japan's post-war "Coming Out Party" and continued through the 1980's with a great many believing that eventual world economic dominance by Japan was a given. It may be hard to imagine now, but this was a time when Japan's economic dominance bloodied even American stalwarts such as Intel and General Motors and eventually had them hanging onto the ropes screaming "no mas! no mas!".
At the pinnacle of its economic power and influence, Japanese products evoked in consumers a promise of high-quality, innovativeness, and a fine attention to detail, all to be had by middle class consumers for a very reasonable price. At the same time, Japan's economic power and influence provoked sleepless nights if not abject horror in many American business managers who dreaded the prospect of facing this highly aggressive and unyielding competitive foe on the unforgiving battle field of business.
And let's be very clear about this fact: American business management feared Japan businesses and industry and for a very good reason. The Japanese economy and its assortment of high-performing companies were literally on fire and stomping out American, European competitors left and right.
From automobiles to semiconductors to video games to industrial test & measurement equipment to video consoles. Japanese products were often very innovative and almost always fantastic. And by no means were they all "copycat" or "fast follower" products (see: First Mover or Fast Follower? Harvard Business Review, June 14, 2012).
Consider Sony Trinitron tubes, Sony Walkmans (the inspiration for Apple's iPod), Toshiba's pioneering flash memory, Maganvox's Odyssey home video console (which was released a full 3-years before Atari's best-selling Pong) and, of course, the Sony Betamax video recorder as well as JVC's VHS players and VHS standard (which would set you back $4,600 while each blank tape ran for $72 based on inflation-adjusted dollars) which was adopted and also produced by Japanese electronics powerhouse Matsushita (now Panasonic).
The Japanese, coming from a small island nation roughly the size of Montana but with even less usable land and all but devoid of natural resources save for her people, were literally knocking the stuffing out of American industrial giants and America as a whole. Even more shocking was that this little resource devoid island nation was clobbering Superpower America which was overflowing with natural resources as well as having a population 2 times larger than Japan's!
The economic bloodshed was bad.
How bad was it? Let's just say that it got so bad that US businesses scrambled to lobby and plead for the US Congress to get involved, not only in terms of Japanese "voluntary" trade restraints but also in the development of SEMATECH (see also: Lessons From Sematech, MIT Technology Review, July 25, 2011). This political pressure later escalated with the goal of forcing Japanese firms to open manufacturing facilities stateside. (see: Transplant Car Makers Redefine The Industry, New York Times, June 23, 1992).
And yet, with the bursting of the Japanese economic bubble in the early 1990's, Japan is now often seen if not actively portrayed as a failing economy which is devoid of strength and slowly deflating over the last two decade -- the so-called "Lost Decade". At the same time, Japan is portrayed asemploying an army of graying, boring, robots and worker bee drones who themselves are devoid of even an ounce of creativity. If that weren't bad enough, we're now told that Japan's rapidly aging population along with the declining birthrate are about to take Japan underwater, once and for all.
The US and Western press no longer asks "Can the US and other developed nations compete with Japan?".
It's now, "Can Japan even compete globally?". And this rhetorical question is often posed with an air or sense of deep schadenfreude while at other times it's posed with nervous hand-wringing from Japonphiles as well as the Japanese themselves
We've repeatedly been told this narrative so many times that the answer to the question "Can Japan compete globally?" is already a foregone conclusion: Of course Japan can't compete globally we reflexively answer.
The adherence to this false but official narrative is so strong that everyone appear to be too busy witnessing "a failing Japan" to even contemplate a Japan that can compete. These forgone conclusions have now fully morphed into a set of very powerful myths, memes and misunderstandings.
This in turn raises two other questions:
Having read numerous articles such as this coming from both the technology and economic press, it seems that very, very few articles have approached this topic with a ground-level, brass-tacks understanding of what really goes on in Japan, socially, culturally and economically. Moreover, even fewer seem to have approached this with a positive worldview (versus the normative proposition) to ascertain what's really going on and what, if anything needs to be fixed or improved let alone how to do it. And by "how", I mean a real "how" not some socially-engineered pipe dream.
We've previously analyzed and destroyed a few of these memes, including that "Japan's troubles have do to with a lack of creativity and innovation on the part of Japanese" as well as the nagging question as to whether or not Japan can even compete globally. We've also touched upon and heavily damaged the "diversity is necessary for success" myth as well as the mythical "immigration is the solution to Japan's problems" narrative.
