Tài liệu Capitalizing On Innovation: The Case of Japan ppt

LINK DOWNLOAD MIỄN PHÍ TÀI LIỆU "Tài liệu Capitalizing On Innovation: The Case of Japan ppt": http://123doc.vn/document/1045163-tai-lieu-capitalizing-on-innovation-the-case-of-japan-ppt.htm

enormous Pentagon R&D budget, and the common law. Japan’s chances of duplicating
another Silicon Valley are therefore rather low.
There are however soft good and service industries in which Japan is already very
strong, such as mobile telephony and anime. These are “low hanging fruits,” which offer
far better prospects for Japanese industry internationally than competing with Silicon
Valley. We argue that Japan has to adopt legislation in several areas in order to address
the inefficiencies described above and capitalize on its innovation capabilities in these
sectors: strengthening antitrust and intellectual property rights enforcement; improving
the legal infrastructure (e.g. producing more business law attorneys); lowering barriers to
entry for foreign investment and facilitating the development of the venture capital sector.

The rest of the paper is organized as follows. In the next section we provide a
brief overview and background on the fundamental shift spearheaded by computer-based
industries from vertically integrated to horizontal, platform-driven industrial structures.
Section 3 describes the historical characteristics of Japanese innovative capabilities. In
section 4 we use three industry case studies (software, animation and mobile
telecommunications) to illustrate how Japan’s manufacturing-inspired modes of industrial
organization are preventing the country from taking advantage of its innovative power.
Finally, in section 5 we lay out some possible solutions and we conclude in section 6.


2.Theneworderofindustrialinnovation:ecosystemsand
platforms
The rapid development of computer-based industries since the second half of the
twentieth century has spearheaded and accelerated the shift from vertically integrated,
hierarchical industry structures (e.g. mainframes) to horizontal structures, composed of
platform-centered ecosystems (e.g. PCs). While this change has been pervasive
throughout most sectors of the economy, it has been most salient in technology industries
with short product life-cycles. As a result, the nature of competition and competitive
advantage has shifted away from pursuing quality through tightly integrated vertical
“stacks” of components and towards building scalable “multi-sided platforms” (cf. Evans
Hagiu and Schmalensee (2006)), connecting various types of interdependent
complementors and end-users (e.g. videogame consoles - game developers; Windows -
software application developers and hardware manufacturers).

Personal Computers (PCs): the quintessential ecosystem
Ecosystems are most simply defined as constellations of firms producing
complementary products or essential components of the same system. Today’s PC
industry is the archetype of modern ecosystems. There are two critical components, the
operating system and the microprocessor, which are controlled by two companies –
Microsoft and Intel. The other ecosystem participants “gravitate” around the two
“ecosystem leaders” (cf. Gawer and Cusumano 2002): hardware manufacturers (OEMs)
like Dell, HP, Toshiba and Sony, independent software developers such as Intuit and
Adobe Systems, third party suppliers of hardware accessories and, last but not least, end
users. Ecosystem leadership is defined by three elements: i) control of the key standards
and interfaces which allow the components supplied by various ecosystem participants to
work with each other (e.g. the application programming interfaces - APIs - controlled by
Windows); ii) control of the nature and timing (pace) of innovation throughout the
industry (e.g. Intel’s successive generations of microprocessors and Microsoft’s
successive versions of Windows) and iii) ability to appropriate a large share of the value
created by the entire ecosystem.
Microsoft in particular has positioned Windows as the multi-sided platform at the
center of the PC ecosystem. Its power comes from generating network effects through
the interdependence between the participations of the other ecosystem members: the
value to users increases with the number and quality of independent application
developers which support Windows and vice versa, third-party software vendors are
drawn to Windows in proportion to the latter’s installed base of users.
One source of restraint (today more so than in the 1990s) on Microsoft and Intel
abusing their eco-system leadership is the existence of second-tier players in their
respective markets, who could provide alternatives. Thus Linux, Google’s office suite,
AMD, and Apple act as brakes on the possible misuse of ecosystem leadership on the part
of the Microsoft and Intel. The fear of anti-trust action further restrains Microsoft and
Intel from aggressive behavior against the other members of the ecosystem. These
factors (competition and anti-trust regulations) are essential. Without them the ecosystem
might degenerate into a slow moving institution, more preoccupied with extracting
economic rent from consumers than with innovation and price competition.
It is important to emphasize that the horizontal PC ecosystem that we know today
has little to do with the structure of the PC industry at its beginning in the early 1980s.
And even less to do with the structure of the computer industry in the early 1950s. At
that time, each computer was on its own island. Only large corporations, government
agencies, and universities bought mainframe computers, and they did so from a few large
companies like Burroughs, UNIVAC, NCR, Control Data Corporation, Honeywell and
IBM. Customers were buying vertically integrated hardware-software systems. IBM
emerged as the clear leader from this pack by being first to adopt a modular and
ecosystem-based approach with its System 360: it adopted standardized interfaces and
allowed outside companies to supply select parts of the computer system (e.g. external
hard drives). Nevertheless, this remained largely a vertically integrated approach as the
main components – hardware, processor and operating system - were done in house. The
radical change occurred in 1980, when IBM decided that the only way to get ahead of its
competitors in the PC business (Apple, Commodore and Tandy) was to outsource the
operating system and the microprocessor to Microsoft and Intel in order to speed up the
innovation cycle. The strategy worked in that the IBM PC became the dominant personal
computer. It backfired when Microsoft and Intel took control of the PC ecosystem and
licensed their platforms to other OEMs such as Compaq, HP and Dell, which eventually
relegated IBM to “one of the crowd”. IBM’s original PC business, ThinkPad, is now a
subsidiary of the Chinese computer manufacturer Lenovo.



