Innovation in Japan - ACS Publications - American Chemical Society

4 Innovation in Japan C A R L T O N A . SEARS

Downloaded by UNIV OF OKLAHOMA on September 20, 2013 | http://pubs.acs.org Publication Date: August 8, 1980 | doi: 10.1021/bk-1980-0129.ch004

Virginia Chemicals Inc., 3340 W . Norfolk Road, Portsmouth, VA 23703

For the past twelve years, I have had the very stimulating and interesting experience of being closely associated with Japanese industry. Through this period of time, we have negotiated and established technical exchange agreements, licensing agreements and joint activities with a number of Japanese companies. As a result of this experience, I have developed a great deal of respect and, I hope, some understanding of the Japanese, their industrial system, their society and cultural activities, and their general way of l i f e . The population of Japan approximates 50% of the population of the United States with a total land mass less than many of our individual states. Approximately 25% - 30% of the Japanese population live in a corridor about 350 miles long extending from Tokyo to Osaka. In addition to this apparent resource limitation of land area per unit of population, Japan has essentially no natural resources. However, even with these limitations, this "island country" has become a major factor in the industrial world of today. Perhaps these very limitations have contributed to developing the strongest resource of Japan -- its human resource. This human resource has brought Japan to its leadership position and this resource could propel this "island country" to an even greater position in the future. Japan's human resources have more than counter-balanced this country's lack of natural resources, and have required that the Japanese people innovate to become a leader in our industrial society or stagnate and become a "loser". The course they have successfully followed is readily apparent in world markets. Japan's success at innovation is legend. For example, Japan has increased their automobile production over 100 times (from 100,000 units to 10,000,000 units per year) in the past two decades. In addition, Japan has taken the leadership from Germany in camera production; from Switzerland in watch manufacturing, and 0-8412-0561-2/80/47-129-057$5.00/0 © 1980 American Chemical Society In Innovation and U.S. Research; Smith, W., et al.; ACS Symposium Series; American Chemical Society: Washington, DC, 1980.


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INNOVATION AND U.S. RESEARCH: PROBLEMS AND RECOMMENDATIONS

has captured the market in high fidelity systems, radios and TV's from the United States. They have captured the market from Great Britain for motorcycles. They are reputed to be ahead in quality and efficiency of steel production and have surpassed the United States and Great Britain combined in shipbuilding. Many of the innovations that have lead to Japanese commercial leadership are based on discoveries made in the United States, Great Britain, or Western Europe. Specifically, Sony Trinitron TV is based on technology "discovered" in the United States. Sony innovated a commercial system/product based on this. In the late 1960's, Japanese TV manufacturers adopted solid state systems for their units; United States' manufacturers stated "they would never fly". Such innovation lead to lower costs and energy conservation reflected in Japan's taking the lead in the TV industry. The miniturization of multiple function, liquid diode calculators were successfully innovated to commercial products by the Japanese. The basic discoveries were made in the United States. Other examples could be cited, including the quartz and digital watches. Harvard economist, Dale Jorgensen, has reported that although Western societies are ahead in a number of advanced research fields, Japanese industrial plants had, by 1973, surpassed ours in regard to modern improvements. Their product, process, and marketing innovations, based on discoveries made in other parts of the world, is openly exhibited. Japanese products and market success have been subject to much criticism, particularly relative to pricing policies. Some of this may be justified, however, let us give credit where credit is due. It is an accepted fact that Japanese products are of highest quality, but i t is not as widely understood that Japanese companies do not generally have what we identify as a quality control department — their quality control is built into every step of the operation as a part of their "zero defect" program. It is a recorded fact that, generally, Western production failures for quality reasons are 2 - 4 times higher than those of comparable Japanese items. The effect of this upon costs and resultant pricing options/ policies is obvious. This is truly a part of the innovative process. Japan's basic dependence on import and export markets — or the need to think in terms of world markets/supplies ~ has created a society with the ability to adapt and innovate to meet these basic needs. This innovative process includes qualities of doing their "homework" thoroughly, of patience to understand, and the ability to adapt and design product or market systems for specific situations. Japan has proven its unique innovative character. The factors that have contributed to this unique character should

In Innovation and U.S. Research; Smith, W., et al.; ACS Symposium Series; American Chemical Society: Washington, DC, 1980.


