Feb 17, 2010
Capitalizing On Innovation: The Case of Japan (summary) (Dujarric and Hagiu, 2009) (Harvard Business School Working Paper).
Capitalizing On Innovation: The Case of Japan (Dujarric and Hagiu, 2009) (Harvard Business School Working Paper).
Two Sources of Inefficiency in Hierarchical Industry Organization
(1) Lock Out:
The perpetuation of existing business practice by incumbent leaders (e.g. Computers/Software in Japan).
(2) Galapogas Effect:
Missed opportunities for members of the ecosystem whose orientation is determined by market leaders (e.g. Anime and Cellphones in Japan)
Three Elements of Ecosystem Leadership
(1) Control of standards and interfaces
(2) Control of nature and pace of innovation
(3) Ability to appropriate a large share of the value created by the ecosystem
Competition and Anti-trust regulations are critical for maintaining the pace of change of the industry (and the benefits that can accrue to consumers).
Drivers of Vertical Disintegration
(1) Fast pace of technological progress leading to economies of specialization
(2) Modularity and standards/interfaces
(3) Increasing demand for product variety
“Ecosystems are the natural consequences of vertical integration”
“Japan’s economic DNA is far less liberal than America’s” because of ruling party desire for stability and survival, the influence of Marxism and anti-liberal conservatism.
This led to…
(1) A strong manufacturing bias
(2) Business Xenophobia
(3) Tolerance of monopolies and oligopolies
CASE STUDIES
(1) Software: <span style=”font-size: large;”><strong>Chronic fragmentation. Customized systems and Hardware Focus. ‘Closed Garden’ innovation Vs. ‘Silicon Valley model’.</strong></span>
(2) Animation: <span style=”font-size: large;”><strong>Fragmented industry controlled by distributors. </strong></span>Projects run/financed/distributed by “production committes”.
(3) Cellphones: <span style=”font-size: large;”><strong>High technology but low diffusion/presence outside of Japan (Galapagos Effect) </strong></span>driven by manufacturer subservience to operators. Bias on manufacture R&D on integration of Japan-specific features – no market research, marketing or sales capabilities.
POLICY IMPLICATIONS
(1) Strengthen anti-trust
(2) Strengthen legal fields other than anti-trust to encourage innovation and entrepreneurship
(3) Enforce of intellectual property rights
(4) Develop venture capital markets
(5) Open up to foreign investment
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