For many traditional subcontractors, dependent on their large customers for orders and technology, the results have been disastrous. Many of the products that used to be exported are now produced elsewhere. Production lines outside of Japan now account for significant percentages of such staples as electric fans, 35-millimeter cameras, and calculators, forcing many Japanese subcontractors either to move abroad or close up shop.
"The era of mass production is over, and that will transform the whole nature of our industrial system," predicts the white-haired Kiyonari, a longtime adviser to MITI. "The key Japanese company of the future will have fewer than 150 employees with very specialized products and technology."
In the new economic environment -- where speed from conception of design to availability in the marketplace has replaced pure manufacturing cost efficiency as the key economic determinant -- such small R&D-oriented businesses boast significant advantages, Kiyonari believes. According to a 1988 government survey, about 30% of small manufacturers needed less than one year to move products from the R&D phase to commercialization. Fewer than 5% of larger businesses were able to match this.
While the economic trend-setting of upstart companies contrasts sharply with conventional U.S.-held views of Japan, it isn't entirely new. Much of the country's historical and mercantile development, Japanese historians say, has happened in precisely this way.
Japan is far from the simple top-down society it is often described to be. It functions more like a wheel. At the center, conformist instincts are strong, and cultural and economic changes evolve slowly. Near the edge of the wheel, however, exist innovators, eccentrics, and entrepreneurs -- the marginal forces who nevertheless force the direction of change.
This pattern of outsiders forcing change has long been part of Japanese history, notes Hidetoshi Kato, one of Japan's leading social theorists. Hideyoshi Toyotomi, for instance, the man who united Japan in the sixteenth century, was himself the child of poor peasants. The architects of the modernizing Meiji restoration period during the late nineteenth century were largely rural samurai, and the key entrepreneurs of the time -- the Mitsuis, Iwasakis, Sumitomos -- also came from relatively lower-class origins.
Since the end of World War II, says Kato, the pattern has again repeated itself. The conventional wisdom in the early 1950s was that Japan would rebuild on the foundation of established large enterprises -- the holdovers of the Mitsui, Mitsubishi, and other great zaibatsu, the great family-controlled banking and industrial combines.
Viewing their operations, we would have concluded that the future of Japan was in such industries as textiles, coal mining, heavy-metal manufacturing, and ship building. And of course, we would have been wrong, missing entirely most of the businesses that today constitute the basis of Japan's economic ascendancy.
Instead of the old giants in established industries, the real leaders were more marginal inventors, such as the then-unknown Soichiro Honda, who spearheaded Japan's technical dominance first in motorcycles and later autos; an anonymous engineer named Akio Morita, who cofounded Sony Corp., perhaps the world's most innovative electronics giant; or visionary Osaka entrepreneur Konosuke Matsushita, founder of one of the world's largest consumer electronics companies, Matsushita Electric Industrial Co.
By ignoring the existence of start-ups such as Matsuda R&D, today's U.S. opinion leaders -- the corporate elite, the media, and public-policy shapers -- may be making the same mistakes. Most in Washington, D.C., and elsewhere would rather believe that Japan's technological engine is generated not by entrepreneurs but by government and giant industry, often linked with top research scientists at universities.
Yet here again, the common perception is off the mark. One reason, suggests Hiroshi Takeuchi, chairman of LTCB Consulting & Research Institute Inc., may be Westerners' unwillingness to acknowledge the differences in the kinds of innovation taking place in Japan as compared with North America or Europe.
Unlike Westerners, Takeuchi insists, Japanese do not generally excel at abstract principles and pure research, the kind of work often best conducted in large corporate and government facilities. The true Japanese technological genius is the individual who, in Takeuchi's phrase, "understands the spirit of the machine."
This kind of knowledge, he asserts, does not come easily to university-trained personnel, but to classic tinkerers -- the Hondas of the past, the Matsudas of the present. "Understanding the mind of the machine is important," Takeuchi explains. "When someone works with the machine, he understands its spirit, how to change it, how to make it do something useful."
This may help explain the massive -- though rarely reported -- failure of high-profile Japanese government efforts to leapfrog Western, particularly U.S., technology. Despite enormous hype in Japan and abroad, many of the programs have met with little success -- leaving U.S. leadership in the fields of microprocessors, personal computers, and software virtually intact. "In the end we still cannot create original microprocessor chip designs or commercially usable system software," notes Tosiyasu L. Kunii, chairman of The University of Tokyo information science department and a key adviser to many industry-government technology programs.
Nor have the large Japanese companies themselves been much more successful in their efforts to capitalize on massive investment in R&D, observes Kinji Gonda, a professor at Tokyo Denki University and another longtime adviser to the Japanese government on technology policy. Like their U.S. counterparts, large Japanese companies have been stymied by their conservative bureaucracies, which make it difficult for new ideas, particularly from younger scientists, to rise inside the corporation.
"Big companies are basically very reluctant to do anything with a new product until it's totally proven," Gonda explains. "The middle management is just interested in following the company policy. They don't like the risk. In Japan you can't have a failure. You are judged by avoiding failure, not by achieving success."
The small size of the entrepreneurial enterprises and the public hype accorded the giants are only two of the factors obscuring the existence of this new Japan Inc. for Western observers. Another is that much of Japan's industrial innovation derives from areas outside the central core of Tokyo. The economy in regions such as the Kansai, which includes Osaka, Kyoto, and Hyogo, for instance, is disproportionately oriented to smaller manufacturing companies, with 29% more industrial enterprises than its share of the national population.
