Kyocera was founded in the city of Kyoto, the ancient capital of Japan and home to many business operations that carry on customs dating back several centuries. A traditional commercial law still operates there, and it offers some important lessons for modern times.

At one famous pickled vegetable store, only two barrels of pickles are put out for sale each day. In the morning, before the store opens up, customers line up outside the door. And when that day’s allotment has been sold, the store closes. Even if there are more customers waiting to buy, the store still shuts its doors, putting up a notice saying, "Those who want to buy, please do us the honor of coming back tomorrow." The reason is that the flavor of the pickles starts to decline almost immediately after they are at their best, and since the shop prefers to deal only in products of the highest quality, it controls production to maintain its standards.

Here we see that familiar principal at work again: neither buy nor sell more than what is necessary. If the day’s allotment is sold out by noon, that gives the proprietors more time to start preparing the next day’s batch. Then at night they can go out to the theater or enjoy some other form of recreation. In this way they use their free time to support the cultural life of the city. Of course, there are many pickle stores, each with its own special recipe, and because every one offers a unique flavor of pickles, they can all stay in business. The point here is that they do not compete on price or quantity but on quality – how good the pickles are. It is competition based, if you will, on the individual character of each merchant’s product. Through differences in the character of the product, each store creates its own market. It is the mercantile version of "live and let live," a philosophy of "sell and let sell." Each store produces a set quantity of pickles at a reasonable cost, and there’s enough business for all to survive.

For other traditional business in Kyoto, such as those of Japanese-style cakes and the famous Kiyomizu pottery, the pattern followed is similar. In order to preserve the essential hand-crafted quality, you can only produce a limited quantity. There are countless old shops like this in Kyoto, busily producing their unique products for a limited clientele. Relying on their individuality, maintaining a small but steady trade, they are preserving the traditional style of commerce in Kyoto. These merchants take care not to invade one another’s turf – and they, in turn, can feel safe from invasion themselves.

During Japan’s feudal Edo era (1603-1868), a famous Kyoto Confucian and ethics philosopher named Ishida Baigan (1685-1744) taught that "The true merchant thinks first of the customer’s position, and then of his own." Baigan’s philosophy was called "Shingaku," or "Heart Learning." As the name suggests, it centers on understanding the workings of the human heart and the human spirit. Through self-control in accordance with the human spirit, Baigan taught, man can achieve happiness. Until quite recently, courses in Shingaku were still being offered in downtown Kyoto.

One key difference between the traditional Kyoto rules of business and the practices of modern corporations involves the basic issue of creativity verses discipline. In my view, the Japanese corporation’s penchant for excessive competition, for market-share-at-any-cost, rests on what I will call the "Imitation Principal." This implies that as soon as one company develops a new idea and makes it successful, all the other firms immediately jump in and start producing imitations. Since the successful model has just been launched, the latecomers can concentrate their efforts on cutting costs and making it cheaper. It is a relatively simple thing to sell basically the same product at a lower price than the pioneer in the field. Thus, competitors invade the market – a market created by the original producer – and start vying for market share. This is competition based on identical products.

The pioneering firms know full well that if they just sit back and take it easy, they will lose their market to the new entrants. So from the beginning they aim to maximize market share, forcing up production to prepare for rigorous competition. As the pioneer and the imitators step up the competition, production capacity frequently outstrips demand. Then the Japanese firms send the excess products overseas, in an export drive that causes chaos in foreign markets.

It is true, of course, that the Imitation Principal proved extraordinarily useful to Japan in the past century or so, as the country eagerly embraced all foreign ideas and foreign technology in its drive for modernization. And it is equally true that the success of many Japanese companies did not derive entirely from direct imitation. Many of them have also adapted basic research from the West to produce better and cheaper products. However, the time when we can prosper through the Imitation Principle has come to an end, and Japan must refrain from the tendency to jump into markets and compete with copycat products. It is essential to exercise self-restraint and stop invading markets created by innovative companies. Only in this way can we avoid the bitter resentment of corporations whose goods we copy.

