The Japanese Software Puzzle Revisited
J. L. Díaz-Herrera,† H. Kashihara,†† M. Makabenta-Ikeda†† and T. Nakaguchi†††B. Thomas Golisano College of Computing and Information Sciences
Rochester Institute of Technology
20 Lomb Memorial Dr., Rochester, NY 14623. USA††

School of Applied Information Technology
Kyoto College of Graduate Studies for Informatics
7 Monzen-cho Tanaka Sakyo-ku Kyoto 606-8225. JapanThe so-called "Japanese software puzzle" is revisited by analyzing various factors that aﬀect the state of software development inJapan. International cross-comparisons explain how and why countries like the United States and Japan diﬀer from the perspective of software process improvement. Considering the Japanese market and institutional settings, the costs and incentive mechanisms at work are starkly diﬀerent from those found in the environment that enable the development of global platform products.
However, this did not impede innovation and product development in the Japanese software industry, especially in the ﬂourishingembedded software application business. Discussion of the embedded software developed by the Japanese also explains the close
link with the hardware manufacturers as well as certain institutional characteristics of the Japanese software industry; this route
could give rise to a strong orientation towards a global market.
Keywords: Japanese software industry, software factory, Sw-CMM, CMMI, embedded systems.

1. Introduction

was inspired, in part, by the Japanese continuous

In a recent article, Cusumano ［1］ described the“Japanese software puzzle” that resounded the gong calling thehas not been popular in Japan.

attention of industry observers. Several previous studies［2, 3］（2）Conversely, the Japan introduced concept of industri-have noted the issues surrounding the lack of Japanesealizing the production of software through software

packaged software exports. Apart from the lucrative market

factories （SF） has not found many adepts outside

for animation and games, Japan still holds unrealized potential

Japan, although it has inspired research in productin global software production, with the great majority of thelines particularly in the U.S.

applications being homegrown, one-of-a-kind designs. Ohsuga［2］ pointed at the cultural, organizational, technical, educa-

What can we learn from this dichotomy and otherrelevant aspects of the Japanese software industry?

tional, and research factors that contributed to the late

Ohsuga［2］pointed out socio-cultural factors, including

development of software exports emphasizing the need forthe language capabilities as well as organizational aspects that

improvement in all aspects.

inﬂuence the software engineer psyche and consequently aﬀect

Cusumano further observed that apart from embedded

the utilization of process improvement methods especially insystems and computer games, Japanese software performancetraining, education and research. Aside from the traditional

have been lackluster.

The Japanese software industryʼsculture, which many believe, is a rich source of spin-oﬀs, there

fragmented structure, characterized by incompatible platforms

also exists several manufacturing companies holding strong

provided by major systems integrators, has been cited as one

keiretsu aﬃliations among intermediate manufacturers andof the reasons for its lackluster competitiveness in the global

trading companies with a strong focus on quality in theirmarket ［4］. Nevertheless, there is also a belief that theapproach.

Japanese had special characteristics that have helped them in

Does the observance of these quality control standards

have

and other implicit rules crowd out innovation in the Japanese

performed well in some areas, and it is clear that the quality ofsoftware development market? As Cusumano implies: "...so few

the software they produce is very high, even for Japanʼs low

bugs may suggest an overly rigid style of development and a

CMM-rated companies［6］, and that ad-hoc software develop-

preoccupation with "zero defects" rather than innovation andment is not the norm.

experimentation, at least at the ﬁrms we sampled…" "Creating

softwaredevelopment.

Japanesesoftwareﬁrms

Over the years, there have been several attempts toanalyze the Japanese software industry and to draw compari-18

process improvement experience in manufacturing,bugs is a cultural "no-no" in Japan, but innovative software
always requires some trial and error."［1］.

sons with U.S. standard practices［7,8,9,10,11］. Such analyses

The Japanese may well be risk averse by nature, but weare based on comparing the processes employed, the productﬁnd it diﬃcult to agree with any observation hinting that thestandards in place, the quality of the software generated, theJapanese have not done their share of trial and error on thebusiness approach, etc. Two observations can be made:path towards innovation. Particularly in developing custom-（1）The software process improvement（SPI）movement

built embedded systems, much innovation has been achievedthat has raged in the U.S. since the mid 80s, and thatby software companies collaborating with large manufacturing

companies in the automobile, mobile computing and household

The Keiretsu Eﬀect on Innovationelectronic sectors. If there is anything that can be learned

The institutionalized long-term relationships between

from Japanese “monozukuri” experience, it is the continuous

software and hardware suppliers, i.e., the vertically aﬃliated“kaizen” and trial and error process done systematically, albeit

software developers known as the keiretsu, is said to heavily

perhaps ineﬃciently.

inﬂuence the preference for custom-built software solutions.

It is however true that a diﬀerent kind of mindset may be

These companies succeeded by subcontracting services toneeded to improve on the innovation necessary to enable

smaller companies and applied the traditional “factory

access to the world market for software packages. The conﬂu-

concepts” of the manufacturing sector to computer program-ence of these keiretsu factors and the dominance of large

ming to lift technology standards comparable to those existing

software vendors who dictate the pace of the industry, do not

in Japanese manufacturing.

seem to be conducive to “thinking outside the box.” Inherent

Sangyo Kenkyukai（Software Industry Research Forum）［13］

incentive and risk structures that inﬂuence actions, decisions,, more than half（58%）of software companyʼs project volume

and behavior have crucial economic implications.

