Galapagos effect: how can Japan capture global value from Japan’s technologies and new business models?

Japan develops fantastic technologies and new business models and often fails to capture global value

Galapagos effect (Galapagos syndrome)

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 exhibit: 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.

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 exhibit: mobile payment

Japan’s mobile operator NTT-Docomo introduced the world’s first fully commercial wallet phone on July 10, 2004, after several months of public testing with a limited number of handsets given to selected members of the public between December 2003 and June 2004, almost exactly 10 years before Apple Pay was introduced. However, Japan’s Galapagos effect – in combination with the domestic Japan focus of NTT Docomo, prevented NTT Docomo from building a global business based on the very successful mobile payments system “saifu-ketai”, which actually is much more than “just” a mobile payment platform (read in detail in our Mobile Payment Report, and in our Wallet-Phone Report).

Japan Galapagos effect exhibit: 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: 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.

Post-Galapagos 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

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

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