Japan’s globalization paradox: is Japan global? or struggling to globalize?


Japan’s globalization puzzle: intriguing questions by one of my great European friends, a great European banking sector leader

How do you explain Japan’s lack of internationalization with so many big Japanese holdings managing successfully businesses abroad (e.g. Toyota, Toshiba, Mitsubishi, etc.)

Japan’s globalization paradox – a closer look

Its not so simple: Japan is a huge country, third globally, and there are 3500 Japanese companies listed on the Stock Exchanges – they are all different. Some Japanese companies are very excellent and successful and global leaders or even No. 1 in their fields – e.g. you mention Toyota and there are many more.

On the other hand, Japan is the only major country who’s economy has not grown for 20 years, and for example, Japan’s electronics sector dominated the world 20 years ago, but since then there is no growth and essentially no profits, see: http://www.eurotechnology.com/2015/06/18/japanese-electronics/

There are two main factors limiting Japan’s growth

  • decreasing and aging population. few babies and no immigration.
  • structural reasons (slow growth by traditional established corporations, and too few new high-growth industries), corporate governance issues, addressed by Prime-Minister Abe’s “third arrow”, however most people agree that Prime Minister Abe’s “third arrow” reforms have been more words than action. Maybe the most or only successful “third arrow” reform are Japan’s corporate governance reforms

I’ll give a talk on 6 October 2016 for the Swedish Chamber of Commerce in Japan, Stockholm School of Economics, at the Swedish Embassy in Tokyo:
“Changing the way Japanese corporations are managed”

Exhibit – Toshiba and its scandal

You mention Toshiba – Toshiba is a famous global brand in many sectors, and Toshiba has developed many important technologies in many areas from medical technology (Toshiba’s medical sector has been sold to Canon as a result of Toshiba’s accounting scandal), semiconductors (especially flash memory), but Toshiba’s profits/income averaged over 20 years is close to zero, ant Toshiba did not grow for 20 years, and went through a series of accounting scandals etc. Now as a consequence of these scandals, Toshiba has to sell off several important growth divisions, e.g. their very valuable medical technology sector to Canon. Read comments on Toshiba here:
or read in Wall Street Journal about Toshiba here 2 days ago

Toshiba’s accounting issues are the result of a combination of mainly two factors:

  • 20 years no growth and essentially no profits, compounded by financial problems in the nuclear industry segment as a consequence of the Fukushima Dai-Ichi nuclear disaster (Toshiba had acquired the nuclear manufacturer Westinghouse, and thus is a major nuclear industry manufacturer and contractor)
  • corporate governance

Companies such as Toshiba, benefit from their globally famous brand, therefore I am quite optimistic that Toshiba and other Japanese companies in similar situations can recover, if the correct management decisions are taken, and if corporate governance is improved – and this is exactly the reason why the current Japanese government sees corporate governance reforms in Japan as a major priority.

There is no doubt in my mind, that if corporate governance, management and other factors are improved, companies like Toshiba can be transformed into iconic companies, but these will be different companies than today.

As an example, both SONY and HITACHI are quite successful in their revival efforts.

Japan’s electronic sector

Japan's whole electrical sector is in huge trouble – again caused largely by corporate governance – read: http://www.eurotechnology.com/2015/06/18/japanese-electronics/

Here are some of my interviews on CNBC, BBC etc about these issues, e.g. http://www.bbc.com/news/business-20335272

Mitsubishi – there is no Mitsubishi Holding Company, but 1000s of companies with Mitsubishi in their name…

As another example you mention is Mitsubishi. There is no single company with the name 'Mitsubishi' in Japan. There are 1000s of companies with Mitsubishi in their name, and most are loosely grouped into the Mitsubishi Group – which is not a legal entity, and at their core is Mitsubishi Trading Company, and Tokyo Mitsubishi UFJ Bank etc. In some cases there are cross-shareholdings within the Mitsubishi Group, but these have been reduced much over the recent years. There is no “Mitsubishi Holding Company”. Most companies with Mitsubishi in their name are independent companies, many independently on the stock exchange.

