It’s always fascinating to see how Westerners idealize Japan on platforms like HN. It makes me wonder(i'm korean): how would a Westerner react if they saw me romanticizing the Mondragon cooperatives in Spain? They’d probably find it strange and out of touch with reality.

This essay on Japan's corporate diversification and physical tacit knowledge is an interesting read. However, as an East Asian, my assessment is that this system is heavily driven by Japan's unique, subtle classism. It's a highly collectivist society with strict age-based milestones and immense pressure to secure traditional employment. In Japan, your corporate affiliation often dictates your social standing.

The author paints the lack of shareholder pressure as the secret behind their successful diversification. While true for a few, the flip side is that it created a massive 'zombie company' problem—a heavily discussed issue in Korea and Japan that the West seems largely blind to.

Also, the idea of a 'horizontal culture' in Japan is a myth, especially in software. Even a glance at the Japanese web(5ch, onJ etc...) reveals a deeply entrenched vertical hierarchy. In my experience working with Japanese developers, their reliance on the legacy Waterfall model and an exhausting chain of approvals and reporting was far from horizontal. (Though I admit my sample size is small, it heavily contradicts the Western narrative).

I agree that this rigid system fosters the tacit knowledge needed for hardware and materials. Still, it proves that we all tend to project our fantasies onto cultures we don't fully understand. The divergence in perspectives on HN never fails to amuse me.

The core of the article is buried 60% down:

> you have a firm that has lots of lifetime employees who can’t be fired, and whose skills are tailored to what your firm needs rather than to a particular occupational category transferable to any employer

> the system only makes sense if the company is also insulated from outside pressure

> the J-firm [Japan-style company], run by its employees and largely indifferent to the interests of shareholders, exists simply to continue existing

> And that basic impulse toward survival is why Japanese companies are so insistent on diversification. If you’ve made a commitment to keep people employed for life, then you need to create jobs for them if their current jobs stop making sense

> If you’re not very worried about profitability, and have lots of well-trained generalist employees, then it makes perfect sense to reinvest your company’s earnings by expanding into new industries

While things like the expectation of lifetime employment (or at least very long tenure) may sound appealing, it also creates a job market with very low fluidity. In practice, if you miss that narrow “fresh out of school” hiring window, you can end up facing pretty unfavorable prospects later on.

People can still get hired mid-career, of course, but many companies traditionally hire based more on long-term potential than immediately usable skills, since they expect to train employees heavily through OJT. That also means the number of openings for experienced hires can be relatively limited. And because of the seniority-based structure, even experienced workers may end up starting near the bottom anyway.

There was an entire generation of people who missed that initial hiring window because of economic downturns and hiring freezes, and many of them still struggle to land stable permanent positions even today.

Things are gradually changing, but many structural assumptions are still there. For example, parts of the legal and employment system are historically built around the assumption of lifetime employment, which also makes it difficult for companies to dismiss permanent employees once they are hired.

> So why are Japanese companies like this? Why do they do so many different things? And how do they manage to do so all those different things so well?

Author says: Japanese companies excel in lots of very different domains because it’s inherent in how they’re structured.

My response: No mention of culture? Sure maybe it is because of how they are structured somewhat, but it's also because of their culture. Japanese are masters of their craft. Look at the best pizza place in the world, the best burger maker in the world.. they are not in Italy or America, but in Tokyo.

Japanese take pride in their work and master their craft. A small pizza-shop owner in Tokyo doesn't make great pizza because of how it was structured. It's cultural. Japan takes Western concepts, and applies an obsessive cultural devotion to mastery (Shokunin).

Look at all the foreign-things Japan is now famous for: Japanese Whiskey, Denim, bread making, Japanese curry, etc.

I want to highlight that maybe today, big conglomerates are rare, but this is also because during the late-20th century, the trend was to break up conglomerates to increase competitiveness and improve financial performance of companies by focusing on the best businesses. If you look at the situation before that moment, Japan's situation would still be on the extreme side when compared to the other developed nations at the time, but not as unique I think.

