By James Santagata
Principal Consultant, SiliconEdge
The Sun Also Rises (陽はまた昇る || Yō wa mata noboru), starring Ken Watanabe (foreigners will know him from his appearances in The Last Samurai and Inception) is a riveting drama that captures the development in Japan of the nascent and soon to be ubiquitous VHS video format.
Starting as a stealth or more accurately, an unapproved Skunk Works projects within JVC (Nihon Victor Corporation) it culminated in
the development and release of the new VHS standard to the industry.
On top of that, JVC's new format was royalty-free and competed directly against Akio Morita and his uber-powerful Sony Corporation (when you think of Akio Morita, think about Steve Jobs before Steve Jobs was even on the scene) and their Betamax.
Lots to takeways from this movie in terms of government pressure and cronyism in the form of MITI (Ministry of International Trade and Industry / 通商産業省 / Tsūshō-sangyō-shō) officials who had backed Betamax and, therefore, wanted JVC to deep-six their VHS format.
Other key takeways:
- No Box Thinking
- Technical Innovation
- Market-Focused Feedback Loops to ferret out new Use Cases
- Tenacity / Being Relentless
- True Leadership
- New Business Models (royalty-free industry standard)
In summation, this docu-drama really demonstrates Japanese business ethics, working styles, attention to detail and cultural expectations.
By James Santagata
Principal Consultant, SiliconEdge
Today I wanted to pose a very serious question regarding the coming failure of Abenomics (and it will fail, mark my words as economically there is no other alternative or outcome), Japan's continuing dearth of real, dynamic leadership and what it means for Japan's future.
Here we go: Has Japan's once rich, brave and bold Samurai spirit come to a crashing halt and been replaced by that of the Eunuch's?
I've deeply pondered this.
A Eunuch spirit and culture would suggest that, and evoke the feelings that, Japan's Samurai, Battlefield Culture has been replaced by something much softer and lacking in leadership.
I've written about this from various which you can find here:
Now some may be still questioning my prediction that Abenomics will fail. I guess the only debate I can see is how one define's failure and how bad the coming failure will be.
Abenomics is and has been economically untenable from the start, from when it was first announced.
And for those not overly familiar with Abenomics, here's a review of the so-called "3 arrows":
"The first arrow is an aggressive monetary policy. Abe appointed Haruhiko Kuroda, former president of the Asian Development Bank, as governor of the Bank of Japan in March. Kuroda has set a target of achieving 2% inflation and doubling the money supply within two years.
The second arrow is a proactive fiscal policy, consisting of a ¥10 trillion (US$100 billion) public works package.
The third arrow is a growth strategy. Structural reforms in Abe’s sights include everything from increasing women’s share of leadership positions to 30% by 2020 to joining the Trans-Pacific Partnership (TPP), a 12-country free-trade agreement that should drive trade liberalization and deregulation inside Japan.
There are several things wrong with these areas and we've discussed them before. First, even if you thought all three all needed they are in the wrong order.
The first arrow should have been the biggest, heavy hitter arrow - structural reform, but given the amount of ossified, rent-seeking incumbents in Japan coupled with near complete regulatory capture in many areas, well, that just isn't going to happen.
So instead, the two simple arrow, although massive destructive arrows to the economy, will and have proceeded -- loosing monetary policy to drop the value of the yen and going on a Keynesian-spend what you don't have public works-waste the money spree to welcome inflation!
Folks, inflation is the last thing Japan needs and given the fact that Japan is oil dependent and import dependent for food and other materials, the last thing that should have been done was to drive down the yen.
In fact, it would have naturally fallen anyhow because of the current account balance for the new record oil imports.
I wrote about this in detail, what the smart play would have been:
Now back to the Eunch problem. What Japan needs is to develop more homegrown leaders - real leaders, women and men, of all ages and persuasions that are not afraid to lead -- they are out there, but often they are forced out of the game early or left on the sidelines because they frighten the status-quo management or the ossified corporate culture.
But by paving the way for more and more startups, these leaders can move to run and drive those businesses, which in turn put heavy pressure on the ossified incumbents -- sales, business models and so on.
It's a win-win for talent, for consumers, for the country.
But Abenomics is only a symptom of a Eunuch spirit and culture (as well as a self-serving incumbency) and leadership, nascent and seasoned will continue to be rare and often smothered out or crowded out of where it is most needed.