Together the Mitsubishi ‘Group’ is a big part of Japan's economy – maybe 10-15%, but the ‘Mitsubishi Group’ is not a corporate group in the Western sense. Some of these companies are very successful and very strong – some are very good, but some have difficulties – which can also be overcome. An example is Mitsubishi Motors, an automobile maker, which was acquired around 2001 and then divested again in 2004-2005 by Daimler (then Daimler-Chrysler), and is currently being reformed by Nissan under the guidance of Nissan/Renault CEO Carlos Ghosn.

Read this analysis in Wall Street Journal a few days ago – this is exactly what I will talk about in my talk at the Swedish Embassy

The whole picture is quite detailed and differentiated.

'Toyota, Mitsubishi, Toshiba are great companies' … Yes and no. The devil is in the detail. More reading here:

e.g. my talk at the American Chamber of Commerce in Japan: Japan's Galapagos Effect

My interviews on CNBC, BBC etc about these issues, e.g.:

Read also Masamoto Yashiro talk “Japanese management – why is it not global? asks Masamoto Yashiro at a Tokyo University brainstorming”

(Masamoto Yashiro is my great friend and a legend in Japan's banking and energy industry. He built Shinsei Bank from the ashes of the bankrupt Long Term Credit Bank of Japan, and served in leadership positions (Chairman, CEO, Board Member) in Esso, Exxon, Citibank, Shinsei Bank, and the China Construction Bank)

Masamoto Yashiro also regularly attends the Ludwig Boltzmann Forum which I am developing into a global leadership platform, which I am organizing, you can see him in the photos here:
8th Ludwig Boltzmann Forum 2016
and here
7th Ludwig Boltzmann Forum Tokyo 2015

Japan’s economy overall and Abenomics

My friend Takeo Hoshi, Professor of Finance at Stanford Graduate School of Business: “Abenomics success probability is 12%, 88% probability of failure”

Download Gerhard Fasol’s Stanford University lecture “New opportunities vs old mistakes – foreign companies in Japan's high-tech markets”

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Japan’s electronics conglomerates: Whats the difference between Apple/IBM vs Sony/Panasonic/NEC?

Japan's electronics conglomerates: Whats the difference between Apple/IBM vs Sony/Panasonic/NEC?

Why are Apple/IBM/Microsoft/Google so very different compared to SONY/Panasonic/NEC

Need for corporate governance reforms in Japan

My friend’s question: Why are Apple/IBM/Microsoft/Google so very different compared to SONY/Panasonic/NEC

Gerhard Fasol’s answer: Profit and growth. Apple and IBM grow and are highly profitable. Sony, Panosonic and NEC have no growth and no profit for 15 years – read here:
for more detailed analysis, read our Report on Japan’s electronics sector

My friend’s question: Gerhard, we know about the difference in profitability and growth. The question is, what made such a difference in profitability and growth

Gerhard Fasol’s answer: there are many down-stream issues, e.g. acquisition of cloud startups, execution etc. Much of this is summarized in an excellent talk by Masamoto Yashiro, which I have written up here: http://www.fasol.com/2013/10/19/masamoto-yashiro/

There are:

  1. superficial reasons, like YEN-rate, interest rate, global recession etc
  2. execution and management issues, the kind of stuff you learn at Business Schools
  3. the big underlying issues

the big underlying issues are brains (=hardware) and education (=operating system and software for those brains).

There are many fantastic Japanese companies. In a free market, its no surprise that companies are born and others die. Its called Schumpeter’s creative destruction. In a way its more surprising that companies can survive so long with a long-dead business model.

