Why Did Japan Fail to Dominate the Knowledge Industry?


By Mark J. RavinaUniversity of Texas

Decades after reports of Japan’s rise in knowledge industries, Japanese global dominance never happened. A centerpiece of 1980s anxieties—Japanese supremacy in computing—proved entirely unfounded. MITI interventions did help create a Japanese supercomputer industry, and Japanese research institutes produced the world’s fastest supercomputer in 2011 and again in 2020. But that didn’t lead to Japanese success in the rest of the computer market. Why?

A team of Japanese factory engineers discussing their plans
To tell Japanese engineers to release a product in its prototype state and then fix it afterward would be unacceptable. (Image: Blue Planet Studio/Shutterstock)

A Different Business Culture

Japan’s software industry is remarkably small, even though Japanese research teams compete well internationally in artificial intelligence. Japan is a world leader in industrial robots. But the much-touted Japanese dominance of knowledge industries just didn’t occur. So, what happened? In the background, of course, is the financial crisis of the 1990s. That crushed business confidence across the board. 

But more specifically, postwar Japanese business culture and knowledge industries weren’t a good fit. Consider software. Compared to older industries—like automobiles—software isn’t really a tangible product. In some cases, the consumer doesn’t even make a purchase. Search engines are free. Social media platforms are free. 

Silicon Valley Motto

A sign reading “Silicon Valley”
The knowledge industries seem to act according to Silicon Valley mottos. (Image: Pincasso/Shutterstock)

Companies earn money by selling ads, and by selling demographic information about you. And the knowledge industry grew up with new rules. For instance, the official Facebook motto for years was, ‘Move fast and break things’. Another Silicon Valley motto is ‘minimum viable product’. That’s usually defined as something like ‘just good enough to be adopted by early customers, who provide feedback that’s used to drive further product development’. 

In other words, you distribute something short of perfect and let your consumers help you improve the product. Dropbox data storage was once a ‘minimum viable product’. It began with a barebones file-synchronizing app. That piqued the curiosity of some tech insiders and early adopters. That generated a buzz—the app spread to ordinary users—and it became a plus-$10 billion company.

This article comes directly from content in the video series The Rise of Modern JapanWatch it now, on Wondrium.

The Japanese Business Model

But that business model is antithetical to the approach that made Japan rich for two generations. That was the Total Quality Management model of slow deliberate improvement to existing technologies. 

So, imagine a room of old-school Japanese industrial engineers who’ve spent their lives winning praise for exacting quality control. And they’ve been able to spend years on those exacting improvements because of steady financial support from banks, institutional investors, and the Japanese government. 

You stride into the room as a young software engineer, and say, “Hey, I’m only 24 but I hope to make my first million by 30 and retire at 40. So, let’s ship an alpha release of the product. It will be incomplete and yes, it’s still got bugs. But if we get a good buzz, we’ll get the venture capital we need to fix it. Then we grow our user base. Then we go public. Or maybe just get bought directly by Facebook. Either way, we cash in. What do you think?” That meeting would not go well.

In fact, in the context of Japanese business culture, you might as well say, “Let’s cancel the product-development meeting and just run naked in the streets.” Even a full generation after Japan’s financial and real estate bubble burst in the 1990s, the country’s broader business culture has remained strangely inhospitable to the knowledge economy.

Image of a 2007 Japanese cellphone
Something that Japanese manufacturers didn’t focus on was the aesthetic appeal of a product and its clean interface. (Image: MIKI Yoshihito/Public domain)

Japan Focused on Hardware

Of course, it’s important to note that ‘minimum viable product’ isn’t a universal business model. You wouldn’t want to board an airplane or buy a car manufactured according to that business plan. It doesn’t work for hardware but often does for software. And that’s the thing. Japan’s emphasis on hardware—and neglect of software—undermined its potential in the knowledge economy. 

Consider cell phones. Early on, Japan led in every major innovation within the mobile phone market. Japanese phones had e-mail capabilities in 1999, camera phones in 2000, third-generation networks in 2001, music downloads in 2002, electronic payments in 2004, and digital TV in 2005. 

In 2009, Sharp released a phone with GPS tracking, as well as a bar-code reader, digital TV, credit card functions, and video conferencing. And it was unlocked by facial recognition. It was state-of-the-art. In terms of total functions, it was 10 years ahead of the iPhone. So, it never should have lost the Japanese domestic market to the iPhone. Why did it?

Well, because of Japan’s focus on hardware-based features—rather than software—its phone makers were oblivious to some of the aesthetic appeal of the iPhone, such as the smooth interface. Japanese cell phones had great features but with a clunky, ugly interface.

Common Questions about Why Japan Failed to Dominate the Knowledge Industry

Q: What does ‘minimum viable product’ mean?

The motto refers to a strategy used by some companies in the knowledge industry when making a product. They release their product in a far from a perfect state but just good enough that it will be adopted by some customers. Afterward, they use the opinions of their customers to improve the product.

Q: What was the business model that made Japan rich for two generations and what fault did it have?

Japan had a Total Quality Management model to improve existing technologies slowly but surely. This business model had the advantage of exacting quality control but it didn’t create a hospitable economy that would allow the knowledge industry to thrive.

Q: How did Japan influence the cell phone industry throughout the years?

Early on, because of the main business model in Japan, the country was leading in cell phone technology. Japanese phones were always state-of-the-art and in some ways 10 years ahead of the iPhone.

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