The Future of Japanese Innovation: Leader or Follower?

Japan is at a directional crossroads. Should the Japanese continue pursuing a policy based on the adaptation of existing technology? Or, is it the right time in its history for Japan to pursue a policy stressing innovation leadership? This article explores the social and infrastructure pressures that Japan faces as well as constraints on its business climate including the educational system, reluctance toward technological innovation, and organizational cohesion. In addition, these authors explore organizational influences on the business environment (such as the use of generalists and specialists), emphasis on big business, and preference for established firms. Finally, they examine the issue of what is needed for future Japanese success.

There are five stages of technological development: [1]

1. Modification and improvement

2. Technology applications in new product development

3. High technology production

4. Future technologies

5. Invention or discovery of revolutionary technological principles

By the early 1960s, Japan had reached an international standing in the first stage--technology development. After 1965, the country began to achieve dramatic results in the second stage by applying existing technology to the creation of new products. In the 1980s, Japan was excelling in the third stage.

Today, however, Japan has shown a weakness in the latter two stages of technological development. [2] The fourth stage requires basic R&D to be carried out. Thus far, Japan has put little effort into this basic research. [3] Likewise, any discovery of completely new technological principles by the Japanese appears far in the future.

Figure One shows that less than 25 percent of the registered patents in the United States were of Japanese origin. In contrast, more than half originated in the United States. Other researchers have outlined four major problems in the Japanese research and development system. [4]

* Government funding for R&D has been insufficient in improving facilities in universities and research institutes and promoting creative studies, especially in graduate schools.

* The activity of younger researchers has not been fully induced because of various regulatory limitations, which hinder the emergence of entrepreneurs. There also are many regulatory barriers, which spoil flexible and efficient performance of researchers.

* The infrastructure for advanced R&D, that is, databases, information networks, reference materials and standards, etc., is far from the required level.

* Public understanding and recognition of the role of science and technology is rather poor, and science literacy is lacking.

A brief look at two industries illustrates the current stage of technological development in Japan. The chemical industry is relatively weak, but steel is well established. The difference between Japan's spoor performance in chemicals and its leadership in steel may lie in the fundamental differences in these two fields.

There has been a steady stream of improvements in the steel industry. This has resulted from advancements in the automation process. In contrast, technological development in the chemical industry has come in sudden transformations rather than as steady growth. This type of intermittent growth has not been Japan's forte. Major innovation requires fresh and original thinking.

The lack of continuity makes it difficult to set clear goals. The unpredictability also makes technological innovation highly risky. The chemical industry requires technological sophistication and specialized applications. These traits are often reflected in limited markets.

In short, the transformation pattern in chemistry has not been well suited to the general work habits and attitudes of the Japanese. The Japanese prefer to emphasize a patient perseverance toward long term goals. They often reject small or uncertain markets--especially those that may require long-term commitments but lack prospects for immediate application.

If technological innovative leadership is the goal, the Japanese business culture has several internal weaknesses. This deficiency results from both tradition and infrastructure.

Education

The Japanese educational system appears to be better suited to adapting existing ideas than to fostering innovative skills. For example, the educational process stresses rote memorization. In the Japanese educational structure, instructors lecture while students take notes. Students never question the teacher and rarely discuss the topic.

The primary goal of the secondary school system is to prepare students for the college entrance exam. This exam frequently will determine the university students will attend and the jobs for which they will qualify. This system restrains intellectual development and originality. The rigidities of the process permit little individual intuition and experimentation. The Japanese education system places only limited value on conceptual thinking. [5]

School rules also are used to discourage expressions of student originality. From the earliest classes, students must adapt to a demanding organization that does not forgive failures. They are taught to sacrifice their dreams for the common good. Every pupil must simultaneously study the same material. Creativity is usually viewed as rebellious behavior.