As such,is made-to-order from other software companies. The second-

incentives for process improvement implementation are weak;or third-tier contractors rely mostly on orders from the big

the need to develop an environment to cultivate intrinsic

companies contributing to the subcontractorʼs income stability

motivation is therefore crucial.

albeit preventing them from developing original software

Market access depends on the degree of tailoring

According to the Sofutowea

products.

required, availability of bilingual specialists, and the degree ofMarket penetration of traditional Japanese companies,

customer technical familiarity, for which the keiretsu is not thelimited by obligation, community, and a conglomerate-likemost appropriate. However, these large keiretsu holding

keiretsu-based system, is conditional to adherence to group-companies have extensive networks abroad ̶factors that willbased norms, i.e., unwritten and implicit rules. Rossi［14］cites

actually be advantageous to Japanese software companies forthat intrinsic behavior plays an important role in encouraging

overseas ventures.

process improvement or innovative behavior.
For as long as the company philosophy allows individuals

2. A Brief Overview of the Japanese Software
Industry Structure

to challenge norms, innovative behavior is possible. In so doing,
parent ﬁrms absorb transaction costs involved in the innova-

In 1968, when the whole world was pointing out at ation process. Otherwise, engaging in innovative behavior thatmajor crisis, Japan had no software crisis: there were only aincursfew software development centers and with very limited

frictions, such as intellectual property rights settlements, isprogramming capabilities.

negatively

To catch up, leading Japanesewide-ranging
brandeddevelopment
as“goingcosts
againstandtheunforeseen
grain”

inindustries adopted many U.S. standards and contracted with

Lindenberghʼs obligation/common- based framework. Linden-some American ﬁrms. They also tried to adapt their successberg （as cited in Rossi） further distinguishes between two

in other industries to the development of software, when large

kinds of intrinsic behavior: a）enjoyment-based, that is, actions

computer manufacturers such as Toshiba, NEC, and others

done for inherent satisfaction ̶ fun and challenge, rather than

explicitly decided to implement the software factory［12,13］

due to pressures and rewards; and b）obligation-based, thoseconcept, i.e., Japanese style quality control into industrial

actions done in the context of intrinsic beneﬁts associated with

software production, as a metaphor emphasizing the need toadherence to social or community norms and codes of ethics.

integrate and standardize good practices and techniques
systematically. This represents the launching of long-term
eﬀorts by Japanese major software producers to industrialize
software production and quality control.

Software Process Improvement in Japan
Inspired by the Japanese focus on quality and process
improvement so successful in other industries in Japan, the U.S.

The Japanese found its comparative advantage inhas pushed for a focus on software process since the mid-to-latedeveloping quality control standards for custom-built software

1980s, based on the premises that（1）the software develop-

to service the domestic market. However, this focus can only

ment process can be deﬁned, managed, measured, and continu-

be found in a small portion of the industry, those large highly

ously improved following statistical control, and（2）the quality

competent software factories. The rest of the industry seemsof the software produced is largely driven by the quality

to be made of small, much less competitive and less mature（maturity）of the process used.

development groups, with an overemphasis on homogeneity

A Capability Maturity Model （CMM） is a reference

and cooperation and adherence to social norms that may havemodel of mature practices in a speciﬁed discipline, used tohindered unique and creative advances in the Japanese

improve and appraise a groupʼs capability to perform thatsoftware development.

For these Japanese corporations

discipline （e.g., software engineering, systems engineering,preserving the secrecy of their processes and adhering tosecurity engineering, people, product development, etc.）. Theinternal business procedures was ﬁrst and foremost.

The

Capability Maturity Model® for Software, or Sw-CMM, is a

predominant mindset of "How can we modify the software to

ﬁve-level model that helps in the evaluation of an organization

ﬁt our operations?" set the tone for developing basic systems

software process maturity.［15］SW-CMM is already in widesoftware as well as custom applications early on in Japan［4］.

practice in Japan with 166 reported appraisals as of September
2005, in third place only to India and the U.S.
19

The Japanese Software Puzzle Revisited
J. L. Díaz-Herrera,† H. Kashihara,†† M. Makabenta-Ikeda†† and T. Nakaguchi†††B. Thomas Golisano College of Computing and Information Sciences
Rochester Institute of Technology
20 Lomb Memorial Dr., Rochester, NY 14623. USA††

School of Applied Information Technology
Kyoto College of Graduate Studies for Informatics
7 Monzen-cho Tanaka Sakyo-ku Kyoto 606-8225. JapanThe so-called "Japanese software puzzle" is revisited by analyzing various factors that aﬀect the state of software development inJapan. International cross-comparisons explain how and why countries like the United States and Japan diﬀer from the perspective of software process improvement. Considering the Japanese market and institutional settings, the costs and incentive mechanisms at work are starkly diﬀerent from those found in the environment that enable the development of global platform products.
However, this did not impede innovation and product development in the Japanese software industry, especially in the ﬂourishingembedded software application business. Discussion of the embedded software developed by the Japanese also explains the close
link with the hardware manufacturers as well as certain institutional characteristics of the Japanese software industry; this route
could give rise to a strong orientation towards a global market.
Keywords: Japanese software industry, software factory, Sw-CMM, CMMI, embedded systems.

1. Introduction

was inspired, in part, by the Japanese continuous

In a recent article, Cusumano ［1］ described the“Japanese software puzzle” that resounded the gong calling thehas not been popular in Japan.

attention of industry observers. Several previous studies［2, 3］（2）Conversely, the Japan introduced concept of industri-have noted the issues surrounding the lack of Japanesealizing the production of software through software

packaged software exports. Apart from the lucrative market

factories （SF） has not found many adepts outside

for animation and games, Japan still holds unrealized potential

Japan, although it has inspired research in productin global software production, with the great majority of thelines particularly in the U.S.

applications being homegrown, one-of-a-kind designs. Ohsuga［2］ pointed at the cultural, organizational, technical, educa-

What can we learn from this dichotomy and otherrelevant aspects of the Japanese software industry?

tional, and research factors that contributed to the late

Ohsuga［2］pointed out socio-cultural factors, including

development of software exports emphasizing the need forthe language capabilities as well as organizational aspects that

improvement in all aspects.

inﬂuence the software engineer psyche and consequently aﬀect

Cusumano further observed that apart from embedded

the utilization of process improvement methods especially insystems and computer games, Japanese software performancetraining, education and research. Aside from the traditional

have been lackluster.

The Japanese software industryʼsculture, which many believe, is a rich source of spin-oﬀs, there

fragmented structure, characterized by incompatible platforms

also exists several manufacturing companies holding strong

provided by major systems integrators, has been cited as one

keiretsu aﬃliations among intermediate manufacturers andof the reasons for its lackluster competitiveness in the global

trading companies with a strong focus on quality in theirmarket ［4］. Nevertheless, there is also a belief that theapproach.

Japanese had special characteristics that have helped them in

Does the observance of these quality control standards

have

and other implicit rules crowd out innovation in the Japanese

performed well in some areas, and it is clear that the quality ofsoftware development market? As Cusumano implies: "...so few

the software they produce is very high, even for Japanʼs low

bugs may suggest an overly rigid style of development and a

CMM-rated companies［6］, and that ad-hoc software develop-

preoccupation with "zero defects" rather than innovation andment is not the norm.

experimentation, at least at the ﬁrms we sampled…" "Creating

softwaredevelopment.

