This document discusses innovation and entrepreneurship in Japan. It provides the story of Osamu Tsuji, an entrepreneur who founded Samco and challenged established companies in Japan in the 1970s-1980s. It also outlines some key ingredients for innovative business communities, including infrastructure, research universities, large company R&D, local government support, and venture capital. However, it notes that civic leadership is important to make communities great places to live, which can further drive innovation. Overall, the document examines how both public policy and local leadership can foster entrepreneurship in Japan.

1. A Study of Innovationand Entrepreneurship in Japan: Adapting
to the Changes of the 21st
Century to Nurture a Creative
Environment of EnlightenedSelf-Interest to Drive Markets in
Today’sKnowledge-Based Economy.
Michael Philip Korycki
May, 2011
MKT 799: Independent Study

2. ExecutiveSummary
Entrepreneurshipempowerswomenandyouth,highlightsthe importance of education,science
and technology,andmostimportantly,providesnew economicopportunitiesforinvestorsand
establishedbusinesses. Entrepreneursandinnovators,andthe new businessestheycreate,are the
enginesof economicgrowthandjobcreation. Despite Japan’srigidcultural norms,whichoftenget
misunderstoodasprohibitingboldrisk-takingthatchallengesthe statusquo,itsSME environmentis
robustand constantlyseeking new waystochallenge the UnitedStates,Europe,China,andIndiato
introduce disruptive technologytothe marketplace andbringinnovativeservicesthatconstantly
redefine industryandcreate newoneswhere noneexistedbefore. The governmentof Japan,despite
past failures,iscloselyworkingwiththe private sectortofosterentrepreneurshipandencouraging
Japan’slargestcompaniestorethinkthe waytheydobusinessinthe informationage,if atall.
Intro
The firstcontact betweenJapanandthe Westtook place inNagasaki in1543, whenPortuguese
shipslandedonthe nearbyislandof Tanegashima.1
Overthe nextthree hundredyears,Nagasakiwould
be the conduitforall Westerntechnologycomingintothe country,settingupthe firstmetal printing
press,whichvastlyexpandedknowledge andideasthroughoutthe HermitKingdom.2
In1640, the Dutch
wouldbringwiththemmedicines,latercertifyinglocal studentsintrainingandcare with European
medical techniques. Bythe start of the nineteenthcentury,aJapanese doctorwouldperformthe first
surgeryundergeneral anesthesia.3
CombiningEasternandWesternknowledge,the Japanese hadpulled
aheadinthe fieldof medicine,anditwouldtake fourdecadesforthe Europeanstocatch up.4
1 Glaeser,Edward “Triumph of the City” p.23
2 Ibid
3 Ibid
4 Ibid

3. Andit wasnot justmedicine thatthe Dutchbrought. With theirshipscame scopes,barometers,
camera obscuras,andevensunglassesthroughNagasaki,leavingthe Japanese muchtotinkerwithin
additiontoWesternmedicines.5
Bythe time the Americangunboatsshowedupin1853, the Japanese
couldquicklycatchup to theirnewadversariesbecausetheyhadmanyengineers,laborers,students,
and doctorstrainedinthe “Dutch Studies”6
Twoyearslater,the Dutch gave the Japanese theirfirst
steamship,andthe Japanese,ratherominously,began aggressivelycopyingWesternmilitary
technology.7
Overthe nextfortyyears,JapanhadthoroughlymasteredWesterntechnologyandbecame
a formidable poweronthe worldstage. From1894 to 1910, the Japanese wouldwage andwinwars
againstChina,Russia,andKorea,while continuingtobuildshipsandplanesthatwere oftenattimes
betterthantheirAmericancounterparts.8
Thatmilitaryandtechnological know-howenabledJapan,
withinahundredyearsof Commodore Perry’sarrival,toconquermuchof Asiaand surprise the
AmericanNavyat Pearl Harbor.9
Innovation and Entrepreneurship in Japan:An Overview
Since the dawnof the modernera,Japan’sgoalshad beenunquestionedanditssociety
precision-engineeredtoconquerthe industrial age.10
Its skill atmakingmanufacturingmore efficient
made the Japanese lessconcernedwiththe wayscomputersandsoftware couldincrease productivity,
and causeditto overlookthe growing importance of the service economy.11
This,forJapan,wasa grave
mistake. Ultimatelywhatthisspurredinthe UnitedStateswas a race not to compete withthe Japanese
inmanufacturing,whowere quicklyoncourse tobecomingthe world’slargest economy intermsof GDP
by the late 1980s, but to out innovate them, leadingtoa “new age” knowledge-basedeconomythat
5 Ibid
6 Ibid p.24
7 Ibid
8 Ibid p.23
9 Ibid
10 Zielenziger, Michael “Shutting Out the Sun” p.96
11 Ibid p.97

4. reliedmore onservicesthanontraditional manufacturing.12
However,despitethe setbacksnow
incurred acrossJapan overtwodecadesof deflationandanemicgrowth thathas leftmuchof the
economyinan economicparalysis,anew age of innovatorsandentrepreneursare thrivinginJapan –
youjust have to lookbeneaththe surface andawayfromheadlines tofindthem.
Whenaskedto define the entrepreneurial environmentof Japan studentsof businessinthe
UnitedStates oftenhave preconceivednotionsof arigidindustrial societythatislitteredwith‘yesmen’
inblack suitsandbureaucratsin blue suits, all eitherworkingforasingle organizational keiretsu like
Sony,Toshiba,orToyota theirentire life destinedtoretire there afteralife of governmentservice.13
Thisnotionthoughonlytellsthe storyof about1% of the biggestfirmsand25% of the work force.14
Accordingto KathyrnIbata-Arens,authorof Innovation and Entrepreneurship in Japan:Politics,
Organization,and High Technology Firms,the “entrepreneurial mavericksatthe helmof small and
medium-sizedenterprisesatthe base of the productionpyramidare the true narrators” of Japan’s
successstory.15
On the flipside of the rigidindustrial classof ‘yesmen’these entrepreneursand
workerscompromise 99%of the firmsand75% of its workingpeople –makingup a critical source,of
course,of newbusinessandemployment.16
What thistellsusisthat entrepreneurs acrossthe Hermit
Kingdomhave longbeeneschewingthe acceptedcareerpathof the “bestand brightest”thatleave the
top universitiestoworkfora single keiretsuconglomerate andhave beenlayingouttheirownpath.
Mr. Tsuji’sStory
Take for example the pathof OsamuTsuji of the firmSamco, whoin the 1970s, like histechgeek
visionariesacrossthe Pacifictinkeringattheirowndesigns, challengedthe statusquoestablishmentin
12 Ibid p.102
13 Ibata-Arens,Kathryn “Innovation and Entrepreneurship in Japan”p.1
14 Ibid p.1
15 Ibid p.1
16 Ibid p.1

5. hisgarage-builtthinfilmtechdevelopmentcompanyinOsakaandtookthe keiretsu headon to become
one of the firstcompaniesinJapantobe successful atdelinkingfromaproductionhierarchy. Inthe
1970s and 1980s “exclusive rationalcontracting” made competingagainstestablished keiretsus almost
impossible becauseinthissystembuyingfromunaffiliatedsupplierslike Samcowasconsideredtoorisky
for purchase managersbuyingwithinthe keiretsu group.17
Mr. Tsuji,aninnovatorandpioneer,
challengedthisassumptionthatyoucouldonlytruly succeed inJapanbybeinghand-in-glove withthe
keiretsus and simplytookhisbusinesselsewhere. IBM,National Semiconductor,andArco,all U.S.based
firms,wouldseal the firstcontractsforSamco duringthisdifficulttimeof almostmafiaandmonopolistic
buyingpowerinJapanand leadthe wayfor Samco ,underTsuji’sstewardship,tobecome an
internationallyrenownedthin-filmtechnologyproducer.18
Samcosetthe stage for firmsinJapan
managingto circumventstate-sanctionedandbig-businessapprovedassociationsandnetworksinfavor
of formingandjoiningloose,horizontal,inter-regionalnetworks.19
Aswe shall see,nowhere didthat
network thrive more thaninKyoto.
Tsuji’sstoryisjustone of manysuccessstoriesof innovationandentrepreneurshipcomingout
of Japan. Ratherthan focuson the men and womenbehindthesestories,however,thispaperwishes
more to explore the structuresinplace bothinthe publicandprivate domaintoensure thatsuch
entrepreneurshave the tools,environment,andincentivestowanttotake a risk.
The Local Political Economy of Innovation
Accordingto Ibata-Arens,“The local political economysurroundingthesestruggling
entrepreneurs - andhowthese entrepreneursconnectwithit – has a much greaterimpacton the firm’s
17 Ibid p.4
18 Ibid p.4
19 Ibid p.16

