Competitiveness Through Co-Evolution Between Innovation And Institutional Systems – New Dimensions Of Competitiveness In A Service-Oriented Economy | Chaojung Chen & Chihiro Watanabe

Contrary to a conspicuous economic accomplishment till the end of the 1980s, Japan experienced the economic stagnation in the 1990s due to its failure to maintain high productivity and increase in the efficiency of technological investment. Given that this contrast can be attributed to a co-evolution and disengagement between innovation and institutions, this paper attempts to elucidate the unique mechanism of technological co-evolution in Japan. First, a comparison of the development trajectory in Japan and the US is conducted by comparing their total factor productivity (TFP), R&D intensity and marginal productivity of technology. The clear decline of these factors in Japan is observed. It implies that the fundamental problem in Japan is the process of shifting from an industrial society to an information society. However, a surge of the co-evolutionary dynamism emerged in the information and communication technology (ICT) industry. With the focus placed on the service oriented mobile phone market in Japan, the success of mobiledriven innovation is analyzed from both supply and demand sides. The increasing learning coefficient of the market and the significant penetration rate of new functionality such as mobile camera and mobile Internet suggest that customers in Japan are rich in curiosity and smart in assimilation. On the other hand, in order to satisfy the demanding customers, service operators and handset vendors intertwine with each other leading to constructing a strong link, thereby developing new product and services by satisfying demanding customers. Thus, handset vendors and service operators themselves construct a co-evolution structure and then coevolve with the demand side. This dual co-evolutionary dynamism leads Japan?s mobile phone industry to keep creating new innovations and provides other industries invaluable suggestion to their competitiveness in a service-oriented economy.