The Evolution of the 1970s and People-Related Factors

After the introductory period of the 1960s, the study of Japanese management grew steadily in the following decade, expanding its comprehension based on the foundations of production and people management, though many works could be classified as belonging to the IB field. Some early examples include Drucker’s research (Reference Drucker1971) on learning from Japanese management for decision-making and other managerial issues; England and Lee’s comparison (Reference Drucker1971) of American, Japanese, and Korean cultural impact on managerial values expressed in organizational goals; Fujita and Karger’s demonstration (Reference Fujita and Karger1972) of R&D management in Japan; and Kelley and Reeser’s study (Reference Kelley and Reeser1973) of Japanese-American managers’ attitudes linked to their Japanese ancestry. Reference England and LeeEngland and Lee (1974) continue their comparative study of managerial values in Japan, the United States, India, and Australia, while Johnson and Ouchi (1974)Footnote ¹ comment on Japanese management taking root in America. Key scholarly works of the late 1970s dealt with Japanese participative management practices (Reference Kuniya and Cooper CaryKuniya and Cooper, 1978), personnel management and employee attitudes (Reference PascalePascale, 1978), and Japanese multinational operations with regard to the sources and means of control (Reference HayashiHayashi, 1978a).

Reference DruckerDrucker (1971) and Reference Johnson and OuchiJohnson and Ouchi (1974) are the two top-cited scholarly pieces of the decade. Both are of a comparative nature and focus on what the West can learn from Japanese management. Reference DruckerDrucker (1971) highlights features such as effective decisions, young professional development, and harmony between employment security and other needs, such as productivity, flexibility in labor costs, and change acceptance. Some remarks made by Drucker concern the Japanese propensity to thoroughly define the question before placing emphasis on the answer to increase effectiveness rather than efficiency in problem solving, as well as the crucial role of the “godfather” in a young professional’s career development. Moreover, the lifetime employment policy is combined with labor flexibility to balance the economic needs of employees during different phases and to achieve psychological security. In the analysis by Reference Johnson and OuchiJohnson and Ouchi (1974), the exploration of Japanese and US comparative cases raises the question of which elements are standard, universal management practices (Japanese practices already part of Western companies’ procedures), which are peculiar to Japanese management and inseparable from Japanese culture (unsuitable for adoption in the United States), and which Japanese approaches and features are exportable (Japanese management that may be transplanted to the United States). Five exportable Japanese management style traits are identified by Johnson and Ouchi: a bottom-up process of information and initiative flow (versus the Western tradition of authority and hierarchy); a top manager as facilitator for decision-making (versus leader-set objectives and orders); a middle manager as molder to coordinate, make the complex web of a Japanese organization’s relationships work, and get things done (versus the American manager, who rarely coordinates well, lacks human skills, and is less familiar with other parts of the organization); consensus for decision-making (versus individualistic, quick decision-making equated with efficiency); and concern for the personal well-being of employees (versus the American manager’s attention to work performance).

The main commonalities among these two top-cited articles and other research of the period are implicit or explicit learning from the best practices of Japanese management, with the intent to apply them to the Western context. Scholars have largely attributed Japan’s success to people-related factors, including the nation’s highly industrious and homogeneous workforce, constructive relationships with the labor unions, an environment of not encouraging job mobility between companies, more resources spent on nonpayroll benefits per employee, and employees with a stronger perception of satisfaction (Reference PascalePascale, 1978).

Similarly, other scholars, like Reference Kuniya and Cooper CaryKuniya and Cooper (1978), point out that Japan is known for its comparatively greater potential in improving the quality of working life (not firm performance) through increased shop floor involvement in decision-making, work redesign experiments, and so on. They conclude that this potential is due to various historical and cultural factors, with greater worker participation and more work humanization projects.

Japanese Management of Innovation

As product innovation is a key success factor for Japanese multinationals in the worldwide business, innovation is worthy of exploration. Advancing Fujita and Karger’s descriptive exposition (Reference Fujita and Karger1972) of Japanese research and development, Reference Gerstenfeld and SumiyoshiGerstenfeld and Sumiyoshi (1980), Reference MarutaMaruta (1980), and Reference ProchaskaProchaska (1980) investigate innovation management further. While Maruta addresses tetsuri as the Japanese philosophical approach, with principles and guidelines to apply to general and R&D management, Gerstenfeld and Sumiyoshi, as well as Prochaska, more practically compare Japanese management and American management styles in terms of differences in managing innovation.

Reference ProchaskaProchaska (1980) attempts to understand why and how Japanese companies manage successful innovation through the arguments of a homogenous society, profit and survival, customer orientation, personal and business risk, organization and decision-making, and job experience. Recognized as an island culture and a unified country, Japan learns to cope with problems in its own way. Operating in a homogeneous and collective society, Japanese businessmen tend to take a broader approach when evaluating alternatives. This drives a vision to achieve an extremely high level of stable employment so as to productively use the people on the payroll, as well as to prioritize long-term survival objectives ahead of short-term earnings. Prochaska underlines, by means of statistics, that one in seventy-five American companies operates in the red, while in Japan it is one in five. Another Japanese belief is the equation of high quality with a successful new product, along with an opportunistic customer orientation for commercial success. While this seems obvious, the Japanese really believe in, and live by this principle. Since individual interests are aligned with and integrated into group and venture interests over the long term, there is not much personal risk or pressure to build up a solid knowledge base for eventual product and process innovation.

Reference Gerstenfeld and SumiyoshiGerstenfeld and Sumiyoshi (1980) take similar underlying elements but structure them in terms of consensus decision-making, lifetime employment, incentive, and promotion mechanisms. Associated with these mechanisms are a permanent job, group culture prioritizing company survival, quality products and services to satisfy customer demands and being externally opportunistic in this respect, along with daily learning and knowledge accumulation to create a solid knowledge base so as to reduce the probability of errors.

In the second phase of this booming period, Reference WoodWood (1990) suggests that Japanese-style innovations have reversed conventional production management and links employee participation with innovations in production management, such as kanban and kaizen. Reference NonakaNonaka (1990) pushes the theorization on Japanese management and the innovation process further, looking at details beyond generic exogenous factors and the mere analytical aspects of innovation. For Nonaka, innovation is a product of the interaction between necessity and chance, order and disorder, continuity and discontinuity, as well as of difficulties in predicting or duplicating redundancy, chance, uncertainty, or even chaos. Focusing on redundant and overlapping organization and management, Nonaka reports multiple case examples, such as Fuji Xerox, Epson, and Canon, that exhibit redundancy in information, project teams, interdepartmental development processes, and interorganizational relations with suppliers – and redundancy of potential command. Promotion of mutual investigations and building trusting relationships are also part of such redundant and overlapping management to generate successful innovations.

On the other hand, Reference NonakaNonaka (1990) mentions several problems for innovation generation in Japanese firms (e.g., compromising in group thinking, high costs, and human exhaustion). The idea of needing information creation, and not only information flow and processing, in R&D activities is also reflected in Nonaka’s framework (Reference Nonaka1988) of middle-up-down management, instead of the continuum between top-down and bottom-up. Using the Honda City example, Reference NonakaNonaka (1988) proposes a multilevel information creation process, synthesizing both deductive and inductive management. The idea of information redundancy and creation paved the way for Nonaka’s later theorization of knowledge-creating organizations (Reference Spender, von Krogh, Takeuchi, Kase and CantonSpender, 2013; Xu, 2013). Referring to the notion of “knowledge-creating organization” (Reference NonakaNonaka, 1990), Reference NonakaNonaka (1991) identifies the potential of innovation-creating new knowledge, instead of objective information processing, as the centerpiece of the Japanese management approach. Through a knowledge spiral, moving from metaphor to model, from chaos to concept, knowledge is created and converted from its tacit to its explicit type. Recognized as his major contribution to organizational theory, Nonaka’s socialization-externalization-combination-internalization (SECI) model (Reference Nonaka and TakeuchiNonaka and Takeuchi, 1995) and the concept of ba (a shared context where knowledge is created; Reference Nonaka and KonnoNonaka and Konno, 1998) have also contributed to the field of strategy and technology and innovation management (Reference WestneyWestney, 2020).

Some later scholarly works during this period, such as Reference Mowery and TeeceMowery and Teece (1993) and Reference Souder and SongSouder and Song (1998), often compare Japanese innovation with that of the United States. Mowery and Teece observe evidence of the end of postwar US technological hegemony and the rise of Japanese innovation. The comparative empirical work by Souder and Song suggests a reinforcement of the contingency management theory to consider the nature of the surrounding conditions in managing new product development (NPD). Unlike US NPD, Japanese NPD is characterized by assigning high levels of technical expertise and assuring top management support and control as pivotal success factors.

Critiques of Traditionalism and Uniqueness

As illustrated earlier, Japanese management is shown as unique and different from that of the West, partly due to its traditions and culture rooted in its people, management and society. Looking at the essential differences between Japanese and Western management, Reference Howard and TeramotoHoward and Teramoto (1981) distinguish “meta-cultural” from cultural aspects. That is, Japanese people understand how decisions are made through their culture while Westerners do not, according to the authors. They introduce the concept of nemawashi as the “political” processes used to reach an understanding before any official decision-making procedures are initiated. The single word nemawashi contains all the meanings of the decision-making process, like “communication,” “conflict,” “control,” “cooperation,” “confrontation,” “negotiation,” and so on. This is what is argued as being the foundation for the creation of new social institutions in Japan during the postwar period, based on Japanese traditions, to improve industrial efficiency through improved decision-making that involves all stakeholders at different levels. In brief, Japanese decision-making methods have evolved to fit the specific context, though always in line with the nation’s cultural tradition.

An early critique of Japanese management is that of Reference Keys and MillerKeys and Miller (1984), which identifies several competing theories explaining the impressive performance of Japanese businesses, correctly but only partially shedding light on the complexity of Japan’s success and managerial achievement. The jungle of theories described by Keys and Miller includes examples like “just-in-time” in manufacturing management, quality control, the popular “Seven S” (i.e., superordinate goals, strategy, structure, systems, staff, skills, and style) theory (Reference Pascale and AthosPascale and Athos, 1981), organizational Theory Z (Reference OuchiOuchi, 1981), and human resources development (Reference Hatvany and PucikHatvany and Pucik, 1981).To put this theory jungle in order, Keys and Miller identify common elements and models through mental factor analysis and recognize three underlying factors for a set of management practices: long-run planning horizon (e.g., articulation of company philosophy, growth of implicit control systems), commitment to lifetime employment (e.g., socialization process in hiring and integration, nonspecialized career paths), and collective responsibility (e.g., trust and interdependence, emphasis on teamwork and cooperation).

Similarly, Reference YangYang (1984) criticizes several Japanese management practices, echoing the concerns raised by Keys and Miller and underlining the double-edged effects of methods like ringi and the bottom-up decision-making process. In practice, ringi-consensus management has subtle objectives and significance in Japan. While also being time-consuming (Reference DruckerDrucker, 1971) Yang points out that the consensus-building process appeases factions in an organization rather than leading to better decisions. The issue seems to lie in whether the leadership can create a transparent communication culture in the organization and, consequently, participative management processes or it adheres to what Yang criticizes as tatemae-formality. Instead of a bottom-up or mid-up-down process (Reference NonakaNonaka, 1988), it is a handful of jitsuryoku-sha executives belonging to the mainstream faction led by the CEO that make important decisions. The decisions are made first, engaging in behind-the-scenes persuasion, before the formal ringi document is circulated for signatures. Consequently, potential disagreements to improve the decision quality are likely to come from executives within the jitsuryoku-sha group, as outsiders can make proposals but chances of acceptance are remote. Even if the bottom-up decision-making starts with proposals by lower-level managers, there is a tendency to propose what is believed to be the wishes of the superiors. Therefore, the bottom-up process merely disguises the true decision-making pattern, which generally runs from the top down. Reference Sethi, Namiki and SwansonSethi, Namiki, and Swanson (1984) also detect some early signs of the decline of the Japanese management system, as Japanese companies acquire American techniques to break away from their managerial traditions. In addition, younger Japanese employees, influenced by Western culture and nontraditional values, are less willing to make personal sacrifices (Reference YangYang, 1984). In sum, significant changes occurred in the Japanese business and management system, affecting core concepts and practices like lifetime employment, the seniority-based wage system, and consensus decision-making, which are regarded as the most distinctive and widely appreciated characteristics of Japanese management.