6. abilitytoinnovate atthe national levelsystem.”20
Further,“the civicengagementof entrepreneursand
othercommunityleadersinlinkingthe strategicinterestsof firmstolargerissuesof community-wide
developmentisanimportantfactor inexplainingthe sustainabilityof innovativecommunitiesinthe
long-term.”21
For the longesttime,the top-downtechnocratapproachcomingoutof post SecondWorldWar
Tokyofailedtofosterthe ‘innovative communities’thatIbata-Arensbelievesself-sustains
entrepreneurshipandthatit’sthe people,notthe policy,which createssuchinnovativeclusters. This
paperwishestoexamine both. Japan,of course,hadto learnbytrial and error whethernational policy
coulddictate entrepreneurshipatthe local level andareasof implementationandimprovement will be
discussedfurtherinanothersectionof thispaper asto whatTokyocan doin the future. In the
meantime,let’slookatthe basicingredientsforproductinnovationandnew businesscreationand
critique onthe pros andcons of Tokyo’sformerapproach.
For an innovative businesscommunitytothrive,youneed:
1.) Infrastructure,bothintermsof transportationandaccessto marketsvia airports,seaports,and
supplychainhubs
2.) Researchuniversities,undergraduateandtechnical schoolsto continue tosupplythe raw talentfor
future innovators
3.) A clusterof large corporationswithlarge R&D budgets
4.) Stable,strong,andbusinessfriendlylocal government
5.) Establishedservice industries
6.) Venture capitalistandrisktakersand
20 Ibid p.7
21 Ibid p.8

7. 7.) Attractionsforpotential residents.22
Withthe ingredientsandsuccessmodel sosimplylaidout,whatthenmakesthe differencebetween
Tokyoand Kyoto? Los AngelesandPaloAlto?ChicagoandDetroit? The answerliesinthe civic
leadershipof those whonotonlywanttocreate a thrivingentrepreneurial cluster,butthose whoalso
wantto make theircommunitiesagreatplace to live –somethingoftenignoredinmostmajortext
books. Andthese great placesto live are oftenvasturbanmeccas.
Citiesforge ties,translatevisionintopractice,andmaintaingroupsof peoplewithasharedgoal
of improvingthe economicsituationof theircommunities.23
Inaddition,agreatsustainable innovative
communityismore thanjust a special clusterof competitive enterprises,butmore of a geographic
concentrationof like-mindedstakeholders (the entrepreneurs,businessexecutives,workers,community
activists,residents,andlocal governmentofficials) inthe economicoutcomesof local enterpriseswho
have sharedgoalsof developingnewproductsingrowthsectors.24
Thisthenstartsthe chain reaction
cycle that enhancescompetitionthatfurtherstimulatesinnovation,whichagainenhancesevenmore
competition. The problemforJapanisthat its national governmentbelievesthatinnovationand
entrepreneurshipcanbe manufacturedbypolicyfiat. Aswe will discover,thisishardlythe case.
Booming Times in Bangalore
One of the world’sgreatsuccessstories of aninnovative regionthatthrivesoff adecentralized
industrial systemthatisorganizedaroundregional networkfirmstiedtoR&Dat local universitiesand
supportive governmentsisBangalore,India. The successof placeslike Bangalore isnotonly about
international intellectualconnectionswhereforeignerscome tosample ahost society’sart,science,and
22 Ibid p.9
23 Ibid p.9
24 Ibid p.10

8. commerce.25
AccordingtoEdward Glaeser,authorof Triumph of the City,a citylike Bangalore creates“a
virtuouscycle inwhichemployersare attractedbythe large pool of potential employeesandworkers
are drawnby the abundance of potential employers. Sofirmscome toBangalore forthe engineers,and
engineerscome forthe firms.”26
Thismodel alsosoftensthe effectof bothminorandmajorrecessions.
As Glaeserstates,“anabundance of local employersalsoprovide implicitinsuranceagainstthe failureof
any particularstart-up. InBangalore,there isalwaysanotherstart-upcompany.”27
Andif there isalways
anotherstart-upcompanywillingtobuildoff yourpreviouslyfailedattempt,there isabiggerappetite
for riskand takingchances. Thismakesa city a perfectincubatorforthe nextBill GatesandNandan
Nilekani.
The Kernel, theCluster, and theCritical Mass
In Bangalore,aninitial kernel of engineeringexpertiseattractedcompanieslikeInfosys,anda
virtuouscycle wasborn,where the smartworkersand smart firmsall flockedtobe withincloser
proximitytoeachother.28
The story of Infosys,of course,isa storyof a firmthat maximizedBangalorean
proximity. Foundedin1981 andcallingBangalore home in1983, Infosysnow has over100,000
employeesandamarketcapitalizationexceeding$30 billion,trulyaflat-worldphenomenonwith
operationsinbankingservices,software, andconsulting.29
PerhapsInfosys’successcanalsobe
attributedtothe fact that it wasfar, far awayfrom the bureaucracythat plaguedfledgling
entrepreneursinDelhi. Afterall,twoof Infosys’firstclientswereanAmericanand a WestGerman firm.
Today,Infosysoperatesindozensof countriesthatmayseemtosuggestthatdistance isdead;however,
it maybe interpretedasevidencethatproximitymattersasmuchas ever.30
AccordingtoGlaeser,“By
25 Glaeser,Edward “Triumph of the City” p.25
26 Ibid
27 Ibid
28 Ibid
29 Ibid
30 Ibid p.26

9. concentratingsomuch talentinone place,Bangalore makesiteasierforoutsiders,whetherfromSt.
Louisor Shanghai,todo businesswithIndianentrepreneurs.”31
Theycome forInfosys;theystayforthe
manyother talentedfirmsdottedthroughout.
Unlike Japan’spastapproachof a top-downtechnocraticmodel of spreadinginnovate clusters
blindly throughoutJapan,the successof a citylike Bangalore isbuiltaroundthe factthat the dense
concentrationsof entrepreneurial talentencouragesgrowthof relatedindustriesmakingskill,andnot
geography,asthe source of Bangalore’sstrength.32
Unlike the storyof Japan’sClusterModel aswell,
Bangalore greworganicallyfromthe enthusiasmof civicmaverickswhohadavestedinterest inthe city.
In Bangalore,thatcivicmaverickwasSirMokshagundamVisvesvaraya,orSirMV for short,the
state’sprime ministerduringthe early20th
century.33
Hisfocus,unlike the government’satthe time,
was to pushthrougha sweepingmodernizationprogram, includingdams,hydroelectricity,steel mills,
and,most importantly,schools.34
Whatshouldhave beenthe mantraof the Parliamentof India,
“IndustrializeorPerish”,tookroot only inBangalore makingitone of the most progressive citiesinall of
India;as a matter of fact, itstill is. SirMV did notjustof course want to buildbigindustrialprojects,but
insteademphasizedthe educationneededtobuildthe projectsinthe firstplace. Unlike the roadswhich
are destinedtocrumble,educationperpetuatesitselfasone smartgenerationteachesthe next.35
Sir
MV wouldgoon to foundthe Universityof Mysore andBangalore’sengineeringcollege,whichnow
bearshisname.36
Those two schoolsfirstgeneratedaclusterof engineersthatstill persiststothisday.
Bangalore’searlypro-businessgovernmentnurturedaclusterof engineersbyfosteringstrong
31 Ibid
32 Ibid
33 Ibd
34 Ibid
35 Ibid p.27
36 Ibid