By James Santagata
Principal Consultant, SiliconEdge
If it seems that we're under a constant barrage by the Western Media Myth (WMM) that (a) Japan is "failing" and that (b) this "failure" of Japan's is primarily due to Japan's "talent problem", it's because we are.
We're also told through this WMM that Japan's supposed "lack of talent" has further manifested itself in such as way as to be responsible for Japan's supposed "lack of creativity" and "lack of innovation", thus, contributing to again, the so-called "Lost Decade".
However, just when the WMM would have us give up all hope that Japan can saved, the WMM preaches that these "unique problems" that Japan faces can simply and quickly be solved by (a) increasing the number of English-speaking Japanese and (b) internationalizing the apparently "backwards" Japanese-only speaking speakers and/or (c) increasing the number of immigrants Japan accepts. Apparently, the WMM proponents believe that even a US-Open Border policy would "help" the Japanese economy if not "save" it.
To support such silly myths, memes and the previously proposed "solutions", the Western Media often holds up statistics showing Japan's lack of internationalized workers (however you define this), Japan's relatively low TOEIC and TOEFL scores compared to other Asian countries as well as the dearth of Japanese college students now studying overseas compared to the figures thrown up by countries such as India and China (for the record, the Japanese figures are low even when comparing this on a per capita basis, but this begs the question -- so what?).
As I have argued for over a decade now, these claims and even statistical comparisons by the Western Media are not only useless but downright dangerous to those that want to fully understand Japan's current situation as they ignore the real root causes of Japan's underperformance.
And note that I say "underperformance" here and not failure. As the third largest economy in the world (behind China that has ten times the population along with zero controls on economic externalities), it's pretty silly to continue to paint Japan as an economic basket case or the "sick man of Asia".
The key to all of this is to understand that Japan lacks leadership. That is what is hampering Japan.
Japan doesn't lack creativity, Japan doesn't lack innovation, Japan doesn't lack talent and Japan doesn't lack English-speakers, although Japan could improve in all of these areas.
The Western Media's arguments or framing of these issues, especially in terms of Japan's supposed lack of "English-speaking" talent becomes even sillier when we consider that it ignores what I have deemed the "tip of the spear" or "tip of the sword" strategy.
As I have stated many time before, business is warfare, the only difference being that in business there is no Geneva Convention and prisoners aren't routinely taken.
In a war, it is considered completely unwise to judge the strength of an army solely by the total number of troops. One must judge an army by its effectiveness in killing and maiming people as well as smashing, burning and breaking things. One would also be well advised to measure an army's effectiveness in terms of its ability to project power. Again, the number of troops is mostly irrelevant.
This becomes even clearer when we analyze a war dominated by air power,
In such a case you don't measure a military's effectiveness by the number of pilots deployed in theater or even the total trained (and active) pilots but rather you measure a military's effectiveness (related to these air campaigns) by the efficacy of the pilots that are deployed and the results which they attain.
For instance, even on a conventional basis, one pilot and perhaps one navigator can wreak enormous havoc on an enemy force, and yet, this one pilot and navigator are backed up by thousands of others ranging from ground crews that handle maintenance, fueling and ordnance. Air traffic controllers to mid-air refuelers (who in turn are supported by their own ground crews) and this ripples through the entire supply chain from the men and women who cut the paychecks, the cooks, the water purification teams, the truckers, the doctors and dentists to the nurses and so on.
Thousands and thousands of non-combatants are involved to support a relatively small group of pilots and this doesn't even include all of the time and effort that went into designing and producing each plane and each weapons systems, all to support one pilot and perhaps one navigator.
And yet it works because that plane and that pilot are, indeed, the tip of the spear.
You can see this as well in a US Navy Carrier Task Force when you consider how many personnel are on one aircraft carrier -- mutiple thousands. And this one carrier in turn supports a relatively small group of pilots. But it goes far beyond this, because that one aircraft carrier is in turn supported by a group of other ships - submarines, cruisers, destroyers and so on.
All of these assets and personnel are supporting this one aircraft carrier which in turn supports her air crews who are, by definition, the tip of the spear.
Unsurprisingly, businesses and economies work in the same way. This should be common sense and yet evidently the Western Media still doesn't get this nor does most of the Silicon Valley "Cheerleader Press".