The earlier scholarly treatment of Japanese management often ignores the role of the environment (Reference Nonaka and JohanssonNonaka and Johansson, 1985), although some soft factors, like lifetime employment, might be a result of the contingent development of the external environment (Reference KotabeKotabe, 2020). External factors that have contributed to internal changes in Japanese management traditions include the slowdown of Japanese economic growth, the rise of other low-cost providers from South Korea and Taiwan, and changes in the profile of Japan’s younger generations. While most academics have attributed the occurrence of changes to external factors, Reference OrnatowskiOrnatowski (1998) also mentions the influence of shifts in international competitive positions, the structure of the Japanese economy, and employees’ attitudes toward work. After a period of time when the United States learned Japanese management, hi-tech industries, like electronics, telecommunications, and biotechnology, were still largely influenced by Silicon Valley management practices instead of deploying traditional Japanese management. Lifetime employment practices appeared to be troublesome, heavily affecting industries with excess capacity, like steel, shipbuilding, and aluminum. Indeed, in-house training related to lifetime employment made it difficult for companies to find adequate talent for the high-tech area and to develop new competitiveness due to the lack of the practice of seeking external talent. This talent and capability shortage was also tied to the seniority-based promotion and wage system, coupled with lifetime employment (Reference Sethi, Namiki and SwansonSethi et al., 1984).

Without denying the role of traditional Japanese management, Reference Buckley and MirzaBuckley and Mirza (1985) argue that other factors have also contributed to Japan’s success: historical factors, investments in R&D (despite a complex relation with success), attention to detail and in particular to production techniques (Reference MiyajimaMiyajima [1986] confirms the task-oriented organization ideology of Japanese managers), quality control and marketing (mostly originating from the United States), and a well-developed use of subcontractors to form an industrial ecosystem. Buckley and Mirza underline that Japan has a good reputation in cars, electrical goods, and microelectronics but is at a disadvantage in primary industries and services, like banking, insurance, shipping, mining, and foreign investment. In addition, the uniqueness of Japanese management, as separate from Western management, is questioned – and indeed the differences are smaller in the real world. Reference Buckley and MirzaBuckley and Mirza (1985) further distinguish and compare an ideal management set between the Westerner and Japan in terms of organizational principles, decision-making and communication, personnel system/labor management, and human relations and values. This argument essentially coincides with the discussions in Reference OuchiOuchi (1981) and Reference Pascale and AthosPascale and Athos (1981) around how to develop a superior management style, able to bring together the best of Japanese management and American management.

From Soft to Hard Factors

While most of the early discussions on Japanese management focus on “soft” elements (skill, staff, style, and superordinate goals), like the Seven S, Reference Nonaka and JohanssonNonaka and Johansson (1985) emphasize the role of “hard” factors (strategy, structure, and system) in helping Japanese firms face the challenges of turbulent environments. Organizational learning in Japanese firms is brought to the fore, building the foundations of the knowledge school of management (i.e., Reference NonakaNonaka, 1991; Reference Nonaka and TakeuchiNonaka and Takeuchi, 1995), a major contribution to the area of strategy.

Besides the soft factors, Japanese companies are also experienced in the learning process to scan the environment for the needed task execution, as shown by the opportunistic behavior oriented to customers mentioned by Reference Gerstenfeld and SumiyoshiGerstenfeld and Sumiyoshi (1980) and Reference ProchaskaProchaska (1980). In addition, corporate learning is shaped by corporate culture, stimulating information/knowledge sharing, consensus participation, and decision-making. Thus, organizations learn over time and continuously cope and interact with the environment. Through on-the-job training and the lifetime employment system, hard skills emerge in Japanese companies thanks to the extensive industrial experience acquired (Reference Nonaka and JohanssonNonaka and Johansson, 1985). In the revisited Japanese management of Reference Keys, Denton and MillerKeys et al. (1994), learning is included to sequentially mediate among external forces, management practices, and organizational effectiveness. Indeed, Reference WestneyWestney (2020) recognizes that Japanese management has contributed to the field of strategy as bridging the later-developed models on capabilities. Examples are the early works of Reference Kagono, Nonaka, Sakakibara and OkumuraKagono et al. (1985) and Reference Itami and RoehlItami and Roehl (1987), which largely anticipate the capabilities perspective that is mainstream in strategy studies, although this is seldom recognized in the current strategy literature.

Convergences/Divergences and Controversies

In view of the preceding discussion, we can observe the emergence of a scholarly debate on whether Japanese management is uniquely differentiated from Western management (e.g., Reference Buckley and MirzaBuckley and Mirza, 1985), mainly meaning American management. Reference DunphyDunphy (1987) formalizes this debate by reviewing the historical evolution of Japanese organizations and management to describe convergences and divergences. Five periods of this conceptual evolution are identified: before 1970 – rise of the convergence theory; 1970–1973 – growing doubts about convergence with the West; 1974–1977 – strategic choice versus determinism; 1978–1980 – comparative studies of personnel practices; 1981–1983 – emergence of voluntarism. Each period in Dunphy’s review is relatively short, but we can trace an evolution from the convergence view of Western scholars to the development of a divergent view of Japanese management as differing from Western management.

In fact, Dunphy summarizes this evolution process from an initial convergent view, not differentiating management in Japan and the West, to rising doubts on convergence in the early 1970s, to a focus on strategy and structure linked with cultural determinism in the mid-1970s and on personnel practices comparisons, reflecting on the assumptions of the divergent view in the late 1970s. At the same time, some results also suggest that internal labor management is a rational choice of managers interested in financial returns, not based on the repetition of traditional solutions (e.g., Reference Levine and KawadaLevine and Kawada, 1980; Fruin, 1980). According to Dunphy, the early 1980s period recognized the uniqueness of Japanese management, with data showing no decrease in Japanese management practices in previous decades (e.g., Reference BallonBallon, 1983; Reference KubotaKubota, 1982; Reference Takezawa and WhitehillTakezawa and Whitehill, 1981). Meanwhile, other scholars argued for the convergence of both Japanese and Western management into a mixed model (e.g., Reference OuchiOuchi, 1981; Reference Pascale and AthosPascale and Athos, 1981). Therefore, in Dunphy’s opinion, the uniqueness of Japanese management practices may be a voluntary choice by elites or managers to mindfully respond to the particular economic and cultural environment.

Reference Mroczkowski and HanaokaMroczkowski and Hanaoka (1989) continue along this line of voluntarism thinking in the sense that they regard management changes in Japan as adaptations to the external markets and environments along a trajectory from being a low-cost imitator to an exporter (in order to stimulate the domestic economy) to competing in the upper markets with quality and innovation (partly due to appreciation of the yen). Such strategic changes also require transformations and shifts in employment relations, referring to the inherent weaknesses of Japanese management. In fact, lifetime commitment and groupism encourage employee dependency and suppress individual creativity, a seniority-based system creates gridlock for middle managers and younger talents, while employment discrimination penalizes nonlifelong employees and prevents a free horizontal labor market from developing (Reference OdakaOdaka, 1986).

The decreased economic growth rate in the 1970s demanded more flexibility in the employment and reward system (Reference Mroczkowski and HanaokaMroczkowski and Hanaoka, 1989). The appreciation of the dollar in the early 1980s postponed labor pressure, but the later rise of the yen’s value in 1985 required cost control and innovation to retain competitiveness and face three main challenges: remaining cost competitive without resorting to massive layoffs, continuing to motivate employees and managers in the new environment and redesigning employment relationships to take advantage of the old system while fostering creativity. Hence, Mroczkowski and Hanaoka describe the emergence of a new management paradigm featuring a restructuring of employment methods and wage control, a new motivational system based on performance evaluation and rewards – changing the importance of seniority, merging performance appraisal and merit rating with Japanese style management – and a redesign of employment relationships relying on a multitrack employment system. The 1980s’ booming scholarly interest in Japanese management, with heated debates and profound contributions to management theory, ended with the transformation of Japanese management for the sake of continuing to innovate its management theory and practices for further success.

In a later review, Reference SullivanSullivan (1992) interprets earlier works on Japanese management as spotlights on different parts of a complex body of Japanese management theory, with both positive and negative elements. Introducing the nihonjiron ideologies, which created a legitimizing basis for Japan’s economic and business life, but also questioning their applicability in businessmen’s actions, Sullivan suggests that Japan’s elegant management philosophies may not actually reflect reality. For instance, Ouchi’s Theory Z might be a nice justification for Japanese companies to expose in front of their Western counterparts; however, echoes of tatemae (Reference YangYang, 1984) do remain. The causes and consequences of this convergence and divergence are fused in reality, determined by the voluntary decisions of scholars and managers. Reference Robinson and SchroederRobinson and Schroeder (1993) show that some typical Japanese management practices can indeed be traced back to their American origins, like the Training Within Industry (TWI) program introduced into Japan by the United States in 1949. The development of kaizen (continuous improvement), the Toyota Production System (the first just-in-time system), and progressive human relations may actually have been influenced by TWI. Reference WarnerWarner (1994) also claims that the imported Taylorism was an important factor in the establishment of Total Quality Management (TQM) in Japan and the contribution of Japanese management was to absorb and adapt such imported concepts and practices to an organization-oriented context.

Types of Japanese Managers and Enterprises

Different stakeholders contributed to the rapid and stable economic growth of post-WWII Japan. Reference YoshinoYoshino (1968) observes three factors giving rise to a new phase of business leadership and consequently contributing to economic recovery and development. First, economic reforms dissolved the entrenched Zaibatsu system, leading to the popularization of corporate ownership; second, post-war occupation gave young upper-middle managers the chance to emerge as outstanding top executives, with entrepreneurial spirit and new ideas in contrast to the Zaibatsu’s conservative characteristics; third, a number of very successful founder-type entrepreneurs seized the opportunity to exert brilliant leadership. Some examples of the latter are Konosuke Matsushita of Matsushita Electric, Masaru Ibuka of Sony, Soichiro Honda of Honda Motors, and Shojiro Ishibashi of Bridgestone Tires. The former may be exemplified by Chikara Kurata of Hitachi and Taizo Ishizaka of Toshiba. A study by Reference AonumaAonuma (1965) highlights that only ninety out of 1,500 top executives (6 percent) in top-ranking large enterprises held their position through ownership in 1962, among which thirty were the founders. Conversely, the percentage of owner-managers was 80 percent in 1900 and almost 50 percent in 1925.

The post-war data show clear separation of management from ownership and progress toward professionalization of management in Japan (Reference YoshinoYoshino, 1968). We may call the managers who also have ownership of corporations owner-managers and entrepreneur/founder-managers, different from professional managers, namely hired, salaried managers. Extending the discussion of managers to enterprises, we can distinguish three types of enterprises: (a) large managerial enterprises, (b) large capitalist enterprises, and (c) small and medium-sized enterprises (SMEs) as capitalist enterprises (Reference KikkawaKikkawa, 2014) (see Table 2). Seldom are SMEs also managerial enterprises, able to give professional managers a larger amount of power. Consequently, the managers who shaped Japan’s new business ideology were mainly those in large managerial enterprises, where professional managers exerted more real power than the owners, in comparison with capitalist enterprises led by managers with ownership. Reference YoshinoYoshino (1968) illustrates this by discussing the emergence of managerial ideology in post-war Japan, along with the empirical data provided by Reference AonumaAonuma (1965), described earlier.

Reference Sugimoto and MouerSugimoto and Mouer (1982) criticize the tendency to regard Japan as a homogeneous country and, indeed, the management style and dominant logic of the three types of enterprises present in Japan are different, even though they are all Japanese enterprises. As Reference YoshinoYoshino (1968: 95) explicitly points out, “business ideology is not monolithic”; rather, it is continually evolving, shaped and revised by managers. Before Japan’s economic bubble burst, if one had asked the question “To whom does a company belong?”, the answer would have clearly been “the employees” in case (a) and “the owners” in case (c). As for (b), some might have answered “the employees” and others “the owners.” In a capitalistic country, the ownership of a company should, by definition, be in the hands of its shareholders-owners. Yet, the situation is less clear in the Japanese context, where in large managerial enterprises it is considered natural to think that “the company belongs to the employees.” This is unique to Japanese management operated in a typical Japanese style. In fact, it is often said that, even in Japan, Japanese-style management was just a partial phenomenon, detectable in particular types of enterprises, and it did not become prevalent throughout the nation. From an insider’s point of view, it is necessary to clarify that not all Japanese enterprises ran their business by following Japanese-style management even when it was praised. It was mostly those led by professional managers that developed a unique management style, soon to be known internationally as “Japanese-style management” (Reference Kikkawa and Foljanty-JostKikkawa, 2004).