10. educationandpavingthe pathfor IT dominance bylaunchinganextensive programtoimprove roads,
electricity,andotherutilitiesthatwouldattractglobal ITfirms.37
The Motherof all Clusters
America’sgreatest informationtechnologyhubisSantaClara County,California,whicheveryone
knowsbetterasSiliconValley.38
Like Bangalore,SiliconValleyis adecentralizednetwork-basedsystem
whichcomprisesof looselylinkedfirmsemployingtechnologisthavinggreaterloyaltytothe craftthan
the firm. Much like Bangalore,the Valley alsoachievedthisstatusbyfocusingoneducation. Whereas
Bangalore hadSir MV, SiliconValley’scivicmaverickwasSenatorLelandStanford,arailroadmagnate,
whodecidedtobuildauniversityonahorse farm that wouldlaterhelpbrandthe areaas the world
capital of hightechnology.39
Fromthe early20th
century,the Valleywouldgoonto create the spark
telephone,the arctransmitter,andthe transistor,attractingtalentfrom all overthe countryto come to
thiscentral locationwhere the bestandbrightestwere pouringoutthe latestiterationsintechnology.40
The value-addedlevel of these productswas anincentiveaswell,whichfurtherdrew talentedfirmsto
the region. However, value-addedornot, SiliconValleywouldnothave reachedits full potential
withoutthe visionarythinkingof FrederickTermanwhowouldmake the critical linkbetweenindustry
and institutionbycreatingthe world’sfirstindustrial parkinthe valley,whichwouldgoontoturning
PaloAltointothe centerof the computerindustry.41
Takenfrom the wordsof Mr. Glaeser,“Hisvision,whichwouldinspire technology-intensive
clustersinBangalore andthroughoutthe world,wasto create an area packedwithtechnology
37 Ibid
38 Ibid p.29
39 Ibid p28
40 Ibid p.30
41 Ibid

11. businesses.”42
Inafewshortyears,the Valleywouldsee the likes of Hewlett-Packard,Lockheed,General
Electric,andWestinghouse all deployaroundthe areatoutilize the critical massof innovationandideas
unfoldingthroughoutPalo Alto.43
Fromthere,the likesof Intel,Cisco,SunMicrosystems,eBay,Apple,
Oracle,Facebook,Google andYahooall beganto call the Valleyhome. Andthese firmscontinue to
encourage future entrepreneurstocome tothe Valley.
In April of 2011, Google and Ciscojoinedthe White House effortforentrepreneursby
contributing$100 millionforstart-upcompaniestouse Google’sadvertisingandCisco’sITtraining
platforms.44
Thisisa greatexample of the publicandprivate sectorjoiningtogethertopromote
entrepreneurshipinthe hopesof fosteringprivate-sectorinvestmentsinstart-upsandsmall businesses
as a way to improve the economy.45
The generousdonationsfromthe likesof Google andCiscoonce
againshowthat it isthe craft,and not the enterprise,thatdrivesinnovationandentrepreneurshipinthe
Valley,whichhasgalvanizedotherfirmstojointhe effortaswell.
Today,PaloAltois a citywhere smartentrepreneursshare ideaswithone anotheroutside the
confinesof theirvariousday jobsthroughorganizationslike the Homebrew ComputerClub,whichis
once again beingre exploredinotherpartsof the country.46
InChicago,for example,many
entrepreneursdon’tknowawhole lotof otherentrepreneurs,whichiswhylocal Chicagoentrepreneur
Edward Domainstartedhisgroup,“FlyoverGeek”,tomodel the culture of PaloAlto’sandthe BayArea’s
love forthe start-upculture and the ideastheyshare togetherinthe informal environmentof such
clubs.47
Mr. Domain’smodel issimple,everyFridayat5:30 everyone inthe communityisinvitedto
42 Ibid p.31
43 Ibid
44 Johnson, Nicholas “Googleand Cisco to Join White House Effort for Entrepreneurs” as taken from Bloomberg
News on April 20,2011
45 Ibid
46 Glaeser,Edward “Triumph of the City” p.34
47 Domain, Edward “Flyover Geeks: Buildingan Entrepreneurial Community in Chicago”Taken from
Chicagobusiness.com

12. come out and have a beer,talkshopand engage withothermembersof humanityoutsidetheir
immediate circle.48
The local governmenthastakennotice andprovidesspace andsupportviathe
IllinoisTechnologyAssociation,providingaforumforthe free flow of ideastohelpstrengthenthe
communityoverall.49
SimilarassociationsdoexistinKyoto,andmore onthemwill be discussedlater.
To sum,all greatcitiesrenownedfor growthandinnovation, whetherBangalore,Chicago,Palo
Alto,or Kyoto,tie theirsuccess inthe strengthof theirhumancapital,nurturedbytheirresearch
institutionsandtheiruniversitiesthatattractthe raw talent neededtoinnovate and iterate. Aswe have
seen,these communitiesare oftensimilaracrossnational boundaries,while oftendissimilarfromother
regionsintheirownnational economy. AccordingtoIbata-Arens, theyshouldall share three main
characteristics. Forone,and mostimportantly,politicallysavvyenterprise mavericks,likeSirMV, act as
civicentrepreneursthathave a keensense of givingbackbothfirmandindividual wealthandalso
expertisetothe largercommunityformutual long-termgainthatgivesacommunitypositive social
capital and mostimportantlyitgalvanizesownersbehindtheirefforts.50
Secondly,inter-firmnetworks
provide critical informationandcreative ideasthatare goodat facilitatinginnovationinmemberfirms
and are generallyunfetteredbyhierarchy,whichgenerallyproves betteratcreatingnew product
innovation,asseeninBangalore andSiliconValley.51
Lastly,local governmentsactas advocatesat the
national levelforlocal firms,effectivelylobbyingforthe helpof Delhi,Washington,orTokyo.52
Whatthis
tellsusisthat the politicsof innovationhasasmuchas an effectonmarketoutcomesasanyother
factor. In essence,innovative marketsuccessoftendependsonpolitical savvyentrepreneursandlocal
48 Ibid
49 Ibid
50 Ibata-Arens,Kathryn “Innovation and Entrepreneurship in Japan p.11
51 Ibid p.11
52 Ibid p.12

13. stakeholderswho cannavigate spacesin betweeninstitutionsandnetworks.53
SowhathasJapan
learnedfrombothBangalore’sandSiliconValley’sSuccess,if anything?
Cluster’sLast Stand
By 2003, Japanwas lessentrepreneurial –asdefinedbyfirmstart-ups,innovative output,and
the like – than all the otheradvancedindustrial countriessave forRussia.54
Tocounterthe decline,the
Ministryof Economy,Trade and Industrylaunchedthe “ClusterPlan”toimprove productivity,spur
innovation,andfosternewbusinesscreation.55
Thisrobustapproachwouldultimatelyinvolve 5,000
SMEs, 200 Universities,andawhole hostof supportinstitutionsall coordinatedfromMETI. Initially
laudedasthe right kindof thinkingexpectedoutof TokyoinJapan’sseconddecade of malaise,itdidnot
go withoutitscriticism;particularlyforitshubrisinthinkingthatwhatevertheydecidedatthe national
level couldsomehowbe done atthe regional level.56
For a country witha 2000 yearoldhistorywhere awhole array of region-specificindustrieshas
emerged,the thinkingneededregionallevel solutions,notnational ones. Also,Japan’snational level
planwas pluckedrightoutof a Michael Porterbookwithoutconsiderationthatthe model maynotbe
similaracrossnational boundaries. Porter’sDiamondModel callsforincreasingproductivity,increasing
capacityfor innovation,andstimulatingnew businessformationbyensuringthatthe availabilityof
variousfactorinputconditions,supportingindustries,and demandconditionsall interacttocreate an
environmentconductivetoinnovationandcooperationwithlocal firms.57
The problemwasthatMETI’s
planwas lessorganicthanPorter’sandinsteadalmostseemedtogooutof itsway inpickingwinners
and losers. Ratherthanstimulate newbusinessformationsacrossthe board,METI’s planwholly
53 Ibid p.12
54 Ibid p.93
55 Ibid p.93
56 Ibid p.57
57 Ibid p.102

