Report No.15
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Japan Entrepreneur Report No. 15 January 2004
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- Japan as techno wonderland, techno wasteland
- The hardware mentality
- Beyond "genba" to strategy
- The IT issue
- Bits and bytes
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Japan as techno wonderland, techno wasteland
Overseas, Japan is often imagined as one huge, computerized, robotic
technopolis--the world center of information technology--where
consumers videoconference over cellphones, flat screen televisions show
the news in subway cars, and automated, self-service kiosks sell
airline and concert tickets while doubling as bank ATMs. First-time
visitors on short stays often leave with this impression in a Bill
Murray-like daze, particularly if they haven't spent much time outside
of central Tokyo or at a typical Japanese service sector company.
In fact, Japan <is> the world's leading showcase for devices such as
Internet-enabled mobile telephones, game players, car-mounted global
positioning systems (GPS), miniature televisions, DVD players,
"intelligent" washing machines that need no soap, and a stunning array
of other personal-use and home electronics gadgetry. Time and again
Japan's manufacturers demonstrate unprecedented mastery using
electronics to entertain consumers and help them with daily chores.
Worldwide market share numbers offer indisputable proof of their
success. If we define information technology (IT) as electronic
devices, software, and services that entertain and assist with personal
errands, who can doubt that Japan is the world's IT leader?
But how does Japan fare in the world of <business> information
technology, which is less visible and readily comprehensible to the
average consumer? Under this conventional definition of IT Japan is
still more of a techno wasteland than a techno wonderland.
Travelers to Japan visiting domestic service sector companies are often
surprised at the poor white-collar IT infrastructure: low PC-to-worker
ratio, lack of electronic databases and networked computers, and
pervasive manual paper-pushing. One executive from a New York media
conglomerate described the Japanese offices she saw as "almost like
those in developing countries."
That remark may be an exaggeration, but longtime foreign residents with
substantial experience working in or dealing with Japanese corporations
know from simple observation that the nation's business IT
infrastructure lags substantially behind its advanced nation
counterparts. Rigorous research supports this view: In a paper
released just last month, Minetaki Kazunori, a senior researcher at
Fujitsu Research Institute, wrote "Japan's economy is currently in a
state of severe stagnation. At this juncture, it goes without saying
that one of the causes of this stagnation is the slow pace of IT
implementation seen across the entire span of Japan's economy..." Mr.
Minetaki goes on to cite a host of other researchers who reached the
same conclusion.
Despite Japan's status as the world's second-largest economy, it trails
twenty other nations--including Estonia, Belgium, Austria, Korea, and
New Zealand--in terms of its citizens' ability to make use of business
information technology resources, according to a study by Harvard
University's Center for International Development.
How can this be? Unlike health care, Japan's IT sector is essentially
unregulated (see www.japanentrepreneur.com/200311.html#2). What's more,
Japanese companies manufacture not only the world's best consumer
electronics products, but a full range of business-use information
technology equipment, including computers, hard disks, semiconductors,
communication switches, facsimile machines, copiers, and the like.
One reason is that at the national level there appears to be no causal
relationship between manufacturing IT products and making effective use
of those products in business and government organizations, according
to studies conducted by the Organisation for Economic Co-operation and
Development (OECD). In OECD-speak, "the existence of a large ICT
(information and communications technology) producing industry is
neither a necessary nor a sufficient condition to successfully
experience the growth effects of ICT. ICT diffusion...depends on the
right framework of conditions, not on the existence of an ICT producing
sector." OECD also found that economy-wide productivity gains come
from using information technology, not from manufacturing it.
But even in the technology hardware-manufacturing sector, Japan has
"disappeared from world IT competition," says Nezu Risaburo, a top
economist at the Fujitsu Research Institute. In scholarly papers and
his book "IT Sengoku Jidai" (The Age of IT Wars) Mr. Nezu defends this
claim with solid evidence:
1) Japan's share of the world semiconductor market, which stood at more
than 50 percent in 1989, plummeted to 25 percent in only ten years.
2) Domestic corporations enjoy only single-digit shares of the world
cellular handset and server/PC markets.
3) Not a single Japanese firm ranks in the world's top 100 software
makers, while as of July 2002 NTT DoCoMo was the only Japanese firm in
the world's top ten IT companies ranked by size, growth, profitability,
and overall performance
You'd think a guy whose salary is paid by Fujitsu might go a little
easier on Japan's IT sector. In any case, as noted before, applying
IT--not manufacturing it--is the key driver of growth and productivity.