Nonetheless, SMEs have also played an important role in contributing to economic growth, although this is not emphasized in Japanese business history in general. Starting around World War I, when Japan attained an internationally higher level of economic growth, the issue of the dual structure of the economy came to the fore. In this dual structure, SMEs and the distribution sector were regarded as symbols of vulnerability, whereas large enterprises were placed at the opposite end of the spectrum, since they had strength. The post-WWI wage differentials by company size were often referred to as an example of the vulnerability of SMEs. The average wage by company size was then equalized, due to the sharp decline in real wages that occurred right after Japan’s defeat in WWII, but the wage differentials emerged again in the 1950s. The ubiquitous presence of significant wage disparities between large enterprises and SMEs also created opportunities for Japanese large manufacturers to extensively utilize subsidiaries (no consolidated financial statements were required by law), affiliated firms, and hierarchical subcontractors at different levels in the labor-intensive portion of the supply chain (Reference YoshinoYoshino, 1968) to form the business ecosystem. Thus, SMEs constituted an important part of the sizeable business ecosystems led by large enterprises, contributing their abilities, skills, and knowledge to fuel national innovation.

Professional Managers and Japanese-style Management

Large managerial enterprises were only a minority in Japan before World War II, as Reference AonumaAonuma (1965) demonstrated, and only a small amount of professional managers existed. Although these hired executives played an important role in the pre-war Zaibatsu, they often “had to work under the strict rules as well as under the general direction of the family” (Reference YoshinoYoshino, 1968). Nevertheless, professional managers and managerial enterprises had become the norm by the mid-1950s, characterized by rapid economic growth. While the first post-war phase had been crisis-ridden, the second phase was one of recovery and rapid growth, the time when the managerial ideology was articulated, whereas in the third phase, the early 1960s, business leaders became self-critical and went in search of a new ideology (Reference YoshinoYoshino, 1968). Around that time, the answer to the question “To whom does a company belong?” in Japan’s large enterprises mostly came to be “the employees.” Top management was also regarded as belonging to the category of employees, albeit the most successful employees.

Even in large capitalist enterprises, such as Toyota Motor, Panasonic, Idemitsu Kosan, Suntory, Ajinomoto, Bridgestone, Canon, Sanyo Electric, Sharp, Sony, and Honda Motor, professional managers represented a growing portion of the top management as company size grew. The idea that “A company belongs to all its employees” increasingly took hold, creating a mixed situation in large capitalistic firms in terms of “ownership” conceptualization. The idea that the employees are the owners of the business spread across large enterprises, both managerial and capitalistic. Regardless of company type, decision-making to maximize benefits to the employees was supported by a sense of unity between labor and management. This distinctive management approach was established in large enterprises at the end of Japan’s rapid economic growth period, when the term “Japanese-style management” or “Japanese management” came to be popularized.

Differently from the Soviet Union’s “belonging to the workers” ideology, Japan’s concept of “belonging to the employees” includes top managers, who are also salarymen, and entails a long-term view of property “ownership,” unlike American enterprises, which rely on shareholder ownership (Reference KikkawaKikkawa, 2014). The second post-war phase of the Japanese economy was marked by great enthusiasm in accepting the “American managerial ideology, concepts and techniques,” as optimism flourished in the economy and business elites grew more aware of social responsibility beyond the business environment (Reference YoshinoYoshino, 1968: 97). Japanese managerial ideology developments, such as the Doyukai declaration of 1956, were considered a fusion of modern American business philosophy and traditional Japanese business mentality (Reference TsuchiyaTsuchiya, 1960). The unprecedented growth opportunities of the late 1950s and early 1960s drove Japanese enterprises to expand continuously and diversify (Reference YoshinoYoshino, 1968), so much so that Reference KikkawaKikkawa (1995a) argues that the dominant logic of Japan’s managerial enterprises was their growth-oriented decision-making, contributing to Japan’s relatively strong economic growth after WWII right until the mid 1980s.

The excessive capacity and intense competition caused by their expansive strategies worsened the performance of poorly managed leading firms, while thoughtful business leaders looked for solutions to new challenges. That is when the Doyukai’s Kansai Chapter released “Managerial Ideology in a New Environment” in 1964 (Reference YoshinoYoshino, 1968), which featured five proposals discussing the keystones of Japanese management. On the one hand, the first proposal of the declaration recognized the need to pursue profit in the management of private enterprises, in contrast with the prewar disregard for the matter. On the other hand, the other four proposals were not related to profitability but concerned the individual workers and their creativity, fair competition and climate, responsibilities to the local community, and direct and indirect responsibilities to the whole of society.

People Management

As the literature review in Section 2 shows, three items, namely lifetime employment, the seniority-based system, and an enterprise union (Reference WarnerWarner, 2011), are frequently referred to as the three pillars or three sacred treasures of Japanese-style management (Reference OkubayashiOkubayashi, 1995). All three items correspond to the organizational employment system (Reference JacobyJacoby, 2005) and involve people management or labor relations, a subsystem located at the core of Japanese management. In this sense, Reference KikkawaKikkawa (2014: 283) also defines Japanese-style management as the “management which seeks to maximize the benefits of employees, based on harmonious labor-management relations.”

As stated in the Doyukai declaration of 1964, Japanese management integrates profitability and social responsibility into managerial principles and activities, a concept echoed by Takeuchi’s reasoning on how Japanese businesses manage to survive and withstand crises, namely by serving the common good (Reference GerdemanGerdeman, 2020). This social responsibility is broadly defined across multiple levels: individual, firm, community, industry, and society. Reference SakikawaSakikawa (2012) praises the attitude and behavior of Japanese people during the triple disaster (i.e., massive earthquake, tsunami, and nuclear accident) experienced by the country in 2011, mentioning their preparedness, discipline, and teamwork. Resilience, coordination, altruism, perseverance, and other traditional Japanese qualities are regarded as equally crucial in helping companies and the economy as a whole survive and overcome disasters and crises.

This human side of Japanese management is not only a unique aspect but also a main factor in sustaining performance. Business historians place the formulation of Japanese-style people management relations in the postwar period of relatively high economic growth, when Japan’s workers at production sites became actively involved in efficient production and strict quality control (Reference KikkawaKikkawa, 2014). When Reference Udagawa, Hiroki, Keisuke and IzumiUdagawa et al. (1995) examine the introduction of quality control in Japan and discuss the formulation of the Japanese-style production system, they attach great importance to changes in competitive conditions in the first half of the 1960s, arguing that Total Quality Control (TQC) or Quality Control (QC) circles were introduced against a background of management crisis or heightened sense of crisis caused by such changes. Incidentally, TQC means quality control activities in which all workers participate and QC circles are small groups that conduct quality control activities at worksites. After World War II, Japanese enterprises imported various management methods from the United States (see, for instance, Reference Robinson and SchroederRobinson and Schroeder, 1993; Reference WarnerWarner, 1994). However, most of them did not take root as they were but assumed Japanized forms. A typical example may be doing QC using statistical methods imported from the United States, which took root in Japanese enterprises after being transformed into the TQC or QC circles.

Discussions on how Japanese enterprises do Quality Control are based on case studies of Komatsu, Panasonic, Toyota Motor, Nissan Motor, and other companies. The previously mentioned changes in competitive conditions in the first half of the 1960s refer to situations like the liberalization of trade and capital for Komatsu, the maturation of its domestic market for Panasonic, the defeat in the first BC War (Bluebird vs. Corona war) for Toyota Motor, the defeat in the second BC War for Nissan Motor, and so on. In short, Reference Udagawa, Hiroki, Keisuke and IzumiUdagawa et al. (1995) suggest that reacting to a crisis actually benefitted some major Japanese enterprises at that time, which resulted in the formulation of both Japanese-style people management and the Japanese-style production system. As described, therefore, Japanese-style people/labor management relations, or Japanese management, are widely believed by scholars of Japanese labor history to have been established in the early 1960s. Reference Jacoby and SakikawaJacoby (2012) even asserts that High-Performance Work Practices (HPWP), a strategic human resources management mechanism popular in the West, came from the HRM side of the Toyota Production System.

Japanese-Style Management and Innovation

Though nonmarket competition tended to resist the introduction of new technologies, Japan’s large managerial enterprises, which regarded themselves as “belonging to the employees,” were free from those factors that prevented enterprises in the United States and the Soviet Union from introducing new technologies and pursuing business growth (Reference KikkawaKikkawa, 2014). The tradition of learning from foreign technology may be traced back to Dutch Learning in the Edo era (1603–1867), by which samurai intellectuals gained knowledge of Western technology. Although companies appeared in Japan during the Meiji era (1868–1912) in the modern context and Reference OkubayashiOkubayashi (1995) considers that some elements of traditional Japanese management started their development in the industrialization process during this period (after World War I), market economy was significantly developed during the Edo period with the “Three Great Merchant Houses” in Kyoto, Osaka, and Edo (Reference MiyamotoMiyamoto, 1996; Reference Miyamoto, Miyamoto, Abe, Udagawa, Sawai and Kikkawa2007). It is especially relevant from a historian’s perspective as a breakthrough innovation for its newness of business innovation in a Japan isolated from the rest of the world at that time, when a market economy was developed in a still-feudal society. The massive learning from foreigners was repeated in the postwar era, when Japanese industries were eager to import technologies from abroad to make the country one of the leading industrial nations. In the period 1950–1966, 60 percent of technology license contracts were with American firms (Reference YoshinoYoshino, 1968). That eventually resulted in the Japanese-style management based on the collaborative labor-management relations aimed at maximizing employee profits with incremental technological innovations to cumulatively and continuously improve (kaizen) technology and production. Although breakthrough innovation (e.g., the discovery of the umami taste by Ajinomoto) also occurred during this period of high growth (i.e., the Japanese economy grew at an average annual rate of 10.4 percent from 1956 to 1970) and, later on, stable economic development in Japan until the 1980s (i.e., albeit at a lower economic growth rate, Japanese development still was higher than that of other developed Western countries) (Reference Kikkawa, Miyamoto, Abe, Udagawa, Sawai and KikkawaKikkawa, 2007), the kaizen type of incremental innovations seemed to be dominating.

As Table 1 addresses, Japanese economic growth and Japanese management interacted during this period. The continuous expanding domestic market and demands sustained a long-term relatively high economic growth, which in turn required Japanese corporations to constantly enhance their organizational capabilities, fueled by innovative entrepreneurial activities. The three pillars of Japanese management constitute an organization-oriented employment system (Reference JacobyJacoby, 2005), which fosters firm-specific knowledge, skills, and capabilities through the recruitment of new college graduates and guaranteed employment for the creation of tacit knowledge flows, in contrast to explicit knowledge (Reference Nonaka, Toyama and HirataNonaka, Toyama, and Hirata, 2008). Tacit knowledge is essential for Japanese organizations to preserve their unique competitiveness and ensure that their people and embedded knowledge are valuable, rare, and inimitable but, at the same time, organizable, so as to obtain economic returns. Similarly, Reference Ray and LittleRay and Little (2001) stress the importance of the collective tacit knowledge and practices of Japanese workplaces (ba) for “friction-free” communication and knowledge generation. In this sense, lifetime employment not only contributes to the development of firm-specific skills and tacit knowledge, but also earns the loyalty of employees in exchange for job security. Meanwhile, the seniority system does not work in isolation but is tied to lifetime employment (Reference SakikawaSakikawa, 2012). That is, because of lifetime employment, the seniority system is utilized; given that employees are evaluated based on tenure or seniority, lifetime employment is viable and effective. As the internal labor market is well developed, the external labor market’s development is limited.