14. focusedonhigh-techindustries,negligiblyincorporatingtraditional industriesthatare socrucial in
creatingthe conditionsforinteractionthatcreatesthe conductive innovationsthatPorterspeaksof.58
METI’s ClusterPlanfell shortonthe mostcritical factors of Porter’sDiamondModel,mainlythatit
shouldhave beenmore regionallyinitiatedwithmore ‘local ledcontext’.59
However,aregionally
initiatedClusterPlanhasdrawnsome criticismin the manufacturingregionof northern Italy tooas
global competitionseemstobe weakeningthe benefitsof beinginacluster. So isit an anachronistic
model?
For Porter,a firm’sgeographical proximity,theirclose competitionwitheachotherandthe
growthof specializedsuppliersandproductionnetworksaroundthemmake awinningcombination.60
Globalization,however,hasmade thiswinningmodellesscertainthatmayexplainwhyMETI’soriginal
ClusterPlanfailed. “More opentrade and improvedtransportlinksmaymeanthatbunchingtogetherin
a clusterno longerofferssuchastrong defense againstforeignrivals”, particularly fromthe low-cost
competitionerodingatJapan’sprofitmarginsfromChina,SouthKorea,andIndiaasthe benefittheyget
frombeingbunchedina clusterseemstobe weakening.61
How Japan’scompaniescompete inthe future will dependlessonbeinginaclusterthan
designingsmartproductsanddefendingtheirbrands. A recentreportfromIntesaSanpaolo,abank,
noteshowcompetitionis forcingfirmstoinnovate,improvequality,anddefine theirbrandsandshould
not looktothe governmenttoprotecttheirbusinesswiththe helpfromregional authorities,asmanyin
Japanmighthope theydo.62
Britain’slarge manufacturingclusterswitheredanddiedwhile the decline
58 Ibid p.104
59 Ibid p.105
60 “Clusters Flustered” The Economist Vol 399 Number 8729 p.70
61 Ibid p.70
62 Ibid

15. of Italy’sclusterslookjustasterminal. Whateveryonecanagree onis that successful clustersinthe
future will lookverydifferentfromthose inthe past.63
Kyoto Model
Andso, Japan’snational approachtoinnovation hasthustakenona regional perspectivein
recentyearsowingto the successof regionslike Kyoto.64
ThinkingbacktoSamco,we can understand
whytheirsuccesswasonlypossible inKyoto,wherethe mostinnovative firms,mainlythose outside
Tokyo,were able tothrive because theywere leastlikelytohave anysortof keiretsu link. In Tokyo,
because of governmentprotection,companieswerenotengagedasheavilyinR&D,heldfew patents,
and were producinggoodsatthe lowvalue-addedlevel –essentially,itwasbecominganinnovation
failure fallingbehindthe UnitedState,WesternEurope,andITshopsinIndia,and especiallyChina.
Samco,as previouslymentioned,brokeawayfromthe keiretsu chainby linkinginsteadwith
international ties,collaboratingonR&Dand hiring10% of itsworkforce fromoverseas.65
Ratherthan
have 70% of its total salesgoto one keiretsu link,Samcosetan unorthodox rule tohave nomore than
10% of its salesgoto one client.66
Of course,thiscouldnothave beenpossible withoutKyoto’ssupport
to provide Samcothe leverage toescape the keiretsu.
As previouslymentionedthe KyotoModel workspartlydue tothe absence of keiretsu groups
and as a resultof this,productionandtradingrelationsbetweenfirmstendtobe fluidandhorizontal.67
Secondly,alackof mainbanksencourages “pocket-money”finance fromregionalbanksandventure
capitalists.68
Thisinformal systemof finance,accordingtoIbata-Arens,spreadsthe riskacrossawide
63 Ibid
64 Ibata-Arens,Kathryn “Innovation and Entrepreneurship in Japan p.51
65 Ibid p.40
66 Ibid p.41
67 Ibid p.148
68 Ibid p.148

16. communityof investorsandpreventsfirmsfrombecomingbeholdentothe large national banks.69
It
alsoleadsto financial independence andautonomy,allowingKyoto-basedfirmstoavoidbeingatthe
mercyof the slow-paymentbehaviorof the large national banksand keiretsu buyers.70
Asa result,
Kyotoentrepreneursare viewedasbeingfiercelyindependentcomparedtotheirTokyopiersthatare
boundby considerationsof maintaininggoodin-grouprelations.71
Ultimately,though,withmoremoney
on the balance sheet,more cashcan pour intoR&D to facilitate the continuousupgradingof products.
AlsoinKyoto,inter-firmnetworksfacilitate the flow of informationandthese active networks
provide aforumfor the forgingof collaborate manufacturingrelationsbetweenKyotofirmsandfirms
outside theirlocales andevenoutsideJapan,whichisadifferentapproachfromthe restof the country
where there intendstobe alack of horizontal,inter-industrypersonal networks.72
Forexample, the
KyotoLiaisonCouncil forSmall andMedium-SizedProductsof ManufacturingandMetal wasformed
throughthe initiativesof local firmswiththe infrastructural supportfromthe Kyotoregional
government.73
Inthe past,METI had throwntogethergroupswithoutthinkingof the organizational
goals,whichled tolessrobustbuyer’sgroups. Kyoto’sbuyer’sgroupalsomeetstodiscussanumberof
issueseffectingthe regions,includingstrategiesof overcomingrecessionaryeconomics,legislationto
endslowpaymentsof debtbybigfirmsto make the regionmore competitiveandfair,new product
development,trainingof technicians,the role of SMEsina global economy,and,of course,tax issues.74
To sum,these firm-initiatedbusiness networksprovide acriticallyimportantcontextforthe exchange of
information aboutmanagementtechniquesandthe market. Lastly,inKyoto,firmmanagers,local
governmentofficials,academics,andcommunityleadersall workhand-in-glove inbroadinnovative
69 Ibid p.148
70 Ibid p.150
71 Ibid p.153
72 Ibid p.148
73 Ibid p.128
74 Ibid p.129