Have you heard about the German company AEG? AEG built the electricity system for Tokyo a long time ago – thats why Tokyo has 50Hz and Osaka has 60Hz. AEG disappeared about 30-40 years ago. There are still some companies today licensing the AEG brand, which is still famous, however, the traditional AEG company disappeared with bankruptcy in 1980. You can read about this here: http://www.csmonitor.com/1982/0812/081250.html

it says:
“Plagued by bad management throughout the 1970s, West Germany’s 10th largest employer overextended itself and became involved in too many loss-making enterprises. It invested heavily in the wrong kind of nuclear technology and its domestic appliances business fell prey to growing competition in a stagnant market.
In the last four years, it posted operating losses of 4 billion marks ($1.6 billion) and despite massive injections of credit from the banks in 1979 and again last year, it did not recover. Mr. Duerr partly blames the worldwide recession and high interest rates for the failure.”

Sounds familiar? thats AEG in 1980.

Copyright (c) 2013 Eurotechnology Japan KK All Rights Reserved

Blue laser diode book with Shuji Nakamura – the back ground story

Shuji Nakamura & Gerhard Fasol the blue laser diode

The Blue Laser Diode: The Complete Story (2nd Edition) Springer Verlag, Heidelberg

Blue laser diode book – GaN based light emitters and lasers (1st Edition)

Since I have been working for many years on GaAs research, as soon as I heard Shuji Nakamura’s talk at one of Japan’s applied physics conferences, I understood the importance, visited Shuji Nakamura in Anan where he was working at Nichia Kagaku Kougiyou, and became friends with Shuji Nakamura (see Shuji Nakamura speaking here at the 5th Ludwig Boltzmann Symposium in Tokyo). Shuji Nakamura also introduced me over curry lunch to Founder and Chairman Nobuo Ogawa (小川 信雄), who at that time was about 83 years old.

I asked Chairman Nobuo Ogawa why he had agreed to pay for Shuji Nakamura’s proposed research on GaN blue LEDs, and pay for Shuji Nakamura learn MOCVD at the University of Florida in Professor Ramaswamy’s group. Nobuo Ogawa’s answer: “How did you chose your wife?”

I wrote a number of articles about Shuji Nakamura’s development of GaN LEDs and lasers in SCIENCE Magazine and the Deutsche Physikalische Blätter.

I also wrote an article for the Journal of the German Physical Society, at that time “Physikalische Blätter”, for which I was regularly writing articles and reports from Japan. The Editor initially rejected my article. He told me that he had consulted with German experts, and these experts had told him that they had never heard about a successful blue GaN LED, and that this was therefore impossible, and wrong. The Editor asked me rhetorically: “Do you think these German experts are wrong?” – I answered “Yes, they are wrong – you should publish this article”, and sent him some background information in support of my article. He finally published the article, and you can find it online here:

  • Gerhard Fasol: "Die blaue GaN Leuchtdiode: Auftakt für einen neuen Industriezweig (The blue GaN light emitting diode: the beginning of a new industry)" Physikalische Blätter, 51, p. 925-926 (October 1995)
  • Gerhard Fasol: "Japanische Herbstkonferenzen in Angewandter Physics (Japan’s autumn conferences on applied physics)" Physikalische Blätter, 50, p. 1118-1119 (December 1994) (my first report on Shuji Nakamura’s GaN work in Germany’s Physikalische Blätter)

Through my articles in Science Magazine and Physikalische Blätter, Claus Ascheron, Physics Editor of Springer Verlag became aware of my work in Tokyo, and asked me if I can help him win Shuji Nakamura’s agreement to write a book on his GaN work.

Claus Ascheron and myself went to visit Shuji Nakamura, and we had a lunch with Shuji Nakamura, Chairman Nobuo Ogawa, Claus Ascheron and myself. During lunch Claus Ascheron asked Shuji Nakamura, if he would be interested to write a book for Springer Verlag. Shuji agreed, but said that he needs Chairman Ogawa’s agreement. He asked Chairman Ogawa straight away, and Chairman Ogawa said “No. You can’t write this book, I don’t give my permission”. So I intervened and asked Chairman Ogawa for the reason of this refusal. Chairman Ogawa said: “Nakamura-san is researcher, he must do research and develop new products, he cannot waste his time writing books”. So I offered to help as a co-author, so that this would take less of Shuji Nakamura’s time. Chairman Ogawa agreed to this arrangement, and gave his permission.

