The Global & Mail (Stuart Braun):
Japan ranked first worldwide in ‘Capacity for innovation’ on the World Economic Forum’s 2012 Global Competitiveness Report, and second in terms of Company Spending on R&D. Is this reflected in real ongoing innovation in Japan?    

According to the "Global Innovation Barometer" survey by General Electric Co. released in March, Japan's self-assessments were the lowest among the surveyed countries. Does this surprise you in light of the WEF competitiveness report? What is causing the dissonance in these views of Japanese competitiveness and innovation?

SiliconEdge (James Santagata):
For decades Japan has been churning out innovation after innovation, some of which are both very visible and "sexy", such as today's automobiles or when Japan dominated the video entertainment and portable audio player market. Many other innovations, such as those by Toray composites, are critical albeit invisible as they are industrially rather than  consumer focused. Nevertheless, this innovation continues today.

Paradoxically, while rest of the world recognizes Japanese prowess in regards to innovation, the Japanese themselves are much less impressed by their innovations. Partly this can be explained by Japanese tendencies towards humility and introspection. Beyond this, however, much more can be attributed to the perceived (from the Japanese perspective) if not actual lack of visible let alone "sexy" innovations, primarily in the consumer space. 

The Global & Mail (Stuart Braun):
But some closer to home seem to less confident about Japanese competitiveness and innovation. Shinji Fukukawa, writing in the Japan Times in December, said that "Having observed trends in Japanese industries for a half century, I have never felt deeper concern about their future than at present. Many of Japan’s leading enterprises that once dominated the global market are now suffering huge losses and lagging in performance behind competitors in South Korea, China and Taiwan." Do you agree? Or is he overstating the problem? 

SiliconEdge (James Santagata):
To hear many economists talk and even the Japanese themselves, one would begin to believe that Japan is the "'sick man of asia", rather than the world's third largest economy, having just recently been eclipsed by China, which possesses a land mass larger than the US and a population which is almost ten times larger than Japan's. Nevertheless, I do have some worries about Japan not for her lack of innovation but rather for her lack of leadership. In my opinion, too much attention is paid to "innovation" as though that is the "end all be all". It isn't. If it were, then how can we explain China rising so rapidly? What innovation is emanating from there?

Innovation by itself, though mesmerizing, is worthless without productization. And productization is worthless without monetization. Innovation must be monetized to be worth anything. And that is the problem with today's Japan. Spectacular and often early innovations come out of Japan's labs and corporations such as Sony's Location Free TV, yet due to corporate constraints on monetization these innovations for fear of rocking the boat or cannibalizing some products, they allow scrappy firms, like Sling Media to come from behind and gobble up the market. It could be said, the Apple's iPod was simply the next iteration of Sony's Walkman. And I don't mean to pick on Sony as they are not alone -- the majority of the Japanese CE (Consumer Electronics) industry has been having their bento boxes eaten by the likes of Apple and Samsung among others. The US is also replete with examples like this as well with Xerox PARC as just one poster child with their lack of motivation or desire to monetize their PC and related technologies (graphics chip, ethernet, vector based graphics, etc.).

To solve this, Japan needs real leaders that aren't afraid to make a hamburger from a sacred cow or break a few eggs to make an omelette. It seems evident that the current ossified incumbents won't be doing this. Normally, within a healthy ecosystem, a flurry of startups would rise up and take advantage of these missteps or opportunities, but Japan is missing much of that part of the ecosystem.

Worse, the Japanese government and central bank, rather than leveraging the strong Japanese yen to encourage Japanese firms to acquire foreign firms and international talent, have succumbed to printing money, to drive the yen down in value, which is simply benefiting the incumbents in the short term, by shifting monies from Japanese savers and consumers to the producers. In the long term, even 18 months out, it will be clear it was the wrong move. Sadly, a real opportunity was lost, for had the government and industry pursued the M&A route, the purchase of foreign assets coupled with record energy imports would have drove the yen down in value while allowing Japanese firms to build non-Yen denominated assets. The only difference is that it might have taken an additional 6 months to a year for the yen to weaken to where it is today.