II. Debunked Myths & Memes About Japan
Not withstanding the reality of where Japan is today and what ails her, these previously discussed myths and memes have become so well accepted as "fact", that many Japan, economic and technology industry "analysts" and "pundits" simply rehash or cut 'n paste these old, tired and dangerously incorrect myths, memes and misunderstandings without ever stopping to think and consider how obviously and completely wrong and broken they really are.
III. What Japan Does And Doesn't Face
1. Japan does not lack of innovation.
2. Japan does not lack of creativity.
Japan and the Japanese people are extremely innovative and creative as we've discussed previously. It's not that Japan and the Japanese lack these attributes but rather that what Japan does lack (i.e., strong leaders with ability to productize and monetize creativity and innovativity) is being mistaken for a supposed lack of innovativity and creativity.
If you are now competing with Japan or if it's likely that you may compete with Japan one day, swallowing such a broken narrative is perhaps as dangerous as mistaking some range bum's politeness for weakness as illustrated in this Clint Eastwood classic:
What Specifically Is Japan Lacking:
a. The ability to productize its innovations & creativity.
b. The ability to monetize its innovations & creativity which it has productized.
c. Real leaders that will drive a. + b forward and into a long-term, sustainably profitable reality.
3. Japan does not lack of business-level speakers:
While you can possibly never have too many fluent speakers of any language, especially when it concerns a global business, scientific and cultural language like English (this is because English language ability provides the greatest marginal utility of all second languages in almost every case) it's still a fallacy to assume that you need to have everyone of your citizens possessing English fluency.
It's no different than running a military operation and employing the concept of the "tip of the sword" or "tip of the spear". You may use pilots to drop ordnance from the air but not everyone in the military and not everyone even in your branch of the service or unit needs to be a trained pilot.
Of course not. That would be ludicrous.
They don't even all need to know about airplanes. Some, like flight mechanics, may need to know more about aircraft than others, but do you really think that the cooks, supply line drivers, doctors or chaplains do? Of course not. How silly would that be and what a waste of resources it would be as well.
As an added benefit, by maintaining a relatively limited pool of strong globally-minded and fluent English-speakers while having the main population relatively "weak" in these skills, you've just created a fantastic, practically impenetrable barrier to entry to foreign competition. Yet, simultaneously by deploying your own "tip of the sword", you can approach, enter and take foreign markets as desired.
4. Japan is not in a devastating deflationary spiral
We are told that Japan needs more inflation - that inflation is your friend. But since when has inflation become a "good thing"? Certainly not for producers and especially not for consumers and savers.
Further, how can it be stated that Japan is in a deflationary cycle when it's clear that Japan is simply recovering from an inflationary bubble? Things are continuing to deflate because equilibrium hasn't been reached yet, therefore setting the baseline of this analysis from the top of the bubble is as idiotic as having your pediatrician worry about your child's temperature because the baseline of their temperature reading was taken at 103F when the child was exhibiting a high-grade fever. Now imagine that the child's fever has broken and their temperature is spiraling down to 98.6F, the "normal basal temperature". Is this something to worry about or is that simply the return of the child's temperature to the basal temperature and something to celebrate?
5. Japan doesn't have a diversity problem
Diversity as well as the benefits, value and costs of diversity (few rarely acknowledge let alone consider the costs of diversity) critically depend on you one defines it. If by "diversity" one simply means a quota of different races, ethnicities or the possession of a different set of reproductive organs, then no, diversity by itself has absolutely zero value.
If by diversity one means possessing, sharing and exhibiting different viewpoints and abilities all within a particular or specific band whereby the various individuals can still work cohesively as a team and support each others, then most certainly diversity has measurable value if not immense value.
In practice, true diversity would be having two Japanese come from completely different backgrounds, even if they are both men or both women, as compared to having one Japanese male hailing from Kyoto University and the other from Tokyo University both of whom studied the same subject matter.
At the other extreme, coupling an Israeli scientist who is an expert in materials science with an illiterate Sudanese goat herder probably won't add any value either. This would especially be the case, if the two parties involved don't speak the same language or have any means to communicate in a mutually intelligible language or system. This gap and mismatch would perhaps be even more apparent if their objective was to discuss the advanced development of carbon nano-tubes.
I'm well-aware and understand that this is heartbreaking if not earth shattering for the pro-diversity-at-any-cost social-engineers out there, but the fact remains, Japan is one of the most homogeneous countries in the world and uet it's a smashing success as is Korea. And Korea is arguably more homogeneous than Japan!
