ABSTRACT
The Japanese innovation system appears to possess distinct weaknesses. In recent times, scholars have focused on the question of why Japan has been unable to establish new industries, as US firms did in the 1990s.1 Japan’s weaknesses seem to be especially obvious in the software and biotechnology industries, where Japanese firms are almost absent from the world market. In 2006 the Deutsche Bank declared that ‘in Japan, incremental innovation is dominating at the expense of new future sectors’,2 and the OECD3 stated in a policy brief that an ‘upgrading [of] the national innovation system’ is necessary. On the firm level, Collinson and Wilson4 argued that path dependencies in innovation and human resource management caused inertia in Japanese organizations and impeded innovation beyond simple incremental improvements. The reason for Japan’s weakness is conventionally attributed to the mismatch of its innovation system to the needs of new industries. Namely, the system is said to offer incentives for ‘catching up’ with world leaders and diffusing knowledge within industries in Japan, but not for the creation of new industries. In particular, the rigidity of the Japanese labour market, insufficient inter-institutional knowledge flows, the closed nature of industrial organizations and the dominance of specific informal institutions, such as loyalty and diligence, have been identified as barriers.5 The literature asserts that new industries need certain institutions and competences such as developed capital markets, open labour markets and a high specialization in new technologies, all of which Japan does not possess and will not be able to establish in the short term, given the path dependency of competence accumulation. This in turn will affect Japan’s competitiveness.6 Thus the literature maintains that the issue of undesired path dependencies is particularly true in its application to Japan.7 However, the weakness pointed out in Japan’s most prominent ‘failure’, the software industry, must be juxtaposed with the fact that, in reality, Japan has a highly competitive game software industry.8 In this subsector, Japanese firms such as Sony, Nintendo, Sega, Square Soft, Konami and Capcom belong to the most competitive worldwide.9 These leading firms are not just minor players, as evidenced by the fact that Nintendo’s turnover is about a seventh of Microsoft’s, and about half of SAP’s.10 The success of the game software industry contradicts
the literature mentioned above, indicating a specific weakness in the Japanese innovation system to establish new industries. This chapter takes the success of the game software industry as a case study to examine and analyse the sources and processes of change within a national innovation system like Japan’s. Recognizing the role of path dependency – a key concept in institutional economics which explains why a desirable institutional change does not take place even if it would lead to an increase in welfare for all people concerned – I go a step further in assessing how novelty does indeed emerge in a path-dependent system. As a central reason for the emergence of the game software sector in Japan, I isolate the property of plasticity – numerical and functional – of Japan’s innovation system. Both numerical and functional plasticity result from the plasticity of its key configurations, namely institutions, competences and demand. By analysing the emergence of a new industry within the Japanese innovation system, I contribute to recent efforts to document how the resources for change and the emergence of new forms are in fact contained within systems themselves. Understanding the inner processes and complexity of a rather new phenomenon calls for case study research that ultimately can be used for theory development. Accordingly, the research presented in this chapter is exploratory, qualitative, and based on case studies (see Appendix).
