"Has Japan lost its fizz?"

Interesting article from the Independent, not related to mobiles though...

Walkman, compact disc, VCR, DVD, PlayStation; It reads like a roll call of the coolest gadgets of the last three decades, and Japan is responsible for making the bulk of them. From the Sony transistor radio in the 1950s to today's global megahit, the Nintendo Wii, the technological prowess of Japan's corporations has been a key engine of its economic success since its rise from the ashes of the Second World War.


But is the world's second largest economy a spent technological force? This concern has been sharpened by the brutal balance-sheet realities of Japan's once all-conquering consumer electronics sector. Hitachi leads the pack, filing a record annual loss of £5.3bn this month after announcing worldwide job cuts of 7,000 employees. Panasonic, the brand name of appliance giant Matsushita, has posted its first net loss in six years and will slash 15,000 jobs and shutter 40 factories. In the late 1980s, Matsushita was turning out two-thirds of the world's video recorders, but now finds itself in a battle for market share with cheaper rivals.

For Sony, a company synonymous with Japan's postwar resurrection, the plunge from greatness may be steepest of all, with the posting of a £141m operating loss for the final quarter of last year and the planned slashing of 16,000 people from its global payroll. The company that brought the world the Trinitron TV, quietly slipped to third place in the global television market this year, behind South Korea's Samsung Electronics and LG Electronics. Even the PlayStation 3, touted as Sony's comeback product, has been outperformed by the Wii. More than three years after being appointed president, British-born Sir Howard Stringer is said to be deeply frustrated at his apparent inability to pull the company out of its death dive.

Almost wherever one looks, the picture isn't pretty. Toshiba and NEC's consumer electronics divisions are also in trouble; embattled Sanyo has just become a subsidiary of Matsushita. One of the few bright spots is the Wii, which has sold over 50 million units worldwide. But is that simply the fading light from a burnt-out star, wonders Jonathan Allum, Chief Japan strategist at KBC Asset Management in London.

"I think its fair to say that Japan's big brand names have lost some of their preeminence." The key question is whether this loss is cyclical or terminal. While much of the recent red ink can be blamed on plummeting global demand that will presumably recover, the Japanese electronics industry faces "historic challenges" that threaten the survival of its most famous brands, warns Tim Hornyak, author of Loving the Machine: The Art and Science of Japanese Robots. "The 20th-century appeal and market share of Japanese brands has eroded amid the IT revolution and new rivals in electronics." True, Japan still sells over 60 trillion yen in consumer electronics every year. The profitability of finished products is slumping, however, with competitors in China, Korea and Taiwan increasingly churning out cheaper flat-screen TVs, DVD players, mobile phones and digital cameras. Analysts say Japan has clung to its hardware strengths even as the world around it has been transformed by the digital and Internet revolution.

Meanwhile, at the top end of the technological spectrum, fleet-footed rivals like Apple have swept Japan's dominance of the market for portable gadgets aside, replacing music and video players with a single device like the iPod. "The consumer electronics business has disappeared as we know it," points out Allum. "There has been a convergence of the computer and consumer electronics worlds; people download music and movies from their PCs now." But Mark Lytle, a tech nology consultant who runs the Japan-based Digital World Tokyo website, calls the convergence notion "patent nonsense."

"Converged things are really all about one core function (e.g. a mobile phone) with extras bolted on (e.g. a camera) as marketing points. It's rare to find one thing that performs more than one or two functions as well as a dedicated device would for each. The combination of iPod and phone in the iPhone is one shining example, which is why it gets so much press."

Many Japanese analysts remain unconcerned at the rise of the Asian tigers, which have been playing technological catch-up for "many years now," says Takuji Okubo, senior economist at Bank of America Merrill Lynch. "The countries in the middle – Korea and Taiwan – have a much bigger problem than China or Japan. China doesn't threaten Japan directly; it threatens Korea and Taiwan." Many of the lower-end goods coming from China are in any case produced in Japanese-owned factories. Hornyak too believes that talk of Japan's technological demise has been "exaggerated," and that the country will stay ahead of its Asian rivals. As evidence, he cites a list of recent product breakthroughs, including Sony's compact HDR-TG1 high-definition camera and pocket-sized PCs, Nikon's D90 digital camera with video capture, and JVC's ultra-thin LCD TVs. "I believe current aggressive restructuring moves may better position Japanese makers to regain market share and their former leadership position."

Perhaps so. Sony is getting ready to dump about half its suppliers and shrink its electronics factories from 57 to 49. Matsushita and Hitachi are also preparing to swing the axe. But critics say Japan's problems have exposed an old Achilles heel: a lack of truly groundbreaking creativity. The transistor, IC circuit, LCD screen, PC, VCR and compact disc, after all, were invented elsewhere before being miniaturised and mass-produced by Japanese corporations. Once out in front, these corporations floundered in the face of more innovative foreign rivals.

Veteran Japan-based commentator Eamonn Fingleton calls that analysis part of the "creativity conceit" that consistently blindsides America and Europe to Japan's strengths. "In economic terms, probably the most significant form of creativity is the development of new, more efficient manufacturing technologies," says the author of In the Jaws of the Dragon: America's Fate in the Coming Era of Chinese Hegemony.

Look beyond the eye-catching market for gadgetry, says Fingleton, and Japan is still the world's leading technological player behind the scenes. Toshiba, for example, manufacturers the mini hard drive that powers the iPod, Japanese companies monopolize the production of semiconductor-grade silicon, and make much of the optical fiber and laser diodes that form the backbone of the internet; Nikon and Canon supply many of the optical machines that print lines on computer chips, and so on.

"Anyone who thinks Japan is out of the game should look at trade statistics," advises Fingleton. "Japan's current account surplus last year totaled $211bn. That was nearly four times the total in 1989, the last year of the great Japanese boom. Japan has achieved this despite rapid growth by other East Asian nations." So down, but not out seems to be the message. Still, the country's corporations have no room for complacency. Falling profits will affect their ability to invest in R&D, and competition, especially from South Korea, is likely to intensify; Samsung has already stolen much of Sony's thunder. China, with about 10 times Japan's population, is an economic behemoth that will easily outpace its rival in the long term, outspending it in research and in trained scientists and engineers. "There is still an awful lot of stuff that Japan is doing technologically very well," says Allum. "But people are catching up."