The Galapagos Effect

Dr. Gerhard Fasol, the founder and CEO of Eurotechnology Japan KK, spoke to ACCJ members about Japan’s “Galapagos Effect” at the Westin Hotel in Tokyo. The “Galapagos Effect,” for those unfamiliar with the term, is used to describe Japan’s unique culture of technology that has not expanded beyond Japan’s borders, in the same way that the Galapagos Islands exemplify unique evolutionary developments in nature.

Where Japan Leads

Photography by Hiromi Iguchi

Investment is a prime reason why such developments as Internet-related mobile communications are so advanced in Japan. As Fasol pointed out, Japan has seven times the number of 3G base stations as the United Kingdom. Many of the related technical developments in mobile handsets that are only just coming onto the market outside Japan have been standard for many years in this country—Fasol gave high-quality camera phones as an example.

Quoting a Nokia spokesman, he claimed one reason for this leap was that Europe is conservative in regards to standards, which take a long time to develop and ratify in contrast to Japan. He amplified the Galapagos analogy by stating, “Japan is a Galapagos island, and doesn’t have to care about standards.”

Fasol also claimed that Japan is 10 to 15 years ahead of other nations in its use of electronic money. He contrasted Europe’s fragmented and overly bureaucratic nature with Japan’s, where large decisions—such as i-Mode and Suica—can be made by a mere two or three people, which may come as a surprise to those who see Japan as a bureaucratic nightmare.

The reverse side of the Galapagos effect, however, is that Japanese phones designed for the home market fail to find buyers outside Japan. Electronic money is another area where Japanese technology seems destined to remain within the borders of Japan, despite the fact it is now quite common and accounts for a relatively large proportion of currency in circulation at about two percent. Fasol claimed that the U.S. and Europe are not yet ready for the mass introduction of such a payment system like Japan. In the long term, he believes, non-Japanese global giants will probably win out over the Japanese innovators.

Shedding Light on Genius

Another area where Japan has led innovations in the commercialization of technology is the revolution in lighting, which is poised to offer new environmentally-friendly illumination options. Based on the invention of the blue LED by Shuji Nakamura, the new lighting systems are also wallet-friendly in that they offer a 6,000-fold advantage in terms of price for the same amount of light over kerosene-powered lighting, still a staple in many parts of the world.

However, Nakamura was largely ignored by the Japanese business community; he is not even named on the website of the company that employed him (Nichia), and is now working at a university in California—Tokyo University claimed they wanted more “ordinary professors.” According to Fasol, the “Galapagos effect” means that there is no room or need for geniuses like Nakamura in Japan.

Economy

Up to 1995, Japan’s economy was growing, but is now static, a unique situation within the G8. Indeed, extrapolated from present trends, South Korea’s economy could overtake Japan’s in 2022.

Japan has a huge electronics sector, from giants to smaller specialist makers with combined sales of $600 billion, about the same as the economy of the Netherlands. However, the growth is almost zero compared with that of 10 years ago. The net income of the top 20 companies of the sector is actually less than that of a single U.S. company, GE or of Korean rival, Samsung. This has a disadvantageous effect on pension funds, who are the major shareholders of these companies, but the governance of Japanese corporate affairs by shareholders is much less than, say, in the U.S. Still, Japan enjoys a very large national market (unlike the UK, for example), which can help companies survive. On the other hand, this may have prevented companies from “going global” as their internal market has reached saturation. Fasol mentions rice cookers as an example of a consumer durable that is not purchased frequently, and accordingly has a relatively small and finite market footprint. Even so, every major electrical manufacturer designs and produces a range of rice cookers, with a very low profit margin of well under one percent, which may be part of the legacy of the zaibatsu (the large pre-war conglomerates). This legacy means that most present-day conglomerates feel the need to do everything—for instance, there are three global makers of trains, but ten in Japan.

The Galapagos Study Group

Fasol then went on to describe the 26-person interdisciplinary Galapagos Study Group—of which he was the only non-Japanese member—which met monthly for a year and concentrated on the mobile phone industry.

The results of these meetings were summarized in three sets of recommendations to telecom carriers, electrical manufacturers, and content companies, with the second category receiving the recommendations that Fasol described as most radical.

He surprised his listeners by saying, “I think it would be best for Japan if in five years or so there were no more Hitachi, or Fujitsu, or Toshiba.” This, of course, was not meant as a direct attack on these specific companies, but as an attack on their conglomerate nature. Instead of the current state, he suggested a move towards smaller companies, focused on profitable businesses, would be preferable and would restart growth.

On the content side, Fasol claims that Japan is the only country in the world with the intellectual and creative resources to create characters that can stand up to Mickey Mouse and the Disney empire, but has not succeeded in creating global businesses based on Pikachu or Doraemon. Accordingly, the committee made a recommendation that platforms similar to Disney be created in order to create global businesses using such characters.