So why is Japan so successful with entertainment and personal errand
technology for individuals, yet so backward with respect to business-
level applications that serve entire organizations? A big piece of the
puzzle lies in the spectacular postwar success of Japan's manufacturing
corporations, and the corporate culture they built: a culture that
became pervasive even among service organizations.
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The hardware mentality
In the immediate post-World War II era, manufacturing corporations--
primarily those that built electrical equipment, machinery, tools,
vehicles and other hardware destined for export--became the leaders of
Japan's recovering economy, both because of the hard currency they
earned and their status as the government-sanctioned elite of the
nation's industrial base. The hardware corporation, whose advanced
products reached markets around the globe, enjoyed a higher position in
society than the service sector firm, which merely fulfilled domestic
market needs. Accordingly, the hardware firms enjoyed a more powerful
social voice (read John Dower's amazing book, "Embracing Defeat," to
get a gut sense of the combination of postwar poverty, spirited
entrepreneurism, and Occupation directives that helped engender this).
So strong was reverence for the hardware manufacturing organization
that its corporate culture eventually became the corporate culture to
which most Japanese firms aspired. The mission of the manufacturer was
simple: to build more and better products. In a nation where few homes
had electric ricecookers, ricecookers sold. In a country where
housewives had no refrigerators, refrigerators sold. Then came radios,
televisions, and cars. When the pace of car and appliance sales slowed,
makers built better, higher quality versions--and they sold. And when
sales slowed again, the hardware makers built less expensive versions.
Once more, they sold.
This seemingly endless, virtuous cycle of consumption caused
manufacturers to concentrate their resources almost exclusively on
technological improvements, quality upgrades, and cost reduction. The
focus on incremental operational improvements, a trend greatly
accelerated by U.S. quality control expert W. Edward Deming's first
seminar in Tokyo in 1950, was intense and single-minded, and Japan's
companies became world leaders in applying information technology to
design and manufacturing processes. At the same time, the makers grew
accustomed--then addicted--to this cycle of growth. Eventually they
became almost fanatical about gaining market share and growing sales at
any cost, constantly diversifying into new product areas and matching
competitor moves step-for-step.
This hardware orientation, centered on the manufacturing process,
evolved into the de facto corporate culture for many Japanese firms,
regardless of whether they made products, provided services, or did a
combination of both. And for many years, this approach worked
exceedingly well. Even today, the traditional postwar values of the
hardware-manufacturing corporation deeply color the sensibilities of
many businesspeople.
But domestic firms stumbled when they applied the assembly line
approach to white-collar work. Some observers go so far as to say that
even today, 90 percent of Japan's white-collar work force is engaged in
performing routine, monotonous tasks organized along the principles of
manual labor. Japan's insurance companies, for example, still rely
heavily on hundreds of thousands of middle-aged women, few of whom have
real financial planning expertise, to sell life insurance. These women
fan out across the nation daily in a massive human wave sales tactic,
basically visiting businesses and residences door-to-door. They rarely
use IT tools to plan their activities or prequalify their prospects,
and they often visit the same places over and over again, despite
continual rejection of their sales pitches.
Meanwhile, of course, the world was changing dramatically. Software,
information, and process knowledge, rather than industrial
manufacturing, started to drive emerging service economies.
Globalization and Internet diffusion powered a dramatic shift toward
outsourcing in both the manufacturing and service arenas. A single
generation saw Japan move from material impoverishment and lack of
information--conditions ripe for explosive growth--to material
overabundance and information overload--and a stagnant economy.
Japan's export sectors, long subject to international price and quality
competition, for the most part adapted successfully, and today many are
booming. But domestic service businesses were effectively shielded
from international competition by both regulations and formidable
linguistic and cultural barriers, so they weren't forced to boost
productivity and efficiency by embracing IT.
So Japan's companies find themselves on top of the world in
manufacturing IT, but lagging in service sector, back office, and
white-collar IT. Another part of the problem lies in yet another
hardware-oriented view of the world: Japan's famous "genba" philosophy.
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Beyond "genba" to strategy
How would you feel if, at the age of 65, you suddenly realized you had
to refute your own work--work you took half a lifetime to accomplish?
Shiba Shoji knows how it feels. Mr. Shiba, Associate Professor of
Engineering at MIT and an expert on Total Quality Management (TQM)
processes, had the revelation while reading "Only the Paranoid
Survive," the groundbreaking management book by Intel's Andrew Grove.