Arguably, Japanese-style people management was suitable for creating incremental technological innovation – which is generated gradually, cumulatively, and continuously, in contrast with radical technological innovation – at production sites. Even the breakthrough innovative discovery of Ajinomoto could be considered as a cumulation of in-company incremental innovations. Postwar Japanese enterprises achieved great success in the development of applied technologies, owing to an ecosystem including their in-company or intracompany systems and intercompany systems (Reference KikkawaKikkawa, 1995b). In this regard, Reference OkubayashiOkubayashi (1995) also reflects the new characteristics of Japanese management beyond the “Three Sacred Pillars” in the stable economic growth period in these two systems. Concerning the intracompany systems, the redundant and overlapping organization and management was favorable for Japanese innovation (Reference NonakaNonaka, 1990). In promoting technological development, valuable management practices were introduced, such as setting business objectives from a long-term perspective, horizontal and flexible organizational structure and employment practices like long-term employment, internal transfer, and internal promotion systems (Reference KikkawaKikkawa, 1995b). A flat organization equipped with IT in an open-space big office where managers and clerks work together was also a new trend of office organization (Reference OkubayashiOkubayashi, 1995).

Long-term business objectives enabled investments in technological development with no expectation of producing immediate effects, in addition to empowering the continuity and stability of Research and Development (R&D). A horizontal and flexible organizational structure facilitated “horizontal” intracompany information and knowledge flows. Thanks to job rotation, multitasked lifetime employees and teams maintained close communication across divisions within the company, such as research, design, manufacturing, and sales, and allowed the free flow of necessary information, skills, and knowledge. Long-term employment and the internal promotion system lowered resistance to the introduction of new technologies, which often caused problems in Western countries. Also, additional incentives were put in place for both labor and management to conduct in-house education and training, especially centered around on-the-job (OJT) training, namely activities carried out in the workplace during working hours to become familiar with the working environment.

As for the intercompany systems, it was important to have long-term transactional relationships among Japanese enterprises. In such relationships goods, information, and knowledge are exchanged, shared, and transferred, with a collaborative approach adopted by all parties in the network and business ecosystem. This enterprise group resembles the Zaibatsu but differs because it is not controlled by a holding company. With a loose network of membership companies, these continuous intercompany relationships involve many aspects to create cohesion, maintained by “interlocking shareholding,” “Keiretsu financing,” or “interlocking Directorates” (Reference OkubayashiOkubayashai, 1995). Japanese enterprises are good at sensing, learning and channeling relevant information and knowledge about customer demands so as to advance product development in a timely manner by accurately responding to them. This dynamic capability (Reference TeeceTeece, 2007) enables Japanese enterprises to adjust their management and products within their ecosystem. The continuous sharing of knowledge in a long-term business relationship between suppliers and manufacturers also leads to frequent performance improvements in terms of production technology and efficiency.

It has been observed that this holds true not only for technology innovation but also for product, process, business model, and organizational innovation, as reflected in the Doyukai’s 1964 pronouncement, which emphasized obtaining profit through the innovative and creative functions of management, namely “through technological innovations, market development, rationalization of business practices, and higher productivity” (Reference YoshinoYoshino, 1968: 109). In addition, the pronouncement already promoted some of the current academic debate on the issue of sustainability in the field of management: that is, the pursuit of profit is not incompatible with social responsibility, and the fair pursuit of profit and its equitable distribution among stakeholders do contribute to economic growth, stability, and sustainability (Reference YoshinoYoshino, 1968).

Challenges: Performance Deterioration and Management Dysfunction

Since the Plaza Accord of 1985, the performance and evaluation of Japanese enterprises have drastically deteriorated. In the mid 1980s, a positive opinion of Japan’s enterprise systems was still dominant, reflecting the good performance of its economy. However, when the economic bubble burst at the beginning of the 1990s and the “lost decade” began, criticism of Japan’s enterprise systems grew. Though the causes of such deterioration in performance were various, including a maturing domestic economy, recession, and global economic conditions, the criticism mainly targeted Japanese-style management, viewed as ineffective or dysfunctional (Frikola, 2006). Why was the type of management that had supported the “success” of the Japanese economy until the 1980s suddenly identified as the main cause of its “failure” in the 1990s? It seemed that traditional Japanese management would be forced to reflect and change.

Actually, after the burst of the economic bubble, Japanese-style management resulted in dysfunction. Its devitalization was triggered by the fact that large managerial enterprises lost their self-confidence and started to bring “shareholder-oriented management” to the fore, in contrast to the emergence of the stakeholder theory in the United States. In addition, industrial companies were required to raise money in the capital market due to the expansion of capital markets in Japan and the globalization of the financial sector, which accelerated in the latter half of the 1980s. To provide an example, it was not at all wrong for the once “employees-are-owners” large managerial enterprises to place importance on shareholders after the 1990s. Nonetheless, due to their loss of self-confidence and their regarding shareholder-oriented management as equivalent to the pursuit of short-term profits by the managers of such enterprises, a long-term vision was mostly absent. Reference SakikawaSakikawa (2019) summarizes the differences in Japanese management during the postwar era and after the bubble burst by stating that the former was organic and coordinated, while the latter was market-oriented and competitive. This is reflected in multiple dimensions, like mutual benefits versus calculative exchanges for what concerns employment relations, trust-based corporate culture versus contract-based professional standards in terms of administrative rules, employment security versus profitability maximization with regard to priority, and trust-based long-term linkages versus market transactions based on short-term principles as for supply chain relations, among others.

For the purpose of raising funds in the capital market, Japan’s large managerial enterprises transitioned to the American model of corporate management, which placed greater emphasis on financial measures, such as Return on Assets (ROA) and Return on Equity (ROE). While American enterprises enjoyed the “New Economy” in the 1990s, they also made aggressive investments as part of their strategies for achieving higher ROA or ROE through increased returns. By contrast, most of Japan’s large managerial enterprises inhibited investments and tried to drive up their ratio of ROA and ROE by decreasing assets and equity (Reference KikkawaKikkawa, 2005). As already pointed out by Reference HayashiHayashi (1978a), Japanese firms that develop into competitive multinationals are largely dependent upon managerial creativity for shaping effective means of control other than ownership and profits, in forms other than dividends. However, after the bubble burst, the risk-averse Japanese firms worked negatively, falling prey to the so-called “Inhibitory Mechanism of Investment.” The top managers of large managerial enterprises were fearful and unable to make sufficient investments as part of the specific duty of their businesses, while the regular employees aggressively cooperated for the survival of their companies by inhibiting investments (Reference KikkawaKikkawa, 2005). Somehow, this is also reflected in what Reference SullivanSullivan (1992) describes as “Theory F” (for fear), “to the point of avoiding decision which might lead to an error” (p. 82). As a result, the advantages of Japanese-style management, a long-term view and appropriate investment strategy, ceased to exist.

When looking back at Japan’s business history, we can identify the occurrence of a major crisis whenever a change came about in relation to the global market. For example, the end of the Edo period was when Japanese society first encountered global capitalism upon the opening of ports resulting from the arrival of the Black Ships. The 1960s was when trade liberalization and capital liberalization began, also known as “the second arrival of the Black Ships.” The trigger for the deterioration of Japan’s economy from the “phase of success” to the “phase of failure” was the rapid appreciation of the yen following the Plaza Accord of 1985. When the Japanese market came to a standstill, Japanese enterprises had to find a way out by fighting a global “two-front war,” namely pushing simultaneously into the expanding low-end market and the lucrative high-end market. Yet, the country’s large managerial enterprises, which had lost their long-term perspective, still failed to make the necessary investments to engage in the “two-front war.” What the Japanese economy and enterprises faced in the 1990s, the so-called “lost decade,” was a partial crisis in the financial system, while the production system remained healthy. However, by mistaking this partial crisis for an overall crisis, Japanese enterprises lost their confidence. They mixed up shareholder-oriented management with the pursuit of short-term profits and set aside their long-term perspective, a key advantage of Japanese-style management. Based on research by Reference PudelkoPudelko (2009), Reference WarnerWarner (2011) wonders whether this is the end for Japanese-style management. Besides other general factors, Reference WarnerWarner (2011) is particularly interested in comparing the Japanese situation with that of the fast-growing, catching-up Chinese enterprises, as well as those of other BRIC countries.

Rebuilding Japanese-Style Management

Not only do Western scholars call for changes in Japanese management (e.g., Reference Horn and CrossHorn and Cross, 2009; Reference WarnerWarner, 2011), but also Japanese managers and scholars are aware of this essential need (e.g. Reference Mroczkowski and HanaokaMroczkowski and Hanaoka, 1989; Reference SakikawaSakikawa, 2012; Reference Hirasaka, Kusaka and BroganHirasaka, Kusaka, and Brogan, 2021). Japanese executives had believed that the disadvantages of the business environment would be outweighed by the strengths of the nation’s enterprises. Nonetheless, following the rise of the yen in 1985, many companies realized that they were unable to fully maintain the “old system” and began to search for a new Japanese management system (Reference Mroczkowski and HanaokaMroczkowski and Hanaoka, 1989).

It is worth noting here that the reality of history is often dynamic and evolving, namely a continuous process (Reference YoshinoYoshino, 1968), while researchers tend to take a static snapshot in order to capture its essence for various investigation purposes. Japanese management theorization is no exception. In this regard, Reference Horn and CrossHorn and Cross (2009) recognize that certain misconceptions, oversimplifications, and misunderstandings about the realities of Japanese management are still widespread, especially in the Western literature. The currency appreciation made it very difficult for Japanese companies to keep their past rate of capital productivity, while their growth rate had already leveled off in the 1980s (Reference WatanabeWatanabe, 1987). Yet, they did react to changes in their environment. The Romu Gyosei Kenkyujo, a private research foundation, surveyed 1,900 Japanese companies and found that the ability/merit factor contributed 42.1 percent to pay raises against the seniority factor in 1978, which increased to 54 percent in 1987 (Reference Mroczkowski and HanaokaMroczkowski and Hanaoka, 1989). Along with the seniority system, lifetime employment also was transformed, since it interfered with offering top talents high salaries. Labor mobility rose and the trend was expected to continue, with 75 percent of the surveyed businesses showing interest in a headhunter’s offer (Reference WatanabeWatanabe, 1987; Reference Mroczkowski and HanaokaMroczkowski and Hanaoka, 1989).

In spite of growing awareness of problems and changes underway, the burst of the economic bubble worsened the situation and encouraged further reforms. In the opinion of business historians, the dominant logic of management shifted, as Reference SakikawaSakikawa (2019) suggests. The conflicting medium- and long-term interests of different stakeholders – in this specific case, shareholders and employees – took center stage, so that rebuilding Japanese-style management on new premises integrating both became paramount. The rebuilding was a transformation process to innovate the old system, aimed at hybridizing the commitment of long-term employment with merit-oriented people management, rather than the seniority system (Reference KikkawaKikkawa, 2014). This new form needed to maintain long-term employment to ensure a sense of security among workers. On the other hand, it had to force through reforms, such as introducing a merit system by carrying out a thorough review of the seniority system, to motivate knowledge workers and especially the young generations.

After the 1990s, Japanese enterprises have had to fight difficult battles and face the two-pronged attack of breakthrough innovation in developed countries and disruptive innovation in emerging economies. They have kept growing by relying on incremental innovation targeting the “fertile Japanese market” and have built international competitiveness. However, this mechanism is losing effectiveness due to two factors. The first is that the Japanese market itself has scaled down, as a result of the country’s depopulating society, and is no longer a “womb to nurture growth.” The other factor is that the notion of national borders dividing markets by country is losing meaning because of how digitalization and technology have transformed global business, with the emergence of breakthrough disruptive innovation (Reference KikkawaKikkawa, 2019).

In the latter context, Reference Hirasaka, Kusaka and BroganHirasaka et al. (2021) suggest a paradigmatic shift in management style and the adoption of a hybrid approach to create a new model, integrating both Western and Japanese ways of thinking and methods. Japanese firms have been among those investing the most in R&D, but their investments have failed to be translated into performance (Reference Shikata, Goto and GembaShikata, Goto, and Gemba, 2019). In examining comparative cases, such as Fujifilm versus Kodak and Nissan versus Sharp, Reference Hirasaka, Kusaka and BroganHirasaka et al. (2021) conclude that these Japanese companies differ in their corporate management arising from corporate culture, attitudes to external environmental changes, reactions to management crises, measures for structural reforms, commitment to innovation by top management, and so on.

