History of Innovative Entrepreneurs in Japan

Front matter

History

of Innovative Entrepreneurs in Japan

A Springer

Contents

The Aim of This: Book: Three Questions... 6. 0<6664 4085540040060 08 What Is Innovation: Three Views. s...646 ess 048 eee ees 48 eee eR oa eS The Book's Sincture: Three Time Panos. <.c.4 ching sha ek ee Reed ars

PartI The Era of Breakthrough Innovations Overview I: Edo Period o64 6504 eee ic Fake renneri kitne MES riri

Case 1 Zen’emon Konoike: Successive Innovations Impacting the

Part II The Era of Incremental Innovation

World War I and Economic Turmoil sss bcos AA kane ee eae ees 93 The Years Leading to World War M: AI 95 Incremental Technological Innovation and “Japanese Style

NMANSZENIEN 45 t2eg coh E E E E eer ed geese aed 97 Case 8 Ichizo Kobayashi: A Leader in Urbanization Creates

a New MUUS II HIII Aa A 99 Urbanization and Electrification Pave the Way for a Mass Consumer

BOC KAA E E E SAREE Ed ENE E TEE T ET 99 Housings Shortages in IIIA 100 Case 9 Yasuzaemon Matsunaga: Electrification Leader Establishes

Practicing “Scientilic Management’... cece cews kasd was ert deed eoows 110 Matsunaga’s Foresight in “Personal Opinion on Electric Power

Repulshog cs caw hese a edant itna Cha SSS PEEP RE CAH WEReRS 112 The Japanese Government Imposes Controls over the Electric Power

II EAT ES EET ETET ES E E E KA 114 Case 10 Saburosuke Suzuki II: Commercialization of Exceptional “Three Greatest Inventions in Japan”. AA AUIWA 119 x Contents kawi 11 reali a From WA to Incremental

127 128 130 131 132 133

137 137 139 “Yoshisuke coat To of Nissan” by Mat lessee waa M6

Case 13 Sazo Idemitsu: From “Oil Merchant of the Continent” to “Hero « a ‘Ol Thes |

Expansion into kinik Wa I Delivery o of hile Oil to the South — eh ae ee ee ee ee eer iii MI

“rain ten to the rary and Japan’s De World War 1.. Sack pean, 0 Transformation into “Hero of Native Oil wa wanah iii Tae apital Investment Drives

Key Points o Ni na” Lectin AA AAA AA Ve

The Man who Changed the listor 164 ) i i 166

169 169

Contents

“Matsushita’s Way of Doing Business” as Practiced by the “God of

MWAN 4.525525 42% CERES DRE eEESSEURASASE ERE CERES EY Konosuke Matsushita Alter WWI.. ccs eee cee ee WAA

Case 16 Masaru Ibuka, Akio Morita, Soichiro Honda, and Takeo Fujisawa: The Groundbreaking Nature of Sony and Honda

“Sony of the World’; “Honda of the World” WEI Wa Profiles of the Pour BUSINESS sa 26 .¢0+0064 90604004040 0h0 4 Rows Commonality of Their 1946 Founding and Early Product and Sales

UE EA SAA eae rere cee eee ee AA ere AA ee Objective Conditions That Enable Innovative Entrepreneurial Activities... .

Physician of the Business World” and “Mr. Administrative Reform”... Rebuilding Toshiba’s Management. IAA A Sense of Crisis Harbored by Doko. cna cede oceiaede eee dawaa es

Discussion Point 3: How Did Japan’s Economy Continuously Grow

Part III The Era of Struggle: Japan Caught Between Two Types of Innovation Case 18 Kazuo Inamori: Managerial Renewal by a Venture

Restuctiting Japan Amines oso. sce es keke be A EER RODE ERR RAS 233 Case 19 Toshifumi Suzuki: Convenience Store Innovations from

Japan tothe WOE: IA key bee eee eas ge IIIA 235 Introduction of the Franchise III EIA 240 Product-by-Product Merchandise Management and “Hypothesis-Testing

