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Japan Galapagos effect (Galapagos syndrome)

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g_fasol
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Japan Galapagos effect

Autor: Gerhard Fasol

Globalizing Japan

On the Galapagos islands, Charles Darwin noticed a number of species which were extremely beautiful, had evolved on the Galapagos islands locally, and were not able to live anywhere else.

Similarly, due to language, culture, comparatively small interchange between Japan’s markets and foreign markets, some technologies and some products evolved in Japan differently than in other markets.

In part, Japan chose unique Japanese technology standards (e.g. PDC and PHS for mobile phones, 1-seg for mobile TV, FeliCa for RFID contactless and mobile payments) in the hope to achieve global adoption of these Japanese standards, and at the same time to make market penetration of Japan’s markets more difficult for foreign companies in these fields – thus giving an competitive advantage to Japanese companies in their home market Japan.

Japan Galapagos effect: Telecom industry

Japan’s telecommunications industry for a long time used wireless communication standards, and mobile data standards, and frequency bands quite different than those used in other parts of the world. This had several effects:

  • Foreign companies hoping to enter Japan’s market, had to invest and develop mobile phone and other equipment specifically for the Japanese market, which could not be marketed anywhere else. Thus competing Japanese mobile phone makers and base station makers had a (temporary) competitive advantage in their home market, Japan. However, because of Japan’s limited market size, this competitive advantage in their home market seduced these Japanese companies to neglect global business development. As R&D costs, and especially software development costs increased, lack of global scale made it more and more difficult for these companies to continue viable business.
  • Because of high investments, and the will of consumers to spend large amounts on mobile communications, and because of Japan’s innovative power and other factors, many mobile technologies and business models were invented in Japan, or came first to market in Japan. These include:
    • camera phones
    • mobile internet (i-Mode)
    • mobile payment
    • commercial 3G mobile broadband services
  • Japanese handset makers and mobile phone base station makers were until recently protected in Japan’s market, Japanese mobile phone operators preferentially purchased Japanese equipment. Japanese mobile phone handset makers and base station equipment makers were not able to compete in the much larger global market.
  • Necessary consolidation did not take place, so Japanese mobile phone handset makers and base station equipment makers did not scale globally.

As a direct consequence of the Galapagos issues, NEC recently decided to exit the production of smartphones – NEC was the former No. 1 leader in Japan’s mobile phone market.

Japan Galapagos effect: Galapagos phones (Galake, ガラケ)

Japan introduced mobile internet in February 1999, much earlier than any other country. “Galapagos phones” (Galake, ガラケ) are mobile phones (“feature phones”) typically based on the legacy Symbian operating system, and including a very rich set of features:

Galapagos-phones are losing market share against iOS/iPhone and Android smartphones, and we expect Galapagos-keitai (galake) to disappear from the market within a few years to be replaced by iOS, Android, and other smartphones.

As a consequence of the Galapagos effect, NEC recently decided to exit the field of smartphones, and focus exclusively on “Galake” type feature phones.

Japan Galapagos effect: Automotive industry

Kei car, K-car, 軽自動車 (meaning “light automobile”) is an automotive class, which exists only in Japan. Kei-cars enjoy tax advantages, and Japanese automobile manufacturers are creating very innovative and attractive Kei-cars, however this class of automobile is only restricted to Japan at this time, and cannot achieve global scale at this time.

Positive aspects: Japan Galapagos effect as an opportunity

Mobile internet, electronic money, camera phones and many other advanced technologies were invented and/or first brought to market in Japan, earlier than in all other countries, because of the positive aspects of the Galapagos effect. Japanese companies could develop and bring these new products to market without being slowed down by global standards. Creativity can run free in Japan because of Japan’s Galapagos effect.

Japan post-Galapagos effect working group

The “Post-Galapagos working group” was organized by Takeshi Natsuno (one of the three developers and long-years manager of DoCoMo’s i-Mode mobile internet service) during the years 2008-2009.
The Post-Galapagos working group consisted of about 15 Committee members (Gerhard Fasol was the only non-Japanese Post-Galapagos working group member), met once a month for about one year, and in mid-2009 prepared an released a set of reports with recommendations for

  • Japan’s telecom operators
  • Japan’s electronics manufacturers
  • Japan’s contents industries

A Japanese article about the Post-Galapagos working group can be found here:
超ガラパゴス研究会リポート：海外目線で見る、日本のケータイメーカーの弱点とは
And an English language article here:
ACCJ-Journal: The Galapagos Effect

Japan Galapagos effect – References

Gerhard Fasol slides at Stanford University: “New opportunities vs old mistakes – foreign companies in Japan’s high-tech markets”

Stanford University Japan Technology Center lecture on change and new opportunities in Japan

Copyright (c) 2013 Eurotechnology Japan KK All Rights Reserved

Comments

4 responses to “Japan Galapagos effect (Galapagos syndrome)”

  1. Nicholas Benes Avatar
    Nicholas Benes

    This is all excellent analysis and material. The interesting thing to consider is that a given product or technology is not necesssarily “galapogos” at birth. If it succeeds/wins in the global marketplace, there is no galapogos effect at all. So 50% of the equation is for Japanese companies – like Samsung – to start out designing/planning for the global, market….rather than just Japan. Japan’s curse is to be a chuto hanp (stuck in the middle) market. Unlike Korea it has the deceptive/tempting luxury that companies can look at the Japanese market alone think, “if I got 30% market share just in Japan alone, that is not bad economically”. But obviously if 6 other firms all think the same thing, margins come down…and everyone discovers that they only designed for the Japanese market, but they cannot go elsewhere. Korea does not have this “luxury”.

    Reply
    1. g_fasol Avatar
      g_fasol

      Completely agree- Nicholas! I think both Germany and Japan share this issue of having a large enough home market for companies to feel comfortable in the large home market alone. On other hand, Israeli or Finnish or Swedish companies need to be global from day-1 in order to be viable.

      Another factor I think is the exponentially increasing importance and complexity of software. As software development costs increase exponentially, while unit costs of software installation (unlike hardware production costs) are almost negligible, global scale becomes a dominant factor for success – especially for mobile phones/smart phones, where value shifted from hardware to software years ago.

      Reply
      1. Nicholas Benes Avatar
        Nicholas Benes

        I forgot to add, that the chuto hanpa (stuck in the middle) size of Japan’s market is also party the cause for its “Galapagos”-style corporate governance framework and management’s general resistance to many governance reforms that to a large extent have become global standards. Japan is big enough and successful enough economically (esp. in the past) to be proud of itself and and think it can and should preserve its uniqueness (“so why should we change what worked before”?) that this turns into not fully rational stubborness in the current age, when the external environment, demographic shrinkage, and competitive balance have completely changed. As they say, past success sows the seeds of future failure. The organizational structures and strategic decision-making styles that worked in the 1970’s when the yen was at 360 and Japan had a huge labor cost advantage (and few competitors) do not work well in the year 2013. This is why I set up the non-profit Board Director Training Institute of Japan, http://bdti.or.jp/english/ , now certified by the J-government as a “public interest organization”, to offer training about directorship and corporate governance (and related management methods) in both Japanese and English (upcoming course programss an seminars: http://bdti.or.jp/english/info )

        Reply
        1. g_fasol Avatar
          g_fasol

          [past success sows the seeds of future failure] -> might add, that Japan is the only major economy which did not grow at all over the last 15 years – Canada, Russia, UK etc’ economy all doubled or more over 15 years, while Japan showed approx. zero growth.

          Reply

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