Life in the digital age

Life in the digital ageNext month, Dr Tsugio Makimoto, the chief technology officer of Hitachi, leads a delegation of top Japanese industrialists visiting high-tech centres in Europe and the US to look at ways in which Japan can more quickly embrace the digital revolution. The destinations include the Alba Centre in Scotland, Cambridge, and the Flanders Language Centre in Belgium. Dr Makimoto explains the background to his mission. 
In the 1960s and 70s Japan went through a period of great advance – growth was strong, industry became powerful and companies were very active.
Japan was very much the shining star. It came as a great shock to people in America who are confident that America is No.1. They thought they had to compete with Japan, and a lot of people visited Japan to see Japanese management systems – academics, government people, industrial people – all came to see.
In the 80s there was the same confidence, Japanese people became proud and arrogant and Japanese industry looked very strong and unstoppable to the outside world.
The late 80s was a time of over-confidence – the decade of the bubble phenomenon – then, in the early 90s, it collapsed. The 90s was a decade of lost confidence.
That came as a very great shock to the people of Japan because most of them were very confident that Japan was doing the right thing. Most people had the same idea.
Now Japan is looking at ‘Is there a way to make a recovery?’ The government is pursuing a lot of counter-measures to activate this depressed economy. Huge amounts of money are being proposed to increase the capital of Japanese banks.
Many banks are not expanding loans for industry. There’s a shortage of money for industrial companies. The government is taking action to avoid a credit crunch happening in the future.
Maybe these financial problems can be solved in the next one or two years, but my concern is that even if they are solved in one or two years Japan still has profound problems because it is now lagging behind the direction in which the rest of the world is heading, especially in the digital revolution which has changed lifestyles.
When Japan was strong in the 70s and 80s the products – like VCRs – were based on analogue technology but, in the 90s, the digital revolution started based on products like the PC with multi-media and communications infrastructure playing an important role.
It is estimated that out of the total profits of all the companies involved in the PC industry, one third goes to Intel, one third goes to Microsoft and the last third is shared by hundreds of companies.
The way of management is changing because of email and information flows which makes for flat organisations, but most of the Japanese industries have hierarchical, bureaucratic styles of management and it’s very difficult to move them very quickly. So the digital revolution is making it very difficult for big companies in Japan.
In the US there are many start-up companies with good ideas using the digital revolution very effectively, particularly the Internet. Such companies can do worldwide marketing via the Internet. That is a big change in favour of small companies which can move fast and have great agility. Japan is suffering from the lack of ability to move fast, so even though the government is working on improving the financial system still Japan has big problems to solve to change direction to a digital-based society.
It may take another ten years. We have to start in the education system, in the university research system and in the organisation of big corporations in order to change the way of thinking of people.
One example is the low penetration of PCs into Japanese households. Whereas 43 per cent of US households have a PC, in Japan only 23 per cent have them. That is a time difference of about five years.
Changing the mind-set – changing the way of thinking – normally takes time. Now, because of digitalisation many things are becoming global – you have to have global sales – and the standard language for conducting global business is English.
That is a problem for Japan because very few people speak English. Compare that with Taiwan and Singapore where they use English almost as their mother tongue.
But in Japan you can have ten years’ of Junior School, High School and College and it doesn’t really help. I’ve been telling government people that the Japanese educational system is really awful. They teach English as a subject just for entrance examinations, so students know a lot of grammatical details and can read Shakespeare but still cannot speak or understand English. That is a problem. If the Japanese people do not speak English the rest of the world won’t like to communicate with them and people will move to other locations where they can communicate – there will be a new phenomenon of ‘Japan-passing’. In the 1980s, we had Japan-bashing. Now Japan may be by-passed.
With so few people speaking English we need to do something for the whole nation to reverse that direction. We need it so people can know about the world via PCs and the Internet. – not just a few limited people but for the total population of Japan.
Some of the top companies are leading these kind of changes. There are some very good global companies – Sony is typical of one of the global companies, they do their communications in the global way. Most Sony people speak very good English and so have no difficulty speaking in the worldwide way. Canon is another example. Compared with these companies, the government is behind.
My tour of the leading high-tech cities in Europe, with 20 people from different companies, will include the Alba Centre in Scotland, Cambridge in England, the Flanders Language Centre in Belgium, and Sofia Antipolis in Nice, France to have discussions on information exchange.” A social revolution in Japan
David Manners
Japan is changing and the most outward and visible symptom of change is the abandonment of Japan’s lifetime employment tradition.
In March Sony announced 17,500 job losses, NEC announced 15,000, Mitsubishi 14,500, and Hitachi 6.500.
In a country of 110m people with on ly 4.5 per cent unemployment that may not seem drastic, especially in view of the overstaffing but, in a country with minimal social security provision, it means a social revolution.
Behind the scenes the companies are adopting Western accounting standards which will promote transparency to allow the outside world to see how profitable, or not, companies are, how indebted or not, they are, how much their assets are worth in current market value rather than book value, and how great are their liabilities for future retirement benefits and pensions (last week Nissan revealed a ?3bn shortfall in its pension fund provision).
In the boardrooms the accent is now on profits rather than on increasing turnover and market share. “To comply with global standards of management we have to focus on cash-flow,” says Yoshihide Fujii, general manager of Toshiba’s semiconductor business planning division, “Japanese companies now appreciate profitability more. To run the business more healthily we have learnt that management for profit is more important.”
NEC’s new president, Koji Nishigaki told employees recently that the company would concentrate on ‘fanning the sparks of individuality’, would require business plans to focus on profitability and exit unprofitable businesses, would seek to balance profits and investment by evaluating its businesses against global performance indices such as return on investment and cash flow, and would develop human capital by fostering individual creativity and individuality.
It may seem odd that in a country with a current account surplus of $139bn its industry can have such self-doubt. The reason for it is the heavy losses of the big Japanese electronics companies mainly caused by their big exposure to DRAMs which have been hit by the three year price slump.
Now Matsushita and Oki have pulled out of supplying the mass market, Nippon Steel Semiconductor has been sold, Mitsubishi, Hitachi and Toshiba have been moving production off-shore while Fujtsu has responded to press stories that it is pulling out of DRAM by saying it is going to focus on high-density, leading edge products.
Withdrawing from DRAM, wouldn’t matter if the companies could borrow to invest in the next generation of product development, in new factories and in capital equipment.
But they can’t. The banks are no longer lending because of bad debts believed to amount to over ?300bn. The banks cannot write that off all at once without going bust although they’ve started to cope with the problem.
In 1998 it is thought that Japanese banks collectively wrote off ?50bn worth of bad loans, and last week they sold ?15bn worth of non-performing debt. So the banks are reluctant lenders to industry.
Without substantial DRAM revenues, and without the unfettered ability to borrow, Japanese semiconductor companies have to continue their recent reduced capital spending on plant, equipment and R&D which will inevitably lead to further loss of market share and, possibly, future competitiveness.

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