In concrete terms, what does this mean for Japan?
Well, this means that in Japan not every person or employee needs to speak English or be internationalized. It's a silly notion to assume that they do. Moreover, even if each Japanese worker did have these skills there is no guarantee that the Japanese economy would stronger since there is a huge opportunity cost to skill-up in these areas which could, in fact, dampen Japanese creativity, innovation and productivity.
In any event, today I was back on site at a client (a Japanese domestic firm), running interviews for 2015 college graduates. I had eleven Japanese and several foreign student candidates lined up for today. This was in addition to the 15 Japanese candidates I had interviewed for the same client the week before.
And once again, I am and have been extremely impressed with the quality of all candidates, both Japanese and foreign candidates.
This simply adds more empirical evidence to my long made argument that Japan doesn't suffer from a lack of talent, creativity or innovation.
Japan suffers not just from a lack of but a dearth of aggressive, quality leadership which is able to effectively and profitably deploy and monetize the outstanding domestic and international talent that is already onboard or can be readily acquired.
To counter balance this lack of leadership and the resultant underperforming or ossified firms it produces, Japan must create and maintain a very healthy entrepreneurial ecosystem.
An ecosystem that can continually challenge, engage, kill and compost underperforming incumbent Japanese corporations, especially ossified incumbents, wherever they may be found.
Related Background Articles:
By James Santagata
Principal Consultant, SiliconEdge
That Japan like any country, be it developing or developed, has her share of problems is not in the least bit surprising or at least it shouldn't be.
However, what has surprised me over the years is how many foreign "Japan watchers" and "Japan pundits" always seem to miss the crux of what's really going on on the ground in Japan and more importantly what's going on in the mind of the Japanese.
When articles are written or comments made about the supposed dearth of Japanese startups, the author or speaker almost always boils this down to several factors such as Japan's Shima-guni mentality (Island Nation / 島国), the so-called Galapagos Effect (which as I've continually pointed out is really just a misnomer for an industry or marketplace rife with ossified, rent-seeking incumbents and regulatory capture), Japan's supposed lack of talent, Japan's supposed lack of diversity and Japan supposed lack of creativity.
In the past, I've written about and either fully debunked these myths and memes or I've put them into a context in which they are far better understood.
With that said, there is another popular myth and meme that comes up regarding the lack of Japanese startups and that is the idea that the Japanese have an almost in-born fear of failure.
I'm not here to argue that Japanese don't have a fear of failure because they do. We all do. Just as most other peoples around the world do, including those in the US and even including those working in Silicon Valley.
People fear failure.
But to hear the pundits tell it, "Japanese need to get over failure and embrace it". These pundits act like the fear of failure in Japan is simple a psychological construct* like it is in parts of the West like in the US.
(*For the record, even in the US failure is more than just a psychological construct, there are still real financial, social and psychological penalties, set backs and damage that can and do come with it. But this is so much less than what is faced in Japan)
Now I am here to tell you, that in Japan this "fear of failure" is not simply psychological but real. Depending on the failure level there are material penalties that can accrue or hit one hard and if you are to strike out on your own or with a small group of friends, launch a company and it fails it is not like Silicon Valley where you can walk down the street and pickup a paycheck at a top firm while your lick your wounds, get on your feet and start again or even just resume your pre-startup career.
In Japan, the damage and risks include and span the following:
There are huge differences in how societies views failures and how you move on in terms of romantic prospects and relationships, platonic relationships and friendships, how your family views you, the support groups you have and, most importantly, the career risks which translate, in the end, to money - to financial issues.
Although much has changed in Japan over the last 8 years, especially in the last 4 years or so, it is still no where near the levels of what we see in the West regarding some issues such as Mid-career hires.
Now let's step back in time, to say 1995. In the US, for instance, much of the economy was still coming out a bad recession from a couple years earlier where housing prices were pummeled - in fact, I remember many saying they wouldn't buy a home again.
As one specific example, I'll pick Silicon Valley as just one example, even in that economy, a person could have a massive failure and if they learned something and could present themselves well, they could easily land a similar or even better job by leveraging it. Even if they were fired.
Conversely, even if they didn't learn anything, they still could land a similar job. Even if they were fired.
