Columbia International Affairs Online: Working Papers

CIAO DATE: 07/2011

Leading Without Followers: How Politics and Market Dynamics Trapped Innovations in Japan's Domestic "Galapagos" ICT Sector

Kenji E. Kushida

March 2011

Berkeley Roundtable on the International Economy


Despite global leadership by Japanese firms in sectors such as automobiles, precision equipment, and various high tech components, Japanese firms in the telecommunications sector have followed a persistent pattern of leading without followers. While leading the domestic market to ever-high levels of sophistication, sometimes beyond that of most other advanced industrial countries, Japanese ICT companies have retreated dramatically from international telecommunications-related markets. Moreover, in technology after technology, Japanese ICT firms invest heavily, undertake extensive R&D, and for network technologies, deploy infrastructure rapidly, only to find that global technological trajectories shift in a different direction. While globally successful Japanese industries were able to use their domestic market as a springboard into international markets, Japan’s telecommunications sector became decoupled from global markets, trapping Japanese firms in the domestic market. This paper contends that this persistent pattern of Japanese ICT firms leading without followers was not simply the result of misguided technological choices, ill-informed corporate strategies, or insular government standard-setting processes. Rather, the dynamics of competition, shaped and reshaped by political dynamics and regulatory structures, decoupled from global markets. These dynamics of competition ultimately shaped the technological choices and business strategies pursued by Japanese ICT firms, creating a “Galapagos effect,” in which winning in an isolated domestic market led to losing in global markets. Major regulatory shifts transformed the dynamics of competition since the late 1990s, decreasing the isolation of Japan’s telecommunications sector, but some factors pulling along a proprietary trajectory persist. This study highlights the dilemma of how to develop beyond follower status, but avoid becoming a leader without followers.