Taking a break from the service industry, this entry summarizes Mr. Idei’s recent thoughts and concerns as quoted in live broadcasts in the media as well as in speeches.
◆October 25, 2010 (Monday): TV Asahi’s “Wide Scramble,” from a live appearance in a segment entitled, “Heisei Era Ryomas, Make Yourselves Known!”
◆October 27, 2010 (Wednesday): A speech made at the Japan Forum of International Relations, hosted by the Japan Productivity Center 

How today’s Japan appears from the outside

◎This year alone, I have been on 15 overseas business trips totaling more than 50 days.  Traveling to the US, Europe, China and other countries and talking with the local people gives me a first-hand feel of the economy and society.  Today’s Japan, compared with other countries in the world, is too calm.  I returned from Paris last week where the strikes related to the pension problem were terrible.  Germany and the UK seemed also very unstable.  In Ireland, the economy is in a real slump.  In China, the Senkaku Islands issue has ignited loud demonstrations.  Anxieties abound everywhere, and in a world where it is dangerous in some countries to even walk down the street, when I returned to Japan, nothing was happening, like a lull in the wind.  Yet everyone just keeps on talking about how gloomy things are.  Something does not seem right. 

◎While Japan is an Asian country, Japan and Asia seem disconnected from each other.  There are many barriers to overcome before Japan can become a part of Asia.  This is because of the war.  Japanese think, “The war is over,” and believe that they have already apologized to the people of China and other parts of Asia who experienced Japan’s invasion, but I wonder whether this apology has been conveyed.  For example, a successful Hong Kong businesswoman originally from Shanghai told me she recently bought her ancestral home in Shanghai.  She told me how in 1937, the Sino-Japanese war tore her family apart, and I realized how the deep wounds it caused have yet to heal fully.

Trends in Globalization and Japan’s Place in the World

◎After the war, Japan worked hard to develop a complementary relationship with the US.  It left military preparedness to the US and focused on automobiles, home electronic products and other consumer goods to advance its economy.  While there were problems related to the Japan-US Security Treaty and trade friction, from the US-Soviet Cold War until about 1990, Japan did all it could to be in the same company as the US and Europe by matching its laws, theoretical systems and others to that of the US.  I call this trend, “Globalization Phase 1 (G1).”  Sony accommodated this phase perfectly and increased its revenues.  Compared to when I first joined Sony in 1960 to when I left in 2005, net sales increased 900 times.

◎However, around 1997, “Globalization Phase 2 (G2)” took place.  China, India, Indonesia, Vietnam and other Asian countries began entering into a period of growth.  In 1997, Sony held a strategy meeting regarding the G2 countries and issued a goal to make sales in China and other Asian countries bigger than Japan.  Japan was the only Asian country that had a developed economy like the US and Europe and belonged to the G1 countries.  I think that China may think that Japan is a part of the US.  Japan must now think seriously about how it will relate with G2 countries, especially on a political level where there may not even be a proper recognition of the differences between G1 and G2 countries.  Even though Japan is an economically mature country, the government still talks about “growth strategies.”  During a growth phase, growth itself is the strategy.  It is during a maturity stage when you need a true strategy. 

Japan’s Misperception #1:  A high yen = a blow to the Japanese economy

◎The media is raising a ruckus that the 15-year high in the yen’s value shows no sign of abating.  Today’s yen appreciation is not because everyone thinks Japan is doing well, but rather, because everyone thinks that Japan is a good place to park money in the short term.  China invested a lot of money in the US dollar, which has resulted in significant losses, but I think they have begun to purchase Japanese government bonds and others as well.  That is why despite the fact that Japan’s stocks are cheap, people continue to buy the yen.  In this world, there are only five “mature currencies,” the US dollar, the Euro, the UK pound, the Swiss franc and the Japanese yen.  These five currencies can be freely traded anywhere.  All other currencies are only growth-phase currencies.  Japan is one of the five major currency powers and right now, is seen as the most stable country to leave your money for the short term.

◎In addition, though the press reports that “Export industries in danger with the yen’s appreciation,” in fact, export industries account for only 15% of the GDP.  The import industry commands about the same 15%.  They basically cancel each other out.  When I became president of the export-industry company Sony in 1995, the yen set a historical high (79.75 yen to the dollar on April 19, 1995).  I thought, “This is great!”  I knew that the challenges were formidable, that everyone had to join together as one to become competitive at 79 yen to the dollar.  Since I had studied international economics, I knew that this high yen rate would not last for long.  With this opportunity to cut costs and enhance productivity, I figured we would fare very well once the yen started to depreciate.  In fact, after 1995, the yen began to fall steadily.  That is why we needed to come up with products that would be profitable even at 79 yen to the dollar.  For an export-driven company, the most important thing is to have a stable currency market.  Politicians should send out a signal to the world, and only Japan is not able to do so right now, which is why speculative money flows into Japan. 