People hired with a very open mind based on what the candidate could produce.
In Japan, the idea of mid-career hires, although changing now, was really non-existent unless you had super skills, super connections or worked at a foreign firm (gaishikei), like Microsoft, Oracle, etc. who needed talent and hired among themselves.
I can tell you, as just one example, when I met with Fuji-Xerox HR group back in mid-2008 to discuss their domestic hiring needs, although they were very polite and professional, it was made extremely clear they wanted new grads only and that they weren't set up to recruit mid-career hires.
Did that mean that mid-career hires didn't happen at Fuji-Xerox?
Of course not.
But it did mean and it does mean that mid-career hires (a) were rare and (b) a special case.
Which again leads to this risk factor of damage to one's career and so on.
Coupled with this was a employee/candidate ethos that often considered working for a direct competitor "dishonorable" while on the company side, such a candidate applying for a position from a direct competitor would be seen as "suspect" or "suspicious".
Again, I want to emphasize this has been changing for the better over the last 8 years and specifically the last 4 years or so but this hiring mentality exists and so does the economic and career damage fear among workers.
I can also share with you some examples where I took top talent from various gaishikei firms (in this case, in the network & information security industry) and introduced the persons to other top companies, both domestic and gaishikei.
Often what I heard was, "They are a job hopper".
My thought: "Are you insane" or "What an idiot, can you not see how talented this person is to fill the position you've had open for the last 4 months...."
My reply, "Uh, no. They aren't a job hopper. And regarding their changes, the last company they worked for went bankrupt and the other two companies before that, that the candidate worked for got acquired by huge multinationals. They left because they preferred a smaller work environment."
"Well, that shows bad choices on their part."
A bad choice? To know the firm would go bankrupt? To work at a startup or a company working in emerging markets or developing nascent technologies?
This actual conversation took place in 2008. And I've had numerous conversations like this, from the mid 1990's, skipping through the dot com boom of 1999 to 2001 (in the US, the dot com bomb died out with the 2000 Nasdaq crash but Japan trailed about a year) to around early 2009. Then it thawed a bit.
I should note that in the dot com bomb, Japanese firms were so scared by the hype and activity happening online that they did hire mid-hires and they did bring in foreigners, even non-Japanese speaking. Fear of the firm failure, spurned positive changes. In other words, competition is good.
I should also add that this was within the fast moving, dynamic tech industry. I've also done work in very static sectors like industrial chemicals, and as late as 2008, it was not uncommon to have a HR manager or even the hiring authority (even the country manager) characterize a person who had stayed at each job less than 5 to 10 years was seen as a job hopper and also undesirable.
Wrapping this up, it's not so much that Japanese have a greater fear of failure than, say, Americans, it is simply that the economic cost of a failure in Japan is much higher - financially, socially, psychologically.
Once you understand, all the pieces begin to fall into place.
By James Santagata
Principal Consultant, SiliconEdge
We hear so much about the supposed power of innovation and creativity. That these qualities or skill sets are somehow both unique and scarce. And at the same time, a lack of innovation and creativity is often quickly blamed for the downfall or underperformance of a company or organization.
But is this really true? And more importantly, how much impact do innovation and creativity or their lack thereof really have on an organization?
Here's the real deal:
Innovation & creativity are highly overrated and badly misunderstood.
If these were so vitally important, then Xerox PARC would have been and still would be the most successful company in the world while Microsoft would perhaps be the least successful.
But it didn't turn out that way because...
Well, because innovation and creativity are both meaningless and worthless without the ability to productize them.
And productization is both meaningless and worthless without the ability to monetize it.
And monetization can't happen without a strong leadership.
Strong leadership is required to allow, enable and drive an organization to productize and then monetize its innovation and creativity.
Don't let anyone tell you otherwise.
Can Struggling Japanese Companies Actually Beat The Snot out of Fast-moving Silicon Valley Firms? Yep. And Here's How
Over the last twenty years, and accelerating in the last 7 years, not only Japan but the entire world has begun to question Japan's ability to innovate and create as companies such as Apple and Samsung rule Japan's former stomping grounds and gleefully gorge themselves on Japanese companies' bento boxes on a daily basis.
Meanwhile, once mighty and innovative Japanese firms like Sony and Panasonic bleed red and constantly try to slough off workers while peddling a staid if uninspiring set of "me-too" and "also-ran" product lines.
