Why Japanese companies do so many different things
Fascinating business case study -> https://davidoks.blog/p/why-japanese-companies-do-so-many
Here is the answer I want to suggest: Japanese companies excel in lots of very different domains because it’s inherent in how they’re structured. The form of the corporation that we know and love in the United States—specialized, market-oriented, governed by shareholders—is just one form that the corporation can take; but it’s not the only way to coordinate capital and labor in a successful and profitable way. The protean corporations of Japan are best understood as a different species of thing altogether: better at some things, worse at others, but still highly adapted to their particular environment. And the things that they’re very good at turn out to be extraordinarily helpful for all sorts of things in which American companies tend to struggle.
On how the Japanese “bundle” plays out vs American “bundle”
And the complete Japanese bundle, I should say, ends up producing something with entirely different objectives and interests than the American bundle. The H-firm exists to make money, or rather to return money to shareholders; but the J-firm, run by its employees and largely indifferent to the interests of shareholders, exists simply to continue existing. That’s why Japanese companies are so protean and willing to change what they do. Nintendo was founded in 1889 as a maker of handmade playing cards; in the 1960s, it was pushed out of the playing cards game by a wave of competition; and it spent several years experimenting with new markets—taxi services and instant rice, though contrary to the rumors not love hotels—before finding its way to video games. Fujifilm, which faced a near-total collapse of photographic film in the 2000s, simply used its expertise in chemical coatings and fine optics to pivot into cosmetics, pharmaceuticals, LCD films, and semiconductor process materials.
How each bundle excels in different environments –
And this system, as it turned out, was really good at particular things. Aoki’s key insight was that the J-mode had a comparative advantage in environments of moderate volatility: situations where conditions changed frequently enough that rigid central plans would be outdated before they were executed, but not so radically that only top-down strategic intervention could cope. In an environment of stable, predictable demand, the H-firm did fine; in an environment of extreme disruption, where the whole product line had to be rethought, centralized authority was indispensable, and the H-firm also did fine. But in between—where the challenge was to make constant small adjustments in a changing but recognizable paradigm—the J-firm excelled.
What happens when the volatility shifts…
But catch-up growth, by definition, has to end: at some point you’ve caught up, and the challenge at the frontier is not only to refine what’s already known but to invent what is not known. And paradigm invention is precisely the sharp discontinuity for which the J-mode has no particular gift. Consensus-driven, horizontally coordinated organizations are very good at refining what already exists: but they are very bad at deciding what should exist.
That basic weakness is why Japanese firms are so dominant in some domains and entirely absent in others. Japan excels in automotive manufacturing, machine tools, industrial robotics, optics, and precision materials: domains characterized by incremental refinement. But they have very little to add in software, internet platforms, artificial intelligence, or electric vehicles. The architecture of the Japanese firm is built to perfect a domain through progressive advancement; it’s quite poorly suited to sharp discontinuity.
Consider Sony, which by the 2000s manufactured the world’s best portable music players, its best small cameras, its best mobile displays, and its best lithium-ion batteries: every component of what would become the smartphone. Purely on a material basis one would expect that Sony was the best-positioned company in the world to make the smartphone. But Sony didn’t do it. It was Apple, an H-firm par excellence, that reimagined the entire product category from the top down, largely because Apple was organized to give extraordinary power to a single visionary leader.
How they work together…
But the Japanese bundle, however antiquated it might seem, still does result in some of the most remarkable companies in the world. The type of deep process knowledge that has accreted within companies like Kyocera and Toto is almost impossible to replicate. The American bundle of practices, with its emphasis on profits, entrepreneurship, and financialized risk, is probably the world’s best at innovation and frontier discovery. But as we are now discovering with the global rush on memory chips and other esoteric parts of the semiconductor supply chain, our entrepreneurial American system only works completely if it’s paired with a very non-entrepreneurial system like the one that we find in Japan.
