From developmental state to the ‘New Japan’: the strategic inflection point in Japanese business

Between 1998--2006, Japan's political economy underwent a strategic inflection point, anchored on legal changes so profound that they are irreversible. These reforms sought to enable large companies to shift from the post-war priority on sales and market share toward a new focus on profitability. The arrival of powerful low-cost Asian competitors in assembled goods, and a drastic change in the shareholder structure in Japan brought the end of the ‘developmental state’ approach and necessitated repositioning into innovative, high-margin sectors. The congruence model posits that a successful shift in critical tasks requires a realignment of formal organization, people and culture. For Japan's highly diversified companies, to compete as efficient innovators meant making clear choices what businesses to compete in, and then to restructure to focus on winning in those few businesses. For Japan as a country, the shift in formal organization came through a wholesale change in the underlying approach to law-making and regulation, as well as corporate law. The 1990s were not so much a ‘lost decade’ for Japan as one of renewal and repositioning.