17. coalitionsthatknowhowto leverage resourcesfromthe governmentwhile avoidingthe worsteffectsof
bureaucraticoversight.
Kyoto’sregional governmentSMECenterhas beenhelpful overthe yearsinallowingKyoto-
basedfirmsto benefitfromMETI-sponsoredresearchprogram andacts as a model go-betweenin
obtainingR&Dfundsfromthe government.75
Tokyo’snextClusterPlanthusshiftedtoaregional-
initiatedpolicywhere itsgoalswere more robust,where processimprovementstoexistingtechnology
wouldnolongersuffice andthe governmentneededtoprovide incentivesfornew production
innovation.76
Tokyo’snewmodel alsofocusedonexpandingthe valuechainof clustersbyemphasizing
not onlythe needfortechnological developments,butalsoformarketing,management,andfinance.77
Lastly,METI’s newplanwouldfocusonidentifyingexistingagglomerationsof firm-level potentialrather
than justcreate newclustersingreenandbrownfieldinvestmentsinareasthatdidnot alreadyhave a
critical massof entrepreneursandinnovators.78
The long-term, 25-30yearcommitmentisa major
improvementfromitspredecessor.
China:Fledgling Entrepreneurship AcrosstheSea
Chinaisoftenheldupas an objectlessoninstate-directedcapitalismyetitisnow becoming
clearthat much of the successof the state’sdouble-digitgrowthrate isas much owedtoa myriadof
smaller,privatelyheld firmsthatare more efficientlywhirringthe economy.79
China’sstate-controlled
entities,whichare climbingthe world’sleaguetablesineveryindustryfrombankingtooil,are not
particularlyprofitable withareturnonequityof just4%.80
Compare thatwitha nearly14% returnon
equityinChina’sprivate sectorandone can see whythe governmentisbeginningtofoster
75 Ibid p.42
76 Ibid p.105
77 Ibid p.105
78 Ibid p.105
79 “Let a Million Flowers Bloom”The Economist Vol 398 Number 8724 p.79
80 Ibid

18. entrepreneurshipbyprovidingprivate companieswithfinance andlegal forbearance.81
Since these
measureswere putintoplace overa decade ago,the numberof registeredprivate businessesinChina
grewby more than 30% and accordingto official governmentstatisticsthere are now 43m companiesin
China,93% of themprivate,employing92% of the country’sworkers.82
WhatissignificantaboutChina’s
robustprivate sectoristhat for a state-directedcountry,muchof China’ssuccesscomesfrom
businessesthatthrive inlarge partbecause they operate outside state control,muchashow Japan’s
mostinnovate companiesthriveoutsidethe keiretsus,whichtomanyinJapancan feel likeastate-
controlledenterprise.
In Kyoto,Samcodevelopedareputationforbeingfiercelyindependentmainlybecause itdidnot
have access tothe financingthatlarge firmswithinthe keiretsu blockinTokyoenjoyed andhadtorely
on venture capitalists, foreigners,andsmall local banks instead. Aswe have learned,thistoocame asa
blessingasSamcoalsodidnot have to playby theirrulesandheedtotheirconditions,especiallyduring
periodsof economicdownturn. Asistoothe case inChina,some of the most successful andinnovative
private firmsare geographicallyfarfromBeijing,makingthemindependentandmeagerinthe extreme
to succeed andalsorelyon smallerregional playerstofinance theirgrowingventures.83
Currentlyin
China,loanstosmall and medium-sizedenterprisescomprise lessthat4% of the total made bythree of
the country’sfourlargestbankswhose total lendingisdominatedbythe state’slarge conglomerates.84
As inKyoto,a fewothersmallerinstitutionshave beguntoemerge tofill the gap. Forexample,
ZhejiangTailongCommercial Bank,aprivatelyownedlender,hasgrownata rate of more than 40% a
yearmakingsmallerloadstoregional entrepreneurs.85
However,ashadow bankingsystemhas
emergedaswell charginginterestrates anywhere from10% to 214% notnecessarilybybusinesses
81 Ibid
82 Ibid p.80
83 Ibid
84 Ibid
85 Ibid

19. seekingtopursue illegal activitybutforfirmswishingtokeeptheirpatentsandideasproprietaryas
opposedtohavingto be handedovertothe state.86
The prospectof expropriationandshakedownsby
the governmentunderminesthe willingnessof the entrepreneurstomake the long-terminvestment
neededtodevelopbrands,novelproductsandcapable middle-managementthatChinaneedsto
overtake Japan andraisesquestionsabouthow Chinese enterpriseswill evolve. Italsoraisesquestions
as to howmuch China’ssuccesswill continuetobe embracedbyJapan.
Japan asNumberThree,Four,Five…
Five yearsagoChina’seconomywashalf as bigas Japan’s. In 2010 it has overtakenitsancient
rival. WithChina’spopulationbeingtentimeslargerthanJapan’s,thismomentalwaysseemeddestined
to arrive;however,itisstill surprisingtoJapanasto how quicklyitcame.87
AlthoughJapanhasmade
substantial reformsincorporate governance,financial opennessandderegulation,manyof the features
of Japanese capitalismthatattributedtotwolostdecadesstill persistandworse mayfollow asthe
economystill continuestogrowat a mere 1% intoits thirddecade.88
YokoIshikura,abusinessprofessor
at Hitotsubashi University,fearsthatJapanese bosseshave become toocomplacenttocompete against
emergingChinese firms. Accordingto Ishikura,“Theyare eithertooafraidto face the realityof the
powershiftortheywant to stickto old,familiarmodels.”89
Andthese oldandfamiliarmodels
misallocate resourcesandguarantee thatfreshcapital goesto“the losersof yesteryear”.90
Because these strugglingcompaniesof oldrarelydie,mainlyasaresultof the government
keepingthe costof capital low to helpstragglers,new companiesare notformingasquicklyastheyare
86 Ibid
87 “WatchingChina WhizzBy” The Economist August 21st,2010 p.52
88 Ibid
89 Ibid
90 Ibid

20. inChinaor inthe UnitedStates.91
Also,inthe wake of the gloomymilestoneof beingthe thirdlargest
economyinthe world,Japanisfailingtogetthe bestoutof itshumancapital. For one,certaincultural
traitsare holdingbusinessesback.92
Respectforsenioritymeansthatpromotionsgotothe older,not
the most able forcingyoungexecutiveswhoare superblyliterate thoughadmonishthemselvesfrom
speakingupandrefrainfromundoingtheirpredecessor’smistakes.93
Moststaggeringof all,only14%of
youngJapanese enteringthe workforce actuallywanttobe entrepreneurs,while the more risk-averse
whowishto seeksafe lifetimeemploymentrose toan all-time highof 57%.94
Thisshouldbe a grave
concernfor the economyof Japan,consideringthe percentageof those wishingtoestablishtheirown
firmcomparedto those wishingtoworkforthe same company until retirementwasevenasearlyas
2003.
At a time whenunderstanding foreignculturesandnormsare evermore importantto compete
inthe 21st
century,Japan’syouthare evenbecominglessglobalizedthantheircompetitors. Since 2000
the numberof Chinese andIndiansstudyinginAmericahasdoubled,whereasthe numberof Japanese
studyingabroadhasdroppedbya third.95
AcrossJapanese industriesmanagersare havingadifficult
time gettingthe youngtotake overseasposts,leavingtoquestionthe future globaloutreachof
Japanese firmswhile Japanese diplomatsare preferringtostayat home,likewise questioningthe future
of Japanese powerprojection.96
Lastly,amongrichcountriesonEnglishtests,the Japanesescore the
lowest.97
“Thisneedn’tbe aproblem”saysTakatoshi Itoof the Universityof Tokyo,“exceptthatasan
91 Ibid
92 Ibid
93 Ibid
94 Ibid
95 Ibid
96 Ibid
97 Ibid