In fast-changing and rapidly evolving environments, dynamism is induced by multiple dimensions, including technology, emerging markets’ competition, and unpredictable crises, like COVID-19, and the degree of dynamism goes up owing to multiple sources and interactive effects (Zhang-Zhang, Rohlfer, and Varma, 2022). Faced with today’s complex VUCA context, it is vital for Japanese enterprises to focus on and develop their core capabilities, reclaim their long-term people centric management, while supporting high performance through competitiveness. Successful examples are humanized cell production in Canon and Sony (Reference SakikawaSakikawa, 2012), Amoeba management in Kyocera (Reference Adler and HiromotoAdler and Hiromoto, 2012; Reference Kase, Choi and NonakaKase, Choi, and Nonaka, 2022) or ambidextrous organizational capability in Fujifilm (Reference Shibata, Baba, Kodama and SuzukiShibata et al., 2019). If this is achieved, then there will be a reemergence of the advantages of Japanese-style management, emphasizing the common good, surviving disruptive innovation, and sustaining competitive advantages. As Reference YoshinoYoshino (1968) states, since the innovative process of the Japanese management system evolves over time, Japanese-style management can and must transform itself into a new management style, attaching importance to long-term employment but not to the seniority system.

Early Stages of the Global and Japanese Video Game Industry

The earliest precursor of a video game appeared with the patent for a “Cathode-Ray Tube Amusement Device” filed in 1947 and granted in 1948 in the United States, which described how players could use a controller to hit one or more targets. However, no evidence exists that any prototype was even built. Then came the 1950s’ Nimrod and Higinbotham’s Tennis Game and the 1960s’ Spacewar, but these products did not have much commercial value (Reference HermanHerman, 2016). That is why Reference DabneyDabney (2016) claims that the video game industry was actually established with the creation of arcade video games by Syzygy/Atari in 1972.

The cofounder of Atari, Nolan Bushnell, started Atari Japan to import Atari’s products, but the local market was reluctant to do business with his firm. Meanwhile, Japanese companies started to release their own video games to compete with Atari, exemplified by Sega and Taito in the early 1970s. Both were headquartered in Japan but founded for other business purposes by foreigners, American and Russian businessmen respectively. Sega made its first clone of Atari’s Pong, called Ping-Tron, while Taito purchased Atari’s used Pong machines, refurbished them, and distributed them as Elepong. Realizing that the importation process was costly, Taito started to produce its own Pong clones with additional features, for example Soccer, with an added twist, and Davis Cup, designed for up to four players (Reference HermanHerman, 2016).

The Japanese company Namco initially entered the video game industry to deal with the distribution of Atari games in Japan. As Atari’s financial difficulties increased, Namco ended up acquiring Atari Japan, beating other competitors such as Sega and Taito. With the success of Atari’s Breakout, Namco became one of Japan’s leading video game companies (Reference KentKent, 2010). After the release of Taito’s Space Invaders, the Japanese video game industry prospered in the 1970s and Namco turned its attention to developing proprietary video games. Having purchased NEC’s old stock computers for employees to study, Namco released its first original game in 1978, Gee Bee. Despite not meeting expectations, this experience served to gain a space in the market and paved the way for Namco’s next launches and hits, including Galaxian in 1979 and Puck Man (Pac-Man in North America) in 1980 (Reference KoyamaKoyama, 2005). To celebrate Pac-Man’s thirtieth Anniversary, Namco Reference NetworksNetworks (2010) announced that the franchise had surpassed 30 million paid transactions in the United States on Brew ® apps.

Home video game consoles were first marketed in Japan roughly two years after they appeared in the United States. In 1977 Japanese companies (e.g., Bandai) released their own consoles, which were similar to the American Odyssey console by Magnavox, launched in 1975. Also in 1977, Nintendo released its own home console with the help of Mitsubishi Electric, due to its lack of skilful engineers in home game designing. Soon the inexpensive model of Nintendo’s Color TV-Game 6 achieved large success and the company controlled 70 percent of the home console business (Reference HermanHerman, 2016; Reference SheffSheff, 1993).

The early 1980s saw the peak of the golden age of arcade video games, although many video game publishers had gone bankrupt by 1984 (Reference KohlerKohler, 2016). Yet, the US video game market crashed, since American enterprises like Atari, Coleco, and Mattel were not able to keep up with industry developments. Nintendo’s NAVS Famicom video game system, with Japanese video games translated into English, revived the US market in 1985/1986. Indeed, the unit that Nintendo America marketed was called Nintendo Advanced Video System (NAVS), not Famicom. It was completely wireless and had an advanced system that American firms could not compete with. It was also impossible for American video games to compete with Japanese games like Nintendo’s Super Mario Bros. (Reference HermanHerman, 2016; Reference KohlerKohler, 2016).

Japanese Characters in the Video Game Industry

Though video games were initially introduced into the Japanese market by Americans, Japanese firms soon saw the potential of this business and started their own game designing. In spite of a slight time gap, Japanese enterprises were able to catch up fast and even developed titles with better features to compete first in the Japanese market and then in that of the United States. Their later success in the United States was also achieved thanks to better innovation in hardware and video game design and programming. The video game industry prospered in Japan, with the popularization of Taito’s Space Invaders in 1978, and the subsequent success of Japanese enterprises made some games so widely known that they entered popular culture (Reference KohlerKohler, 2016). The Japanese video game sector is the exception to what Reference KerrKerr (2001) calls the fall of modern Japan, stating that Japan does not lead in any single field despite maintaining competent standards in many industries.

Reference KohlerKohler (2016) partly attributes the success of video games to the unique culture of Japan and its love for cartoons and comics. Reference SchodtSchodt (1983) refers to young Japanese (today’s middle-aged Japanese) as shikaku sedai (visual generation), who consider comics a common language, emphasize images, and have no bias against this medium. Indeed, in the 1980s, many talented young people actually became video game designers. This feature is also reflected in the medium of the video game, which Reference HerzHerz (1997) describes as an easy translation of the Japanese way of drawing characters in manga (comics), when their graphic resolution did not yet allow representing characters with adult proportions. Kohler argues that the pictographic language of written Japanese is the source of Japan’s prevalent image culture, whereas in the Western world picture books and comic books are seen as entertainment for children. While some American game designers criticized Japanese video games and predicted their failure in the United States (Reference BloomBloom, 1982), reality turned out to be quite different. With the release of Taito’s Space Invaders in 1978, Japanese video game producers quickly took over the industry (Reference HermanHerman, 2016). The later success of Nintendo in both hardware (consoles) and software (games) led the Japanese video game industry to prosper further and, by 1990, Nintendo had replaced Atari in the position of market leader both in the United States and globally (Reference KohlerKohler, 2016).

The success of Nintendo in the video game industry is probably related to its original business of making playing cards and the creative potential released in the process of refining home console products, video game design, and character creation. Shigeru Miyamoto, the creator of Donkey Kong, Super Mario Bros., and The Legend of Zelda, described Nintendo as an interesting company when he first joined. Initially seeking a career as a manga artist, he took interest in video games later (Reference PaumgartenPaumgarten, 2010). Before he directed the Donkey Kong project for its release in 1981, it was programmers and engineers who were responsible for game design. In many cases, the Nintendo engineers even drew the pictures and composed the music, with no artist involved in the process (Reference KohlerKohler, 2016). The design of Donkey Kong led by Miyamoto created the first real video game storyline, different from the earlier maze and shooter games common at the time (Reference SheffSheff, 1999). Retrospectively, Miyamoto reflected that he had unconsciously created Donkey Kong based on his love for Japanese manga (Reference KohlerKohler, 2016).

The next title, Super Mario Bros., was also about game play, with running/jumping/climbing actions like Donkey Kong but, rather than merely achieving a high score, for the first time players were tasked with completing the story as the goal of the game, in order to discover what happened when you saved the princess. The stories and characters of Mario Bros and its sequels have been turned into comic books, movies, TV shows, and novels that have enjoyed wide popularity and success. Miyamoto’s creation of The Legend of Zelda in 1986 followed the same game design pattern of a storyline but its scenarios were much richer. It was so complex and expansive, in comparison with earlier games, that it was the first time the player could, and needed to save the game and start again from where he/she had left off because the adventure could not be finished in one sitting (Reference KohlerKohler, 2016).

As it became customary for the story mode to accompany game play, game designers worked harder on story writing, and this trend lasted for about ten years. Then, the new trend of role-playing games (RPGs) emerged with the launch of the Dragon Quest series for Nintendo’s Famicom in 1990 by Enix (later Square Enix), a Japanese software publisher and video game holding company (Reference HermanHerman, 2016; Reference KohlerKohler, 2016). The software coevolved with the hardware in the video game industry, bringing about innovative features and technology incorporation each time. In spite of the initial success of the Atari Video Computer System (later renamed 2600), the poor sales performance of 1993’s Jaguar, the only available 64-bit interactive media entertainment system, made it the last home console that Atari produced and the last by an American manufacturer until Microsoft launched its Xbox in 2001 (Reference HermanHerman, 2016; Reference KohlerKohler, 2016). Today, Nintendo’s Switch and Sony’s PlayStation are two of the three major competitors in the home console business around the world, along with Microsoft’s Xbox. Computer gaming and mobile gaming have also increased their share in the internationalized digital society, and online multiple-player games are another characteristic feature. Mobile games popularized in the last decade have enjoyed remarkable growth given the technological improvements in smartphone technology. For example, the mobile game Pokémon Go, a recent global success launched in 2016, has classic Japanese characters (the first Pokémon game was released as early as 1996) and employs augmented reality (AR). Given the love of Japanese people for manga, anime, and video games, the cross-media merger of the content business seems a natural evolution.

Licensing of Characters: Innovation Ecosystem

Japanese pop culture content, such as manga, animation films (anime), and video games, is nowadays widely recognized and appreciated all over the world. In particular, the unique appearance of Japanese characters has attracted fans from across the globe. One of the remarkable features of the Japanese content business is its wide cross-media extension, especially for what concerns character-related intellectual property (IP). The expansion of the character business has been driven by cross-media development across television, films, and books, as well as by the development of products such as toys, stationery, and other items.

The management and operation of copyright and licensing are crucial to the expansion of these segments. The first full-scale cross-media development of a character in Japan after World War II is said to have been Astro Boy (Tetsu-wan Atom), an animated television series that began airing in 1963. The copyright holders of Astro Boy began to control the quality of the character’s products by marking those that they approved as authentic and withholding any other.

Since the 1990s, companies that own the copyright on specific works or characters have taken a strategic lead in developing the business rather than leaving it entirely to the companies that make the products, as cross-media, product, and service development is all part of the character’s worldview.

Pokémon is one of the most successful examples of a business that has expanded not only in Japan but also internationally, thanks to a range of mobile games, manga and anime, related goods, card games, events, smartphone applications, official stores and cafes, and social contribution activities. This business development is guided by a consortium of companies, led by the Pokémon copyright management company, Pokémon Co (Reference Hatayama and KuboHatayama and Kubo, 2000).

Another example of a successful product enjoying worldwide popularity is Hello Kitty, a kawaii (cute) idol created by Sanrio’s illustrator Yuko Shimizu in 1974. The turning point was in 2008 when, after joining Sanrio, Rehito Hatoyama benchmarked Disney and Sesame Street characters and determined that Hello Kitty could achieve similar levels of success. He convinced the Sanrio management to adopt a licensing model instead of the traditional design, make, and sell approach. In this licensing model, other companies can obtain the rights to create and sell Hello Kitty-themed products in exchange for a percentage of product sales as royalties. By focusing on IP management, not only did Sanrio improve its efficiency by reducing production, inventory, and retail costs through the outsourcing of manufacturing and distribution, but it also leveraged the creative capabilities of other external stakeholders around the world in designing and developing Hello Kitty products. This open innovation licensing strategy brought significant changes to Sanrio, including an increase in Hello Kitty licensees from 760 in 2007 to 1,800 in 2011 and in operating profit from 53 million USD in 2007 to 237 million USD in 2011. In 2014, Sanrio became the sixth biggest licensor in the world, with 50,000 products and 6.5 billion USD of licensing retail sales. Among these, Hello Kitty accounted for 75 percent of its annual operating profit. Aware of the threat posed by e-commerce, in the second half of the 2010s Sanrio introduced new ways to engage with consumers and new kinds of characters, for example cross-sector ventures in the restaurant business (e.g., Hello Kitty Smile restaurant, Hello Kitty Cafe), “experiential” ventures like educational programs about healthy eating and sustainability, Hello Kitty theme parks, and a joint licensing agreement with Mattel (IP owner of Barbie, Fisher-Price, and Thomas & Friends) to design and market characters of both companies (Reference CraigCraig, 2020).