Although the Japanese education system frustrates creativity, it fosters a spirit of cooperation and ensures that all students achieve a common level of knowledge and skills. The process is effective in training a labor force suitable for employment in the workplace of standardized production. New workers can be easily trained. The employees are patient and cooperative, and employers know they will accomplish their assigned tasks with diligence and accuracy. The Japanese education system produces a steady supply of young people with good minds that can be efficiently trained by industry.

Innovation Reluctance

Over the years, the Japanese have exhibited a reluctance for scientific creativity and technology discovery. [6] The requisite ingredient in Japan's economic prosperity has been a remarkable talent to modify the ideas of others. Success has come from making products more user friendly through an adaptive, rather than innovative, process. They seem to excel in perfecting the wheel rather than inventing it.

As a culture, the Japanese are often reluctant to explore the unknown alone. They typically prefer to follow others into new fields. For example, Figure Two shows that since 1901 Japan has produced only four Nobel Prize laureates. This can be compared with the 425 prizes won by United States researchers during this time.

Highly outspoken or independent-minded people who challenge the professional wisdom are often ostracized in Japan. There it is unusual for a person to set out to establish a new company. Individuals who leave established companies to start new firms are usually considered eccentric and become outcasts. The Japanese culture has no role model equivalent to Horatio Alger.

The risk-taking entrepreneur in Japan has many social pressures on the way to success. Parents, family, friends, and colleagues often conspire to discourage a person from becoming an entrepreneur. Entrepreneurs are called datsusara, which means "a salaryman who has broken loose." This term connotes a rebel who cannot work with other people. There is no inference of a ground-breaking pioneer. This maverick will be isolated, ridiculed, ignored, and banished (murahachibu) from the group, in much the same way that misfits were treated in the traditional Japanese village. Thus, a small company with an innovative idea may not be able to bring the idea to market. Large companies, by contrast, may reflect a rigidity that is not conducive to innovation. [7]

Organizational Cohesion

A major hindrance to innovation is the deeply ingrained tradition of Japanese business. Often these traditions are the same procedures that made Japan an industrial powerhouse. The heritage includes acquiescence to authority, strict seniority, a stable but immobile workforce, and little debate. On the one hand, these customs often inspire loyalty among factory workers and teamwork among engineers. On the other hand, they can also stunt free-ranging thought in young scientists and entrepreneurs. If technological leadership is a goal, Japan must not continue to rely on ground-breaking scientific work outside her borders. That is, Japan must become independent of the international R&D community.

The trend in the Japanese labor market shows workers are getting older. The number of women in the workforce has also increased sharply. Finally, many Japanese companies are moving the manual work of manufacturing out of Japan to low-cost countries. These trends have expanded the domestic workforce.

Organizational Influences

The primary organizational influences on the Japanese innovative process can be grouped into three patterns:

1. The use of generalists rather than specialists

2. The dominance of large firms over small ones

3. The preference for established firms rather than new ones

Generalists and Specialists--The Japanese approach to innovation relies on a team of generalists taking ownership of a problem. The technological implementation is then embedded throughout the organization. The advantage of this approach is that it has worked well for incremental innovations. The Japanese innovation management process builds teamwork into both problem identification and problem solution. [8] This collective effort also appears to make technology execution easier to accomplish.

The potential disadvantage of the Japanese approach to innovation, however, is that a company may have all generalists. That is, there may not be enough in-house specialized expertise to provide necessary in-depth technical knowledge. Depending on in-company generalists also may reduce opportunities in highly-specialized fields of high technology like genetic engineering. Because advanced technology hinges on scientific specialization, the Japanese reliance on generalists may be restrictive. [9]

Emphasis on Big Business--Japan's industrial structure is two-tiered. This system, sometimes called "industrial dualism," has caused a polarization of Japanese industry into large and small businesses. For example, approximately 90 percent of Japanese firms are small scale, that is, they employ fewer than 20 workers. Of these businesses, about 50 percent are very small and have only three or fewer employees. This percentage is more than twice as high as the proportion found in the United States.