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lead to Japan's playing an increasingly greater role in discovery and innovation on a world-wide basis for the future. I am confident that there are many examples that could be cited that would reflect the innovative leadership of the United States and/or Western Europe. The purpose of this discussion is not to reflect on whether one area of the advanced world is more innovative than the other but to point up those factors that create a very favorable climate for innovation in Japan. At this point, i t may be helpful to define the views accepted for this presentation relative to innovation. I have generally accepted the definition, "innovation is the technical, industrial and commercial process or steps which lead to the marketing of new manufactured products and commercial use of new technical processes and equipment". By this definition, we can include the discovery process with the innovative process or consider discovery as a separate, distinctive process from innovation - - although each is dependent upon the other. We prefer to consider them in a separate sense. There are at least four key factors that contribute to creating a favorable climate for innovation. These factors exist in any advanced society, but it is my view that these characteristics in Japan result in a more favorable climate that: 1.

has lead to Japan's success with the innovative process

2.

will continue and strengthen this trend

3.

will lead to greater contributions in the discovery process in the future

I would like to consider with you those key factors that contribute to creating a favorable (or unfavorable) climate for innovation and discovery and the particular characteristics in each of these that result in a very favorable climate for future discovery and innovative contributions from Japan. These key factors are: 1.

the human resource

2.

the management resource

3.

the government/political resource

4.

the financial resource

Perhaps the most basic element is the nature of the Japanese people and their culture. Earlier we mentioned the human resources of Japan and their importance relative to the lack of natural resources.



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The Japanese are a closely-knit, highly-motivated, welldisciplined, highly-intelligent society. They take great pride in their respective place in society, and in turn, respect the place and importance of the individual as a part of the whole. For example, I doubt that anyone who has been to Japan is not impressed by the pride each person takes in his job, his company, his possessions, and those possessions of his company or others. The taxi drivers, when not driving, are polishing and cleaning their cabs. This character of cleanliness and pride is reflected throughout the society. There is an esprit de corps in Japanese companies that is enviable. The average worker is not just an employee — he is the company. This is reflected in their indirect and direct support of the industrial system. The Japanese savings rate is at least 3 - 4 times greater than in the United States. These savings provide funds for re-investment and modernization and play an important role in the fact that Japan has a re-investment rate at least two times that of the United States. Japan has one of the highest educational levels in the world. Their crime rate has dropped 50% since the late 1940's and did so despite increasing industrialization and urbanization. The Japanese average life span is longer than any other nation, reflecting again, the pride, discipline, and recognition of the individual. An important characteristic of the Japanese is their ability to be "alone". This seems contrary to our observations that Japan is a highly-populated country with relatively small living area and people, people, people everywhere. However, i t is just this factor that, I believe, has taught the Japanese to discipline themselves to "be alone" or detach themselves from the masses, even though they physically may be in the center of such masses. Why is this important to innovation? To innovate requires a kind of "aloneness". This is a first condition for creative or innovative thinking. Those who f i l l their days with whatever tasks present themselves and continually work in pressure situations,who cannot detach themselves and find an "aloneness" or an "awareness" will probably not innovate or create. They will react - - in contrast to causing reaction. These socio-economic factors contribute to a stability within the individual and society which, in turn, creates a favorable climate for reflective thinking which, in turn, leads to discovery and innovation. The role of management or leadership in contributing to the overall health of the group corporation is well-documented. Perhaps in Japan, the key contribution of management has been its ability to create, adapt, and maintain those favorable characteristics that exist in their human resources.