Economic drivers of vertical disintegration and ecosystem structures
While at first glance it may seem that every step of vertical disintegration in the
computer industry was a strategic decision involving real tradeoffs (e.g. giving up some
control vs. accelerating investment throughout the ecosystem) that could have gone either
way, there is a clear sense in which the process of vertical disintegration was inevitable
due to technological and economic factors beyond the control of any single actor. And
this process has occurred (or is occurring) in many other technology industries:
videogames, smart mobile phones, wireless mobile services, home entertainment devices,
etc.
There are three fundamental forces driving vertical disintegration. First, rapid
technological progress leads to economies of specialization. Except in the very early
stages of an industry, vertically integrated firms cannot move the innovation frontier in
all segments of the value chain. As industries grow, there is scope for specializing in
some layers (a key strategic decision then becomes which layers to keep in-house and
which to open to third parties) and bringing other firms on board in order to develop the
others.
The second important factor in the evolution of technology-based industries is
modularity and the emergence of standards (cf. Baldwin and Clark 1999). Increasing
productivity throughout the value chain naturally drive firms to design their products and
services in a modular fashion, with well-specified interfaces, which can be used by
different production units within the same company or by third-party suppliers if
applicable (this is related to the first factor mentioned above).
The third and final driver of vertical disintegration is increasing consumer
demand for product variety. The vertically integrated model works well for one-size-fits-
all solutions. As soon as customers demand horizontally differentiated products, it
becomes hard for one integrated firm to satisfy the entire spectrum of customer demands.
This tension was famously described by Henry Ford: “We are happy to supply any car
color as long as it is black.” Therefore, vertical disintegration is more likely to occur in
industries with a large number of consumers with diverse needs than in markets with a
small number of clients with similar needs.

Thus, ecosystems are the natural consequence of vertical disintegration. They
have become the most efficient market-based solution to the problem of producing
complex systems in a large variety of technology-intensive industries, satisfying a large
variety of end user demands and maintaining a sufficiently high rate of innovation
throughout the system. It is important to emphasize however that not every industry will
move towards horizontal, platform-centered ecosystems. For example, Airbus and
Boeing, the two biggest players in the commercial airliner business, have increasingly
relied on outsourcing and risk-sharing partners. Boeing’s latest jetliner, the 787, relies on
risk-sharing partners involved in key R&D decisions, and much of the plane is actually
not made but Boeing itself. Still, neither Airbus nor Boeing have created an ecosystem
similar to the PC industry. Both companies sit at the apex of the industrial pyramid,
make the key decisions, and sell the product directly to the customer (as opposed to
Microsoft and Intel, where PCs are actually sold by the manufacturers such as Lenovo or
Dell, which assemble the computers). This can be explained, among other factors, by the
small number of customers (airlines and governments) for products with extremely high
unit costs; the need to maintain extremely demanding and well-documented safety
standards; and the direct involvement of governments in a sector with close links to
national defense.
4


