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Japan's innovation paradox

January 18, 2016

 

Much is spoken of in regards to Japan’s glorious innovation past, and indeed conversely where has it gone. But if you take a look at innovation in Japan, you inherently find a paradox; existing in the same way it appears across all aspects of the country and indeed it is these that make the country the interesting place that it is. Japan is a tale of old and new, of conservative and radical, spectacular reliability and infuriating inefficiency, inherent trust and tightly buttoned duty. These paradoxes appear to exist somewhat in harmony for the Japanese and how you view Japan depends from where you stand at any given point.

 

The boom of the 80’s is long gone, leaving a legacy well spoken about across management and economic circles as they seek to find that essence and spark again. A quick scan of the news across different platforms sees two distinct narratives, one ambitiously positive heralding the next Silicon Valley and the other of a deep seated business culture that hold the country’s innovation back from their next renaissance. Perhaps the truth is somewhere in the middle and like all complex issues isn't black and white.

 

Like all areas in which disruption exists, it goes far beyond the technology itself. Innovation arises out of the wider social and economic environment, when the resources and behaviours are present in the right catalytic mix; spurred on by the Challengers in society that see the ingredients that lie before them and bring them together to reimagine the future.

 

Much of Japan's innovation is happening within the confines of large companies (positively or negatively) and it's hard to argue that they are not risk averse and move at a glacial pace when it comes to iterative action. Japanese venture capital investments came to $1.2 billion last year, according to the Tokyo-based Venture Enterprise Center, a small fraction of the $48 billion spent by venture capitalists in the United States, a separate survey based on Thomson Reuters data shows and indeed M&A rates are equally low in comparison. So it is fair to say that the start-up scene is not yet the economic engine of growth Japan needs yet, but promoting technology is sparking innovation and capital expenditure which economists say are the must needed ingredients to break the long cycle of flipping in and out of a recession.

 

And so today we see the first generation come forth in disruptive innovation, as Abe’s ‘third arrow’ in his much-debated Abenomics is already under way citing structural reforms - and yet we haven’t seen true ground swell yet. Just like the overinflated, PR driven goals set by Mr Abe on birth rate, and women in senior management and cabinet, or the 20% target for nominal GDP growth, we await to see how this notion of structural reforms and dismantling bureaucracy takes hold in the bid to enhance productivity and profitability for the economy. For of course, sometimes it's a little hard to see the wood for the trees when rhetoric to feed brand Japan is easy to come by.

 

Whilst in a country of 126 million it is easy for critics to say that success stories are easy to come by; those success stories are indeed the real deal. A sweep of the top tech giants that aren’t the Sonys of the world see an impressive list of companies and their billionaire founders who are indeed taking more aggressive growth strategies and new approaches to risk. Take for example Yoshikazu Tanaka of Gree with a personal worth of nearly $2billion USD or Japan’s most successful female billionaire IT entrepreneur Tomoko Namba; it’s these types of people who herald the way to a new era of technology. Keishi Kameyama, chairman of internet company DMM.com which is behind the investment of DDM.make (a maker tech space in Akihabra) agrees, saying there are many companies in the wings ready to pounce, that are already the size Sony was twenty years ago when they started to dominate. It is up to this first generation and its the early adopters to lead the way and help navigate through the seemingly closed business systems of Japan, stifled labour market and the greying executive voice that continues to dominate the boardrooms.

 

While people apply a Silicon Valley lens to Japan, perhaps the wrong questions are being asked says Catherine Solazzo of IMB. Who believes for example instead of asking Japanese companies to be less risk averse lets look at better safety nets for failure. For indeed, Globis’s Yoshito Hori believes it’s not risk that the Japanese penalise but the attitude of those in that position. Simply suggesting Japan should be less risk averse and celebrate dissent is one thing, but one must tackle why this is difficult… that's where the real innovation lies. Finding a Japanese way forward is key here.