As a result, Shuji Nakamura and myself worked many night-sessions over Christmas and New Year 1996/1997, and the first edition of the Blue GaN Laser book was published in January 1997, to be ready for the annual Book Fair in Frankfurt.

  • "The Blue Laser Diode: The Complete Story" (2nd Edition),
    S. Nakamura, S. Pearton, G. Fasol
    (Springer-Verlag, October 2000, ISBN 3-540-66505-6)
    Press here to order “The blue laser diode” from amazon.com

  • "The Blue Laser Diode – GaN based light emitters and lasers" (1st Edition),
    S. Nakamura, G. Fasol
    (Springer-Verlag, January 1997, ISBN 987-3-662-03464-4)

You can also read some of the background of Shuji Nakamura’s invention and the development of the solid state lighting industry in our Solid State Lighting report.

Copyright·©2013 ·Eurotechnology Japan KK·All Rights Reserved·

Japan Cloud computing impact and trends

Japan cloud computing impact and trends, keynote article

Software eats everything, and cloud eats software… we all see a strong trend of all data and computing to move to “the cloud”, because if done well, managing data and computing in the cloud can be far cheaper than on computers and on storage that you or your company owns.

It is also much more efficient to manage security centrally in a scaled fashion for large numbers of users, rather than specifically for each computer, or each local network separately.

We expect to move almost all computing and data to the cloud, where we have multiple access points via tablets, smartphones and PCs/Macs or other devices or machines.

Japan Cloud – “Cloud computing impact and trends” by Gerhard Fasol, Keynote article about in the RENESAS ELECTRONICS customer magazine and website “Renesas Edge Global Watch”

The article summarizes the essence of how The Cloud is constructed, the key components, both hardware and software, and some examples of how The Cloud is used.

Japan cloud related:

  • “What Makes Japan’s Data Center Landscape Special: Trends, Growth, and Business Continuity Needs”, keynote at the DataCenter Summit, Tokyo, on May 22, 2013 by Gerhard Fasol
  • GMO Cloud KK

BBC interview about SONY earning results

Helped BBC with the article “Sony earnings boosted by weak yen and smartphone sales

Japan technology companies – the future?

Japan technology companies – how to move to the future?

Gave a talk to a group of about 50 CEOs of the Japan subsidiaries of global companies on the topic “A future for Japan’s tech companies?”

I talked about the same issues as at the TTI-Vanguard Forum about a year earlier, and started again with the conclusions:

Japan technology companies – First to develop many technologies, but not good enough in capturing global value

  • Conclusions 1: Japan has invented and first brought to market many new technologies and business models in today’s hottest areas, and Japan is not good enough at capturing global value from this incredible creativity
  • Conclusions 2: why does it take at least 10 years to reinvent the wheel in London?
  • Conclusions 3: WHAT is holding Japan back to capture global value from fantastic inventions?

SONY (manuscript invited by BBC, preparation for interview)

Games are 11% of SONY‘s sales – and currently 56% of SONY’s profits come from selling life insurance, consumer loans and financial products in Japan. Games are important, but are not going to make or break SONY at this time.

Technical specs of the next Playstation need to be fantastic. Specs alone however have not been the main focus for quite some time now. Smart phones, social games, smooth linking of all “screens” are disrupting the games sector. In Japan, the social games market is already twice the value of the traditional game console market (excluding software): in anticipation of their global success, GREE and DeNA combined have climbed to half the market cap of all of SONY.

SONY’s game business model also faces disruption by free and $.99 “snack-type” games, downloaded to mobile phones and tablets – to win in this sector SONY would have to beat Rovio’s Angry Birds brand and their galactic and Starwars games among others. Its hard for SONY to please both hardcore gamers, and the much larger audience of casual gamers looking for quick in-between low cost or free game “snacks”.

If I was CEO of SONY, another fact I would worry about is that there are currently about 800 games on Playstation, while here are about 130,000 games on iOS, and more than 100 new games submitted to Apple everyday. Now if Apple would take this enormous developer support to a next generation Apple-TV ecosystem, I would have sleepless nights about my whole game business division if I was SONY-CEO.