Japanesesoftwareﬁrms

Over the years, there have been several attempts toanalyze the Japanese software industry and to draw compari-18

process improvement experience in manufacturing,bugs is a cultural "no-no" in Japan, but innovative software
always requires some trial and error."［1］.

sons with U.S. standard practices［7,8,9,10,11］. Such analyses

The Japanese may well be risk averse by nature, but weare based on comparing the processes employed, the productﬁnd it diﬃcult to agree with any observation hinting that thestandards in place, the quality of the software generated, theJapanese have not done their share of trial and error on thebusiness approach, etc. Two observations can be made:path towards innovation. Particularly in developing custom-（1）The software process improvement（SPI）movement

built embedded systems, much innovation has been achievedthat has raged in the U.S. since the mid 80s, and thatby software companies collaborating with large manufacturing

companies in the automobile, mobile computing and household

The Keiretsu Eﬀect on Innovationelectronic sectors. If there is anything that can be learned

The institutionalized long-term relationships between

from Japanese “monozukuri” experience, it is the continuous

software and hardware suppliers, i.e., the vertically aﬃliated“kaizen” and trial and error process done systematically, albeit

software developers known as the keiretsu, is said to heavily

perhaps ineﬃciently.

inﬂuence the preference for custom-built software solutions.

It is however true that a diﬀerent kind of mindset may be

These companies succeeded by subcontracting services toneeded to improve on the innovation necessary to enable

smaller companies and applied the traditional “factory

access to the world market for software packages. The conﬂu-

concepts” of the manufacturing sector to computer program-ence of these keiretsu factors and the dominance of large

ming to lift technology standards comparable to those existing

software vendors who dictate the pace of the industry, do not

in Japanese manufacturing.

seem to be conducive to “thinking outside the box.” Inherent

Sangyo Kenkyukai（Software Industry Research Forum）［13］

incentive and risk structures that inﬂuence actions, decisions,, more than half（58%）of software companyʼs project volume

and behavior have crucial economic implications.

As such,is made-to-order from other software companies. The second-

incentives for process improvement implementation are weak;or third-tier contractors rely mostly on orders from the big

the need to develop an environment to cultivate intrinsic

companies contributing to the subcontractorʼs income stability

motivation is therefore crucial.

albeit preventing them from developing original software

Market access depends on the degree of tailoring

According to the Sofutowea

products.

required, availability of bilingual specialists, and the degree ofMarket penetration of traditional Japanese companies,

customer technical familiarity, for which the keiretsu is not thelimited by obligation, community, and a conglomerate-likemost appropriate. However, these large keiretsu holding

keiretsu-based system, is conditional to adherence to group-companies have extensive networks abroad ̶factors that willbased norms, i.e., unwritten and implicit rules. Rossi［14］cites

actually be advantageous to Japanese software companies forthat intrinsic behavior plays an important role in encouraging

overseas ventures.

process improvement or innovative behavior.
For as long as the company philosophy allows individuals

2. A Brief Overview of the Japanese Software
Industry Structure

to challenge norms, innovative behavior is possible. In so doing,
parent ﬁrms absorb transaction costs involved in the innova-

In 1968, when the whole world was pointing out at ation process. Otherwise, engaging in innovative behavior thatmajor crisis, Japan had no software crisis: there were only aincursfew software development centers and with very limited

frictions, such as intellectual property rights settlements, isprogramming capabilities.

negatively

To catch up, leading Japanesewide-ranging
brandeddevelopment
as“goingcosts
againstandtheunforeseen
grain”

inindustries adopted many U.S. standards and contracted with

Lindenberghʼs obligation/common- based framework. Linden-some American ﬁrms. They also tried to adapt their successberg （as cited in Rossi） further distinguishes between two

in other industries to the development of software, when large

kinds of intrinsic behavior: a）enjoyment-based, that is, actions

computer manufacturers such as Toshiba, NEC, and others

done for inherent satisfaction ̶ fun and challenge, rather than

explicitly decided to implement the software factory［12,13］

due to pressures and rewards; and b）obligation-based, thoseconcept, i.e., Japanese style quality control into industrial

actions done in the context of intrinsic beneﬁts associated with

software production, as a metaphor emphasizing the need toadherence to social or community norms and codes of ethics.

integrate and standardize good practices and techniques
systematically. This represents the launching of long-term
eﬀorts by Japanese major software producers to industrialize
software production and quality control.

Software Process Improvement in Japan
Inspired by the Japanese focus on quality and process
improvement so successful in other industries in Japan, the U.S.

The Japanese found its comparative advantage inhas pushed for a focus on software process since the mid-to-latedeveloping quality control standards for custom-built software

1980s, based on the premises that（1）the software develop-

to service the domestic market. However, this focus can only

ment process can be deﬁned, managed, measured, and continu-

be found in a small portion of the industry, those large highly

ously improved following statistical control, and（2）the quality

competent software factories. The rest of the industry seemsof the software produced is largely driven by the quality

to be made of small, much less competitive and less mature（maturity）of the process used.

development groups, with an overemphasis on homogeneity

A Capability Maturity Model （CMM） is a reference

and cooperation and adherence to social norms that may havemodel of mature practices in a speciﬁed discipline, used tohindered unique and creative advances in the Japanese

improve and appraise a groupʼs capability to perform thatsoftware development.

For these Japanese corporations

discipline （e.g., software engineering, systems engineering,preserving the secrecy of their processes and adhering tosecurity engineering, people, product development, etc.）. Theinternal business procedures was ﬁrst and foremost.

The

Capability Maturity Model® for Software, or Sw-CMM, is a

predominant mindset of "How can we modify the software to

ﬁve-level model that helps in the evaluation of an organization

ﬁt our operations?" set the tone for developing basic systems

software process maturity.［15］SW-CMM is already in widesoftware as well as custom applications early on in Japan［4］.

practice in Japan with 166 reported appraisals as of September
2005, in third place only to India and the U.S.
19

The Japanese Software Puzzle Revisitedtion demand in mobile computing and consumer

The Japanese Software Market
The METI recently reported the sales of the IT
services industry from 2000 to 2005（Figure 1）showing
the market scale of the industry in Japan. Japanese total

electronics. Business solutions sectors seem to expand
every year and seem to have bright prospect for future
growth in the global market.

merchandise exports was at 61.2 trillion yen and imports
at 49.2 trillion yen in 2004 .