How far has Sony fallen? Well, it's gotten to be so bad that if Sony founder, Akio Morita, were to magically re-appear today and venture over to the front entrance of Sony Japan, he wouldn't recognize the place. Worse, if he then decided to apply for a position, not only wouldn't they hire him, they'd most likely call security and have him escorted off the premises.
But all is not lost.
In our No Box Thinking™ (Volume 3), entitled "How Struggling Japanese Companies Can Beat Silicon Valley's Fast-moving Startups At Their Own Game" we go through exactly what has happened, what has changed and how, in a short time and by using some talent management adjustments, Japanese firms can again perform at our above that of their competitors.
By James Santagata
Principal Consultant, SiliconEdge
Ask the average person to think of Japan and then to share with you the first thing that pops into their mind. I can guarantee you that they'll almost certainly read back from one or more of these several powerful and well-established myths and memes:
1. High-Tech Japan:
A High-tech and Cyberpunk culture and society comprised of very polite albeit non-thinking and undifferentiated robots and drones all clothed similarly in their business or school uniforms and all marching off to the office or to school. Visitors find themselves amazed by the high-tech, 20-function paperless Toto toilets, the jaw-dropping variety of merchandise dispensed by ubiquitous vending machines, the automated, elevator-driven parking structures, auto-opening doors, sensor-controlled escalators and so on.
2. Old Japan:
The nostalgic view of Japan found in Tom Cruise's "The Last Samurai" and other movies before which focuses on the picturesque Japan. The culture and the style. The polite, disciplined demeanor of the people. The attention to detail and quality. The lacquer ware artisan, the sword craftsman. Mount Fuji (富士山), Kyoto, Nara and Kamakura. Geisha. Sumo. Onsens. Samurai. Ninja. Swords. Shamisen. Kimono.
3. Modern Japan / Culture Japan:
The exporting of top talent in baseball as well as having its players picked up by European soccer clubs. The deep stable of world-class swimmers, gymnasts, wrestlers and figure skaters. Beyond this, the delicious, healthy cuisine of Japan: sushi, sashima and various other staple dishes of Japan. Karaoke, manga, anime, video games. Modern Japan is about talent and culture.
4. WWII Japan:
Banzai human waves attacks, Kamikaze pilots, rapacious invasions of civilian cities along with soldiers and civilians who would rather toss themselves off the cliffs at Saipan than surrender.
5. Basket-case Japan:
20 years of economic malaise, a deflating economy, aging population, declining birthrate, a broken self-image and the inability to create or innovate as China continues to eclipse Japan in terms of GDP all while the world waits for Japan to sink into economic obscurity and irrelevance.
I've discussed and hopefully skewered a few of these myths and memes in detail, in particular:
1. Japan May Be Able To Compete Globally But Not Yet
2. Can Japan Compete? You Betcha And Here's Why
3. Japan's Problem: Severe Lack Of Leadership Not A Lack Of Innovation Or Creativity
We've also discussed these topics in detail (articles and podcasts) over at FirstPoint Japan. The FirstPoint Japan Expert Interview Series may be of interest to you.
The New York Times' Martin Fackler (see below) wrote a nice piece on some of the startup activity happening in Japan, however, I think it still misses some of the key points of where Japan has been, where it is, and what it needs.
In a nutshell, over the last 30 years the Japanese economy has been held captive by the power wielded by ossified electronic giants such as Panasonic and others, as well as the very real monetary, career and social risk that entrepreneurs face in Japan which is only compounded by the huge amount of regulatory capture found in Japan.
Surely Japan has had world class entrepreneurs before, such as Akio Morita who founded Sony, Soichiro Honda who founded Honda,Konosuke Matsushita who founded Panasonic (formerly known as Matsushita) and Kiichiro Toyoda who took his families Toyoda Loom Works and transformed them into an automotive powerhouse called Toyota.
The point remains, though, that if Morita were still alive today, he wouldn't recognize Sony as it stands today, and worse, the suits currently running Sony would never, ever hire a maverick entrepreneur and genius like Morita.
Akio Morita was Japan's Steve Jobs, except that he was Steve Jobs, before Steve Jobs even got out of his diapers.
