Categorized | Technology, Trade

Unraveling the Cellphone Industry’s Biggest Mystery

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on RedditDigg thisShare on StumbleUponBuffer this pagePin on PinterestShare on TumblrEmail this to someone

Eamonn Fingleton shows us how other countries win.  They have goals and they execute.  They do it in the national interest.  From the article below…

“Remember that the Japanese system is heavily focused on jobs.  Its central objective — achieved through a variety of hidden and overt government policies — is to capture as many of the world’s most productive and sustainable manufacturing jobs as possible.”

Reposted from Forbes.com

******

Unraveling the Cellphone Industry’s Biggest Mystery

Eamonn Fingleton | August 24, 2012 | Forbes.com

Well traveled Americans know that cellphones in Japan have long led the world in innovation. Yet Japanese handset makers have never enjoyed much success in selling their spectacular products abroad.

What gives? The conventional wisdom is that the Japanese have been stymied by something called the Galapagos Syndrome: like the strange animals and plants that Darwin encountered in the Galapagos Islands, Japanese cellphones have evolved separately. Supposedly this means Japanese makers find it difficult to develop saleable handsets for foreign markets.

This view that  Japanese cellphone makers have been too insular was presented in particularly memorable form in an article by Hiroko Tabuchi in the New York Times in 2009. And supposedly it is yet another testament to how superannuated and dysfunctional the Japanese economic system has allegedly become.

Think again. There is a mystery here, and the more you think about it, the more implausible the Galapagos story seems.

For a start the cellphone market is far from the only one where Japanese domestic standards are unique. Standards are similarly off-kilter in the Japanese auto market, yet no one has ever suggested this has handicapped Japan’s auto exports. By the same token, unique television standards in Korea don’t seem to have cramped the Korean television set industry’s style.

Why therefore would the cellphone industry be different? And why  wasn’t Nokia held back in the latter half of the 1990s by  the  unique standards in the European market (the so-called GSM system)?

The plot thickens when you consider the dog that didn’t bark in the night: Japanese cellphone makers have never made any serious effort to get other nations to adopt their system. The omission is particularly notable in the case of nations like Malaysia, Indonesia and other implicitly or explicitly anti-Western nations of the Muslim world with whom Japan, as a non-Western nation, enjoys an inside track.

The omission is also obvious in the case of the United States. By the late 1990s, it was clear to anyone who was paying attention that Japan had leapfrogged the United States by almost two generations. Yet there were no public relations efforts in New York or on the West Coast to persuade American technology correspondents that the Japanese system was better, let alone that it should be adopted in the United States.

An interesting additional fact is that though the Japanese did almost no exporting of handsets, the story could hardly have been more different in cellphone components. It is not an exaggeration to say that by the late 1990s Japan monopolized the global supply of components. The astounding extent of its leadership was revealed in a little known but well researched study by Deutsche Bank in 2000. This identified nine key enabling components and named 36 makers who between them accounted for virtually all production worldwide. Of these, 29 were Japanese.

All this brings to mind the question of where the 200-ton elephant sits.The answer, of course, is anywhere he wants. Given Japan’s control of components – the sine qua non without which handset makers like Motorola, Nokia, Siemens, and Samsung would not have had a business – the Japanese industry was the 200-ton elephant. By what preternaturally self-denying instinct did it desist from using its market power to strong-arm other nations into adopting its system?

It seems a good question – but it is the wrong question.

Remember that the Japanese economic establishment is heavily focused on creating sustainable employment. Its central objective – achieved through a variety of hidden and overt government policies – is to capture as many of the world’s most productive and sustainable manufacturing jobs as possible. The Japanese cellphone industry’s failure to target the final assembly of cellphones would have been significant  had that business been full of capital-intensive, knowhow-intensive manufacturing jobs. It is not — it is a  labor-intensive activity  that these days is mainly done in China. As for the software side of the handset business, the Japanese moreover had no intention of going head to head with low-wage nations like India and Russia. (Nor in more recent years have they had any realistic ambitions to try to outdo Apple’s iPhone: Apple’s success is rooted in cultural advantages that the Japanese know they don’t have — e.g. a knack for writing seemlessly intuitive software for Western markets. )

The truth is that most if not all the best manufacturing jobs in the cellphone industry are at the components end — and, although this has gone entirely overlooked in the West, the Japanese have been assiduously targeting the cellphone components business since  since the early 1980s (when the nearest thing to a cellphone was a  carphone). The result, as international trade figures testify, is that, irrespective of brand, the cellphones sold in the United States and elsewhere are full of highly advanced Japanese manufactured content.  Even the  Koreans, mercantilist as they are, have no option but to import cellphone components from Japan and this helps explain the fact that even last year — with the Japanese economy discombobulated by the earthquake — Japan ran a $28 billion bilateral surplus with Korea.

In short this is a story of the Japanese recognizing — not for the first time — what their core competencies are and where the best opportunities lie.

One final point: there is a political dimension here that has been overlooked. Remember that not only can cellphones be easily bugged but secret circuitry can be implanted in them to facilitate foreign powers’ espionage and sabotage activities. Remember too that in the 1990s, as cellphones began to take off, American politics was riven by debates about Japan’s trade policies. With Perotism, Buchananism, and Naderism on the rise, the United States came close to a serious rift with Japan. Certainly, given the sensitivities of the trade debate, the Japanese industry had good reason to bear in mind a famous Japanese proverb, “The wise hawk hides his claws.”

One Response to “Unraveling the Cellphone Industry’s Biggest Mystery”

Trackbacks/Pingbacks


Sign up to receive periodic updates

Frequency