In retrospect, I tend to think that this take was naive. It probably increased financial performance but it discouraged taking risks, and pushed the multidisciplinary skills out of companies in a way that is hard to reverse, inducing knowhow loss and probably slowed down innovation. But this is only my personal analysis and I am no economist.

My experience in American organizations is that products and services need to not just make money, but make a lot of money. There is zero appetite for things that make a little bit of money relative to the cash cows of the company. You could say this is in part focus, but it is also based on internal accounting. Small product lines are saddled with total company overhead costs even if they do not apply to said product or service. Not good or bad, but it can lead to strange situations where you have a successful product that everyone complains doesn’t make any money.

> American firms, for example, tend to prioritize focus above all else: it would be bizarre for an American paper mill to also operate a concert hall and an airport catering business

I don't think Kimberly-Clark ever opetated a concert hall, but they did run an airline (Midwest Express) and K-C Aviation was an airplane servicing firm.

It's not that American companies don't operate in diverse businesses. Maybe they're less likely to, but it happens when the need arises... if there's no reasonable supplier for an important input, then you start one, or you ask an existing supplier if they can start a new line of business that's somewhat related.

The headline example is that Toto, known as a maker of ceramic toliets, is making a lot of money making specialty ceramics used in semiconductor manufacturing. Which yeah, ceramic manufacturer makes ceramics.

The US business market does like to spin-off divisions when they are successful and can be independent.

> the J-firm, run by its employees and largely indifferent to the interests of shareholders, exists simply to continue existing

I don't know if all companies should be run like Japanese companies, but there's something very heartwarming about this. Some companies exist for the purpose of employment, and that's okay. In fact it's admirable and makes me want to cheer.

A hypothesis I had on why some countries have more conglomerates than US is that access to capital and funds are much harder in those countries in comparison to US. When access to capital is comparatively more limited, more innovations falls to the party that has comparatively easier access to capital (conglomerates) and therefore reinforcing their position as conglomerate.

Concepts like this make me think about precision in products. When you spend 40,000$ on a computer chip you get a commodity piece of nm-scale precision. When you spend 40,000$ on a pink ivory coffee table you get a pile of wood with a maximum precision of 0.1-1mm. I'm just wondering what it would be like if atom-level precision was the main focus of every single premium product.

Isn't this functionally GE, Bell Labs etc before MBAs.

I'm not sure I'd say a company that makes ceramic toilets also making a tool for memory chips... which is also ceramic is really 'different things'. They're clearly a ceramic company. Different tolerances, but similar expertise.

Now the paper company got into the hotel business seems a far better example. No idea how that happens.

If a corporation does not have an incentive to make money, it will not align its priorities correctly.

For every neatly diversified company you have 10 zombie companies with workers floundering around like ants without a queen.

Asian countries seem to have a different approach to diversification. In the East it is the companies that diversify while in the West it is the shareholders that diversify. So Bill Gates will not tell Microsoft to start farming, but he probably does have farms in his portfolio.

It's really odd to me that having an advanced ceramics division at Toto is considered such and odd diversified activity, and on top of that making money from the expertise of that division. Deep knowledge of ceramics would seem to me, to be a fundamental advantage if your main line of business is making ceramic toilets.

Companies like this with deep interlocking expertise used to be common in the US too when the US actually made things. GE was a conglomerate of "diversified" expertise - at least until a grandfather of financialization laid the seed to take apart the company.

AT&T and Xerox used to maintain all sorts of deep expertise in all sorts of science and technical activities - though maybe it could be noted that they were famously bad at spinning out other diversified product lines. But the expertise was a need in their core activities. Maybe the most interesting thing about Japanese businesses is that they have shown how to successfully start and maintain diversified product lines.

The main reason we are surprised by these "diversified" products, I suspect is that the typical American (and HN reader), is just not very familiar with the wide range of expertise needed to actually run manufacturing businesses.

The Japanese economy is also famous for a macro economic stagnation for almost 40 years, a mild deflationary spiral, and companies hoarding cash on balance sheets rather than return it or invest it.

