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Japan's Coming Competitive Renaissance

The speculative bubble that followed expanded almost uncontrollably. Between 1985 and 1990, land prices in Japan increased at an average rate of 15 percent per year. Supported by bank loans, large manufacturing companies actively invested in real estate. As land prices rose, so did inflation, prompting foreign companies (as well as many Japanese export companies) to move their offices to Singapore, Hong Kong, and elsewhere. But the worldwide recession dampened office and retail demand, causing supply to exceed demand. On top of it, the government raised property taxes and added a new land value tax.

The bubble burst in 1990. Japan’s real GDP growth dropped from about 4 percent in the 1980s to about 1.25 percent annually between 1991 and 1998, making Japan the country with the lowest growth rate among the major industrial nations. Total asset values suffered a loss of close to $10 trillion during the first half of the 1990s. Japanese banks and their affiliates were saddled with bad loans estimated at more than $1 trillion. Many real estate and small financial companies went bankrupt. Other sectors, including manufacturing, were hurt. All these contributed to a deflation spiral that, in turn, affected other Asian countries, including Thailand, Korea, Indonesia, and Malaysia.

The 1990s have been described as Japan’s “lost decade.” Risutora (restructuring) and layoffs became commonplace. Several economic myths were destroyed: the “land myth” that land prices would continue to rise; the “bank myth” that financial institutions would never fail; the “company myth” that equated corporate life with job security; even the “consumption myth” that Japanese consumer demand would continue to expand. The nation was forced to concede that it was burdened by structural problems that hindered its competitiveness, including high government debt, enormous bank debt, inefficient industrial sectors, high labor costs, poor governance structures, and excessive capacity.

In July 2001, the Koizumi administration received a mandate for a program of economic reform, which included a series of stimulus measures, but avoided painful reforms. Economists, government leaders, and business executives have continued to wonder whether Japan could ever regain its competitive edge.

The Bushido Factor
In Miyamoto Musashi’s classic handbook for Japanese strategists, The Book of Five Rings, the samurai’s way to survival is highly dependent on bushido — a philosophy that teaches patience, frugality, and constant self-improvement. In single combat, the samurai swordsmen stand face-to-face within striking distance of each other, each waiting for his opponent to make the first move. The weaker man, no longer able to bear the strain of waiting, will eventually strike the first blow. But the instant he makes his move, his opponent will also move, not to defend but to attack.

Following this philosophy, Japanese business strategists believe that patience and concentration constitute the highest form of strategy, a kind of discipline that can be acquired only after years of training. Musashi also emphasizes the need for superior intelligence in building strategy, which can be achieved through “knowing whether or not the spirits of the opponents are high or are waning, knowing the psychology of the opponent’s troops, having a grasp of the prevailing conditions of the site of conflict, and observing the conditions of the opponents.”

An intuitive sense of bushido helps explain why Japanese companies — and the government — seemed reluctant to move rapidly to solve the macro and micro problems dogging their economy. Influenced by bushido, many Japanese companies waited through the prolonged recession, taking the time to observe the moves of competitors and to develop their own best strategic moves and new business models.

We believe that Japanese strategists have been inventing new business models for their companies that leverage the strengths of “Japan Inc.,” while incorporating the best ideas from the New Economy. Such business models transcend traditional market definitions and boundaries. There will no longer be a standard business model for each industry; the new business models will actively seek to leap the boundaries of the firm’s established value chain.

 
 
 
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Resources

  1. Angela A. Andal-Ancion, Phillip A. Cartwright, and George S. Yip, “The Digital Transformation of Traditional Businesses,” Sloan Management Review, Summer 2003
  2. Yamada Atsushi, “Japan’s Economic Crossroads,” Japan Quarterly, October-December 2001
  3. Michael E. Porter and Hirotaka Takeuchi, “Fixing What Really Ails Japan,” Foreign Affairs, May-June 1999
  4. Ben M. Bensaou and Michael Earl, “Information Technology in Japan: Are There Lessons for the West?” in Information Technology and Industrial Competitiveness: How IT Shapes Competition, by Chris F. Kemerer, ed. (Kluwer Academic Publishers, 1998)
  5. Philip Evans and Thomas S. Wurster, Blown to Bits: How the New Economics of Information Transforms Strategy (Harvard Business School Press, 2000)
  6. Larry Kahaner, Competitive Intelligence: How to Gather, Analyze, and Use Information to Move Your Business to the Top (Touchstone, 1998)
  7. Miyamoto Musashi, The Book of Five Rings (Bantam Books, 1992)
  8. Kenichi Ohmae, The Invisible Continent: Four Strategic Imperatives of the New Economy (Nicholas Brealey Publishing, 2000)
  9. Michael E. Porter, Hirotaka Takeuchi, and Mariko Sakakibara, Can Japan Compete? (Basic Books, 2000)
  10. Ezra F. Vogel, Is Japan Still Number One? (Pelanduk Publications, 2000)
  11. The Japan External Trade Organization: Click here.
 
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