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A shift in strategy needed to revive Japanese industry

Against the backdrop of intensifying Japan-U.S. trade frictions in the 1980s, it was considered for some time that Japan’s economic power was a threat to the United States. This country’s high rating has since declined, however, giving way to comments like “Japan has disappeared from the world’s radar screen.”

Over time Japan had boasted of its excellent manufacturing skills. But in recent years, China has replaced Japan as the leader in the production of traditional industrial goods while South Korean and Taiwanese makers have overtaken Japanese counterparts in the output of LEDs, 3-D products and other high-tech items. In addition, Japan now lags behind the U.S. in the development of trendy products, such as the iPhone, iPod and iPad.

The fundamental cause of Japan’s industrial slump developed in the 1980s when its economy got so strong and its business circles became so confident that some people even claimed that there was “no longer anything to learn from Europe and America.” Such arrogance weakened Japan’s capacity for industrial innovation.

In those days internationally, the paradigm of industrial innovation was shifting from “product-out” to “market-in” along with advances in electronic information and communication technology (ICT).

Under the product-out mode, enterprises develop new technology and products, and supply their products to the market in large quantities with the help of mass advertising. Under the market-in mode, enterprises develop products and services in such a way as to meet customer needs. It is a supply system supported by the idea of users-inspired innovation. In past years, Japanese suppliers strengthened their competitive power by giving priority to pursuing product-out corporate strategy. But by sticking to this stance they failed to keep abreast of the market-in currents.

Mega-competition is now taking place in the world market, with emphasis being placed on sensibility values such as charm, elegance and sophistication, as well as pricing, quantity and quality. In the information-led economic system, the initiative in selecting products is shifting from suppliers to consumers, giving rise to the diversification and personalization of the demand structure, and prompting businesses to attach importance to sensibility values.

Sensibility value is very diversified. They include culture value (giving mental satisfaction), cultivating value (polishing up personal ability), time value (emphasizing efficiency and comfort), health value (seeking sound body and mind), nature value (respecting the natural environment) and safety/security value (heightening the safety of the sense of security concerning products and services).

Japanese enterprises in general, and engineers in particular, tend to say, “If good products are made, they should sell well.” But now they have to work out corporate strategy in line with the market-in principle by studying what the market needs and wants. As was the case with the mobile phone sector, Japanese firms have lost some markets due to excess functions they attach to their products in accordance with their conventional product-out yardstick.

Hereafter, the market-in tendency will become conspicuous in fields where technology and art are fused and where industry and culture are fused. Japan, with its abundant traditional culture, should be able to have an advantage in these fields.

Advanced ICT, although utilizing virtual/digital technology, has enabled sensible expressions, the quality of which match those made by analog technology. In selecting automobiles, home appliances, furniture and homes, customers think much of cultural values such as design quality. People also show a strong interest in newly diversified cultural expressions found in content such as animation and game software. They also have become very sensitive to cultural communication tools as a result of improved expressive quality in images, music and wireless accessibility. Consumers’ desire to diversify cultural contacts has played a leading role in bringing about iPhones, iPods and iPads.

Changes are taking place in the fashion industry as well. Sales of high-quality brand goods typically based on a product-out philosophy are stagnant lately, but casual fashion goods reflecting current trends in places like Tokyo’s Shibuya are booming among girls and this “gal fashion” is spreading through Asia, creating a “kawaii! (cute) culture” boom. These girls are serving as standard-bearers of market-in thinking by demonstrating that they can create various styles of fashion by coordinating the features of multiple brands in their clothing and makeup.

In addition, more and more shoppers these days are shunning upscale department stores in favor of mujirushi ryohin (no-brand, good-quality products).

The use of robots in nursing and medical services is another example symbolizing market-in philosophy. Use of robots will expand, ensuring efficiency and accuracy, and offering support staff substitution in nursing care, power-assisted rehabilitation, body function recovery, therapy services and endoscopic surgery.

Japan’s population decline will accelerate and the resultant worker shortage will make it necessary to modify work arrangements in those sectors through the use of robots. Motorized beds, lifting gear for nursing care, motorized chairs, bathing aid and dietary help have already been introduced in Japan, country, but the use of robots for such purposes is still at an initial stage.

In addition to restraints imposed by the medical and nursing insurance systems, the major factor hampering the intended market-in reform is a lack of coordination between the users of services and the developers of equipment.

Advanced technology has helped Japan’s industries strengthen their international competitiveness under the product-out principle. But now the use of advanced technology should be oriented toward the advancement of human-related functions such as culture, education, health, medicine, nursing care, household life and security. This would be a sure way to restore this country’s competitive industrial power and improve the lives of people worldwide. Innovation based on the market-in principle is the driving force of this change.

Shinji Fukukawa, former vice minister of the Ministry of International Trade and Industry and president of Dentsu Research Institute, is now chairman of the Machine Industry Memorial Foundation.