Future of Japanese Business Hinges on Innovation and Management Reform

Japan's style of innovation failed it in software and biotechnology in the 1990s. It might work better in robotics, aerospace and other burgeoning technologies, says a recent Economist article on the future of Japanese business.

Japan's lack of success is not for want of trying. The country continues to lead the world in research and development, investing 3.2% of its GDP in R&D, compared with 2.6% in America and 2% in the European Union. Moreover, unlike western countries, where government and university labs generate lots of breakthroughs, Japan performs more of its R&D in big companies. An official at the once-mighty ministry of economy, trade and industry complains that METI's entire R&D budget is no bigger than that of Toyota. That is one reason why so many Japanese firms are near the top of the global tables for technology patents.

Instead, the country's failure has much to do with its method of management and organization. This won extravagant praise in the 1980s, when western writers and businessmen flocked to Japan for answers, and when the “lean” production manufacturing techniques pioneered by the likes of Toyota changed the world. The Japanese way of running companies has since fallen out of fashion, however. And although Japanese managers are slowly getting a little younger and nimbler, partly in imitation of American norms, the leisurely pace of business reform seems no match for the rapid rate of change in cutting-edge industries. Japan also suffers from a stifling environment for technology start-ups and a rigidly bureaucratic university research system that is poorly connected to the private sector.

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