◎In a world where everyone tries to devalue their currency, only Japan fails to send out any message to the world.  If Japanese politicians are going to carry through with thoughts that “The yen should remain strong,” that would be fine because the economic structure will change accordingly.  The problem is that government policies are vague and unclear on whether they want a high or low yen.  Since world over, countries are seeking to have their currency valued lower, rather than resisting, Japan should use this as an opportunity to determine what they want to protect and what they want to give up for the long term.  

◎If the yen’s appreciation continues, Japan should buy patents from around the world and become an R&D country, having China, Indonesia, Vietnam and other countries do the manufacturing and then selling to the world.  This would conversely make countries want to have their currencies valued more highly, creating a balance. 

Japan’s Misperception #2: Japan = a monozukuri (manufacturing) country

◎The day before I was scheduled to appear on a TV program, I asked a number of people the following question:  “Out of 100 people, how many do you think are employed in the Japanese manufacturing industry?”  Most people answered 70 or 80.  However, in reality, almost 70 percent of the employed population is in the service industry.  China is desperately trying to move from the manufacturing to service industry, but Japan has already become a service industry country decades ago.  Our mindset, however, remains stuck.  We still consider ourselves a “monozukuri (manufacturing) nation” and love TV programs that highlight craftsmanship skills.  We suffer a huge misperception.

◎We are already a service industry country and our labor-intensive manufacturing industry and capital-intensive semiconductor industry are all moving out to growth countries in Asia.  It is difficult for service industries to move abroad, though, and we should properly understand this in order to develop the proper strategy.  For example in Singapore, they have clearly stated their intentions of becoming a “knowledge-based economy.”

◎In on-the-street interviews, when asked what companies in Japan are successful, people responded, “Uniqlo, Rakuten, Softbank and McDonalds.”  It is important to note that all represent service industries.  Not a single one is a manufacturer.  But despite this, as stated earlier, Japanese think that 70~80 percent of the working population is in manufacturing.  Japan is as service industry a country as you can get. 

◎However, characterizing finance, insurance, energy, logistics, retail, the restaurant business and tourism as all part of the service industry is misleading.  It is impossible to compile relevant statistics on such a diverse range of companies, and furthermore, many companies in the service industry cannot expand overseas.  In that sense, Japan no longer has an export-dependent economic structure. 

Japan’s current crisis in an opportunity: From XYZ to ABC

◎A crisis brings an opportunity.  There is a fine line between seeing a crisis as dangerous and seeing it as an opportunity.  For example, people involved in the TV business view the Internet as a threat, but while those involved in the Internet business cannot broadcast TV, those involved in the TV business can deliver Internet services.  If the TV business people can think in that way, then this represents a great opportunity.

◎While many argue that the bursting of the Japanese economic bubble stalled Japan and made it stagnant, which is causing the current crisis, I disagree.  From about 1990, Japan slowly but surely lost its direction because it failed to recognize the change in industrial structure.  When Japan was arrogantly boasting about its success as a major economic power, the US was desperately trying to spur a transformation in industrial structure by using IT and finance engineering.  Because of its arrogance, Japan was late to recognize this change in trends. 

◎Apple does not own any factories.  It retains only the knowledge portion of its work, in other words, planning and design, and has factories in China manufacture its products to sell to the world.  Apple produces in the cheapest country and sells in the most expensive country.  Uniqlo has the same approach.  On the other hand, highly regarded companies such as Toyota and Canon continue to stick to their policy of making everything themselves.  In IT systems software, Japan is suffering the Galapagos syndrome.  Overseas, Deutsche Bank, British Telecom, Accenture, Systemware (a major Indian company) are all reaching beyond their borders and outsourcing while Japanese companies try to do everything in-house, even though outsourcing is cheaper.  In other words, Japan is not trying to horizontally evolve its service industries. 

◎Japan’s system of helping venture companies is virtually nil.  In the US, there are wealthy individuals who serve as angel investors and lots of venture capital, but in Japan, there is no venture capital seriously intent on nurturing venture companies.  While there are institutions that are planting seeds, such as at universities, none have gone as far as nurturing them.  If there are no individuals in Japan who can serve as angels, companies should serve as corporate angels and try to grow venture sprouts.  If existing companies can take on a parental approach and nurture new ventures, then Japan can revive.

◎In any company or organization, there is the XYZ force that wants to maintain the status quo competing against the ABC force that wants to create a new structure.  While keeping elements of XYZ, it is necessary to take on ABC through innovation.  The balance between ABC and XYZ is extremely important.  When I was president of Sony, one of my biggest struggles was bringing together a group of XYZ-minded business managers to talk about ABC.  I am not saying that XYZ is not necessary.  Far from that, it is necessary to some extent in existing business areas, which produce the profits that fund the investments in ABC.  In other words, we must control the XYZ from becoming bloated by determining what to cut and by how much.  A manager needs to figure out what the right balance is. 