Meanwhile, other highly diverse societies have eaten themselves for lunch such as the former Yugoslavia while an analysis of other diverse societies often suggests that a very small percent of the population is doing the heavy lifting (this is often captured and reflected in large income disparities assuming that government regulations and interventions haven't distorted the market by fouling pricing signals, blocking competition or picking winners and losers).
And as repulsive as Jim Crow-era laws and apartheid is and was, during this reprehensibly time and with an extremely non-diverse workforce, the US arguably reached the pinnacle of its vaunted space program which culminated in several lunar landings. Since then the US hasn't revisited the moon nor made any substantial man-driven landings to Mars (that is put a human on Mars).
This then begs the question. "Where exactly is the "diversity dividend" we've been promised?
6. Japanese doesn't lack immigrants because it doesn't need wholesale immigration
What makes Japan work is its strongly-coupled and cohesive society. This doesn't rule out immigrants as immigrants can, would, could and do help Japan but it must recognize that immigrants will only help Japan or any nation when there is a policy based on the merit and value the immigrant brings or is expected to bring to the host name (as expressed by "life time value") versus the societal carrying costs over the immigrant's lifespan.
Japan would be well advised to avoid what has happened to not only the US but also Europe where never ending flows of immigrants,
in particular low skilled and/or non-assimilating immigrants are bringing negative externalities as a whole. Obviously, there are very productive and bright immigrants which should be welcomed, but we must ask if family chain immigration should be allowed and to what extent should anyone be welcomed without regard to their financial and societal contribution as well as financial and social impact to the host nation?
For those that consider this cruel and cynical, let me ask you this:
If not, your answers are "no", then it it would seriously behoove you to consider why you harbor such a double-standard regarding national immigration since it is just a larger version of the family structure.
This issue will be even more critical as we continue racing toward Peak Jobs (see: "Not Peak Oil But Peak Jobs") and certain societies are beginning to strain with overpopulation and large, unemployed or even underemployed layers of society.
The solution is to understand that a small, highly-educated, cohesive and tightly-knit society is the society that is well positioned for the 21st century. Japan and Korea are obvious choices that come to mind.
If you doubt this, simply consider the reaction of two very different societies and cultures to natural disasters that have befallen them. Namely, consider Japan's Tohoku earthquake and New Orlean's Hurricane Katrina where even the local police were caught on camera looting!
7. A Globalized workforce is not a panacea but can be very important (this includes business-level English skills)
Although Japan does have some very capable workers, this is a critical issue that they face in some situations. However, while the English language component is important, even more so is critical thinking, overseas sales ability and psychological aggressiveness-- this is true even if these skills are taught in Japanese and the Japanese students are monolingual (Japanese only speakers).
8. Startups & entrepreneurs is critical for Japan's economy
This is a problem which is mainly due to various cultural and social conventions along with a strict, domestic regulatory environment (more about this later).
9. Lack of babies / falling fertility rate is a pro or con
This can be good or bad. By focusing on factory automation (FA), autonomous systems and robotics, Japan can overcome any such problem. If Japan's decides they need more flesh and blood I would suggest that rather than "import immigrants" they should do what countries like China, India, Indonesia and Mexico do so prolifically -- make their own babies the fun and natural way. There are a number of things that the Japanese government can do, policy-wise to encourage this which we'll discuss later.
IV. The Real Problems & Solutions
There are a number of solutions to the problems that Japan faces, but most of the solutions necessary to remedy these issues will go against what Japan's domestic incumbents and power structure want and what have installed in Japan for their own benefit. We see this in the so-called Abenomics where Prime Minister Abe's economic policies, the so-called Three Arrows are potentially disastrous for Japan. Prime Minister Abe was presented with a fantastic opportunity to remake Japan and have her again challenge the world, instead he chickened out, putting a rope around Japan's neck while making her stand on a wobbly chair amidst a chaotic, soapy floor...we all know how this will turnout.
Prime Minister Abe listened to Japanese businesses who wanted the easy way out (devaluing yen) rather than having to compete globally as this would have required many of these companies to fully restructuring their businesses. In response, Abe pushed forward with a plan to drive down the yen by easing monetary policy (i.e., printing money or creating digital credits as they do today) and hoping to stoke inflation (as though that were a good thing). After those two "arrows" were in place, he had hoped to push through some critical economic reforms.
This was very, very poorly played.