Recently, a new approach has emerged that is different from the strategic cross-media development by the copyright holders seen for Pokémon and Hello Kitty. In this approach, the derivative works of the fans are the driving force behind cross-media development, as shown in the following two examples. The first is Hatsune Miku, a virtual singer software that was released by Crypton Future Media in 2007 and continues to evolve. Before Hatsune Miku, there had been several virtual singer software releases, but its main distinguishing feature is that, in addition to being a music creation tool, it is personified by an idol-like character.

One of the interesting aspects of Hatsune Miku is that her songs are often used as a basis for cross-media development. For example, the song “Senbonzakura” was contributed by a vocaloid creator, Kurousa P. (Avex Marketing Inc., 2013). The song became popular on the internet, and novels and manga inspired by it were published. The world of Senbonzakura gradually took shape, became more and more concrete, and was eventually developed into musicals and kabuki plays.

Although the copyright holder, Crypton Future Media, has licensed the characters for this development, the media development was not planned strategically, but rather happened spontaneously among the fans. The authors of both the original compositions and derivative works, such as novels and comics, have contributed to the creation of this universe, which is characterized by a sort of open innovation, with different stakeholders voluntarily participating in the ecosystem (Reference KoyamaKoyama, 2013).

In the case of Hatsune Miku, a different licensing strategy has been adopted than with Pokémon. Crypton Future Media, the copyright holder, has created the Piapro Character License, flexible licensing guidelines that make it easier for fans to create derivative works using Hatsune Miku, including not only music but also character art and manga. It is a simplified process that merely involves an online license application (Crypton Future Media, 2020).

Another example is Touhou Project, a collection of video games and music by the amateur game creator group Reference Gengaku-danShanghai Alice Gengaku-dan (2015) (also called Team Shanghai Alice), led by Ota Junya (aka ZUN). The main characters of this series of shooting games are two girls, the shrine maiden Reimu Hakurei and the witch Marisa Kirisame. Like Hatsune Miku, Touhou Project encompasses a wide range of business activities: video games by third parties or coterie circles, publications such as manga, illustrations, and novels, fan events, figurines, collaborations with department stores, and even a fan-run hotel. The group behind Touhou Project has also established guidelines that allow free creation by fans.

The common trait of Hatsune Miku and Touhou Project is that cross-media development has been driven by the secondary creations of fans. In other words, the secondary creative activities of fans have expanded these universes into many different genres, which has led to business growth. The fans are also consumers of content, so they create what they want, which contributes to the expansion of a business that is less prone to failure, that is, it is designed to be “sellable.”

From Astro Boy to Pokémon, Japanese writers and creators provided their works to readers and fans in a one-way fashion. In cross-media development, the authors and the copyright managers still provide content unilaterally. However, fans have begun to participate in the cross-media development of works through secondary creation, contributing to the business expansion of the world of their favorite characters. Examples such as Hatsune Miku and the Touhou Project are truly a testament to the development of digital technology and the internet. The widespread use of digital creation tools and the sharing of assets has dramatically lowered the bar for creation, allowing more and more fans to join in the creative process.

Character copyright holders will play a role not only in offering their characters to fans but also in providing an open platform for fans to create and enjoy the world of their characters together, including through derivative works. Until now, the character business has been about unifying and fixing the image of characters through licensing. An open platform, on the contrary, gives diversity to the interpretation and representation of characters, expanding both their universe and market.

The Evolution of Innovation Ecosystems

Emerging as a promising approach in the literature on strategy, innovation, and entrepreneurship (Reference de Vasconcelos Gomes, Figueiredo Facin, Salerno and Ikenamide Vasconcelos Gomes, Figueiredo Facin, Salerno, and Ikenami, 2018), the concept of innovation ecosystem was reviewed by Reference Arora, Belenzon and PatacconiArora, Belenzon, and Patacconi (2019) in the US context. Its first usage is traced back to as early as 1870, with three stages of evolution: early development of the US scientific–innovation complex (1870–1940), the age of big science (1940–1980) and open innovation, and the demise of the large corporate lab (1980 to date). What we mean by innovation ecosystem in the current state mostly coincides with this third stage as an open mode, in which the contribution of large firms to R&D has declined and the proportion of SMEs has grown. Venture-backed, small-sized start-ups have played a disproportionately large role in this innovation process as distinctive innovators (Reference Kaplan and LernerKaplan and Lerner, 2010). In this sense, Japan’s history in open innovation is not as long as that of the United States. During the 2000s, Japan had very little venture capital and limited investments in start-ups, whereas more partnerships between large companies with real assets and start-ups with capabilities to generate new business models are currently expected (Startups, 2020).

However, considering the intertwined view of the innovation ecosystem and the system of innovation (SI) found in another review work by Reference Bassis and ArmelliniBassis and Amellini (2018), we can observe that the SI concept is believed to have emerged in the late 1980s to describe the congruence in Japanese society, in which the private and public sectors interact and initiate activities related to new technologies through import, modification, and diffusion (Reference FreemanFreeman, 1987; Reference Soete, Verspagen and WeelSoete, Verspagen, and Weel, 2009). In any case, from an academic point of view, the evolutionary path of an innovation ecosystem very much depends on its definition; otherwise, it would be a never-ending meaningless debate. Indeed, at present there is no commonly agreed framework or definition for it. Reference de Vasconcelos Gomes, Figueiredo Facin, Salerno and IkenamiDe Vasconcelos Gomes et al. (2018) list some scholarly definitions in various contexts, at different levels, using different labels, focuses, meanings, and purposes. Some examples to illustrate this complex scenario are digital innovation ecosystem (e.g., Reference Rao and JimenezRao and Jimenez, 2011; Reference ChaeChae, 2019), national or regional innovation ecosystem (e.g., Reference Fukuda and WatanabeFukuda and Watanabe, 2008; Reference Suseno and StandingSuseno and Standing, 2018), enterprises’ innovation ecosystem (Reference Huang, Chen, Yu and ZhuHuang et al., 2019), entrepreneurial innovation ecosystem (Reference Guerrero and Martínez-ChávezGuerrero and Martínez-Chávez, 2020), open innovation ecosystem (e.g., Reference Chesbrough, Kim and AgoginoChesbrough et al., 2014; Reference KvedaravičienėKvedaravičienė, 2019; Reference Randhawa, West, Skellern and JosserRandhawa et al., 2021; Reference Xie and WangXie and Wang, 2021), hub ecosystem (Reference Nambisan and BaronNambisan and Baron, 2013), and platform-based ecosystem (e.g., Reference GawerGawer, 2014).

The exhaustive studies by both Reference Bassis and ArmelliniBassis and Armellini (2018) and Reference de Vasconcelos Gomes, Figueiredo Facin, Salerno and Ikenamide Vasconcelos Gomes et al. (2018) include the concept of business ecosystem within an innovation ecosystem literature review. For instance, Reference de Vasconcelos Gomes, Figueiredo Facin, Salerno and Ikenamide Vasconcelos Gomes et al. (2018) employ both terms as keywords for topic searches in the WoS database, proposing the following reasons: (1) the notion of innovation ecosystem is defined based on the notion of business ecosystem in the management field; (2) some scholars regard business ecosystem as synonymous with innovation ecosystem, though some others do not; (3) there is no clear distinction between the conceptual evolution of the two ideas in the literature. In this inclusive interpretation, the study of innovation ecosystems can be traced back to an earlier time when the term business ecosystem came into use, or even further. Reference MooreMoore (1993) again becomes the pioneer in proposing a business ecosystem for innovation in the field of management, arguing for the frameworks related to networks, like strategic alliances and virtual organizations, and the need for managers to understand the relations between organizations and changes. This network view of the innovation ecosystem is followed by Reference Iansiti and LevienIansiti and Levien (2004), who emphasize loosely connected networks of entities, and by Reference Basole and KarlaBasole and Karla (2011), who define an ecosystem as a networked system containing a set of objects like actors, namely nodes tied to one another. In this sense, Japanese corporate network systems have been widely studied in the management field, looking at the distinctive network patterns of Japanese industrial organizations, including keiretsu, like Dai-Ichi Kangyo Bank (DKB, now Mizuho), Mitsubishi, Mitsu, Fuji, and Sumitomo (e.g., Reference BhappuBhappu, 2000; Reference GerlachGerlach, 1992). Besides regarding the network as a central feature, Reference de Vasconcelos Gomes, Figueiredo Facin, Salerno and Ikenamide Vasconcelos Gomes et al. (2018) also identify the following themes in the analysis: open innovation and product platform, strategic management, evolutionary economics, organization studies, as well as the ecosystem, business ecosystem, and innovation constructs.

Innovation Ecosystem Features

Merging the commonalities of innovation ecosystem and business ecosystem, Reference de Vasconcelos Gomes, Figueiredo Facin, Salerno and Ikenamide Vasconcelos Gomes et al. (2018) note five ecosystem features: (1) it is composed of interconnected and interdependent network actors; (2) it may be led by a keystone actor or a platform leader; (3) it is built on a platform; (4) ecosystem members encounter both cooperation and competition in the system; (5) it has a life cycle after the coevolution process.

To analyze an innovation ecosystem, characterized by more explicit interdependencies (Reference Adner and KapoorAdner and Kapoor, 2010), it is necessary to identify firstly who the actors in its network are and then their roles. According to Reference Iansiti and LevienIansiti and Levien (2004), Reference Lee and ShinLee and Shin (2018), and Reference MooreMoore (1993), a typical business ecosystem comprises a few prominent actors as keystones and dominators and many smaller ones as complementary and niche players, as exemplified in the innovative fintech ecosystem (Reference Zhang-Zhang, Rohlfer and RajasekeraZhang-Zhang, Rohlfer, and Rajasekera, 2020). Different stakeholders or network actors make up the ecosystem, including a focal firm, customers, suppliers, distributors, outsourcing firms, makers of related products or services, technology providers, a host of other organizations, and complementary innovators (Reference de Vasconcelos Gomes, Figueiredo Facin, Salerno and Ikenamide Vasconcelos Gomes et al., 2018; Reference Iansiti and LevienIansiti and Levien, 2004). Other complementors may be regulatory agencies and media outlets, with less immediate effect but prevailing long-term influence on the business and innovation ecosystem (Reference Iansiti and LevienIansiti and Levien, 2004), or corporate-sponsored ventures and independent entrepreneurs (Reference Zahra and NambisanZahra and Nambisan, 2012). Reference Zahra and NambisanZahra and Nambisan (2012) observe that these actors can be a group of companies or entities but also individuals.

The keystone actor (Reference Iansiti and LevienIansiti and Levien, 2004) or platform leader (Reference Gawer and CusumanoGawer and Cusumano, 2008) assumes a leadership role in the innovation ecosystem, setting the goals, outlining the innovation platform, and exerting influence over other members of the community (Reference Nambisan and BaronNambisan and Baron, 2013). The ecosystem leader is often a well-established large firm (Reference Iansiti and LevienIansiti and Levien, 2004), though this is not necessarily always true given the dynamics of digital society and internet empowerment, which may drive the rapid growth of a relatively small firm and turn it into a giant over a short period of time. Reference RongRong (2011) classifies the actors and roles in terms of ecosystem life cycle: initiator (building the community through a platform), specialist (adding value to the core community), and adopter (developing products following the initiator and codesigning the platform with the specialist). Reference Zhang-Zhang, Rohlfer and RajasekeraZhang-Zhang, Rohlfer, and Rajasekera (2020) also underline the evolution of the fintech ecosystem and business model innovations, the fuzzy boundaries of industries, with cross-sector players, and the ambiguity of the stakeholders’ roles.

An innovation ecosystem is built on a common platform, shared among the community members via a set of tools, services, and technologies. All the members also share the destiny of the platform, regardless of their weight (Reference Iansiti and LevienIansiti and Levien, 2004). The case of arcade video games, whose decline affected all ecosystem members without exceptions, shows that an ecosystem has a lifecycle of birth, emerging, expanding/diversifying, converging, consolidating/leadership, and renewing, or self-renewal (Reference MooreMoore, 1993; Reference RongRong, 2011). As illustrated in Section 4, Atari was the dominant player in the arcade ecosystem community, while most Japanese enterprises operated around it as distributors or imitators. During the life of an innovation ecosystem, community members may compete for survival, collaborate to develop the common objective of the network, or even pursue coopetition for critical knowledge transfer (Reference Bacon, Williams and DaviesBacon, Williams, and Davies, 2020). The innovativeness of Japanese enterprises, in the creation of both hardware (home consoles) and software (story-based video games with characters), has revolutionized the video game ecosystem, renewing and expanding its community to include sophisticated software developers, content publishers, and high-tech companies involved in the metaverse business.