In light of our argument in this paper it may seem perhaps surprising that the best
description of the necessity of relying on ecosystems that we have encountered comes
from a senior executive at a Japanese high technology firm – NTT DoCoMo, Japan’s
leading mobile operator. In discussing the reasons behind the success of NTT DoCoMo’s
i-mode mobile Internet service, he explained: “In today’s IT industries, no major service
can be successfully created by a single company.”
In the three case studies below, we will see that, despite the success of a few
remarkable ecosystem leaders in a few sectors (Nintendo, NTT DoCoMo, Sony and


4
It should also be noted that some of the outsourcing by Airbus and Boeing is motivated by the need to
find foreign industrial partners in order to increase the likelihood of sales to the airlines of those countries.
Toyota come to mind), these were exceptions in Japan’s broader industrial landscape.
Most of Japan’s ecosystems remain strikingly similar to vertical hierarchies and the
ecosystem leaders (i.e. the companies at the top of these hierarchies) are predominantly
domestically focused, which makes it hard for everyone in the subordinate layers to
compete globally. These eco-systems recreate, to some extent, a corporate hierarchy. It
is not rare for the eco-system leader (say Toyota) to have equity stakes in some of the
subordinate members. In the case of Toyota however, this hierarchical system has
produced a highly-competitive international business. This is mainly because value in
Toyota’s sector (automobiles) still comes largely from manufacturing rather than from
services and soft goods.


3.HistoricalbackgroundonJapan’sinnovativeness
In order to achieve a better understanding of Japan’s innovation ways, it is helpful
to provide a short historical perspective on their evolution.

Opening to foreign trade
Britain, as the leader of the Industrial Revolution, entered the industrial age on its
own terms. Japan had a radically different experience. To preserve their hegemony over
the country, the House of Tokugawa, which established the Edo shogunate (1600-1868),
banned almost all foreign trade after the 1630s. Despite its isolation
5
, the country was
not backward. It possessed a well-functioning bureaucracy and a good transportation
network; there was no banditry, and literacy was high by the standards of the age.
Commercial activity was modern for the era. Japanese merchants devised some of the
world’s first futures trading instruments for Osaka’s commodities exchanges.
But isolation froze Japanese technology at a 17
th
century level. There were
improvements here and there during the two centuries of shogunal power, but nothing on


5
Japan did have some overseas trade through the Ryukyus (Okinawa) and Chinese and Dutch merchants in
Japan but foreign commerce was miniscule compared to island nations of similar size such as Britain.
the scale of what occurred in Europe. Whereas Europe embraced innovation, the
shogunate was fundamentally committed to a static posture, at least compared to
European societies. Therefore, when western gunboats breached Japan’s seclusion in the
1850s, the country did not have a single railroad track, whereas Britain, smaller than
Japan, already had 10,000 kilometers of railways in 1851.
6
Nor did Japan have any
modern industrial base comparable to the ones being developed in Europe and North
America. Japan lacked not only hardware, but also the “software” necessary to succeed
during the Industrial Revolution. There was no effective civil law system. “Law” meant
government edicts; there was no formal concept of civil arbitration with the state acting
as a referee by providing both courts and enforcement mechanisms.
7
In fact, Japan did
not have a bar with lawyers until the late 19
th
century.
8

As long as Japan was cut off from other countries, it could live in peace with its
17
th
century palanquins in a 19
th
century world of steam engines. Unfortunately for
Japan’s shoguns, once the Europeans, Russians, and Americans approached the country’s
shore, its industrial immaturity put the very existence of the nation in jeopardy, as the
westerners enforced trade agreements on Japan which gave themselves unilateral
advantages in commerce and investment (what are known as the “unequal treaties”).