◎In the world of politics, it is natural that bureaucracy will be XYZ.  That is the nature of their organization.  It is the politicians who need to create and convey an ABC strategy, but the current Japanese Democratic Party is fixated on only XYZ strategies.  Politicians need to create a future-oriented ABC strategy, and in a mature economy like Japan, talking about growth strategies reveals how behind the times they are.  The screening process taking place now to cut the budget is a good thing, but fundamentally, there is a desperate need for them to seriously think about the future direction of this nation.

The seeds and needs for Japan to transform itself and revive economically by the year 2030

Historically speaking, Japan has transformed itself many times.  From a global perspective, few countries have transformed as often as Japan, and some think Japan is a country of miracles.  First, it took strong action against a policy of national isolation and with it, protected itself against the power of imperialism.  This resulted in the efforts by Ryoma Sakamoto and others to create a movement that led to the Meiji Restoration, which became Japan’s second major transformation.  Militarism then went too far, bringing Japan into World War 1 and World War 2.  This was also a transformation, though not perhaps in a positive sense.  The fourth transformation was Japan’s postwar economic growth.  As you can see, Japan has undergone transformation at regular intervals, with each transformation coming at shorter and shorter cycles.  I am confident that Japan will have a major comeback in 2030.  Next year or so will be the “hop,” 2020 will be the “step,” and 2030 will be the “jump.”  Considering that, there is no country so blessed with opportunity right now as Japan. 

◎Great transformations occur when the seeds of innovation (seeds) and the needs of society (needs) are brought together.  Right now, Asian countries around Japan are getting richer and richer, and the likes of China, India and Indonesia are in the throes of the kind of industrial revolution that Japan has already experienced.  Japan has accumulated a great deal of technology, software, know how and business models.  In Asia, the biggest societal need is urban development.  I hear that in China in one week alone, there is a need to build a new city of about 1 million people.  Japan already has much of the technology needed to make urbanization a reality.  To meet the growing urbanization needs in Asia, rather than have one-company efforts to build showcase cities that highlight Japanese technology, Japan as a nation should become a case study experiment, raise domestic investments and create outskirt village cities in various locations that will help recreate the nation.  This would enable Japan to gain respect from other countries and become an envied country, helping it to attract investments from abroad.  Beyond tourism, people will come to Japan to visit and study these new cities.  Tokyo is a mega metropolis, with over 36 million people in a 50 kilometer radius.  A bullet train departs for Osaka every 10 minutes.  There is no city like Tokyo anywhere in the world.  But while Japan has such a mega metropolis, it also suffers a widening disparity with rural farming villages.  Rather than remake the mega metropolis, we need to create a new type of “outskirt village” community city.
 

City OS = A vision to Japan’s resurgence

◎The concept of “outskirt villages” is much like the PC.  Working in cooperation with the US, China and other countries, Japan should help develop a City OS that standardizes basic functions, such as water, energy and telecommunications.  In the 21^st century, we need a highly efficient infrastructure that takes into consideration environmental issues and fully exploits the benefits of IT technology.  By undertaking this as a joint project with China and India, tremendous business opportunities will arise.  In US and European-style mature economies, the demand for new urban infrastructure building that addresses the challenges of an aging society will grow.  On top of this common City OS, you can develop specific applications that meet local needs and requirements.   Japan must transform itself by developing a business structure that expands horizontally and goes beyond national borders. 

◎To spur innovation, rather than further expand existing major companies like Sony or Toyota, we should create new companies and new projects.  In a now famous story, Microsoft’s Bill Gates was asked long ago, “Who is your competitor?”  He replied, “Some company working out of a garage that is trying really hard to make something great.”  That company happened to be Google.  But in Japan, companies like Google just do not get born.  To spawn new companies and new projects, we need a new government.  I don’t care if it is the Liberal Democratic Party or the Democratic Party.  I just want someone who understands the need for a mature economic stage strategy and knows how to use bureaucracy to carry it through.  Both in politics and business, leaders need to be able to create a vision. 

◎Personally, I am very involved in helping educate younger generations of management and want more than nothing else than to have venture companies grow steadily.  In Beijing the other day, I was invited to a gathering not of Chinese residents, but of Japanese residents. This group was formed more than ten years ago in several different locations, but it seems that there are many Japanese working hard in China alone without their families.  I want to support such people.  China has a lot of its own problems, too, so we should extend a hand of support and cooperate with each other.  The driving force of Japan’s resurrection will be its cooperation with other Asian countries.  Where there are no needs, there is no innovation and where there is no innovation, there is no future.

(Comments and opinions should be sent to info@qxl.jp).