A newer, more encompassing, process improvement

play a key role when compounded with extending chances forapproach, the Capability Maturity Model Integration（CMMI）,

engineers in user companies to obtain education and training

was designed to help integrate software functions and systems

and support. This is paramount for success. The governmentengineering as well as other built-in organizational functions

is also expected to ensure the protection of intellectual

such as integrated product and process development, andproperty rights and prevention of violations thereof, and to

supplier sourcing.

A de facto standard used extensively

streamline licensing procedures, oversee the improvement andaround the world, CMMI is aimed at boosting a company's

acquisition of skills for software development and facilitate thesoftware development capability in a staged, integrated

establishment of links between the university-research sector

approach. There were Japanese companies assessed as early

and the private sector particularly small and medium scaleas 2002 in the CMMI. As of March 2006, there have been 131

companies.

CMMI appraisals reported in Japan, again falling third after

Source of original data （in Yen）: METI ［22］Figure 2：IT Services Market in Japan （2003）

Figure 1： IT Market Trends in Japan: 1996-2005

This robust ratio, however, is not reﬂected in thesoftware industry where exports continue to lag behind
imports. Software imports in Japan in 2004 totaled 364
billion Yen, while exports totaled 31 billion Yen, i.e., amere one-tenths of total imports .

mirrored in the recent data from JISA showing softwaredevelopment and system integration valued at 71% of

7% share went to the games sector, and only an 11%
share （approx.

742 billion Yen） was attributed tosoftware product sales in 2004. Current rapid developments in ubiquitous and embedded systems show that
this trend will continue, reinforcing the predominance ofthe large vendors such as Fujitsu, Hitachi, NEC, Toshiba
etc., over independent small-to medium-scale software
companies.
Figure 2 illustrates the industrial composition
showing the software sector occupying more than half ofthe entire information services industry. The wholemarket in 2003 was valued at 14.17 trillion yen, with 8.08
trillion yen in revenues accounted for 55% of the whole
IT services. Customized software production accounts
for the lionʼs share（82.2 %）in revenues of the total
software market. Within this sector is the viable market
for embedded systems buttressed by strong consump-

Figure 3：Embedded Systems World Market （2004-2009）

Figure 3 illustrates the robust embedded systems
market trends. METI also reports huge employment
generation beneﬁts derived from the embedded industry
accounting for 9.2% of total employment in all industries.
Furthermore, this large-scale expansion has led toincreased production volume for all related industries
comprising 10.2 % of 500 trillion yen of the total GDP in
2002. The 2005 survey conducted by METI reported
approximately 89,000 corporations involved in the
production of embedded software systems. The total
employment generated was about 4.8 million jobs, and3.6% （175,000） of employed personnel were softwareexperts. This ﬁgure represents a 17% increase from the2004 ﬁgures reported by METI. The increasing numberof experts in the ﬁeld indicates healthy prospects for theindustry, a trend that is expected to continue for several
years.

Data Sources:
Ministry of Economy, Trade and Industry（METI）（2005:1）. Status of Speciﬁc Service Industry Dynamics Statistics, 2005.（In Japanese）.
Japan Information Technology Services Industry Association（JISA）（2005:1）. Statistics of Speciﬁc Service Industry Dynamics
http://www.jisa.or.jp/statistics/download/dotai2004.pdf,2005.（In Japanese）.
Japan Information Technology Services Industry Association（JISA 2005:2）. Status of Overseas Transactions and Employment of Foreigners in Computer
Software Sector
http://www.jisa.or.jp/statistics/download/Findings2005.pdf,2005.（In Japanese）.
JETRO. New York Episode: Embedded System compatibility in the U.S., September 2005.
METI.（2005:2）. Embedded Software Industry Survey Report, 2005.（In Japanese）

20

collaboration between basic researchers and their more applied

make the Japanese edition of CMM in 2001［17］. According tocounterparts, particularly in industrial settings. In Japan, there

results of a survey conducted by the Information-Technology

is a pronounced dichotomy between basic research done by the

Promotion Agency, Japan Software Engineering Center（IPA

university sector, and the more applied research engaged in by

SEC）in June 2005［18］, Japanese software engineers chosethe private sector.

quality control technology as the most important aspect forgovernment for designing and implementing the necessary

improving software quality; system modeling techniques

incentive mechanisms to open the communication lines

ranked second, while testing and evaluation techniques ranked

between these two sectors. This is notably vital in pushing

third.

Software process improvement （SPI） technology

R&D and innovation within organizations situated in an

ranked ninth ̶same as software development tool technology,

unfettered environment; in stimulating intrinsic motivation

while software process assessment（SPA）,ranked 11th.

particularly among students; and, in encouraging the formation

software process improvement or assessment. These results

Japanʼs software industryʼs domestic revenues. This isregistered an 82% bulk share of software sales, while aU.S., there is virtually nothing that hinders exchange andA vital step needs to be taken by theand operation of venture start-ups.

emphasis on adherence to quality assurance standards overindicates that exports comprise one-three hundredths oftotal software revenues in 2004. Customized software

Despite these encouraging data, the Japanese software
engineering community has resisted attempts by the METI to

As we can see, Japanese software engineers put more

The JISA report

One of the main diﬀerences between the U.S. and Japanlies in the institutional setting for education and R&D. In the

India and the U.S.［16］Challenges

may partly explain why in spite of the capability of Japanese to

As the demand for embedded systems increases （seeproduce high-quality software products, the number of compa-

sidebar article “The Japanese Software Market”）, the perfor-

nies that have reached level ﬁve of CMM are still very few. It

mance, functional, and quality requirements also become more

will not be long, however, before this trend changes as thesevere. Test and veriﬁcation techniques covering both of thegovernment is focused on setting up incentive programs tohardware and software are still insuﬃcient, and may notfurther increase the number of Japanese companies to get

scale-up.

CMM certiﬁcation.［19］, and, more importantly, the Japanesephones is said to be more than 1 million.［20］government plans to require CMMI certiﬁcation for companies
participating in the e-government Japan project.

