ModularFinance* trumps The chuken kigyo

From The Economist November 7, 2009

A warning to the chuken kigyo is the experience of two big firms, Cannon and Nikon, against ASML, a Dutch company in the market for steppers, the tools used to make computer chips. In 1990 ASML had less than 10% of the market, while the two Japanese firms dominated it, Yet today ASML controls 65%. Japanese executives raise the matter to decry Corporate complacency. How did ASML win?

( It's the culture Stupid! )

"We were too small to compete with Nikon and Cannon directly, explains Willem Maris, who devised the strategy as the boss of ASML from 1991 - 2000. The Japanese had far more resources and did everything in-house. So ASML redesigned the product to make it modular which let it farm out work to specialists. For instance, Carl Zeiss, a German company made precision lenses. This ultimately enabled ASML to innovate faster and surpass the Japanese, says Mr. Maris.

ASML's openess took a more literal form. too."When a machine at Samsung broke down, 20 Japanese would come over and put a tent over it, so no one could see exactly exactly what they did," he says. ASML took the opposite approach, and showed customers the problem and how it would be fixed. Today, Nikon and Canon remain as closed as ever-and separate, even though merging their stepper business would make sense.

Old skills, modern times
Japan's technical success has its roots in old strengths. Its excellence in fine ceramics harks back to its expertise in pottery. Its brilliance in steel forgings are a vestige of ancient swordmaking. Japan will say this reflects their culture of monozukuri (making things) and  kaizen (continuous improvement) But not all of Japan's customs serve it well. Its tradition of resisting outsiders-be they foreigners or other companies-today risks undermining it.

To help overcome the reluctance among companies to share technologies or join forces, in July METI established the Innovation Network Corporation of Japan. Packed with people from business, it acts as a sort of national private equity fund, with assets and credit guarantees totalling $9 billion. It aims to invest in promising intellectual property, with the idea of creating spin-out companies or encouraging consolidation.