There are definitely world class companies in Japan, but also broad systemic problems with incentives

> In 2007, workers at a Toyota plant in Kentucky pulled the andon cord 2,000 times per week; workers at a Ford plant in Michigan pulled it just twice a week. You can’t get all the benefits of a single practice without installing the complete bundle.

This example seems to contradict the author's main point.

The Toyota factory in Kentucky got some of the benefits of the Japanese approach without importing every practice. They might have had a more Japanese organisation than Ford, but surely they didn't replace American practices in matters outside their control. They still had to deal with American approaches to labour practices, banking, local government, etc., all of which are called out in the article as necessary for the J-mode to flourish.

I almost feel like this topic deserves a further deep dive. This seems like a more profound difference of cultures: Japan, where failure is stigmatized and less of an option, optimizes for survival, and the United States, where failure is common, optimizes for growth(? wealth? fame?).

The pattern might also hold at a broader level. The United States is a relatively young nation that has seen plenty of internal strife (plenty of civil wars including The Civil War) whereas Japan has existed in some form for 2,600 years.

Probably too deep to consider, but the thought hit me that trees and plants (like these J-firms) grow multiple branches as quickly as they can because they are optimizing for survival.

I might be gatekeeping, but I consider a mark of actual healthy capitalism, to be creative destruction, the biggest companies of 1 generation are destroyed by the next generation and the churn keeps going on. Nothing ever lasts except the system.

By this criteria, in the entire world, only US and UK seem to do capitalism properly. Whether the current age of tech companies survive till 2050s is to be seen, (we are already seeing signs of OpenAI, Anthropic joining them but it is to be said if the existing monopolies of say Microsoft will be disrupted).

In other countries, big companies have been the same for hundreds of years, from Japan to Germany to Korea to India. This is no longer capitalism as much as it is some soft form of Feudalism, where the same set of families hold power for generations at a time till some major fortune swings occur.

Very well done. I lived in Japan for years, love Japan deeply, and this essay rang true in many ways.

Two thoughts:

- Japanese management style and processes are probably fruitful ground for understanding how teams of agents should work. H-firms require inspirational leadership, and agents don't need that.

- There is an interesting opportunity to turn Japanese process knowledge into a trainable environment, which of course should be done in such a way to benefit Japan and the Japanese people ("The type of deep process knowledge that has accreted within companies like Kyocera and Toto is almost impossible to replicate")

The one key thing that is completely incorrect is there is no horizontal hierarchy. Everyone has a boss, a boss that you must not suggest is wrong. I'm very fond of visiting Japan but having worked there, found it impossibly challenging to get anything done. When things work well it is great and the focused culture produces some great things, but when it fails it leads to catastrophe as no one is able to voice early in the process. Issues are only discovered once they are serious.

I like watching Paolo fromTOKYO

This paragraph on organizational model is super relevant to understanding how tech companies are responding to LLMs today.

> Aoki’s key insight was that the J-mode had a comparative advantage in environments of moderate volatility: situations where conditions changed frequently enough that rigid central plans would be outdated before they were executed, but not so radically that only top-down strategic intervention could cope. In an environment of stable, predictable demand, the H-firm did fine; in an environment of extreme disruption, where the whole product line had to be rethought, centralized authority was indispensable, and the H-firm also did fine. But in between—where the challenge was to make constant small adjustments in a changing but recognizable paradigm—the J-firm excelled.

See for example https://aakashgupta.medium.com/microsofts-ceo-just-became-a-... or https://www.bloomberg.com/news/newsletters/2025-06-12/zucker...

You can pry my Mitsubishi pencil sharpener from my cold dead hands.

> Hitachi makes nuclear reactors, power grids, railway systems, elevators, semiconductor manufacturing equipment, medical imaging devices, data storage, IT consulting, and industrial machinery.

What, no mention of their personal massagers?

They’re an absolute disaster but I do love that the companies are actually investing in expanding into new things. Shareholders don’t want that, they want cold hard cash. Hence all the buybacks and PE firms destroying companies.