In a heterogeneous market, an interconnected and continuously evolving community and its actors may take on specific roles, cocreate value (Reference Lusch, Vargo and GustafssonLusch, Vargo, and Gustafsson, 2016; Reference Siltaloppi, Koskela-Huotari and VargoSiltaloppi, Koskela-Huotari, and Vargo, 2016), and evolve depending on their development and innovative capabilities for existential survival, renewing the ecosystem or initiating a new one. Nintendo did so with the video game ecosystem and the same is true for Sony, which strategically mobilized ecosystem effects in entertainment content in the late 1980s. Sony’s acquisition of CBS Records and Columbia Pictures reinforced sales of hardware devices, like Betamax VCRs and Walkman cassette players. However, Sony kept this ecosystem largely closed, refusing, for instance, to license Michael Jackson’s music to non-Sony devices to generate royalty revenues. Most of all, the paradigmatic shift brought about by the introduction of the iPod in 2001 and of the iPhone in 2007 greatly diminished Sony’s value. With PC and online games evolving fast, the lack of a platform or cloud service exposed Sony’s vulnerability, vis-à-vis Microsoft’s Xbox (Reference GivensGivens, 2022). Alternatively, the intentional actions and coordination efforts of managers and entrepreneurs may modify the construct and composition of the ecosystem, leading or adapting to changes in the business environment (Reference Teece, Augier and TeeceTeece, 2016). Probably, the latter may be less discussed in the innovation ecosystem literature regarding this strategic intent and people management for the adaption or modification of an innovation ecosystem, as the essential functionality and activities of an ecosystem consist in the flow of technology, information, and knowledge among people, enterprises, and institutions to nurture and enhance the innovation processes.

Globalization and Japanese Management

The year 2022 was the thirtieth anniversary of International Federation of Scholarly Associations of Management’s (IFSAM) first congress in Tokyo in 1992; the memory booklet describes numerous pieces of Western scholars’ interests in Japan at that moment and Japanese scholars’ interactions with the rest of the world (Reference Castañer and Zhang-ZhangCastañer and Zhang-Zhang, 2022). Reference Okubayashi, Castañer and Zhang-ZhangOkubayashi (2022) particularly is concerned with the evolution of Japanese management and its interconnection with the rest of the world of management. Reference HasegawaHasegawa (2006) debates the issue of transcendability from nationalistic management studies to global theoretical development. By listing the different initial studies on management in Britain, the United States, Germany, and France, Hasegawa traces the British predatory position back to 1776 in Adam Smith’s The Wealth of Nations, underlining the late start of management studies in Japan as a capitalist nation, despite earlier commercial studies during the Edo (1603–1868) and Meji (1868–1912) periods. American theories of management and organization and German business economics had the greatest influence on Japanese managerial practices after World War II. Then, the growing overseas operations of Japanese enterprises drew attention to the analysis of different subsystems of the Japanese management system (Reference HayashiHayashi, 2002).

After the 1960s, the rise of this first Asian country broke the paradigm of Western dominance in the management discipline, which came to be viewed as characteristic of individual countries, corresponding to British, or American, or German, or Japanese management – or, more recently, Chinese management (Reference HasegawaHasegawa, 2006). The national economic policy and underlying institutional factors largely influenced Japanese competitiveness in the energy industry, as well as in certain other industries and areas, with similarities and differences in their evolution patterns (Reference Kikkawa and HolzhausenKikkawa, 2001). It is the international interest in Japan’s global success that led to the theoretical development of Japanese-style management. The rise of a country’s management studies, for example Japanese management, is from the practices and functional origin, even in a perspective of short-term actions (Reference HasegawaHasegawa, 2006), which confirms the view of Japanese management evolution as being in accordance with the economic development (Reference KotabeKotabe, 2020) as described in Sections 2 and 3.

However, the enduring debate around Japanese management after the 1990s has largely concentrated on its transformation. This is considered critical to the survival of the theoretical transcendence of Japanese management and in terms of practical aspects affecting Japanese corporations, including not pursuing profit at the expense of their stakeholders (Reference HayashiHayashi, 2002), surviving and outcompeting, thanks to reformed management and practices, other global players from the West, as well as other Asian companies, for example Chinese and Korean. Reference McCormickMcCormick (2004) also points out that it is problematic to generalize how Japanese companies or management typically are in contemporary Japan, due to their complexity and different adaptations implemented in strategic decisions. McCormick gives the example of Toyota, one of the best-known prototypical Japanese companies, which is more likely to adapt to the local context at its international production sites than are rivals (e.g., Nissan and Honda). As discussed in Section 3, different types of Japanese enterprises may also have varied behaviors and strategic decision approaches.

Contextualization and Generalizability

Reflecting on Japanese management, Reference HasegawaHasegawa (2006) also ponders whether management study is a social science. With inconsistencies between management theories and practices, business theories are often too contingent on multiple variables, including both internal and external factors. This implies a fundamental philosophical question as to what science is. Khun (2012) presents the structure of scientific evolutions with paradigm shifts, without distinguishing between natural sciences and social sciences. Reference RisjordRisjord (2014) specifically discusses the distinctive nature of social sciences from a philosophical perspective. Reference GhoshalGhoshal (2005) is more critical when it comes to determining whether the management field belongs to the social sciences and classes it, along with the aesthetic fields (e.g., arts), among the humanities. One of the differences between social sciences and natural sciences is that the former provides intentional explanations while the approach of the latter relies on causal explanation. From a different angle, Reference HasegawaHasegawa (2006) views the US approach as functional but European management as more of a social science in nature since management studies incorporate social relation elements, like human issues. On the other hand, the supposedly “scientific approach” of the “profit-pursuit paradigm,” based on functional elements, lacks aspects like sustainable development, social concerns, and a long-term view.

Another major difference between social sciences and natural sciences is the foundation of humanities in the former, which makes humans matter, given human intentionality. Conversely, the causal explanation and functional explanation modes entail dehumanization and their practices are questionable, among other issues (Reference GhoshalGhoshal, 2005). Thus, the contradictory functional approach and ethical value-humanistic approach to management studies have caused a rift not only in management research as a discipline but also in business practices through management education. Reference HasegawaHasegawa (2006) concludes that the first approach justifies unethical managerial behavior under the name of science, without leaving room for human ethics in the dynamic development paradigm of sustainable management. Adopting a more American management style in large Japanese enterprises causes Japanese employees to be more efficiency-oriented but, at the same time, to bear higher levels of stress for the sake of competitiveness. Under the profit-pursuit competitive paradigm, numerous cases of death or suicide from overwork (karoshi), as well as other labor, business, and financial scandals, have occurred not only in Japan (Reference HasegawaHasegawa, 2006; Reference OgoshiOgoshi, 2006) but also in Western countries and emerging economies like China.

Educated managers who believe in dehumanized managerial theories take them into action and practices and approach a purely profitability-maximizing paradigm, which leads to Reference GhoshalGhoshal (2005: p. 87) claiming: “Excessive truth-claims based on extreme assumptions and partial analysis of complex phenomena can be bad even when they are not altogether wrong.” On the one hand, the knowledge spiral embedded in business and management may accelerate the process of decreasing the effectiveness of certain once-successful management theories by creating nonheterogeneity in the analytical tools used to differentiate them from others. On the other hand, management theories generated in a specific geographical area need further testing in a variety of contexts before their generalizability can be ascertained. In sum, the universality of management theories is still being debated for what concerns its contextualization in terms of both temporal and geographical dimensions.

The creation of Responsible Research for Business and Management (RRBM) as a community aims to contribute research efforts in the management field to add sustainable value to society. Indeed, the principles of RRBM are service to society, valuing both basic and applied contributions, valuing plurality and multidisciplinary collaborations, sound methodology, stakeholder involvement, impact on stakeholders, and broad dissemination (RRBM, 2017). Ethics is not only a relevant feature for organizations so that people can become the foundation of their sustainable management, but it is also necessary for management scholars to be aware of and reflect on the purposes, processes, and potential consequences of their research. Reference HasegawaHasegawa (2006) detects the irony that the superpowers’ economic prowess may make them fail to look after human dignity due to corporate ideology, while economically less central countries may better preserve human dignity.

Japan is reported to have many old businesses, namely 33,000 businesses with at least 100 years of history and over 140 with more than 500 years, according to the Research Institute of Centennial Management (Reference Dooley and UenoDooley and Ueno, 2020). These long-lasting enterprises may be small, like traditional food retailers, or large, like Nintendo, and they have survived wars, natural disasters, and all kinds of institutional ups and downs by being less concerned about finances and choosing stability over profit (Reference Dooley and UenoDooley and Ueno, 2020). The oldest businesses in Japan have lasted for so long because they have adjusted to changing times (Nakazawa, 2020). Could this sustainable performance of Japanese enterprises with people centricity be generalizable to other settings, or is it only limited to the particular context of Japan? When Reference Zhang-Zhang, Rohlfer and VarmaZhang-Zhang, Rohlfer, and Varma (2022) adopt a knowledge-worker perspective to examine strategic people management in highly dynamic VUCA contexts, they also argue in favor of applying to other situations the SECI model, developed in the Japanese context (Reference Nonaka and TakeuchiNonaka and Takeuchi, 1995). Reference Kase, Slocum and ZhangKase, Slocum, and Zhang (2011) also suggest the inclusion of differential elements in the corresponding Asian versus Western management thinking. A similar analogy is valid in multiple theoretical generation processes, subject to the durability of their intentional explanatory power in both temporal and geographic contexts.

People Centric Paradigm

Researchers often use their own countries’ management style as a benchmark (Reference McCormickMcCormick, 2004), similar to what happens in cross-cultural management when benchmarking against one’s own culture. Earlier Japanese management theorists often attributed the dissimilarities between Japanese management and American management to behavioral differences in the two cultures, in a comparative fashion (e.g., Reference Johnson and OuchiJohnson and Ouchi, 1974). Some addressed cultural differences by looking at attitudes toward individualism versus collectivism, competitivism versus peopleism, specialist versus generalist, and their associated values. In view of the preceding discussion on contextualization and generalization, it can be said that certain management practices are not necessarily nationally bound, but transcendable to a general ethics-centric management paradigm as meta culture, as seen in Reference Johnson and OuchiJohnson and Ouchi’s (1974) work highlighting Japanese management’s intrinsic element of caring for people. Although American management has a more direct focus on organizational performance and intrinsic elements are of secondary importance, caring for people is still a relevant metacultural variable. The core issue has to do with different orders of priorities in diverse settings, in this case framed through the Japanese–American comparison.

Reference Noda and GlazerNoda and Glazer (1968) discuss the need for American expatriates to be flexible in adapting to the cultural differences found in Japan. Similarly, Reference PascalePascale (1978) states that difficulties in applying Japanese management techniques to a Western industrial system arise from personnel practices or cultural differences. Nonetheless, some of these cultural differences are superficial, merely behavioral reflections of the underlying cultural value system, subject to the relatively easy changes and evolution occurring in society and mutual awareness over time. Culture is a dynamic element that may evolve in society to bring about cultural differences across generations, while also affecting other levels of culture, for example industrial, professional, and regional (Reference Rohlfer and ZhangRohlfer and Zhang, 2016). Cultural configuration is much more complex than the simplified structure measured in most research contributions.

The intrinsic interests in caring for people in Japanese management not only provide stable employment relations, but also found the common-good approach of managing people, as Reference Aust, Matthews and Muller-CamenAust, Matthews and Muller-Camen (2020) propose. In pursuit of sustainable development, management scholars around the world have been advocating a paradigmatic shift from the “economic man” to a humanistic approach. The deeply rooted people centric value in Japanese management, with a people management perspective based on the common good, may deserve more attention and represent a source of learning for others, in spite of its own embedded challenges and self-evolution.