For example, the number of lines of code in cell

An additional problem is the lack of highly skilled humanresources. The characteristics of embedded systems development are starkly diﬀerent from those of conventional systems

3. Trends in the Japanese Software Market
As many believe that neither the large software vendor

and presently, there is a great unmet demand for specialists
with professional education and qualiﬁcations.

nor the independent software company can ignore the path

A third problem is the inadequacy of development tools.

towards developing global products any longer, we are of the

There is a need to encourage university researchers to get

opinion that the key to the puzzle lies in updating or modifying

engaged in the development of tools for embedded systems inincentive structures.

conjunction with more applied industrial researchers.

At the industry-level, re-examination of the vendor

A fourth problem is the lack of concerted eﬀorts acrossevaluation system is needed, and the standardization ofindustries towards formulating standards particularly inproposal documents is on hand.

The Software Industry

software architectures. In this respect, there have been someResearch Forum prescribed more concrete solutions at theisolated activities coming from the automotive industry which

industry and government levels as well as for the vendor andhave began standardization eﬀorts in layering software.

user companies. For the vendor company, the need to change

However, the introduction of a deﬁnite real-time operating

business models and to acquire intellectual property rights for

system（RT-OS）has not yet been obtained［21, 22］. Further-talented human resources with superior capabilities is empha-

more, the path towards standardization and the development

sized.

User companies, on the other hand, need to utilizeof open source software, which seems to be the trend in thesoftware packages and to reexamine procurement and acquisi-

global arena, has not taken place, and has been largely avoided

tion norms.

by the Japanese.

As for the government, there is a need to enforce educa-

To address these problems, university researchers aretion connected with the Skill Standards for IT Professionals

conducting several projects with collaboration from the private（ITSS）. Universities and graduate professional schools, would

sector and the government.

The "ITRON Project" aims to
21

The Japanese Software Puzzle Revisitedtion demand in mobile computing and consumer

The Japanese Software Market
The METI recently reported the sales of the IT
services industry from 2000 to 2005（Figure 1）showing
the market scale of the industry in Japan. Japanese total

electronics. Business solutions sectors seem to expand
every year and seem to have bright prospect for future
growth in the global market.

merchandise exports was at 61.2 trillion yen and imports
at 49.2 trillion yen in 2004 .

A newer, more encompassing, process improvement

play a key role when compounded with extending chances forapproach, the Capability Maturity Model Integration（CMMI）,

engineers in user companies to obtain education and training

was designed to help integrate software functions and systems

and support. This is paramount for success. The governmentengineering as well as other built-in organizational functions

is also expected to ensure the protection of intellectual

such as integrated product and process development, andproperty rights and prevention of violations thereof, and to

supplier sourcing.

A de facto standard used extensively

streamline licensing procedures, oversee the improvement andaround the world, CMMI is aimed at boosting a company's

acquisition of skills for software development and facilitate thesoftware development capability in a staged, integrated

establishment of links between the university-research sector

approach. There were Japanese companies assessed as early

and the private sector particularly small and medium scaleas 2002 in the CMMI. As of March 2006, there have been 131

companies.

CMMI appraisals reported in Japan, again falling third after

Source of original data （in Yen）: METI ［22］Figure 2：IT Services Market in Japan （2003）

Figure 1： IT Market Trends in Japan: 1996-2005

This robust ratio, however, is not reﬂected in thesoftware industry where exports continue to lag behind
imports. Software imports in Japan in 2004 totaled 364
billion Yen, while exports totaled 31 billion Yen, i.e., amere one-tenths of total imports .

mirrored in the recent data from JISA showing softwaredevelopment and system integration valued at 71% of

7% share went to the games sector, and only an 11%
share （approx.

742 billion Yen） was attributed tosoftware product sales in 2004. Current rapid developments in ubiquitous and embedded systems show that
this trend will continue, reinforcing the predominance ofthe large vendors such as Fujitsu, Hitachi, NEC, Toshiba
etc., over independent small-to medium-scale software
companies.
Figure 2 illustrates the industrial composition
showing the software sector occupying more than half ofthe entire information services industry. The wholemarket in 2003 was valued at 14.17 trillion yen, with 8.08
trillion yen in revenues accounted for 55% of the whole
IT services. Customized software production accounts
for the lionʼs share（82.2 %）in revenues of the total
software market. Within this sector is the viable market
for embedded systems buttressed by strong consump-

Figure 3：Embedded Systems World Market （2004-2009）

Figure 3 illustrates the robust embedded systems
market trends. METI also reports huge employment
generation beneﬁts derived from the embedded industry
accounting for 9.2% of total employment in all industries.
Furthermore, this large-scale expansion has led toincreased production volume for all related industries
comprising 10.2 % of 500 trillion yen of the total GDP in
2002. The 2005 survey conducted by METI reported
approximately 89,000 corporations involved in the
production of embedded software systems. The total
employment generated was about 4.8 million jobs, and3.6% （175,000） of employed personnel were softwareexperts. This ﬁgure represents a 17% increase from the2004 ﬁgures reported by METI. The increasing numberof experts in the ﬁeld indicates healthy prospects for theindustry, a trend that is expected to continue for several
years.

Data Sources:
Ministry of Economy, Trade and Industry（METI）（2005:1）. Status of Speciﬁc Service Industry Dynamics Statistics, 2005.（In Japanese）.
Japan Information Technology Services Industry Association（JISA）（2005:1）. Statistics of Speciﬁc Service Industry Dynamics
http://www.jisa.or.jp/statistics/download/dotai2004.pdf,2005.（In Japanese）.
Japan Information Technology Services Industry Association（JISA 2005:2）. Status of Overseas Transactions and Employment of Foreigners in Computer
Software Sector
http://www.jisa.or.jp/statistics/download/Findings2005.pdf,2005.（In Japanese）.
JETRO. New York Episode: Embedded System compatibility in the U.S., September 2005.
METI.（2005:2）. Embedded Software Industry Survey Report, 2005.（In Japanese）

20

collaboration between basic researchers and their more applied

make the Japanese edition of CMM in 2001［17］. According tocounterparts, particularly in industrial settings. In Japan, there

results of a survey conducted by the Information-Technology

is a pronounced dichotomy between basic research done by the

Promotion Agency, Japan Software Engineering Center（IPA

university sector, and the more applied research engaged in by

SEC）in June 2005［18］, Japanese software engineers chosethe private sector.

quality control technology as the most important aspect forgovernment for designing and implementing the necessary

improving software quality; system modeling techniques

incentive mechanisms to open the communication lines

ranked second, while testing and evaluation techniques ranked

between these two sectors. This is notably vital in pushing

third.

