Why Apple Isn’t Japanese

It isn't just the iPod as a cool gadget that keeps the Japanese awake at nights. It's the iPod (and its relative the iPhone, soon to debut in Japan) as the supersuccessful symbol of a new way of doing business that causes the hand-wringing. While Japanese companies like DoCoMo, NEC, Sony and the like struggle with incremental improvement, competitors like Apple and Google are fusing innovative technology with great marketing, design and distribution to create entirely new product categories.

That's precisely what unnerves the Japanese. Bloggers and commentators routinely invoke Apple's success as a wake-up call for a country that once ruled the world's consumer-electronics market. Masamitsu Sakurai, the chairman of office-equipment maker Ricoh and head of one of Japan's leading industrial associations, shocked members of his group with a recent speech that held up the iPod as an example of an innovative Western product that Japan is finding hard to emulate because of its outmoded management.

There are many who would write off this sort of talk as heretical hyperbole. Japan, they argue, has a long track record as a country of innovation. "Lean manufacturing," low-mileage cars and Toyota's Prius hybrid must surely count for something. They also note that Japan is the land of Sony, a company that once represented, in the persons of its legendary cofounders, Masaru Ibuka and Akio Morita, the perfect fusion of engineering and marketing savvy.

But that was then. One reason Apple galls the Japanese so is that it has displaced Sony as the leading innovator in consumer electronics. Sony's last truly big thing was the Walkman, and many non-Japanese aren't even aware that the Walkman still exists—as a digital music player competing feebly against the iPod.

The lithe Sony of Morita's day has given way to a fat conglomerate, with interests in everything from finance to movies, that stumbles over its own feet. Because Sony has its own music division, its executives are jealous of their copyrights, so they set up a distribution system much less open than Apple's. That's one reason the Walkman holds a 23 percent market share in Japan, while iPod holds a 58 percent share, according to market researcher BCN.

The innovation crisis is in large part rooted in the country's peculiar corporate culture. Japan Inc. still remains dominated by big, vertically integrated dinosaurs with little maneuverability and a marked disinclination to creativity. Sony CEO Howard Stringer was brought in from America to shake things up in 2005 and has been struggling ever since to break down the barriers between company divisions.