«Japan wants to be Number One Solutions Provider of the XXIst Century»

Japan must NOT compete for Number One in economic power or size. «We must search for a position as a solutions leader in critical areas of the future» - that's the strategic advise from a business historian professor, a Japanese "pupil" of Alfred Chandler.

Interview with Seiichiro Yonekura, researcher at Institute of Innovation Research of Hitotsubashi University, Tokyo, and Director of Sony Institute of Strategy

Jorge Nascimento Rodrigues, editor of Gurusonline.tv, October 2003

University Site | Profile of Professor Yonekura
Professor Yonekura E-mail: yonekura@iir.hit-u.ac.jp
Another interview about Japan - "The secrets of Japan's economic anorexia"
Hitotsubashi Business Review, a leading management journal in Japanese

Seiichiro Yonekura came to Lisbon for the 460th anniversary of the historical relationship between Portugal and Japan since de XVI Century. Professor Yonekura talked about the "Culture and Innovation in Japan" since the opening movement of 1868, the Meiji Restoration. Yonekura, 50, is professor of Business History and works at the Institute of Innovation Research of Hitotsubashi University at Kunichati, Tokyo metropolitan area. He is one of the "pupils" of historian business professor Alfred Chandler and got his Ph.D. from Harvard Graduate School of Arts & Sciences in June 1990, in US. He is also director of the Institute of Strategy of Sony and editor of the International Journal of Entrepreneurship and Innovation Management. He belonged to the Board of Managers of the International Joseph A. Schumpeter Society, an organization devoted to innovation. He was for five years in the 90's of last century faculty member of the Global Leadership Program at the University of Michigan, in US. He is a "serial" writer of management and business matters in Japanese. His last book titled Japanese Dreamers came out last year in Tokyo. The last book published in English, at Oxford University Press, is about Entrepreneurship and Organization, co-edited with Michael Lynskey.

Short spot about Portugal and Japan: The first contact between Japan and Portugal began in the XVIth Century. After 1543, when three Portuguese drifted ashore to the island of Tanegashima in Japan, a lot of things were introduced and brought into Japan mainly by the Portuguese. To take some examples, firearm was introduced into Japan in the very first arrival of the Portuguese in 1543, Christianity was first introduced by São Francisco Xavier, Basque Jesuit who was supported in his foreign missions by the Portuguese Royal Household, and furthermore printing machine and many musical instruments of occidental origin were brought by 'Tensho Mission to Europe' constituted by 4 Japanese adolescents, when they returned to Japan in 1590 after their visits to Portugal, Spain and Italy. In addition, it is well known that there are a lot of words of Portuguese origin in Japanese language that they still use in daily lives. There are too many words to mention every one of them, but botan (botão, button), kappa (capa, cover), koppu (copo, glass), orugan (orgão, organ), tabako (tabaco), bisuketto (biscoito, biscuit), pan (pão, bread), Yoroppa (Europa, Europe) are some of them. In spite of the first great step made toward active cultural exchanges between both countries, however, Japan started in the first place to exclude Christianity. They put a law to forbid Christianity into force in 1614, which lead to the worse relations between Japan and Portugal. In 1639 the Tokugawa Shogunate closed the door to foreigners except the Dutch, which means the end of relations and exchanges between Japan and Portugal. Japan and Portugal established their diplomatic relations officially in 1860, when the Treaty of Peace, Amity and Trade was signed between two countries, which was followed by the ratification of the Treaty in 1862. The first Legation of Japan, which had a jurisdiction over Portugal and France, was established for the first time in Lisbon on March 24th in 1880. Mr. Samejima was appointed the first Minister Extraordinary and Plenipotentiary of Japan to Portugal on the same day. The General Headquarters of the Allied Powers (GHQ) occupied Japan in 1945 and the diplomatic relations between Japan and Portugal were made broken off until April 1952, when the San Francisco Treaty came into effect. After Japan restored its sovereignty in 1952, the diplomatic relations between two countries were re-established on October 22nd 1953. Portugal inaugurated its Legation in Japan on the same day and Japan established the Legation in Portugal on March 15th in 1954. The Portuguese Legation was raised to the status of the Embassy on October 5th in 1958 and the Japanese Embassy was done on April 1st in 1959.

