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Collection of full-length papers and in-depth analysis of economic and management issues.

Learning the Art of Competition from 
Japanese SMEs

Learning the Art of Competition from Japanese SMEs

LEE Byung-HaKIM Won-So

Jan. 6, 2012

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Japanese SMEs PDF email Print

Originally released on October 26

Though the Japanese economy is said to have deeply stagnated over the past two decades, many Japanese companies have performed superbly by employing unique competition strategies. In particular, the competition strategies that Japan’s small-sized but strong suppliers of parts, materials and equipment adopted teaches us a great lesson since they spearheaded Japan’s export growth in the 2000s.

First of all, most Japanese SMEs have obtained global competitiveness thanks to their one-track mind: they have concentrated on the development of only a few key technologies for the past 50 – 100 years. A hefty amount of time is consumed in accumulating key technologies for parts, materials and equipment and long-term investment to develop various technologies would have been a burden for small-sized companies. Thus, they had no other option but to stay single-minded.

Second, their success is attributable to a niche-top strategy, which aims at the No.1 position with key technologies in a small market. The strategy is designed to gain meaningful results in markets where large companies have not entered and to appeal to customers by frontloading technological differences rather than economies of scale.

Third, to maximize value creation and prevent technological leaks, core processes were internalized through vertical and horizontal integration. Fourth, multidimensional strategies were implemented to expand the application scope of key technologies. An omni-directional entry into the final product sector of fast-growing industries was made and technologies that could not be commercialized immediately were stored for later use.

Fifth is the convergence of the Japanese management style, which values long-term relationships, with the advantages of venture management. Promoting Japan’s R&D culture, characterized by long-term investments and the patience to wait for the opportunity to utilize R&D results, Japanese SMEs have bided their time while stressing entrepreneurship to move speedily without contracting conglomeritis. Also, they have adopted flexible personnel systems which are free from conventional practices.

Their competition strategy is worth imitating for SMEs that have difficulties in achieving economies of scale. It is about nurturing differentiated key capabilities over the long term and pushing for unique competition strategies. In addition, markets should be segmented under unthought-of standards to fully utilize key competences and differentiated targeting strategies should be employed. And CEOs’ one-track mind, conviction and leadership are also required not to waver over environmental changes till key competences are secured.

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