Modernization during Meiji era and intellectual heritage
Japan succeeded in escaping the stagnation of the Edo Era through a program of
rapid modernization that transformed the country into an industrialized society (though it
remained much less industrialized, especially in heavy industry, than the West until the
1930s). Still, as noted by Katz (1998), although Meiji Japan welcomed the intellectual
contributions of free traders as well as protectionists, the Japanese economy developed
along lines that were more restrictive of free trade than Britain and more tolerant of
oligopolies and monopolies than the United States (after the adoption of US antitrust


6
Encyclopedia Britannica Online, “History > Great Britain, 1815–1914 > Social cleavage and social
control in the early Victorian years > The pace of economic change”, http://www.britannica.com/eb/article-
44926/United-Kingdom 6 November 2006
7
See John Owen Haley, Authority without Power: Law and the Japanese Paradox. New York: Oxford
University Press, 1991 (1995 Oxford UP paperback).
8
See Mayumi Itoh, The Hatoyama Dynasty. (New York: Palgrave MacMillan, 2003), p. 21ff.
legislation). By the 1930s, due to the deterioration of the international climate and the
beginning of the war in Asia (1931 in Manchuria), Japan moved towards more
government involvement in the economy. The post-war economic system did retain
important aspects of the semi-controlled economy, especially in the the 1940s and 1950s
when the government controlled access to foreign exchange. In later years, many of
these controls were removed, but the ruling Liberal Democratic Party, in order to ensure
social-stability and its own political survival, followed economic policies that often
favored oligopolies, protectionism, and hindered foreign investment. Moreover, the
combination of the influence of Marxian thought (at least until the 1970s) and anti-liberal
conservatism meant that economic liberalism has been on the defensive since 1945. Thus
Japanese economic DNA is far less liberal than America’s.
The consequences of this intellectual heritage for innovation are threefold. First,
it has fostered a strong manufacturing bias, based on the idea that a nation without
production facilities is a weak country. Unfortunately for Japan, many of the recent (last
20 years) innovations which have increased productivity and made possible the
development of new industries are unrelated to manufacturing. New ways of dealing
with new eco-systems, platform-based industries, legal developments in intellectual
property (IPR), new financial instruments (admittedly a field currently enjoying a rather
negative reputation) are fundamentally tied to service and soft goods sectors. Japan has
been ill-equipped to deal with them.
Second, besides a continued focus on industry, some form of hostility towards
outsiders survives. When a foreign takeover beckons, Japanese corporate leaders’ first
reflex is often, though not always, to band together against the alien, rather than seek a
way to profit from the new investor. The merger of Nissin and Myojo, both leaders in
instant noodles, orchestrated to prevent Steel Partners of the US from acquiring Myojo, is
an illustrative example. It kept the foreigners at bay but deprived Myojo’s shareholders
of the higher price offered by the Americans. There are, of course, cases of successful
foreign investment into Japan (e.g. Renault’s acquisition of a controlling stake in Nissan)
but overall, among the major developed economies, Japan is the least hospitable to
foreign capital, with foreign direct investment (FDI) stock estimated at 4.1% of gross
domestic product (GDP) vs. an average for developed countries of 24.7%.
9
This form of
“business xenophobia” has slowed down innovation by preventing foreign ideas and
managers from playing a bigger role in the Japanese economy.
Third, Japan, like some continental European states from which its economic
ideology is derived, has historically been far more tolerant of monopolies and oligopolies.
Though anti-trust enforcement has gained somewhat it recent years, it remains deficient
by Anglo-American standards. This can have a particularly nefarious impact on
innovation. Companies that are already actively involved in international markets will
continue to innovate, even if they enjoy monopolistic (or oligopolistic) advantages in
their home market, in order to remain competitive abroad. But businesses which are not
international and benefit from economic rents derived from monopolistic or oligopolistic
arrangements domestically will have fewer innovation incentives.