How aggressive and prolific was Akio Morita?
Well, in terms of fights. he didn't not shy away, not only co-penning the somewhat acerbic book "The Japan That Can Say No: Why Japan Will Be First Among Equals" (and see Amazon) but also refusing to bow to arm-twisting by the US content industry that wanted to ban his Betamax recorder.
Morita fought this case all the way to the US Supreme Court (Sony Corp. of America v. Universal City Studios, Inc) and won!, making this not only a victory for Morita and Sony but for all other electronic manufacturers after them and especially making this a victory for us lowly consumers.
If you look closely at Japan, you'll find that it is usually during absolute or relative social or economic chaos that such dynamic entrepreneurs have risen. Mind you, this is not because "necessity is the mother of all invention" but because the chaos at had had broken or cracked the social conformity or regulatory capture just enough for a few green shoots to sneak through.
These green shoots, these entrepreneurs and creators and makers, the were always there. They always had the ability to perform. But they were choked out. By a combination of social conformity and most importantly rent-seeking incumbents.
In recent years, perhaps over the last three or four years, Japanese entrepreneurs and startups as well as entrepreneurs and startups in general are getting media attention (thanks in part to the visibility of Steve Jobs / Apple / iPhone and Mark Zuckerberg / Facebook among others). And with that, it has slowly become "okay" to be an entrepreneur again while at the same time the immediate financial and social risks are greatly reduced and even longer term social and career risks are lower.
In other words, currently, huge momentum is building in Japan, it's under surface and it's not just Japanese entrepreneurs but foreigners as well, many of whom have relocated in Japan from tech hot spots in the US including Silicon Valley, New York and everywhere in between.
These startups are critical to put further pressure on the ossified Japanese corporations to either compete and streamline their business OR die a quick, brutal death and then be composted, releasing and recycling their talent and know-how back into the pool of Japanese labor, intellectual property and financial pool.
It's exactly that intra-industry competitiveness and dynamism that is a hallmark of Silicon Valley's constant success in the world technology markets (and post-tech as well) and conversely it was exactly that lack of intra-industry competitiveness and dynamism that was the death knell for Detroit's once vaunted auto industry.
Japanese Start-Ups Channel Samurai Spirit
By Martin Fackler
Published: December 25, 2013
TOKYO — The 20-somethings in jeans sipping espresso and tapping on laptops at this Tokyo business incubator would look more at home in Silicon Valley than in Japan, where for years the surest signs of success were the gray suits of its corporate salarymen. But for those hoping the nation’s latest economic plan will drag Japan from its long malaise, the young men and women here at Samurai Startup Island represent a crucial component: a revival of entrepreneurship.
The signs of that comeback are still new, and tentative enough that the statistics on start-ups and initial public offerings have not caught up. But analysts and investors report that hundreds of new Internet and technology-related companies have sprung up in the last two to three years, creating an ecosystem of incubators like Samurai Startup Island and so-called accelerator new venture investment funds, which invest in early-state start-ups in hopes of cashing in.
For years, sagging entrepreneurial spirit has been cited as a major reason for Japan’s inability to save itself from a devastating deflationary spiral. The nation that produced Sony, Toyota and Honda has created few successors.
When he started investing in new companies six years ago, Mr. Sakakibara was lucky if two would-be entrepreneurs approached him in a week to seek financing. Now he gets two such queries a day, he said.
He and others closely watching start-ups attribute the increase in interest to cultural shifts that have slowly chipped away at Japan’s famously insular culture.
Having grown up immersed in an online world that stretches beyond national borders, young Japanese appear more willing to draw inspiration from foreign role models like Steve Jobs, the founder of Apple. And having seen Sony cede market share to South Korea’s Samsung, many no longer share their salarymen fathers’ belief in the permanence of established corporations or lifetime jobs.
“In a world where everything is risky, it’s better to be your own boss, in charge of your own destiny,” said Yoshinori Fukushima, 25, whose year-old Internet company has grown to 14 employees.
Some warn that Japan has a way to go to become a hotbed of break-the-boundaries venture behavior. Noriyuki Takahashi, who specializes in entrepreneurship at Tokyo’s Musashi University, pointed to comparative global surveys that place Japan at the bottom among leading Western and Asian economies in social acceptance of entrepreneurs.
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
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
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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