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Why is Japan now not capable of innovate?

Sony and the lack of the walkman market

Steve Jobs as soon as mentioned in regards to the beginning of the iPod that if it existed, it was as a result of the Japanese corporations that then had the monopoly on moveable music gamers had been unable to create the required software program.

Apple thus grew to become the chief in digital music gamers, then in smartphones, which left the Japanese business with solely a really small nook of this market. The American agency at present has a market worth of 32.6 billion {dollars}, whereas that of Sony is just round 1.4 billion (as of July 8, 2022), an enormous distinction.

Why was Japan unable to create revolutionary merchandise just like the iPod, smartphones or tablets? Here’s what Miyazawa Kazumasa has to say about it.

“I feel Sony ought to have created merchandise just like the iPod, iPhone or iPad. This firm launched a Walkman USB key that allowed music to be downloaded from the Web, however then skilled a number of failures. Certainly one of them was the tactic of DRM (Digital Rights Administration) very sturdy that she had developed. This DRM solely allowed the downloaded music to be copied to 1 machine. Sony was additionally extraordinarily dedicated to sound high quality, and these Walkman USB sticks featured an ATRAC (Adaptive Rework Audio Coding), i.e. a selfmade audio compression approach. »

This product has been broadly criticized. On the time, the MP3 format (a method for compressing audio information) was starting to turn into widespread on this planet. As a result of Sony was the mother or father firm of Sony Music, and this format was partly unlawful, Sony merchandise needed to have notably sturdy copy safety.

“However Apple’s precedence was ease of use and so they used the MP3 format with weaker copy safety. »

How was the enterprise mannequin of the 2 giants totally different?

“Within the Nineteen Eighties, Sony’s heyday, its flagship merchandise, Walkmans and 8mm cameras, had been constructed on the precept of vertical integration. The recording heads or cylinders that rotated 8mm video cameras required very excessive know-how. Sony manufactured all of its elements in-house. Japan then completely mastered this vertical integration. Toyota and Honda additionally practiced it, all the pieces was produced inside their group, and it was, with the tactic kanban (which makes it doable to provide all phases of manufacturing with the precise amount of a part on the exact second when it’s wanted), the energy of Japan. »

Within the Nineteen Nineties, the USA fearful about being overtaken by Japan.

“It was then that the USA opened up the Web, which had been developed as a protection know-how, to be on the coronary heart of next-generation applied sciences, in order that anybody which firm can take part on this huge community. This led to a horizontal group, wherein we had, for instance, a CPU (the central organ of a pc) which got here from Intel, a tough disk from one other producer, and software program from Microsoft. Standardized and open requirements have made this doable. Japan has turn into a sufferer of the Galapagos Islands syndrome, and has fully missed the mark on this regard. »

Japanese producers haven’t been capable of adapt to horizontality

Within the Nineteen Eighties, Japanese corporations had been capable of have a dominant place due to the miniaturization and high quality of their merchandise, based mostly on elements and gadgets of strong know-how. However when globalization related all international locations, there was a turnaround.

“Globalization has allowed Apple and different corporations to easily design the merchandise with out having factories to provide them and, with the progress of horizontal division, to provide them in giant portions and at low costs. That is how the Japanese producers misplaced their dominance. »

Miyazawa provides that there was additionally the issue of requirements and norms, the ” customary de facto”, because the English language says, being that of the product which had imposed itself in actuality, as a result of it dominated the market, as had been for instance VHS for video cassettes or the working system Home windows for private computer systems, and the ” customary de jure » [en français, on parlera dans ce cas de « norme »]being a regular that has turn into a regular by being acknowledged by the ISO or an equal establishment, reminiscent of these defining the scale and supplies of electrical batteries, or their varieties.

“Most American corporations produce merchandise which are overwhelmingly superior, like Home windows, for instance, and thus dominate the world. de facto. European corporations for his or her half have a market benefit de jure by adopting worldwide requirements reminiscent of these of the ISO in a number of international locations. Ever since we entered the period of the horizontal division of manufacturing, Japan has did not adapt to the de facto nor at de jure, and misplaced its dominant place. For me, this is a crucial consider his decline. »

Japan should cherish its start-ups

Miyazawa explains that different elements, reminiscent of questions of taxation or the funding surroundings, have weakened the dynamism and the capability for innovation of Japanese corporations.