CHOC nip eee he Soe RENE RG EERAS EERE SHER SRS SE ARETE LE 241 Case 20 Tadashi Yanai and Masayoshi Son: Exceptional Challenges Tadashi Yanai Before 20038... 2.646 44ceee Roe chee wad pense eee dnewa 245 Tadashi Yanai Since 2004. 234404 idosa iina des deer ews FR ewes O48 248 Masayoshi Son Before 2000. cc08 essre etti wee eevee se Senay 250 Masayoshi Som Aler yy IAA cadek ie eset enapeaeyardd 254 Discussion Point 4: Why Did Japan’s Economy Slow Down?

Establishment of “First Mover Advantage” Through the ICT Revolution. . . 257 “Disruptive Innovation” in the Innovator’s Dilemma by Clayton M.

Conclusion: Reviving Innovation—Requirements for the ““Two-Front

Operaio sc. 55654 eee eeeeed dete AAA WEE AA 261 summary of This BOOK co 424 ce¢h 4b etri hae kao o t How LORS eee ds 261 Ways to Revive MOVANO 5.5 660K54 VAS See Soe Hae ERE SERS 263 Name Index; : scaip EA Bald eld ads ee Qa De Ae a enw ae 281

Subject Index ...s.3.6< 65552546008 6 e858 oe Shoes hea DbE Sea ead we 285

About the Author

Takeo Kikkawa PhD in Economics, The University of Tokyo, is Vice President and Professor at the Graduate School of International Management, International University of Japan. He was Associate Professor at the Department of Business Administration, Aoyama Gakuin University; Professor at the Institute of Social Science, The University of Tokyo; Professor at the Graduate School of Commerce and Management, Hitotsubashi University; Professor at the Graduate School of Innovation Studies, Tokyo University of Science; Visiting Scholar at Harvard Business School; and Guest Professor at St. Gallen University, Yonsei University, and the Berlin Free University. He is Professor Emeritus of The University of Tokyo and Professor Emeritus of Hitotsubashi University.

His expertise is Japanese business history, and his main research field is the energy industry. He served as President of the Business History Society of Japan from 2013 to 2016 and is also a member of the Japanese Government’s Advisory Committee for Natural Resources and Energy, METI (Ministry of Economy, Trade, and Industry).

He has published many monographs and articles, including Policies for Competitiveness: Business-Government Relationships in the “Golden Age of Capitalism,” co-edited with Hideaki Miyajima and Takashi Hikino (Oxford University Press, 1999), and Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective, co-edited with Patrick Fridenson (University of Toronto Press, 2017). He has received several academic awards, including the Energy Forum Award for his book, Nippon Denryoku Gyo Hatten no Dainamizumu [Development Dynamism in Japan’s Electric Power Industry] (Nagoya University Press, 2004).

xiii

Introduction: What Is Innovation? N)

Check for updates

Schumpeter, Kirzner, and Christensen

Abstract This section serves as an introduction to this book, which discusses Japan’s economic development by focusing on changes in the nature of innovation and framing them with the theories of Joseph A. Schumpeter, Israel M. Kirzner and Clayton M. Christensen.

The Aim of This Book: Three Questions

This book aims to clarify the course of Japan’s economic development by focusing on changes in the nature of innovation. To do so, I focus on activities of trailblazing entrepreneurs who became the standard bearers of innovation in Japan.

It is important for a business historian to show major economic development trends in the past along with contemporary entrepreneurs’ activities. As a member of the academic community involved in the study of business history, I decided to tackle this fascinating task, while drawing insights from the work of my predecessors.

When looking back at the business history of Japan, there are three questions that need to be answered.

First, why was it possible for Japan to get on a growth path so early? True, the Japanese economy took off later than that of the Western industrialized nations but Japan’s economic ascent was the earliest among late developers. What made this early takeoff possible? To answer this question, we need to turn back the clock to the Edo period when the prerequisites for an early takeoff were developed.

