Can Japan Compete?
Summary
Porter, Takeuchi and Sakakibara examined Japanese competitiveness and reached a conclusion that contradicted the prevailing explanation of Japan's success.
The standard account, dominant in the 1980s, held that Japan's performance came from government guidance through the Ministry of International Trade and Industry, from keiretsu group structures, from lifetime employment and from cooperative rather than competitive relationships. The authors argue this is wrong, and they test it by examining Japanese industries systematically rather than only the successful ones.
Their finding is that Japan succeeded internationally in a small number of industries and failed in a large number, and that the difference correlates with domestic competition rather than with government support. The successful industries, including automobiles, machine tools, cameras, robotics and consumer electronics, featured intense rivalry among many domestic competitors, weak government direction and limited protection. The unsuccessful industries, including chemicals, financial services, software, retailing, pharmaceuticals and agriculture, were exactly the ones with the most government intervention, the most protection and the most restricted entry.
The implication is that government policy was not the source of Japanese success and was actively harmful where it was strongest. The authors extend this to argue that Japan's competitive weaknesses, including low productivity in domestic services and poor capital allocation, follow from the same interventions.
Their recommendations are for competition policy, deregulation, corporate governance reform and a shift from operational excellence to distinctive strategy, which they argue Japanese firms have generally avoided in favour of competing on the same dimensions.
The book was published in 2000 after a decade of stagnation, when the earlier admiration had already faded. The finding is well supported by the industry evidence and remains the strongest empirical challenge to the industrial policy interpretation of Japan. Critics argue the authors understate the early-stage role of protection and technology acquisition.
Key takeaways 7
- Japan succeeded internationally in a small number of industries and failed in a much larger number, which the standard account ignores.
- The successful industries featured intense domestic rivalry, weak government direction and limited protection.
- The unsuccessful industries were exactly those with the most government intervention and the most restricted entry.
- Government industrial policy was not the source of Japanese success and was harmful where it was applied most heavily.
- Domestic competition rather than cooperation produced the capabilities that succeeded in export markets.
- Japanese firms competed on operational excellence rather than on distinctive strategy, which produced convergence and eroded profitability.
- Low productivity in Japan's domestic service sectors follows from the same protections that were credited with creating manufacturing strength.
Who should read it
Anyone assessing industrial policy arguments who wants the systematic industry-level evidence against the standard interpretation of Japanese success.
About Michael E. Porter
Bishop William Lawrence University Professor Emeritus, Harvard Business School; founder, Institute for Strategy and Competitiveness
Competitive Strategy and the five-forces framework are the primary source for industry analysis, and Competitive Advantage supplied the value-chain vocabulary the field still uses.
Harvard Business School, Institute for Strategy and Competitiveness
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