Software process improvement （SPI） technology

R&D and innovation within organizations situated in an

ranked ninth ̶same as software development tool technology,

unfettered environment; in stimulating intrinsic motivation

while software process assessment（SPA）,ranked 11th.

particularly among students; and, in encouraging the formation

software process improvement or assessment. These results

Japanʼs software industryʼs domestic revenues. This isregistered an 82% bulk share of software sales, while aU.S., there is virtually nothing that hinders exchange andA vital step needs to be taken by theand operation of venture start-ups.

emphasis on adherence to quality assurance standards overindicates that exports comprise one-three hundredths oftotal software revenues in 2004. Customized software

Despite these encouraging data, the Japanese software
engineering community has resisted attempts by the METI to

As we can see, Japanese software engineers put more

The JISA report

One of the main diﬀerences between the U.S. and Japanlies in the institutional setting for education and R&D. In the

India and the U.S.［16］Challenges

may partly explain why in spite of the capability of Japanese to

As the demand for embedded systems increases （seeproduce high-quality software products, the number of compa-

sidebar article “The Japanese Software Market”）, the perfor-

nies that have reached level ﬁve of CMM are still very few. It

mance, functional, and quality requirements also become more

will not be long, however, before this trend changes as thesevere. Test and veriﬁcation techniques covering both of thegovernment is focused on setting up incentive programs tohardware and software are still insuﬃcient, and may notfurther increase the number of Japanese companies to get

scale-up.

CMM certiﬁcation.［19］, and, more importantly, the Japanesephones is said to be more than 1 million.［20］government plans to require CMMI certiﬁcation for companies
participating in the e-government Japan project.

For example, the number of lines of code in cell

An additional problem is the lack of highly skilled humanresources. The characteristics of embedded systems development are starkly diﬀerent from those of conventional systems

3. Trends in the Japanese Software Market
As many believe that neither the large software vendor

and presently, there is a great unmet demand for specialists
with professional education and qualiﬁcations.

nor the independent software company can ignore the path

A third problem is the inadequacy of development tools.

towards developing global products any longer, we are of the

There is a need to encourage university researchers to get

opinion that the key to the puzzle lies in updating or modifying

engaged in the development of tools for embedded systems inincentive structures.

conjunction with more applied industrial researchers.

At the industry-level, re-examination of the vendor

A fourth problem is the lack of concerted eﬀorts acrossevaluation system is needed, and the standardization ofindustries towards formulating standards particularly inproposal documents is on hand.

The Software Industry

software architectures. In this respect, there have been someResearch Forum prescribed more concrete solutions at theisolated activities coming from the automotive industry which

industry and government levels as well as for the vendor andhave began standardization eﬀorts in layering software.

user companies. For the vendor company, the need to change

However, the introduction of a deﬁnite real-time operating

business models and to acquire intellectual property rights for

system（RT-OS）has not yet been obtained［21, 22］. Further-talented human resources with superior capabilities is empha-

more, the path towards standardization and the development

sized.

User companies, on the other hand, need to utilizeof open source software, which seems to be the trend in thesoftware packages and to reexamine procurement and acquisi-

global arena, has not taken place, and has been largely avoided

tion norms.

by the Japanese.

As for the government, there is a need to enforce educa-

To address these problems, university researchers aretion connected with the Skill Standards for IT Professionals

conducting several projects with collaboration from the private（ITSS）. Universities and graduate professional schools, would

sector and the government.

The "ITRON Project" aims to
21

The Japanese Software Puzzle Revisited

create standards for RT-OS used in embedded systems and fordevelopment collaborated in working out the ETSS（Embedded

related applications. More recently in late 2003, the Toyohashi

Technology Skill Standards）which embodies “the cultivationOpenand utilization of skilled human resources” in the ﬁeld of the

Platformfor

Embedded

Real-time

Systemsor（TOPPERS） and the Empirical Approach to Software
Engineering or （EASE） projects ［ , 10］ were initiated topromote the development of embedded systems by releasing
quality open source software. These projects include R&D,
veriﬁcation/validation of speciﬁcations, and OS development
and publishing.

embedded software development and guidelines for “theeﬃcient labor utilization” in 2005.［24］Finally, as China is poised to produce much of thesoftware consumed in Japan （60% of Chinaʼs production in2004）the question now becomes how skilled is the Chinese
software development workforce? China leads competitors such
as India in terms of basic indicators like concentration of

4. Conclusions
The discussion in this paper indicates widespread expectations for higher competitiveness in the Japanese software
industry and for a market that is expected to improve with acustomized software niche as a major market driver in the next
few years. It is clear that Japanʼs software has little, if any,
international reach, with the great majority of the applications
being homegrown, one-of-a-kind designs. Following its tradition
with other industries, the Japanese software producers emphasized quality ﬁrst. This included two important aspects:（A）researchers,

proportionoftertiary

students

in

STEM

disciplines, and literacy rate［25］. Also, a higher proportion ofChinese engineers trained abroad are returning to China（e.g.,
75% of U.S. Chinese graduates are expected back compared to
25% a few years ago）. China is aggressively trying to achieve
higher levels of international quality certiﬁcation by, forexample, providing incentives for software ﬁrms to attain CMM
level 3 or higher. This remains the subject of our continued
investigations.

strategic management and integration of activities required todevelop software; and, （B） planned economies of scope （socalled software factories）.
The very signiﬁcant eﬀorts by the Japanese government
in implementing the e-Japan Plan in 2001̶ primarily aimed atelevating Japanʼs infrastructure to world standards ̶were