Second, once on a growth path, how was the Japanese economy able to sustain one of the highest rates of growth in world history over an extended period of time? Having undergone its own industrial revolution in the early twentieth century, Japan went on to maintain the highest economic growth rate in the world from the 1910s through the 1980s. This rapid growth, although temporarily set back by the defeat in World War II in 1945, continued for almost 80 years in total. It is important to identify the factors that explain this resiliency and constancy.

Third, after the prolonged period of relatively high growth ended with the burst of the asset-inflated economic bubble in the early 1990s, why has the post-bubble

© Kreab K.K. 2023 1 T. Kikkawa, History of Innovative Entrepreneurs in Japan, https://doi.org/10.1007/978-98 1-19-9454-8_1

2 Introduction: What Is Innovation?

stagnation continued to this day? The 1990s were dubbed the “Lost Decade,” but soon it became the “Lost 20 Years,” then the “Lost 30 Years,” and continues to date. Uncovering the true causes of Japan’s economic slowdown is an essential task for a business historian in order to explore ways to revive Japan’s economy.

What Is Innovation: Three Views

To answer these questions, this book pays attention to the changing nature of innovation—first by clarifying what is meant by innovation. Broadly speaking, there are two distinct views of innovation: that of Joseph A. Schumpeter and that of Israel M. Kirzner.!

In a series of works, including “The Theory of Economic Development, “Business Cycles,” and “Capitalism, Socialism, and Democracy,”” Schumpeter proposed a dynamic view of innovation whose central feature is “creative destruction.” His concept of innovation emphasizes a new fusion of: (1) development of new products; (2) development of new manufacturing methods; (3) cultivation of new markets; (4) cultivation of new raw materials markets; and (5) organizational renewal. Such innovation can be characterized as “breakthrough innovation” or “radical innovation’”—one that destroys the existing equilibrium.

Alternatively, in his book “Competition and Entrepreneurship,” Kirzner presents a view of innovation that assumes imbalance as an underlying condition, emphasizing a competitive process that aims for an optimal equilibrium. What is important is not the destruction of equilibrium, but rather the cumulative, gradual innovation process that creates equilibrium, or “incremental innovation.”

Of course, in real historical processes breakthrough innovations and incremental innovations can occur simultaneously i.e., these two distinct views of innovation can

'The following explanation of views of innovation by Schumpeter and Kirzner is primarily from Abe, E. (1995). “Kakushin no gainen to keieishi” (The concept of innovation and business history) in Meiji University, Keiei ronshu(Collection of papers on management), 42(1). Note that in this paper, the term “kakushin (reformation)” is used rather than “innovation.”

? Schumpeter, J. A., (1977). Keizai hatten no riron (jo) (Theory of economic development: A study of entrepreneurs’ profits, capital, credit, interest and economic rotation (I)) (Shionoya, Y., & Nakayama, I. & S. Tohata trans.). Iwanami Shoten Publishers.

3 Schumpeter, J. A., (1958). Keiki jyunkan ron (I) (Economic cycle theory: Theoretical, historical and statistical analysis of capitalism processes (I)) (The Japan Research Institute of Financial and Economic trans.; S. Yoshida supervisor). Yuhikaku Publishing Co., Ltd.

“Schumpeter, J. A., (1995). Shihon-shugi, shakai-shugi, minshu-shugi (Capitalism, socialism and democracy) (Nakayama, I., & S. Tohata, trans.). Toyo Keizai Inc.

> Kirzner, I. M. (1985). Kyoso to kigyoka seishin: Bencha no keizai riron (Competition and business spirit: Ventures’ economic theory) (Y. Tajima supervisor; M. Eda, I. Kobayashi, S. Sasaki, & T. Noguchi, co-trans.). Tokyo: Chikura Publishing Company. By contrast, Kirzner’s view of innovation prioritizes processes of competition toward optimal balance, assuming that imbalance exists.

The Book’s Structure: Three Time Periods 3 coexist. Recently, however, a third, completely different view has emerged: “disruptive innovation,” advocated by Clayton M. Christensen of Harvard University in his 1997 book, “The Innovator’s Dilemma” (Harvard Business School Press).