"I had been involved in TQM for a long time," said Mr. Shiba in a
recent Nikkei Business interview. "I presented leading-edge case
studies from Japan overseas and received numerous awards. But sometime
during the mid-1990s I started to get a vague sense that things were
changing. The blinders came off when I read Mr. Grove's book."
Mr. Shiba realized that in an era where the speed of change can be
exponential and there is no guarantee of survival, the incremental,
step-by-step improvements of TQM, kaizen, and other manufacturing-
oriented approaches to business can be dangerously outmoded. He went
through the painful process of revising much of his earlier work, then
published his rejuvenated thinking in a new book entitled "Breakthrough
Management."
TQM and related philosophies focus on "genba"--a word that literally
means "front line" or "on-the-spot." In the vocabulary of
manufacturing, it refers to the shop floor where teams of line workers
and their foremen make hour-by-hour decisions about production
procedures and processes. Like Mr. Shiba prior to his revelation, most
Japanese businesspeople continue to expound the virtues of focusing on
"genba" and working as a team.
The problem is that shifting strategy to keep up with the times
requires seeing far beyond the genba to the way the world is changing--
and in particular perceiving the universal changes that affect business
in every country. That's almost impossible to do as a team. Rather,
it requires an overall strategic vision conceived by a single person
with an extraordinary grasp of the whole, not just the genba. In short,
a genius. But that creates a problem in Japan.
"It's awkward or frowned upon to act like a genius in Japan," says
Allen Miner, founder of Tokyo-based SunBridge. "Maybe that's one
reason why European and U.S. companies dominate in operating systems
and complex enterprise software: a single genius like Linux developer
Linus Torvalds or Netscape founder Mark Andreessen can conceive and
hold in mind an overall architecture while effectively directing
development of the various elements that need to come together in the
completed product."
In a nation where doing things suddenly, forcefully, or in unexpected
ways is not usually appreciated, the genba approach helps ensure the
entire company will act reasonably in synch with the strategy with
which everyone is more or less comfortable. That was fine when
information moved by telex, and foreign competitors and domestic
entrepreneurs weren't offering customers vastly superior alternatives.
Earlier this month JER visited Song Wen Zhou, the extraordinary
entrepreneur we wrote about last year
(www.japanentrepreneur.com/200305.html#1).
"The Japanese way was wildly successful for a number of years," Mr.
Song said. "After the Cultural Revolution in China, we didn't have any
manufacturing at all, and Japanese products were just amazing. They
didn't need to use information technology--everything sold as fast as
they could make it. But that's all changed now. In today's environment,
Japan needs top-down strategic vision driven by real-time IT tools, not
the old genba management style."
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The IT issue
If you've made it this far, welcome to the end of the IT issue of Japan
Entrepreneur Report.
The point of this issue is not to say IT-savvy is good and IT-
challenged is bad; IT-savvy is just more efficient and better for
business. To tell the truth, as an analog guy stuck in a digital world,
I'm rather fond of Japan's slower business IT life. But a digital
world it is, and the point is simply this: Japan's business IT gap
offers extraordinary opportunities for entrepreneurs. Ask Mike Alfant,
who sold his Tokyo-based IT company for more than U.S. $50 million
after only seven years in Japan (see Bits and Bytes below to learn
about an opportunity to meet Mike next month).
Enough about IT. Next month we'll move on to real estate, next on our
list of domestic sectors brimming with promise for bold outsiders?and
insiders. JER correspondent Carl Kay will interview an entrepreneur
who's on track to become the first U.S. citizen ever to build a
shopping center in Japan from scratch. Learn the reasons behind his
surprising claim that you can build a shopping center faster in Japan
than anywhere else in the world...
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Bits and bytes
Meet Mike Alfant, the fifty million dollar man, at the next
Entrepreneur Association of Tokyo meeting Tuesday February 3, 2004.
See <www.ea-tokyo.com> for details and to sign up.
Starting with this issue, JER adopts the convention of writing Japanese
names Japanese style: last name first (thus Ochiai Kunihiko rather than
Kunihiko Ochiai). This is long overdue, but I'm going to refrain from
changing all 81 previous issues of JER and JIR (which, incidentally,
can be seen at <www.jir.net/archive.html> and
<www.japanentrepreneur.com/archive.html>, respectively).
Tim Clark
Senior Fellow
SunBridge Corp.
Voice (U.S.) 503.235.4419
Fax (U.S.) 503.235.4429
clark@sunbridge.com
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