Even if Japanese industry stopped competing with identical goods, there would be no need to worry that Japan’s standard of living would fall. On the contrary, it would be a great boon if there was more competition in creativity, if Japanese companies were racing one another to get innovative new products on the market. What’s more, the opening of such new markets could revive Japan’s economy.

Copycat production, it must be said, is a low-risk enterprise. It is a way to increase the efficacy of invested capital. In contrast, when it comes to creating innovative designs and forging new markets for such products, a lot of risk is involved, but this is the essence of the new type of management we need: to develop technological innovations and new ideas, and to spur new demand for new products.

If Japan’s corporate giants are to be welcomed in the industrial world, Japan will have to build a society based on fair competition. That will require self-regulation and a conscious decision to act with restraint. Both at home and abroad, Japanese companies have to hold to a course of fairness and move step by step to act with responsibility.

Why Creativity Isn’t Valued

If we seek to understand why the Imitation Principle is so firmly established in Japan, we will find the answer in the tradition of wet-rice paddy farming, the agricultural system of most East Asian societies. In the realities of existence with this method of cultivation lies the basis of Japan’s aversion to creativity, for in wet-rice cultures the work and knowledge or wisdom of the group had to come first.

The Imitation Principle can be seen in another, more modern manifestation as well. In Japan’s rush to modernize in the Meiji era, a great influx of modern ideas and products came from overseas. The most up-to-date and the most fashionable goods were foreign-made. This imported culture was extremely strong – but prices were also extremely high. To create more affordable prices for these much-desired goods, Japanese manufacturers began copying them and manufacturing them to meet soaring domestic demand.

Even today, when Japanese companies have become major players in markets around the world, the notion that imports are somehow better still carries weight among the Japanese people. For example, in the fields of medicine and pharmaceuticals, it is conventionally accepted in Japan that American and European products are best. This attitude has had an important impact on Japan’s standards for assessing good technology. I learned this firsthand in the late 1950’s, just before Japan embarked on its period of rapid growth.

In those days, the Japanese held the view that the best engineer was the one who could turn out a decent replica of any new Western product within a year after news of the innovation first reached Japan. An engineer who could copy a product after reading a description in a catalogue was rated next best. Someone who could make a copy only after obtaining the actual item was considered a third-rate engineer. And anybody who couldn’t copy a Western product was written off and relegated to the lowest rung of the engineering ladder. Yet a Japanese engineer with a creative idea that had not yet been developed in the West was considered even lower, as useless. No attention was paid to any new idea unless it had gained acceptance in the West. Since the highest esteem went to those who could copy Western engineering, no effort was spent on being creative. To some extent, this attitude survives this day.

As a matter of course, no Japanese banks would finance projects based on Japanese technology. However, investments for technology imported from the West were quickly approved. Another contributing factor was the government’s restrictive stance, even after wartime controls had been abolished. In the postwar period, "administrative guidance" from the government essentially determined which companies would get permits to import technology from abroad. And the government, of course, favored companies that toed the line. A company that was determined not to embark on any innovations at all was considered a good company. This attitude persisted long after the war – strict government regulation and guidance in many major industries meant that when new technology was introduced, it was done under the auspices of governmental regulation and approval. Industrial "combines," which were formed in accordance with the bureaucrats’ overall plans, were commonplace.

In this system, it was generally believed that, rather than risk trying something new, it was more advantageous to the nation to restrict creative urges from within the company and stick to the path of imitation.

Kazuo Inamori was born in Kagoshima, southern Japan, in 1932. After graduating from university, he joined a medium-sized insulator company, leaving at the age of twenty-seven to found Kyoto Ceramic Co., Ltd. (now Kyocera Corporation), which has become a global leader in high-tech ceramic and electronic products. In 1984 he established DDI Corporation, the first long-distance telephone company to challenge NTT, Japan’s communications monopoly. His newest venture, Nippon Iridium Corporation, is part of a colossal international project to facilitate telephone communications between any two points on earth.