Essay submitted for the class Strategical Management of Technology – Jun 17
An investigative essay about how the government of Japan is shaping the business strategy of national robot manufactures. *The original work submitted has been slightly altered.
Main conclusions of this work
- The robot industry of Japan is the largest of the world, however the domestic market is decreasing.
- A Robot revolution is articulated by the government via funding, easing regulations and bond buying.
- The Bank of Japan is on a program of bonding buying and has a major shareholder position on the robot sector.
- It is unclear if the government directly influences the strategy of the robot industry.
- The industry has mostly adhered to the Robot revolution plan established by the government, but it demonstrates resistance to incorporate changes related to opening software.
Overview of the Japanese robot industry, market and government management
The Japanese robot industry is the largest of the world. In the last report of the Ministry of Economy, Trade and Industry, Japanese robot industry accounted for 50.2% of a $8.49 bi market. Despite the overall growth, Japan saw a decrease of 25% of the domestic market between 2008 and 2013 . However, the growth of robot use by China, Germany, South Korea and the US led a strong increase of the market size of about 60% between 2008 and 2013. These countries plus Japan account for more than 75% of all robot purchases .
To understand the reasons behind the decline in the Japanese domestic market, we can apply the Porter’s five forces analysis (Fig. 1). On one hand, Japanese companies have two main aspects in their favour: suppliers have low bargain power and the threat of new entrants is low/medium. A low threat of the suppliers exists because the semiconductor and electronic supplier industry in Japan is extremely competitive and diversified, making it easy to look for alternative suppliers. More than that, many large companies hold shares on the supplier companies. This strategy model is known as “keiretsu” and helps to stabilize price fluctuations. Two examples are the Sumitomo corporation (owner of Sumitomo bank, NEC, Mazda, among others) and Dai-Ichi Kangyo corporation (owner of Mizuho bank, Fujistsu, Hitachi, among others), which are clients of Trend Micro software company and, at the same time, are indirectly major shareholders of the company via multiple subsidiary fund accounts (Japan Trustee Services Page, subsidiary of Sumitomo Mitsui Trust Holdings and Trust and Custody Services Bank, subsidiary of Mizuho Financial Group).
The other aspect in favor of the Japanese robot industry is the low threat of new entrants. The robot industry requires a set of core competencies which is expensive to develop. As a consequence, only major companies have been able to give continuity to serious robot programs. Additionally, the Japanese corporate market has strong brand loyalty  and new companies need high differentiation and focus strategy to be able to place a product. As a result, the robot industry in Japan is composed of previously existing traditional organizations, with research made in national centers and a very modest start-up scenario in comparison with the Europe and North-America. Among the new companies, the one of the most prominent is Cyberdyne, a venture firm which makes robotic suits and exoskeletons. The firm was initially funded with technology developed at Tsukuba University and funded by transfer aids from the Ministry of Economy, trade and industry (METI) and New energy and industrial technology development organization (NEDO) with the purpose of developing robots that can be worn, aiding impaired people to walk or helping to weight heavy lifts (Fig. 2). The company has been valued at about $2.6 bi and had relatively successful penetration in European markets, but, it has been struggling to make profits .
On the other hand, the domestic market of Japanese robots face three serious issues: the threat of substitute product, the rivalry among competitors and the bargaining of buyers. One central point is that currently most robots are used for industrial applications . In the case of Japan, it is the country with the second highest incorporation of robots (after South Korea). For each 10,000 employees, there are about 300 robots . But manufacturing jobs have been decreasing according to METI  and wages have remained stable in the last 10 years differently from other countries like China, South Korea, US and Germany , which have pressure to substitute workers due to rising salaries. As a unique case, the substitute products from Japan is traditional labour, which disfavor further robot incorporation.
The government is trying to change this situation with a plan for a Robot revolution , which aims to turn Japan into a “robot superpower” and is part of the plan devised by the government to revitalize Japan’s economy , which we synthesized in a PEST graph (Political, Economical, Social, Technological points of view of the Japanese government about the robot industry 3). The main idea is that robots will be incorporated in areas not saturated by robot use, such as healthcare, food and agriculture. The plan also contains a set of actions to be taken by the government to stimulate the robot industry and to position it on the international market. The government hopes that the Robot revolution will help at the same time to solve the problem of aging population in Japan and of the escalating healthcare costs, which are estimated to increase by about 1 trillion yen per year .
Companies have apparently complied with the government plan, which led to the development of very similar products such as in Fig. 2 by major Japanese companies. Although each products claims differentiations and niche markets, there is clear competition, since they were designed with a general purpose in mind. Most seriously, although the Robot revolution plan has been a well defined set of actions to tackle serious problems of Japan, the market for consumer robots such as in Fig. 2 has not been fully deployed, which means large R&D projects have to be conducted with the perspective of a potential market without actual profits. According to Minoru Asada from Osaka University, “Japan has been a technology leader, especially in hardware, but when it comes to strategies for making robots more available to society at large, we are behind” (via The Financial Times) . As a consequence, customers who are unsure if they need or want a certain product have higher purchase power and are part of a smaller market, which increases the rivalry and competition between similar products.
