Why is Japan So Weak in Software?

SUMMARY

Asianometry explores Japan's $37 billion software trade deficit, detailing MITI's failed efforts against IBM dominance, reverse engineering, programmer shortages, and why no homegrown giants like Microsoft emerged.

STATEMENTS

Japan's 2023 digital trade deficit reached 5.5 trillion yen, double the 2015 figure, driven by heavy imports of software licenses and cloud services.
MITI targeted IBM as the primary threat to Japan's nascent computer industry, implementing policies to favor domestic firms through joint ventures and import restrictions.
IBM refused forced technology transfers, maintaining full ownership of its Japanese subsidiary and clashing with MITI over market access despite customer preference for its superior products.
The 1966-1971 Super High Performance Computer Project aimed to surpass IBM's System/360, leading to the creation of the Japan Software Company for a universal operating system.
Underfunded at just 25% of the project budget, Japan Software Company collapsed in 1972 due to mismanagement, escalating requirements, and loss of worker confidence.
IBM's 1969 unbundling of software spurred the U.S. software industry by enabling independent developers, but in Japan, it prompted hardware makers to reverse-engineer and customize IBM software for kanji support and client needs.
Japanese computer firms survived technological lags by becoming "little IBMs" through proprietary modifications that locked in customers, though this relied on illegal copying until confronted in the 1980s.
The 1982 IBM-Hitachi spy case escalated U.S.-Japan tensions, resulting in settlements where Fujitsu paid licensing fees and agreed to respect IBM's IP, highlighting Japan's dependence on foreign software.
Programmer shortages stemmed from inadequate university training, unappealing career paths under lifetime employment, and a focus on maintenance over innovation, with 80% of software spending on legacy systems.
Efforts like the TRON OS project and SIGMA initiative failed to foster independent software ecosystems, as U.S. trade pressures and customization habits perpetuated reliance on foreign standards like Unix.

IDEAS

Japan's hardware giants like Sony and Hitachi thrived in electronics but produced no software equivalents to Microsoft due to MITI's hardware-centric policies overlooking software's independence.
Forced joint ventures in the 1950s funneled foreign tech to locals, yet IBM's defiance preserved its edge, showing how protectionism backfired against a superior incumbent.
The Super High Performance Computer Project treated software as an afterthought, funding it minimally and leading to its quick failure, revealing early underestimation of software's complexity.
Reverse engineering IBM software for kanji customization created customer lock-in but stifled innovation, turning Japanese firms into adapters rather than creators of global standards.
IBM's unbundling ignited a U.S. software boom via small firms building on its ecosystem, while Japan copied closed-source elements, inadvertently building on a foreign foundation without reciprocity.
The 1982 spy scandal exposed not just theft of code—including exact errors—but deeper U.S. fears of Japan's rise, mirroring mutual IP grievances like those against Nintendo.
Programmer roles in Japan were demeaned as "code monkeying" under lifetime employment, lacking progression or excitement, contrasting with the entrepreneurial allure in the U.S. startup scene.
Absence of venture capital and risk aversion prevented 1980s software startups in Japan, unlike Adobe or Oracle's rise, as cultural norms favored large conglomerates over independent ventures.
TRON's open standards aimed to counter Microsoft-Intel dominance but collapsed under U.S. trade accusations of protectionism, despite later niche successes in Nintendo controllers and space probes.
The real estate bubble's burst ended tolerance for costly custom software, exposing mainframe makers' declines and shifting Japan toward global standards, benefiting consumers but entrenching Microsoft.

INSIGHTS

Protectionist policies that succeeded in hardware replication faltered in software, where network effects and standards demand open ecosystems rather than closed adaptations.
Underfunding software in national projects underscores how treating it as secondary to hardware perpetuates dependency on foreign innovators who prioritize compatibility and scalability.
Cultural emphasis on lifetime employment and customization bred efficient maintainers but not visionary creators, highlighting the need for environments that reward risk and customer-facing innovation.
Trade frictions, like the TRON backlash, reveal how external pressures can kill domestic standards, favoring incumbents with global reach over ambitious but isolated alternatives.
Economic shocks like Japan's 1990s recession force adaptation to cost-conscious markets, dismantling proprietary models and accelerating reliance on imported, standardized software solutions.
Gaming emerges as Japan's software bright spot not through government intervention but organic creativity, suggesting policy should nurture niches where cultural strengths align with global demand.

QUOTES

"IBM owned 100% of IBM Japan and refused to budge on this even in the face of government demands."
"Japanese computer companies almost never used the software as it was; the software had to be modified to display Japanese kanji symbols."
"Software can already be easily copied; what makes one software package more successful than another isn't 'replication economics' but rather widely held standards, networks of applications or users, and consumer familiarity."
"Japan does have a software industry; it is actually quite large. The core issue is that Japan's software landscape remains dominated by either custom-made packages with no greater sales potential or imported products."
"I've heard few suggestions on how to fix it and to be honest with you I struggle to come up with coherent policy answers as well."

HABITS

Japanese hardware firms habitually modified foreign software for kanji display and client-specific business practices, prioritizing lock-in over standardization.
Software developers in Japan operated under lifetime employment systems, focusing on non-customer-facing maintenance and customization rather than innovative development.
Universities lagged in updating computer science curricula due to professors' limited English skills and overseas experience, relying on math-trained educators.
Government-backed projects like SIGMA emphasized heavy customization of Unix for domestic use, continuing a pattern of adaptation over original creation.
Large conglomerates treated programming as a low-progression role, assigning boring, repetitive tasks that deterred top talent from the field.