References

rewarded with heightened user awareness and increased［1］ Cusumano, M. The Puzzle of Japanese Software, Communications of the ACM, Vol.48, No.7, 2005: 25-27.
［2］ Ohsuga, S. Problems of Software Development in Japan,
Journal of the Information Processing Society of Japan,
Vol.38, No.8, August 1997:669-681.（In Japanese）［3］ Anchordoguy, M. Japan s Software Industry: A Failure of
Institutions? Research Policy, Vol.29, No.3, p.391-408,
2000.
［4］ Hagiu, A.（2005） Perspectives on the Japanese Software
Industry: Fragmentation, Modularity and Upcoming Challenges. Digital Convergence Forum Column（12 January2005）. Research Institute of Economy, Trade and Industry.
http://www.rieti.go.jp/users/andrei-hagiu/forum/columns/
002.html［5］ Matsubara, T. Japan: A Huge IT Consumption Market,
IEEE Software, Sept/Oct 2001: 77-80.
［6］ Humphrey, W.S., Kitson, D.H., and J.Gale. A Comparison of
US and Japanese Software Process Maturity. Proceedingsof the 13th International Conference on Software Engineering, pages 38-49, 1991.
［7］ Yasuda, K. and Yamada, S. The Concept and Practice ofSoftware Quality Assurance in Japan in the Global Era.
Proceedings of the IEEE 7th International Symposium on
High Assurance Systems Engineering（HASE 02）. 2002.
［8］ Duvall, L.M. A Study of Software Management: The Stateof Practice in the United States and Japan, Journal of Systems Software, Vol.31, No.2, 1995:109-124.
［9］ Katsuro, I.and A.Mikio. A Status Report on Research andDevelopment of Software Process in Japan, Software
Process Newsletter, No.1, 1994.
［10］Tajima, D. and T.Matsubara. Inside the Japanese Software
Industry, IEEE Computer, March 1984:34-43.
［11］Isoda, I.and M.Saeki. Software Engineering in Asia, IEEE
Software, November, 1994: 63-68.
［12］Cusumano, M.A. Japan s Software Factories. Oxford University Press. 1991.

Internet penetration rates.

This also set the stage for thee-Japan acceleration package aimed at making Japan among thecountries with cutting-edge IT technology in 2005. As e-Japan
succeeded in these aspects, it virtually set up the crucial
incentive structures needed to promote embedded systemdevelopment. Having fulﬁlled e-Japanʼs initial goals, the government engineered a shift in the focus of developing the IT
industry towards the so-called ubiquitous society.
The Ministry of Public Management, Home Aﬀairs, Posts
and Telecommunications worked out the u-Japan package,
which aims at “leading the world as the cutting-edge ICT state”
by 2010. The keywords of the u-Japan package are the “4 Uʼs”:
Ubiquitous, Universal, User-oriented, and Unique.［24］ With
these planned developments and strengthened links between
the private sector, the university and the government, Japan is
expected to concentrate on strengthening the embedded
system market through increased standardization as well as
human resource development through training. The concerted
eﬀorts not only from the government, but also from the universities and from the private sector, will further stimulate innovation in embedded systems and enhance value added of theautomobile, mobile computing and consumer electronics
industries not only for the Japanese market but for the global
market as well.
The government has also started extensive eﬀorts inconnection with the standardization in embedded systems
production. The Information Technology Promotion Agency,
Japan, the Software Engineering Center, the METI and thePower Reinforcement Task Force for the embedded software

22［13］Software Industry Research Forum.
Competitiveness ofSoftware Business. Chuo Keizaisha, 2005.（In Japanen）［14］Rossi, M.A.（ 2004）.
Decoding theFree/Open Source（F/OSS） Software Puzzle : A survey of the theoretical andempirical contributions. Available online:
http://opensource.mit.edu/papers/rossi.pdf.
［15］Paulk, M.C., Curtis, B., Chrisis, M.B., and C.V.Weber.
Capability Maturity Model, Version 1.1, IEEE Software, Vol.10, No
4, July 1993:18-27.
［16］http://www.sei.cmu.edu/appraisal-program/proﬁle/about.html［17］http://www.sea.jp/SPIN/Reports/
SPIN̲J-CMM̲discussionBy20010817.PDF.（In Japanen）［18］http://sec.ipa.go.jp/event/20050629.php［19］http://www.sea.jp/SPIN/Reports/Final̲Summary̲of̲J-CMM̲Comment̲from̲SEA- SPIN̲ML.PDF（In Japanen）［20］Keitai Denwa no Step suu Number of Steps for Mobile Phones.
http://www.windriver.com/japan/mail̲magazine/vol̲1/one̲point.html（In Japanen）［21］Shin.S. Sofutowea no hyoujunka katsudou to shisutemu riron,Standardization Activity on Software and System Theory. .
System/Control/Information Journal of the Institute of Systems,
Control and Information Engineers, Vol.49 No.7, pp.254-259,
2005. （In Japanen）［22］ Lack of Embedded systems engineers .
http://www.atmarkit.co.jp/ﬂinux/embedded/qtrend2005/qtrend
01.html（In Japanen）［23］http://www.empirical.jp/top.html［24］Information and Communications in Japan: Building a Ubiquitous
Network Society that Spreads throughout the World. （White
Paper 2004）. http://www.soumu.go.jp/english/index.html.
［25］Kshetri, N. Structural Shifts in the Chinese Software Industry.
IEEE Software, July/August 2005:86-93.

23

The Japanese Software Puzzle Revisited

create standards for RT-OS used in embedded systems and fordevelopment collaborated in working out the ETSS（Embedded

related applications. More recently in late 2003, the Toyohashi

Technology Skill Standards）which embodies “the cultivationOpenand utilization of skilled human resources” in the ﬁeld of the

Platformfor

Embedded

Real-time

Systemsor（TOPPERS） and the Empirical Approach to Software
Engineering or （EASE） projects ［ , 10］ were initiated topromote the development of embedded systems by releasing
quality open source software. These projects include R&D,
veriﬁcation/validation of speciﬁcations, and OS development
and publishing.

embedded software development and guidelines for “theeﬃcient labor utilization” in 2005.［24］Finally, as China is poised to produce much of thesoftware consumed in Japan （60% of Chinaʼs production in2004）the question now becomes how skilled is the Chinese
software development workforce? China leads competitors such
as India in terms of basic indicators like concentration of