21. export- dependenteconomy,Japan’slifebloodisitsrelationswithothercountries”andnowhere isthat
relationshipwaningmore thanwithChina.98
In Decemberof 2010, duringa minorterritorial dispute,Chinawasaccusedof suspending
shipmentsof rare earths – 17 elementsthatare highlycostlyandtime-consumingtoextract – to Japan
entirely.99
Japanimportsmore rare earthsthananyother countryfor use of manufacturingelectronics,
chemicals,andhigh-techcarparts,so naturallywhenChina,accountingfor97% of global production,
cut itsquota by 35%, which sparkedfearinthe country that a disruptioninsupplycouldparalyze the
economy.100
However,althoughJapanistraditionallycautiousandslow tochange,thiseventdisplayed
that the countrycan move quicklywhensufficientlyprovokedand perhapsalleviate somefearsacross
the country thatJapan cannot tackle itsbiggestproblems. The bigtradinghousessuchasMitsubishi
and Sumitomoare alreadysecuringalternativesupplieswiththe helpof state financingandother
companiessuchas TDK andToshibaare workingtoreduce or eliminate the rare-earthelementsneeded
indevices.101
The governmenthasaggressivelyworkedhand-in-glovewiththe private sectorby
earmarking$1 billiontosecure suppliesandfunduniversityresearchsuchasroboticdeep-seamining.102
Despite all the efforts,however,JapanwillremaindependentonChinese rare earthsforsome time,
leavingolderbureaucratsmisty-eyedforthe glorydayswhenJapanwasthe economicpowertofear.103
Opportunities forGrowth
However,forJapanto succeedinthe 21st
century,theymustlooktowardChinawitha more
ambitiousoutlook foropportunity thanone flauntwithtrepidation. Since the twocountriesnormalized
relationsin1972, trade has beenrobust. In the past tenyearsalone,accordingtoMETI’s statistics,
98 Ibid
99 “Rare Action” The Economist Vol 398 Issue8717 p.74
100 Ibid
101 Ibid
102 Ibid
103 Ibid

22. salesof goodsto Chinahave tripledandJapanese firmsenteringChinacontinue tohave alotto offer
theirneighbor,includinganemphasisonquality,trustedproductsandastrongservice culture.104
Also,
the ideafor movingmore intoChina isthat Japancan shiftmore of itslow-endproductionabroadwhile
pursuingsophisticated high-techmanufacturingathome to capitalize onhighmarginproductsfurther
up on the value curve inproductsrangingfromelectrical components,specialistchemicals,and
precision-machineryparts.105
Japanesefirmsalreadydo30% of theirmanufacturingoverseas –twice as
much as inthe early1990s – andthe trendiscontinuingupward,especiallyasthe yenrecentlyhita15-
yearhighon a nominal basis.106
The government,though,isnotlikelytointervene. Evenasthe yencontinuestoflirtwithlevels
againstthe dollarthat spark talk of more interventiontodampitsrise,Japanseemslikelytoholditsfire
because of otherpositive factorsgainedfromahighyen.107
While the dollarisjustbackabove ¥80, the
yenremainsweakeragainstmostothercurrencies,includingagainstthose of itsbiggesttrade partners,
such as the eurozone,China,andSouthKoreaand Taiwan.108
Anotherfactoris oil,whichevenafterlast
week'splunge remainssubstantiallyhigherthansix monthsago.109
A strongeryenbenefitsJapanby
givingitmore buyingpowerforoil,whichispricedindollars.110
Inthe wake of Japan’snuclear
moratorium,cheaperenergycostshouldoffsetpainssufferedinotherareas.
But it’snot justthe strongyenthat is dampeningthe moodinJapan. AsSatoshi Ozawa,
Toyota’s chief financial officerrecentlystated,“We wantto keepdomesticproduction,butwe are
quicklylosingcompetitiveness.”111
Today,Toyotaalreadyproduces58% of itsvehiclesabroadandthe
104 “Friends and Neighbours” The Economist November 20th,2010
105 “Leaving Home” The Economist November 20th,2010 p.73
106 Ibid
107 Frangos,Alex “Japan Unlikely to Get in Yen’s Way” WSJ.com Taken on May 10th,2011
108 Ibid
109 Ibid
110 Ibid
111 Ibid

23. trendwill mostlikelycontinueasthe yencontinuestofurtherstrengthenagainstthe dollarandmany
otherJapanese firmsfromToshibatoYamaha Motors are increasingtheirforeign-madeshare of
production.112
Some argue,especiallythe bureaucrats,which Japanese firmswill lose qualityand
control if movedoverseas; however,three-quartersof Japanese-ownedforeignplantsare atthe same
technical levelasdomesticsothisargumenthardlyholdswater.113
A whole hostof otherlong-termfactorsthatare forcingJapanese firmstomove production
abroad are at playas well. One isproximitytoconsumers infastgrowingChina. In2001, just40% of
Japanese companies’overseasproductioninAsiaactuallywenttoAsianconsumers withmostbeing
eithersentbackto Japanor shippedouttoAmericanandEuropeanmarkets.114
Today,thatnumberis
closerto 62% and will continue toincrease asChinesewealthrises,whichwill increase consumer
demandforelectronics,cars,andotherhigh-endmanufacturedgoods.115
Increase inChinese wealthcanalsospurtrade andtourismand can come as a boomto a town
like Nagasaki,whichisone of the closestJapanesecitiestoChina. Afteryearsof abraindrain,
populationloss,and amanufacturingexodustoOsakaandTokyofollowingthe SecondWorldWar,
Nagasaki can lookto overseasrevenuestomake upfordomesticones.116
TakamitsuSato,presidentof
the Nagasaki EconomicResearchInstitute,isalreadydrawingupplanswithlocal officialsof doublingthe
numberof foreignstudentsto3,000; turningthe oldshipyardintoa touristsite;and bolsteringsalesof
kamaboko, arubberyfishcake.117
Butthe boldmeasurestoencourage foreigndirectinvestmentand
112 Ibid
113 Ibid p.74
114 “Leaving Home” The Economist November 20th,2010 p.73
115 Ibid
116 “The AlarmBells of Nagasaki” TheEconomist Volume 398 Number 8716 p.44
117 Ibid

24. skilledimmigrantstocome toNagasaki maytake years,according to Mr. Sato, because there is“notthe
rightenvironment”toattract newcomers.118
It isundeniable thatJapanmustlookabroadsince itsownmarketsare shrinking andmanyother
prefectureswill take note of Nagasaki’sdecentralizationstrategy. Withenoughsupport,the prefecture
of Nagoyatoolooksto create a regional blocktodraw investmentandjobsawayfromTokyoand help
reshape governmenttocope withan ageingsociety.119
Theyplantocut local taxesby10%, slashsalaries
for electedofficials,andshedoverlappingpublicservices.120
Tokyoseesthisall as autocraticrule,yet
the proposalsare quite popularandcuttingintothe DPJ’ssupport. One thingthe DSJand itsopposition
can agree on thoughisthat the bestway spur innovationandentrepreneurship isbytacklingthe tax
rate; withoutstructural reformfromthe government,Japan’shighcorporate tax rate will continue to
pushproducersoverseas nomatterif there ishighdemandfortheirgoodsor not.
Japan’scorporate tax rate is 41%, makinginthe highestlevel amongthe G20 countriesand
almosttwice thatof neighboringSouthKorea.121
Suchhighcorporate tax rates increase profitmargins
of overseassubsidiariesmakingitharderforfirmsto continue todobusinessathome andalso more
difficultforcompaniesto holdcashfor future R&D,where the governmentshouldbe boostingatax
creditfor investmentinresearchandinnovation. However,the governmentishearingthe cacophonyof
complaintsthatJapanese firmscan’tcompete andinDecemberof 2010 Prime MinisterKanpromisedto
slashfive percentage pointsoff the tax inthe 2011 budget althoughsome still saythatevenwiththe
cuts the rates are still toohigh.122
Also,toencourage foreigncompaniestosetupregional headquarters
and researchfacilitiesinJapan,akeyfactor infosteringdomesticemployment,the trade ministryis
proposingthe combinednationalandlocal tax onforeignfirmstobetween20% and 29% for five
118 Ibid
119 “Maverick as Hell” The Economist Volume 398 Number 8720 p.48-49
120 Ibid
121 “Leaving Home” The Economist November 20th,2010 p.73
122 “Over Here!” The Economist January 15th,2011 p.75