As METI recognized, “Should Japan lag behind such trend in terms of ideas about robot development or perspectives of business models, Japan will be isolated from the rest of the world in the field of robotics as well and be eyed as Galapagos which will draw more concerns over the situation in Japan where craftsmanship enjoys a victory but business suffers a defeat.” . The analogy to Galapagos is a reference to the isolated island in the Pacific ocean where animals evolved unique characteristics due to the lack of competition and predators and means that it is not necessary only for Japan to have the best robots, but also to find profitable business models. At the moment, the market for consumer robots in Japan is promising, but elusive.
Paradoxically, both the most relevant strengths and weakness of the industry lie in the idiosyncrasies of the Japanese domestic robot market. If we do the SWOT analysis of the robot industry in Japan (Strength, Weakness, Opportunities, Threat), it becomes clearer that Japan is in a very unique position. One main strength of the Japanese robot industry is the advanced hardware industry which has been developed trough decades of R&D in related technology sectors and has allowed high incorporation of robots in the industry, most notably in the automotive sector . A second main strength is related to the openness of Japanese people to robots as part of society. That means that even if consumer robots have not yet become a hit product, Japanese society is more comfortable interacting with humanoid robots than people from western cultures . And it may as well not be a choice, given the aging population in Japan. Japan currently has the highest ratio of dependents/working force in the world and it is set to increase significantly by 2030 . Prime minister Shinzo Abe said “Japan’s demography, paradoxically, is not an onus, but a bonus.” . In that sense, the urgency to solve the aging problem and the low productivity rates of Japan is an incentive to the robot industry translated in government financing and regulatory support. $100 bi yen have been reserved for the Robot revolution project  and the robot regulations have been eased. According to Reuters, “The trade ministry has convinced health ministry officials to relax certification procedures for medical devices and introduce affordable robots to nursing homes on a trial basis.” and cites Kiyoshi Sawaki, head of the trade ministry’s industrial machinery division: “The approval process is being simplified. […] So companies can’t use the same excuses that they did before.” .
The incentives given by the government try to overcome the high risks associated with the emerging market of robots for consumers. That is probably necessary given that major Japanese companies tend to be risk averse , which can be a weakness in a fast changing market. Another reported weakness of the Japanese robot industry is over-engineering, a gap between what engineers envision and the minimum product required, causing delays in releases and increase in the price and complexity of the product . Naturally, many of the robots developed by the companies such as depicted in Fig. 2 are made to develop competencies for future projects, but Bruno Maisonnier, CEO of the french company Aldebaran, which developed the robot Pepper for Softbank points: “Honda makes an impressive robot [Asimo], but where can I buy it?”.
As a result, while Japanese industrial robots thrive, there has been a grey area for assistant robots such as in Fig. 2. Critics say one of the causes of the delay in the market deployment is the resistance of Japanese companies to open the software and allow outside programmers to develop software. Japan robot industry is regarded as a hardware power, but software has lagged behind . The government pointed in the Robot revolution plan that this issue must be addressed choosing robots with open software for the companies to work together, but major Japanese companies usually do not have experience in handling open software and this seems to be one of the few aspect of the government guidelines which were ignored.
This poses a great threat from other robot exporters which have experience in managing open software like Germany, France and the US. On the case of China and South Korea, the threat arises from the geographical proximity: a report from Moody’s shows that most of the robot trade is inter-regional. Therefore, in order to Japan to establish its position as a robot superpower, it is not enough to do well on a global scale but to surpass regional competitors China and South Korea, which are heavily investing to achieve the same position (China 1.9% of GDP and South Korea 4%) .
This raises the question: are Japanese companies heading further away from a blue ocean? This seems to be happening not only because of fierce international competition, but also but also because of the domestic compliance to the Robot revolution, which comes with advantages – financing, easing of regulations – and burdens – heavy R&D expenditure, development of low profit products, risk taking. By itself, it is remarkable that the government was able to engage the companies in this policy. Traditionally, Asian companies prefer to keep good relations with the government while western companies don’t mind being disruptive, but there might be another another aspect that could be considered.
In the last years, the Bank of Japan has become the major buyer in the stock Japanese stock market and is now the a Top 5 owner of 81 companies listed and on course to become major shareholder of 55 companies. The mass purchase is said to be done to help to achieve the 2% inflation rate established by “Abenomics” policy and reinforced by the Bank of Japan . According to prime minster Shinzo Abe, “The government and the BOJ will work as one in close coordination to accelerate ’Abenomics’”. These purchases are distributed along strategical sector of the Japanese economy, including robotics, as shown in Table 1. There is no evidence that the Bank of Japan or the government indirectly influences the strategy of these companies, but it would be odd if a government shareholder would oppose the plan established by the government. So, Table 1 suggests there is another factor to account on the reasons the robot industry is following the Robot revolution plan and reveals also a collateral way the government can support the industry with higher security and stable price of suppliers. These actions are consistent with the ambitions of the Robot revolution plan, however, they might help to steer companies away from a blue ocean towards a common goal and they make the sphere of influence of the government unclear.
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Original PDF file: RobotStrategy_masukawa