4. Conclusions
The discussion in this paper indicates widespread expectations for higher competitiveness in the Japanese software
industry and for a market that is expected to improve with acustomized software niche as a major market driver in the next
few years. It is clear that Japanʼs software has little, if any,
international reach, with the great majority of the applications
being homegrown, one-of-a-kind designs. Following its tradition
with other industries, the Japanese software producers emphasized quality ﬁrst. This included two important aspects:（A）researchers,

proportionoftertiary

students

in

STEM

disciplines, and literacy rate［25］. Also, a higher proportion ofChinese engineers trained abroad are returning to China（e.g.,
75% of U.S. Chinese graduates are expected back compared to
25% a few years ago）. China is aggressively trying to achieve
higher levels of international quality certiﬁcation by, forexample, providing incentives for software ﬁrms to attain CMM
level 3 or higher. This remains the subject of our continued
investigations.

strategic management and integration of activities required todevelop software; and, （B） planned economies of scope （socalled software factories）.
The very signiﬁcant eﬀorts by the Japanese government
in implementing the e-Japan Plan in 2001̶ primarily aimed atelevating Japanʼs infrastructure to world standards ̶were

References

rewarded with heightened user awareness and increased［1］ Cusumano, M. The Puzzle of Japanese Software, Communications of the ACM, Vol.48, No.7, 2005: 25-27.
［2］ Ohsuga, S. Problems of Software Development in Japan,
Journal of the Information Processing Society of Japan,
Vol.38, No.8, August 1997:669-681.（In Japanese）［3］ Anchordoguy, M. Japan s Software Industry: A Failure of
Institutions? Research Policy, Vol.29, No.3, p.391-408,
2000.
［4］ Hagiu, A.（2005） Perspectives on the Japanese Software
Industry: Fragmentation, Modularity and Upcoming Challenges. Digital Convergence Forum Column（12 January2005）. Research Institute of Economy, Trade and Industry.
http://www.rieti.go.jp/users/andrei-hagiu/forum/columns/
002.html［5］ Matsubara, T. Japan: A Huge IT Consumption Market,
IEEE Software, Sept/Oct 2001: 77-80.
［6］ Humphrey, W.S., Kitson, D.H., and J.Gale. A Comparison of
US and Japanese Software Process Maturity. Proceedingsof the 13th International Conference on Software Engineering, pages 38-49, 1991.
［7］ Yasuda, K. and Yamada, S. The Concept and Practice ofSoftware Quality Assurance in Japan in the Global Era.
Proceedings of the IEEE 7th International Symposium on
High Assurance Systems Engineering（HASE 02）. 2002.
［8］ Duvall, L.M. A Study of Software Management: The Stateof Practice in the United States and Japan, Journal of Systems Software, Vol.31, No.2, 1995:109-124.
［9］ Katsuro, I.and A.Mikio. A Status Report on Research andDevelopment of Software Process in Japan, Software
Process Newsletter, No.1, 1994.
［10］Tajima, D. and T.Matsubara. Inside the Japanese Software
Industry, IEEE Computer, March 1984:34-43.
［11］Isoda, I.and M.Saeki. Software Engineering in Asia, IEEE
Software, November, 1994: 63-68.
［12］Cusumano, M.A. Japan s Software Factories. Oxford University Press. 1991.

Internet penetration rates.

This also set the stage for thee-Japan acceleration package aimed at making Japan among thecountries with cutting-edge IT technology in 2005. As e-Japan
succeeded in these aspects, it virtually set up the crucial
incentive structures needed to promote embedded systemdevelopment. Having fulﬁlled e-Japanʼs initial goals, the government engineered a shift in the focus of developing the IT
industry towards the so-called ubiquitous society.
The Ministry of Public Management, Home Aﬀairs, Posts
and Telecommunications worked out the u-Japan package,
which aims at “leading the world as the cutting-edge ICT state”
by 2010. The keywords of the u-Japan package are the “4 Uʼs”:
Ubiquitous, Universal, User-oriented, and Unique.［24］ With
these planned developments and strengthened links between
the private sector, the university and the government, Japan is
expected to concentrate on strengthening the embedded
system market through increased standardization as well as
human resource development through training. The concerted
eﬀorts not only from the government, but also from the universities and from the private sector, will further stimulate innovation in embedded systems and enhance value added of theautomobile, mobile computing and consumer electronics
industries not only for the Japanese market but for the global
market as well.
The government has also started extensive eﬀorts inconnection with the standardization in embedded systems
production. The Information Technology Promotion Agency,
Japan, the Software Engineering Center, the METI and thePower Reinforcement Task Force for the embedded software

22［13］Software Industry Research Forum.
Competitiveness ofSoftware Business. Chuo Keizaisha, 2005.（In Japanen）［14］Rossi, M.A.（ 2004）.
Decoding theFree/Open Source（F/OSS） Software Puzzle : A survey of the theoretical andempirical contributions. Available online:
http://opensource.mit.edu/papers/rossi.pdf.
［15］Paulk, M.C., Curtis, B., Chrisis, M.B., and C.V.Weber.
Capability Maturity Model, Version 1.1, IEEE Software, Vol.10, No
4, July 1993:18-27.
［16］http://www.sei.cmu.edu/appraisal-program/proﬁle/about.html［17］http://www.sea.jp/SPIN/Reports/
SPIN̲J-CMM̲discussionBy20010817.PDF.（In Japanen）［18］http://sec.ipa.go.jp/event/20050629.php［19］http://www.sea.jp/SPIN/Reports/Final̲Summary̲of̲J-CMM̲Comment̲from̲SEA- SPIN̲ML.PDF（In Japanen）［20］Keitai Denwa no Step suu Number of Steps for Mobile Phones.
http://www.windriver.com/japan/mail̲magazine/vol̲1/one̲point.html（In Japanen）［21］Shin.S. Sofutowea no hyoujunka katsudou to shisutemu riron,Standardization Activity on Software and System Theory. .
System/Control/Information Journal of the Institute of Systems,
Control and Information Engineers, Vol.49 No.7, pp.254-259,
2005. （In Japanen）［22］ Lack of Embedded systems engineers .
http://www.atmarkit.co.jp/ﬂinux/embedded/qtrend2005/qtrend
01.html（In Japanen）［23］http://www.empirical.jp/top.html［24］Information and Communications in Japan: Building a Ubiquitous
Network Society that Spreads throughout the World. （White
Paper 2004）. http://www.soumu.go.jp/english/index.html.
［25］Kshetri, N. Structural Shifts in the Chinese Software Industry.
IEEE Software, July/August 2005:86-93.

23