Personally, I like SONY’s acquisition of the cloud game platform Gaikai. It will be key for SONY to keep a great team at Gaikai. Ultimately Gaikai might become SONY’s most important game platform. Improving the specs of SONY’s Playstations is necessary for SONY to remain a console player – however for business success SONY needs to drive disruption instead of reacting to others like Apple or Rovio. Gaikai could give SONY that chance. SONY’s own studios could also be a more important weapon in the game.

SONY is often taken as a poster child for Japan’s stagnation: over the last 15 years, SONY showed essentially no revenue growth and close to zero average profits and margin. However, CANON proves that even a Japanese electronics company can deliver consistent growth and good margins, but copying CANON of course is not the way to go. SONY will need to create its own way.

Read more analysis in our report on Japan’s electronics sector

Cash goes mobile and electronic. First to market in Japan and then what? (TTI-Vanguard conference keynote)

The organizers of the legendary TTI-Vanguard conference series organized a conference on “Futureproofing” in Tokyo, and invited me to give a keynote on Japan’s creativity and first-to-market for many technologies and business models, and Japan’s difficulties to capture global value from this creativity, a phenomenon often called “Japan’s Galapagos syndrome“.

The organizers, and particularly the legendary Bob Lucky and organizer Hal Levin made great efforts in assisting me to plan and prepare my talk. Although I was given about 30-40 minutes for my talk I was asked to present the conclusions in the first slide at the beginning of my talk and then essentially be prepared for open discussion during the 30-40 minutes instead of giving a traditional talk.

I picked electronic money, near-field payments and mobile payments as an example to demonstrate Japan’s Galapagos syndrome.

I started my talk with the following conclusions:

  • Conclusions 1: Japan has invented and first brought to market many new technologies and business models in today’s hottest areas, and Japan has been terrible at capturing global value from this incredible creativity
  • Conclusions 2: why does it take at least 10 years to reinvent the wheel in London?
  • Conclusions 3: WHAT is holding Japan back to capture global value from fantastic inventions?

More Drastic Changes Needed at Sony (CNBC TV interview)

Gerhard Fasol CNBC

Read more about SONY and Japan’s electrical industry sector: http://www.eurotechnology.com/store/j_electric/

Copyright (c) 2013 Eurotechnology Japan KK All Rights Reserved

iPhone? iTunes/iPod phones?

There is a lot of discussions about whether Steve jobs is going to announce an iPhone or iPod-Phone at the Apple Computer Developer’s Conference in SF – according to the headline report on Saturday May 13th, 2006 in Nihon Keizai Shinbun ( the world’s largest business daily ) it’s already known since May this year that Apple and SoftBank are developing such a joint mobile phone with iPod and iTunes functions.

On March 17 SoftBank announced the full acquisition of Vodafone’s Japan subsidiary – the former J-Phone –  jointly with YAHOO-Japan as a co-investor – so with about 15 million mobile subscribers in the world’s most advanced mobile market (Japan), SoftBank/Apple will have the firepower to make such a phone a success, provided it’s tuned to Japanese consumers’ needs and dreams – my guess is that it probably will be.

By pure coincidence, the Apple/SoftBank headlines appeared one or two days after DoCoMo and Microsoft announced a music cooperation.

Apple/SoftBank iPod mobile phones coupled to iTunes could have quite a lot of impact on Japan’s music industry: about 20% of Japan’s music sales are to mobile phones. Of all music downloads in Japan about 6% are fixed line internet downloads, and 94% are music downloads to mobile phones: internet music downloads are almost neglibile in comparison to mobile phone music downloads.

Therefore even if iTunes has a huge market share in the fixed line internet world, iTunes  cannot have much impact in Japan overall if limited to fixed line  internet downloads. iTunes downloads to mobile phones will change the business models of Japan’s music industry – at the moment music downloads to mobile phones cost a lot more than iTunes downloads. An iPod/iTunes music store could reshape the mobile music market in Japan.

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