FACTS

IBM first entered Japan in 1925 selling tabulating machines, established a subsidiary in 1937, and returned post-WWII in 1949.
The Super High Performance Computer Project's software arm received only 25% of a 10 billion yen budget, leading to its 1972 closure.
In 2010, 80% of Japan's software spending went to maintaining existing systems, compared to 60% in the West.
iMode, NTT DoCoMo's 2G mobile internet service launched in 1999, peaked at over 40 million subscribers by 2003.
The Ruby programming language was invented by a Japanese developer, though its Rails framework gained fame through a Danish creator.

REFERENCES

IBM System/360 computers and unbundling announcement.
TRON operating system project by Dr. Ken Sakamura.
iMode mobile internet service by NTT DoCoMo.
Super High Performance Computer Project and SIGMA initiative by MITI.
Ruby programming language.

HOW TO APPLY

Assess national tech policies for software bias by allocating at least equal funding to software development as hardware, avoiding afterthought treatment in projects.
Encourage reverse engineering ethically through licensing agreements, transitioning from copying to collaborative standards that build domestic IP without legal risks.
Reform education by training computer science professors in current trends and bilingual skills, integrating global experiences to close curriculum lags.
Foster startups via venture capital incentives, reducing lifetime employment barriers to promote risk-taking and independent software innovation.
Evaluate trade initiatives like open OS projects for global compatibility early, mitigating accusations of protectionism by seeking international partnerships.
Shift from custom modifications to standardized platforms, training programmers in reusable code to boost productivity and reduce maintenance costs.

ONE-SENTENCE TAKEAWAY

Japan's software weakness stems from hardware-focused policies, programmer shortages, and failed innovation ecosystems, perpetuating import dependency.

RECOMMENDATIONS

Invest in startup ecosystems to cultivate independent software firms, providing venture funding detached from conglomerate structures.
Reform university programs to emphasize practical software engineering and international exposure, attracting top talent to dynamic roles.
Promote open standards domestically while aligning with global ones like Unix, avoiding isolationist pitfalls seen in TRON.
Shift corporate culture toward innovation incentives, elevating programming from maintenance to creative, high-reward pursuits.
Learn from gaming's success by supporting niche sectors with policy that encourages organic growth over top-down mandates.

MEMO

Japan's storied hardware giants—Sony, Hitachi, Fujitsu—dominate global imagination for electronics innovation, yet the nation grapples with a deepening software void. In 2023, its digital trade deficit swelled to 5.5 trillion yen, or about $37 billion, as imports of licenses, cloud services, and applications far outpaced exports. This chasm, doubling since 2015, underscores a paradox: a country that revolutionized consumer tech lags profoundly in the intangible realm of code, where American behemoths like Microsoft and Oracle reign unchallenged.

The roots trace to mid-20th-century ambitions under MITI, Japan's economic nerve center, which viewed IBM's "Big Blue" as an existential threat. Entering Japan in 1925 with tabulating machines, IBM weathered wartime seizures and postwar barriers, defying mandated joint ventures designed to siphon foreign expertise. While rivals like RCA partnered with Hitachi and GE with Toshiba, IBM's unyielding control and technical superiority won customer loyalty, even as officials dangled import licenses to nudge purchases toward locals. This friction peaked with the 1964 System/360 launch, spurring MITI's 1966 Super High Performance Computer Project—a bid to eclipse IBM, yet one that relegated software to a scant 25% of its budget, birthing the ill-fated Japan Software Company.

Undone by mismanagement and scope creep, that venture collapsed by 1972, mirroring broader missteps. IBM's pivotal 1969 unbundling—separating software from hardware under antitrust pressure—ignited America's software revolution, birthing startups that extended IBM's ecosystem. Japan, however, pivoted to reverse engineering, crafting kanji-adapted clones that locked clients into proprietary tweaks. This "little IBM" strategy sustained firms like NEC and Fujitsu amid tech lags but invited reckoning: the 1982 spy scandal, where U.S. agents nabbed Japanese executives for pilfering secrets, forced settlements with hefty fees. As copyright laws tightened, Japan's closed-source reliance exposed vulnerabilities, especially amid 1980s programmer droughts fueled by stale education and unglamorous gigs.

The 1990s real estate crash shattered illusions, slashing budgets for bespoke software and accelerating a pivot to global norms like Unix. Efforts such as the TRON open OS, envisioned to rival Microsoft-Intel duopoly, withered under U.S. trade ire, while SIGMA's workstation push yielded customized variants but no productivity leap. Consumer arenas amplified the shortfall: NEC's PC-98 monopoly crumbled against IBM-Microsoft's Japanese DOS, cementing foreign dominance; iMode's 40-million-user mobile web fizzled internationally, eclipsed by the iPhone's app ecosystem. Gaming persists as a beacon—Ruby's Japanese origins and Nintendo's embedded TRON hint at untapped prowess—but custom code and imports still rule.

Today, Japan's software sector, vast yet insular, funnels 80% of spending into legacy upkeep, far above Western averages. Policymakers grapple with fixes: nurture startups, glamorize coding, embrace open collaboration. Without such shifts, the Land of the Rising Sun risks perpetual shadow in the digital dawn, its hardware legacy a poignant reminder that innovation's future lies not in circuits alone, but in the code that animates them.