Industrial structures
The US Occupation authorities dismantled the zaibatsu (財閥 - “financial cliques”
– same ideographs as the word “chaebol,” used to denote Korea’s family-controlled
conglomerates). These were large financial-industrial family conglomerates that
controlled Japanese industry and finance. But in the decades following the war, partly as
a way to prevent foreign takeovers, Japan developed a complex form of cross-
shareholdings known as “keiretsu,” (系列) or “affiliated companies” by opposition to the
family-owned zaibatsus. In some cases these keiretsus were vertical, with one large
corporation at the top and affiliates in a subordinate position. In other cases, there was no
real center, with several corporations linked by cross-shareholdings and informally
coordinated by their top managers .
10



9
16.0% for the US, but as a larger economy, the US should, ceteris parabus, have a lower percentage of
FDI stock than Japan, which is three times smaller. Source: UNCTAD,
http://www.unctad.org/sections/dite_dir/docs/wir09_fs_jp_en.pdf
(accessed 29 September 2009).
10
On corporate governance, see Gilson, Ronald and Curtis J. Milhaupt. “Choice as Regulatory Reform:
The Case of Japanese Corporate Governance.” Columbia University Law School Center for Law and
Economic Studies Working Paper No. 251 and Stanford Law School John M. Olin Program in Law and
Economics Working Paper No. 282, 2004; Hoshi, Takeo and Anil K. Kashyap. Corporate Financing and
Governance in Japan: The Road to the Future. Cambridge MA: The MIT Press, 2001; Jackson, Gregory.
In the decades which followed the Showa War (1931-45
11
), Japanese industry
showed a great capacity to innovate, both in the area of manufacturing processes and also
with the development of new products. Moreover, by breaking the stranglehold of
trading companies (sogo shosha 総合商社) Japanese businesses such as Toyota, Sony,
and Nintendo were able to conquer international markets. In particular Toyota displayed
some of the key strengths of Japanese industry. Its constant focus on product
improvement and quality control gave it the credibility to win foreign market share and
make its brand, unknown overseas until the 1970s, synonymous with quality. Moreover,
Toyota was able to export its industrial ecosystem. As it built factories overseas, many of
its Japanese suppliers followed suit, establishing their own plants in foreign countries. In
a way, Toyota functioned as a sort of trading company for its suppliers by opening the
doors to foreign markets which on their own they would not have been able to access.

Legal systems
A second factor with a significant bearing on innovation is the legal system.
“One of the principal advantages of common law legal systems,” wrote John Coffee of
Columbia University Law School, “is their decentralized character, which encourages
self-regulatory initiatives, whereas civil law systems may monopolize all law-making
initiatives.”
12
This is especially true in new industries where the absence of laws
governing businesses leads to officials opposing their veto to new projects on the grounds
that they are not specifically authorized by existing regulations. In the United States,
innovative legal developments based on the jurisprudence of courts and new types of


“Toward a comparative perspective on corporate governance and labour.” Tokyo: Research Institute on the
Economy Trade and Industry, 2004 (REITI Discussion Papers Series 04-E-023); Milhaupt, Curtis J. “A
Lost Decade for Japanese Corporate Governance Reform?: What’s Changed, What Hasn’t, and Why.”
Columbia Law School, The Center for Law and Economic Studies, Working Paper
No. 234, July 2003;
Miyajima, Hideaki and Fumiaki Kuroki. “Unwinding of Cross-shareholding: Causes, Effects, and
Implications.” (Paper prepared for the forthcoming Masahiko Aoki, Gregory Jackson and Hideaki
Miyajima, eds., Corporate Governance in Japan: Institutional Change and Organizational Diversity
.)
October 2004; Patrick, Hugh. “Evolving Corporate Governance in Japan.” Columbia Business School,
Center on Japanese Economy and Business, Working Paper
220 (February 2004).
11
To use the term which Yomiuri Shimbun chose among several (Great East Asia War, Pacific War, etc.)
to denote the decade and a half of fighting which ended with Japan’s capitulation on 15 August 1945.
12
Coffee, “Convergence and Its Critics,” 1 (abstract).