The MCI Restoration

Anand Laishram *

The title is a reference to the Meiji Restoration in Japan, which involved a series of reforms in 19th Century Japan, which helped it become an economic and military power leading up to the 2nd World War. Then the War happened and Japan got reduced to ashes.

But remarkably, the Land of the Rising Sun rose up again, becoming the 2nd largest economy in the world in a matter of decades.

This economic resurgence owed a lot to investments made by Japan (or more specifically Japanese firms) in Market Creating Innovations (the MCI in the title).

There was rampant non-consumption in Japan following the War. Japan’s per capita income had fallen down drastically.

People could hardly afford goods and services they needed in their day to day lives. They were shortages of all kinds. The infrastructure had been obliterated by the war.

In such a context of scarcity, companies such as Toyota, Sony and Nissin, among others, decided to make sure that the goods and services, that people needed to make progress in their lives, became affordable and accessible.

They invested in product, process and business model innovations to tackle the non-consumption and break down the barriers to consumption. Japan at that time still relied on horse and ox drawn carts. The road infrastructure, which was virtually non-existent, had been further obliterated by the Allies’ bombing.

Toyota saw the need for a reliable, affordable and more efficient means of transport. They decided to invest in making affordable and fuel-efficient cars that the people in Japan and East Asia could afford. Kiichiro Toyoda, the then president of the company, declared that Toyota should develop “economical vehicles that can withstand poor roads and [be] more practical for the people of East Asia.”

Toyota invested in a series of process innovations that helped bring down its production costs (such as the famed Toyota Production System). They invested in fuel efficient engines. By leveraging the teachings of W. Edwards Deming, they drastically improved the quality of its products as well.

(Each faulty car meant resources invested in faulty efforts and thus, by improving the quality of its products, Toyota cut down on resource wastage)

Toyota also invested in creating infrastructure to support the car market. They started driving schools, opened up dealerships across Japan and created a nation-wide sales network. As a result, Toyota became a massive success in Japan and other Asian countries.

Then in 1973, the Oil Embargo stuck and American car buyers began forgoing the big, heavy, fuel guzzling cars made by the American Big Four and were purchasing the less expensive and more fuel-efficient Japanese cars. Toyota benefited tremendously from this new development.

Thus, we can see that the Japanese economic recovery Post World War 2, wasn’t based on an export focused strategy from the get-go. Japanese companies began by investing in Market Creating Innovations, in order to meet the needs of the Japanese & East Asian populations and focusing on breaking down barriers to consumption.

And then later on, when the market opportunities presented themselves, they exported to foreign markets.

(This pattern is a common feature of Disruptive Innovations)

In the following article next week, we will look at the efforts of other Japanese companies like Sony and Nissin, at targeting the non-consumption in their country.