 

Simply suggesting Japan should be less risk averse and celebrate dissent is one thing, but one must tackle why this is difficult… that's where the real innovation lies. Finding a Japanese way forward is key here. Lets be clear innovation does not only equal technology. The Uber offering for example is not innovative because they developed a new App – they are innovative because they disrupted an existing market and created a new market and value network in the process. Whilst technology has long been the driver for innovation in the country, Japan continue to frame it as such almost exclusively, focusing on their strengths of IoT, robotics, intelligent devices and renewable energy. Whilst these focuses sit at the big end of town, framing innovation as entrepreneurism seems to now come into play at the bottom end also.

 

How will Japan now turn to face the need for innovation ecosystems? For deep changes to the status quo, to leap frog beyond the next thing to completely reimagining the way things could be?

 

With the noise surrounding tech startups heralding innovation in Japan, one can’t help but wonder if we’re all focusing on just one part of a bigger story? How will Japan now turn to face the need for innovation ecosystems? For deep changes to the status quo, to leap frog beyond the next thing to completely reimagining the way things could be? Positively, Prime Minister Abe seems to asking the same question, saying in his opening speech at the Science & Technology in Society meeting in October 2015. “The issue might not be, after all, that the Japanese are inherently hierarchical or uncreative, or in their thinking, but rather the way in which the surrounding systems and structures function. In the future, Japan’s power will stem from an ecosystem-based approach.” This translates into structural changes to support innovation addressed in the third arrow, but what of the underlying values, shifts in how problems are ultimately addressed and networked problem solving this requires? How will Japan’s leaders now enact this call to arms?

 

Ijichi Sorato of Creww believes that open innovation over typical models of VC and M&A will be key to Japan’s future. His company mentors the giants of the Japanese business on the start-up world, how to work with them and fosters relationships with them.  In the past Mr Sorato says there has been a large gap between wanting to talk to Startups vs working with them to create action. Open Innovation in Creww’s model means opening the IP of large organisations up to startups and pairing them with the companies. As Big Data policies and working groups come online in the government, there is little true action around the re-design of public policy, public services and changes via business model innovation that is filtering down.

 

All the sexy words in the innovation toolbox we see across Australia, Europe and the US and the legitimate practices behind those isn’t happening here yet at scale. What happens here when true diversity of thought, an ability to openly critique issues irrelevant of hierarchies and a public dialogue is required to shift the status quo and re-imagine the underpinning structures?

Social Innovation is occurring in exemplary but very small pockets, and examples of bottom up social innovation spurred on from the Tohoku earthquake are a plenty. However, many of these sit at the non-profit end of the spectrum. Wonderfully, social purpose is high across Japan and indeed many government sectors have such departments, but a change must occur so these actors can move from seeing their role as managing change and wellbeing to that of empowering others across all levels of society to create change.

 

Japan is in the unique position to act as a true global leader and continue to take an even stronger international voice as one of the worlds most intellectual and urbanised countries

Japan is in the unique position to act as a true global leader and continue to take an even stronger international voice as one of the worlds most intellectual and urbanised countries, and act, as a test bed for development needs, infrastructure and green technologies. But of course to drive disruption requires all cogs of culture and society to interact, otherwise once again, the paradox of innovation in Japan will expand. New processes and advocates for increasing agility, true international diversity of thought, critical thinking and complete ecosystem innovation is needed that loosens the ties a little and allows things to get a bit messy.

 

Linking the Government, business and civic society into a tri-sector approach is key so that the world of open innovation that Mr Sorato speaks of, and the Silicon Valley that Mr Abe speaks of can link with a changing narrative in society that enables citizen voice and international discourse. Whole problem spaces must be interlinked for deep-seated change to occur, one that leverages the new visions for startups of Japan, the power of the big corporations, the credibility of government and the authentic voices of the people and their culture in a collaborative manner.

 

I for one believe that Japan is up to the challenge, and hope that leaders in all sectors call for large tribes of advocates to move to the fore, taking Japan into the uncomfortable complexities they face and unleash the vast opportunities that lay within the power of a networked approach.

 

 

 

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