Think back to the business world in the 1980s. Many business professionals and academics placed great emphasis on the organizational capabilities of Japanese firms, such as just-in-time (JIT), kaizen (continuous improvement), and keiretsu (longstanding supplier relations). In 1989, the world’s top companies by market capitalization were Japanese.
However, after the bubble economy bust in the early 1990s, the assessment of Japanese firms changed entirely. It became clear that their organizational capabilities were largely geared toward operational efficiency, making them vulnerable to imitation by Western rivals. Many strategic scholars warned that Japanese firms, trapped by traditional capabilities, were losing their competitive advantage.
Since then, many Japanese firms have sought to transform their strategies and capabilities by adopting Western market-based strategies. But did this lead to a successful recovery of their global competitiveness? The evidence suggests not. As of 2025, not a single Japanese company ranks among the world’s top ten by market capitalization.
Notably, Toyota is the only Japanese company to remain in the global top 50 by market capitalization as of 2025. Paradoxically, the firm has consistently upheld its core capabilities, such as JIT, kaizen, and keiretsu. How could Toyota maintain a competitive advantage even though it adhered to its core capabilities in an increasingly competitive environment? My recently published article in the Strategic Management Journal attempts to answer this question through the lens of dynamic capabilities.
This study focused on the competitive dynamics of the automotive industry centered around modularization in the 1990s and 2000s. In the 1990s, Western companies sequentially adopted modularization strategies, aiming to drastically reduce costs through suppliers. Following its alliance with Renault in 1999, Nissan swiftly aligned itself with this trend by introducing Western market-based modularization. This resulted in the dismantling of Nissan keiretsu.
Recognizing a decline in its global cost competitiveness, Toyota also adapted its strategy to incorporate more market-driven mechanisms. At the same time, the company prioritized instilling its historical values, such as “respect” and “kaizen,” among its global employees. This approach enabled Toyota to transcend mere imitation of Western modularization, allowing it to preserve the idiosyncrasies of its core capabilities, including long-term trustful relationships with suppliers, for example.
Toyota’s managers leveraged historical values as guiding philosophies rather than rigid strategic elements. This provided conceptual flexibility for employees to embrace new strategies while maintaining a focus on existing core capabilities. More specifically, these values were integrated into the processes of strategic diagnosis, choice, and action —mapping onto sensing, seizing, and transforming, respectively — thereby strengthening the micro foundations of the firm’s dynamic capabilities.
The current environment of rapid technological change and pervasive digitalization has made companies increasingly sensitive to rivals’ strategies and products. In this context, it is becoming crucial for firms not only to adapt to competitive pressures but also to resist the drive toward imitation and preserve their organizational idiosyncrasies.
This raises a critical question: Does the mere adoption of DX and AI in imitation of competitors truly yield a sustainable advantage? Toyota’s strategic use of historical values to safeguard its distinctiveness offers profound insights for contemporary corporations navigating the digital age.
Katsuki Aoki is a professor of management at the School of Business Administration, Meiji University, Japan. He earned his Ph.D. from Meiji University. His research focuses on innovation—specifically its enabling mechanisms and capabilities—as well as supplier relations and global strategy. Aoki places particular emphasis on organizational capabilities for managing continuous improvement (kaizen) and longstanding supplier relations (keiretsu).