INTERVIEW

As a business historian do you agree that your country is like a phoenix?

It could be. In 1868 Japan joined the modern world. It was still a tiny poor country in the Far East. 460 years ago Portugal was interested in Japan, but my country feared the influence of Christianity. So we closed for more than two hundred years. Since 1868 we invested in three areas - military, industrialization and education. The first attempt to be a great power was military for more than 50 years. But it was in vain. It was a devastated strategy. Finished in 1945. But, in the other end, Japan invested in the other two items. And in these areas it was rewarded. We re-emerged in the 60's after losing everything in the Second World War. But it was not a miracle.

But popular press talked in the 80's about the Japanese miracle…

It was a result of almost one hundred years of investment in the industrial revolution and in education. Japanese working culture emphasizing implicit wisdom like teamwork, process technology and accumulated know-how in the post-war manufacturing process eventually created the so-called Japanese management style. As a result, Japan became a leading actor in the world. Nobody predicted that such a small far-eastern nation without any natural resources would grow up to be the second largest economic power. And suddenly we lost competitiveness.

«Global money of institutional investors become searching for the most effective operations all over the world. And for this new trend, the American model was suitable, more suitable than the Japanese values based in long-term growth and long-term stability. Our model - for example, lifetime employment, cross-shareholder holding, group orientation, and keiretsu - worked in the 60's till the 80's. But in the 90's didn't work any more.»

What went wrong with Japan in the 90's? Akio Morita's speech in 1992 was like a "crash" when he said that Japan Inc success came to an end…

I think two important events happened in late 80's and beginning of the 90's. First, globalisation - particularly finance. Second, digitalisation.

But with all the global strategies defined by shogo-shohas and all the aggressive marketing in the 80's, how it happens?

Global money of institutional investors become searching for the most effective operations all over the world. And for this new trend, the American model was suitable, more suitable than the Japanese values based in long-term growth and long-term stability. Our model - for example, lifetime employment, cross-shareholder holding, group orientation, and keiretsu - worked in the 60's till the 80's. But in the 90's didn't work any more. All was so rapid. We could not change so fast.

Anyway there's a few sectors from Japanese international specialisation that went well - the Japan Inc that worked…

Yes, certain businesses like automobile and computer were doing well. But others like finance, insurance, distribution were heavy regulated in Japan and very protected and do not respond to the change. Also the cross-shareholding model has to be changed - it worked well in the past, but with globalisation it do not work any more.

But that's not easy to change…

Sure. Look at Cannon, for example. Institutional investors, like CalPERS, own 40% already. These international investors want to increase corporate value, and to respond to their requirements, the Japanese wants to sell off their cross-shareholding. But if they sell, the stock market could be panic - so they have to maintain, even if they do not want. From outside it looks easy - but in Japan, inside, it's not so easy. That takes time.

«Japan was a master in integrating things, in assembling. Digitalisation requires a new game - requires modularity and architecture. This change needed a shift in Japan - from integration capabilities to coordination and supply chain management capabilities.»

You mentioned also as a second "disruption"- the digitalisation. In what sense?

It changed the rules of the game. Japan was a master in integrating things, in assembling. Digitalisation requires a new game - requires modularity and architecture. This change needed a shift in Japan - from integration capabilities to coordination and supply chain management capabilities. See what happened in the computer sector - suddenly Dell is most competitive. Why? Because they buy the cheapest components everywhere - for instance in the Asian tigers - and put them in the supply chain. Microsoft and Intel did the other part - they created the architecture. And so Japan lost competitiveness. And that's the story of the last decade.

