Competitiveness through Co-Evolution between Innovation and Institutional Systems - New Dimensions of Competitiveness in a Service-Oriented Economy

By Chen, Chaojung; Watanabe, Chihiro | Journal of Services Research, October 1, 2007 | Go to article overview

Competitiveness through Co-Evolution between Innovation and Institutional Systems - New Dimensions of Competitiveness in a Service-Oriented Economy


Chen, Chaojung, Watanabe, Chihiro, Journal of Services Research


(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

While Japan has experienced a vicious cycle between nonelastic institutions and insufficient utilization of the potential benefits of information technology (IT), a dramatic deployment of mobile Internet access service in the late 1990s, represented by NTT DoCoMo's i-mode service, demonstrates that once potential is exploited, Japan's institutions can effectively stimulate the self-propagating behavior of IT (Kondo et al., 2006). Since Japan has been shifting to a service-oriented economy based upon continuous technological innovation, the management of technology and the solution to create a virtuous cycle society has become a crucial issue for not only the government responsible for policy decisions but also for enterprises to identify a way to succeed in this unique market.

Since Japan experienced a significant economic stagnation in the 1990s and an outstanding accomplishment in the mobile phone driven innovation in the beginning of the 2000s, a comparison of these two trajectories is necessary. Furthermore, it is considered that some unobvious factors have affected the progress of mobile phone market and created a virtuous mechanism of co-evolution, which is hypothesized to be the system shown in Figure 1. While both the demand and supply sides can adapt themselves to the technological innovations, self-propagating development will be accelerated by the co-evolutionary structure. Such dynamism is considered to validate the revitalization of Japan's economy, especially in ICT market. However, while the customers or the service or product providers cannot adapt themselves to different institutional systems, the spiral trajectory of development will diminish gradually and prevents the society to move forward as expected. Both virtuous and vicious cycles may exist in each institutional system and creates completely different environments. The differences in this co-evolutionary dynamism cause different institutional systems to succeed or fail to evolve with technological innovations. It is considered that a gap between these two situations may prevent the selfpropagating dynamism to advance smoothly in different institutions. Therefore, the focus of the interest is the difference between the institutions of Japan and other countries.

Moreover, the foregoing observations prompt us the following hypothetical views:

(i) The co-evolutionary dynamism between innovation and institutional systems is decisive for an innovation-driven economy, and

(ii) Clear contrast in Japan's disengagement in an information society in the 1990s and surge in co-evolution toward a postinformation society in the beginning of the 2000s suggests a new dimension of competitiveness in a service-oriented economy.

While not a few studies attempt to provide the reasonable explanation of the rise and fall of Japan's economy, none has taken the dimension of the co-evolutionary dynamism between innovation and institutional systems.

This paper, taking Japan's mobile phone driven innovation, attempts to demonstrate the foregoing hypotheses. The next section explains the situation Japan confronted in the 1990s and analyzes it from the perspective of productivity of technology between Japan and the US. It is followed by the empirical analysis of Japan's success in mobile phone driven innovation. The co-evolutionary dynamism is analyzed from both the supply and demand sides. The final section briefly summarizes new findings and policy implications.

DISENGAGEMENT IN AN INFORMATION SOCIETY

Dramatic Decrease in Marginal Productivity of Technology

In contrast to the high-technology miracle of the 1980s, Japan's technology productivity declined dramatically in the 1990s and, despite being the world's highest R&D intensity, resulted in a dramatic decrease in marginal productivity of technology as shown in Figure 2. Japan had been outrunning the US until the end of the 1980s. …

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