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For example, I have discussed with associates in Japan their lifetime employment policies. As you know, the unemployment rate in Japan is normally less than 2% and when i t exceeds this there is great concern. Some Japanese question their lifetime employment policy. It is my view that we in the United States have a lifetime employment system, however, the difference is that in Japan it is managed and controlled by the private sector, while in the United States it is managed and controlled, to a major extent, by the public sector through welfare programs, food stamps, etc. It takes l i t t l e imagination to consider which is more costly to a society, both in terms of dollars or yen and, as important, in pride and utilization of the human resource. The average Japanese worker is now as highly-paid as in other industrial economies such as the United States and Western Europe. However, Japan's productivity per worker is at least 1^ times that of the United States and their product quality enjoys an enviable position. The cooperation between labor unions, management, government, and the financial institutions are unique to any industrial system and contribute greatly to Japan's ability to maintain a relatively stable system even in light of significant shifts in other sectors of the world's economy. The resources of government can support or detract from the innovative process. In Japan, the government, generally, is supportive of the innovative process through the Japanese government's direct support of the industrial system. For example, in 1978, sixteen government technical centers, with about 3800 specialists, were funded by MITI. These laboratories are primarily oriented to the individual entrepreneur or the smaller enterprises that do not have large research facilities. In addition, there are about 200 test and research institutes, one in each prefecture and major city, that support an additional 7500 specialists. Perhaps as important, or even more important, is the Japanese government's attitude toward industry. MITI is a difficult "task master", as is any bureaucracy. However, this agency performs as a focal point to coordinate and rationalize Japanese industry. Their efforts, without fear of antitrust or government control, serve a useful purpose in aiding industry to focus on what is to Japan's best interests short and, particularly, long-term. For example, through various government and private studies, it was determined ( 1 - 2 years ago) that there were several structurally weak industries in Japan. Through programs developed by MITI and industry, these industries were restructured by various methods - including shut-down and dismantling of excess capacity (NH3, for example). Industry was provided proper tax incentives and employees were shifted to new positions. This provided the opportunity for Japan to focus the important resources of capital and people into areas that were, longer-term, more beneficial to their economy and society. This would not



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have been possible without government's full support. It is a recorded fact that the Japanese government and Japan's industry have made a joint commitment to obtain a leadership position in the communications industry, including computers. Studies carried out in 1964 and 1970 have shown that the Japanese have developed a superiority in mathematics and related sciences over other advanced societies of the world. This critical resource of technical training will contribute greatly to this national commitment. It is reported that some informed observers expect that Japan will reach the general level of United States computer technology by the mid 1980's and that by 1985 Japan will enjoy a 6% - 10% share of the United States computer market - worth about $1.7 - $3 billion to the Japanese economy. This is quite an incentive! Capital formation and utilization are vital to the free enterprise system and the free enterprise system is the best overall climate for innovation. Japanese industry is highly leveraged - by our standards. For example, in the United States, an average debt/equity ratio may be in the range of 20/80 to 40/60; but in Japan the reverse ratios are common. We contend that this directly or indirectly favors the innovative process. You will recall that the average individual savings rates in Japan are about 20% - 25%. These savings generate capital for re-investment and indirectly make the Japanese society an integral part of the capital formation process. We could logically rationalize that the equity/stock system provides the same opportunity to the individual. The fallacy may be that stock ownership is not as widely spread as savings systems. However, even more important, the equity system creates external pressures on management by many not gifted with an understanding of the business process. The equity system places much greater emphasis on short-term profits, price/earnings ratios, and the other measures of financial success. Perhaps another way of expressing this is that in the equity system there are many more external pressures, including individual shareholders, the media and various financial institutions. In the debt system, there is essentially only the banker to answer to. Normally, in Japan, he will be more close to and understand the business. As long as his investment is generating proper interest, his external pressures will be minimal. This generally leads to more patient money, longer-term projects, and a more favorable climate for the innovative process. In summary, Japan has created an innovative society. This was needed to survive. Following survival, they have extended this innovative character to become a leader in the world's advanced societies. In the past, innovation has been sufficient to bring them to


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this position. In the future, we believe, and many Japanese confirm this, that Japan must assume a greater position in the discovery process as well as the innovative process. There is every indication that Japan will be as successful here as they have been in the innovative process and assume an even greater role in future scientific discoveries and developments.


RECEIVED November 13, 1979.


Innovation in Japan - ACS Publications - American Chemical Society

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