Why Japan's future will depend more and more on small, innovative research- and development-oriented companies.
Contrary to everything you've been told, Japan's future will depend more and more on small, innovative, R&D-oriented companies. Sound familiar?
If you're like most Americans -- particularly the policymakers, journalists, and industry observers who promote the well-worn image of Japan as a national economic juggernaut -- then Shinji Matsuda will surprise you.
Matsuda is what you'd call a grease monkey. Today the president of his own small research-and-development firm, Matsuda R&D Co., Matsuda has loved to play with engines and cars since childhood, and even now is happiest when his hands are covered with oil.
"I never had any resistance to hard work," he boasts. "Actually, I like to get dirty." Sitting in his cramped offices in Itabashi, a grim outer ward of Tokyo, he calmly takes out a cigarette lighter and torches his own thumb. "I have worked so long in the machines and the grease that my skin is too thick to hurt."
Like the legendary Soichiro Honda of car-company fame, Matsuda never attended college. He chose instead the gritty work of constructing car bodies, tinkering with engines, rebuilding anything mechanical -- passions that led him to a job at Honda Motor Co.'s sprawling research facility north of Tokyo.
But when Matsuda reached Honda in 1971, he discovered he had arrived perhaps a generation late. "Honda says educational background is nothing, but in the company there's a strong preference for it," he recalls with a little bitterness. "I could not go upward like a college graduate even if I did three times the effort. The road was very narrow."
With the track to promotion largely blocked by college-educated superiors, Matsuda left Honda in 1982 to launch his own company. He had no significant outside capital and worked 16-hour days for two years without a day off. At first, opportunities were sporadic and uninspiring; for a time he developed bumpers for such companies as Daihatsu, Nissan, and Toyota.
Yet Matsuda slowly began moving into new and more original areas. Responding to a request by the Tokyo branch of Domino's Pizza, Matsuda designed what he calls the MRD Community Vehicle -- an all-purpose delivery-truck chassis that fits on a motorcycle and can maneuver easily through the traffic-choked Tokyo streets.
It proved a winner. Accounting now for nearly 40% of the company's sales, the Community Vehicle's genius lies in its flexibility. With a small portable oven, for instance, the vehicle turns into a pizza truck; a refrigeration compartment readies it for ice-cream delivery; still other adaptations enable it to ferry photocopiers between office buildings.
Matsuda's originality has earned him a roster of major corporate customers, including Honda itself. But he has been careful not to become a traditional, captive subcontractor -- manufacturing just a piece of some product for a larger company's disproportionate benefit. Instead, he reverses the usual Japanese hierarchy, creating all his own products while contracting out their manufacture to such giant corporations as Hitachi, Nippondenso, and Yamaha. Matsuda hopes to reduce this dependence, too, by setting up his own manufacturing operation someday.
Even then, however, his plan will be to emphasize R&D, which last year equaled 16% of his more than $2.5 million in revenues. "The critical process today is not producing the product, but originating the idea and executing it more quickly than a big company can," Matsuda says. "Eventually, you might want a factory, but the only safe thing is originality. Research and development must be the core."
Though impressive on its own, Matsuda's story is additionally worth attention because: (1) it is being repeated by other small, entrepreneurial companies all over Japan; and (2) it depicts a Japanese economy utterly unlike the one that U.S. opinion leaders are always talking about.
Far from the faceless and monolithic Japan Inc. we've been taught to fear, Shinji Matsuda looks a lot like us.
Few in Washington would believe it. Many observers -- such as former U.S. trade official Clyde V. Prestowitz Jr. and author Karel van Wolferen -- believe Japan's economic ascendancy grows out of rigidly planned cooperation between that nation's largest businesses and the economic planning arm of a powerful government bureau-cracy. The authentic entrepreneur, claims pundit van Wolferen in his influential book, The Enigma of Japanese Power, is marginalized as a bit player at the service of the giant institutions.
Such perspectives can have serious ramifications given the reverence felt for the Japanese model by U.S. economic policymakers. To contend with Japan, they say, we must understand and learn from it. Faced with competition from a supposedly giant-centered economy, such policy gurus as Prestowitz urge U.S. businesspeople to mimic it, to desert our own entrepreneurial tradition for a more closely controlled system dominated by government and huge corporations. Those same gurus would completely dismiss proposals to aid small business -- from reducing capital-gains taxes to protecting against antitrust violations.
The trouble with all this is that the premise it rests on may be wrong. Japan's real strength and true direction, say some of its own economic observers, lie elsewhere; the Japanese future may have more to do with Matsuda R&D than with the federal Ministry of International Trade and Industry (MITI).
To Hosei University economist Tadao Kiyonari, the success of so many companies like Matsuda's -- based on design and originality rather than raw manufacturing power -- points out the true course for his nation's economy in the 1990s. In contrast to the past, when Japanese companies acquired technology from abroad and grew by excelling at production, Kiyonari envisions a new Japan Inc. led by innovative R&D-oriented businesses.
Driving these changes has been a massive shift in the basic economic realities facing Japanese companies, large and small alike. Over the past few decades giant Japanese companies and their legions of manufacturing subcontractors, whose nimble adjustments to new production methods underlie much of Japan's success, built their strategies on perfecting the art of mass production. In executing their manufacturing-oriented strategies, they took advantage of generally low yen rates to boost exports and increase production runs -- while relatively low-cost Japanese labor got the manufacturing job done with stunning efficiency.
Today, however, these conditions are fading. Other companies, largely in Asia but also in North America and Europe, have adopted many of the Japanese techniques for mass production, from statistical process control to employee-suggestion boxes. At the same time, a high yen, soaring land prices, and a tight labor market have pushed manufacturing costs in Japan to among the world's highest.