There is also a large wage disparity between large and small companies. In many cases, this discrepancy is 50 percent or greater. The vaunted lifetime Japanese employment system only exists in the larger first-tier companies. Fewer than one-third of Japanese employees are eligible for lifetime employment benefits.

In Japan, the large industrial companies deal directly with about 200 to 300 large suppliers, compared with more than 1,000 suppliers in the United States. Japanese suppliers, in turn, may subcontract some of their work to smaller subsidiary suppliers. Although these small affiliates can expect orders from the larger firms, they must also assume a subservient role. This means they must acquiesce to mandated prices, large inventories, and hand-me-down personnel from the parent company. They are told what to produce, when to produce and deliver it, and how much they will be paid for their products or services.

If the superior company requests the smaller company to acquire new and expensive equipment, the subsidiary complies. The subcontractor is expected to be loyal to the parent company. Often it is forbidden from receiving orders from other companies. This loyalty system is even practiced when business is slow and equipment remains idle.

Preference for Established Firms--The Japanese have shown a persistent preference for long-term relationships. Continuity may be more important than short-run price advantages. The Japanese structure goes far beyond "relationship marketing." Parent companies expect their suppliers to be accessible, to help design products, and to improve the components of production. These smaller companies conduct most of the research and pass the results to the larger companies.

Many smaller companies have gone bankrupt because of the parent companies' constant price pressure. The subsidiaries are expected to cut their profits and lay off workers in times of depressed sales. The system is designed so that the parent companies will remain robust even in adverse economic times.

The structure is also regulated to protect the big banks and members of the keiretsu from competition. The Japanese corporate design is like modern fiefs (hans). The parent company is the daimyo (the supreme power) and is the apex of a pyramid. Production flows from the bottom up but the rewards and power migrate top down. In the middle of this pyramid are layers of subcontractors. Their function is to produce a small quantity of goods for the company just above them. [10] Many of these relationships have existed for centuries.

Implications

The best organizational structure for technological improvement is distinctive from one that expedites radical innovation. A strategy of incremental alterations benefits from a professional staff of research and development generalists. This group should have a specific knowledge of the firm and its products, as well as an ardent loyalty to the company. These qualities have flourished in the typical Japanese corporation, which emphasizes permanent employment, seniority-based wages, and rotation of engineers from R&D labs to production." [11]

Radical innovation, by contrast, requires informal, collegial organizations and sophisticated researchers who have many contacts outside the firm. Innovators will flourish in an entrepreneurial climate.

Being a follower, even one as good as Japan, still implies severe disadvantages and major risks. These have contributed to the end or slowing of the "Japanese miracle. The Japanese government's policy of cheap and plentiful capital for large-scale industry has encouraged technological adaption. Japan's business infrastructure has some inherent problems if it intends to achieve a composition that encourages innovation.

Overcoming Cultural Infrastructure

The economy of Japan is in flux. Two potential scenarios for Japan's future include:

1. Maturity with industrial decline

2. Renewed growth after a readjustment period

Scenario 1: Maturity with Industrial Decline

Under the decline argument, the Japanese will join other industrial countries. It will be beset by an aging population (in ten years, one-third of the Japanese populace will be over the age of 60), [12] rising welfare costs, larger government budgets, higher deficits, and higher taxes. A slowing rate of savings and private investment will result in Japan's basic industries losing competitiveness. Even today, say the advocates of this narrative, many basic industries have been consolidating and downsizing.

This scenario also predicts a continuing inability to embrace innovation, declining rates of investment, and the closing of many export markets. The increased competition from the NICs and an increased emphasis on military spending will result in lower growth rates in an affluent economy. According to this portrait, the Japanese will spend more, save less, get richer, enjoy life's luxuries more, and become more cosmopolitan. At the same time their society will become less hierarchal. As the Japanese economy matures, the propensity to import will increase, and their industrial base will give way to a more service oriented structure.

