Japan's Computer and Communications Industry: The Evolution of Industrial Giants and Global Competitiveness

By Martin Fransman | Go to book overview

APPENDIX 1 The Firm and Industry in the Evolutionary Process of Economic Change

The aim of this appendix is to provide a summary of the theoretical approach to the firm and industry that has been used in this book. Further details are to be found in my companion volume.1

From the point of view of aggregate economic performance, it is the industry rather than the individual firm that matters. While the individual firm may expand, contract, or even die, it is the performance and growth of the industry as a whole that is of economic significance. However, an industry comprises a population of firms, and an industry's dynamics depends largely on interactions between its firms. At times, firms in other industries influence the dynamics of a particular industry. In order to explain the performance and growth of a population of firms, therefore, it is necessary to have a theory of the individual firm.


The Firm

What is a firm? What do firms do? Different authors, with different theoretical purposes in mind, have answered these questions in fundamentally different ways. Since the present purpose is to explain the performance and growth of the Japanese information and communications industry, an approach to the firm must be developed which will allow the attainment of this objective.


Competences

Perhaps the best-known approach to the theory of the firm in the context of Japanese firms is that developed by Masahiko Aoki. Since Aoki's approach to the firm has been analysed elsewhere by the present author1, a brief summary will have to suffice here. Essentially, his approach is based on an analysis of the main characteristics of what he calls the J-firm. These characteristics include: what Aoki refers to as an 'internal rank hierarchy', according to which employees compete for faster promotion, which serves as the primary incentive device within the J-firm; the processing of information in a decentralized, horizontal, way; the tendency for J-firms to spin-off activities into independent subsidiaries

____________________
1
M. J. Fransman, Visions of the Firm and Japan, Oxford University Press, forthcoming; see also M. J. Fransman, "'Information, Knowledge, Vision and Theories of the Firm'", Industrial and Corporate Change, 3: 713-57.

-453-

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