Ulrike Schaede’s important new book makes us reassess some of what we imagine Japan to be in the realms of business, regional politics, and international relations. Japan has quietly come up with a new strategy to coexist and compete with its giant neighbour China, a country which has been the focus of far more academic and policy attention. She calls this Japan’s “aggregate niche strategy” and it positions Japan as an “agile, technically sophisticated leader in a set of advanced products and industries critical to the global supply chain” (3–4). How this transformation came about without upheaval, its scope and limits, and what it portends for Japan in the global and regional political economy form the subject matter of this book.
The heart of Japan’s new strategy is “the pursuit of a series of niches that, in the aggregate, result in a sizable and lucrative presence on the innovative frontier” for Japanese companies, ahead of their competitors (72). One component of building this string of aggregate niches is strategic repositioning. Schaede refers to her earlier work to draw attention to the long-evolving strategies among Japanese businesses to strategically reposition themselves for upstream core competition in the new digital economy: first choose-and-focus, then upgrade or pivot (74–75). Many of Japan’s well-known companies and conglomerates have spent decades closing down or shedding non-core business units, and they are helping to move Japan structurally away from its old industrial architecture focused on large-scale efficiencies in mass production (5). As much as possible, firms are choosing to focus their capabilities on the business of critical inputs in which they are becoming even more important in global supply chains, and which can turn out to be an important means for governments to exert political leverage in regional relations (69–70).
These inputs tend to be marked by strong and fairly predictable global demand and high profit margins, and are leading Japanese businesses towards structures that emphasize “small-batch deep-technology innovation” (5). Ideally, they are segments of the supply chain that are “upstream, difficult-to-make, and difficult-to-imitate,” reflecting a recognition that not all links in a supply chain are equally valuable, and underscoring a necessity if Japan is to remain competitive in the face of determined companies from South Korea, Taiwan, and China, among others (72–73). In industry after industry in Asian supply chains—smartphones, smart electronic motors in cars, vehicle power steering, carbon fiber, advanced sensors, medical and office automation equipment—Japan, invisibly, dominates product segments on the insides that may be small but are critical for anchoring subsequent production of other parts and goods (76–80). “Japan inside” means that we may all be brushing up against Japanese products every day without being aware of doing so. Even as Japan’s growth has slowed and America’s attention drifted, the aggregate niche strategy has helped position Japan as the “anchor of global supply chains and a central player in Asia” (95).
The process of reinvention is hardly uniform across the corporate landscape and shows the struggles that companies and workers face as they look for ways to exit some of their legacy businesses. This is just as true for small unknown companies as huge brand names such as Panasonic and Sony, both of which have had difficulties in breaking away from heritage technologies; nevertheless, they are still standing and carrying on, with collective net profits estimated at $11 billion and 400,000 employees (93).
The difficulties and less-than-straightforward path towards reinvention also draw attention to a second, far more difficult, culturally infused component that underpins the new strategy: organizational renewal. This means that even as companies devise new or upgraded competencies to push forward, they must also pay attention to the reorganization of management processes to thrive in the marketplace of adaptive innovation. In turn, this draws attention to what she defines as Japan’s “tight” cultural context—with strong behavioral norms about what is right and socially responsible—in which businesses operate. Schaede’s point is not that the tight culture is positive or negative, bright or dark, but rather that it is a reality in which corporate changes in trajectories and identity need to navigate deeply held and widely shared preferences (31–42). The tight culture both constrains and shapes corporate options. The evolution and context raise deeper issues of corporate choices about speeding forward or providing stability, creating value, and employment.
Nobody can be sure of the right trade-off but the cases of Panasonic and Sony suggest that, while costly, there may be societal advantages to doing things contrary to pundit advice. Indeed, right at the start Schaede pinpoints the remarkable resilience of the country’s social underpinnings in the face of deep and even prolonged social crisis, and points to a fundamental consensus over what may have made it possible. She suggests “[t]his is because … Japan as a nation has prioritized stability over economic growth, slow adjustment over stock price indicators, and prosperity for many over profit for a few” (13).
The test of an informative work is how much it makes you rethink your own work and those of others. Schaede’s findings have made me consider upgrading parts of my co-authored book a decade ago, and to reevaluate players who shape the competitive geography of the defense-industrial base (Saadia M. Pekkanen and Paul Kallender-Umezu, In Defense of Japan: From the Market to the Military in Space Policy, Stanford University Press, 2010). One specific aspect of that research was to trace the role of corporations in producing space technologies, such as rockets and satellites. In light of Schaede’s work focused on Japanese businesses—as well as both older and newer works by other leading scholars that draw attention to production networks, supply chains, geopolitics, and the broader international relations of Asia (John Ravenhill, “Production Networks in Asia’s International Relations,” in The Oxford Handbook of the International Relations of Asia, edited by Saadia M. Pekkanen, John Ravenhill, and Rosemary Foot, Oxford University Press 2014, 348–370; and Etel Solingen, ed., Geopolitics, Supply Chains, and International Relations in East Asia, Cambridge University Press, May 2021)—I am inclined to pay far more attention to the nitty-gritty of supply chain segments, positioning on the “smile curve,” and the very idea of “Japan inside” in understanding the production of the country’s strategic space technologies across borders. Schaede’s book not only advances our view of the possibilities for Japanese business reinventions on a variety of technology frontiers, but also the broader nature of linkages that underpin the prospects for prosperity and security in Asia and beyond.
Saadia M. Pekkanen
University of Washington, Seattle