Leading without Followers: How Politics and Market Dynamics Trapped Innovations in Japan’s Domestic “Galapagos” Telecommunications Sector

Abstract

While globally successful Japanese industries were able to use their domestic market as a springboard into international markets, Japan's telecommunications sector became decoupled from global markets, trapping Japanese ICT firms in the domestic market. This persistent pattern of leading without followers was not simply the result of misguided technological choices, ill-informed corporate strategies, or insular government standard-setting processes. Rather, the dynamics of competition, shaped and reshaped by political dynamics and regulatory structures, decoupled it from global markets. These dynamics created a "Galapagos effect", in which winning in an isolated domestic market led to losing in global markets. Major regulatory shifts transformed the dynamics of competition since the late 1990s, decreasing the isolation of Japan's telecommunications sector, but some factors pulling it along a proprietary trajectory persist. This paper highlights the dilemma of how to develop beyond a follower status, but avoid becoming a leader without followers.

Business models, value capture, and the digital enterprise

“…Although i-mode was wildly successful-and profitable-in Japan, efforts to export it failed. NTT invested heavily in overseas partnerships, including a nearly $10 billion investment in AT&T Wireless in 2000, but failed to convince them to adopt the integrated i-mode business model (Kushida 2011). NTT also faced an equipment problem in export markets because the Japanese companies making i-mode phones had no presence outside Japan, where the wireless standards at the time were incompatible with those of most other countries.…”

The Politics of Commoditization in Global ICT Industries: A Political Economy Explanation of the Rise of Apple, Google, and Industry Disruptors

“…International service prices plummeted with new entrants patching calls through the Internet. In equipment, NTT, also blindsided by the Internet design paradigm, had led manufacturers to develop the previous generation of switching technology, delaying their shift to Internet-related equipment even as demand exploded (Cole 2006;Kushida 2006). Japan's mobile industry, driven by network carriers, developed value-added services that catapulted Japan to the forefront of mobile Internet and related services.…”

“…Music download services (predating Apple's iPod and iTunes music store), Java applets (small downloadable programs predating Smartphone Apps), and other features required tight integration between handsets and carriers' services. Japan's carrier-dominated industry structure could deliver this integration (Kushida 2011).…”

“…A stalemate postponed the issue to 1995, although the settlement did spin out NTT's wireless division into a wholly owned subsidiary, NTT DoCoMo. DoCoMo received NTT's extensive wireless labs, despite some MPT trepidation that DoCoMo would become too powerful; DoCoMo did indeed leverage its R&D resources to shape the domestic playing field in its favor (Kushida 2011).…”

“…In 1996, NTT and MPT agreed to restructure NTT into a holding company, with wholly owned subsidiaries for local telephony (NTT East and NTT West), long distance and international service (NTT Communications), data and computing (NTT Data), and mobile (NTT DoCoMo) (Kushida 2011). In subsequent years, despite occasionally re-emerging, political discussions about breaking apart NTT went nowhere (Kushida 2013).…”