While studying some of Japan's most formidable industries, however, we also noticed a Japan no one was talking about. Alongside the highly competitive industries was another set of industries which were highly uncompetitive. It was as if there were two Japans. As time passed, this uncompetitive Japan remained obscure and often hidden. It also showed no signs of improvement.

This, then, was the puzzle: if Japanese government policies and practices in fact accounted for the nation's extraordinary competitiveness—as so many people at the time believed, why was Japan not competitive in large, important industries where those policies and practices had been explicitly and prominently implemented?

In the face of the overwhelming acceptance of the government-led explanation for Japan's success, we knew that any effort to challenge the conventional wisdom would require an extraordinary body of evidence. So, we embarked on a process of detailed case study and empirical research that spanned almost eight years, involving a large team of graduate students and others. We conducted in-depth examinations of twenty competitive Japanese industries, together with less detailed study of many more. More importantly, we also studied Japan's failures, a topic which other investigators had overlooked. We examined a large cross section of Japan's uncompetitive sectors and industries.

To complement the case study evidence, we also developed original statistical evidence covering the entire economy on areas such as government sponsored cooperative research and legalized cartels figured prominently in the accepted model of Japan's success.

As our work progressed, we began to see other dimensions to the puzzle. Even "successful" companies and industries showed signs that Japan's competitive performance was not as it should be, and that performance was slipping. In addition, it was surprising that in a nation so admired for its strengths as an exporter, virtually no new export industries were developing. All this was reflected in a persistent productivity gap between Japan and other advanced nations, together with high domestic costs that dragged down the Japanese standard of living.

Careful study of Japan's successes and its failures has helped us to unscramble the puzzle. The emerging picture challenges the conventional wisdom on the drivers of national competitiveness in Japan, or in any nation that follows a similar path. We will demonstrate in the pages that follow that Japan is not a special case after all. Its industries succeed not when the government manages competition, but when it allows competition to flourish. And Japanese companies succeed when they follow the accepted principles of strategy.

This book aims first and foremost to offer a theory that can explain and interpret Japan's post-war economic trajectory. Because of the influence of the Japanese case on economic thinking and practice worldwide, it is vital to set the record straight on exactly what did and did not happen in Japan. Our theoretical framework can also be applied elsewhere, and will be especially useful for countries that have tried to emulate the "Japanese miracle."

Our second goal is to offer an outline of what steps will be necessary to restore Japan's economic vitality, at a time when a new direction for the nation is far from clear. Current policy prescriptions are incomplete, to say the least. The enormous public cost of bailouts and macroeconomic stimulation is putting the nation's macroeconomic stability at risk. And the current foot dragging on reforms, such as in financial reporting or putting reasonable limits on deposit insurance, is only increasing the ultimate cost.

We began this research at the peak of the Japanese boom, and finished it during the seemingly never-ending economic recession. We believe our message is equally viable for both periods. Finishing this book has required us to chase a rapidly moving target, especially in charting a course for Japan's future. As the nation's economic difficulties have become increasingly clear, a steady stream of books, articles, government reports, corporate restructurings, and policy announcements have followed. We have outlined the elements of a new direction for companies and for government without attempting to summarize all the recent developments.

Two of us are Japanese citizens, and all of us care deeply about the future of this important nation. We recognize that Japan's situation will continue to evolve and policy changes will continue to occur, for better or for worse. Our hope is that this book will provide a compelling framework in which to understand and evaluate those changes.

— Michael E. Porter
Boston
— Hirotaka Takeuchi
Tokyo
— Mariko Sakakibara Los Angeles