Innovation Ecosystem Paradigm

According to Reference Howard and TeramotoHoward and Teramoto (1981), the Japanese philosophy incorporated the imported Confucianist/Taoist framework of complementarity, which enables the existence of a multisystem, or multiple ecosystems, which may be viewed as chaotic and irrational by Westerners. For example, the concept of ie (family) reflects the cultural root in Japanese management for a paternalistic system that loosely restricts the Japanese family system in enterprises; zaibatsu, management of family members, adds the way to manage employees in an ie concept (Reference Noda and GlazerNoda and Glazer, 1968). Within loosely networked ecosystems, people are the core elements and foundation of ie, as Reference KumagaiKumagai (1992) says when describing the kanji (Chinese character) for ie.

Within a family contextualization, business is viewed in Japan as a community whose members share a common fate rather than simply as a means to maximize the rate of return on investment (Reference Howard and TeramotoHoward and Teramoto, 1981). Organic harmony and a dualistic/ paradoxical vision are also part of Japanese management’s cultural underpinnings (Reference YangYang, 1984), derived from the Taoist philosophy. With its holistic and long-term vision, the ie family system is based on the trust of family members, or in-group members, which reduces the cost and level of difficulty of negotiations among the community members within the ecosystem, eventually accelerating technological innovation processes. Examples of this include Toyota and Hitachi, which have formed business ecosystems composed of subcontractors, merchandising organizations, and banks, among other stakeholders (Reference Howard and TeramotoHoward and Teramoto, 1981). On the other hand, in a collective family organizational cultural context, it is difficult for individuals to explicitly distinguish their performance from that of the group; also, in order not to highlight their individual performance, members may not dare to significantly contribute to the ringi decision-making process as its spirit calls for (Reference YangYang, 1984).

Recognized as demand-pull and customer-oriented, Japanese enterprises seem to have a superior probability of achieving market success, despite performing better in an incremental innovation context (Reference Gerstenfeld and SumiyoshiGerstenfeld and Sumiyoshi, 1980). In a 2021 interview, a senior international manager that had been living and working in Tokyo for more than twenty years commented that the Japanese are extremely innovative and take care of every single detail in their daily tasks; salespersons often have creative ideas to find the most appropriate solution for their clients. In a business context, innovation is a wide concept going beyond technology and more closely related to successful commercialization of new products and their market adoption, and even management innovation. Innovating into the details of process is another illustration that shows the success of Japanese management, intertwining the interests of stakeholders (i.e. customer and enterprises in this case) in the innovation ecosystem. An integrative view of the customer as part of the business ecosystem of the enterprises rather than a win-lose position enables innovative initiatives, which seem to be key to sustainable development in Japanese enterprises as an ecosystematic approach, as suggested by Reference Zhang-Zhang, Rohlfer and RajasekeraZhang-Zhang, Rohlfer, and Rajasekera (2020).

Coexistence of Convergence and Divergence

As early as 1987, Reference DunphyDunphy (1987: p. 445) contributed to the discussion on the convergence/ divergence of Japanese and Western enterprises and management, initiated by Veblen’s argument that the two would converge as countries modernized: “organizational structures and value systems inevitably converge.” In detail, most writings before the 1970s favored the convergence theory and saw Japanese management as an obstacle to the advancement of a universal management theory or even to economic progress. These Japanese challenges or disturbances bothered some Western researchers, since they were contrary to what were regarded as the principles of management in the Western world, particularly in the United States (Reference YoshinoYoshino, 1968).

Though either convergence or divergence prevailed in different periods of time during the evolution of Japanese management, we can observe that neither approach gained complete dominance. Rather, there have been changes in the overall tendency, sometimes even artificially created by academics. For example, a convergence approach regarding Japanese management initially took hold among Western commentators, but there were also alternative opinions on the persistence of Japanese management’s unique features (Reference Ballon and BallonBallon, 1969), like nenko, the traditional seniority-based remuneration system. Later, when the divergence approach prevailed, Japanese management was recognized among international scholars as a separate paradigm, differentiated from the Western one. It is in this period that Western management learned from the Japanese context and adopted some of its practices. But, at the time of the economic downturn, the transformation of Japanese enterprises and their HRM practices caused an even stronger convergence (Reference Frenkel, Belanger, Edwards and HaivenFrenkel, 1994; Reference OrnatowskiOrnatowski, 1998). However, this process could also be viewed as self-evolution, meaning that some Japanese management practices were retained while others were abandoned (Reference DunphyDunphy, 1987). Indeed, an innovative ecosystem implies the ability to self-transform, which, in our case, enables the community members to generate new Japanese management, absorbing good practices from American management (Reference KurodaKuroda, 2006; Reference OgoshiOgoshi, 2006) instead of striving for convergence.

The debate around convergence or divergence is most often tackled from an American perspective. On the one hand, what is Western management? Reference PudelkoPudelko (2004) studied mutual learning between Japanese and Western HRM (i.e., American and German) and found that, although Japanese HR managers mainly looked to American management, they also perceived that a more balanced model, like the German one, may offer valuable guidance, with a better fit in the Japanese context. Despite the fact that German and American management are forms of Western management, they also differ from each other. Is the Japanese model converging toward the Western model, or indeed the American one? Both earlier literature and Reference PudelkoPudelko (2004) show that it is a mutual learning process, though one may adopt more from the other at certain times, rather than a unidirectional process taking the American system as a benchmark, with Japan as the only nation converging or diverging from the ethnocentric American view. That is to say, during the period when American enterprises adopted Japanese management and practices, why was the phenomenon not referred to as convergence to the Japanese management system?

From a linear Western viewpoint, things need to move in one direction or another, namely “either/or,” and one inevitably needs to choose convergence or divergence when looking at Japanese and Western management. However, in a holistic Asian view, the world can accommodate the coexistence of “both/and,” a notion derived from the Taoist philosophy, which allows the two trends to inclusively co-occur, as Reference Rohlfer and ZhangRohlfer and Zhang (2016) state in relation to paradigmatic shifts in cultural studies on international business – a coexistence of convergence and divergence.

Womenomics and Women in the Workplace

As for employment relationships in Japan, a topic that is crucial but not widely discussed within the Japanese management context is gender equality and women’s participation and leadership in the workforce. Japan’s population decrease and aging society require more women to join the labor market to fill the labor gap and support stable economic development. The determined “womenomics” policy of the former Japanese Prime Minister Shinzo Abe to make women shine did not reach the expected goals, even though progress was made (Reference Oda and ReynoldsOda and Reynolds 2018). Among the OECD countries, Japan also has quite a low ranking in what concerns the Global Gender Gap. The resignation of the president of the Tokyo Olympics committee, due to his gender-discriminating remarks, reflects the country’s reality in relation to gender equality (Reference HardingHarding, 2021).

As mentioned in Section 2, some early literature placed women’s labor in the same category as part-time and temporary work and, traditionally, this was indeed the main role of women in the Japanese labor market. Though times have changed and females are playing a more relevant role in Japanese economic development and organizations, they are still under-represented in many fields, for example as legislators, senior officials, and managers. Women’s employment rate is comparable with that of European countries and has been improving, but 57.7 percent of women are engaged in nonregular employment (Reality Check Team, 2018).

Some young female interviewees compared the number of women managers in their organizations in Japan and in Chinese subsidiaries, concluding that in China women are more equally treated as regards career opportunities. However, in another interview conducted in 2019 with Ms. Ogushi, former president of the FujiXerox Learning Institute, she stated that she did not perceive any discrimination against women in her organization. Yet, she also added that this was probably due to the knowledge-intensive industry in which she worked. Indeed, gender inequality might be greater in heavy industries and, overall, it is difficult to make broad generalizations. Reference Zhang-Zhang and KumagaiZhang-Zhang and Kumagai (2020) identify several contributing factors to the phenomenon, among which are issues regarding society and traditions, like parents’ gender differentiation in education;social pressure, like long working hours and out-of-office drinking culture in Japanese corporations; relatively weak legal protection, although the Equal Employment Opportunity Law (EEOL) was enacted in 1986; an average pay gap of 24.5 percent; and other general aspects, including career opportunities and motivation, as well as corporate culture.

The issue of gender in Japan is not only a matter of expanding the potential workforce to make up for labor shortages, but it also has to do with bringing diversified profiles into the workplace to spark innovation. In 2021, the New York Stock Market and Germany, among others, set explicit quotas for female members in the boards of directors of publicly listed large corporations, and Japanese enterprises may need similar actions to attain a diversified talent pool in terms of not only gender but also internationality.

Implications for Asian Emerging Economies

As remarked by Reference SpenderSpender (2014), quoting the words of a student in a talk, “academics sometimes try to do with their heads what they cannot do with their hearts (or guts).” Indeed, rationalizing and putting things into a logical formula seems to be the job of an academic. The proposed people centric innovation ecosystem may well be just another attempt at using academic language to construct nothing truly new in the real world. As a means of expression, however, language constructs might interpret a set of circumstances from different angles, which may offer a different perspective (Reference SpenderSpender, 2021).

The rise, fall, stagnation, and recovery of Japan’s economy and management provide a lesson for the world, especially for the Asian emerging economy context. Although Japan has not fully regained its competitive position in IMD’s World Competitiveness Ranking since it started in 1989 (Reference Makino and LehmbergMakino and Lehmberg, 2020), the evolution path of its management and its sustainability in many essential dimensions could be benchmarked as a development with similarities to that of emerging powers in the East.

Today’s business world is looking at China’s emerging productivity and management. In Section 2, we reported web search data on Japanese management and we did similar searches on February 8, 2021 about European management (4,850,000 results), Chinese management (around 4,500,000 results), and American management (4,320,000 results). These numbers are significantly higher than the 3,780,000 results for Japanese management, albeit without large differences. Despite growing interest in Chinese management, there is no clear innovative academic conceptualization, like Theory Z or the Knowledge-Creating Company theory, to establish a knowledge school of thought in organization and profoundly impact the worldwide academia. The Guanxi or Ying-Yang theories have been popular in recent decades but they are informative, striving to provide explanatory value, rather than being truly transformative for the management field. A competitive dynamism perspective may be one of the best attempts at conceptualization in the field of strategy.

Like Japan in the 1950s, focusing on upgrading the quality of its products to reverse the negative connotation of “Made in Japan” goods (Reference Keys and MillerKeys and Miller, 1984), China has been making similar efforts to upgrade its innovation capabilities. Its general innovation competence has been enhanced, but the negative connotations attached to “Made in China” products are still to be eliminated. The same can be said about the country’s image as regards innovation and management when dealing with internationalization (Reference Zhang and ZhouZhang and Zhou, 2015). Because it shares certain similarities in cultural background, especially in comparison with Western management, the Japanese management and path may provide valuable lessons for Chinese management and that of other Asian nations, such as Indonesia, India, or Vietnam, in spite of the differences pointed out by some between Japanese enterprises and those located elsewhere in Asia.

As the first non-Western country that joined the group of highly industrialized powers, sometimes Japan has been included among the Western economies. The success of its management during periods of economic boom was because Japanese management and practices fitted the needs of the economic, cultural, legal, and technological environment of that time (Reference KotabeKotabe, 2020). Chinese management and other Asian management types may benefit from this contextualization, with both temporal and geographical dimensions, in creating their own management style or in pursuing extension to a more general management theory, so that ethics and humans are placed at the center of attention. Although the current digitalization is a new phenomenon, differentiating the present from the 1970s and 1980s, the emerging economy period retains similar characteristics for the most part. We do not advocate applying traditional Japanese management to the emerging Asian economies as a reference point to benchmark, but it might be worthwhile to benchmark Japan’s development process and people centric, innovative ecosystem as the core philosophy and principle of a development path.

It is also highly probable that the Japanese management style, as described in different studies, and the people centric innovation ecosystem work well in the entrepreneurial stage of business introduction and growth. When Japanese economy emerged, it was characterized by entrepreneurial spirits to expand to American and other occidental worlds. In such a business scenario, uncertainty and unclear rules (ambiguity) are the norm and continuous discussions, debates, and challenges are needed to find the optimal solution for the context given. This may not apply in a relatively mature context, in which dynamism is greatly reduced and there is an established set of patterns of external and internal behavior, not considering potential sudden disruptions, like crises (volatility), calling for a dramatic transformation. The latter could be caused by both internal and external disruptive innovations or unforeseen forces, like COVID-19. The complexity of this highly dynamic VUCA environment demands an innovative ecosystem view for business management in this shifting paradigm, with people at the center to govern knowledge management.