Evolution Shift
A Future Look at Today
March 2nd, 2010

As Japan has gone, so will China?

In the 20 years after WWII Japan was the source of cheap goods for the U.S. and the world.  In the 1950s, “Made in Japan” meant cheap stuff that was showing up in a lot of product categories.  Then in the late 1960s and through the 1970s quality technology brands emerged; Sony, Panasonic and then Toyota and Datsun [now Nissan].  These brands changed American and global buying habits and often led the way down new paths of consumption such as VCRs, mobile music players and fuel efficient cars.

By the 1980s the major Japanese brands dominated major markets and product categories and the concept of “Japan Inc.” came into being.  There was much hand wringing in the U.S. about the fact that we had lost technological leadership to Japan, that the large imbalance of payments between the two countries were unhealthy and possibly dangerous.  How to deal with Japanese businessmen and the etiquette of doing so became schooled in American businesses.

Then came the recession of 1990-92 and Japan imploded economically, leading to a decade of deflation now called “the lost decade”.  They lost out to the U.S in the areas of PCs and music players.  South Korea started to make significant inroads on Japanese products in US market share and later the iPod made Sony and its Walkman no longer look cutting edge but dramatically behind the curve and struggling.  America, which at first did not embrace Japanese cars then embraced them, went through the same process with Korean car manufacturers.

So here we are in 2010, and, for the past 15 years, China seems to have travelled down the path Japan did four decades ago.  First there was cheap products with “Made in China” printed on seemingly everything..   Then there was a wave of questionable quality – does lead painted toys, deadly milk and toxic pet food ring a bell?  All the time the US was wondering if everything cheap came from China, if the huge trade deficits we were running up with China might be putting us at risk.  American business men were schooled on how to practice appropriate Chinese business etiquette.

The US is now buying high tech products from China such as batteries, parts for wind turbines and soon, cars.  We wonder if we are losing the high tech battle with China, in this case around the next hugely big thing, alternative energy technology.   Does this sound familiar?  Certainly to we baby boomers who have lived through the last four decades of the 20th century.

Here is the interesting question: will China go the way of Japan?  The centralized authority of “Japan Inc.” is now acknowledged to be one of the causes of the ‘lost decade’ as centralized and insular power listened to its own music and lost its way.  The Google – China situation and the larger Internet censorship issue that China is struggling with certainly feels like institutionalized, nationalistic myopia that infected Japan 20 years ago.  Will this insular, strongly nationalistic process of decision making set up China for a fall?

China of course has 20% of humanity as citizens so it is much larger than Japan.  That said, it is obviously a less homogenous culture than Japan.  It has unique – and large – problems.  All that said it is quite striking how similar, at least from a US perspective, the paths of Japan in the last third of the 20th century and China now, seem to be.

In the 1990s, the ‘lost decade’ of Japan, the U.S. became absolutely dominant in computing and Internet based technology.  In the 2000s the US led the way with new entertainment gadgets and ways of connected communications. This was due to incredible entrepreneurship and innovation. Will the Transformation Decade of 2010-2020 be the time that China is ascendant?  Will the US step up in the new area of alternative energy technology and continue its dominance in the disintermediating social communications area?   Will the US again have a surge of innovation and creative entrepreneurship?  Will China follow the historical arch of Japan?

The answer will reveal itself in the coming months and years.

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