25. years.123
This,of course,comesas a welcomingsignforforeignfirmswishingtosetup an outfitinJapan
whootherwise felt discriminatedagainstinfavorof domesticcompetitors.
Hit the Road, ジャック(Jack)
To increase exportcontentandfosterjobcreationathome,the governmentisalsosteppingup
itseconomicdiplomacy byputtingitspoliticiansonthe roadto workhand-in-glove withthe private
sector.In Januaryof 2011, ministershave pitchedhigh-speedtrainsinFloridaandboastedabouta
water-treatmentfacilityinSaudi Arabiaall withthe helpof astate-backedlender,The JapanBankfor
International Co-operation, whichisreadyatthe helmto openthe financingspigotshouldthe dealsgo
through.124
Such effortsalreadyseemtobe payingoff as Vietnamhassaiditwill turntoJapanese
technologyforthe secondphase of itsnuclearprogramand Turkeyisin talksto conclude anuclear-
powercontract as well.125
Withoutheavylobbyingfromthe Japanese government,boththesedealsmay
likelyhave gone toSouthKorea,whotoohas stronggovernmentbacking.
Anotherpressingissuehurtingcompetition isthe absence of any free-tradeagreements,which
Japanhas beenapprehensive fromjoining inthe pastas theirpoliticiansattemptedtoprotecttheir
manufacturersathome,mostnotablyintheiragriculture industry,whilesacrificing vastmarketshare
abroad. Because of operationsmovingoverseas totake advantage of free-tradeagreements,Japanlost
over$420 billionindomesticproductionandoverone millionjobs in2008, accordingto Dai-ichi Life
ResearchInstitute,andtheirautomobileindustryhasespeciallybeenhithard.126
Forexample,Suzuki,
the largestforeigncarmakerinIndia,paysroughly12% tariffsonparts importedfromJapan.127
South
Korea,on the otherhand,has racedahead inseekingfree-tradeagreementswithitstradingpartners
123 Ibid
124 Ibid
125 Ibid
126 “Leaving Home” The Economist November 20th,2010 p.73
127 Ibid

26. and has seenitsprestige grow.128
Hyundai,Suzuki’sSouthKoreancompetitor,recentlysignedaFTA
withIndiaandpays tariffsof just1-5%.129
Withouta FTA withIndia,partiallydue tothe Japanese
governmentsineptitudetoact, OsamuSuzuki,the Japanese company’sboss,feels“handicapped”and
rightlyso.130
It’salsonot clearif the governmentevenhasthe cloutto pushthroughjoiningaregional
free-trade agreementevenif itfeltsoinclinedtoo,furtherworryingthe businesscommunityinJapan
that the toughestinitiativeswillagainbe passedontoanotheradministration.131
The mainobstacle to
any FTA has been Japan’sAgricultural Co-operatives, whichhaslobbiedrelentlesslytopreventJapan
fromjoiningthe TransPacificPartnership.132
Bureaucracy witha CapitalB
Japan’sfarmersare a protectedclassandbenefitfromtariffsonrice ashighas 778% and those
on butterreach482%, naturallythentheycreate a ruckusagainstany reform.133
Thanksto these tariffs,
the Japanese paynearlytwice asmuch ontheirfoodas otherOECD countriesandtheirfarmingsectoris
stagnantand unproductive.134
The governmenthas triedtobuy off ageingfarmersandshiftedsubsidies
to income supportforindividualsasopposedtoprice supports,yetasmall amountof farmersholdsthe
restof the economyhostage byputtinganyFTA outto grass.135
Regardless,the factthatsome action
has takenplace againstthe JA counts as a positive sign thatreformisinevitable,albeitslow coming.136
Yet thisdoesnottell the storyof all Japanese farmers,manyof whomare veryinnovative and
entrepreneurialinspirit.
128 “Paddies vs Prius”The Economist November 13th, 2011 p.48
129 “Leaving Home” The Economist November 20th,2010 p.73
130 Ibid
131 “Over Here!” The Economist January 15th,2011 p.75
132 “Paddies vs Prius”The Economist November 13th, 2011 p.48
133 Ibid
134 Ibid
135 Ibid
136 “Over Here!” The Economist January 15th,2011 p.75

27. Hideaki Shinpuku,Presidentof ShinpukuSieka,usescloudcomputingtoimprove hisfarms
efficiencyandlastyearalone raisedhiscabbage outputby12%.137
The CloudComputingservice
developedbyJapanese technologyfirmFujitsuLtdallowsforMr. Shinpukutohandle 60 different fruits
on 247 acres of land usingsensorsthatcollectreadingsontemperature,soil,andmoisture levelsaswell
as recommendationsastowhento start plantingandwhatcrops mightbe well-suitedtoa specific
field.138
Clearly,such daily observationsmayhave takenscoresof laborersinthe pastand isan
incrediblegaininproductivityandefficiencyconsideringMr.Shinpukucannow covermostof the work
himself. A whole range of otherinnovationscome withFujitsu’scloudcomputingtechnologyaswell.
For example,onlinecamerascancall up footage fromthe fieldandworkerscanalsosendpicturesfrom
theirmobile phone onpotential problems.139
GPStrackersonemployeesensure theyare nottakingan
indirectroute orsquanderingtime bybeingidle.140
The aimof thissystemistobringthe conceptsof
leanmanufacturingandcontinual improvement,or kaizen, tofarmingthatmay overtime make
Japanese farmssoprofitable andefficientthatdomesticfarmersmaywelcomeforeigncompetitionand
graduallybe lessapprehensive againstthe removalof hightariffs.141
Green Shoots
Japan’seco-industrial policyhasbeenradicallychangedsince the disasteratFukushimaDai-ichi
wipedouta quarterof the powergeneratingcapacityof Tokyo andthe governmentisnow earmarking
more fundsfromits “21 KeyNational StrategyProjects” byfrontloadingrelief spendingwith providing
incentives forenergysavingtechnologies andcleanenergypromotion . A greenindustrial policy,it
hopes, would“notonly helpabitwiththe powershortage bustalsoboostJapan’sstrugglingrenewable
firms”,whichhave lostthe market leadagainstrival firmsin Americaand low-costmakersinSouth
137 Wakabayaslli,Daisuke“JapaneseFarmers Look to the Cloud” The Wall Street Journal January 18,2011 B5
138 Ibid
139 Ibid
140 Ibid
141 Ibid

28. Koreaand China142
Scale isthe main culprittoJapan’srenewable firm’smalaise inprofitabilityandthe
governmenthopestospurdemandforJapanese builtsolarpanelsbyactuallypayingbusinessesand
homeownersfortheirexcesscapacitytofeedenergyintothe grid.143
Andfirmssee opportunityoutside
a nudge fromthe government. Toleverage existingR&Dalreadypouredintobatterytechnologyfor
electriccars,Toshibaand Panasonicare rollingoutbig,rechargeable batteriesforthe home thatwould
draw energyfromthe gridovernightandthenbe usedtoreduce peakdaytime demandforpower.144
To
meetthe expecteddemandthatmightcome witha furthergovernmentsubsidy,Toshibaishurryingto
release the batteryandexpectsdelivery intwoyears’time.
However,Japan’sforeignrivalsare alsoeagertojointhe market,giventhe scale of Japan’spost-
quake crisis,and they see the potential benefitsthatmightflow intheirdirectionfromthe extra
Japanese spendingongreen-energydevices. Japan’spotentiallysubsidizedfirmswill notbe incubated,
as Japan’sincentive programs will make iteasierforthe foreignrivalstodemandsimilartreatmentfrom
theirgovernments.145
Regardlessof the outcome forJapan’sgreen-energysector,what’sclearisthat
such energysavingschemeswill be insufficienttocompensate forthe lostgeneratingcapacity.146
Inthe
currentpost-reconstructionplan, only$49m isreservedforpublicitytourge Japanese toconserve
energyandevenlessforadvisingsmall businessesonconservation.147
Seize the MomentorFace AnotherLostDecade
The natural disasterthatstruckJapan inMarch of 2011 will alwaysbe aday that resoundsin
Japan’snational character. As Japanbeginsforgingaroad map forrecoveryfromitsworst postwar
disaster,itwill be importantforJapantoshedthe legacyof the 1980s bubble toavoida third“lost
142 “A Cloud with Green Lining” The Economist Vol 399 Number 8731 p.70
143 Ibid
144 Ibid
145 Ibid
146 Ibid
147 Ibid