And now, how can the Japanese phoenix revive?

I think a new game started. The game of the digital consumer manufacturing, all the digital appliances that the people of the XXIst Century will use everywhere with Internet embedded - TV, radio, mobile phones, refrigerator… And those are areas where Japanese companies are very competitive. And also, we can talk about energy and ecology.

«I think a new game started in the XXIst Century. The game of the digital consumer manufacturing, all the digital appliances that the people of the XXIst Century will use everywhere with Internet embedded - TV, radio, mobile phones, refrigerator… And those are areas where Japanese companies are very competitive. And also, we can talk about energy and ecology.»

So you think Japan is far ahead in those areas that will be critical in the future?

Yes. Imagine hundreds of millions of Chinese people driving the present cars - it's impossible. So Toyota and Honda began already selling new type of cars and also energy saving electrical appliances and advanced systems.

And you have a window of opportunity regarding US?

Sure. In the US the present energy cost is 1/3 of Japan. So US haven't motivation as we have for new energy fuel cells, solar systems, combination of Internet and energy saving technology. We have a chance. The problem is our university system.

Why?

It's very domestic oriented. It is not global as the American one. We have to open our university system. So we have a 50-50% opportunity regarding the advantage in the future.

And what about the cultural field?

Yes, there's a field where I can say we have good news. In music, animation, games, gadgets for children and adults we are far ahead. Our advantage gradually spread all over Asia and the US, and less in Europe. Japanese animation is everywhere in TV in the morning. That's an important sub-cultural export from Japan. And these fields are of the type that can create digital equipments. I think we shouldn't underestimate this sub-culture power. Also in design. For example, one of our most famous designers, Takashi Murakani, was asked to be chief designer of Louis Vuitton bags collection.

Do you mean with that advantages Japan can be number one in the future? Just a week ago, Goldman Sachs published a report about the emergent countries in this century - in 2050, China and India will be in the 3 top world economies regarding GNP. China will be number one, ahead of US. After this top three will come European Union, and only then Japan. So in 50 years, Japan will fall out from number two to number fifth…

Well, there's strong competition. From China and India in Asia, for example. China has more than 1 million scientists - just launched a man in space by its own. India has more than 1 million software engineers. Imagine also that in 2001 the Chinese won the first prize in a Chopin contest. The Chinese have 45 million people studying piano! That's volume! So, for Japan it's not so easy to be number one. But in certain areas we can. There are certain constraints for China and India, and also Russia. Who gives solutions to the world will win.

«For example, if war on food and water could be very serious in the future, with water shortages by 2002 in China and India, agricultural technologies will be critical. Monsanto, the American multinational, try to control the food supply, but that's a very dangerous game. In Japan we have been struggling for years to increase our agricultural productivity. We accumulate critical knowledge in certain areas, like biotechnology, soil improvement, etc. We can be a consultant or solution provider in that field also.»

What you mean by that?

If Japan can pioneer in certain critical technologies, it can be the number one solution provider or consultant in the world. I think Japan must not compete for economic size or power. We must search for a leading position as a solutions provider - a solutions' leader. For example, if war on food and water could be very serious in the future, with water shortages by 2002 in China and India, agricultural technologies will be critical. Monsanto, the American multinational, try to control the food supply, but that's a very dangerous game. In Japan we have been struggling for years to increase our agricultural productivity. We accumulate critical knowledge in certain areas, like biotechnology, soil improvement, etc. We can be a consultant or solution provider in that field also.

The problem: we do not see that "re-emergence" of Japan…

The past success was huge. More success, more difficulty to change, as you know. So many people think: "why to change ?" This is our strongest enemy so far. That's true we have two Japans. We have the competitive sectors and the regulated. These regulated sectors are very strong and have strong ties with the political system. In order to reform this situation, we have to reform the political system. But, probably we will need two or three more elections.