Firing up innovation in Japan: Entrepreneurship has been frowned up in Japan but a new breed of youngsters are hoping to make the country a world class technology player once again

 
Annabelle Williams
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Japan's electronics giant Sony employee
Sony was founded in 1946 – it’s now a 70-year-old granddad. (Source: Getty)

The eighties were a boom time for Japan, when the country’s high-tech innovations meant the likes of Sony, Nintendo, Mitsubishi and Toshiba were global leaders.

Its technology had changed society, from the appearance of the first bullet train in 1964, to Sony’s Walkman in 1979, through to the Nintendo GameBoy in 1989.

Japan’s dominance in cars, steel, and personal electronics led to a spurt of outward investment, and Japanese takeovers frequently featured in the news. The decades since have been muted, however. The country’s still fond of toilets with 50 functions (the Toto brand was a leader in the 1980s) and robots work with elderly in care homes. But for many in the West, there’s a perception that South Korea or West Coast America are the leading originators of innovation.

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“It’s been many years since the country has produced the likes of Sony founders Akio Morita and Masaru Ibuka,” says Kwok Chern-Yeh of Aberdeen Asset Management.

“The older generation may associate Japanese innovation with miniaturisation, especially with regards to personal electronics. However, the must- have gadgets of today are usually associated with other countries,” he adds.

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Japan went through two distinct waves of change: one called the Meiji Restoration, and another in the post WW2 era.

Now the economy is struggling with low growth and no inflation. Prime Minister Shinzo Abe wants to encourage innovation and change business culture, a key part of the “third arrow” in his so-called Abenomics plan to revitalise the economy.

“In innovation and coming up with new products, that is something where Japan has lost its way,” says Praveen Kumar of Baillie Gifford. “Since the Walkman and the bullet train we haven’t seen real innovative products come out of Japan.”

Cultural reasons are sometimes blamed, due to Japan’s rigid business environment which prizes conformity and deference in the workplace. “Japan’s collectivist culture has never encouraged the sort of individualism that breeds successful entrepreneurs,” says Chern-Yeh.

There’s a problem with “suffocating and hierarchical corporate structures which inhibit innovation” says Vincent Musumeci of Henderson Global Investors, citing a Harvard Business School study. These days a number of Japanese industries are controlled by “sleepy incumbents”.

“It’s down to a mentality of following the company line and not being given the freedom to explore new areas,” explains Kumar.

“Risk taking and entrepreneurship have been looked down on in Japan. This is because there’s a culture of jobs for life,” he adds.

Furthermore, companies can become less innovative the larger they grow. Sony was founded in 1946 – it’s now a 70-year-old granddad.

“I can give you a whole list of companies that got so big their innovations weren’t enough to move the market,” says David Coombs of Rathbones.

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But this is beginning to change. “Entrepreneurialism is becoming acceptable in Japan. Part of it is being driven by a generational change, as older men cede to younger managers,” says Kumar.

The focus of international investors has shifted from the old guard of Hitachi, Canon and the like to a younger breed of spirited companies which look to West Coast America for inspiration, rather than their Japanese forefathers.

“There’s a new breed of company that’s following the Harvard business model rather than the old Japanese way,” says Coombs.

There’s also a change in that Japanese companies are beginning to carve out niches in business-critical components and services, rather than headline-grabbing gadgets.

“Innovation is less obvious because it is more often linked to products and processes that consumers don’t see,” says Chern-Yeh.

Fanuc, for example, is the world’s biggest robot maker, and it makes industrial robotics for Apple, Samsung and Tesla. It has run production lines so clever they can run for weeks without supervision.

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Making waves in medici­­ne is an online business called M3, which links doctors directly with drugs companies. It’s branched out globally, and runs the UK’s largest doctor network, says Nicholas Weindling of the JP Morgan Japan investment trust.

Whether Japan succeeds in kick-starting its economy remains an open question, but there’s a quiet re-boot of the country’s technology underway.

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