The Global & Mail (Stuart Braun):
Anything else you would like to add on these themes?

SiliconEdge (James Santagata):
The quickest way to jump start not only innovation but more importantly the productization and monetization of innovation would be to encourage the development of a vibrant startup community and ecosystem, which would put enormous pressure on the incumbents but also help ensure that when incumbents like Sony or Panasonic stumble, their missteps will be captured and monetized by Japanese firms rather than firms gobbled up by the likes of Apple and Samsung.

In an effort to climb back to its Walkman glory days, Japan is investing heavily in R&D, especially in its technology strongholds. But the culture may not have the same appetite for risk as its competitors and may be outpaced by more aggressive countries, experts say.

When Japan exclusively developed and manufactured Walkmans, Honda hatchbacks and Nintendos, it was set to overtake the United States as the world’s largest economy. Today, Japan continues to be a world-leading high-tech innovator. Yet in commercial terms, the competition has caught up, and is often running ahead. As the Apples and Samsungs of the world outcompete Sony and Panasonic, Japanese companies are trying to revive the country’s economic miracle.

“Japan is in desperate need of a new philosophy of management, a new paradigm for competitiveness, a new sense of self,” Sony founder Akio Morito warned as far back as 1992. Twenty years later, as once-omnipotent Japanese tech corporations continue to lose ground to rampant global competition, it seems some are now heeding these words.

“Japan’s high tech sector is finally waking up to the need for a new management philosophy ... there is evidence of a growing sense of renewal,” wrote global management consultancy Accenture in a 2013 report.

One key shift is an attempt to invest profits, and technological capital, from shrinking traditional businesses into dynamic new markets. Accenture points to the way specialized high tech firms such as Canon and Fujifilm are using established optical, printing and imaging capability to successfully break into new medical imaging and other sectors.

Even so, this emerging new drive to competitiveness in Japan has some catching up to do.

Between 2010-11 and 2012-13, Japan fell four places in the World Economic Forum’s (WEF) Global Competitiveness Report, from 6 to 10. Though the report ranked Japan No. 1 for business sophistication and No. 5 for capacity for innovation – Japanese companies are the world’s second highest spenders on R&D – the island nation’s raw competitiveness is in a bit of a free fall.

While Denmark and the Netherlands now lead Japan in terms of global competitiveness, for the Japanese, the problem is closer to home. China, which in 2010 leapfrogged Japan to become the world’s second largest economy, now makes more cars and PCs than Japan, while South Korea outsells Japan in most TV and smartphone markets.

Leading business and economic figures like Mr. Fukukawa are demanding solutions and deep reforms. “Many of Japan’s leading enterprises that once dominated the global market are now suffering huge losses and lagging in performance behind competitors in South Korea, China and Taiwan,” Mr. Fukukawa wrote in the Japan Times in December.

Japan’s spending on R&D remains high but South Korea now invests more in R&D as a per cent of GDP, Mr. Fukukawa noted. And though Japan still makes the most patent applications in the world, these are in steady decline. Applications from China, by contrast, have increased exponentially in recent years. China will inevitably lead Japan in terms of this innovation indicator, Mr. Fukukawa wrote.

Others argue that Japan’s declining competitiveness is less a lack of innovation than of leadership. “Innovation by itself, though mesmerizing, is worthless without productization. And productization is worthless without monetization,” says James Santagata, managing director of SiliconEdge, a Tokyo-based leadership development consultancy working with startups in Japan and the United States.

Mr. Santagata describes a number of pioneering innovations emerging from Japanese corporate R&D, such as Sony’s Location Free TV. “Yet due to corporate constraints on monetization of these innovations for fear of rocking the boat, or cannibalizing some products, they allow scrappy firms like Sling Media [U.S. producer of the Slingbox Internet TV interface] to come from behind that gobble up the market,” he says.