“Many giant corporations have been hampered by their success as a result of it has made it troublesome for them to reform. American society is inherently aggressive, and American corporations, no matter their measurement, should continually remodel the best way they function, as a result of if they don’t adapt to altering occasions, they lose market share and should even go bankrupt. However that is additionally what creates their metabolic renewal, and encourages the beginning of start-ups (that’s to say new corporations that obtain fast progress). »

Each Google and Fb are on the origin of start-ups which have obtained funding from the enterprise capital sector. This funding, which enabled them to draw different funding and human sources, created an surroundings conducive to their growth, due to which that they had fast progress. In contrast, in Japan, it is just since Kishida Fumio grew to become Prime Minister that start-ups are built-in into the 4 progress methods.

The quantity of enterprise capital funding in start-ups at present reaches round 70 trillion yen worldwide. About 40,000 billion are American, that’s to say nearly 60% of the whole. Japan’s share is just about 800 billion, solely round 1% of the world whole. Even Softbank Imaginative and prescient Fund, the UK-based enterprise capital fund with a reported price range of round 10 trillion yen, which has to this point invested in round 100 start-ups within the US, China or in India, had in October 2021 solely invested in three Japanese corporations, certainly one of which was within the biotechnology sector.

“There may be additionally a tax downside. For instance, taxes on digital currencies are very excessive in Japan. When an organization makes a preliminary coin providing (ICO), a listing worth is assigned to it, and it should pay a tax similar to this quantity. For instance, when you do an ICO of 1 billion yen, you’ll be requested to pay a tax of 300 million yen, 30% on the stage when it isn’t but transformed into money. Since a start-up doesn’t have this cash, it should promote this digital foreign money. But when she sells a big amount of them in a restricted time, it loses its worth shortly, and as an alternative of a billion, she is going to solely have 100 million. What occurs then, the consequence, is that the Japanese corporations able to doing ICOs nearly all relocate overseas, to Singapore or Switzerland. We’re witnessing a mind drain and a full drain of Japanese blockchain corporations. »

A coverage to revive Japanese corporations

I requested Mr. Miyazawa if Japanese corporations might be reborn

“Programs have to be created to assist new companies that carry innovation to international locations. For instance by creating one thing like an “innovation prize”, or by making it simpler to acquire patents. We additionally want tax breaks. On the monetary degree, public assist should be strengthened, together with that of the Japan Finance Company. »

“On the personal degree, what’s vital is the collaboration between giant corporations and start-ups. Huge corporations battle to innovate. Quite the opposite, start-ups can not develop and appeal to employees if they’re unable to boost funds. Initiatives are wanted to assist start-ups financially, not solely with enterprise capital, but in addition by attracting funding from giant companies, and to assist them with human sources. »

Miyazawa stresses right here {that a} clear distinction should be made between “areas of cooperation” and “areas of competitors”, and that for the previous, it is necessary for each the private and non-private sectors to actively spend money on public infrastructure and standardization. And for him, the heads of enormous corporations should present sturdy management. Innovation will solely occur with sturdy investments to fund analysis and human sources. And that will probably be troublesome and not using a sturdy will on the a part of the leaders of enormous companies.

“At the moment, Japan’s first weak point is digitization, which is able to turn into much more vital. In comparison with all different international locations, Japan invests extremely little in data know-how and the Web. Society as a complete should undertake its digital shift. I’m very fearful about Japanese corporations changing into empty shells. As I mentioned above, when you concentrate on the truth that increasingly more wonderful IT start-ups are relocating out of Japan, there’s a threat that Japan will solely keep conventional industrial enterprises. »

Miyazawa even goes as far as to match at present’s Japanese business to the “post-war panorama of ruins.” To outlive, we should struggle like by no means earlier than. The political world, the world of finance and the administration should turn into conscious of this and assume critically about what to do. »

(Banner photograph: Sony’s mini walkman [gauche] and Apple’s iPod, when the 2 giants had been competing to dominate the world of moveable music gamers. Photograph from November 19, 2010. Jiji Press)

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