“Disruptive innovation” renders existing products obsolete and creates entirely new value, as opposed to incremental innovation that strives to continuously improve upon an existing product. Every so often, a low-priced new product is launched in a market filled with conventional products that are undergoing continuous quality improvement through incremental innovation. These newly introduced products are cheap, but their quality is so low that they are not initially taken seriously. However, the quality of such new products occasionally do reach a level that meets the minimum needs of the mass consumers in the market. At that point, the conventional, existing products still possess higher quality and price, but once the new disruptive product meets the consumers’ minimum needs, price competitiveness comes into play and the newcomer rapidly gains market share. Existing products then lose out devastatingly. This is the mechanism of “disruptive innovation” explained by Christensen.

Disruptive innovation, therefore, can be considered the “third view” on innovation, after breakthrough innovation and incremental innovation. In this book, cases with these three views of innovation in mind will be analyzed.

The Book’s Structure: Three Time Periods

This book will analyze the process of Japan’s economic development from the Edo period to the present, with the entire process divided into three time periods.

First, Part I covers the Edo period through the postwar period after the Russo- Japanese War (1904-1905). The reason for choosing the post Russo-Japanese War period as the period’s end point is that Japan’s Industrial Revolution was completed around the latter half of 1900s. Part I examines the first question: “Why was the Japanese economy able to take off so early and get on a growth path?”

Second, Part II encompasses the second time period from the 1910s to the 1980s when the Japanese economy maintained a high rate of economic growth relative to other major economies, with the exception of the 1940s when Japan was engaged in, and lost, World War II. Part II examines the second question: “How was it possible for Japan’s economy to sustain high growth over a long period of time, a rarity in world history?”

Third, Part III covers the period from the 1990s until the present. When the Japanese economy came to a standstill in the 1990s, it was dubbed the “Lost

Christensen, C. M. (2011). Inobeshon no jirenma: Gijutsukakushin ga kyodaikigyo wo horobosutoki zohokaiteiban (The enlarged and revised edition of the innovator’s dilemma: When technological innovation destroys a business giant) (S. Tamada, Supervisor; Y. Izuhara, Trans.). Tokyo: Shoeisha Publisher.

4 Introduction: What Is Innovation?

Decade,” but the slump continued and before long it became known as the “Lost 20 Years” and even the “Lost 30 Years.” Part III examines the third question: “After the prolonged period of relatively high growth came to an end with the burst of the economic bubble in the early 1990s, why has the Japanese economy continued to stagnate to this day?”

Looking back at the entire process with the three types of innovation in mind, the first period can be roughly defined as the era of breakthrough innovation, the second as the era of incremental innovation, and the third as the era that was caught between breakthrough innovation and disruptive innovation. The reasons will be explained in detail following the analysis in each section.

Each part is further divided into three sections. The “Overview” section provides historical background for each period. The “Case Study” section profiles leading entrepreneurs and examines how they realized their innovations. The “Discussion Point” section highlights the characteristics of each period in terms of the nature of innovation. The book’s “Conclusion” summarizes findings from the various analyses offered throughout the book.

The “Case” sections focusing on the activities of trailblazing entrepreneurs comprise the central narrative. In business history and related academic fields, a vast number of case studies have been conducted on the innovative activities of entrepreneurs. While respecting the findings of case studies from existing scholarship, I add my own interpretations and finally articulate the broader historical picture. These are the quintessential methods that have underpinned the development of business history studies. Thus, I will first present the case study findings on the respective entrepreneurs from existing scholarship. I will then add my own interpretation to the best of my ability, to present a comprehensive picture of the history of Japanese innovation.

Open Access This chapter is licensed under the terms of the Creative Commons Attribution- NonCommercial-NoDerivatives 4.0 International License (http://creativecommons.org/licenses/byne-nd/4.0/), which permits any noncommercial use, sharing, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if you modified the licensed material. You do not have permission under this license to share adapted material derived from this chapter or parts of it.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.