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 / Spring 2004 / Issue 34(originally published by Booz & Company)


Japan's Coming Competitive Renaissance

Consider the business model underlying the Sony PlayStation 2. Built on a gaming platform, the product has redefined its company’s competitive space, taking it into Microsoft’s arena, computer operating systems, with the potential to become the preferred operating system for television-based interactive multimedia as that field advances. Microsoft has attempted to catch up by lowering the costs and widening the distribution of its Xbox, but Sony’s lead remains commanding; as of September 2003, 60 million PlayStation 2 units had been shipped worldwide since its March 2000 launch in Japan, compared with fewer than 10 million units for the Xbox.

Seven-Eleven is also deploying a boundary-leaping business model to compete well outside its traditional convenience-store space — to do battle, in fact, with Dell and IBM. A simple computer kiosk with a high-speed fiber-optic link located at a local Seven-Eleven store is now offering busy Japanese jet-setters an opportunity to gain Internet access through secure folders housed on the Internet. These executives can now travel from one location to another without the need to carry a laptop computer.

Such “new business modeling” is evident across Japanese industry. Some Japanese companies are developing financial institutions to help subsidize the growth of Japanese firms in the New Economy, similar to the way the Japanese venture company Softbank (a pioneering net-batsu) helped propel scores of U.S. dot-com ventures in the 1990s — and not unlike the way General Electric turned itself into a powerful financial institution during the past two decades through GE Capital. Indeed, Toyota and Sony have offered financial services to their customers since the early 1980s. Sony Bank offers comprehensive personal banking services online, operating with partners like the Sumitomo Mitsui Banking Corporation and J.P. Morgan Chase. Toyota’s financial clout is already so extensive that the company is sometimes referred to as “Toyota Bank.” It provides financing to affiliated sales companies, extends automobile and housing loans, issues credit cards, and performs other bank-related operations.

Sources of Advantage
Although many business and academic gurus have argued that companies need to focus on a single basis of competitive advantage, the Japanese have traditionally been skilled at adopting multiple bases of competitive advantage, a talent they have used in outflanking Western competitors. Their success in the 1980s was premised on superior knowledge, robust competitive intelligence, deep customer relationships, economies of scale and scope, extensive networks of partners, and superior business processes. As the Japanese economy emerges from the decade of decline, we believe the most successful new business models will be built upon four other traditional sources of advantage that are particularly advantageous in the New Economy:

Alliance Expertise. In a competitive environment that is increasingly predicated on network strength and the flexibility to manage rapid change across an extended enterprise, it is vital to remember that Japanese companies have built their success on their alliance capabilities. Relationships, nourished by a vast amount of knowledge and information, serve as a platform for both technical learning and market support, making individuals and their organizations highly informed, effective, and flexible. The Japanese alliance model has inspired some of today’s most successful companies; Cisco Systems’ operational model, for example, is a successful mimicry of the Japanese keiretsu structure. Through a complex network of more than 120 companies, Cisco offers customers an ever-changing array of specifications, computer hardware, and software selections. Competitors now find it difficult to penetrate Cisco’s market segments because of its superior value chain, wide spectrum of alliance partners, and broad product range.

Public Sector–Private Sector Symbiosis. Whereas the American political economy supports public and private sectors that are usually quite distinct, in Japan there is no clear separation among politics, the state, and businesses — including suppliers, customers, and even competitors. Instead, a mutually beneficial relationship exists among the different entities.

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  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
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  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)
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  10. Ezra F. Vogel, Is Japan Still Number One? (Pelanduk Publications, 2000)
  11. The Japan External Trade Organization: Click here.
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