By weakening the yen, at the very same time that Japan was experiencing record fuel imports (due to the shut down of the country's nuclear reactors), all that was accomplished was a short-term shifting of non-sustainable profits to the exporters while shifting
the cost of the increased imports (vis-a-vis the weaker yen) onto consumers. Lastly, I can guarantee you that the very structural changes which Japan needs the most won't be proposed and even if they are proposed, they will either be stomped out or be so thoroughly neutered as to be ineffective.
V What Would Have Been The Smart Play & What Really Ails Japan?
The smart play would have been to keep the yen strong -- let it stay there -- then, simply work to encourage Japanese firms to engage in heavy non-yen foreign-based M&A. This would driven down the yen (which is what exporters want) but Japanese firms would have been holding foreign-based non-yen denominated assets and since the Japanese need to improve their global operations, much of that strong yen could have been used to purchase the critical training and know-how needed, again trading a strong yen for non-yen denominated training and knowledge.
By combining this overseas asset purchase spree with the increased energy imports, the yen would have still been devalued (albeit more slowly), however, Japan would be holding foreign assets and exporters would quickly understand from the fierce discipline meted out by the market, that they needed to improve their operational effectiveness and efficiency and not simply rely on a "cheap yen".
The next step would be to understand that Japan's current business environment is full of deadwood and heavy overgrowth. This deadwood and undergrowth needs to be cleared out and the way to do that is make the Japanese economy at a minimum neutral to if not lovingly-biased towards startups. Once in place, an army of these startups would begin to nip at the incumbents' heels prodding even the most obtuse or ossified of firms to retool and restructure. Eventually those firms that couldn't compete or refused to compete (and yes, there are some very stubbornly obtuse and ossified firms in Japan) would be killed, eaten and composted with their ashes and assets, talent and IP being quickly recycled and allowed to blow with the winds across the Japan business community.
It would also ensure that Japanese successes (and failures) are kept in Japan. Currently, due to the lack of a vibrant startup ecosystem, when big ossified Japanese firms stumble and fall or implode, it is the foreign firms that benefit and end up eating the Japanese firms bento box. For example, Apple benefited (iPod, iTunes) from Sony's stumbles as did Samsung from both Panasonic's and Sony's travails (actually it could be said that these firms, Panasonic and Sony, fell flat on their collective faces).
Don't fool yourself into believing that this concept I'm proposing is somehow unique -- it isn't. It's a plain vanilla, common sense concept and this is actually what the US in general and Silicon Valley in particular does so well.
Compete, kill, eat, compost, spread the ashes and recycle....
In US tech regions in general, and in Silicon Valley in particular, there is fierce intra-industry competition where firms are wiped out and crushed on a daily basis until a victor stands tall and dominates the industry. Only to have it happen again as this new victor is mercilessly pummeled and cut down. The names may change, but the winners are almost always American.
Well, how about computers and the computer industry?
ENIAC, UNIVAC, Wang, DEC, IBM, Eagle Computers, Kaypro, Osborne, Compaq, Tandem, Dell, HP and so on.
See any patterns?
Do the same for chips, for databases and so on.
In fact, just about the only area in the US where you won't find this fierce intra-industry competitiveness is where the US government has intervened and distorted the market (e.g, labor, regulations, pricing, etc.). This primarily occurs when rent-seeking incumbents engage in the regulatory capture of markets.
This is why the US auto industry was wrecked -- regulatory capture and regulations hobbled and harmed it, until foreign competition like the Japanese and Germans crushed the US domestics. Were it not for the US governments over regulation of the automotive industry, we would have seen many automotive startups begin to form and then compete with and eventually force the obtuse and ossified US automotive giants to change, piston by piston, engine block by engine block. crankshaft by crankshaft..
Those firms that refused to change or couldn't change would be slaughtered and then composted.
And this is exactly what Japan faces as its number one problem.
The endemic regulatory capture in Japan needs to be eliminated. Beyond that, entrepreneurs face serious hurdles with capital accumulation and company formation along with facing very serious (although it's getting better) social, financial and career risks.
From this there are even further knock-on effects whereby mid-hires or hires from direct competitors only happen rarely in Japan and often when these types of hiring occur it's driven by the Gaishikei, the so-called foreign-capital firms (think: Microsoft, Oracle, Altera, Coach, Starbucks, McDonalds, etc.). This refusal to hire mid-career talent effectively prevents individual risk taking as well as precludes intra-industry and cross-industry cross-pollination.
