Japan and its Structural Barriers to Innovation

Korea and China are Almost Ready to Take Over

by Idris Mootee

It is nice to be back in Japan this week although I am just here for three days and off to Seoul. I went to this restaurant in Subuya with impressive design where the kitchen is raised and open like a theater with the manager as the conductor (although he looks more like a headmaster standing on a podium). I wish the chefs can come out and sing a tune or two once 30 minutes.

I used to spend a lot of time in Tokyo 15 years back and it was probably the most innovative city in the world for a long time. Is this still the case? I don’t think so. Many ask me the question why is Japan so innovative and at the same time so conservative? Obviously many top Japanese companies are struggling with the speed of change outside Japan as well as the switch to software-based competition. As a gadget geek, Japan was a paradise I don’t find much excitement these days when I walk the streets of Akihabara, I feel they are now years behind the curve. May be because I am ahead of the curve or my expectations need to be managed.

Here I define innovation as “the application of knowledge in a novel way, primarily for economic benefit,” Japan, Switzerland, the United States and Sweden used to the top, I think Korea and China is quickly moving up on the list. Japan as a resource-poor economy has long taken an ‘innovate or die’ approach, but the legacies is hurting them. China is not the second largest investment in research second only to the US, and Europe is still in a catch-up.

Things are doing well here. At least this chain of used goods department store are growing. This is the first in the world I think. Why Japan struggles with innovation? It is not the lack of technical expertise, hard work or creativity.

First, there is the curse of large domestic market and combine with intense local competition, the executives of these large Japanese companies cannot afford the distraction. Second, many of the mental models of design in Japan do not transfer to overseas, it is basically exporting the Japanese behavior and hopefully it will be picked up elsewhere. And third, the obsession with quality has prevented many Japanese companies to successfully compete time-based. Plus the country’s working population is shrinking daily and has the oldest population on record. The people are living comfortable but not as rich as they were in the 1980s and domestic consumption was once the lifeblood of the Japanese economy. Manufacturing (hardware) is moving overseas to China, Thailand and Malaysia and the components are from everywhere. The high value work are the concept development and interface/software design, US is still the leader. South Korea has usurped Japan’s seat as the leading consumer electronics maker or on its way. I think all Japanese consumer electronics giants need to seriously rethink their long term strategy, reimagine their future, restructure and reset.

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Idris Mootee is the CEO of idea couture, a strategic innovation and experience design firm. He is the author of four books, tens of published articles, and a frequent speaker at business conferences and executive retreats.