Scenario 2: Renewed Growth

Another group of observers predicts the current period of economic readjustment will be followed by renewed Japanese growth. After this period of readjustment, they foresee only moderate welfare increases, a reorganization of the tax structure, political redistricting, and lower land and agricultural prices and subsidies. They also predict a reorganization-and possible privatization-of many public corporations, increased automation of conventional manufacturing, and a shift to higher technologies. Finally, they expect heavy foreign investment (the amount of foreign investment in Japan has increased more than 100 percent since 1997), [13] a stimulus from Asian growth, and moderate defense expenditures. They foresee a moderate growth rate well into this decade and Japan becoming an even stronger world economic leader.

Under this narrative, the Japanese national priorities will remain focused on the creation of wealth and an expanding global market share. The basic system would remain the same, that is, there would still be an emphasis on long-term investment with a compression of short-term consumption. A key determinant for this scenario, say the advocates, is that the world's major economies would continue to tolerate Japan's mercantile economic imperialism.

What is Necessary for Success?

For the second scenario to succeed, several conditions need to be met in Japan. These prerequisites will require a reorientation in both thinking and attitude. New policies and infrastructure need to be developed.

Concentrated Business Focus

New Japanese industries need to concentrate on a single product or a closely-related set of product lines. This policy is diametrically opposed to the idea of the large, diversified traditional Japanese firm. The Japanese firm of the future must seek to avoid strict hierarchical relations and create smaller divisions. These business changes will allow for more rapid decision-making and an entrepreneurial climate in Japan. Simultaneously, the Japanese must provide a variety of funding channels for potential inventors and entrepreneurs. This design will give the Japanese the opportunity to pursue outside projects.

Restructure Systems

A growing number of Japanese believe there is a need to create a source of citizens capable of scientific innovation and entrepreneurship. To accomplish this, the Japanese must restructure at least a portion of their educational system and social institutions, which they can do by placing more emphasis on individualism and less importance on absolute group subservience.

Borrowing technology will remain a cogent strategy for the Japanese only if the West continues to concede easy access to technological innovation. If the second scheme is to succeed, Japan will need a special creativity based on the unique characteristics of the Japanese people. This must combine a delicately balanced marriage of self-assertion and group consciousness. [14]

Looking Ahead

Employees in a Japanese firm may be likened to players in a volleyball game. The position and expected role of each individual must be understood by his or her teammates. The team goal is to beat the opponent while abiding by the rules of the game. To attain this shared goal, individuals are encouraged to exercise unity when dealing with emergencies. When the team wins, the victory belongs to everyone.

The size of the volleyball team is small enough to permit intimate face-to-face communication among team members. Each player is expected to develop expertise and special plays. All participants rotate not only to the server's role, but also into all defense positions. The successful team practices together, but may even share personal and team lives. The members know one another so well that their mode of communication may effect implicit phrases and expressions. [15]

In Japan, corporate success and company goals are achieved through group efforts. In much the same way as in volleyball, individuals' exceptional efforts are condoned only when they help the team effort. There are no production heroes in a large Japanese company. It is the work groups, teams, and departments that improve company productivity by surpassing their group quota. Sacrificing personal ambition for the good of the company is expected.

In Japan, group cohesiveness, discipline, and consensus have facilitated evolutionary innovation and encouraged application-oriented processes. At the same time, these components have inhibited entrepreneurship and individual creativity. That is, the Japanese capacity for group-oriented research is outstanding. However, in areas that rely on individual creativity, like basic research, the Japanese achievements seem to lag. [16]

Imitators often outperform innovators in industries with weak intellectual property rights protection. Successful imitators seek technologically-interdependent industries, especially those with high market and technical uncertainty. In industries that experience rapid technological change, imitators with a well-established and comprehensive information flow can often outperform innovators.

