“Japan is now in a serious recession. A big reason is that Japanese companies are hung up on the system of making things. What they need to do is create a new system of making knowledge.”
So stated Taichi Sakaiya, prolific author and former Minister of the Economic Planning Agency, on a recent broadcast of the radio program “Otake Main Dish” on the Bunka Hoso network.
According to Mr. Sakaiya, in the current global era, high value added products are no longer developed in one nation, but rather development is divided among several nations, according to their strengths or areas of expertise.
For example, for a particular high technology product, the business model might be developed in the US, the design in France, technology development in Germany, parts manufacture in China, assembly in Taiwan, sales strategy and marketing in London, finance in Singapore, etc. Borders are disappearing; the border between Tokyo and China is becoming the same as the border between Tokyo and Kanagawa Prefecture.
However, in this global era, it is inevitable that the manufacturing portion will be outsourced to China, India, and similar low-wage countries, so in order to promote economic growth, according to Mr. Sakaiya, a value added system of creating knowledge (“chiezukuri”), rather than creating things (“monozukuri”), will become vital.
Japan has long emphasized the importance of making things and industrial manufacturing, but that is no longer sufficient, Sakaiya said. Show host Makoto Otake asked whether Japanese companies’ fixation on technology for its own sake was not the very key to the success of the Japanese economy, to which Sakaiya replied that Japanese companies make wonderful cell phones and personal computers loaded with functions and features, but they do not sell well outside of Japan, because foreign consumers do not necessarily need those functions or features. But Japanese companies do not notice that because of their fixation on technology, he said.
Instead, Japanese companies should focus on creating knowledge and utilizing global process flow product development, then leveraging their technology, so that Japan assumes the role of a global business headquarters, he said.
I concur with Mr. Sakaiya’s ideas. Outsourcing of manufacturing to low-wage countries is certainly a concern to a country that prides itself on its manufacturing skill. But backed by the high educational level and strong work ethic of the Japanese people, Japan can continue to maintain its role as a global economic leader by emphasizing a system of making knowledge and a role as an international manager.
For example, to return to the previous example of the cell phone, Apple’s I-Phone is a good example of the “chiezukuri” (making knowledge) system. Its design, software, and marketing were conceived and developed in the US, the components are purchased from Japan, China, and other Asian countries, the units are assembled in Taiwan, etc. Judging only from the technology of its hardware and the number and sophistication of its functions, the I-Phone is inferior to the average Japanese cell phone, yet its elegant, intuitive design and interface create an extremely attractive user experience. That is because Apple conceived the I-Phone from the ground up on the basis of its business model, information technology, and design, not on the basis of hardware manufacturing technology and product features.
Thanks to that, when the most recent version of the I-Phone went on sale last summer, not only did US and European consumers line up to buy it as one might expect, but Japanese consumers did as well. In fact, thanks to the I-Phone, mobile carrier Softbank has maintained its number one position in the hyper-competitive Japanese cell phone market for two years running. Probably Mr. Sakaiya would say that more Japanese companies should emulate Apple’s I-Phone strategy.
Mr. Sakaiya did not mention it during his radio interview, but indispensable elements of the “chiezukuri” system are licenses and similar contracts. With the help of contracts, technology, finance, and other resources of industry can safely and easily cross national borders to create the most advanced, highest value added products. Even if China and India have the lowest cost labor, if Japan implements the “chiezukuri” system over the “monozukuri” system, then Japan will definitely beat the recession and continue to triumph in global economic competition.
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