while japanese firms are not the world’s best at inventing, they are great at innovating. a look at the key elements of japan’s innovation ecosystem
accused of being derivative in the 60s and of being uninventive today, analysts decry the lack of a japanese silicon valley and that japan inc. has not come up with anything truly original since the walkman and the playstation. in fact, the kanto region (home to tokyo and yokohama) boasts more patent applications than california (home to silicon valley) according to the world intellectual property organisation. largely unnoticed because of the attention that suffering corporate giants (the likes of sharp) are drawing in their headline-grabbing decay, japan has developed an ecosystem that helps many companies remain at the cutting edge. three features stand out: a focus on innovation, a commitment to mastery, and strong collaborative networks.
innovation over invention
japanese firms excel at innovation rather than invention. but this can be just as much a boon for global competitiveness. apple did not invent the smartphone, after all, but it certainly revolutionised how we use phones – creating the world’s most valuable company through innovation, not invention. to cite a japanese example, toyota of course did not invent the car, but has come to be the world’s biggest car company by revolutionising and continuing to revolutionise how we drive with its hybrid and new thermal efficiency engine technologies.
the country is faring well with its focus on innovating others’ inventions: japan boasts well over 200 ‘hidden champions’ (small or medium sized firms ranking in the top three in their segment worldwide, often with a global market share of over 90%), ranging from ulvac’s semiconductor business to hamamatsu photonics’ advanced medical light sources and japan pure chemical’s global 90% market share in gold plating solutions for circuit boards. even apple’s iphone, often seen as the epitome of america’s inventive genius, is actually at least one third japanese (the wi-fi module, for instance, is made by murata, the camera by sony, and the display by japan display).
japan also boasts some of the most advanced technology in more ‘traditional’ sectors, such as construction and architecture: kengo kuma’s new energy efficient housing, for example, consumes about 50% less energy than the norm and is used for urban regeneration in lyon. japanese architects and urban planners are at the forefront of re-thinking how different generations can live together in increasingly particularised and individualised ageing societies. riken yamamoto, for instance, is no longer building houses for a standard family that is becoming rarer and rarer, but designs modular community landscapes that allow for a much broader variety of life plans.
behind all of this is a strong and shared focus on prioritising innovation. japan’s leading position is cemented by the huge investments firms are making to stay innovative: japan is spending 3.5% of gdp on r&d (germany is spending 2,9%, the united states 2.7%). the outlays pay off since japan is getting a lot of bang for its buck – the kanto region (tokyo and yokohama) is the region with the most patent applications worldwide (13% of the world’s total), stronger even than silicon valley (11%). the world intellectual property organisation thus calls japan ‘innovation leader’.
this focus on continuous innovation is also firmly grounded in japan’s long-standing tradition of craftsmanship with its lifelong quest for and unrelenting commitment to complete and utter mastery of one’s craft. japan has long been home to the idea that master craftsmanship is one of the highest attainments possible: the government even designates the most accomplished craftsmen who have helped define the standards of their field as ‘living national treasure’.
kaizen, ‘continuous improvement’, so famously espoused by toyota and other manufacturers in order to remain at the cutting-edge and not let oneself be overtaken is merely one expression of this larger underlying idea: true mastery of a craft is not a state, but a continuous process – just as is innovation. this principle permeates all japanese craftsmanship and helps foster a culture of continuous dissatisfaction with the status quo – the mother of all innovation.
this is mirrored in a myriad of fields where japanese craftsman are leading the world by having continuously sought innovations to improve their products: yamazaki single malt from japan, not scotland, is the world’s best whiskey; the world’s best denim products are not being shipped from america, but from okayama in japan’s south; the world’s best pizza is made in nagoya, not naples. and the list goes on.
but just throwing money, obsession, or patents at the problem is not enough. what is decisive is the quality and applicability of innovative ideas. japan is scoring well in this respect, too. it has long been home to an innovation model that is known today as ‘open innovation’ (as opposed to the american model of vc-driven disruption): japan may not have a silicon valley ripe with ‘venture capital funds’ (vc), ‘incubators’, accelerators and all the other techno-neologisms so popular on america’s west coast, but it has in place a model of fostering innovation that is working successfully and is arguably better suited for Japanese businesses than the american model of short-term risk capital injection: large company-small start-up collaboration.
early examples include companies like mazda in the 1960s, teaming up with the much older german nsu in its efforts to develop the japanese automotive sector. but examples are plenty also today of young start-ups that prefer building a long-term relationship with a major, established player rather than enter a (usually) five year plan for going public or selling the company with a vc: tadahisa kagimoto, the founder of healios, a biotech firm founded in 2011 that went public in 2015 and is already valued at over $50m, for instance, flouted venture capital and rather teamed up with large japanese corporations, such as sumitomo, one of japan’s largest conglomerates. rather than money, sumitomo provides healios with credibility, infrastructure, supply chains and distribution networks. another example, toru nishikawa, founder of pfn, a leader in ‘deep learning’ (a kind of artificial intelligence) has teamed up with ntt (japan’s largest telecoms conglomerate), fanuc (the world leader in industrial robots), as well as panasonic and toyota – always with an eye to how pfn’s innovations can help these large firms innovate their products.
and while oftentimes they provide infrastructure rather than monetary investment, actually japan’s large firms are a major source for financing start-ups, too. according to techcrunch, corporate finance provides about 80% of all funds for start-ups – a situation completely reversed from america, where corporate investors only provide about 20% and the rest comes from institutional investors, most importantly vcs.
this collaborative innovation model is thus strongly rooted in japan – and is becoming increasingly institutionalised. many large firms are trying to strengthen their capacity to integrate ‘open innovation’ into their business: a survey by the nikkei, japan’s most influential business daily, found that 10% of all corporations already have dedicated open innovation departments (with numbers much higher in the food and it sectors). more will follow.
despite boasting the region with the most patent applications in the world, ‘kanto’ is not synonymous with innovation as is silicon valley. japanese firms’ relentless focus on innovation, high quality r&d spending and collaborative networks of open innovation gets the most crucial fundamentals right.
but japan’s innovation system has too few start-ups creating innovation (see graph below, showing who universities supply their patents to in industry-university collaborations: in japan overwhelmingly to large firms, in the u.s. overwhelmingly to sme and start-ups) and is overly reliant on large company innovation – innovative large firms are not a problem, of course, but the absence of start-ups and entrepreneurs who economically exploit new ideas as well as are generally better at disruptive innovation (rather than the incremental innovations championed by large firms) is.
the biggest challenge for japan’s innovation ecosystem in the coming years, then, will be how to bring such creative types, disruptive inventors and out-of-the-box thinkers to build a kanto valley. with them, japan has all the elements to become a serious challenger to the world’s leading innovation hubs. without them, the best it can hope for is keeping up with the flock, rather than leading the pack.