Innovation has numerous risks, and many companies find it difficult to realize economic benefits from innovation. Japan must make a choice whether to continue the safe path of imitation or to explore the uncertainties of innovation. The profit potential of the latter is huge, but so are the problems. It is not easy to reorient infrastructure and social prejudice. Change is even more difficult when the status quo has been successful. However, conditions change, and the future of Japan seems to rest on the sensitivity to this change. In the 21st century, Japan's key challenge will be to over-come the technical innovation domination of the West.

PAUL HERBIG, MBA. is chair of the Department of Business and an assistant professor of marketing at Tri-State University in Angola, IN. He operates a busy international marketing and consulting business with U.S. clients located in San Antonio, Dallas, San Francisco and Kansas City as well as in numerous overseas ports of call. His articles have been published in over 100 journals and magazines and he has written six books. Before entering academia, his work experience includes marketing management and product management at AT&T, Honeywell, Datapoint and Intermec.

LAURENCE JACOBS, Ph.D., is a professor of marketing in the College of Business Administration at the University of Hawai'i at Manoa. His backgroud includes a wide range of experience in international business. He has visited more than 50 countries and has lived for more than six months in England, Japan, and China. He has been a consultant for many international companies and has written numerous articles about international business topics.

(1.) Moritani, M., Japanese Technology: Best for the Least, 1982, Tokyo: Simul Press.

(2.) Freeman, C., 'The National System of Innovation in Historical Perspective," Cambridge Journal of Economics, 19(1), 1995,5-24. Japan Almanac 1995, Tokyo: Asahi Shimbun Publishing Company.

(3.) Cateora, P.R. and Graham J. L., International Marketing) 10th Ed.), 1996, Chicago: Irwin. Jeannet, J. P. and Hennessey, H. D., Global Marketing Strategies (3rd Ed.), 1995, Boston: Houghton Mifflin Company. Kamath, R. R. and Liken, J. K., "A Second Look at Japanese Product Development," Harvard Business Review, 72(6), 1994,154-158.

(4.) Kozo, I., "Research and Development in Japan - Present and Future," Journal of Japanese Trade and Industry, 15(5), 1996, 42-45.

(5.) Bylinski, G., "Trying to Transcend Copy Cat Science," Fortune, 115(7), 1987,42-47.

(6.) Cateora, loc. cit.

(7.) Rosenberg, L. J., "Deciphering the Japanese Cultural Code," International Marketing Review, 3(3), 1986,46-56.

(8.) Kamath and Liken, loc. cit.

(9.) Ibid.

(10.) Sasaki, N., Management and Industrial Structure in Japan, 1990,New York: Pergamon Press.

(11.) Song, X. M. and Parry M. E., "How the Japanese Manage R&D Interface," Research Technology Management, 36(4), 1993, 32-38. Statistical Abstract of the United States, 1996, Washington: U.S. Department of Commerce.

(12.) Howell, W. Lee, "Why Japan Can't Lead," The Washington Quarterly, (23)2, Spring 2000,17.

(13.) Helweg, M. Diana, "Japan: A Rising Sun?" Foreign Affairs, July 2000/August 2000, 26.

(l4.) Cbristopher, R.C., The Japanese Mind: The Goliath Explained, 1983, New York: Simon & Schuster.

(l5.) Tsurumi, Y., The Japanese Are Coming, 1976, New York: Ballinger Press.

(16.) Vogel, E. F., Japan as Number One, 1985, New York: Harper & Row.

Share of United States and

Japanese Patents Registered in

the United States

1990 1992 USA 53% 54% JAPAN 21% 23% SOURCE - Japan Almanac 1995

Nobel Prize Winners in Japan

and the United States in Chemistry,

Physics, and Physiology/Medicine

1901-1994

TOTAL 1901-1930 1931-1945 1946-1960 1961-1975 1976-1990 1991-1994 USA 425 93 49 74 92 98 19 JAPAN 4 0 0 1 2 1 0 SOURCE. Statistical Abstract of the United States 1996