29. decade”of stagflationanddeflation.148
Keytothisresult,of course,iswhetherthe nation’scompanies
endan aversiontoborrowingandbegintakingondebtto propel domesticinvestmentandwage
gains.149
For twodecadesnow,Japan’spolitical systemhasbecome toopolarizedtoproduce any
compromise tofurtherpushthe national agenda.150
AccordingtoMalcolmGladwell,authorof The
Tipping Point, “The onlytime youcan getthingsdone isin momentsof genuine crisis andcatastrophes –
there’sasmall opportunitytodoan extraordinaryamount.”151
InJapan,a countrywhose politicswere
deadlockedandsluggishforyearsishopingtoseize thismomenttoaccomplisheverythingitmustless
such effortsquicklybecome stultified.
All isnot lost,however,assome wouldthink. OnApril 26th
, the twoleadersof Mr. Kan’snew
ReconstructionDesign Councillaidouttheirearlythoughtsonhow torebuildTohoku,the shattered
north-easternregionof Japan’s mainisland.152
Asthe governmenthaslearnedfrompreviousinnovation
effortsforlettinginitiativestake onamore regional role,theywanttoletlocalsplaythe mainrole in
reshapingtheircommunities;rebuildwaysthatsuitelderlyresidents;andlimitthe influence of the
governmentinTokyo,whichovercentralizesdecision-making.153
Japan’susual wayof doingbusiness
neednotapplyhere andthe devastatednorth-eastcouldalsobecome atestbedforopeningupthe
economy.
Redtape andhighbusinesscostsare alreadyhaltingeffortsinthe regionasa lotof barriersto
trade are preventingrawgoodsfromnearbyneighboringcountriesfromenteringthe market. A wayto
speedupthe revival of Tohokuwouldbe toturn the regionintoa special economiczone,similarto
148 Anstey, Christopher “Japan Urged to ‘Seize This Moment’ or Face Another Lost Decade” Taken from
Bloomberg.com
149 Ibid
150 “Flailing”The Economist Vol 399 Number 8729 p.46
151 Anstey, Christopher “Japan Urged to ‘Seize This Moment’ or Face Another Lost Decade” Taken from
Bloomberg.com
152 “RebuildingJapan or RuiningIt” The Economist Volume 399 Number 8731 p.43
153 Ibid

30. ShenzheninChina.154
Once the immediate disasterreliefisover,the firstthing Tohokuwill needismore
youngpeople anditcan do so byopeningthe floodgatestoimmigration. Foryears,Japan,xenophobic
innature,has refusedtohave a seriousdebate onthe subject. Lettingforeignerstoworkor set up
businesseswouldbringinfreshcapital andnew ideas.155
Asdiscussedearlier,loweringtaxeswouldalso
help. A special,lowrate forTokohucouldencourage firmstorebuildin,ormove to,the strickenarea.156
If the aforementionedacceleratesthe region’srecovery,the Japanesemightaskthemselves:whynot
make the whole countrya lowtax,bureaucracyfree-zone?157
Conclusion
The new-Japancompaniessucceedbyresistingoldpractices. Aswe have learned,theymust
eschewthe “mainbank”systemthatkeepsfirmscloselytiedwiththeirlendersanddissolvethe keiretsu
systemthatkeepsbusinessinteractionswithinfamily-like groups.158
Businessesneedtobringmore
womenandoldpeople intojobstocounterthe decline inthe working-age population. 159
Withoutsuch
radical change,half the nation’stalentwill continue tobe squandered. InJapantoday,only8% of
managersare female comparedwith 40% inAmericaand20% inChina.160
There are more womenon
corporate boards inKuwaitthaninTokyo andwomenare paidonlyas muchas 60% - 70% of theirmale
counterpart’ssalaryforthe same job.161
This,of course,needstochange and itneedstochange now.
Japanalso needtogo beyond the conceptof monozukuri–the well-honedskill of makingthings
– to shikakezukuri– the creationof productsthat attract demandbytellinganew story,as Sonyonce
154 “A Good Placeto Start” The Economist Volume 399 Number 8730 p.69
155 Ibid
156 Ibid
157 Ibid
158 “New Against Old”The Economist Vol 398 Number 8720 p.72
159
“An Old Problem“ The Economist Vol 398 Number 8720
160 “WatchingChina WhizzBy” The Economist
161 Ibid

31. didwiththe Walkman. The storyof the entrepreneuristhe narrative of individuals whostake outnew
businessterritoryof theirown. These entrepreneursidentifyandcapitalizeonstructural holesor
processneeds.162
Theytendtopossesspersonalitytraitsthatclashwiththe bureaucraticmanagerial
typesinlarge corporationsinthe capital city andacademicinstitutionsoftenfarremovedfromreality.163
What we have learnedthoughisthatonce theysucceedinbusiness,theirsuccessstoriesleadto
emulate withintheirregionsandattractsa whole hostof new comersandnext-generation
entrepreneurseagertotake riskand seektheirfortunes.164
InJapan,the national governmentshouldbe
chargedwithpromotinggrowthandsustainable developmentandmustbe responsive tolocal efforts
and eschew fromoftenmisguidedandwasteful national efforts.165
Doingsuchwill provideincentives
for greaterresearch,development,andmanufacturingcollaborationamongfirmsinJapanandbetter
prepare themforthe challengesfacing the industrial world inthe seconddecade of the 21st
centuryand
beyond.
162 Ibata-Arens,Kathryn “Innovation and Entrepreneurship in Japan”p.165
163 Ibid
164 Ibid
165 Ibid p. 203

32. Notes
“A Cloud with Green Lining” The Economist Vol 399 Number 8731
“A Good Place to Start” The Economist Vol 399 Number 8730
“An Old Problem” The Economist Vol 398 Number 8720
“Clusters Flustered” The Economist Vol 399 Number 8729
“Flailing” The Economist Vol 399 Number 8729
“Friends and Neighbours” The Economist November 20th, 2010
“Leaving Home” The Economist November 20th, 2010
“Let a Million Flowers Bloom” The Economist Vol 398 Number 8724
“Maverick as Hell” The Economist Vol 398 Number 8720
“New Against Old” The Economist Vol 398 Number 8720
“Over Here!” The Economist January 15th, 2011
“Paddies vs Prius” The Economist November 13th, 2011
“Rare Action” The Economist Vol 398 Issue 8717
“Rebuilding Japan or Ruining It” The Economist Vol 399 Number 8731
“The Alarm Bells of Nagasaki” The Economist Vol 398 Number 8716
“Watching China Whizz By” The Economist August 21st, 2010
Anstey, Christopher “Japan Urged to ‘Seize This Moment’ or Face Another Lost Decade” Taken
from Bloomberg.com
Domain, Edward “Flyover Geeks: Building an Entrepreneurial Community in Chicago” Taken
from Chicagobusiness.com
Frangos, Alex “Japan Unlikely to Get in Yen’s Way” Taken from WSJ.com on May 10th, 2011
Glaeser, Edward Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter,
Greener, Healthier, and Happier New York: The Penguin Press 2011
Ibata-Arens, Kathryn Innovation and Entrepreneurship in Japan: Politics, Organizations, and
High Technology Firms Cambridge University Press 2009

33. Johnson, Nicholas “Google and Cisco to Join White House Effort for Entrepreneurs” as taken
from Bloomberg News on April 20, 2011
Wakabayaslli, Daisuke “Japanese Farmers Look to the Cloud” The Wall Street Journal January
18, 2011 B5
Zielenziger, Michael Shutting Out the Sun: How Japan Created Its Own Lost Generation New
York: Vintage Books 2006