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Japan must end insularity to compete on a global scale

Competitiveness

Japan must end insularity to compete on a global scale

Published 22 July 2021 in Competitiveness ‚ÄĘ 5 min read

The nation is being held back by a continuing belief in its uniqueness, exposed yet again as it prepares for the Tokyo Olympic Games. It’s time to break out. 

 

As of late June, only around 16% of Japan’s population had been vaccinated for COVID-19. This is a far lower proportion than in the UK (just under half fully vaccinated), the US (47%) and Germany (37%). 

Domestically, this may¬†be¬†understandable.¬†Japan‚Äôs¬†COVID-19¬†case¬†numbers ‚Ästfewer¬†than 800,000¬†‚Ästand deaths ‚Äď under 15,000 ‚Ästare¬†a fraction of those¬†of most¬†countries in Europe and¬†North America.¬†

But this low vaccination figure should be a big embarrassment, not least because of Japan’s hosting of the Olympic Games this summer, and the related fact that more than six out of 10 Japanese think the Games should either be postponed or canceled, largely due to fears that visitors may bring the virus with them. 

The underlying reason for¬†both the¬†low vaccination rate¬†and the unpopularity of the Olympics¬†is¬†Japanese exceptionalism ‚Äď the belief that Japan¬†is unique and so¬†should do¬†things differently from other countries.¬†¬†

For the coronavirus pandemic, this has been seen in the country’s refusal to accept approvals of COVID-19 vaccines made in other countries. Instead, it has insisted on conducting its own tests. The outcome: vaccination only started in April, months after most other developed countries. 

But this exceptionalism has long manifested itself in other areas, especially business, and has become a major hindrance holding back companies and the economy. 

During Japan’s golden era, from the 1950s to the 1980s, self-belief was a potent tool. As the country rebuilt in the aftermath of the Second World War, it drove bankers, corporate leaders and government officials to work together to establish Japanese companies as among the world’s best.  

More than six out of 10 Japanese think the Games should either be postponed or canceled

But in recent decades, the persistence of that outlook has done more and more damage.¬†It has hindered its development of global goods in key areas.¬†In wanting to develop its own mobile phone standards, for example, it ensured that¬†Japanese phones ‚Äď though technologically advanced and with a huge take up in Japan ‚Äď weren‚Äôt used anywhere else. Isolated from the rest of the world, its mobile phone makers were unable to reach global markets.¬†

A similar outlook can be seen in attitudes to corporate governance, as witnessed recently with Toshiba, where government officials colluded with the company to prevent Effissimo Capital Management, the holder of 9.9% of Toshiba shares, from exercising its shareholders rights. Although shareholders eventually succeeded in voting out the company’s chairman in June, the affair only served to underline how both big corporations and the government still believe their unique nature allows them to behave in ways that would not be tolerated in Europe or North America. 

This exceptionalism has become a major hindrance holding back companies and the economy

Wholesale change¬†of a mindset is¬†hard. But there are¬†ways in which¬†Japanese¬†companies¬†can change their behavior¬†could lead to useful change¬†‚Ästeven if they were only be adopted piecemeal.¬†Here are five¬†ways Japanese companies can break out of the exceptionalism rut:¬†

 1. Stop working alone 

Japanese companies are too inflexible¬†in trying to do too much themselves rather than working with partners¬†‚Äď especially¬†global partners¬†‚Ästin order to¬†be able to progress much faster. They¬†have to¬†learn how to take advantage of innovations¬†by others.¬†

 2. Replace strong links with weaker ones 

When working with other¬†organizations¬†‚Äď whatever their size ‚Äď try¬†developing¬†weaker¬†ties¬†rather than¬†strong ones.¬†In the¬†past,¬†Japanese companies¬†have¬†typically looked to build tight, long-term relationships with their partners ‚Äď the famous¬†keiretsu¬†system bringing together manufacturers with their suppliers, banks,¬†distributors¬†and other partners. Appropriate for its time,¬†it¬†now¬†holds back¬†businesses¬†from developing the ever-changing mosaic of links¬†that they need¬†to navigate today‚Äôs faster changing¬†world.¬†

 3. Back many more startups 

Japan suffers from a lack of new companies ‚Äď in good part because of the country‚Äôs bias towards large companies. But startups offer the agility that many companies in Japan need ‚Äď working with them can help established companies move faster, open themselves up to fresh viewpoints¬†and in the process transform themselves.¬†

 4. Promote diversity 

The world is a diverse place, but most Japanese companies remain far too homogenous. The Olympics offer Japan an opportunity to see diversity in action ‚Äď companies should use the games as a chance to encourage themselves to embrace diversity.¬†

 5. Adopt a global mindset 

As the world emerges from the pandemic, Japanese companies should¬†look for¬†opportunities to become more outward looking.¬†That could mean¬†working with¬†more international partners, bringing in more managers from other countries¬†or ‚Äď above all ‚Äď looking for¬†news¬†ways of doing things from outside Japan.¬†

 There are, of course, examples of Japanese companies doing well in all these areas. 

Toyota has long had a global mindset, localizing its operations everywhere from the US to China on its way to becoming the world’s top carmaker.  

Chugai Pharmaceutical has flourished on the back of a partnership agreement recached in 2002 with Roche. Although Roche took a majority stake in Chugai, the Japanese company has continued to operate independently, allowing it to become the leading player in Japan’s oncology sector. 

Ajinomoto has maintained its dominant position in seasonings, sweeteners and other food ingredients, as well as expanding into pharmaceuticals and chemicals, with a strategy of tying up with startups.  

But over the past 30 years, too much of corporate Japan has lost its way. For that to change, companies should become more flexible in both their thinking and their operations: collaborating more with multiple partners, especially startups, embracing diversity at all levels of their business, from shopfloor to management, and finding new ways of doing things by looking beyond Japan. 

 

Author

Kazuo Ichijo

Kazuo Ichijo is a visiting professor at IMD and a professor at the Department of International Corporate Strategy, Graduate School of Business Administration, Hitotsubashi University, Tokyo. His research interests focus on innovation through the process of organizational knowledge creation. His areas of expertise include the development of knowledge-based competence of a firm, the management of innovation and corporate transformation.

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