All of this greatly dampens an entrepreneur's appetite for risk. Interestingly enough, though, Korean and Chinese firms have begun to hire mid-hires as well as very talented "early-retired" or "moth-balled" Japanese executive and engineers.
A vibrant, healthy and properly functioning labor market will exhibit strong labor mobility - for the most part Japan doesn't have labor mobility although it has made huge changes in the last 19 years and even more so in the last 4 years -- but it still has a long way to go.
By making these structural changes, primarily with adjustments to various regulations and some tax reforms to favor capital accumulation and company formation, Japan could rocket upwards by unleashing her creative, innovative people and giving them the opportunity not only to productize but more importantly to monetize their efforts.
This would most likely mean that many of the big Japanese brands that we know today would wither away (assuming they refuse to or can't modernize and compete) but this is no different than what we've seen happen in the US' relatively more vibrant economy.
As it stands now, Japan's obtuse and ossified incumbents are more than happy to go down with the ship and they apparently have no qualms about taking the entire workforce and nation with them.
By James Santagata
Principal Consultant, SiliconEdge
In response to Richard Solomon's (Beacon Reports) 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 had written an article entitled "Can Japan Compete Globally? You Betcha And Here's Why".
The purpose of my article was not only to surface and then to debunk what I see as a plethora of Myths and Memes that continually surface in the media and in our daily conversations regarding Japan but also to help us all question the other Myths and Memes that govern our lives.
Of the many comments I've received, I'm mostly interested in the comments that disagree with my article or point of view because these help test the soundness of the arguments I've forwarded.
Here is an example of a common but very thoughtful response which is in disagreement with my arguments:
I say "not yet" (Japan can't compete) - because of the inner structure of Japanese companies. Everything takes just too long. They are usually too late, so foreign competitors, for instance Indians have already landed deals while Japanese still circle around decisions."
Here's my reply to such comments.
I. Speed of Decision Making: What Is The Real Value?
No one with any amount of first hand Japan business experience will doubt or question the generally molasses-like decision making process found within Japanese companies and organizations.
However, the speed of decision making is just but one important aspect of a country's competitiveness although, to be sure, there are first mover / early mover advantages to be had as well as disadvantages to consider and avoid. There is also the timing of a decision for economic or other reasons to consider.
But beyond the speed of decision making, it would be wise to consider both the quality of decision and decision making process as well as the ability to execute effectively.
II. The Empirics Trump The Myth & Meme
For for all its warts, blemishes and shortcomings, Japan is still the number three economy in the world.
Japan's GDP stands at 5,87 billion USD.
India's GDP stands at 1.89 billion USD.
Japan's GDP is 3.1 times larger than India's. Or conversely India's GDP is just 32% of Japan. Put in yet another way, India's GDP is less than one-third the size of Japan's.
Can it be any clearer than this?
(notes: recently we have seen large fluctuations in exchange rates,especially with regard to the devaluation of the rupee; see BBC News - Indian rupee falls to new low against US dollar, August 28, 2013; these GDP figures come from 2011; ).
Now let's consider the case of India further.
III. Analyzing The Indian Case
If Indian decision makers or the Indian decision making process is so fast, why is their economy (in terms of GDP) still in only 10th place?
Remember, India's GDP is still just 32% of Japan's. This means the Japanese can effectively stop working for 68% of the year or 8 months and still enjoy an economy that is just barely larger, but still larger, than India's.
This then begs the question, "What deals are the Indian's getting that the Japanese aren't and how come these deals aren't moving India to the point of producing a GDP which is greater than Japan's?"
Moreover, we must but this into perspective that India, like China, is a very huge country. India has over 1.2 billion people and many natural resources. Japan by comparison has only 127 million people, so the Indian population is 10 times larger than Japan's yet the Indian economy is only 32% as large of Japan's.
I understand that over twenty years of myths and memes can condition us to believe things to be or to seem different than they really are. But Japan is still the number three economy in the world and for good reason -- Japan and the Japanese know how to compete.
IV. Abenomics & The Near Future
In a future article, entitled "Can Japan Compete Globally? You Betcha And Here's How", I will detail exactly how Japan can retool and restructure to compete even better.
Lastly. and again for the record, I'm highly critical of Abenomics and I think his approach as well as the actual implementation of it, especially the huge devaluation of the yen, was a massive error and with that error, a perfect opportunity was missed for Japan to prime the catapult and launch itself beyond China to again retake the number two position in world economic rankings.
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