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


Japan's Coming Competitive Renaissance

In the 1950s, the government single-mindedly guided economic development, creating a long-term credit bank, an export–import bank, a development bank, a bank for small business financing, a foreign-exchange bank, and even a bank for long-term lending to forestry, fishery, and agricultural ventures. These financial institutions apportioned much-needed capital to companies and sectors that were important for postwar economic recovery. The government leveraged its influence within the network to promote specific industries, such as steel, auto manufacturing, and consumer electronics, for exports. Japanese companies could leverage this public sector–private sector symbiosis through their keiretsu, the sogo shosha (the trading conglomerates that led the economic penetration of other countries), and government agencies. These agencies include the Ministry of Finance; the Ministry of Economy, Trade, and Industry (METI, formerly known as MITI); the Japan International Cooperation Agency; and the Japan External Trade Organization (JETRO).

With such extensive government and industry links, Japanese companies were able to syndicate information across a network of affiliated companies long before the advent of the Internet. In a way, the public–private interconnections can be viewed as the bricks-and-mortar equivalent of such information portals as Yahoo, Google, and Increasingly, the role of the government, in particular METI, will be supplemental rather than interventionist, aimed at removing obstacles from the business highway, in no small part by enhancing the availability of critical business information. JETRO already plays a vital role in intelligence gathering for Japanese companies, through its 80 overseas offices, domestic headquarters in Tokyo and Osaka, and 36 regional offices nationwide. (See “Focus: The Japan External Trade Organization,” at the end of this article.)

Superior Customer Understanding. Japanese companies have an innate ability to make marketing everybody’s business. Customers are considered kamisama (“king” or “god”); engineers and department heads — not just salespeople — routinely visit customers and distributors when they make business trips. Japanese companies’ rapid competitive success in the global market derived from that close attention to customers’ needs, the deep knowledge of customer profiles, the high degree of trust built over the years with their customers, the relentless pursuit of value creation for customers, and the willingness to adopt kaizen (continuous improvement) in their daily practices to achieve such value creation. Combined, these qualities helped guide Japanese firms to design and manufacture products and services suited to customers’ precise and ever-changing needs.

While many Western corporations are still grappling with the fact that information transparency favors the customer and has created a lopsided relationship between companies and customers, this customer orientation is nothing new to the Japanese, and it has helped Japanese companies achieve high levels of customer satisfaction internationally. The consistency in customer service standards is even more apparent in Japan’s service industries, such as retailing. As Kenichi Ohmae has observed, companies that can control the customer interface will ultimately win.

People-Centered IT Systems. Typically, large Japanese firms’ information technology budgets have been 50 percent of those of Western companies. Until the early 1990s, large Japanese companies made investments primarily in human and organizational processes and practices, rather than in information technology (large data and transaction processing systems notwithstanding). But the same operational and organizational processes that helped Japanese firms succeed in the growth years have also helped them manage their IT well and avoid some of the pitfalls that have plagued IT use in Western companies.

Unlike the Western approach, in which IT is adopted primarily to eliminate staff, the Japanese approach to IT emphasizes the virtuous loop from the customer back to the beginning of the supply chain. The aim is not to cut costs per se, but to develop IT tools and systems to serve customers better.

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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
  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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